##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 20-F
 
 ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 Commission file number 333-128780
 NCL Corporation Ltd.
 (Exact name of registrant as specified in its charter)
 Bermuda
(Jurisdiction of incorporation or organization)
 
 7665 Corporate Center Drive
Miami, Florida 33126
(305) 436-4000
(Address of principal executive offices)
 
 Securities registered or to be registered pursuant to Section 12(b) of the Act.
 Securities registered or to be registered pursuant to Section 12(g) of the Act.
 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
 Title of Class
 Indicate the number of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report:
 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
 o x
 If this report is an annual or transition report, indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.
 o x
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
 x o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
 o o x
 Indicate by check mark which financial statement item the registrant has elected to follow:
 o x
 If this is an annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act):
 o x




---



##### 



Table of Contents
 PageItem 1.
    
    Identity of Directors, Senior Management and Advisers
    
    
    3Item 2.
    
    Offer Statistics and Expected Timetable
    
    
    3Item 3.
    
    Key Information
    
    
    3Item 4.
    
    Information on the Company
    
    
    13Item 4A.
    
    Unresolved Staff Comments
    
    
    30Item 5.
    
    Operating and Financial Review and Prospects
    
    
    31Item 6.
    
    Directors, Senior Management and Employees
    
    
    45Item 7.
    
    Major Shareholders and Related Party Transactions
    
    
    50Item 8.
    
    Financial Information
    
    
    52Item 9.
    

Offer and Listing Details
    
    
    54Item 10.
    
    Additional Information
    
    
    54Item 11.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    59Item 12.
    
    Description of Securities Other than Equity Securities
    
    
    59Item 13.
    
    Defaults, Dividend Arrearages and Delinquencies
    
    
    60Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    60Item 15.
    
    Controls and Procedures
    
    
    60Item 16.
    
    Reserved
    
    
    60Item 16A.
    
    Audit Committee Financial Expert
    
    
    60Item 16B.
    
    Code of Ethics
    
    
    60Item 16C.
    
    Principal Accountant Fees and Services
    
    
    61Item 16D.
    
    Exemptions from Listing Standards for Audit Committees
    
    
    61Item 16E.
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    61Item 17.
    
    Financial Statements
    
    
    62Item 18.
    
    Financial Statements
    
    
    62Item 19.
    
    Exhibits
    
    
    62Glossary
    
    
    63EX-4.25 Sixth Supplemental Deed/Norwegian DawnEX-4.26 Third Supplemental Deed/Norwegian SunEX-4.27 Seventh Supplemental Deed/Pride of AmericaEX-4.28 Second Supplemental Deed - Nov 13, 2006EX-4.29 First Supplemental Deed - Nov. 13, 2006EX-4.30 Second Supplemental Deed - April 4, 2006EX-4.31 Third Supplemental Deed/Pride of Hawai'iEX-4.32 First Supplemental Deed Revolving Loan FacilityEX-4.33 Syndicate Loan Facility/Hull C33EX-4.34 Syndicate Loan Facility/Hull D33EX-4.35 Revolving Credit FacilityEX-4.36 Amendment AgreementEX-4.37 Addendum No. 1/Crown Wind LimitedEX-4.38 Addendum No. 1/Ocean Dream LimitedEX-4.39 Addendum No. 1/Ocean Voyager LimitedEX-4.40 Addendum No. 4,5 & 6/Pride of AmericaEX-4.41 Addendum 3/Pride of Hawai'iEX-4.42 Addendum No. 1/ Norwegian PearlEX-4.43 Shipbuilding Contract for Hull No. C33EX-4.44 Shipbuilding Contract for Hull No. D33EX-4.45 Side Letter AgreementEX-4.46 Office Lease AgreementEX-12.1 Section 302 Certification of CEOEX-12.2 Section 302 Certification of CFOEX-13.1 Section 906 Certification of CEO & CFO




---



##### Table of Contents



Forward Looking Statements
  
    
    changes in cruise capacity, as well as capacity changes in the overall vacation industry;
    
    introduction of competing itineraries and other products by other companies;
    
    changes in general economic, business and geo-political conditions;
    
    reduced consumer demand for cruises as a result of any number of reasons, including
armed conflict, terrorist attacks, geo-political and economic uncertainties or the
unavailability of air service, and the resulting concerns over the safety and security
aspects of traveling;
    
    lack of acceptance of new itineraries, products or services by our targeted customers;
    
    our ability to implement brand strategies and our shipbuilding programs, and to
continue to expand our business worldwide;
    
    costs of new initiatives, including those involving our inter-island Hawaii cruise operations;
    
    changes in interest rates, fuel costs, or foreign currency rates;
    
    delivery schedules of new ships;
    
    risks associated with operating internationally;
    
    impact of the spread of contagious diseases;
    
    accidents and other incidents affecting the health, safety, security and vacation
satisfaction of passengers and causing damage to ships, which could cause the modification
of itineraries or cancellation of a cruise or series of cruises;
    
    our ability to attract and retain qualified shipboard crew and maintain good relations
with employee unions;
 1




---



##### Table of Contents




    
    changes in other operating costs such as crew, insurance and security costs;
    
    continued availability of attractive port destinations;
    
    the impact of pending or threatened litigation;
    
    the ability to obtain financing on terms that are favorable or consistent with our expectations;
    
    changes involving the tax, environmental, health, safety, security and other regulatory
regimes in which we operate;
    
    emergency ship repairs;
    
    the implementation of regulations in the U.S. requiring U.S. citizens to obtain
passports for travel to additional foreign destinations; and
    
    weather and natural disasters.
  Industry and market data
  2




---



##### Table of Contents



PART I
 
 Item 1. Identity of Directors, Senior Management and Advisers
  
 Item 2. Offer Statistics and Expected Timetable
  
 Item 3. Key Information
 Selected Financial Data
  Summary of
Significant Accounting Policies Change in Accounting for Dry-docking Costs
 Years ended December 31,(Dollars in thousands)
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006Income statement dataRevenues:Passenger ticket revenues
    
    $
    896,847
    
    
    $
    976,124
    
    
    $
    990,758
    
    
    $
    1,194,461
    
    
    $
    1,438,996Onboard and other revenues
    
    
    281,698
    
    
    
    321,909
    
    
    
    353,238
    
    
    
    435,262
    
    
    
    537,313Total revenues
    
    
    1,178,545
    
    
    
    1,298,033
    
    
    
    1,343,996
    
    
    
    1,629,723
    
    
    
    1,976,309Cruise operating expenses:Commissions, transportation and other
    
    
    242,921
    
    
    
    292,453
    
    
    
    257,947
    
    
    
    328,899
    
    
    
    425,648Onboard and other
    
    
    109,887
    
    
    
    112,942
    
    
    
    120,250
    
    
    
    141,957
    
    
    
    186,240Payroll and related
    
    
    179,045
    
    
    
    204,365
    
    
    
    243,355
    
    
    
    323,621
    
    
    
    412,943Fuel
    
    
    62,681
    
    
    
    77,088
    
    
    
    78,013
    
    
    
    119,412
    
    
    
    164,530Food
    
    
    75,358
    
    
    
    79,154
    
    
    
    81,448
    
    
    
    94,105
    
    
    
    102,324Ship charter costs
    
    
    
    
    
    
    
    
    
    
    22,046
    
    
    
    28,603
    
    
    
    26,226Other operating (1)
    
    
    160,457
    
    
    
    191,384
    
    
    
    204,030
    
    
    
    211,929
    
    
    
    249,471Total cruise operating expenses
    
    
    830,349
    
    
    
    957,386
    
    
    
    1,007,089
    
    
    
    1,248,526
    
    
    
    1,567,382Marketing, general and administrative
expenses
    
    
    178,704
    
    
    
    186,923
    
    
    
    204,560
    
    
    
    225,240
    
    
    
    249,250Depreciation and
amortization expenses (1)
    
    
    83,187
    
    
    
    95,765
    
    
    
    76,937
    
    
    
    85,615
    
    
    
    119,097Impairment loss (2)
    
    
    
    
    
    
    18,155
    
    
    
    14,500
    
    
    
    
    
    
    
    8,000Total operating expenses
    
    
    1,092,240
    
    
    
    1,258,229
    
    
    
    1,303,086
    
    
    
    1,559,381
    
    
    
    1,943,729Operating income
    
    
    86,305
    
    
    
    39,804
    
    
    
    40,910
    
    
    
    70,342
    
    
    
    32,580Non-operating (income) expenses:Interest income
    
    
    (1,748
    )
    
    
    (802
    )
    
    
    (1,434
    )
    
    
    (4,803
    )
    
    
    (3,392
    )Interest expense, net of capitalized
interest
    
    
    53,396
    
    
    
    50,849
    
    
    
    48,886
    
    
    
    87,006
    
    
    
    136,478Other expenses (income), net (3)
    
    
    1,419
    
    
    
    2,165
    
    
    
    11,548
    
    
    
    (28,096
    )
    
    
    30,393Total non-operating expenses
    
    
    53,067
    
    
    
    52,212
    
    
    
    59,000
    
    
    
    54,107
    
    
    
    163,479Net income (loss)
    
    $
    33,238
    
    
    $
    (12,408
    )
    
    $
    (18,090
    )
    
    $
    16,235
    
    
    $
    (130,899
    )
 3




---



##### Table of Contents



As of or for the years ended December 31,(Dollars in thousands, exceptoperating data and ratios)
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006Balance sheet dataAssets:Cash and cash equivalents
    
    $
    116,604
    
    
    $
    199,141
    
    
    $
    172,424
    
    
    $
    60,416
    
    
    $
    63,530Property and equipment, net
    
    
    2,486,981
    
    
    
    2,660,991
    
    
    
    2,529,739
    
    
    
    3,113,229
    
    
    
    3,816,292Total assets
    
    
    3,340,395
    
    
    
    3,593,676
    
    
    
    3,464,546
    
    
    
    3,984,227
    
    
    
    4,629,624Liabilities and shareholders
equity:Advance ticket sales
    
    
    189,175
    
    
    
    188,364
    
    
    
    226,081
    
    
    
    276,644
    
    
    
    314,050Other current liabilities (4)
    
    
    175,438
    
    
    
    529,758
    
    
    
    191,225
    
    
    
    220,571
    
    
    
    298,768Current portion of long-term
debt
    
    
    267,916
    
    
    
    476,995
    
    
    
    86,198
    
    
    
    140,694
    
    
    
    154,638Long-term debt
    
    
    1,316,428
    
    
    
    1,019,392
    
    
    
    1,604,331
    
    
    
    1,965,983
    
    
    
    2,405,357Other long-term liabilities (4)
    
    
    1,302,967
    
    
    
    372,589
    
    
    
    5,734
    
    
    
    2,631
    
    
    
    1,744Common stock
    
    
    12
    
    
    
    12
    
    
    
    12
    
    
    
    12
    
    
    
    12Total shareholders equity
    
    
    88,471
    
    
    
    1,006,578
    
    
    
    1,350,977
    
    
    
    1,377,704
    
    
    
    1,455,067Operating dataPassengers carried
    
    
    819,660
    
    
    
    878,067
    
    
    
    874,926
    
    
    
    981,665
    
    
    
    1,153,844Passenger cruise days (5)
    
    
    6,180,457
    
    
    
    6,543,896
    
    
    
    6,744,609
    
    
    
    7,613,100
    
    
    
    8,807,632Capacity days (6)
    
    
    5,951,273
    
    
    
    6,277,888
    
    
    
    6,370,096
    
    
    
    7,172,040
    
    
    
    8,381,445Occupancy percentage (7)
    
    
    103.9
    %
    
    
    104.2
    %
    
    
    105.9
    %
    
    
    106.1
    %
    
    
    105.1
    %Total number of cruise ships
    
    
    11
    
    
    
    10
    
    
    
    11
    
    
    
    12
    
    
    
    14Other financial dataNet cash provided by operating
activities
    
    
    153,777
    
    
    
    86,310
    
    
    
    153,758
    
    
    
    136,828
    
    
    
    147,504Net cash used in investing
activities
    
    
    (439,728
    )
    
    
    (275,588
    )
    
    
    (750,710
    )
    
    
    (678,309
    )
    
    
    (756,245
    )Net cash provided by financing
activities
    
    
    318,733
    
    
    
    271,815
    
    
    
    570,235
    
    
    
    429,473
    
    
    
    611,855Capital expenditures
    
    
    390,857
    
    
    
    295,626
    
    
    
    748,267
    
    
    
    658,795
    
    
    
    809,403
 Note
     4




---



##### Table of Contents



Risk factors
  Risks relating to our business
 An increase in the supply of cruise ships without a corresponding increase in passenger demand
could materially and adversely affect our financial condition and results of operations.
  We face intense competition.
   5




---



##### Table of Contents



Adverse economic conditions in the North American region or other factors that depress the level of
disposable income of consumers or consumer confidence could adversely affect our financial
condition and results of operations.
  The inter-island cruises that we offer in Hawaii are unique and there are greater uncertainties as
to the success of such cruises.
  We rely on external distribution channels for passenger bookings; major changes in the availability
of external distribution channels could undermine our customer base.
  We rely on scheduled commercial airline services for passenger connections; increases in the price
of or major changes or reduction in commercial airline services could undermine our customer base.
  6




---



##### Table of Contents



Increases in fuel prices or other cruise operating costs would have an adverse impact on our
financial condition and results of operations.
  Our revenues are seasonal owing to variations in passenger fare rates and occupancy levels at
different times of the year; we may not be able to generate revenues that are sufficient to cover
our expenses during certain periods of the year.
  Any delays in the delivery of new cruise ships or any mechanical failures on or of our cruise ships
may have a material adverse effect on our business, financial condition and results of operations.
  We are dependent upon the services of key management personnel.
  7




---



##### Table of Contents



Conducting business internationally and as a reporting company in the U.S. may result in increased
costs and risks.
  Future epidemics and viral outbreaks may have an adverse effect on our financial condition and
results of operations.
  The political environment in certain countries where we operate is uncertain and our ability to
operate our business as we have in the past may be restricted.
  Adverse incidents involving cruise ships may have an adverse impact on our financial condition and
results of operations.
  8




---



##### Table of Contents



Amendments to the collective bargaining agreements for crew members of our fleet could have an
adverse impact on our financial condition and results of operations.
  Pride of Aloha Pride of America Pride of Hawaii
 Unavailability of ports of call may adversely affect our financial condition and results of
operations.
  We may suffer an uninsured loss, as we are not protected against all risks or lawsuits that we may
face.
    9




---



##### Table of Contents



Our future operating cash flow may not be sufficient to fund future obligations, and we may not be
able to obtain additional financing, if necessary, at a cost that is favorable or that meets our
expectations.
  We are highly leveraged with a high level of floating rate debt, and our level of indebtedness
could limit cash flow available for our operations and could adversely affect our financial
condition, operations, prospects and flexibility.
  
    
    a substantial portion of our cash flow from operations will be required to service
debt, thereby reducing the funds available to us for other purposes;
 
    
    our ability to obtain additional financing for working capital, capital expenditures
and general corporate purposes, including upgrades of our current ships or the construction
of new ships, may be limited; and
 
    
    our high level of leverage may hinder our ability to withstand competitive pressures or
adjust rapidly to changing market conditions.
  10




---



##### Table of Contents



Risks relating to the regulatory environment in which we operate
 Future changes in applicable tax laws, or our inability to take advantage of favorable tax regimes,
may have an adverse impact on our financial condition and results of operations.
   11




---



##### Table of Contents



We are subject to complex laws and regulations, including environmental laws and regulations, which
could adversely affect our operations; any changes in the current laws and regulations could lead
to increased costs or decreased revenues and adversely affect our business prospects, financial
condition and results of operations.
   New health, safety, security and other regulatory issues could adversely affect our business
prospects, financial condition and results of operations.
   12




---



##### Table of Contents



Item 4. Information on the Company
 History and development of the Company
     Business overview
  13




---



##### Table of Contents



Segment Reporting
   Our business strategies
  Freestyle Cruising
 
    
    flexible dining policy in our dining rooms; no fixed dining times or pre-assigned
seating;
    
    up to 11 dining locations ranging from casual fast-food outlets to à la carte gourmet
and specialty ethnic restaurants;
    
    resort-casual dress code acceptable throughout the ship, at all times;
    
    increased service staff for a more personalized vacation experience;
    
    replacement of cash tipping with an automated service charge system;
 14




---



##### Table of Contents




    
    diverse lifestyle activities, including cultural and educational onboard programs
along with an increased adventure emphasis for shore excursions; and
    
    passenger-friendly disembarkation policies.
  Hawaii
 Pride of Aloha Pride of America, Pride of Hawaii,
 Fleet renewal
 
    
    new ships are more attractive to passengers;
    
    new ships are larger and have a more profitable mix of cabins, including a higher
percentage of cabins with private balconies for which passengers are willing to pay a
premium;
    
    our new ships are faster than many of our competitors ships, giving us more flexibility
in designing new and attractive itineraries;
 15




---



##### Table of Contents




    
    new ships tend to provide greater operating economies of scale; and
    
    our new ships have been designed and built to deliver Freestyle Cruising.
  Homeland Cruising
 Brand identity launch
  The fleet
  Pride of Hawaii, Norwegian Pearl, Norwegian Jewel, Norwegian Star Norwegian Dawn Pride of Hawaii, Norwegian Jewel Norwegian
Pearl,
 16




---



##### Table of Contents



Norwegian Cruise Lines ships
  Year Built/
    
    
    
    
    
    Crew
    
    Gross
    
    Primary Areas ofShip
    
    Rebuilt
    
    Berths
    
    Capacity
    
    Tons
    
    OperationNorwegian Pearl
    
    2006
    
    
    2,400
    
    
    
    1,200
    
    
    
    93,500
    
    
    Alaska, Caribbean, PacificCoastal and Panama CanalNorwegian Jewel
    
    2005
    
    
    2,380
    
    
    
    1,100
    
    
    
    93,500
    
    
    Caribbean and EuropeNorwegian Dawn
    
    2002
    
    
    2,220
    
    
    
    1,100
    
    
    
    92,300
    
    
    Bahamas, Bermuda, Caribbean,
Canada and New EnglandNorwegian Star
    
    2001
    
    
    2,240
    
    
    
    1,100
    
    
    
    91,700
    
    
    Alaska, Mexico and Pacific CoastalNorwegian Sun
    
    2001
    
    
    1,940
    
    
    
    900
    
    
    
    78,300
    
    
    Alaska, Caribbean, Hawaii,
Pacific Coastal and Panama CanalNorwegian Majesty(1)
    
    1992/1999
    
    
    1,460
    
    
    
    700
    
    
    
    40,900
    
    
    Bahamas, Bermuda and CaribbeanNorwegian Wind(1)
    
    1993/1998
    
    
    1,740
    
    
    
    700
    
    
    
    50,800
    
    
    Alaska and HawaiiNorwegian Dream(1)
    
    1992/1998
    
    
    1,740
    
    
    
    700
    
    
    
    50,800
    
    
    Caribbean, Europe, Panama Canaland South AmericaNorwegian Spirit
    
    1998
    
    
    1,980
    
    
    
    1,000
    
    
    
    75,300
    
    
    Alaska, Caribbean, Bahamas,Canada and New EnglandNorwegian Crown(1)
    
    1988
    
    
    1,080
    
    
    
    550
    
    
    
    34,200
    
    
    Panama Canal, South America and
Bermuda
 
 (1)
    
    Chartered from Star Cruises Limited with the anticipation that such ships will be
returned to Star Cruises Limited as new modern ships enter our fleet over time. NCL Americas ships
  PrimaryCrew
    
    Gross
    
    Areas ofShip
    
    Year Built
    
    Berths
    
    Capacity
    
    Tons
    
    OperationPride of Hawaii
    
    
    2006
    
    
    
    2,460
    
    
    
    950
    
    
    
    93,600
    
    
    HawaiiPride of America
    
    
    2005
    
    
    
    2,140
    
    
    
    950
    
    
    
    80,400
    
    
    HawaiiPride of Aloha
    
    
    1999
    
    
    
    2,000
    
    
    
    900
    
    
    
    77,100
    
    
    Hawaii
 Orient Lines ship
 Marco Polo, Marco Polo
 17




---



##### Table of Contents



Year Built/
    
    
    
    Crew
    
    
    
    Primary AreasShip
    
    Rebuilt
    
    Berths
    
    Capacity
    
    Gross Tons
    
    of OperationMarco Polo(1)
    
    1965/1993
    
    840
    
    400
    
    22,100
    
    Mediterranean,Scandinavia,Antarctica, SouthAmerica and NorthAfrica
 
 (1)
    
    Chartered from Star Cruises Limited. Marco Polo Marco Polo
 Current new ships on order
  Ship
    
    Expected Delivery Date
    
    Berths
    
    Gross TonsNorwegian Gem
    
    Fourth Quarter 2007
    
    
    2,400
    
    
    
    93,500New ClassF3 One
    
    Fourth Quarter 2009
    
    
    4,200
    
    
    
    150,000F3 Two
    
    Second Quarter 2010
    
    
    4,200
    
    
    
    150,000
  Other ships
 United States Independence, United States Independence United States Independence
 Ship deployment
  18




---



##### Table of Contents



Ports and facilities
 Norwegian Majesty, Norwegian Crown,
Norwegian Spirit Norwegian Dawn
    Marco Polo. Marco Polo
  Company revenue management
 Cruise pricing and revenue management
   19




---



##### Table of Contents



Onboard and other revenues
  Seasonality
  Sales and marketing
 Travel agent relationships
   20




---



##### Table of Contents



Marketing, brand communications and advertising
    www.ncl.com
 Company operations and cruise infrastructure
 Ship maintenance
  21




---



##### Table of Contents



Information technology
     Suppliers
  Crew and passenger safety
   22




---



##### Table of Contents




    
    strict alcohol and drug policy, including frequent random tests and a zero tolerance
policy for alcohol use by senior officers and watch keepers at all times;
    
    a policy of requiring the presence of at least two officers in the navigation center of
every cruise ship while at sea (except under certain low-risk situations);
    
    a comprehensive fleet safety program with six traveling safety officers;
    
    Navigation Conditions system involving the presence of additional officers on the
bridge when a cruise ship is operating in identified yellow zones or red
zonesspecific locations and situations identified as being potentially hazardous or
deviating from the normal course of the cruise ship;
    
    procedure checklists;
    
    performance of an internal and external audit at least annually to ensure safety
implementation, corrective action following incidents and continuous regular improvements;
    
    standardization and upgrade of equipment on our ships;
    
    installation of automatic identification system, or AIS, in the navigation centers of
all of our ships;
    
    psychological profiling of officers;
    
    bridge and crew resource management courses for all bridge officers;
    
    centralized and automated engine control (except on Marco Polo);
    
    additional onboard training in the use of the navigation and safety equipment; and
    
    stringent implementation of additional controls and procedures, which have been
published as safety recommendations, following investigation analyses of incidents or
accidents in other parts of the cruise industry.
 23




---



##### Table of Contents



Insurance
   
    
    protection and indemnity insurance (that is, coverage for third party liabilities) on
each ship;
    
    war risk insurance, including terrorist risk insurance, on each ship in an amount equal
to the total insured hull value, subject to certain coverage limits, deductibles and
exclusions. The terms of our marine war risk policies include provisions where
underwriters can give seven days notice to the insured that the policies will be cancelled,
which is typical for policies in the marine industry;
    
    insurance for cash onboard; and
    
    insurance for our shoreside property and general liability risks.
   Trademarks
  24




---



##### Table of Contents



Regulatory issues
 Registration of our ships
 Pride of Hawaii Pride of Aloha Pride of America
 Pride of Hawaii Pride of America Pride of Aloha
 Health and environment
   25




---



##### Table of Contents




    
    deployment of environmental officers and environmental engineers on all ships;
    
    a dedicated, full time environmental staff at shoreside;
    
    a comprehensive environmental training and awareness program;
    
    an environmental hotline;
    
    advanced wastewater treatment systems installed or in the process of being installed on
100% of the fleet;
    
    our own patent-pending ballast water management system to prevent discharge of damaging
non-indigenous marine species in ballast water;
    
    advanced treatment systems for oily bilge water installed on all ships; and
    
    an innovative bio-sludge disposal and used lube recycling programs.
 Permits for Glacier Bay, Alaska and the Antarctic
 Marco Polo
 Security and safety
  26




---



##### Table of Contents



Financial requirements
   Taxation
 U.S. federal income taxation  foreign-flagged operations
   27




---



##### Table of Contents



28




---



##### Table of Contents



U.S. federal income taxation  U.S.-flagged operations
  Organizational structure
 1
 
 
 1
    
    All subsidiaries are 100% owned by their immediate parent companies.2
    
    NCL Corporation Ltd. is a wholly-owned subsidiary of Star Cruises Limited.3
    
    Ship-holding companies for Bahamas flagged-ships.4
    
    Operates Bahamas flag fleet, including ships under charter agreements with Star
Cruises Limited (Norwegian Crown, Norwegian Dream, Norwegian Majesty, Marco Poloand Norwegian
Wind) and performs under contract with NCL America Inc. certain marketing, ticket issuance and
other services.5
    
    Ship-holding companies for U.S.-flagged ships.6
    
    Operates U.S.-flagged fleet. Property, plant and equipment
   29




---



##### Table of Contents



Industry
 Industry background
   Cruise Passengers
    
    BerthsSourced in
    
    Marketed inCalendar Year
    
    North America (1)
    
    North America (2)2002
    
    
    7,640,000
    
    
    
    197,5532003
    
    
    8,195,000
    
    
    
    215,3972004
    
    
    9,107,000
    
    
    
    220,1872005
    
    
    9,670,000
    
    
    
    227,7172006
    
    
    10,180,000
    
    
    
    246,759
 
 (1)
    
    Based on passengers carried for at least two consecutive nights for the calendar year.(2)
    
    As of the end of the calendar year. These figures include ships that are marketed in North
America and elsewhere.   
 Item 4A. Unresolved Staff Comments
  30




---



##### Table of Contents



Item 5. Operating and Financial Review and Prospects
 Managements Discussion and Analysis of Financial Condition and Results of Operations
  
    
    changes in cruise capacity, as well as capacity changes in the overall vacation industry;
    
    introduction of competing itineraries and other products by other companies;
    
    changes in general economic, business, and geo-political conditions;
    
    reduced consumer demand for cruises as a result of any number of reasons, including
armed conflict, terrorists attacks, geo-political and economic uncertainties or the
unavailability of air service, and the resulting concerns over the safety and security
aspects of traveling;
    
    lack of acceptance of new itineraries, products or services by our targeted
customers;
    
    our ability to implement brand strategies and our shipbuilding programs, and to
continue to expand our business worldwide;
    
    costs of new initiatives, including those involving our inter-island Hawaii cruise operations;
    
    changes in interest rates, fuel costs or foreign currency rates;
    
    delivery schedules of new ships;
    
    risks associated with operating internationally;
    
    impact of the spread of contagious diseases;
    
    accidents and other incidents affecting the health, safety, security and vacation
satisfaction of passengers and causing damage to ships, which could cause the modification
of itineraries or cancellation of a cruise or series of cruises;
    
    our ability to attract and retain qualified shipboard crew and maintain good
relations with employee unions;
    
    changes in other operating costs, such as crew, insurance and security costs;
    
    continued availability of attractive port destinations;
 31




---



##### Table of Contents




    
    the impact of pending or threatened litigation;
    
    the ability to obtain financing on terms that are favorable or consistent with our expectations;
    
    changes involving the tax, environmental, health, safety, security and other
regulatory regimes in which we operate;
    
    emergency ship repairs;
    
    the implementation of regulations in the U.S. requiring U.S. citizens to obtain
passports for travel to additional foreign destinations; and
    
    weather and natural disasters.
   Summary of
Significant Accounting Policies Change in Accounting for Dry-docking Costs
 Terminology and Non-GAAP Financial Measures
      32




---



##### Table of Contents



Overview
     
    
    Commissions, transportation and other expenses consist of those amounts directly
associated with passenger ticket revenues. These amounts include travel agent
commissions, air and other transportation expenses, credit card fees, and certain port
expenses.
    
    Onboard and other expenses consist of direct costs that are incurred primarily in
connection with onboard and other revenues. These costs are incurred in connection with
shore excursions, beverage sales, land packages, and sales of travel protection for
vacation packages.
    
    Payroll and related expenses represent the cost of wages and benefits for shipboard
employees.
    
    Fuel expenses include fuel costs, the impact of fuel hedges and delivery costs.
    
    Food expenses consist of food costs for passengers and crew, which typically vary
according to the number of passengers onboard a particular cruise ship.
    
    Ship charter costs consist of amounts paid for chartering ships.
    
    Other operating expenses consist of costs such as repairs and maintenance including
dry-docking costs, ship insurance and other ship expenses.
 33




---



##### Table of Contents



Critical accounting policies
  Ship accounting
   34




---



##### Table of Contents



Asset impairment
    Contingencies
  Recent accounting pronouncements
  35




---



##### Table of Contents



36




---



##### Table of Contents



Results of operations
  Years Ended December 31,2004
    
    2005
    
    2006Total revenues
    
    $
    1,343,996
    
    
    $
    1,629,723
    
    
    $
    1,976,309Total operating expenses
    
    $
    1,007,089
    
    
    $
    1,248,526
    
    
    $
    1,567,382Operating income
    
    $
    40,910
    
    
    $
    70,342
    
    
    $
    32,580Net (loss) income
    
    $
    (18,090
    )
    
    $
    16,235
    
    
    $
    (130,899
    )
  Years Ended December 31,2004
    
    2005
    
    2006RevenuesPassenger ticket revenues
    
    
    73.7
    %
    
    
    73.3
    %
    
    
    72.8
    %Onboard and other revenues
    
    
    26.3
    %
    
    
    26.7
    %
    
    
    27.2
    %Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cruise operating expensesCommissions, transportation and other
    
    
    19.2
    %
    
    
    20.2
    %
    
    
    21.5
    %Onboard and other
    
    
    8.9
    %
    
    
    8.7
    %
    
    
    9.4
    %Payroll and related
    
    
    18.1
    %
    
    
    19.9
    %
    
    
    20.9
    %Fuel
    
    
    5.8
    %
    
    
    7.3
    %
    
    
    8.3
    %Food
    
    
    6.1
    %
    
    
    5.8
    %
    
    
    5.2
    %Ship charter costs
    
    
    1.6
    %
    
    
    1.7
    %
    
    
    1.3
    %Other operating
    
    
    15.2
    %
    
    
    13.0
    %
    
    
    12.7
    %Total cruise operating expenses
    
    
    74.9
    %
    
    
    76.6
    %
    
    
    79.3
    %Marketing, general and administrative expenses
    
    
    15.2
    %
    
    
    13.8
    %
    
    
    12.6
    %Depreciation and amortization expenses
    
    
    5.7
    %
    
    
    5.3
    %
    
    
    6.0
    %Impairment loss
    
    
    1.1
    %
    
    
    
    %
    
    
    0.4
    %Total operating expenses
    
    
    96.9
    %
    
    
    95.7
    %
    
    
    98.3
    %Operating income
    
    
    3.1
    %
    
    
    4.3
    %
    
    
    1.7
    %Non-operating (income) expensesInterest income
    
    
    (0.1
    )%
    
    
    (0.3
    )%
    
    
    (0.1
    )%Interest expense, net of capitalized interest
    
    
    3.7
    %
    
    
    5.3
    %
    
    
    6.9
    %Other expenses (income), net
    
    
    0.9
    %
    
    
    (1.7
    )%
    
    
    1.5
    %Total non-operating expenses
    
    
    4.5
    %
    
    
    3.3
    %
    
    
    8.3
    %Net (loss) income
    
    
    (1.4
    )%
    
    
    1.0
    %
    
    
    (6.6
    )%
  Years Ended December 31,2004
    
    2005
    
    2006Passengers Carried
    
    
    874,926
    
    
    
    981,665
    
    
    
    1,153,844Passenger Cruise Days
    
    
    6,744,609
    
    
    
    7,613,100
    
    
    
    8,807,632Capacity Days
    
    
    6,370,096
    
    
    
    7,172,040
    
    
    
    8,381,445Occupancy Percentage
    
    
    105.9
    %
    
    
    106.1
    %
    
    
    105.1
    %
 37




---



##### Table of Contents



Years Ended December 31,2004
    
    2005
    
    2006Passenger ticket revenues
    
    $
    990,758
    
    
    $
    1,194,461
    
    
    $
    1,438,996Onboard and other revenues
    
    
    353,238
    
    
    
    435,262
    
    
    
    537,313Total revenues
    
    
    1,343,996
    
    
    
    1,629,723
    
    
    
    1,976,309Less:Commissions, transportation and other
    
    
    257,947
    
    
    
    328,899
    
    
    
    425,648Onboard and other
    
    
    120,250
    
    
    
    141,957
    
    
    
    186,240Net revenues
    
    $
    965,799
    
    
    $
    1,158,867
    
    
    $
    1,364,421Capacity Days
    
    
    6,370,096
    
    
    
    7,172,040
    
    
    
    8,381,445Gross Yields
    
    $
    210.99
    
    
    $
    227.23
    
    
    $
    235.80Net Yields
    
    $
    151.61
    
    
    $
    161.58
    
    
    $
    162.79
  Years Ended December 31,2004
    
    2005
    
    2006Total cruise operating expenses
    
    $
    1,007,089
    
    
    $
    1,248,526
    
    
    $
    1,567,382Marketing, general and administrative expenses
    
    
    204,560
    
    
    
    225,240
    
    
    
    249,250Gross Cruise Costs
    
    
    1,211,649
    
    
    
    1,473,766
    
    
    
    1,816,632Less:Commissions, transportation and other
    
    
    257,947
    
    
    
    328,899
    
    
    
    425,648Onboard and other
    
    
    120,250
    
    
    
    141,957
    
    
    
    186,240Net Cruise Costs
    
    $
    833,452
    
    
    $
    1,002,910
    
    
    $
    1,204,744Capacity Days
    
    
    6,370,096
    
    
    
    7,172,040
    
    
    
    8,381,445Gross Cruise Costs per Capacity Day
    
    $
    190.21
    
    
    $
    205.49
    
    
    $
    216.74Net Cruise Costs per Capacity Day
    
    $
    130.84
    
    
    $
    139.84
    
    
    $
    143.74
 Outlook
  38




---



##### Table of Contents



Year ended December 31, 2005 compared to year ended December 31, 2006
 Revenues
 Pride of America Norwegian Jewel Pride of Hawaii Norwegian Pearl Norwegian Sea
 Expenses
  Pride of America Norwegian Jewel Pride of Hawaii Norwegian
Pearl
 Other Income (Expense)
 Pride of America
 39




---



##### Table of Contents



Year ended December 31, 2004 compared to year ended December 31, 2005
 Revenues
 Norwegian Spirit Pride of America Norwegian Jewel Norwegian Sea Pride of
Aloha
 Expenses
 Pride of America Norwegian Jewel
 Norwegian Spirit Pride of America Norwegian Jewel
 Other Income (Expense)
  40




---



##### Table of Contents



Liquidity and capital resources
  Norwegian Spirit Pride of America Norwegian
Jewel Pride of Hawaii Norwegian Pearl
 Norwegian
Spirit Norwegian Sky Norwegian Star Pride of America Norwegian
Jewel Pride
of Hawaii Norwegian Pearl Norwegian Dawn Norwegian Sun
   41




---



##### Table of Contents



Future capital commitments
  Expected
    
    ApproximateShip
    
    Delivery Date
    
    BerthsNorwegian Gem
    
    4th Quarter 2007
    
    
    2,400New ClassF3 One
    
    4th Quarter 2009
    
    
    4,200F3 Two
    
    2nd Quarter 2010
    
    
    4,200








Contractual Obligations:




Less than 1
    
    1-3
    
    3-5
    
    More than 5Total
    
    year
    
    years
    
    years
    
    yearsLong-term debt obligations(1)
    
    $
    3,471,428
    
    
    $
    311,701
    
    
    $
    623,378
    
    
    $
    955,057
    
    
    $
    1,581,292Operating lease obligations(2)
    
    
    50,703
    
    
    
    5,795
    
    
    
    10,375
    
    
    
    7,864
    
    
    
    26,669Ship charter obligations(3)
    
    
    47,905
    
    
    
    21,005
    
    
    
    26,676
    
    
    
    224
    
    
    
    Ship purchase obligations(4)
    
    
    2,398,455
    
    
    
    501,193
    
    
    
    1,102,716
    
    
    
    794,546
    
    
    
    Port facilities(5)
    
    
    93,081
    
    
    
    8,158
    
    
    
    15,908
    
    
    
    16,153
    
    
    
    52,862Capital lease obligations(6)
    
    
    16,429
    
    
    
    3,072
    
    
    
    5,490
    
    
    
    6,486
    
    
    
    1,381Other(7)
    
    
    28,022
    
    
    
    14,598
    
    
    
    12,686
    
    
    
    738
    
    
    
    Total
    
    $
    6,106,023
    
    
    $
    865,522
    
    
    $
    1,797,229
    
    
    $
    1,781,068
    
    
    $
    1,662,204





|    |  |                                                                                                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Assumes LIBOR rate of 5.37% and EURIBOR of 3.85% for all periods and EURO/USD exchange
rate of 1.3199.                                              
|   
|(2) |  | We are obligated under noncancellable operating leases primarily for offices and motor
vehicles.                                                    
|   
|(3) |  | Ship charter costs are for ships chartered from Star Cruises Limited.                                                                               
|   
|(4) |  | Amounts represent contractual obligations with initial terms in excess of one year,
assumes EURO/USD of 1.3199.                                     
|   
|(5) |  | Amounts represent future commitments with remaining terms in excess of one year to pay
for our usage of a New York City terminal and Fanning Island.
|   
|(6) |  | Amounts exclude interest. Capital leases are primarily for buses for Hawaii operations.                                                             
|   
|(7) |  | Amounts represent future commitments with remaining terms in excess of one year to pay
for primarily service and maintenance contracts.             

42



---



##### Table of Contents



Funding sources
 ,
 Norwegian Gem
    
 43




---



##### Table of Contents



Financial instruments and other
 General
  Interest rate risk
  Foreign currency exchange rate risk
   Fuel price risk
  44




---



##### Table of Contents



Related party transactions
  
 Item 6. Directors, Senior Management and Employees
 Directors and senior management
  Name
    
    Age
    
    Position with NCLTan Sri Lim Kok Thay
    
    
    55
    
    
    Chairman of the Board of DirectorsDavid Colin Sinclair Veitch
    
    
    51
    
    
    Deputy Chairman of the Board of Directors, President and
Chief Executive OfficerSenator Robert Graham
    
    
    70
    
    
    Independent Director, Chairman of the Governance CommitteeAlberto Ibargüen
    
    
    63
    
    
    Independent Director, Chairman of the Compensation CommitteeWalter L. Revell
    
    
    72
    
    
    Independent Director, Chairman of the Audit CommitteeBonnie S. Biumi
    
    
    44
    
    
    Executive Vice President and Chief Financial OfficerWilliam A. Hamlin
    
    
    54
    
    
    Executive Vice President of Fleet OperationsRobert M. Kritzman
    
    
    46
    
    
    Executive Vice President of Hawaii OperationsAndrew Stuart
    
    
    43
    
    
    Executive Vice President of Sales, Marketing and
Passenger ServicesMark E. Warren
    
    
    55
    
    
    Executive Vice President and General Counsel
 Tan Sri Lim Kok Thay
 David Colin Sinclair Veitch
 45




---



##### Table of Contents



Senator Robert Graham
 Alberto Ibargüen The Miami
Herald El Nuevo Herald
 Walter L. Revell
 Bonnie S. Biumi
 46




---



##### Table of Contents



William A. Hamlin
 Robert M. Kritzman
 Andrew Stuart
 Mark E. Warren
  Compensation of directors and executive officers
  Share option scheme for shares of Star Cruises Limited
  47




---



##### Table of Contents



Qualified and non-qualified benefit plans
 Defined Contribution Plan.
 4 01(k) Plan.
 Supplemental Executive Retirement Plan.
 48




---



##### Table of Contents



Supplemental Senior Executive Retirement Plan.
  Board practices
 Terms of directors and executive officers
      49




---



##### Table of Contents



Employees
  December 31,2004
    
    2005
    
    2006Shipboard (1)
    
    
    8,843
    
    
    
    10,088
    
    
    
    12,145Shoreside
    
    
    1,605
    
    
    
    1,860
    
    
    
    2,052Total
    
    
    10,448
    
    
    
    11,948
    
    
    
    14,197
 
 (1)
    
    Does not include crew members that were on leave as of the respective dates. Share Ownership
 
 Item 7. Major Shareholders and Related Party Transactions
 Major shareholder
   Percentage Ownership inShareholder
    
    Star Cruises LimitedGHL (1)
    
    
    37.02
    %RWB (2)
    
    
    36.01
    %
 
 (1)
    
    GHL is a company incorporated in the Isle of Man acting as trustee of the Golden
Hope Unit Trust, a private unit trust which is held directly and indirectly by GZ Trust
Corporation as trustee of a discretionary trust established for the benefit of certain
members of the Lim Family.(2)
    
    RWB is a Malaysian company listed on Bursa Malaysia Securities Berhad in which
the Lim Family has a substantial indirect beneficial interest.  Related party transactions
 Transactions in connection with the Reorganization
   50




---



##### Table of Contents



Norwegian Crown Norwegian Dream Norwegian Majesty Norwegian Sea Marco Polo Norwegian Wind Norwegian Jewel Norwegian Sea
 Contributions from Star Cruises Limited
     Other ship purchases and sales
 Norwegian Sky Pride of Aloha, Norwegian Sky, Norwegian
Spirit, Norwegian Spirit
 51




---



##### Table of Contents



Norway Norway
 Norwegian Crown,
Norwegian Dream, Norwegian Majesty, Marco Polo Norwegian Wind
  
 Item 8. Financial Information
  Legal proceedings
  (i)
    
    A proposed class action suit was filed on August 1, 2000 in the
U.S. District Court for the Southern District of Texas against us, alleging that
we violated the Americans with Disabilities Act of 1990 (ADA) in our treatment
of physically impaired passengers. The same plaintiffs also filed on the same
date a proposed class action suit in a Texas state court alleging that we and a
third party violated Texas Deceptive Trade Practices and Consumer Protection
Act. The state court judge granted our motion for summary judgment and the
plaintiff filed an appeal which is currently pending. On June 6, 2005, the U.S.
Supreme Court ruled in the Federal matter that the ADA is applicable to foreign
flagged cruise ships that operate in U.S. waters to the same extent that it
applies to U.S. flagged ships. The U.S. Supreme Court remanded the case to the
Fifth Circuit Court of Appeals to determine which claims in the lawsuit remain
and the Fifth Circuit remanded the case to the trial court. We have filed a
motion for summary judgment in the trial court which is currently pending.(ii)
    
    A proposed class action suit was filed on December 20, 2000 in a
Florida State Court alleging that we discriminated against disabled persons in
violation of the ADA and the Florida Trade Act on several of our ships.
Discovery has commenced. We believe that we have meritorious defenses to these
claims and, accordingly, are defending vigorously this action.(iii)
    
    A proposed class action suit was filed on May 17, 2001 in the U.S.
District Court for the Southern District of New York alleging that during the
period from January 1998 through March 2005, we failed to pay unlicensed
seafarers overtime wages in accordance with their contracts of employment. The
court entered an order certifying the case as a class action. In March 2005, the
parties reached a settlement which was
 52




---



##### Table of Contents



subsequently approved by the court. We
believe that the ultimate outcome of this matter will not have a material impact on our financial position, results of
operations or cash flows.(iv)
    
    On July 25, 2002, we were served with a complaint in which a former
employee alleged that we failed to pay him severance pay/employment benefits
following his discharge. The matter was tried before a jury in January 2007 at
which time a verdict in favor of plaintiff was returned. Trial counsel is
currently evaluating possible appealable issues.(v)
    
    In May 2003, an explosion in the boiler room onboard Norway
resulted in the death of eight crew members and the injury of approximately 20
other crew members. All personal injury claims stemming from this incident are
covered by our insurance. The incident is currently under investigation by
regulatory authorities and the United States Attorneys Office for the Southern
District of Florida. We are cooperating with the investigation. To date, none
of the agencies involved has rendered opinions or conclusions concerning the
incident.(vi)
    
    On or about February 3, 2006, we were served with a class action
complaint filed in the United States District Court for the Southern District of
New York alleging copyright infringement stemming from performances of certain
portions of copyrighted music aboard our ships. We believe that we have
meritorious defenses to these claims and, accordingly, are defending vigorously
this action.(vii)
    
    On June 16, 2006, a complaint was filed against us in the Circuit
Court of Miami-Dade County, Florida, alleging breach of contract and fraudulent
misrepresentation stemming from two 2004 charter sailings of Pride of Aloha. We
believe that we have meritorious defenses to these claims and, accordingly, are
defending vigorously this action.(viii)
    
    On July 14, 2006, we were served with a complaint filed in Florida State court
on behalf of a former onboard concessionaire alleging breach of contract and
unjust enrichment. We believe that we have meritorious defenses to these claims
and, accordingly, are defending vigorously this action.(ix)
    
    On August 24, 2006, we were served with a complaint by the U.S.
Equal Employment Opportunity Commission to correct alleged unlawful employment
practices on the basis of national origin and religion and to provide relief to
seven former employees who were allegedly terminated as a result of same. We
believe that we have meritorious defenses to these claims and, accordingly, are
defending vigorously this action.
  53




---



##### Table of Contents



Dividends
  Significant changes
  
 Item 9. Offer and Listing Details
  
 Item 10. Additional Information
 General
  Share capital
  54




---



##### Table of Contents



Dividend rights
  Variation of shareholder rights
  Transfer of shares
  55




---



##### Table of Contents



Meetings of shareholders
  Access to books and records and public dissemination of information
  Election and removal of directors
   56




---



##### Table of Contents



Proceedings of the Board of Directors
   Indemnification of directors and officers
  Amendment of memorandum of association and bye-laws
   Appraisal rights and shareholder suits
  57




---



##### Table of Contents



Capitalization of profits and reserves
  Material contracts
 Norwegian Pearl
 Norwegian Gem
 Norwegian Pearl Norwegian Gem.
        58




---



##### Table of Contents



Norwegian Dawn Norwegian Sun
 Exchange controls
  Documents on display
  
 Item 11. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 12. Description of Securities Other than Equity Securities
  59




---



##### Table of Contents



PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies
  
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
  
 Item 15. Controls and Procedures
   
 Item 16. Reserved
 
 Item 16A. Audit Committee Financial Expert
  .
 
 Item 16B. Code of Ethics
  60




---



##### Table of Contents



Item 16C. Principal Accountant Fees and Services
  Total FeesFor the years ended December 31,2005
    
    2006(in thousands of dollars)FeesAudit fees
    
    $
    1,275
    
    
    $
    873Audit related fees
    
    
    139
    
    
    
    37Tax fees
    
    
    348
    
    
    
    145All other fees
    
    
    
    
    
    
    2Total
    
    $
    1,762
    
    
    $
    1,057
   .
  Audit Committee pre-approval policies and procedures
  
 Item 16D. Exemptions from Listing Standards for Audit Committees
  
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  61




---



##### Table of Contents



PART III
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
  
 Item 19. Exhibits
  62




---



##### Table of Contents



Glossary
 Berths.
 Charter.
 CLIA.
 Dry-dock.
 Gross Tons.
 IMO.
 Jones Act.
 MARPOL.
 SOLAS
 Terminal.
 63




---



##### Table of Contents



SIGNATURE
  NCL Corporation Ltd.By:

/s/
Bonnie S. BiumiName:
    Bonnie S. BiumiTitle:
    Executive Vice President and Chief Financial Officer  64




---



##### Table of Contents



Exhibitnumber
    
    Description of exhibit1.1
    
    Memorandum of Association of NCL Corporation Ltd.*1.2
    
    Bye-Laws of NCL Corporation Ltd.*2.1
    
    Indenture, dated July 15, 2004, between NCL Corporation Ltd. and JPMorgan Chase Bank, N.A.,
as Indenture Trustee with respect to $250 million 10 5/8% Senior Notes due 2014*4.1
    
    $626.9 million Syndicated Term Loan, dated as of June 26, 1999, as amended by four
supplemental agreements, among Norwegian Star Limited, Norwegian Dawn Limited and a syndicate
of international banks and related Guarantee by NCL Corporation Ltd.*+4.2
    
    Fifth Supplemental Deed, dated as of 30 September 2005, to $626.9 million Syndicated Term
Loan, among Norwegian Dawn Limited, NCL Corporation Ltd. and a syndicate of international
banks.**4.3
    
    $225.0 million Norwegian Sun Loan, dated as of July 9, 2003, as amended, among Norwegian Sun
Limited and a syndicate of international banks and related Guarantee by NCL Corporation Ltd.*+4.4
    
    Second Supplemental Deed, dated as of 30 September 2005, to $225.0 million Norwegian Sun
Loan, among Norwegian Sun Limited, NCL Corporation Ltd. and a syndicate of international
banks.**4.5
    
    Euro 298.0 million Pride of America Loans, dated as of April 4, 2003, among Ship Holding LLC
and a syndicate of international banks and related Guarantee by NCL Corporation Ltd.*+4.6
    
    Supplemental Amendments, to Euro 298.0 million Pride of America Loans, among Pride of America
Ship Holding, Inc., NCL Corporation Ltd. and a syndicate of international banks.**4.7
    
    $800.0 million Senior Secured Credit Facility, dated as of July 7, 2004, among NCL
Corporation Ltd. and a syndicate of international banks.*4.8
    
    Supplemental Deed, dated as of 30 September 2005, to $800.0 million Senior Secured Credit
Facility, among Norwegian Star Limited, Norwegian Spirit Ltd., Pride of Aloha, Inc., NCL
Corporation Ltd. and a syndicate of international banks.**4.9
    
    Facility Agreement, dated as of 23 September 2005, in connection with Letters of Credit
required by the Merchant Services Bankcard Agreement, by and among NCL Corporation Ltd. and a
syndicate of international banks.**4.10
    
    Euro 334.1 million Norwegian Jewel Loan, dated as of April 20, 2004, among Norwegian Jewel
Limited and a syndicate of international banks and related Guarantee by NCL Corporation Ltd.*+4.11
    
    Supplemental Deed, dated as of 30 September 2005, to Euro 334.1 million Norwegian Jewel Loan,
among Norwegian Jewel Limited, NCL Corporation Ltd. and a syndicate of international banks.**4.12
    
    Euro 308.1 million Pride of Hawaii Loan, dated as of April 20, 2004, as amended, among Pride
of Hawaii, Inc. and a syndicate of international banks and related Guarantee by NCL
Corporation Ltd.*+
 1




---



##### Table of Contents



Exhibitnumber
    
    Description of exhibit4.13
    
    Second Supplemental Deed, dated as of 30 September 2005, to Euro 308.1 million Pride of
Hawaii Loan, among Pride of Hawaii, Inc., NCL Corporation Ltd. and a syndicate of
international banks.**4.14
    
    Merchant Services Bankcard Agreement, dated as of March 26, 2004, among NCL Corporation Ltd.,
Chase Merchant Services, LLC and JPMorgan Chase Bank.*4.15
    
    Bareboat Charter Agreement, dated April 20, 2004, between Crown Odyssey Limited and NCL
(Bahamas) Ltd.*+4.16
    
    Bareboat Charter Agreement, dated April 20, 2004, between Crown Wind Limited and NCL
(Bahamas) Ltd.*+4.17
    
    Bareboat Charter Agreement, dated April 20, 2004, between Ocean Dream Limited and NCL
(Bahamas) Ltd.*+4.18
    
    Bareboat Charter Agreement, dated April 20, 2004, between Ocean Voyager Limited and NCL
(Bahamas) Ltd.*+4.19
    
    Amended and Restated Shipbuilding Contract for Pride of America, dated February 5, 2003, between Ship
Holding LLC and
Lloyd Werft
Bremerhaven GmbH,
as amended by
addendum No. 1
dated March 7,
2003, addendum No.
2 dated March 14,
2003 and addendum
No. 3 dated July 1,
2004.*+4.20
    
    Shipbuilding Contract for Hull No. 667, dated September 15, 2003, between Arrasas Limited and
Jos. L. Meyer GmbH, as amended by addendum No. 1 dated March 25, 2004.*+4.21
    
    Shipbuilding Contract for Hull No. 668, dated September 15, 2003, between Arrasas Limited,
Pride of Hawaii, Inc. and Jos. L. Meyer GmbH, as amended by addendum No. 1 dated April 13,
2004.*+4.22
    
    Shipbuilding Contract for Hull No. S669, dated December 24, 2004, between Hull 669 Ltd., NCL
Corporation Ltd. and Jos. L. Meyer GmbH.*+4.23
    
    Shipbuilding Contract for Hull No. S670, dated May 3, 2005, between Newbuild Holding, Ltd.,
NCL Corporation Ltd. and Jos. L. Meyer GmbH.*+4.24
    
    Up to Euro 624.0 million Revolving Loan Facility Agreement, dated October 7, 2005, among NCL
Corporation Ltd., and a syndicate of international banks.**4.25
    
    Sixth Supplemental Deed, dated November 13, 2006, to $626.9 million Syndicated Term Loan,
dated as of June 26, 1999, as amended, by and among Norwegian Dawn
Limited and a syndicate of international banks and a related
Guarantee by NCL Corporation Ltd.++4.26
    
    Third Supplemental Deed, dated November 13, 2006, to $225.0 million Norwegian Sun Loan, dated
as of July 9, 2003, as amended, by and among Norwegian Sun Limited and a syndicate of
international banks and a related Guarantee by NCL Corporation Ltd.++4.27
    
    Seventh Supplemental Deed to Euro 258.0 million Pride of America Loans and Sixth Supplemental
Deed to Euro 40.0 million Pride of America Loans, both dated November 13, 2006, to Euro 298.0
million Pride of America Loans, dated as of April 4, 2003, and amended and restated by an
agreement dated April 20, 2004, by and among Pride of America Ship Holding, Inc. and a
syndicate of international banks and a related Guarantee by NCL
Corporation Ltd.++
 2




---



##### Table of Contents



Exhibitnumber
    
    Description of exhibit4.28
    
    Second Supplemental Deed, dated November 13, 2006, to $800.0 million Senior Secured Credit
Facility, dated as of July 7, 2004, as amended, by and among NCL Corporation Ltd., Norwegian
Star Limited, Norwegian Spirit, Ltd., Pride of Aloha, Inc., and a syndicate of international
banks.++4.29
    
    First Supplemental Deed, dated November 13, 2006, to Facility Agreement, dated September 23,
2005, in connection with Letters of Credit required by the Merchant Services Bankcard
Agreement, by and among NCL Corporation Ltd. and a syndicate of international banks.++4.30
    
    Second Supplemental Deed, dated April 4, 2006, and Third Supplemental Deed, dated November
13, 2006, to $334.1 million Norwegian Jewel Loan, dated as of April 20, 2004, as amended, by
and among Norwegian Jewel Limited and a syndicate of international banks and a related
Guarantee by NCL Corporation Ltd.++4.31
    
    Third Supplemental Deed, dated November 13, 2006, to Euro 308.1 million Pride of Hawaii
Loan, dated as of April 20, 2004, as amended, by and among Pride of Hawaii, Inc. and a
syndicate of international banks and a related Guarantee by NCL Corporation Ltd.++4.32
    
    First Supplemental Deed, dated November 13, 2006, to up to Euro 624.0 million Revolving Loan
Facility Gem/Pearl Agreement, dated October 7, 2005, as amended, by and among NCL Corporation
Ltd. and a syndicate of international banks.++4.33
    
    Euro 662.9 million Syndicated Loan Facility, dated September 22, 2006, by and among F3 One,
Ltd. and a syndicate of international banks and a related Guarantee by NCL Corporation Ltd.,
for the construction of Hull C33 at Aker Yards S.A.++4.34
    
    Euro 662.9 million Syndicated Loan Facility, dated September 22, 2006, by and among F3 Two,
Ltd. and a syndicate of international banks and a related Guarantee by NCL Corporation Ltd.,
for the construction of Hull D33 at Aker Yards S.A.++4.35
    
    $610.0 million Revolving Credit Facility, dated December 22, 2006, by and between NCL
Corporation Ltd. and a syndicate of international banks for the refinancing of m.v. Norwegian
Sun and m.v. Norwegian Dawn vessels (amongst other matters).++4.36
    
    Amendment Agreement, dated September 1, 2006, to Bareboat Charter Agreement, dated April 20,
2004, by and between Crown Odyssey Limited and NCL (Bahamas) Ltd.++4.37
    
    Addendum No. 1, dated November 28, 2006, to Bareboat Charter Agreement, dated April 20, 2004,
by and between Crown Wind Limited and NCL (Bahamas) Ltd.++4.38
    
    Addendum No. 1, dated November 28, 2006, to Bareboat Charter Agreement, dated April 20, 2004,
by and between Ocean Dream Limited and NCL (Bahamas) Ltd.++4.39
    
    Addendum No. 1, dated November 28, 2006, to Bareboat Charter Agreement, dated April 20, 2004,
by and between Ocean Voyager Limited and NCL (Bahamas) Ltd.++4.40
    
    Addendum No. 4, dated April 28, 2005, Addendum No. 5, dated June 7, 2005, and Addendum No. 6,
dated June 25, 2005, to Amended and Restated Shipbuilding Contract for Pride of America, dated
February 5, 2003, by and between Pride of America Ship Holding, Inc. and Lloyd Werft
Bremerhaven GmbH.++4.41
    
    Addendum, dated February 14, 2006, and Addendum No. 3, dated April 19, 2006, to
Shipbuilding Contract for Hull No. 668, dated September 15, 2003, by and among, Arrasas
Limited, Pride of Hawaii, Inc. and Jos. L. Meyer GmbH.++
 3




---



##### Table of Contents



Exhibitnumber
    
    Description of exhibit4.42
    
    Addendum No. 1, dated February 14, 2006, to Shipbuilding Contract for Hull No. S669, dated
December 24, 2004, by and among Norwegian Pearl, Ltd., NCL Corporation Ltd. and Jos. L. Meyer
GmbH.4.43
    
    Shipbuilding Contract for Hull No. C33, dated September 7, 2006, by and between F3 One, Ltd.
and Aker Yards S.A., and Agreement on a Modification (AOM) No. 1, dated September 7, 2006,
AOM No. 2, dated September 7, 2006, AOM No. 3, dated September 7, 2006, and AOM No. 4, dated
September 7, 2006.++4.44
    
    Shipbuilding Contract for Hull No. D33, dated September 7, 2006, by and between F3 Two, Ltd.
and Aker Yards S.A., and AOM No. 1, dated September 7, 2006, AOM No. 2, dated September 7,
2006, AOM No. 3, dated September 7, 2006, and AOM No. 4, dated September 7, 2006.++4.45
    
    Side Letter Agreement, dated as of September 7, 2006, by and between, F3 One, Ltd., F3 Two,
Ltd. and Aker Yards S.A.++4.46
    
    Office Lease Agreement, dated November 27, 2006, by and between NCL (Bahamas) Ltd. and Hines
Reit Airport Corporate Center LLC and a related Guarantee by NCL
Corporation Ltd., and First Amendment, dated November 27, 2006.++8.1
    
    List of subsidiaries of NCL Corporation Ltd.*12.1
    
    Certification under Section 302 of the Sarbanes-Oxley Act of 2002.12.2
    
    Certification under Section 302 of the Sarbanes-Oxley Act of 2002.13.1
    
    Certification under Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Incorporated herein by reference to our registration statement on Form F-4 (File No. 333-128780).**
    
    Incorporated herein by reference to our annual report for the
fiscal year ended December 31, 2005 on Form 20-F filed on March 29, 2006 (File
No. 333-128780).+
    
    Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted
portions have been filed separately with the SEC.++
    
    Confidential treatment has been requested with respect to
certain portions of this exhibit. Omitted portions have been filed
separately with the SEC. 4




---



##### Table of Contents



NCL Corporation Ltd.
Index to Consolidated Financial Statements
 Page(s)Report of Independent Registered Certified Public Accounting Firm
    
    
    F-1Consolidated Financial StatementsConsolidated Statements of Operations
for the years ended December 31, 2004, 2005 and 2006
    
    
    F-2Consolidated Balance Sheets as of December 31, 2005 and 2006
    
    
    F-3Consolidated Statements of Cash Flows
for the years ended December 31, 2004, 2005 and 2006
    
    
    F-4Consolidated Statements of Changes in Shareholders Equity
for the years ended December 31, 2004, 2005 and 2006
    
    
    F-5Notes to the Consolidated Financial Statements
    
    
    F-6 to F-28




---



##### Table of Contents



Report of Independent Registered Certified Public Accounting Firm
 
    
 F-1




---



##### Table of Contents



NCL Corporation Ltd.
Consolidated Statements of Operations
(in thousands of dollars)
  Years Ended December 31,2004
    
    2005
    
    2006(Note 3)RevenuesPassenger ticket revenues
    
    $
    990,758
    
    
    $
    1,194,461
    
    
    $
    1,438,996Onboard and other revenues
    
    
    353,238
    
    
    
    435,262
    
    
    
    537,313Total revenues
    
    
    1,343,996
    
    
    
    1,629,723
    
    
    
    1,976,309Cruise operating expensesCommissions, transportation and other
    
    
    257,947
    
    
    
    328,899
    
    
    
    425,648Onboard and other
    
    
    120,250
    
    
    
    141,957
    
    
    
    186,240Payroll and related
    
    
    243,355
    
    
    
    323,621
    
    
    
    412,943Fuel
    
    
    78,013
    
    
    
    119,412
    
    
    
    164,530Food
    
    
    81,448
    
    
    
    94,105
    
    
    
    102,324Ship charter costs
    
    
    22,046
    
    
    
    28,603
    
    
    
    26,226Other operating
    
    
    204,030
    
    
    
    211,929
    
    
    
    249,471Total cruise operating expenses
    
    
    1,007,089
    
    
    
    1,248,526
    
    
    
    1,567,382Marketing, general and administrative expenses
    
    
    204,560
    
    
    
    225,240
    
    
    
    249,250Depreciation and amortization expenses
    
    
    76,937
    
    
    
    85,615
    
    
    
    119,097Impairment loss
    
    
    14,500
    
    
    
    
    
    
    
    8,000Total operating expenses
    
    
    1,303,086
    
    
    
    1,559,381
    
    
    
    1,943,729Operating income
    
    
    40,910
    
    
    
    70,342
    
    
    
    32,580Non-operating (income) expensesInterest income
    
    
    (1,434
    )
    
    
    (4,803
    )
    
    
    (3,392
    )Interest expense, net of capitalized interest
    
    
    48,886
    
    
    
    87,006
    
    
    
    136,478Other expenses (income), net
    
    
    11,548
    
    
    
    (28,096
    )
    
    
    30,393Total non-operating expenses
    
    
    59,000
    
    
    
    54,107
    
    
    
    163,479Net (loss) income
    
    $
    (18,090
    )
    
    $
    16,235
    
    
    $
    (130,899
    )
  F-2




---



##### Table of Contents



NCL Corporation Ltd.
Consolidated Balance Sheets
(in thousands of dollars, except share data)
  December 31,2005
    
    2006(Note 3)AssetsCurrent assets:Cash and cash equivalents
    
    $
    60,416
    
    
    $
    63,530Restricted cash
    
    
    48,034
    
    
    
    1,226Accounts receivable, net
    
    
    11,691
    
    
    
    10,244Note from Parent
    
    
    12,325
    
    
    
    Amount due from Parent
    
    
    
    
    
    
    5,033Consumable inventories
    
    
    29,460
    
    
    
    33,392Prepaid expenses and other
    
    
    27,203
    
    
    
    24,211Total current assets
    
    
    189,129
    
    
    
    137,636Property and equipment, net
    
    
    3,113,229
    
    
    
    3,816,292Restricted cash
    
    
    
    
    
    
    1,650Goodwill
    
    
    400,254
    
    
    
    400,254Tradenames
    
    
    218,538
    
    
    
    202,538Other assets
    
    
    63,077
    
    
    
    71,254Total assets
    
    $
    3,984,227
    
    
    $
    4,629,624Liabilities and Shareholders EquityCurrent liabilities:Current portion of long-term debt
    
    $
    140,694
    
    
    $
    154,638Accounts payable
    
    
    73,003
    
    
    
    116,947Accrued expenses and other liabilities
    
    
    144,427
    
    
    
    181,821Amount due to Parent
    
    
    3,141
    
    
    
    Advance ticket sales
    
    
    276,644
    
    
    
    314,050Total current liabilities
    
    
    637,909
    
    
    
    767,456Long-term debt
    
    
    1,965,983
    
    
    
    2,405,357Other long-term liabilities
    
    
    2,631
    
    
    
    1,744Total liabilities
    
    
    2,606,523
    
    
    
    3,174,557Commitments and contingencies (Note 10)Shareholders equityCommon stock, $1.00 par value; 12,000 shares authorized;
12,000 shares issued and outstanding
    
    
    12
    
    
    
    12Additional paid-in capital
    
    
    1,501,929
    
    
    
    1,711,114Unamortized stock option expense
    
    
    (593
    )
    
    
    Accumulated other comprehensive loss
    
    
    
    
    
    
    (1,516
    )Accumulated deficit
    
    
    (123,644
    )
    
    
    (254,543
    )Total shareholders equity
    
    
    1,377,704
    
    
    
    1,455,067Total liabilities and shareholders equity
    
    $
    3,984,227
    
    
    $
    4,629,624
  F-3




---



##### Table of Contents



NCL Corporation Ltd.
Consolidated Statements of Cash Flows
(in thousands of dollars)
  Years Ended December 31,2004
    
    2005
    
    2006(Note 3)Cash flows from operating activitiesNet (loss) income
    
    $
    (18,090
    )
    
    $
    16,235
    
    
    $
    (130,899
    )Adjustments to reconcile net (loss) income to
net cash provided by operating activities:Depreciation and amortization expenses
    
    
    76,937
    
    
    
    85,615
    
    
    
    119,097Impairment loss
    
    
    14,500
    
    
    
    
    
    
    
    8,000Loss (gain) on translation of debt
    
    
    9,545
    
    
    
    (29,418
    )
    
    
    35,122Other
    
    
    440
    
    
    
    3,359
    
    
    
    1,347Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (951
    )
    
    
    (885
    )
    
    
    1,447Increase in consumable inventories
    
    
    (349
    )
    
    
    (10,732
    )
    
    
    (3,932
    )Decrease (increase) in prepaid expenses and other assets
    
    
    16,711
    
    
    
    (1,300
    )
    
    
    (535
    )(Decrease) increase in accounts payable
    
    
    (1,640
    )
    
    
    3,128
    
    
    
    43,944Increase in accrued expenses and other liabilities
    
    
    18,938
    
    
    
    20,263
    
    
    
    36,507Increase in advance ticket sales
    
    
    37,717
    
    
    
    50,563
    
    
    
    37,406Net cash provided by operating activities
    
    
    153,758
    
    
    
    136,828
    
    
    
    147,504Cash flows from investing activitiesCapital expenditures
    
    
    (748,267
    )
    
    
    (658,795
    )
    
    
    (809,403
    )Decrease (increase) in restricted cash
    
    
    2,204
    
    
    
    (19,514
    )
    
    
    45,158Cash paid for acquisition of business, net of cash received
    
    
    (4,647
    )
    
    
    
    
    
    
    Proceeds received for transfer of tradename to Parent
    
    
    
    
    
    
    
    
    
    
    8,000Net cash used in investing activities
    
    
    (750,710
    )
    
    
    (678,309
    )
    
    
    (756,245
    )Cash flows from financing activitiesPrincipal repayments on long-term debt
    
    
    (505,029
    )
    
    
    (280,440
    )
    
    
    (809,740
    )Proceeds from debt
    
    
    1,090,153
    
    
    
    715,696
    
    
    
    1,219,557Proceeds from Parent
    
    
    32,566
    
    
    
    1,868
    
    
    
    4,151Contribution from Parent
    
    
    
    
    
    
    461
    
    
    
    208,000Payment of loan arrangement fees
    
    
    (47,455
    )
    
    
    (8,112
    )
    
    
    (10,113
    )Net cash provided by financing activities
    
    
    570,235
    
    
    
    429,473
    
    
    
    611,855Net (decrease) increase in cash and cash equivalents
    
    
    (26,717
    )
    
    
    (112,008
    )
    
    
    3,114Cash and cash equivalents at beginning of period
    
    
    199,141
    
    
    
    172,424
    
    
    
    60,416Cash and cash equivalents at end of period
    
    $
    172,424
    
    
    $
    60,416
    
    
    $
    63,530Supplemental disclosures (Note 11)Interest paid (net of amounts capitalized)
    
    $
    29,633
    
    
    $
    88,811
    
    
    $
    133,958
  F-4




---



##### Table of Contents



NCL Corporation Ltd.
Consolidated Statements of Changes in Shareholders Equity
For the Years Ended December 31, 2004, 2005 and 2006
(in thousands of dollars)
  AccumulatedAdditional
    
    Unamortized
    
    other
    
    (Note 3)Common
    
    paid-in
    
    stock option
    
    comprehensive
    
    Accumulatedstock
    
    capital
    
    expense
    
    loss
    
    deficit
    
    TotalBalance, December 31,
2003
    
    $
    12
    
    
    $
    1,129,123
    
    
    $
    (768
    )
    
    
    
    
    
    $
    (121,789
    )
    
    $
    1,006,578Issuance of stock options
    
    
    
    
    
    
    451
    
    
    
    (178
    )
    
    
    
    
    
    
    
    
    
    
    273Accretion of stock
option expense
    
    
    
    
    
    
    
    
    
    
    167
    
    
    
    
    
    
    
    
    
    
    
    167Contribution from Parent
(Note 6 )
    
    
    
    
    
    
    362,049
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    362,049Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,090
    )
    
    
    (18,090
    )Balance, December 31,
2004
    
    
    12
    
    
    
    1,491,623
    
    
    
    (779
    )
    
    
    
    
    
    
    (139,879
    )
    
    
    1,350,977Issuance of stock options
    
    
    
    
    
    
    94
    
    
    
    (38
    )
    
    
    
    
    
    
    
    
    
    
    56Accretion of stock
option expense
    
    
    
    
    
    
    
    
    
    
    224
    
    
    
    
    
    
    
    
    
    
    
    224Adjustments to variable
stock options
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64Contribution from Parent
(Note 6)
    
    
    
    
    
    
    10,148
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,148Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,235
    
    
    
    16,235Balance, December 31,
2005
    
    
    12
    
    
    
    1,501,929
    
    
    
    (593
    )
    
    
    
    
    
    
    (123,644
    )
    
    
    1,377,704Non-cash stock-based
compensation
    
    
    
    
    
    
    1,559
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,559Reclassification of
unamortized stock option
expense
    
    
    
    
    
    
    (593
    )
    
    
    593
    
    
    
    
    
    
    
    
    
    
    
    Contribution from Parent
(Note 6)
    
    
    
    
    
    
    208,219
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    208,219Changes related to cash
flow derivative hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,516
    )
    
    
    
    
    
    
    (1,516
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (130,899
    )
    
    
    (130,899
    )Balance, December 31,
2006
    
    $
    12
    
    
    $
    1,711,114
    
    
    $
    
    
    
    $
    (1,516
    )
    
    
    $(254,543
    )
    
    $
    1,455,067
   Years Ended December 31,2004
    
    2005
    
    2006Net (loss) income
    
    $
    (18,090
    )
    
    $
    16,235
    
    
    $
    (130,899
    )Changes related to cash flow derivative hedges
    
    
    
    
    
    
    
    
    
    
    (1,516
    )Total comprehensive (loss) income
    
    $
    (18,090
    )
    
    $
    16,235
    
    
    $
    (132,415
    )
 Changes related to cash flow derivative hedgesAccumulated other comprehensive income at beginning of year
    
    $
    
    
    
    $
    
    
    
    $
    Current-period change
    
    
    
    
    
    
    
    
    
    
    (1,516
    )Accumulated other comprehensive loss at end of year
    
    $
    
    
    
    $
    
    
    
    $
    (1,516
    )
  F-5




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  1.
    
    Description of Business and OrganizationOn December 15, 2003, we were incorporated in Bermuda as a wholly-owned subsidiary of Star
Cruises Limited (the Parent). In connection with our formation, Star Cruises Limited
transferred the stock it held in Arrasas Limited (Arrasas) to us. This transaction has been
accounted for at historical cost since we and Arrasas are under the common control of Star
Cruises Limited. The accompanying consolidated financial statements have been prepared as if
we were in existence on January 1, 2003. Accordingly, the consolidated statements of changes in shareholders equity
has been adjusted to reflect this capital structure for all periods presented.We operate three cruise brands, Norwegian Cruise Line, NCL America, and Orient Lines. As of
December 31, 2006, we operated 14 ships offering cruises in Antarctica, the Caribbean, the
Bahamas, Bermuda, Alaska, Mexico, Europe, Hawaii, New England, North Africa and Central and
South America and Scandinavia.2.
    
    Summary of Significant Accounting PoliciesThe following accounting policies have been used consistently in the preparation of the
consolidated financial statements:Basis of PresentationThe consolidated financial statements have been prepared in accordance with generally accepted
accounting principles in the United States of America. Estimates are required for the
preparation of consolidated financial statements in accordance with generally accepted
accounting principles. Actual results could differ from those estimates. All significant
intercompany accounts and transactions are eliminated in consolidation.Revenue and Expense RecognitionDeposits received from customers for future voyages are recorded as advance ticket sales until
such passenger revenue is earned. Revenues are recognized when the relevant services have
been rendered. Passenger ticket revenues and all associated direct costs of a voyage are
recognized on a pro rata basis over the period of the voyage.Cash and Cash EquivalentsCash and cash equivalents include cash and investments with original maturities of three
months or less when purchased.Restricted CashRestricted cash consists of cash collateral in respect of certain agreements, including
requirements imposed by our credit card processor (we refer you to
Note 10(f)). Restricted cash
fluctuates based on the level of advance ticket sales processed. In May 2006, cash collateral
requirements imposed by our credit card processors were lifted. These requirements can be
reinstated at the credit card processors discretion.
 F-6




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  Accounts ReceivableAccounts receivable are shown net of an allowance of $2.0 million and $2.5 million at December
31, 2005 and 2006, respectively.Foreign CurrencyThe majority of our transactions are settled in U.S. dollars. Gains or losses resulting from
transactions denominated in other currencies are recognized in the consolidated statements of
operations at each balance sheet date.Property and EquipmentProperty and equipment are recorded at cost. Major renewals and improvements are capitalized
while the cost of repairs and maintenance, including dry-docking costs, are charged to
expense as incurred. Gains or losses on the sale of property and equipment are recorded as a
component of operating income in the consolidated statements of operations.Depreciation is computed on the straight-line basis over the estimated useful lives of the
assets and after a 15% reduction for the estimated salvage values of ships as follows:
 Useful LifeCruise ships
    
    30 yearsOther property and equipment
    
    3-20 years
 Leasehold improvements are amortized on a straight-line basis over the shorter of lease
term or related asset life.Long-lived assets are reviewed for impairments, based on estimated future cash flows, whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Assets are grouped and evaluated at the lowest level for which there are
identifiable cash flows that are largely independent of the cash flows of other groups of
assets. We consider historical performance and future estimated results in our evaluation of
potential impairment and then compare the carrying amount of the asset to the estimated future
cash flows expected to result from the use of the asset. If the carrying amount of the asset
exceeds estimated expected undiscounted future cash flows, we measure the amount of the
impairment by comparing the carrying amount of the asset to its fair value. We estimate fair
value based on the best information available making whatever estimates, judgments and
projections are considered necessary. The estimation of fair value is generally measured by
discounting expected future cash flows at discount rates commensurate with the risk involved.Goodwill and TradenamesGoodwill represents the excess of cost over the fair value of net assets acquired. We review
goodwill and tradenames for impairment annually or whenever events or changes in circumstances
indicate that the carrying amount of goodwill and tradenames may not be fully recoverable.We have concluded that our business has a single reportable and operating segment, with each
ship considered to be a component. Each component constitutes a business for which discrete
financial information is available and management regularly reviews the operating results and,
therefore, each component is considered a reporting unit. Our reporting units have similar
economic
 F-7




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements




characteristics, including similar margins and similar products and services,
therefore, we aggregate all of the reporting units in assessing goodwill.The impairment review of goodwill is based on the expected future cash flows of the ships.
The impairment review considers fair value estimated by our guideline method which utilizes
market values of companies with similar operations and the transaction approach whereby we
estimate fair value based on a recent sale transaction of a similar company.In 2006, we transferred the Orient Lines tradename to Star Cruises Limited for $16.0 million
and recognized an impairment loss of $8.0 million. The proceeds received from the transfer in
excess of the net book value of the Orient Lines tradename have been recorded as a capital
contribution from Parent in our consolidated statement of changes in shareholders equity for
the year ended December 31, 2006.Consumable InventoriesConsumable inventories mainly consist of provisions and supplies and are carried at the lower
of cost determined on a weighted-average basis or net realizable value.Advertising CostsAdvertising costs incurred that result in tangible assets, including brochures, are treated as
prepaid supplies and charged to expense as consumed. Television production costs are recorded
as prepaid expenses and expensed when the television advertisement is initially run.
Advertising costs of approximately $6.9 million and $3.8 million as of December 31, 2005 and
2006, respectively, are included in prepaid expenses and other. Advertising costs totaled
$75.2 million, $79.1 and $76.8 million for the years ended December 31, 2004, 2005 and 2006,
respectively.Dry-docking ExpensesDuring the second quarter of 2006, we elected to change our method of accounting for
dry-docking costs from the deferral method, under which costs associated with dry-docking a
ship are deferred and charged to expense over the period to a ships next scheduled
dry-docking, to the direct expense method, under which we expense all dry-docking costs as
incurred. Accordingly, we have adjusted our previously reported financial information for
all periods presented for this change in the method of accounting for dry-docking costs. As
a result of the change in the method of accounting for dry-docking costs to the direct
expense method, we have classified such costs as other operating expenses in our consolidated
statements of operations consistent with our method of expensing repairs and maintenance
costs. We refer you to Note 3. Change in Accounting for Dry-docking Costs.Income TaxesDeferred tax assets and liabilities are calculated in accordance with the liability method.
Deferred taxes are recorded using the currently enacted tax rates that apply in the periods
differences are expected to reverse. Deferred taxes are not discounted. In conjunction with
business acquisitions, we record acquired deferred tax assets and liabilities.We provide a valuation allowance on deferred tax assets when it is more likely than not that
such assets will not be realized. With respect to acquired deferred tax assets, future
reversals of the


F-8



---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  valuation allowance will first be applied against goodwill and other
intangibles before recognition of a benefit in the consolidated statements of operations.Share-Based CompensationEffective January 1, 2006, we adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS 123R). SFAS 123R
requires the measurement and recognition of compensation expense at fair value for all
share-based awards over their vesting period. Prior to January 1, 2006, we accounted for
share-based compensation plans in accordance with the provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), and disclosed pro forma information as
if we had applied the fair value recognition provisions of SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS 123).We have adopted SFAS 123R under the modified prospective application transition method.
Under this method, the share-based compensation expense recognized beginning January 1, 2006
includes compensation cost for all employee share-based awards granted prior to, but not
vested as of December 31, 2005, based on the grant date fair value originally estimated in
accordance with the provisions of SFAS 123 over their remaining vesting period. Compensation
expense associated with awards granted subsequent to January 1, 2006 will be based on the
grant date fair value estimated in accordance with the provisions of SFAS 123R. In addition,
SFAS 123R requires us to estimate the amount of expected forfeitures when calculating the
compensation expense, instead of accounting for forfeitures as they occurred, which was our
previous method. Prior period results are not restated under the modified prospective
application method. As of January 1, 2006, the cumulative effect of adopting the expected
forfeiture method was not significant.The following table illustrates the effect on net (loss) income for the years ended December
31, 2004 and 2005 if we had applied the fair value recognition provisions of SFAS 123 to
share-based employee compensation (in thousands of dollars):
 2004
    
    2005Net (loss) income
    
    $
    (18,090
    )
    
    $
    16,235Add:Total share-based employee compensation expense included in net (loss) income
    
    
    440
    
    
    
    343Deduct:Total share-based employee compensation expense determined under fair value
method for all awards
    
    
    (2,373
    )
    
    
    (3,524
    )Pro forma net (loss) income
    
    $
    (20,023
    )
    
    $
    13,054
 Stock Option PlansOn December 28, 2006, Star Cruises Limited completed the issuance of 1,484,084,467 rights
shares. As a result of the rights issue, the exercise price and the number of ordinary
shares issuable upon exercise in full of the outstanding share options were adjusted
accordingly. At such time, 499 employees received 3,073,108 incremental shares due to the
rights offering. This rights offering has been accounted for as a modification under SFAS
123R and has resulted in an incremental expense of $0.3 million as of the modification date,
December 28, 2006. The extended binomial options pricing model was used to estimate the
incremental fair value, (i.e., the
 F-9




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  difference between the fair value of the modified share
options and that of the original share options).Total compensation expense recognized under SFAS 123R for options issued under the
Pre-Listing Employee Share Option Scheme and the Post-Listing Share Option Scheme was $1.6
million for the year ended December 31, 2006, of which approximately $0.8 million has been
included within marketing, general and administrative expenses and approximately $0.8 million
in payroll and related expenses in our consolidated statements of operations. This amount includes the $0.3
million for the incremental expense due to the modification discussed above.In January 2000, Star Cruises Limited granted a stock option to an executive to purchase
200,000 shares of Star Cruises Limiteds common stock at $2.275 per share under Star Cruises
Limiteds Pre-Listing Employee Share Option Scheme. The option vests over a period through
2009. The number of shares of common stock subject to the stock option was adjusted for the
rights offerings. At December 31, 2006, the executive had a stock option to purchase 648,963
shares of Star Cruises Limiteds common stock at a price of $0.40 per share. No further
options can be granted under the Pre-Listing Employee Share Option Scheme.In November 2000, Star Cruises Limited adopted a Post-Listing Employee Share Option Scheme
for the employees of Star Cruises Limited and our employees that provides for the granting of
stock options in Star Cruises Limiteds common stock. The maximum number of stock options
available for issue under the Post-Listing Employee Share Option Scheme and options granted
under any other schemes of Star Cruises Limited is 132,733,953. The stock options are
exercisable over a ten-year period from the date the stock options are awarded. Fifty
percent of the total stock options granted vests as follows: 30% two years from the award
date, 20% three years from the award date and an additional 10% annually in the subsequent
years until the options are fully vested. The other 50% of the total stock options granted
vests pursuant to the same schedule assuming that we achieve certain performance targets, as
defined in the Post-Listing Employee Share Option Scheme. Pursuant to the terms of the grant
award, the employee is required to sign and return documentation of acceptance of the stock
option award along with $1.00 consideration. Generally, options issued under the
Post-Listing Employee Share Option Scheme are granted at a price not less than the fair value
of the shares on the date of grant.In August 2004, Star Cruises Limited authorized the additional grant of approximately
7,974,000 share options to our management under the Post-Listing Employee Share Option
Scheme. The terms and conditions of this grant are consistent with the previous options
granted under the Post-Listing Employee Share Option Scheme with the exception that the
options vest two years from the award date.The Post-Listing Employee Share Option Scheme provides that a former employee must pay in
cash to us liquidated damages, as defined, in the Post-Listing Share Option Scheme, if the
employee leaves us and engages in any trade, employment, business or activity for six months
after leaving us that would be considered in competition with the work done for us. The
liquidated damages are equivalent to a percentage of the capital appreciation of the stock
option, defined as the difference between the market price of the stock on the date of the
exercise of the stock option and the exercise price of the stock option, less the amount of
any income taxes paid.The weighted-average fair value of options granted to employees during each of the years
ended December 31, 2004 and 2005 was $0.16. The weighted-average fair value of options
granted to employees as of the modification date, December 28, 2006, was $0.11. The fair
value of options
 F-10




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  on the grant and modification dates was estimated using an extended binomial
options pricing model with the following assumptions:
 Years Ended December 31,2004
    
    2005
    
    2006Dividend yield
    
    
    
    
    
    
    
    
    
    
    Expected stock price volatility
    
    
    40.2
    %
    
    
    40.2
    %
    
    
    49.9
    %Risk-free interest rate
    
    
    3.4
    %
    
    
    3.4
    %
    
    
    3.7
    %Expected option life
    
    10 years
    
    10 years
    
    10 years
 Expected volatility was based on historical volatility. The risk-free interest rate was
based on the Hong Kong government bond rate with a remaining term equal to the expected
option life assumed at the date of grant. The expected option life was calculated based on
the contractual term of the option, historical exercise experience and the underlying terms
of the respective options.Upon adoption of SFAS 123R, $0.6 million in unamortized stock option expense related to
awards that had been subject to variable accounting under APB 25 was eliminated against
additional paid-in capital for the year ended December 31, 2006.Segment ReportingWe operate under three brand names, Norwegian Cruise Line, NCL America, and Orient Lines. The
brands have been aggregated as a single operating segment based on the similarity of their
economic characteristics, as well as products and services provided.Although we sell cruises on an international basis, our passenger ticket revenue is primarily
attributed to passengers who made reservations in North America. For the years ended December
31, 2004, 2005 and 2006, revenues attributable to North American passengers were approximately
89%, 90% and 87%, respectively.Financial InstrumentsFrom time to time, we enter into derivative instruments, primarily forward contracts, swaps
and options, to reduce our exposure to fluctuations in foreign currency exchange, interest and
fuel rates. The criteria used to determine whether a transaction qualifies for hedge
accounting include correlation between fluctuations in the fair value of the hedged item and
the fair value of the related derivative instrument and the effectiveness of the hedge. To
the extent that an instrument is not effective as a hedge, gains and losses are recognized in
the consolidated statements of operations as a gain or loss in other expenses (income), net
(we refer you to Note 7).Recent Accounting PronouncementsIn June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement
109 (FIN 48). FIN 48 prescribes a comprehensive model for recognizing, measuring,
presenting and disclosing in the financial statements tax positions taken or expected to be
taken on a tax return. The provisions of FIN 48 are effective beginning January 1, 2007 with
the cumulative effect of the change in accounting principle recorded as an adjustment to the
opening balance of accumulated
 F-11




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  deficit. We do not expect that the adoption of FIN 48 will
have a material impact on our consolidated financial position and results of operations.In June 2006, the Emerging Issues Task Force (EITF) ratified a consensus on EITF Issue No.
06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be
Presented in the Income Statement (that is, Gross versus Net Presentation). Taxes within
the scope of EITF Issue No. 06-3 include any taxes assessed by a governmental authority that
are directly imposed on a revenue-producing transaction between a seller and a customer and
may include, but are not limited to, sales taxes, use taxes, value-added taxes, and some
excise taxes. We have adopted EITF Issue No. 06-3 as our policy is to present these taxes on
a gross basis. The amounts included on a gross basis are $53.8 million, $68.7 million and $83.3 million for the
years ended December 31, 2004, 2005 and 2006, respectively.In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157).
SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. SFAS No. 157 is effective for financial
statements issued for our fiscal year beginning in 2008 and interim periods within that year.
We are currently assessing the impact of SFAS No. 157 on our consolidated financial position
and results of operations.In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106,
132(R) (SFAS No. 158). SFAS No. 158 requires employers to fully recognize in their
financial statements the obligations associated with single-employer defined benefit pension
plans, retiree healthcare plans, and other postretirement plans. Specifically, it requires a
company to recognize on its balance sheet an asset for a plans overfunded status or a
liability for a plans underfunded status, measure a plans assets and its obligations that
determine its funded status as of the end of the employers fiscal year and recognize changes
in the funded status of a plan through comprehensive income in the year in which the changes
occur. SFAS No. 158 is effective for financial statements issued as of December 31, 2006 and
is to be applied prospectively. The adoption of SFAS No. 158 did not have an impact on our
consolidated financial statements as our plans are not within the scope of SFAS No. 158.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115 (SFAS No.
159). It permits all entities to choose to elect, at specified election dates, to measure
eligible financial instruments at fair value. An entity shall report unrealized gains and
losses on items for which the fair value option has been elected in earnings at each
subsequent reporting date, and recognize upfront costs and fees related to those items in
earnings as incurred and not deferred. SFAS No. 159 applies to fiscal years beginning after
November 15, 2007, with early adoption permitted for an entity that has also elected to apply
the provisions of SFAS No. 157. An entity is prohibited from retrospectively applying SFAS
No. 159, unless it chooses early adoption. We are currently assessing the
impact of SFAS No. 159 on our consolidated financial position and results of operations.ReclassificationsCertain prior year balances have been reclassified to conform to the current years
presentation.
 F-12




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
 3.
    
    Change in Accounting for Dry-docking CostsDuring the second quarter of 2006, we elected to change our method of accounting for
dry-docking costs from the deferral method, under which costs associated with dry-docking a
ship are deferred and charged to expense over the period to a ships next scheduled
dry-docking, to the direct expense method, under which we will expense all dry-docking costs
as incurred. We view this as a preferable method since it eliminates the subjectivity and
significant amount of time that is needed in determining which costs related to dry-docking
activities should be deferred and amortized over a future period. We have adopted this
change in accounting policy in accordance with SFAS No. 154, Accounting Changes and Error
Corrections, which requires that we report changes in accounting policy by retrospectively
applying new policies to all prior periods presented, unless it is impractical to determine
the prior
period impacts. Accordingly, we have adjusted our previously reported
financial information for all periods presented for this change in the method of accounting
for dry-docking costs. The effects of this change in accounting policy were as follows (in
thousands of dollars):Consolidated Statements of Operations
 Year ended
    
    Year endedDecember 31, 2004
    
    December 31, 2005Deferral
    
    Direct
    
    Effect
    
    Deferral
    
    Direct
    
    EffectMethod
    
    Method
    
    of Change
    
    Method
    
    Method
    
    of ChangeOther operating expenses (a)
    
    $
    184,188
    
    
    $
    204,030
    
    
    $
    19,842
    
    
    $
    190,442
    
    
    $
    211,929
    
    
    $
    21,487Depreciation and amortization
expenses (a)
    
    
    87,397
    
    
    
    76,937
    
    
    
    (10,460
    )
    
    
    104,181
    
    
    
    85,615
    
    
    
    (18,566
    )Net (loss) income
    
    
    (8,708
    )
    
    
    (18,090
    )
    
    
    (9,382
    )
    
    
    19,156
    
    
    
    16,235
    
    
    
    (2,921
    )
 Year endedDecember 31, 2006Deferral
    
    Direct
    
    EffectMethod (b)
    
    Method
    
    of ChangeOther
operating
expenses(a)
    
    $
    230,364
    
    
    $
    249,471
    
    
    $
    19,107Depreciation and
amortization expenses(a)
    
    
    140,726
    
    
    
    119,097
    
    
    
    (21,629
    )Net loss
    
    
    (133,421
    )
    
    
    (130,899
    )
    
    
    2,522
 F-13




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
 Consolidated Balance Sheets
 December 31, 2005
    
    December 31, 2006Deferral
    
    Direct
    
    Effect
    
    Deferral
    
    Direct
    
    EffectMethod
    
    Method
    
    of Change
    
    Method (b)
    
    Method
    
    of ChangeDeferred dry-docking costs current
    
    $
    14,591
    
    
    $
    
    
    
    $
    (14,591
    )
    
    $
    15,820
    
    
    $
    
    
    
    $
    (15,820
    )Deferred
dry-docking costs
non-current
    
    
    9,273
    
    
    
    
    
    
    
    (9,273
    )
    
    
    7,110
    
    
    
    
    
    
    
    (7,110
    )Accrued expenses
and other
liabilities
    
    
    142,839
    
    
    
    144,427
    
    
    
    (1,588
    )
    
    
    
    
    
    
    
    
    
    
    Accumulated deficit
    
    
    (98,192
    )
    
    
    (123,644
    )
    
    
    (25,452
    )
    
    
    (231,613
    )
    
    
    (254,543
    )
    
    
    (22,930
    )
 (a)
    
    As a result of the change in the method of accounting for dry-docking costs to the
direct expense method, we have classified such costs as other operating expenses in our
consolidated statements of operations consistent with our method of expensing repairs and
maintenance costs.(b)
    
    The amounts disclosed under the deferral method as of and for the year ended December 31,
2006 are based on the estimated effect of not changing our method of accounting for
dry-docking costs to the direct expense method for this current period. Accordingly, these
estimated current period amounts have not been previously reported, but are being disclosed
in accordance with the requirements of SFAS No. 154.In addition, our accumulated deficit increased by $13.2 million at December 31, 2003 from
$108.6 million to $121.8 million, as a result of this change in the method of accounting for
dry-docking costs.4.
    
    Property and EquipmentProperty and equipment at December 31, 2005 and 2006 consists of the following (in thousands
of dollars):
 2005
    
    2006Cruise ships
    
    $
    2,849,784
    
    
    $
    3,876,857Cruise ships under construction
    
    
    461,317
    
    
    
    223,945Other
property and equipment
    
    
    84,182
    
    
    
    115,8133,395,283
    
    
    
    4,216,615Less: accumulated depreciation.
    
    
    (282,054
    )
    
    
    (400,323
    )Total
    
    $
    3,113,229
    
    
    $
    3,816,292
 Depreciation expense for the years ended December 31, 2004, 2005 and 2006 was $76.9
million, $85.6 million and $119.1 million, respectively.Ships under construction include progress payments for the construction of new ships as well
as planning, design, interest, commitment fees and other associated costs.
 F-14




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  Interest costs associated with the construction of the cruise ships are capitalized during the
construction period and amounted to $17.4 million, $32.2 million and $21.9 million for the
years ended December 31, 2004, 2005 and 2006, respectively.In September 2006, we entered into a 29.0 million Euro or $36.8 million, based on the
Euro/U.S. dollar exchange rate at September 30, 2006, settlement agreement in connection with
our pre- and post-ship delivery claims against the builder of Pride of America. Settlement
amounts of $7.3 million related to our claims for post-delivery costs incurred by us have been
included as other income in our consolidated statements of operations.5.
    
    Long-Term DebtLong-term debt as of December 31, 2005 and 2006 consists of the following (in thousands of
dollars):
 2005
    
    2006$300.0 million Senior Secured Term Loan, LIBOR + applicable margin (1.50%
at December 31, 2005 and 2006), due through 2010
    
    $
    265,000
    
    
    $
    230,000$500.0 million Senior Secured Revolving Credit Facility, LIBOR + applicable
margin (1.50% at December 31, 2005 and 2006), due 2010
    
    
    280,000
    
    
    
    280,000$610.0 million Senior Secured Revolving Credit Facility, LIBOR + applicable
margin (1.50% at December 31, 2006), due through 2013
    
    
    
    
    
    
    390,000Euro 624.0 million Norwegian Pearland Norwegian GemRevolving Credit
Facility, EURIBOR + applicable margin (1.2375% at December 31, 2006), due
through 2018
    
    
    
    
    
    
    410,753$250.0 million 10 5/8% Senior Notes due through 2014
    
    
    250,000
    
    
    
    250,000$626.9 million Syndicated Term Loan, LIBOR + 1.40% , due through 2014
    
    
    250,769
    
    
    
    $225.0 million Norwegian SunLoan, LIBOR + 1.40% , due through 2011
    
    
    189,000
    
    
    
    Euro 258.0 million Pride of AmericaHermes Loan, 5.715%, due through 2017
    
    
    292,219
    
    
    
    266,808Euro 40.0 million Pride of AmericaCommercial Loan, 6.595%, due through 2017
    
    
    44,419
    
    
    
    40,557$334.1 million Norwegian JewelLoan, 6.1075%, due through 2017
    
    
    324,261
    
    
    
    297,239Euro
308.1 million Pride of HawaiiLoan, EURIBOR + 0.75%, due through 2018
    
    
    200,120
    
    
    
    378,209Other long-term debt
    
    
    10,889
    
    
    
    16,4292,106,677
    
    
    
    2,559,995Less: Current portion
    
    
    (140,694
    )
    
    
    (154,638
    )$
    1,965,983
    
    
    $
    2,405,357
 In October 2005, we entered into a revolving credit facility agreement for up to Euro
624.0 million. The facility can only be drawn for the payments due under Norwegian Pearland
Norwegian Gemshipbuilding contracts. We drew Euro 311.2 million ($410.8 million based on the
Euro/U.S. dollar exchange rate at drawdown) for delivery of Norwegian Pearl. After the
initial drawdown, the facility converted to a revolving credit facility and can be used for
general corporate and working capital purposes. The size of the facility decreases over the
life of the loan. The facility matures 12 years following delivery of the relevant ship. The
facility bears interest at a rate that varies according to LIBOR or EURIBOR, depending on the
denomination of the underlying balance.
 F-15




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  In December 2005, the Euro 258.0 million Pride of AmericaHermes Loan was converted into U.S.
dollars, and the applicable interest rate was converted from a floating LIBOR-based rate to a
fixed rate of 5.715%.In March 2006, we amended the Euro 40.0 million Pride of AmericaCommercial Loan, converting
it from a floating-rate loan bearing interest at a rate based on LIBOR plus a margin of 135
basis points to a fixed-rate loan bearing interest at a rate of 6.595%.In April 2006, we amended the $334.1 million Norwegian JewelLoan, converting it from a
floating-rate loan bearing interest at a rate based on LIBOR plus a margin of 75 basis points
to a fixed-rate loan bearing interest at a rate of 6.1075%.In April 2006, we took delivery of Pride of Hawaii. The balance due to the shipbuilding
yard was paid on delivery from a drawdown of Euro 130.0 million ($157.4 million based on the
Euro/U.S. dollar exchange rate at drawdown) under the Euro 308.1 million Pride of Hawaii
Loan. At December 31, 2006, Euro 286.5 million ($378.2 million based on the Euro/U.S, dollar
exchange rate) was outstanding.In September 2006, we obtained export credit financing for 80% of the contract amount of each
of the two F3 ships scheduled for delivery in 2009 and 2010. These financings cannot exceed
approximately $0.9 billion each, based on the Euro/U.S. dollar exchange rate at December 31,
2006. These financings are term loans each collateralized by the respective ship and are due
12 years from delivery date, through 2021 and 2022, respectively. The financing for the first
ship is denominated in U.S. dollars bearing a fixed interest rate of 6.05% and the financing for the
second ship is denominated in Euro bearing a fixed interest rate of 4.89%. Under the terms of
each loan agreement, we have the ability to cancel the financing up to 60 days prior to the
delivery date for the ship.In December 2006, we entered into a $610.0 million senior secured revolving credit facility.
The facility refinanced two existing loans collateralized by Norwegian Dawnand Norwegian Sun
and provides additional borrowing capacity for general corporate purposes. The facility is
available in two tranches of $510.0 million and $100.0 million. According to the terms of
this facility, the availability under the facility will increase by $100.0 million to the full
$610.0 million in the event we receive an additional $200.0 million of equity,which we have
not received as of February 23, 2007. The facility has no amortization for the first 36
months, bears interest at LIBOR plus a margin of 150 basis points at December 31, 2006
(subject to certain adjustments) and matures in 2013.At December 31, 2005 and 2006, we had long-term debt denominated in Euro with a balance of
$200.1 million and $789.0 million, respectively. As a result of the translation of these
borrowings, we recognized a foreign currency translation loss of $9.5 million, gain of $29.4
million and a loss of $35.1 million for the years ended December 31, 2004, 2005 and 2006,
respectively. These amounts were recorded as a component of other expenses (income), net, in
the consolidated statements of operations.Our availability under our $500.0 million and $610.0 million senior secured revolving credit
facilities at December 31, 2006, was $220.0 million and $120.0 million, respectively.There are no restrictions in the agreements that limit intercompany borrowings or dividends
between our subsidiaries that would impact our ability to meet our cash obligations.
 F-16




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  Costs incurred in connection with the arranging of loan financing have been deferred and are
amortized over the life of the loan agreement. The amortization included in interest expense
for the years ended December 31, 2004, 2005 and 2006 was $3.9 million, $3.9 million and $5.5
million, respectively.Our debt agreements contain covenants that require us, among other things, to maintain a
minimum level of free liquidity, limit our net funded debt-to-capital ratio, and restrict our ability
to pay dividends. We were in compliance with all covenants as of December 31, 2005 and 2006.
In November 2006, our lenders agreed to modify our debt agreements by increasing our maximum
permitted total net funded debt-to-capital ratio from 65% to 70%. Our ships and substantially
all other property are pledged as collateral for our debt.The following is a schedule of principal repayments of the long-term debt based on the
Euro/U.S. dollar exchange rate at December 31, 2006 (in thousands of dollars):
 2007
    
    $
    154,6382008
    
    
    154,3092009
    
    
    179,3132010
    
    
    575,0582011
    
    
    169,560
 We had an accrued interest liability of $29.8 million and $35.1 million at December 31,
2005 and 2006, respectively.6.
    
    Related Party DisclosuresIn April 2004, Star Cruises Limited completed a reorganization transaction (the
Reorganization) which included the formation of NCL Corporation Ltd. (we refer you to Note
1). In connection with the Reorganization, we transferred six ships at their existing net
book values of approximately $778.0 million along with approximately $403.2 million of
existing debt associated with these ships. The difference of approximately $374.8 million
between the net book value of the ships and the outstanding debt balance was recorded as a
reduction of our amount due to Parent on the date of the transaction. In addition, Star
Cruises Limited agreed to forgive an additional $366.6 million owed by us to Star Cruises
Limited at December 31, 2003. This forgiveness was recorded as additional paid-in capital
during the year ended December 31, 2004.In connection with the Reorganization, substantially all of the guarantees and mortgages that
had been provided by our subsidiaries to the lenders of Star Cruises Limited were released and
substantially all of the guarantees provided by Star Cruises Limited to our lenders were
released. Our lenders were provided guarantees by us in lieu of the previous guarantees
provided by Star Cruises Limited.After the transfer of the six ships to Star Cruises Limited, we entered into charter
agreements for the six ships with Star Cruises Limited for periods ranging from one to six
years. During such charter periods, we will continue to operate and maintain such ships. We
are required to return the ships at the end of the term of the charter agreements in the same
condition as when the ships were delivered to us at the commencement of the charter term.In April 2004, we transferred Norway, and a related $19.7 million insurance receivable to Star
Cruises Limited in exchange for a non-interest bearing promissory note in the amount of $46.5
million. The promissory note or a portion of the outstanding balance thereof is payable to us
by
 F-17




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  Star Cruises Limited at the time of disposal of the ship and the recovery of certain
amounts from the insurance syndicate who insured the ship in May 2003 at the time there was an
incident onboard. The face value of the promissory note represented our carrying value of
Norwayon April 23, 2004, which estimated the anticipated proceeds from the sale of the ship,
and the estimated amount to be recovered from the insurance syndicate.In October 2004, we received insurance proceeds of $19.7 million that reduced the outstanding
balance of the promissory note to $26.8 million. Subsequently, management determined the
probability of finding a qualified third party buyer was not likely and accordingly, in the
fourth quarter of 2004, we recorded an impairment charge in the amount of $14.5 million to
reduce the carrying value of the promissory note to the ships estimated salvage value,
approximately $12.3 million, at December 31, 2004. The promissory note, which was settled in
January 2006, is classified as a current asset in the accompanying consolidated balance sheets
at December 31, 2005.In July 2004, we purchased Norwegian Spiritfrom Star Cruises Limited for $307.6 million.
Approximately $4.7 million of the amount originally transferred was accounted for as a
reduction of additional paid-in capital for the year ended December 31, 2004. Such amount
represented the excess of the amount paid by us to Star Cruises Limited in connection with the
purchase of Norwegian Spiritover the net book value of the ship on the books of Star Cruises
Limited at the time of the transaction.Amounts due to Star Cruises Limited at December 31, 2005 of $3.1 million and amounts due from
Star Cruises Limited at December 31, 2006 of $5.0 million are non-interest bearing and
represent short-term intercompany transactions.In 2006, we transferred the Orient Lines tradename to Star Cruises Limited for $16.0 million
and recognized an impairment loss of $8.0 million. The proceeds received from the transfer in
excess of the net book value of the Orient Lines tradename have been recorded as a capital
contribution from Parent in our consolidated statement of changes in shareholders equity for
the year ended December 31, 2006. During 2006, we received
$208.0 million in capital
contributions from Star Cruises Limited including the amounts related
to the Orient Lines tradename.In addition, for the years ended December 31, 2004, 2005 and 2006, we recorded legal and other costs in the
amounts of $0.2 million, $10.1 million and $0.2 million, respectively, all of which was
reimbursed to us by Star Cruises Limited. Such amounts were recorded
as capital contributions in the respective years.At December 31, 2006, the Lim Family directly and indirectly controls approximately 73% of
Star Cruises Limited, which in turn owns 100% of our equity. As a result of the ownership,
the Lim Family has the ability to determine our corporate policies, appoint our directors and
officers and control those corporate actions that require shareholder approval.7.
    
    Financial InstrumentsReported fair values are based on a variety of factors and assumptions. Accordingly, the fair
values may not represent actual values of the financial instruments that could have been
realized as of the balance sheet date or that will be realized in the future and do not
include expenses that could be incurred in an actual sale or settlement. Our financial
instruments are not held for trading or speculative purposes.Our exposure under foreign currency contracts, interest rate and fuel hedging agreements is
limited to the cost of replacing the contracts in the event of non-performance by the
counterparties to the
 F-18




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  contracts. To minimize this risk, we select counterparties with credit
risks acceptable to us. Furthermore, foreign currency forward contracts are denominated in
primary currencies.The following are the fair values and methods used to estimate the fair values of our
financial instruments:Cash and Cash EquivalentsThe carrying amounts of cash and cash equivalents approximate their fair values due to the
short term maturity of these instruments.Long-Term DebtAs of December 31, 2005 and 2006, the fair value of our long-term debt, including the current
portion, was $2,128.5 million and $2,579.2 million, respectively, which was $21.8 million more
and $19.2 million more, respectively, than the carrying values. The difference between the
fair value and carrying value of our long-term debt is due to our variable rate debt
obligations carrying interest rates that are above or below market rates at the measurement
dates. The fair value of our long-term debt is estimated based on rates currently available to us
for the same or similar terms and remaining maturities.Market risk associated with our long-term fixed rate debt is the potential increase in fair
value resulting from a decrease in interest rates. Market risk associated with our long-term
floating rate debt is the potential increase in interest expense from an increase in interest
rates.Fuel Swap AgreementsThe fair values of our fuel swap agreements were estimated based on quoted market prices for
similar or identical financial instruments to those we hold. Our exposure to market risk for
changes in fuel prices relates to the forecasted consumption of fuel on our ships. We use
fuel swap agreements to mitigate the impact of fluctuations in fuel prices. As of December
31, 2005, we had fuel swap agreements to pay fixed prices for fuel with an aggregate notional
amount of $12.5 million and an unrealized favorable fair value of $0.6 million which matured
through June 2006. As of December 31, 2006, we had fuel swap agreements to pay fixed prices
for fuel with an aggregate notional amount of $18.9 million and an unrealized unfavorable fair
value of $1.6 million maturing through June 2007.8.
    
    Employee Benefits and Stock Option PlansEmployee Stock Option PlansIn November 2000, Star Cruises Limited adopted a Post-listing Employee Share Option Scheme
(Share Option Scheme) for the employees of Star Cruises Limited and our employees that
provides for the granting of stock options in Star Cruises Limiteds common stock. The stock
options are exercisable over a ten year period from the date the stock options are awarded.
Fifty percent of the total stock options granted vests as follows: 30% two years from the
award date, 20% three years from the award date and an additional 10% annually in the
subsequent years until the options are fully vested. The other 50% of the total stock options
granted vests pursuant to the same schedule assuming that we achieve certain performance
targets, as defined in the Share Option Scheme. Pursuant to the terms of the grant award, the
employee is required to sign and return documentation of acceptance of the stock option award
along with U.S. $1.00 consideration.
 F-19




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  In August 2004, Star Cruises Limited authorized the additional grant of approximately
7,974,000 share options to our management under the Post-Listing Employee Share Option Scheme.
The terms and conditions are consistent with the previous options granted under the
Post-Listing Employee Share Option Scheme with the exception that the options vest two years
from the award date.On December 28, 2006, Star Cruises Limited completed the
issuance of 1,484,084,467 rights shares. As a result of the rights issue, the exercise price and the number of ordinary shares
issuable upon exercise in full of the outstanding share options have been adjusted
accordingly. At such date, 499 employees received 3,073,108 incremental shares due to the
rights offering. This rights offering has been accounted for as a modification under SFAS
123R and has resulted in an incremental expense of $0.3 million as of the modification date,
December 28, 2006. The extended binomial options pricing model was used to estimate the
incremental fair value, (i.e., the difference between the fair value of the modified share
options and that of the original share options).Subsequent to the rights issue, as of December 31, 2006, outstanding share options granted to
NCLs employees (including directors) under the Pre-listing Employee Share Option Scheme and
the Post-listing Employee Share Option Scheme totaled 648,963 at an exercise price of $0.40
per share and 50,988,055 with a weighted-average exercise price of $0.34 per share,
respectively, including 2,595,853 and 2,530,958 granted to directors and executive officers,
respectively.Pertinent information covering the options granted pursuant to the Share Option Scheme is as
follows:
 WeightedWeighted
    
    AverageAverage
    
    RemainingNumber of
    
    Option
    
    Exercise
    
    ContractualShares
    
    Price
    
    Price
    
    Life
    
    DateOutstanding at December 31, 2005
    
    
    49,045,982
    
    
    $
    0.22-$0.41
    
    
    $
    0.39
    
    
    
    6.91
    
    
    2012-14Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional shares due to rights offering
    
    
    3,073,108
    
    
    $
    0.21-$0.36
    
    
    $
    0.34
    
    
    
    5.92
    
    
    2012-14Forfeited
    
    
    (1,131,035
    )
    
    $
    0.21-$0.36
    
    
    $
    0.35
    
    
    
    5.74
    
    
    2012-14Outstanding at December 31, 2006
    
    
    50,988,055
    
    
    $
    0.21-$0.36
    
    
    $
    0.34
    
    
    
    5.92
    
    
    2012-14Exercisable atDecember 31, 2006
    
    
    32,106,506
    
    
    $
    0.21-$0.36
    
    
    $
    0.33
 F-20




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  Significant option groups outstanding at December 31, 2006 and related price and life
information is as follows:
 Options Outstanding
    
    Options ExercisableWeightedWeighted
    
    Average
    
    Exercisable
    
    WeightedOutstanding at
    
    Average
    
    Remaining
    
    at
    
    AverageDecember 31,
    
    Exercise
    
    Contractual
    
    December 31,
    
    ExerciseExercise Price
    
    2006
    
    Price
    
    Life
    
    2006
    
    Price$0.36
    
    
    44,311,549
    
    
    $
    0.36
    
    
    
    5.66
    
    
    
    25,430,000
    
    
    $
    0.36$0.21
    
    
    6,676,506
    
    
    $
    0.21
    
    
    
    7.65
    
    
    
    6,676,506
    
    
    $
    0.2150,988,055
    
    
    $
    0.34
    
    
    
    5.92
    
    
    
    32,106,506
    
    
    $
    0.33
 As of December 31, 2006, there was $2.6 million of total
unrecognized compensation cost related to unvested stock options.
This cost is expected to be recognized over a weighted-average period
of 3.3 years.The Share Option Scheme provides that a former employee must pay in cash to us liquidated
damages, as defined, in the Share Option Scheme, if the employee leaves us and engages in
any trade, employment, business or activity for six months after leaving us that would be
considered in competition with the work done for us. The liquidated damages is equivalent to
a percentage of the capital appreciation of the stock option, defined as the difference
between the market price of the stock on the date of the exercise of the stock option and the
exercise price of the stock option, less the amount of any income taxes paid.Benefit PlansWe have a frozen defined contribution plan (the Plan) for our shoreside employees.
Effective January 1, 2002, the Plan was amended to cease future employer contributions. The
Plan is subject to the provisions of the Employment Retirement Income Security Act of 1974
(ERISA).In addition, we maintain a 401(k) Plan (the 401(k) Plan). The 401(k) Plan covers
substantially all our shoreside employees. Participants may contribute up to 100% of eligible
compensation each pay period, subject to certain limitations. We make matching contributions
equal to 100% of the first 3% and 50% of the next 7% of the participants contributions and
such contributions shall not exceed 6.5% of each participants compensation. Our matching
contributions are vested according to a five-year schedule.We maintain an unfunded Supplemental Executive Retirement Plan (SERP Plan), a defined
contribution plan, for certain of our key employees whose benefits are limited under the Plan
and the 401(k) Plan. We record an expense
for amounts due to the SERP Plan on behalf of each
participant that would have been contributed without regard to any limitations imposed by the
U.S. Internal Revenue Code (the Code).Our contributions are reduced by contributions forfeited by those employees who leave the
schemes prior to vesting fully in the contributions. Approximately $0.11 million, $0.10
million and $0.13 million of the forfeited contributions were utilized in each of the years
ended December 31, 2004, 2005 and 2006, respectively. As of December 31, 2005 and 2006,
approximately $0.1 million and $0.04 million, respectively, were available to reduce future
contributions.In addition, we maintain an unfunded Supplemental Senior Executive Retirement Plan (SSERP
Plan), a defined benefit plan, for selected senior executives. We have recorded an accrual
at December 31, 2005 and 2006 of approximately $9.7 million and $8.6 million, respectively,
with respect to the SSERP Plan in the accompanying consolidated balance sheets. We record an
expense
 F-21




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  related to the SSERP Plan for such amounts based on the following actuarial
assumptions: 5% discount rate and 5% annual increase in compensation.We recorded expenses related to the above described defined contribution plans and SSERP Plan
of approximately $4.5 million, $3.2 million and $1.6 million for the years ended December 31,
2004, 2005 and 2006, respectively. No amounts are required to be or were contributed under
the SERP or SSERP Plan by us as of December 31, 2004, 2005 and 2006 as the SERP and SSERP
Plans are unfunded.9.
    
    Income TaxesWe are incorporated in Bermuda. Our subsidiary, Arrasas Limited, which is
incorporated in the Isle of Man, is not subject to income tax in respect of activities
undertaken outside the Isle of Man.Historically, NCL Holdings ASA (NCLH) and its subsidiaries were subject to tax in Norway.
However, during 2001, Arrasas Limited completed a restructuring of NCLH and its subsidiaries.
In connection with the restructuring, Norwegian Cruise Line Limited (NCLL), a Bermuda based
operating subsidiary, became a directly held subsidiary of Arrasas and accordingly the profits
of NCLL are no longer subject to taxation in Norway. NCLH and NCL Cruises Ltd. remain within
the Norwegian tax regime and are currently dormant.Deferred tax assets and liabilities that relate to our Norwegian taxes comprised the following
at December 31, 2005 and 2006 (in thousands of dollars):
 2005
    
    2006Deferred tax assets:Loss carryforwards
    
    $
    59,510
    
    
    $
    59,560Shares in NCL Cruises Ltd.
    
    
    42,020
    
    
    
    56,184Pension obligation
    
    
    544
    
    
    
    589Others
    
    
    572
    
    
    
    458102,646
    
    
    
    116,791Valuation allowance
    
    
    (102,646
    )
    
    
    (116,791
    )Total net deferred taxes
    
    $
    
    
    
    $
    
 Due to recently enacted legislation, taxable losses can be carried forward indefinitely.
Total losses available for carry forward related to NCLH as of December 31, 2005 and 2006 are
$212.5 million and $212.7 million, respectively.The valuation allowance for deferred tax is in respect of future tax benefits attributable to
NCLH and arising prior to its acquisition by us. If these assets are realized, the benefit
will be allocated to reduce goodwill arising on the acquisition of NCLH.
 F-22




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  In addition, we are subject to U.S. federal income taxation with respect to certain
income derived from our foreign-flagged operations and the income derived from our U.S.
subsidiaries.Our foreign-flagged operations derive income from the international operation of ships
(Shipping Income). Under section 883 of the Code, certain foreign corporations, though
engaged in the conduct of a trade or business within the U.S., are exempt from U.S. federal
income taxes on (or in respect of) gross income derived from the international operation of
ships. We believe that substantially all of our income from the international operation of ships is properly
categorized as exempt Shipping Income.Effective for taxable years beginning after September 24, 2004, the Internal Revenue Service
issued final regulations interpreting section 883 of the Code. These final regulations list
several items of income which are not considered to be incidental to the international
operation of ships and, to the extent derived from U.S. sources, are subject to U.S. federal
income taxes. Income items considered non-incidental to the international operation of ships
include income from the sale of single-day shore excursions, air and other transportation, and
pre- and post-cruise land packages. We recorded an income tax provision of $1.2 million and
an income tax benefit of $1.2 million for the years ended December 31, 2005 and 2006,
respectively, due to the enactment of the Final Regulations.Income derived from our U.S. subsidiaries generally is subject to U.S. federal income taxation
at graduated rates of up to 35%, after an allowance for deductions. U.S.-source dividends
paid by NCL America generally would be subject to a 30% withholding tax.Deferred tax assets and liabilities that relate to our U.S. subsidiaries comprised the
following at December 31, 2005 and 2006 (in thousands of dollars):
 F-23




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  2005
    
    2006Deferred tax assets:Loss carryforwards
    
    $
    82,061
    
    
    $
    154,198Start-up expenses
    
    
    11,209
    
    
    
    12,063Disallowed interest
    
    
    
    
    
    
    16,975Translation loss and other
    
    
    
    
    
    
    6,057Allowances and accruals
    
    
    488
    
    
    
    2,678Total deferred tax assets
    
    $
    93,758
    
    
    $
    191,971Deferred tax liabilities:Deprecation and amortization
    
    
    (47,022
    )
    
    
    (98,991
    )Translation loss and other
    
    
    (8,323
    )
    
    
    (401
    )Total deferred tax liabilities
    
    
    (55,345
    )
    
    
    (99,392
    )Net deferred tax assets
    
    
    38,413
    
    
    
    (92,579
    )Valuation allowance
    
    
    (38,413
    )
    
    
    (92,579
    )Total net deferred taxes
    
    $
    
    
    
    $
    
 A valuation allowance has been provided against the net deferred tax asset since these
operations are in the start-up phase and do not have a history of profitable operations. Therefore, realization of the
deferred tax asset can not be assured at this time. We continue to evaluate the realizability
of the deferred tax assets and this estimate is subject to change.We have net operating loss carryforwards for federal and state tax purposes totaling
$209.6 million and $393.8 million at December 31, 2005 and 2006, respectively,
expiring at various times commencing in 2024.
 10.
    
    Commitments and Contingencies
 (a)
    
    Operating leasesWe operate principally in leased premises. Rent payable under non-cancelable operating
lease commitments, primarily for offices and motor vehicles, was $6.5 million, $6.9
million and $9.0 million for the years ended December 31, 2004, 2005 and 2006,
respectively.At December 31, 2006, minimum annual rentals for non-cancelable leases with initial or
remaining terms in excess of one year were as follows (in thousands of dollars):
 2007
    
    $
    5,7952008
    
    
    5,5952009
    
    
    4,7802010
    
    
    4,1742011
    
    
    3,690Total
    
    $
    24,034
 F-24




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  Rental payments applicable to such operating leases are recognized on a
straight-line basis over the term of the lease.(b)
    
    Ship chartersWe have entered into charter agreements with Star Cruises Limited for five ships for a
period of one to four years in connection with the Reorganization (we refer you to Note
6). Charter expenses for these ships were $22.0 million, $28.6 million and $26.2
million for the years ended December 31, 2004, 2005 and 2006, respectively.At December 31, 2006, remaining charter payments were as follows (in thousands of
dollars):
 2007
    
    $
    21,0052008
    
    
    15,3322009
    
    
    11,3442010
    
    
    224Total
    
    $
    47,905
 (c)
    
    Capital expendituresAs of December 31, 2006, we had three ships on order for additional capacity of
approximately 10,800 berths with scheduled deliveries in the fourth quarter of 2007, the
fourth quarter of 2009 and the second quarter of 2010. The aggregate cost of the ships
under construction and on firm order is approximately $2.6 billion, of which we have
paid $0.2 billion based on the Euro/U.S. dollar exchange rate at December 31, 2006. The
remaining costs of the ships on order as of December 31, 2006 are exposed to
fluctuations in the Euro/U.S. dollar exchange rate at December 31, 2006.As of December 31, 2006, we anticipate that capital expenditures, including the three
ships on order, will be approximately $0.6 billion, $0.3 billion, and $1.0 billion for
the years ending December 31, 2007, 2008, and 2009, respectively.(d)
    
    Material litigation
 (i)
    
    A proposed class action suit was filed on August 1, 2000 in the
U.S. District Court for the Southern District of Texas against us, alleging that
we violated the Americans with Disabilities Act of 1990 (ADA) in our treatment
of physically impaired passengers. The same plaintiffs also filed on the same
date a proposed class action suit in a Texas state court alleging that we and a
third party violated Texas Deceptive Trade Practices and Consumer Protection
Act. The state court judge granted our motion for summary judgment and the
plaintiff filed an appeal which is currently pending. On June 6, 2005, the U.S.
Supreme Court ruled in the Federal matter that the ADA is applicable to foreign
flagged cruise ships that operate in U.S. waters to the same extent that it
applies to U.S. flagged ships. The U.S. Supreme Court remanded the case to the
Fifth Circuit Court of Appeals to determine which claims in the lawsuit remain
and the Fifth Circuit remanded the case to the trial court. We have filed a
motion for summary judgment in the trial court which is currently pending.
 F-25




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  (ii)
    
    A proposed class action suit was filed on December 20, 2000 in a
Florida State Court alleging that we discriminated against disabled persons in
violation of the ADA and the Florida Trade Act on several of our ships.
Discovery has commenced. We believe that we have meritorious defenses to these
claims and, accordingly, are defending vigorously this action.(iii)
    
    A proposed class action suit was filed on May 17, 2001 in the U.S.
District Court for the Southern District of New York alleging that during the
period from January 1998 through March 2005, we failed to pay unlicensed
seafarers overtime wages in accordance with their contracts of employment. The
court entered an order certifying the case as a class action. In March 2005, the
parties reached a settlement which was subsequently approved by the court. We
believe that the ultimate outcome of this matter will not have a material impact
on our financial position, results of operations or cash flows.(iv)
    
    On July 25, 2002, we were served with a complaint in which a former
employee alleged that we failed to pay him severance pay/employment benefits
following his discharge. The matter was tried before a jury in January 2007 at
which time a verdict in favor of plaintiff was returned. Trial counsel is
currently evaluating possible appealable issues.(v)
    
    In May 2003, an explosion in the boiler room onboard Norway
resulted in the death of eight crew members and the injury of approximately 20
other crew members. All personal injury claims stemming from this incident are
covered by our insurance. The incident is currently under investigation by
regulatory authorities and the United States Attorneys Office for the Southern
District of Florida. We are cooperating with the investigation. To date, none
of the agencies involved has rendered opinions or conclusions concerning the
incident.(vi)
    
    On or about February 3, 2006, we were served with a class action
complaint filed in the United States District Court for the Southern District of
New York alleging copyright infringement stemming from performances of certain
portions of copyrighted music aboard our ships. We believe that we have
meritorious defenses to these claims and, accordingly, are defending vigorously
this action.(vii)
    
    On June 16, 2006, a complaint was filed against us in the Circuit
Court of Miami-Dade County, Florida, alleging breach of contract and fraudulent
misrepresentation stemming from two 2004 charter sailings of Pride
of Aloha. We
believe that we have meritorious defenses to these claims and, accordingly, are
defending vigorously this action.(viii)
    
    On July 14, 2006, we were served with a complaint filed in Florida State court
on behalf of a former onboard concessionaire alleging breach of contract and
unjust enrichment. We believe that we have meritorious defenses to these claims
and, accordingly, are defending vigorously this action.(ix)
    
    On August 24, 2006, we were served with a complaint by the U.S.
Equal Employment Opportunity Commission to correct alleged unlawful employment
practices on the basis of national origin and religion and to provide relief to
seven former employees who were allegedly terminated as a result of same. We
believe that we have
 F-26




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  meritorious defenses to these claims and, accordingly, are
defending vigorously this action.(x)
    
    In the normal course of our business, various other claims and
lawsuits have been filed or are pending against us. Most of these claims and
lawsuits are covered by insurance and, accordingly, the maximum amount of our
liability is typically limited to our deductible amount. Nonetheless, the
ultimate outcome of these claims and lawsuits that are not covered by insurance
cannot be determined at this time. We have evaluated our overall exposure with
respect to all of our threatened and pending litigation. To the extent
required, we have accrued amounts for all estimable probable losses associated
with our deemed exposure. We are currently unable to estimate any other
potential contingent losses beyond those accrued, as discovery is not complete
nor is adequate information available to estimate such range of loss or
potential recovery. As discussed above, we intend to vigorously defend our
legal position on all claims and, to the extent necessary, seek recovery. At
December 31,
2006, we had accrued amounts of approximately $8.9 million for the above pending
legal matters.
 (e)
    
    CommitmentsWe have future commitments to pay for usage of certain port facilities as follows at
December 31, 2006 (in thousands of dollars):
 2007
    
    $
    8,1582008
    
    
    7,8192009
    
    
    8,0892010
    
    
    8,1742011
    
    
    7,979Thereafter
    
    
    52,862Total
    
    $
    93,081
 (f)
    
    Credit Card ProcessorWe have a letter of credit facility not to exceed $100 million, which collateralizes the
risk in processing our credit card sales transactions. The letter of credit facility
expires in April 2008.(g)
    
    OtherCertain contracts we enter into include indemnification provisions that obligate us to
make payments to the counterparty if certain events occur. The indemnification clauses
are often standard contractual terms that are entered into in the normal course of
business. There are no stated or notional amounts included in the indemnification
clauses and we are not able to estimate the maximum potential amount of future payments,
if any, under these indemnification clauses. We have not been required to make any
payments under such clauses in the past, and do not believe that, under current
circumstances, a request for indemnification is probable.
 F-27




---



##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  11.
    
    Supplemental Cash Flow InformationIn 2004, we had non-cash financing activities related to the retirement of debt due to
our Parent of $366.6 million. Furthermore, during the year ended December 31, 2004, we
had non-cash investing and financing activities associated with the transfer of $804.9
million in property and equipment, $19.7 million in other assets and $403.2 million in
related debt to our Parent in exchange for a $46.5 million note receivable and
settlement of $374.8 million in amounts due to our Parent.For the years ended 2005 and 2006 we had non-cash investing activities related to
capital leases of $10.3 million and $8.4 million, respectively.
 F-28