##### Table of Contents



As
filed with the Securities and Exchange Commission on March 28, 2006
   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, 2005
 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 þ
 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 þ
 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.
 þ 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 þ
 Indicate by check mark which financial statement item the registrant has elected to follow:
 o þ
 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 þ




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##### 



Table of Contents
 PageItem 1. Identity of Directors, Senior Management and Advisers
    
    
    5Item 2. Offer Statistics and Expected Timetable
    
    
    5Item 3. Key Information
    
    
    5Item 4. Information on the Company
    
    
    14Item 4A. Unresolved Staff Comments
    
    
    32Item 5. Operating and Financial Review and Prospects
    
    
    32Item 6. Directors, Senior Management and Employees
    
    
    45Item 7. Major Shareholders and Related Party Transactions
    
    
    49Item 8. Financial Information
    
    
    51Item 9. The Offer and Listing
    
    
    53Item 10. Additional Information
    
    
    53Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    57Item 12. Description of Securities Other than Equity Securities
    
    
    57Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    58Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    58Item 15. Controls and Procedures
    
    
    58Item 16. Reserved
    
    
    58Item 16A. Audit Committee Financial Expert
    
    
    58Item 16B. Code of Ethics
    
    
    58Item 16C. Principal Accountant Fees and Services
    
    
    58Item 16D. Exemptions from Listing Standards for Audit Committees
    
    
    59Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    59Item 17. Financial Statements
    
    
    60Item 18. Financial Statements
    
    
    60Item 19. Exhibits
    
    
    60Glossary
    
    
    61Fifth Supplemental DeedSecond Supplemental Deed dated 9/30/2005 to $225.0 millionSupplemental AmendmentsSupplemental DeedFacility AgreementSupplemental Deed dated 9/30/2005Second Supplemental Deed dated 9/30/2005Revolving Loan FacilitySection 302 Chief Executive Officer CertificationSection 302 Chief Financial Officer CertificationSection 906 CEO & CFO Certification




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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;
    
    changes in interest rates, fuel costs, or foreign currency rates;
    
    delivery schedules of new ships;
    
    risks associated with operating internationally;
    
    impact of 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;
    
    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;
 3




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
    
    emergency ship repairs;
    
    the implementation of regulations in the United States requiring U.S. citizens to
obtain passports for travel to additional foreign destinations; and
    
    weather and natural disasters.
  Industry and market data
  4




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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
  Years endedDecember 31,(Dollars in thousands)
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005Income statement dataPassenger ticket revenues
    
    $
    683,634
    
    
    $
    897,230
    
    
    $
    971,973
    
    
    $
    986,394
    
    
    $
    1,184,480Onboard and other revenues
    
    
    213,177
    
    
    
    281,852
    
    
    
    326,060
    
    
    
    351,892
    
    
    
    431,674Total revenues
    
    
    896,811
    
    
    
    1,179,082
    
    
    
    1,298,033
    
    
    
    1,338,286
    
    
    
    1,616,154Cruise operating expenses:Commissions, transportation and
other
    
    
    200,101
    
    
    
    242,921
    
    
    
    292,453
    
    
    
    253,583
    
    
    
    318,918Onboard and other
    
    
    74,155
    
    
    
    108,406
    
    
    
    112,942
    
    
    
    118,904
    
    
    
    138,369Payroll and related
    
    
    115,374
    
    
    
    179,045
    
    
    
    204,365
    
    
    
    243,355
    
    
    
    320,656Fuel
    
    
    41,916
    
    
    
    62,681
    
    
    
    77,088
    
    
    
    78,013
    
    
    
    119,412Food
    
    
    58,263
    
    
    
    75,358
    
    
    
    79,154
    
    
    
    81,448
    
    
    
    94,105Ship charter costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,046
    
    
    
    28,603Other operating
    
    
    148,998
    
    
    
    151,643
    
    
    
    178,796
    
    
    
    184,188
    
    
    
    190,442Total cruise operating expenses
    
    
    638,807
    
    
    
    820,054
    
    
    
    944,798
    
    
    
    981,537
    
    
    
    1,210,505Marketing, general and
administrative expenses
    
    
    170,189
    
    
    
    178,704
    
    
    
    186,923
    
    
    
    204,560
    
    
    
    228,205Depreciation and amortization (1)
    
    
    88,393
    
    
    
    92,015
    
    
    
    107,257
    
    
    
    87,397
    
    
    
    104,181Impairment loss (2)
    
    
    8,430
    
    
    
    
    
    
    
    18,155
    
    
    
    14,500
    
    
    
    Total operating expenses
    
    
    905,819
    
    
    
    1,090,773
    
    
    
    1,257,133
    
    
    
    1,287,994
    
    
    
    1,542,891Operating (loss) income
    
    
    (9,008
    )
    
    
    88,309
    
    
    
    40,900
    
    
    
    50,292
    
    
    
    73,263Non-operating (income) expense:Interest income
    
    
    (1,428
    )
    
    
    (1,748
    )
    
    
    (802
    )
    
    
    (1,434
    )
    
    
    (4,803
    )Interest expense, net of
capitalized interest
    
    
    52,707
    
    
    
    53,396
    
    
    
    50,849
    
    
    
    48,886
    
    
    
    87,006Other expense (income), net (3)
    
    
    1,497
    
    
    
    1,419
    
    
    
    4,366
    
    
    
    11,548
    
    
    
    (28,096
    )Total non-operating expense
    
    
    52,776
    
    
    
    53,067
    
    
    
    54,413
    
    
    
    59,000
    
    
    
    54,107Net (loss) income
    
    $
    (61,784
    )
    
    $
    35,242
    
    
    $
    (13,513
    )
    
    $
    (8,708
    )
    
    $
    19,156
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As of or for theyears endedDecember 31,(Dollars in thousands, exceptoperating data and ratios)
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005Balance sheet data
(as of end of period)Cash and cash equivalents
    
    $
    83,822
    
    
    $
    116,604
    
    
    $
    199,141
    
    
    $
    172,424
    
    
    $
    60,416Property and equipment, net
    
    
    2,158,450
    
    
    
    2,479,924
    
    
    
    2,653,786
    
    
    
    2,515,104
    
    
    
    3,096,456Total assets
    
    
    2,935,996
    
    
    
    3,352,559
    
    
    
    3,604,943
    
    
    
    3,484,986
    
    
    
    4,008,091Advance ticket sales
    
    
    153,811
    
    
    
    189,175
    
    
    
    188,364
    
    
    
    230,601
    
    
    
    281,849Other current liabilities (4)
    
    
    1,376,808
    
    
    
    173,348
    
    
    
    527,876
    
    
    
    184,614
    
    
    
    213,778Current portion of long-term debt
    
    
    59,777
    
    
    
    267,916
    
    
    
    476,995
    
    
    
    86,198
    
    
    
    140,694Long-term debt
    
    
    1,270,884
    
    
    
    1,316,428
    
    
    
    1,019,392
    
    
    
    1,604,331
    
    
    
    1,965,983Other long-term liabilities (4)
    
    
    7,451
    
    
    
    1,302,967
    
    
    
    372,589
    
    
    
    5,734
    
    
    
    2,631Total shareholders equity
    
    
    67,265
    
    
    
    102,725
    
    
    
    1,019,727
    
    
    
    1,373,508
    
    
    
    1,403,156Operating dataNumber of passengers
    
    
    596,024
    
    
    
    819,660
    
    
    
    878,067
    
    
    
    874,926
    
    
    
    981,665Passenger cruise days (5)
    
    
    4,560,154
    
    
    
    6,180,457
    
    
    
    6,543,896
    
    
    
    6,744,609
    
    
    
    7,613,100Capacity days (6)
    
    
    4,613,147
    
    
    
    5,951,273
    
    
    
    6,277,888
    
    
    
    6,370,096
    
    
    
    7,172,040Occupancy percentage (7)
    
    
    98.9
    %
    
    
    103.9
    %
    
    
    104.2
    %
    
    
    105.9
    %
    
    
    106.1
    %Total number of cruise ships
    
    
    10
    
    
    
    11
    
    
    
    10
    
    
    
    11
    
    
    
    12Other financial dataNet cash provided by operating activities
    
    
    69,866
    
    
    
    146,720
    
    
    
    85,481
    
    
    
    146,329
    
    
    
    134,690Net cash used in investing activities
    
    
    (606,458
    )
    
    
    (432,671
    )
    
    
    (274,759
    )
    
    
    (743,281
    )
    
    
    (676,171
    )Net cash provided by financing activities
    
    
    556,702
    
    
    
    318,733
    
    
    
    271,815
    
    
    
    570,235
    
    
    
    429,473Capital expenditures
    
    
    607,179
    
    
    
    383,800
    
    
    
    294,797
    
    
    
    740,838
    
    
    
    656,657
 Note:
    
    Certain prior year amounts have been reclassified to conform to the current year
presentation.(1)
    
    Effective January 1, 2002, we adopted Statement of Financial Accounting Standards (SFAS) No.
142, Goodwill and Other Intangible Assets. In accordance with this standard, we ceased
amortization of goodwill and other indefinite lived intangible assets effective January 1, 2002.
In determining results of operations for periods prior to the adoption, NCL amortized $18.9 million
in goodwill and other intangibles for the year ended December 31, 2001.(2)
    
    In 2001, the impairment loss was recorded as a result of the write-down of $8.4 million
relating to the carrying value of one of our cruise ships; in 2003, the impairment loss was
recorded as a result of a write-down of $15.0 million relating to the Orient Lines tradename and a
write-down of $3.2 million to the carrying value of one of our cruise ships; and in 2004, the
impairment loss was recorded as a result of a write-down of $14.5 million relating to the carrying
value of one of our cruise ships.(3)
    
    For the years ended December 31, 2004 and 2005, such amount includes a $9.5 million loss and a
$29.4 million gain, respectively, on translation of debt resulting from the translation of our
outstanding long-term debt denominated in Euro during such years.(4)
    
    At December 31, 2001, 2002, 2003, 2004 and 2005, NCL had amounts due to parent of approximately
$1.2 billion, $1.3 billion, $0.7 billion, $1.3 million and $3.1 million, respectively. The amounts
due to parent at December 31, 2001, 2004 and 2005 were classified as other current liabilities
because such amounts were due on demand. The amount due to parent at December 31, 2002 was
classified as a long-term liability because Star Cruises Limited agreed not to demand repayment of
such amount for 12 months from the date of the balance sheet. At December 31, 2003, $366.6 million
was classified as a long-term liability because such amount was satisfied through reclassification
to equity in the Reorganization and the remaining $374.8 million was classified as a current
liability because such amount was repaid in the Reorganization.(5)
    
    Represents the number of passengers carried multiplied by the aggregate number of days of their
respective cruises.(6)
    
    Represents double occupancy per cabin multiplied by the number of cruise days for the period.(7)
    
    Represents the ratio of passenger cruise days to capacity days. A percentage in excess of 100%
indicates that three or more passengers occupied some cabins. 6




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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 operating results.
  We face intense competition.
    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 operating results.
  7




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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.
  An increase in fuel prices or other cruise operating costs would have an adverse impact on our
profit margins.
  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.
  8




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Any delays in the delivery of new cruise ships or any mechanical failures on or of our cruise ships
may have an adverse effect on our results of operations.
 Pride of Hawaii Norwegian Pearl Norwegian Gem
 We are dependent upon the services of key management personnel.
  Conducting business internationally and as a reporting company in the United States may result in
increased costs.
  Future epidemics and viral outbreaks may have an adverse effect on our results of operations.
  9




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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 operating results.
  Amendments to the collective bargaining agreements for crew members of the Norwegian Cruise Line
fleet and employment of U.S. crew members on the NCL America fleet could have an adverse impact on
our financial results.
  Pride of Aloha Pride of America Pride
of Hawaii
 Unavailability of ports of call may adversely affect our results of operations.
  We may suffer an uninsured loss, as we are not protected against all risks or lawsuits that we
face.
  10




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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 vessels, may be limited; and
    
    our high level of leverage may hinder our ability to withstand competitive pressures or
adjust rapidly to changing market conditions.
  11




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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 operating results.
    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.
  12




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13




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Item 4. Information on the Company
 History and development of the company
     Business overview
   14




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Our business strategies
  Freestyle Cruising.
 
    
    flexible dining policy in our dining rooms; no fixed dining times or pre-assigned
seating;
    
    multiple 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;
    
    diverse lifestyle activities, including cultural and educational onboard programs
along with an increased adventure emphasis for shore excursions; and
    
    passenger-friendly disembarkation policies.
  Hawaii expansion.
  15




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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 vessels, giving us more
flexibility in designing new and attractive itineraries;
    
    new ships tend to provide greater operating economies of scale and are designed to
promote increased onboard spending; and
    
    new ships can be custom-designed and built for our current product offerings, such as
Freestyle Cruising, and allow for more product consistency.
 Norwegian Jewel Norwegian Sea
 Homeland Cruising.
 The fleet
 Norwegian Cruise Lines ships
  16




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Year Built/
    
    
    
    
    
    Crew
    
    
    
    
    
    2005 Primary Areas ofVessel (1)
    
    Rebuilt
    
    Berths
    
    Capacity
    
    Gross Tons
    
    OperationNorwegian Jewel
    
    
    2005
    
    
    
    2,380
    
    
    
    1,100
    
    
    
    92,000
    
    
    CaribbeanNorwegian Dawn
    
    
    2002
    
    
    
    2,220
    
    
    
    1,100
    
    
    
    92,300
    
    
    Bahamas, Florida, CaribbeanNorwegian Star
    
    
    2001
    
    
    
    2,240
    
    
    
    1,100
    
    
    
    91,000
    
    
    Alaska, MexicoNorwegian Sun
    
    
    2001
    
    
    
    1,940
    
    
    
    903
    
    
    
    78,300
    
    
    Alaska, CaribbeanNorwegian Majesty(2)
    
    
    1992/1999
    
    
    
    1,460
    
    
    
    702
    
    
    
    40,900
    
    
    Bermuda, CaribbeanNorwegian Wind(2)
    
    
    1993/1998
    
    
    
    1,740
    
    
    
    656
    
    
    
    50,800
    
    
    HawaiiNorwegian Dream(2)
    
    
    1992/1998
    
    
    
    1,740
    
    
    
    656
    
    
    
    50,800
    
    
    Alaska, CaribbeanNorwegian Spirit(3)
    
    
    1998
    
    
    
    1,980
    
    
    
    920
    
    
    
    76,800
    
    
    Alaska, CaribbeanNorwegian Crown(2)
    
    
    1988
    
    
    
    1,080
    
    
    
    470
    
    
    
    34,200
    
    
    South America, Bermuda
 (1)
    
    This list does not include the Norwayand the Norwegian Sea,which were
transferred/returned to Star Cruises Limited in April 2004 and August 2005, respectively.(2)
    
    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.(3)
    
    Previously named the SuperStar Leo, purchased from Star Cruises Limited in July 2004 for
its estimated net book value of $307.6 million. NCL Americas ships
  Crew
    
    
    
    
    
    2005 Primary Areas ofVessel
    
    Year Built
    
    Berths
    
    Capacity
    
    Gross Tons
    
    OperationPride of America
    
    
    2005
    
    
    
    2,140
    
    
    
    950
    
    
    
    81,000
    
    
    HawaiiPride of Aloha
    
    
    1999
    
    
    
    2,000
    
    
    
    908
    
    
    
    77,100
    
    
    Hawaii
 Pride of America Pride of Aloha Norwegian Jewel Norwegian Sun, Norwegian Star Norwegian Dawn Norwegian Spirit
 Orient Lines ship
 Marco Polo, Marco Polo
 Year Built/
    
    
    
    
    
    CrewVessel
    
    Rebuilt
    
    Berths
    
    Capacity
    
    Gross Tons
    
    2005 Primary Areas of OperationMarco Polo(1)
    
    
    1965/1993
    
    
    
    840
    
    
    
    356
    
    
    
    22,080
    
    
    Scandinavia, Mediterranean,Antarctica, South America
 (1)
    
    Chartered from Star Cruises Limited. Marco Polo Norwegian Crown, Crown Odyssey, Marco Polo
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Current new ships on order
  Expected DeliveryVessel
    
    Date
    
    Berths
    
    Gross TonsPride of Hawaii
    
    Second Quarter 2006
    
    
    2,480
    
    
    
    92,000Norwegian Pearl
    
    Fourth Quarter 2006
    
    
    2,380
    
    
    
    92,000Norwegian Gem
    
    Fourth Quarter 2007
    
    
    2,380
    
    
    
    92,000
 Other ships
 United States Independence, United States Independence United States Independence
 Ship deployment
  Ports and facilities
 Norwegian Majesty Norwegian Crown Norwegian Dawn Norwegian Spirit
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Marco Polo. Marco
Polo
  Company revenue management
 Cruise pricing and revenue management
    Onboard and other revenues
  19




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Seasonality
  Sales and marketing
 Travel agent relationships
    Print advertising and promotional resources
 Good Morning America Live! With Regis and Kelly The Apprentice
 Loyalty programs
  20




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Company operations and cruise infrastructure
 Ship maintenance
  Information technology
      Suppliers
  21




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Crew and passenger safety
     
    
    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 the Marco Polo);
    
    additional onboard training in the use of the navigation and safety equipment;
 22




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##### Table of Contents




    
    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; and
    
    an experience transfer system within the fleet.
 Insurance
   
    
    protection and indemnity insurance (that is, liability coverage for shipowners) on each
ship;
    
    war risk insurance on each ship in an amount equal to the total insured hull value.
These policies cover physical damage to the ship and protection and indemnity risks not
covered by our other policies because of war exclusion clauses in the hull policies or
rules of the indemnity insurance organization;
    
    insurance for cash on board; and
    
    insurance for our shoreside property and general liability risks.
 23




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##### Table of Contents



Trademarks
  Regulatory issues
 Registration of our ships
 Pride of Aloha Pride of America Pride of Hawaii
 Pride of Hawaii Pride of America Pride of Aloha
 24




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##### Table of Contents



Health and environment
  Norwegian Wind,
    
    
    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;
    
    NCLs 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.
 25




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##### Table of Contents



Permits for Glacier Bay, Alaska and the Antarctic
 Marco Polo
 Security and safety
     Financial requirements
   Taxation
 U.S. federal income taxation  foreign-flagged operations
  26




---



##### Table of Contents



27




---



##### Table of Contents



U.S. federal income taxation  U.S.-flagged operations
  28




---



##### Table of Contents



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 Polo,and
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. 29




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##### Table of Contents



Property, plant and equipment
    Industry
 Industry background
   Cruise Passengers Sourced in
    
    Berths Marketed in NorthCalendar Year
    
    North America (1)
    
    America (2)2001
    
    
    6,906,000
    
    
    
    175,8552002
    
    
    7,640,000
    
    
    
    197,5532003
    
    
    8,195,000
    
    
    
    215,3972004
    
    
    9,107,000
    
    
    
    220,1872005
    
    
    9,670,000
    
    
    
    227,717
 
 (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.   30




---



##### Table of Contents



Strong industry fundamentals
  Strong growth.
 Attractive demographics.
 Low penetration rates.
 High level of guest satisfaction.
 Strong value proposition.
 Continued product innovation.
 31




---



##### Table of Contents



Item 4A. Unresolved Staff Comments
  
 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;
    
    changes in interest rates, fuel costs or foreign currency rates;
    
    delivery schedules of new ships;
    
    risks associated with operating internationally;
    
    impact of 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;
    
    the impact of pending or threatened litigation;
    
    the ability to obtain financing on terms that are favorable or consistent with our expectations;
 32




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##### Table of Contents




    
    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 United States requiring U.S. citizens to
obtain passports for travel to additional foreign destinations; and
    
    weather and natural disasters.
   Terminology and Non-GAAP Financial Measures
         33




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##### 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, cancellation fees, and sales of vacation
package insurance.
    
    Payroll and related expenses represent the cost of wages and benefits for shipboard
employees.
    
    Food expenses consist of food costs for passengers and crew, which typically vary
according to the number of passengers on board a particular cruise ship.
    
    Ship charter costs consist of amounts paid for chartering ships for the fleet.
    
    Other operating cruise expenses consist of costs such as repairs and maintenance, ship insurance
and other ship expenses.
  Critical accounting policies
  34




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##### Table of Contents



Ship accounting
    Asset impairment
    Contingencies
  35




---



##### Table of Contents



Recent accounting pronouncements
  Results of operations
  Years Ended December 31,2003
    
    
    2004
    
    
    2005Total revenues
    
    $
    1,298,033
    
    
    $
    1,338,286
    
    
    $
    1,616,154Total operating expenses
    
    $
    1,257,133
    
    
    $
    1,287,994
    
    
    $
    1,542,891Operating income
    
    $
    40,900
    
    
    $
    50,292
    
    
    $
    73,263Net (loss) income
    
    $
    (13,513
    )
    
    $
    (8,708
    )
    
    $
    19,156
 36




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##### Table of Contents



Years Ended December 31,2003
    
    
    2004
    
    
    2005Revenues:Passenger ticket revenues
    
    
    74.9
    %
    
    
    73.7
    %
    
    
    73.3
    %Onboard and other revenues
    
    
    25.1
    %
    
    
    26.3
    %
    
    
    26.7
    %Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cruise operating expensesCommiss ions, transportation and other
    
    
    22.5
    %
    
    
    18.9
    %
    
    
    19.7
    %Onboard and other
    
    
    8.7
    %
    
    
    8.9
    %
    
    
    8.6
    %Payroll and related
    
    
    15.8
    %
    
    
    18.2
    %
    
    
    19.8
    %Fuel
    
    
    5.9
    %
    
    
    5.8
    %
    
    
    7.4
    %Food
    
    
    6.1
    %
    
    
    6.1
    %
    
    
    5.8
    %Ship charter costs
    
    
    0.0
    %
    
    
    1.6
    %
    
    
    1.8
    %Other operating
    
    
    13.8
    %
    
    
    13.8
    %
    
    
    11.8
    %Total cruise operating expenses
    
    
    72.8
    %
    
    
    73.3
    %
    
    
    74.9
    %Marketing, general and administrative expenses
    
    
    14.4
    %
    
    
    15.3
    %
    
    
    14.1
    %Depreciation and amortization
    
    
    8.2
    %
    
    
    6.5
    %
    
    
    6.5
    %Impairment loss
    
    
    1.4
    %
    
    
    1.1
    %
    
    
    0.0
    %Total operating expenses
    
    
    96.8
    %
    
    
    96.2
    %
    
    
    95.5
    %Operating income
    
    
    3.2
    %
    
    
    3.8
    %
    
    
    4.5
    %Non-operating (income) expenseInterest income
    
    
    (0.1
    )%
    
    
    (0.1
    )%
    
    
    (0.3
    )%Interest expense, net of capitalized interest
    
    
    3.9
    %
    
    
    3.7
    %
    
    
    5.4
    %Other expense (income), net
    
    
    0.4
    %
    
    
    0.9
    %
    
    
    (1.8
    )%Total non-operating expense
    
    
    4.2
    %
    
    
    4.5
    %
    
    
    3.3
    %Net (loss) income
    
    
    (1.0
    )%
    
    
    (0.7
    )%
    
    
    1.2
    %
 37




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##### Table of Contents



Years EndedDecember 31,2003
    
    2004
    
    2005Passenger Carried
    
    
    878,067
    
    
    
    874,926
    
    
    
    981,665Passenger Cruise Days
    
    
    6,543,896
    
    
    
    6,744,609
    
    
    
    7,613,100Capacity Days
    
    
    6,277,888
    
    
    
    6,370,096
    
    
    
    7,172,040Occupancy Percentage
    
    
    104.2
    %
    
    
    105.9
    %
    
    
    106.1
    %
  Years EndedDecember 31,2003
    
    
    2004
    
    
    2005Passenger ticket revenues
    
    $
    971,973
    
    
    $
    986,394
    
    
    $
    1,184,480Onboard and other revenues
    
    
    326,060
    
    
    
    351,892
    
    
    
    431,674Total revenues
    
    
    1,298,033
    
    
    
    1,338,286
    
    
    
    1,616,154Less:Commissions, transportation
and other
    
    
    292,453
    
    
    
    253,583
    
    
    
    318,918Onboard and other
    
    
    112,942
    
    
    
    118,904
    
    
    
    138,369Net revenues
    
    $
    892,638
    
    
    $
    965,799
    
    
    $
    1,158,867Capacity Days
    
    
    6,277,888
    
    
    
    6,370,096
    
    
    
    7,172,040Gross Yields
    
    $
    206.76
    
    
    $
    210.09
    
    
    $
    225.34Net Yields
    
    $
    142.19
    
    
    $
    151.61
    
    
    $
    161.58
  Years EndedDecember 31,2003
    
    
    2004
    
    
    2005Total cruise operating expenses
    
    $
    944,798
    
    
    $
    981,537
    
    
    $
    1,210,505Marketing, general and
administrative expenses
    
    
    186,923
    
    
    
    204,560
    
    
    
    228,205Gross Cruise Costs
    
    
    1,131,721
    
    
    
    1,186,097
    
    
    
    1,438,710Less:Commissions, transportation
and other
    
    
    292,453
    
    
    
    253,583
    
    
    
    318,918Onboard and other
    
    
    112,942
    
    
    
    118,904
    
    
    
    138,369Net Cruise Costs
    
    $
    726,326
    
    
    $
    813,610
    
    
    $
    981,423Capacity Days
    
    
    6,277,888
    
    
    
    6,370,096
    
    
    
    7,172,040Gross Cruise Costs per Capacity Day
    
    $
    180.27
    
    
    $
    186.20
    
    
    $
    200.60Net Cruise Costs per Capacity Day
    
    $
    115.70
    
    
    $
    127.72
    
    
    $
    136.84
 38




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##### Table of Contents



Outlook
  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
     39




---



##### Table of Contents



Norwegian Sea
  Pride of America Norwegian Jewel
  Norwegian Spirit Pride of America Norwegian Jewel .
    Year ended December 31, 2003 compared to year ended December 31, 2004
 Revenues
  40




---



##### Table of Contents



Norwegian Spirit Norway
   Expenses
       Norwegian Star Norway
  41




---



##### Table of Contents



Norway
 Norways
    Liquidity and capital resources
  Pride of America Norwegian Jewel Norwegian Spirit United States Independence
 Pride of America Norwegian Jewel Norwegian Spirit Norwegian Sky Norwegian Star
 42




---



##### Table of Contents



Future capital commitments
   Contractual obligations
  Total
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterLong-term debt obligations (1)
    
    $
    2,878,327
    
    
    $
    268,765
    
    
    $
    271,177
    
    
    $
    262,217
    
    
    $
    253,515
    
    
    $
    604,467
    
    
    $
    1,218,186Operating lease obligations
    
    
    20,359
    
    
    
    6,340
    
    
    
    5,980
    
    
    
    5,645
    
    
    
    1,942
    
    
    
    452
    
    
    
    Ship charter obligations
    
    
    65,733
    
    
    
    26,226
    
    
    
    23,658
    
    
    
    11,686
    
    
    
    3,940
    
    
    
    223
    
    
    
    Ship purchase obligations
    
    
    996,062
    
    
    
    598,812
    
    
    
    397,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Port facility obligations
    
    
    105,397
    
    
    
    13,109
    
    
    
    7,788
    
    
    
    7,515
    
    
    
    8,009
    
    
    
    8,170
    
    
    
    60,806Total
    
    $
    4,065,878
    
    
    $
    913,252
    
    
    $
    705,853
    
    
    $
    287,063
    
    
    $
    267,406
    
    
    $
    613,312
    
    
    $
    1,278,992
 
 (1)
    
    Assumes LIBOR rate of 4.86% and EURIBOR of 2.706% for all periods and EURO/USD of 1.20 in 2006 and 1.25 thereafter.   43




---



##### Table of Contents



Funding sources
     Financial instruments and other
 General
  Interest rate risk
  Foreign currency exchange rate risk
   44




---



##### Table of Contents



Fuel price risk
  Related party transactions
  
 Item 6. Directors, Senior Management and Employees
 Directors and senior management
  Name
    
    Age
    

    Position with NCLTan Sri Lim Kok Thay
    
    
    53
    
    
    Chairman of the Board of DirectorsDavid Colin Sinclair Veitch
    
    
    50
    
    
    Deputy Chairman of the Board of Directors,
President and Chief Executive OfficerWalter L. Revell
    
    
    71
    
    
    Director, Chairman of the Audit CommitteeBonnie Biumi
    
    
    43
    
    
    Executive Vice President and Chief Financial OfficerWilliam A. Hamlin
    
    
    53
    
    
    Executive Vice President of Fleet OperationsRobert M. Kritzman
    
    
    45
    
    
    Executive Vice President of Hawaii OperationsAndrew Stuart
    
    
    42
    
    
    Executive Vice President of Sales, Marketing andPassenger ServicesMark E. Warren
    
    
    54
    
    
    Executive Vice President and General CounselWendell M. Hollis
    
    
    53
    
    
    SecretaryJulie V. Stanton
    
    
    37
    
    
    Resident Representative
 Note:
 Tan Sri Lim Kok Thay
 45




---



##### Table of Contents



David Colin Sinclair Veitch
 Walter L. Revell
 Bonnie Biumi
 William A. Hamlin
 Robert M. Kritzman
 Andrew Stuart
 46




---



##### Table of Contents



Mark E. Warren
 Wendell M. Hollis
 Julie V. Stanton
 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.
  Supplemental Senior Executive Retirement Plan.
  48




---



##### Table of Contents



Board practices
 Terms of directors and executive officers
      Employees
  As of December 31,2003
    
    
    2004
    
    
    2005Shipboard (1)
    
    
    7,854
    
    
    
    8,843
    
    
    
    10,088Shoreside
    
    
    1,346
    
    
    
    1,605
    
    
    
    1,860Total
    
    
    9,200
    
    
    
    10,448
    
    
    
    11,948
 
 (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
  49




---



##### Table of Contents



Shareholder
    
    Percentage Ownership in Star Cruises LimitedGHL (1)
    

    49.93 %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
   Norwegian Crown, Norwegian Dream, Norwegian Majesty, Norwegian Sea, Marco Polo Norwegian Wind, Norwegian Jewel Norwegian Sea
 Contributions from Star Cruises Limited
   50




---



##### Table of Contents



Other vessel purchases and sales
 Norwegian Sky Pride of Aloha, Norwegian Sky, Norwegian Spirit, Norwegian Spirit
 Norway Norway
 Norwegian
Crown, Norwegian Dream, Norwegian Majesty, Marco Polo Norwegian Wind
  
 Item 8. Financial Information
  Legal proceedings
 Norwegian Sea
 51




---



##### Table of Contents



52




---



##### Table of Contents



Norway
    Dividends
  Significant changes
  
 Item 9. Offer and Listing Details
  
 Item 10. Additional Information
 General
  53




---



##### Table of Contents



Share capital
    Dividend rights
  Variation of shareholder rights
  Transfer of shares
  54




---



##### Table of Contents



Meetings of shareholders
  Access to books and records and public dissemination of information
  Election and removal of directors
   Proceedings of the board of directors
  55




---



##### Table of Contents



Indemnification of directors and officers
  Amendment of memorandum of association and bye-laws
   Appraisal rights and shareholder suits
   Capitalization of profits and reserves
  56




---



##### Table of Contents



Material contracts
 Norwegian Pearl
 Norwegian Gem
 Norwegian Pearl Norwegian Gem
 Exchange controls
  Documents on display
  
 Item 11. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 12. Description of Securities Other than Equity Securities
  57




---



##### 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
  
 Item 16C. Principal Accountant Fees and Services
  58




---



##### Table of Contents



Total FeesFor the years ended December2004
    
    
    2005(in thousands of dollars)FeesAudit fees
    
    $
    1,334
    
    
    $
    997Audit-related fees
    
    
    26
    
    
    
    132Tax fees
    
    
    257
    
    
    
    313All other fees
    
    
    
    
    
    
    Total
    
    $
    1,617
    
    
    $
    1,442
    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
  59




---



##### Table of Contents



PART III
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
  
 Item 19. Exhibits
  60




---



##### Table of Contents



Glossary
 Berths.
 Charter.
 CLIA.
 Drydock.
 Gross Tons.
 IMO.
 Jones Act.
 MARPOL.
 SOLAS
 Terminal.
 61




---



##### Table of Contents



SIGNATURE
  NCL Corporation Ltd.By:
    
    /s/ David Colin Sinclair VeitchName:
    
    David Colin Sinclair VeitchTitle:
    
    President and Chief Executive Officer




---



##### 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 banks4.3
    
    $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 banks4.5
    
    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 banks4.7
    
    $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 banks4.9
    
    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 banks4.10
    
    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 banks4.12
    
    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.*+4.13
    
    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 banks4.14
    
    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.*+
 1




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##### Table of Contents



Exhibitnumber
    
    Description of exhibit4.19
    
    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.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).+
    
    Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted
portions have been filed separately with the SEC. 2




---



##### 



NCL Corporation Ltd.
 Index
 Page(s)Report of Independent Registered Certified Public Accounting Firm
    
    
    F-1Consolidated Financial StatementsConsolidated Statements of Operations for the years ended December 31, 2003, 2004 and 2005
    
    
    F-2Consolidated Balance Sheets as of December 31, 2004 and 2005
    
    
    F-3Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2004 and 2005
    
    
    F-4Consolidated Statements of Changes in Shareholders Equity for the years ended December 31, 2003, 2004 and 2005
    
    
    F-5Notes to the Consolidated Financial Statements
    
    
    F-6-23




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Report of Independent Registered Certified Public Accounting Firm
 
  PricewaterhouseCoopers LLP
 
 F-1




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##### Table of Contents



NCL Corporation Ltd.
 
 Consolidated Statements of Operations
 For the Years Ended December 31, 2003, 2004 and 2005
 (in thousands of dollars)
 2003
    
    
    2004
    
    
    2005RevenuesPassenger ticket revenues
    
    $
    971,973
    
    
    $
    986,394
    
    
    $
    1,184,480Onboard and other revenues
    
    
    326,060
    
    
    
    351,892
    
    
    
    431,674Total revenues
    
    
    1,298,033
    
    
    
    1,338,286
    
    
    
    1,616,154Cruise operating expensesCommissions, transportation and other
    
    
    292,453
    
    
    
    253,583
    
    
    
    318,918Onboard and other
    
    
    112,942
    
    
    
    118,904
    
    
    
    138,369Payroll and related
    
    
    204,365
    
    
    
    243,355
    
    
    
    320,656Fuel
    
    
    77,088
    
    
    
    78,013
    
    
    
    119,412Food
    
    
    79,154
    
    
    
    81,448
    
    
    
    94,105Ship charter costs
    
    
    
    
    
    
    22,046
    
    
    
    28,603Other operating
    
    
    178,796
    
    
    
    184,188
    
    
    
    190,442Total cruise operating expenses
    
    
    944,798
    
    
    
    981,537
    
    
    
    1,210,505Marketing, general and administrative expenses
    
    
    186,923
    
    
    
    204,560
    
    
    
    228,205Depreciation and amortization
    
    
    107,257
    
    
    
    87,397
    
    
    
    104,181Impairment loss
    
    
    18,155
    
    
    
    14,500
    
    
    
    Total operating expenses
    
    
    1,257,133
    
    
    
    1,287,994
    
    
    
    1,542,891Operating income
    
    
    40,900
    
    
    
    50,292
    
    
    
    73,263Non-operating (income) expenseInterest income
    
    
    (802
    )
    
    
    (1,434
    )
    
    
    (4,803
    )Interest expense, net of capitalized interest
    
    
    50,849
    
    
    
    48,886
    
    
    
    87,006Other expense (income), net
    
    
    4,366
    
    
    
    11,548
    
    
    
    (28,096
    )Total non-operating expense
    
    
    54,413
    
    
    
    59,000
    
    
    
    54,107Net (loss) income
    
    $
    (13,513
    )
    
    $
    (8,708
    )
    
    $
    19,156
  F-2




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##### Table of Contents



NCL Corporation Ltd.
 
 Consolidated Balance Sheets
 As of December 31, 2004 and 2005
 (in thousands of dollars)
 2004
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    172,424
    
    
    $
    60,416Restricted cash
    
    
    28,520
    
    
    
    48,034Accounts receivable, net
    
    
    10,806
    
    
    
    11,691Note from Parent
    
    
    12,325
    
    
    
    12,325Consumable inventories
    
    
    18,356
    
    
    
    29,133Prepaid expenses and others
    
    
    20,683
    
    
    
    27,203Deferred drydocking costs
    
    
    13,497
    
    
    
    14,591Total current assets
    
    
    276,611
    
    
    
    203,393Property and equipment, net
    
    
    2,515,104
    
    
    
    3,096,456Deferred drydocking costs
    
    
    6,943
    
    
    
    9,273Goodwill
    
    
    392,600
    
    
    
    400,254Tradenames
    
    
    218,538
    
    
    
    218,538Other assets
    
    
    75,190
    
    
    
    80,177Total assets
    
    $
    3,484,986
    
    
    $
    4,008,091Liabilities and Shareholders EquityCurrent liabilities:Current portion of long-term debt
    
    $
    86,198
    
    
    $
    140,694Accounts payable
    
    
    69,875
    
    
    
    73,003Accrued expenses and other liabilities
    
    
    113,466
    
    
    
    137,634Amount due to Parent
    
    
    1,273
    
    
    
    3,141Advance ticket sales
    
    
    230,601
    
    
    
    281,849Total current liabilities
    
    
    501,413
    
    
    
    636,321Long-term debt
    
    
    1,604,331
    
    
    
    1,965,983Other long-term liabilities
    
    
    5,734
    
    
    
    2,631Total liabilities
    
    
    2,111,478
    
    
    
    2,604,935Commitments and contingenciesShareholders equity:Common stock, $1.00 par value; 12,000 shares
authorized; 12,000 shares issued and outstanding
    
    
    12
    
    
    
    12Additional paid-in capital
    
    
    1,491,623
    
    
    
    1,501,929Unamortized stock option expense
    
    
    (779
    )
    
    
    (593
    )Accumulated deficit
    
    
    (117,348
    )
    
    
    (98,192
    )Total shareholders equity
    
    
    1,373,508
    
    
    
    1,403,156Total liabilities and shareholders equity
    
    $
    3,484,986
    
    
    $
    4,008,091
  F-3




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##### Table of Contents



NCL Corporation Ltd.
 
 Consolidated Statements of Cash Flows
 For the Years Ended December 31, 2003, 2004 and 2005
 (in thousands of dollars)
 2003
    
    
    2004
    
    
    2005Cash flows from operating activitiesNet (loss) income
    
    $
    (13,513
    )
    
    $
    (8,708
    )
    
    $
    19,156Adjustments to reconcile net (loss) income to
net cash provided by operating activities:Depreciation and amortization
    
    
    107,257
    
    
    
    87,397
    
    
    
    104,181Impairment loss
    
    
    18,155
    
    
    
    14,500
    
    
    
    Loss (gain) on translation of debt
    
    
    
    
    
    
    9,545
    
    
    
    (29,418
    )Other
    
    
    115
    
    
    
    440
    
    
    
    3,359Changes in operating assets and liabilities:(Increase) in accounts receivable
    
    
    (926
    )
    
    
    (7,559
    )
    
    
    (885
    )(Increase) decrease in consumable inventories
    
    
    (914
    )
    
    
    23
    
    
    
    (10,777
    )Decrease (increase) in prepaid expenses and others
    
    
    8,300
    
    
    
    15,518
    
    
    
    (3,395
    )Increase in deferred drydocking costs
    
    
    (11,270
    )
    
    
    (19,634
    )
    
    
    (21,990
    )(Decrease) increase in accounts payable
    
    
    (15,140
    )
    
    
    (1,640
    )
    
    
    3,128(Decrease) increase accrued expenses and
other liabilities
    
    
    (5,772
    )
    
    
    14,210
    
    
    
    20,083(Decrease) increase advance ticket sales
    
    
    (811
    )
    
    
    42,237
    
    
    
    51,248Net cash provided by operating activities
    
    
    85,481
    
    
    
    146,329
    
    
    
    134,690Cash flows from investing activitiesCapital expenditures
    
    
    (294,797
    )
    
    
    (740,838
    )
    
    
    (656,657
    )Decrease (increase) in restricted cash
    
    
    20,038
    
    
    
    2,204
    
    
    
    (19,514
    )Cash paid for acquisition of business, net of
cash received
    
    
    
    
    
    
    (4,647
    )
    
    
    Net cash used in investing activities
    
    
    (274,759
    )
    
    
    (743,281
    )
    
    
    (676,171
    )Cash flows from financing activitiesPrincipal repayments on long-term debt
    
    
    (462,915
    )
    
    
    (505,029
    )
    
    
    (280,440
    )Proceeds from debt
    
    
    374,958
    
    
    
    1,090,153
    
    
    
    715,696Payment of loan arrangement fees
    
    
    (11,399
    )
    
    
    (47,455
    )
    
    
    (8,112
    )Proceeds from non-interest bearing advances
from Parent
    
    
    240,771
    
    
    
    32,566
    
    
    
    1,868Capital contribution from Parent
    
    
    130,400
    
    
    
    
    
    
    
    461Net cash provided by financing activities
    
    
    271,815
    
    
    
    570,235
    
    
    
    429,473Net increase (decrease) in cash and
cash equivalents
    
    
    82,537
    
    
    
    (26,717
    )
    
    
    (112,008
    )Cash and cash equivalents at the beginning of
the year
    
    
    116,604
    
    
    
    199,141
    
    
    
    172,424Cash and cash equivalents at the end of the year
    
    $
    199,141
    
    
    $
    172,424
    
    
    $
    60,416Supplemental disclosuresInterest paid (net of amounts capitalized)
    
    $
    41,314
    
    
    $
    29,633
    
    
    $
    88,811Non-cash financing activityAdditional paid-in capital recorded for retirement
of debt due to Parent
    
    $
    800,000
    
    
    $
    366,753
    
    
    $
    Payment of loan arrangement fees by Parent
    
    $
    4,291
    
    
    $
    112
    
    
    $
    
    F-4




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##### Table of Contents



NCL Corporation Ltd.
 
 Consolidated Statements of Changes in Shareholders Equity
 For the Years Ended December 31, 2003, 2004 and 2005
 (in thousands of dollars, except common stock data)
 Additional
    
    
    UnamortizedCommon Stock
    
    
    paid-in
    
    
    stock option
    
    
    AccumulatedShares
    
    
    Amount
    
    
    capital
    
    
    expense
    
    
    deficit
    
    
    TotalBalance, December 31, 2002
    
    
    12,000
    
    
    $
    12
    
    
    $
    198,723
    
    
    $
    (883
    )
    
    $
    (95,127
    )
    
    $
    102,725Accretion of stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115
    
    
    
    
    
    
    
    115Contribution from the Parent
(Notes 5 and 9)
    
    
    
    
    
    
    
    
    
    
    930,400
    
    
    
    
    
    
    
    
    
    
    
    930,400Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,513
    )
    
    
    (13,513
    )Balance, December 31, 2003
    
    
    12,000
    
    
    
    12
    
    
    
    1,129,123
    
    
    
    (768
    )
    
    
    (108,640
    )
    
    
    1,019,727Issuance of stock options
    
    
    
    
    
    
    
    
    
    
    451
    
    
    
    (178
    )
    
    
    
    
    
    
    273Accretion of stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    167
    
    
    
    
    
    
    
    167Contribution from the Parent
(Notes 5 and 9)
    
    
    
    
    
    
    
    
    
    
    362,049
    
    
    
    
    
    
    
    
    
    
    
    362,049Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,708
    )
    
    
    (8,708
    )Balance, December 31, 2004
    
    
    12,000
    
    
    
    12
    
    
    
    1,491,623
    
    
    
    (779
    )
    
    
    (117,348
    )
    
    
    1,373,508Issuance of stock options
    
    
    
    
    
    
    
    
    
    
    94
    
    
    
    (38
    )
    
    
    
    
    
    
    56Accretion of stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    224
    
    
    
    
    
    
    
    224Adjustments to variable stock options
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    64Contribution from the Parent
(Notes 5 and 9)
    
    
    
    
    
    
    
    
    
    
    10,148
    
    
    
    
    
    
    
    
    
    
    
    10,148Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,156
    
    
    
    19,156Balance, December 31, 2005
    
    
    12,000
    
    
    $
    12
    
    
    $
    1,501,929
    
    
    $
    (593
    )
    
    $
    (98,192
    )
    
    $
    1,403,156
  F-5




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##### 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 (Star Cruises or the Parent). In connection with our formation, Star
Cruises 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. 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, 2005, we operate twelve ships offering cruises in Antarctica, the Caribbean,
the Bahamas, Bermuda, Alaska, Mexico, Europe, Hawaii, New England, and Central and South
America.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 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 (see Note 9f). Restricted cash fluctuates based
on the level of advance ticket sales processed.Accounts ReceivableAccounts receivable are shown net of an allowance of $2.5 million and $2.0 million at December 31,
2004 and 2005, respectively.Foreign CurrencyThe majority of our transactions are settled in United States dollars. Gains or losses resulting from
transactions denominated in other currencies are recognized in income 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 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 statement 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:
 F-6




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##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
 Useful LifeShips
    
    18-30 yearsOther property and equipment
    
    3-10 years
 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. The Company
considers historical performance and future estimated results in its evaluation of potential
impairment and then compares 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, the Company measures the amount of the
impairment by comparing the carrying amount of the asset to its fair value. The Company estimates
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.The Company has concluded that its 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. The Companys reporting units have
similar economic characteristics, including similar margins, therefore, the Company aggregates 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 the guideline company method which utilizes
market values of companies with similar operations and the transaction approach whereby the Company
estimates fair value based on a recent sale transaction of a similar company.In the fourth quarter of 2003, we determined that the tradename of Orient Lines was impaired as a
result of the decision in 2003 to leave only one ship in the Orient Lines brand. As a result, we
recorded an impairment loss of $15.0 million related to the Orient Lines tradename for the year
ended December 31, 2003.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 ad is initially run. Advertising costs of
approximately $4.9 million and $6.9 million as of December 31, 2004 and 2005, respectively, are
included in prepaid expenses and others. Advertising costs totaled $72.2 million, $75.2 million and
$79.1 million for the years ended December 31, 2003, 2004 and 2005, respectively.Drydocking ExpensesCosts associated with drydocking a ship are deferred and charged to expense over the period to that
ships next scheduled drydocking, which is generally two to three years. Amortization expense of
drydocking
 F-7




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##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
 expenses for the years ended December 31, 2003, 2004 and 2005 was $11.5 million, $10.5 million
and $18.6 million, respectively.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 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
valuation allowance will first be applied against goodwill and other intangibles before recognition
of a benefit in the consolidated statement of operations.Stock-based CompensationWe account for stock-based compensation using the intrinsic-value method for stock options issued
to our employees and disclose certain fair market value pro forma information with respect to its
stock-based compensation activities. We account for stock-based compensation using the grant-date
fair value for stock options issued to individuals who are not employees of ours but provide
services to us.At December 31, 2005, we had stock options granted under the Post-Listing Employee Share Option
Scheme and the stock option grant in 2000 to one of our executives. We recognized stock-based
employee compensation costs for the years ended December 31, 2003, 2004 and 2005. The compensation
expense relates to the grant in 2000 to the executive because there was a difference at the time of
grant between the exercise price and the fair market value of the underlying shares and to the
grant in 2004 to employees because there was a difference at year-end between the exercise price
and the fair market value of the underlying shares. For options granted in 2002 and 2003 pursuant to the
Post-Listing Employee Share Option Scheme, we did not recognize stock-based employee compensation
cost as the quoted market price of Star Cruises common stock did not exceed the strike price of
the outstanding stock options at December 31,
2003, 2004 and 2005 (see Note 7).The following table illustrates the effect on net (loss) income if we had applied the fair value
recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation, to stock-based employee compensation (in thousands of dollars):
 Years Ended December 31,2003
    
    
    2004
    
    
    2005Net (loss) income, as reported
    
    $
    (13,513
    )
    
    $
    (8,708
    )
    
    $
    19,156Add: total stock-based employee compensation
expense included in reported net (loss) income
    
    
    115
    
    
    
    440
    
    
    
    343Deduct: total stock-based employee
compensation exposure determined under
fair value based method for all awards
    
    
    (4,201
    )
    
    
    (2,373
    )
    
    
    (3,524
    )Proforma net (loss) income
    
    $
    (17,599
    )
    
    $
    (10,641
    )
    
    $
    15,975
 The weighted average fair value of options granted to employees during each of the years ended
December 31, 2003, 2004 and 2005 was $0.27, $0.16 and $0.16, respectively. The Binomial option
pricing model used to determine the fair value information for stock options granted was based on
the following assumptions:
 F-8




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##### Table of Contents



NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
 Years Ended December 31,2003
    
    2004
    
    2005Dividend yield
    
    
    
    
    
    
    
    
    
    
    Expected stock price volatility
    
    
    59.2
    %
    
    
    40.2
    %
    
    
    40.2
    %Risk-free interest rate
    
    
    1.6% - 4.6
    %
    
    
    3.4
    %
    
    
    3.4
    %Expected option life
    
    10 years
    
    10 years
    
    10 years
 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 products and services
provided.
Since each ships operations constitute a business where discrete financial information is available and
management regularly reviews operating results, these operations are each considered a reporting unit. These
reporting units have been aggregated as a single operating segment as a result of the similarity of products
and services provided and of economic characteristics.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, 2003 and 2004,
revenues attributable to North American passengers were approximately 89% and for the year ended
December 31, 2005 were approximately 90%.Financial InstrumentsWe enter into derivative instruments, primarily forward contracts, swaps and options, to limit 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
statement of operations as a gain or loss in other expenses (income), net (see Note 6).Accounting PronouncementsIn December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (Revised
2004) Share -Based Payment, (SFAS 123R). This statement is a revision of SFAS No. 123, Accounting
for Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees, and its related implementation guidance. This statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share -based payment transactions. SFAS 123R
requires the measurement and recognition of compensation expense at fair value of employee stock awards,
except for employee purchase plans if they meet certain conditions. Compensation expense for awards and
related tax effects shall be recognized as they vest. Through December 31, 2005, we used the intrinsic
-value
method to measure compensation expense for stock-based awards to our employees under APB Opinion No.
25 and disclosed pro forma information. In April 2005, the Securities and Exchange Commission (SEC)
issued a rule that amends the implementation dates for SFAS 123R. The new SEC rule calls for the
implementation of SFAS 123R at the beginning of the first quarter of 2006, instead of the third quarter of
2005. For previously issued awards, we will adopt SFAS 123R on a modified prospective basis and recognize
compensation expense on the unvested portion of the awards over the remaining vesting period. SFAS 123R
is expected to reduce our results of operations by approximately $1.0 million for the year ended December
31, 2006.ReclassificationsCertain prior year balances have been reclassified to conform to the current years presentation.3.
    
    Property and EquipmentProperty and equipment at December 31, 2004 and 2005 consists of the following (in thousands of dollars):
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NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
 2004
    
    
    2005Cruise ships
    
    $
    1,964,029
    
    
    $
    2,794,061Vessels under construction
    
    
    649,681
    
    
    
    461,317Other property
    
    
    64,079
    
    
    
    84,1822,677,789
    
    
    
    3,339,560Less: accumulated depreciation
    
    
    (162,685
    )
    
    
    (243,104
    )$
    2,515,104
    
    
    $
    3,096,456
 Depreciation expense for the years ended December 31, 2003, 2004 and 2005 was $95.8 million,
$76.9 million and $85.6 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.Interest costs associated with the construction of the cruise ships are capitalized during the
construction period and amounted to $4.3 million, $17.4 million and $32.2 million for the years
ended December 31, 2003, 2004 and 2005, respectively.
 4.
    
    Long-Term Debt
 Long-term debt as of December 31, 2004 and 2005 consists of the following (in thousands of
dollars):
 2004
    
    
    2005$300 million Senior Secured Term Loan, LIBOR + 1.50%,
due 2010
    
    $
    300,000
    
    
    $
    265,000$500 million Senior Secured Revolving Credit Facility, LIBOR
+1.50% to 1.70%, depending on facility usage, due 2010
    
    
    240,000
    
    
    
    280,000$250 million 10 5/8% Senior Notes due 2014
    
    
    250,000
    
    
    
    250,000$626.9 million Syndicated Term Loan, LIBOR + 1.40%,
due 2014
    
    
    271,666
    
    
    
    250,769$225.0 million Norwegian SunLoan, LIBOR +1.40%,
due 2011
    
    
    207,000
    
    
    
    189,000Euro 258.0 million Pride of AmericaHermes Loan,
5.715%, due 2017
    
    
    212,716
    
    
    
    292,219Euro 40.0 million Pride of AmericaCommercial Loan,
LIBOR + 1.35%, due 2017
    
    
    46,350
    
    
    
    44,419$334.1 million Norwegian JewelLoan, LIBOR + 0.75%,
due 2017
    
    
    113,377
    
    
    
    324,261Euro 308.1 million Pride of HawaiiLoan, EURIBOR +0.75%,
due 2018
    
    
    47,212
    
    
    
    200,120Other long-term debt
    
    
    2,208
    
    
    
    10,8891,690,529
    
    
    
    2,106,677Less: Current portion
    
    
    (86,198
    )
    
    
    (140,694
    )$
    1,604,331
    
    
    $
    1,965,983
 In April 2004, we entered into a term loan with a syndicate of banks to finance up to $334.1
million to finance construction of the Norwegian Jewel.
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NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
 In April 2004, we entered into a term loan with a syndicate of banks to finance up to Euro 308.1
million or the U.S. dollar equivalent to finance construction of the Pride of Hawaii. The
outstanding balance at December 31, 2005 of $200.1 million is denominated in Euro.In July 2004, we entered into a $800.0 million Senior Secured Credit Facility (Senior Secured
Credit Facility) consisting of a $300.0 million Senior Secured Term Loan and a $500.0 million
Senior Secured Revolving Credit Facility with a syndicate of international banks. The Senior
Secured Term Loan requires semi-annual principal reductions totaling $17.5 million, with the remaining unpaid principal
balance due at maturity. The Senior Secured Revolving Credit Facility allows us to borrow on a
revolving basis at any time prior to maturity, with all outstanding amounts then due. In regards
to the revolving credit facility, we are required to pay quarterly a commitment fee equal to
approximately 40% of the applicable margin per annum on the unutilized commitment. As of December
31, 2005, the amount available under the revolving credit facility was $220.0 million.In July 2004, we issued $250.0 million Senior Notes due 2014. The notes are unsecured senior
obligations
of ours and rank equally with all of our existing and future senior unsecured debt. We may redeem
all or a portion of the notes at any time after July 15, 2009. In addition, we may redeem a portion
of the notes using the cash proceeds of certain equity offerings completed before July 15, 2007.In conjunction with closing of the Senior Secured Credit Facility and the repayment of certain
indebtedness, we wrote off approximately $3.6 million in deferred financing costs to interest
expense for the year ended December 31, 2004.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%.At December 31, 2004 and 2005, we had long-term debt denominated in Euro with a balance of $105.4
million and $200.1 million, respectively. We did not have any long-term debt denominated in Euro
for the year ended December 31, 2003. As a result of the translation of these borrowings, we
recognized a loss of $9.5 million and a gain of $29.4 million for the years ended December 31, 2004
and 2005, respectively. These amounts were recorded as a component of other expense (income), net,
in the consolidated statements of operations.In October 2005, we entered into a secured revolving loan 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. After the initial drawdown, the facility converts 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 vessel. The facility bears interest at a rate that varies according to LIBOR or
EURIBOR, depending on the denomination of the underlying balance. At December 31, 2005, we have not
drawn on this facility.There are no restrictions in the agreements that limit intercompany borrowings or dividends between
the Companys subsidiaries that would impact the Companys ability to meet its cash obligations.Costs incurred in connection with the arranging of loan financing have been deferred and are
amortized over the life of the loan agreement to interest expense. The amortization for the years
ended December 31, 2003, 2004 and 2005 was $4.1 million, $3.9 million and $6.2 million,
respectively.Our debt agreements contain covenants that require us, among other things, to maintain a minimum
level of free liquidity, limit our net debt-to-capital ratio, and restrict our ability to pay
dividends. We were in compliance with all covenants as of December 31, 2005 and 2004. Our ships
and substantially all other property are pledged as collateral for our debt.
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NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
 The following is a schedule of principal repayments of the long-term debt as of December 31,
2005 (in thousands of dollars):
 2006
    
    $
    140,6942007
    
    
    148,5142008
    
    
    148,2982009
    
    
    148,2512010
    
    
    518,934
 We had accrued interest liability of $25.2 million and $29.8 million at December 31, 2004 and 2005,
respectively.
 5.
    
    Related Party DisclosuresIn August 2003, Star Cruises agreed to convert $800.0 million owed by us as a result of amounts
advanced from February 2000 through September 2003 to equity. In addition, in December 2003, Star
Cruises contributed $128.2 million in cash to us. As a result of the transactions, we recorded
additional paid-in capital in the amount of $928.2 million for the year ended December 31, 2003.In April 2004, Star Cruises completed a reorganization transaction (the Reorganization) which
included the formation of NCL Corporation Ltd. (see 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 agreed to forgive an additional $366.6 million owed by us to Star Cruises 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 were released and substantially
all of the guarantees provided by Star Cruises to our lenders were released. Our lenders were
provided guarantees by us in lieu of the previous guarantees provided by Star Cruises.After the transfer of the six ships to Star Cruises, we entered into charter agreements for the six
ships with Star Cruises 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.During the year ended December 31, 2003, as a result of an accident on the Norway, we recorded an
impairment charge of $22.9 million to write down the carrying value of the ship to its fair value
(see Note 9(d)). In the same period, we also recorded $19.7 million to be received from the
insurance company for the physical damage to the ship as a result of the accident. The recovery
was recorded as an offset to the impairment charge, resulting in a net impairment charge of
approximately $3.2 million for the year ended December 31, 2003.In April 2004, we transferred the Norway, and a related $19.7 million insurance receivable to Star
Cruises 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 Star Cruises 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 the 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.
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NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
  Norwegian Spirit Norwegian Spirit
   Balance at December 31, 2003
    
    $
    741,402Cash advanced for capital expenditures
    
    
    104Cash advanced for professional and other fees
    
    
    1,169Net book value of six ships transferred, net of associated debt
    
    
    (374,846
    )Amount transferred to equity
    
    
    (366,556
    )Balance at December 31, 2004
    
    
    1,273Cash advanced for capital expenditures
    
    
    7,619Reimbursement of professional and other fees
    
    
    1,482Reimbursement of ship expenses
    
    
    (7,233
    )Balance at December 31, 2005
    
    $
    3,141
 The average balance for amount due to Star Cruises was $174.9 million and $2.3 million for the years ended
December 31, 2004 and 2005, respectively.At December 31, 2005, the Lim Family directly and indirectly controls approximately 86% of Star Cruises,
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.6.
    
    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 swap agreements is limited to the cost of
replacing the contracts in the event of non -performance by the counterparties to the 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:
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NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
 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, 2004 and 2005, the fair value of the long-term debt, including the current portion, was
$1,707.9 million and $2,128.5 million, respectively, which was $17.4 million more and $21.8 million more,
respectively, than the carrying values. The difference between the fair value and carrying value of the 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 long-term debt is estimated based on rates currently
available to us for the same or similar terms and remaining maturities.Foreign Currency ContractsWe had no outstanding forward contracts at December 31, 2004 or 2005. As of December 31, 2003, we had
foreign currency forward contracts related to a ship construction contract with an aggregate notional amount
of $160.7 million maturing through 2004. The fair values of our foreign currency forward contracts are
estimated using current market prices for similar instruments. Our exposure to market risk for fluctuations in
foreign currency exchange rates relates to the debt being used to finance three ship construction contracts and
forecasted transactions. We use foreign currency forward contracts and purchase options to mitigate the
impact of fluctuations in foreign currency exchange rates.Interest Rate Swap AgreementsAs of December 31, 2005 and 2004, we had no interest rate swap agreements outstanding. The fair values of
our interest rate swap agreements are estimated based on quoted market prices for similar or identical
financial instruments to those we hold. Our exposure to market risk for changes in interest rates relates to our
long-term debt obligations. From time to time we consider entering into interest rate swap agreements to
modify our exposure to interest rate movements and to manage our interest expense.
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 a fair value of $0.6 million, maturing through
2006.7.
    
    Employee Benefit and Stock OptionsEmployee Stock Option PlansIn November 2000, Star Cruises adopted a Post-listing Employee Share Option Scheme (Share Option
Scheme) for the employees of Star Cruises and our employees that provides for the granting of stock options
in Star Cruises 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.In August 2004, Star Cruises 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.
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NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
 Pertinent information covering the options granted pursuant to the Share Option Scheme
is as follows:
 WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingNumber of
    
    
    Option
    
    
    Exercise
    
    
    Contractual
    
    
    ExpirationShares
    
    
    Price
    
    
    Price
    
    
    Life
    
    
    DateOutstanding at January 1, 2003
    
    
    19,744,800
    
    
    $
    0.39-0.41
    
    
    $
    0.41
    
    
    
    9.01
    
    
    
    2012Granted
    
    
    40,333,770
    
    
    $
    0.39-0.41
    
    
    $
    0.41
    
    
    
    9.15
    
    
    
    2013Forfeited
    
    
    (1,759,770
    )
    
    $
    0.39-0.41
    
    
    $
    0.41
    
    
    
    
    
    
    
    2012Outstanding at December 31, 2003
    
    
    58,318,800
    
    
    $
    0.39-0.41
    
    
    $
    0.41
    
    
    
    9.11
    
    
    
    2012-13Outstanding at January 1, 2004
    
    
    58,318,800
    
    
    $
    0.39-0.41
    
    
    $
    0.41
    
    
    
    9.11
    
    
    
    2012-13Granted
    
    
    5,643,244
    
    
    $
    0.22
    
    
    $
    0.22
    
    
    
    9.65
    
    
    
    2012-14Forfeited
    
    
    (13,797,447
    )
    
    $
    0.41
    
    
    $
    0.41
    
    
    
    7.64
    
    
    
    2012Outstanding at December 31, 2004
    
    
    50,164,597
    
    
    $
    0.22-0.41
    
    
    $
    0.39
    
    
    
    7.88
    
    
    
    2012-14Outstanding at January 1, 2005
    
    
    50,164,597
    
    
    $
    0.22-0.41
    
    
    $
    0.39
    
    
    
    7.88
    
    
    
    2012-14Granted
    
    
    995,005
    
    
    $
    0.22
    
    
    $
    0.22
    
    
    
    8.65
    
    
    
    2014Forfeited
    
    
    (2,113,620
    )
    
    $
    0.22-0.41
    
    
    $
    0.38
    
    
    
    6.93
    
    
    
    2012-14Outstanding at December 31, 2005
    
    
    49,045,982
    
    
    $
    0.22-0.41
    
    
    $
    0.39
    
    
    
    6.91
    
    
    
    2012-14Exercisable at:December 31, 2003
    
    
    
    
    
    
    
    
    
    
    December 31, 2004
    
    
    8,675,310
    
    
    $
    0.39-0.41
    
    
    $
    0.41December 31, 2005
    
    
    19,105,484
    
    
    $
    0.39-0.41
    
    
    $
    0.41
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NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
 Significant option groups outstanding at December 31, 2005 and related price and life
information is as follows:
 Options Outstanding
    
    Options ExercisableWeightedOutstanding
    
    Weighted
    
    Average
    
    Exercisable
    
    Weightedat
    
    Average
    
    Remaining
    
    at
    
    AverageRange of
    
    December 31,
    
    Exercise
    
    Contractual
    
    December 31,
    
    ExerciseExercise Price
    
    2005
    
    Price
    
    Life
    
    2004
    
    Price$0.39  0.41
    
    
    42,712,244
    
    
    
    $ 0.41
    
    
    
    6.66
    
    
    
    19,105,484
    
    
    
    $ 0.41$0.22
    
    
    6,333,738
    
    
    
    $ 0.22
    
    
    
    8.65
    
    
    
    
    
    
    49,045,982
    
    
    
    $ 0.39
    
    
    
    6.91
    
    
    
    19,105,484
    
    
    
    $ 0.41
 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.As a result of certain variable terms in the Share Option Scheme that depend on events after the
grant date including, but not limited to, the fact that certain stock options vest pursuant to
performance targets the stock options granted are subject to variable accounting until the
measurement date. We have not recorded any compensation expense in connection with the stock
options granted and accepted in 2002 and 2003 because the exercise
price of stock options accepted exceeded the quoted market price of Star Cruises common stock at December 31, 2003, 2004 and 2005.
We recorded compensation expense in connection with the stock options granted and accepted in
2004, because the exercise price of stock options accepted in 2004 was less than the quoted market
price of Star Cruises common stock at December 31, 2004 and 2005. For the years ended December
31, 2004 and 2005, we recorded compensation expense of approximately $13,000 and $189,000,
respectively, related to stock options granted and accepted in 2004.In January 2000, Star Cruises granted a stock option to the executive to purchase 200,000 of Star
Cruises common stock at $2.275 per share. The option vests over a period through 2009. The stock
had a fair market value on the day of grant of $9.95 per share of common stock. The difference
between the exercise price and the fair market value amounted to approximately $1,517,000.
Subsequent to the grant, the number of shares of common stock subject to the stock option were
adjusted for a rights offering. At December 31, 2005, the executive had a stock option to
purchase 975,840 of Star Cruises common stock at a price of $0.42 per share. For the years ended
December 31, 2003, 2004 and 2005, we recorded approximately $115,000, $154,000 and $154,000,
respectively, in non-cash compensation expense.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.
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NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
 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).No amounts are required to be or were contributed under the SERP Plan by us as of December 31, 2004
and 2005 as the SERP Plan is unfunded. We recorded expenses related to the above described defined
contribution plans of approximately $2.5 million, $2.6 million and $2.5 million for the years ended
December 31, 2003, 2004 and 2005, respectively.Our contributions are reduced by contributions forfeited by those employees who leave the schemes
prior to vesting fully in the contributions. Approximately $0.02 million, $0.11 million and $0.1
million of the forfeited contributions were utilized in each of the years ended December 31, 2003,
2004 and 2005, respectively. As of December 31, 2004 and 2005, approximately $0.07 million and $0.1
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,
2004 and 2005 of approximately $8.9 million and $9.7 million, respectively, with respect to the
SSERP Plan in the accompanying consolidated balance sheet. We record an expense 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 an expense related to the above described defined
benefit plan of approximately $2.0 million, $1.9 million and $0.8 million for the years ended
December 31, 2003, 2004 and 2005, respectively. No amounts were contributed to the SSERP Plan by us
at December 31, 2004 and 2005 as the SSERP Plan is currently unfunded.8.
    
    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 the Isle of Man 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, 2004 and 2005 (in thousands of dollars):
 2004
    
    
    2005Deferred tax assets:Loss carryforwards
    
    $
    71,758
    
    
    $
    59,510Shares in NCL Cruises Ltd.
    
    
    62,206
    
    
    
    42,020Pension obligation
    
    
    634
    
    
    
    544Others
    
    
    718
    
    
    
    572135,316
    
    
    
    102,646Valuation allowance
    
    
    (135,316
    )
    
    
    (102,646
    )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 are $212.5 million.
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NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
 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.The activity in the deferred tax asset valuation allowance related to our Norwegian taxes for the
years ended December 31, 2003, 2004 and 2005 is as follows (in thousands of dollars):
 Balance atYear ended
    
    Beginning
    
    
    
    
    
    
    
    
    
    Balance atDecember 31,
    
    of Year
    
    Additions
    
    Deductions
    
    End of Year2003
    
    $
    111,955
    
    
    $
    3,063
    
    
    $
    
    
    
    $
    115,0182004
    
    
    115,018
    
    
    
    20,298
    
    
    
    
    
    
    
    135,3162005
    
    
    135,316
    
    
    
    
    
    
    
    (32,670
    )
    
    
    102,646
 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 United States, 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 for the year ended December 31, 2005 due to the
enactment of the Final Regulations.At December 31, 2004 and 2005, our U.S. subsidiaries had $25.4 million and $38.4 million,
respectively, of unrecognized net deferred tax assets, comprised primarily of net operating loss
carryforwards and start-up expenses. A valuation allowance has been provided against this 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. The benefit for income taxes which represented the effect of the net operating
loss has been offset by the change in the valuation allowance relating to the deferred tax assets.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.
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NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
 With respect to our U.S. subsidiaries, the differences between the effective rate and the United
States federal income tax statutory rate are as follows for the years ended December 31, 2003, 2004
and 2005 (in thousands of dollars):
 2003
    
    
    2004
    
    
    2005Tax benefit at statutory rate
    
    $
    2,781
    
    
    $
    19,936
    
    
    $
    12,298State income tax benefit, net of federal benefit
    
    
    331
    
    
    
    2,370
    
    
    
    1,462Increase in the valuation allowance
    
    
    (3,112
    )
    
    
    (22,306
    )
    
    
    (12,995
    )Other
    
    
    
    
    
    
    
    
    
    
    (765
    )Income tax provision
    
    $
    
    
    
    $
    
    
    
    $
    
 Deferred tax assets and liabilities that relate to our U.S. subsidiaries comprised the
following at December 31, 2004 and 2005 (in thousands of dollars):
 2004
    
    
    2005Deferred tax assets:Loss carryforwards
    
    $
    23,654
    
    
    $
    82,061Start-up expenses
    
    
    12,768
    
    
    
    11,209Allowances and other
    
    
    
    
    
    
    488Total
    
    
    36,422
    
    
    
    93,758Deferred tax liabilities:Depreciation and amortization
    
    
    (11,004
    )
    
    
    (47,022
    )Translation loss and other
    
    
    
    
    
    
    (8,323
    )Total deferred tax liabilities
    
    
    (11,004
    )
    
    
    (55,345
    )25,418
    
    
    
    38,413Valuation allowance
    
    
    (25,418
    )
    
    
    (38,413
    )Total net deferred taxes
    
    $
    
    
    
    $
    
 We have net operating loss carryforwards for federal and state tax purposes totaling
approximately $210 million at December 31, 2005, expiring at various times commencing in 2024.The activity in the deferred tax asset valuation allowance related to our U.S. taxes for the years
ended December 31, 2003, 2004 and 2005 is as follows (in thousands of dollars):
 Balance atYear ended
    
    Beginning
    
    
    
    
    
    
    
    
    
    Balance atDecember 31,
    
    of Year
    
    Additions
    
    Deductions
    
    End of Year2003
    
    $
    
    
    
    $
    3,112
    
    
    $
    
    
    
    $
    3,1122004
    
    
    3,112
    
    
    
    22,306
    
    
    
    
    
    
    
    25,4182005
    
    
    25,418
    
    
    
    12,995
    
    
    
    
    
    
    
    38,413
 9.
    
    Commitments and Contingencies
 (a)
    
    Operating leases
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NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
 We operate principally in leased premises. Rent payable under non -cancelable
operating lease commitments was $5.9 million, $6.5 million and $6.9 million for the
years ended December 31, 2003, 2004 and 2005, respectively.At December 31, 2005, minimum annual rentals for non-cancelable leases with initial
or remaining terms in excess of one year were as follows (in thousands of dollars):
 2006
    
    $
    6,3402007
    
    
    5,9802008
    
    
    5,6452009
    
    
    1,9422010
    
    
    452$
    20,359
 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 for six ships for a period of one to
six years in connection with the Reorganization (see Note 5). Charter expenses for these
ships were $20.9 million and $28.6 million for the years ended December 31, 2004 and 2005,
respectively.At December 31, 2005, remaining charter payments were as follows (in thousands of dollars):
 2006
    
    $
    26,2262007
    
    
    23,6582008
    
    
    11,6862009
    
    
    3,9402010
    
    
    223$
    65,733
 In addition to the charter agreements described above, in May 2004, we entered into a
six-month charter agreement with Star Cruises to charter the Norwegian Spirit. The charter
agreement allowed us to purchase the ship at its net book value on the date of the
transaction during the term of the charter agreement. We recorded ship charter costs of approximately $1.1 million
related to this ship for the year ended December 31, 2004. We purchased the ship in July
2004 (see Note 5).(c)
    
    Capital expendituresAs of December 31, 2005, we had three ships under construction for additional capacity of
approximately 7,200 berths with scheduled deliveries in the second quarter of 2006, the
fourth quarter of 2006 and the fourth quarter of 2007. The aggregate cost of the ships is
approximately $1.4 billion (based on the exchange rate for the Euro at December 31, 2005),
of which we have paid $402.6 million as of December 31, 2005.As of December 31, 2005, we anticipate that capital expenditures, including the three
ships on order, will be approximately $0.7 billion, $0.5 billion, and $0.1 billion for the
years ending December 31, 2006, 2007, and 2008, respectively.(d)
    
    Material litigation
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NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
 (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 by
misrepresenting certain characteristics and services available to the physically
impaired onboard the Norwegian Sea. In connection with the state court lawsuit, in
December 2001, the trial court denied the plaintiffs motion for class
certification, and the state appellate court upheld that
denial. 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 that the ADA is applicable to foreign flagged cruise vessels that operate in
U.S. waters to the same extent that it applies to U.S. flagged ships. The U.S. Supreme
Court further ruled that retrofitting existing ships with permanent modifications is not
required, pursuant to a provision of the ADA that requires only readily achievable
modifications. The U.S. Supreme Court remanded the case to the Fifth Circuit Court of
Appeals to determine which claims in the lawsuit remain under the U.S. Supreme Courts
ruling.(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 vessels. Discovery has commenced. We believe that we
have meritorious defenses to these claims and, accordingly, are defending vigorously this
action.(iii)
    
    In November 2000, Star Cruises Limited, through its wholly -owned subsidiary,
Arrasas Limited (collectively Star), initiated a compulsory acquisition for the
remaining stock of NCLH that it did not own at NOK13 per share. Thereafter, on December 5,
2003, the Oslo City Court ruled that Star was required to pay NOK25 per share for those
shareholders who rejected the NOK13 per share price. On January 8, 2004, Star appealed and
in June 2005, the appeal court ruled that the redemption price for the shares be fixed at
NOK16.50 per share, plus 5.5% annual and compound interest from November 30, 2000 until
payment was made. The appeal court also ordered Star to reimburse the minority
shareholders costs in the amount of NOK2.47 million.
Such amounts were paid during the year ended December 31, 2005. In addition, and pursuant
to an
agreement, we have also paid the amount of NOK1.50 per share to our affiliates who sold
10.9% of the shares in NCLH to us in November 2000. However, the period for appeal by the
unrepresented minority shareholders may still be pending as they are determined on an
individual basis. Star Cruises Limited agreed to pay on our behalf certain amounts we
ultimately were obligated to pay to the shareholders as a result of this dispute. As a
result of the ruling of the appeal court, we have recorded additional goodwill of $7.7
million during the year ended December 31, 2005 to reflect the final determination by the
appeal court of the fair value of the price of the shares at the time of acquisition based
on amounts paid to the minority shareholders and the shareholders who are our affiliates.
 On April 6, 2001, a complaint was filed in the United States District Court for the
Southern District of New York against Star Cruises Limited and Arrasas Limited
(collectively, Star) as well as The Bank of New York (BNY). The plaintiff claimed
that Star violated the U.S. securities laws by making false and misleading disclosures
in connection with Stars mandatory offer for the shares of NCLH, and that Star was
unjustly enriched. BNY brought cross claims and third-party claims against Star and us.
The Court dismissed all claims by plaintiff against Star and all of BNYs claims against
Star and us, except for BNYs claim against us for indemnification of costs and legal
fees incurred in the action. On August 9, 2005, the Court granted BNYs motion for
summary judgment on the claim for indemnification of its attorneys fees. On December
16, 2005, Star and plaintiff entered into a settlement agreement and mutual release. On
December 27, 2005, the Court ordered judgment on BNYs indemnification claim in the
amount of $2.3 million. Star Cruises Limited has agreed to pay all legal and other costs
that we incur as a result of this matter. We are vigorously appealing this judgment.
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NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
 For the years ended December 31, 2003, 2004 and 2005, we recorded legal and other costs
in the amounts of $2.2 million, $0.2 million and $3.4 million, respectively, in
connection with the minority shareholders and the BNY matters, all of which was
reimbursed to us by Star Cruises Limited. In addition, of the $7.7 million paid to the
minority shareholders and the shareholders who are our affiliates discussed above, Star
Cruises Limited paid $6.7 million for the year ended December 31, 2005. We recorded
capital contributions from our parent in amounts equal to the reimbursement to us from
Star Cruises discussed above during the years ended December 31, 2003, 2004 and 2005.(iv)
    
    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 preliminarily approved by
the court on April 21, 2005. We believe that the ultimate outcome of this matter, based on
the settlement, will not have a material impact on our financial position, results of
operations or cash flows.(v)
    
    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.
Discovery is proceeding. The case is awaiting a trial date. We believe that we have
meritorious defenses to these claims and, accordingly, are defending vigorously this
action.(vi)
    
    In May 2003, an explosion in the boiler room onboard the Norwayresulted 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.(vii)
    
    On July 24, 2004, we were served with a complaint by a crewmember who alleges failure to
provide maintenance and cure and failure to treat stemming from a renal ailment which
developed while in the service of one of our vessels resulting in the need for dialysis and an
eventual kidney transplant. Discovery has commenced. We believe that we have meritorious
defenses to this claim and, accordingly, are defending vigorously this action.(viii)
    
    On or about February 3, 2006, the Company was 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
vessels in the NCL fleet. We believe that we have meritorious defenses to these claims and,
accordingly, are defending vigorously this action.(ix)
    
    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, 2004 and
2005, the Company had accrued amounts of approximately $11.6 million and $10.4
million, respectively, for all pending legal matters.
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NCL Corporation Ltd.
Notes to the Consolidated Financial Statements
 (e)
    
    CommitmentsWe have future commitments to pay for usage of certain port facilities as follows at
December 31, 2005 (in thousands of dollars):
 2006
    
    $
    13,1092007
    
    
    7,7882008
    
    
    7,5152009
    
    
    8,0092010
    
    
    8,170Thereafter
    
    
    60,806$
    105,397
 (f)
    
    Credit Card ProcessorIn September 2005, we entered into a letter of credit facility to replace our existing
facility. The aggregate amount of the new facility, not to exceed $100 million,
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-23