Non-GAAP Financial Measures

We use certain non-GAAP financial measures, such as Net Revenue, Net Yield, Net Cruise Cost and Adjusted EBITDA to enable us to analyze our performance. We utilize Net Revenue and Net Yield to manage our business on a day-to-day basis and believe that they are the most relevant measures of our revenue performance because they reflect the revenue earned by us net of significant variable costs and are commonly used in the cruise industry to measure revenue performance. In measuring our ability to control costs in a manner that positively impacts net income, we believe changes in Net Cruise Cost and Net Cruise Cost Excluding Fuel to be the most relevant indicators of our performance and are commonly used in the cruise industry as a measurement of costs.

As our business includes the sourcing of guests and deployment of vessels outside of North America, a portion of our revenue and expenses are denominated in foreign currencies, particularly euro and British Pound sterling, which are subject to fluctuations in currency exchange rates versus our reporting currency, the U.S. dollar. In order to monitor results excluding these fluctuations, we calculate certain non-GAAP measures on a Constant Currency basis whereby current period revenue and expenses denominated in foreign currencies are converted to U.S. dollars using currency exchange rates of the comparable period. We believe that presenting these non-GAAP measures on both a reported and Constant Currency basis is useful in providing a more comprehensive view of trends in our business.

We believe that Adjusted EBITDA is appropriate as a supplemental financial measure as it is used by management to assess operating performance, is a factor in the evaluation of the performance of management and is the primary metric used in determining the Company's performance incentive bonus paid to its employees. We believe that Adjusted EBITDA is a useful measure in determining the Company's performance as it reflects certain operating drivers of the Company's business, such as sales growth, operating costs, marketing, general and administrative expense and other operating income and expense. You are encouraged to evaluate each adjustment and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our results as reported under GAAP. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Adjusted EBITDA is not a defined term under GAAP. Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations or measures comparable to net income as it does not take into account certain requirements such as capital expenditures and related depreciation, principal and interest payments and tax payments and it includes other supplemental adjustments. Our non-GAAP financial measures may not be comparable to other companies. Please see a historical reconciliation of these measures to items in our consolidated financial statements below in the "Results of Operations" section.

Financial Presentation

Revenue from our cruise and cruise-related activities are categorized by us as "passenger ticket revenue" and "onboard and other revenue." Passenger ticket revenue and onboard and other revenue vary according to the size of the ship in operation, the length of cruises operated and the markets in which the ship operates. Our revenue is seasonal based on demand for cruises, which has historically been strongest during the summer months.

Passenger ticket revenue primarily consists of revenue for accommodations, meals in certain restaurants on the ship, certain onboard entertainment, and includes revenue for service charges and air and land transportation to and from the ship to the extent guests purchase these items from us. Onboard and other revenue primarily consists of revenue from gaming, beverage sales, specialty dining, shore excursions, retail sales and spa services. We record onboard revenue from onboard activities we perform directly or that are performed by independent concessionaires, from which we receive a share of their revenue.

Our cruise operating expense is classified as follows:

• Commissions, transportation and other primarily consists of direct costs associated with passenger ticket revenue. These costs include travel agent commissions, air and land transportation expenses, related credit card fees, costs associated with service charges and certain port expenses.

• Onboard and other primarily consists of direct costs that are incurred in connection with onboard and other revenue. These include costs incurred in connection with shore excursions, beverage sales and gaming.

• Payroll and related consists of the cost of wages and benefits for shipboard employees.

• Fuel includes fuel costs, the impact of certain fuel hedges, and fuel delivery costs.

• Food consists of food costs for guests and crew.

• Other consists of repairs and maintenance (including Dry-dock costs), ship insurance, Charter costs and other ship expenses.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with GAAP in the U.S. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. We rely on historical experience and on various other assumptions that we believe to be reasonable under the circumstances to make these estimates and judgments. Actual results could differ materially from these estimates. We believe that the following critical accounting policies affect the significant estimates used in the preparation of our consolidated financial statements. These critical accounting policies, which are presented in detail in our notes to our audited consolidated financial statements, relate to ship accounting, asset impairment and contingencies.

Ship Accounting

Ships represent our most significant assets, and we record them at cost less accumulated depreciation. Depreciation of ships is computed on a straight-line basis over the estimated service lives of primarily 30 years after a 15% reduction for the estimated residual value of the ship. Improvement costs that we believe add value to our ships are capitalized to the ship and depreciated over the improvements' estimated useful lives. Repairs and maintenance activities are charged to expense as incurred. We account for Dry-dock costs under the direct expense method which requires us to expense all Dry-dock costs as incurred.

We determine the useful life of our ships based primarily on our estimates of the average useful life of the ships' major component systems, such as cabins, main diesels, main electric, superstructure and hull. In addition, we consider the impact of anticipated changes in the vacation market and technological conditions and historical useful lives of similarly-built ships. Given the large and complex nature of our ships, our accounting estimates related to ships and determinations of ship improvement costs to be capitalized require considerable judgment and are inherently uncertain. Should certain factors or circumstances cause us to revise our estimate of ship service lives or projected residual values, depreciation expense could be materially lower or higher. If circumstances cause us to change our assumptions in making determinations as to whether ship improvements should be capitalized, the amounts we expense each year as repairs and maintenance costs could increase, partially offset by a decrease in depreciation expense. If we reduced our estimated average 30-year ship service life by one year, depreciation expense for the year ended December 31, 2012 would have increased by $5.4 million. In addition, if our ships were estimated to have no residual value, depreciation expense for the same period would have increased by $27.1 million. We believe our estimates for ship accounting are reasonable and our methods are consistently applied. We believe that depreciation expense is based on a rational and systematic method to allocate our ships' costs to the periods that benefit from the ships' usage.

Asset Impairment

We review our long-lived assets, principally ships, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Assets are grouped and evaluated at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. We consider historical performance and future estimated results in our evaluation of potential impairment and then compare the carrying amount of the asset to the estimated future cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds the estimated expected undiscounted future cash flows, we measure the amount of the impairment by comparing the carrying amount of the asset to its fair value. We estimate fair value based on the best information available making whatever estimates, judgments and projections 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 other indefinite-lived assets, principally trade names, are reviewed for impairment on an annual basis or earlier if there is an event or change in circumstances that would indicate that the carrying value of these assets could not be fully recovered.

We believe our estimates and judgments with respect to our long-lived assets, principally ships, and goodwill and other indefinite-lived intangible assets are reasonable. Nonetheless, if there was a material change in assumptions used in the determination of such fair values or if there is a material change in the conditions or circumstances that influence such assets, we could be required to record an impairment charge. As of December 31, 2012 our annual review supports the carrying value of these assets.

Contingencies

Periodically, we assess potential liabilities related to any lawsuits or claims brought against us or any asserted claims, including tax, legal and/or environmental matters. Although it is typically very difficult to determine the timing and ultimate outcome of such actions, we use our best judgment to determine if it is probable that we will incur an expense related to the settlement or final adjudication of such matters and whether a reasonable estimation of such probable loss, if any, can be made. In assessing probable losses, we take into consideration estimates of the amount of insurance recoveries, if any. In accordance with the guidance on accounting for contingencies, we accrue a liability when we believe a loss is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertainties related to the eventual outcome of litigation and potential insurance recoveries, although we believe that our estimates and judgments are reasonable, it is possible that certain matters may be resolved for amounts materially different from any estimated provisions or previous disclosures.

Executive Overview

Total revenue increased 2.6% to $2,276.2 million for the year ended December 31, 2012 compared to $2,219.3 million for the year ended December 31, 2011. Net Revenue for the year ended December 31, 2012 increased 3.2% to $1,691.8 million from $1,639.3 million in the same period in 2011 with an improvement of both Net Yield and Capacity Days of 1.6%.

Net income increased to $168.6 million in 2012 from $126.9 million in 2011. Operating income increased 13.0% to $357.1 million for the year ended December 31, 2012 from $316.1 million in the same period in 2011. A 9.8% improvement in Adjusted EBITDA (we refer you to our Results of Operations below for a calculation of Adjusted EBITDA) was achieved for the same period as revenue increased primarily due to an increase in passenger ticket pricing. Our business improvement measures continued to have an impact even with the increase in the cost of fuel.

Results of Operations

We reported total revenue, total cruise operating expense, operating income and net income as shown in the following table (in thousands):

                                                  Year Ended December 31,
                                           2012            2011            2010
       Total revenue                    $ 2,276,246     $ 2,219,324     $ 2,012,128

       Total cruise operating expense   $ 1,478,433     $ 1,467,876     $ 1,347,176

       Operating income                 $   357,093     $   316,112     $   230,609

       Net income                       $   168,556     $   126,859     $    22,986

The following table sets forth operating data as a percentage of revenue:

                                                    Year Ended December 31,
                                               2012          2011          2010
      Revenue
      Passenger ticket                           70.5 %        70.4 %        70.2 %
      Onboard and other                          29.5 %        29.6 %        29.8 %

      Total revenue                             100.0 %       100.0 %       100.0 %

      Cruise operating expense
      Commissions, transportation and other      18.0 %        18.5 %        18.9 %
      Onboard and other                           7.7 %         7.6 %         7.6 %
      Payroll and related                        12.9 %        13.1 %        13.2 %
      Fuel                                       12.5 %        11.0 %        10.3 %
      Food                                        5.5 %         5.6 %         5.7 %
      Other                                       8.4 %        10.3 %        11.3 %

      Total cruise operating expense             65.0 %        66.1 %        67.0 %

      Other operating expense
      Marketing, general and administrative      11.0 %        11.3 %        13.1 %
      Depreciation and amortization               8.3 %         8.3 %         8.5 %

      Total other operating expense              19.3 %        19.6 %        21.6 %

      Operating income                           15.7 %        14.3 %        11.4 %

      Non-operating income (expense)
      Interest expense, net                      (8.3 )%       (8.6 )%       (8.6 )%
      Other income (expense)                        - %           - %        (1.7 )%

      Total non-operating income (expense)       (8.3 )%       (8.6 )%      (10.3 )%

      Net income                                  7.4 %         5.7 %         1.1 %

The following table sets forth selected statistical information:

                                             Year Ended December 31,
                                      2012             2011            2010
          Passengers carried         1,503,107        1,530,113       1,404,137
          Passenger Cruise Days     10,332,914       10,227,438       9,559,049
          Capacity Days              9,602,730        9,454,570       8,790,980
          Occupancy Percentage           107.6 %          108.2 %         108.7 %

Gross Yield and Net Yield were calculated as follows (in thousands, except Capacity Days and Yield data):

                                                                  Year Ended December 31,
                                                                   2012
                                                                 Constant
                                                   2012          Currency          2011            2010
Passenger ticket revenue                        $ 1,604,563     $ 1,621,412     $ 1,563,363     $ 1,411,785
Onboard and other revenue                           671,683         671,683         655,961         600,343

Total revenue                                     2,276,246       2,293,095       2,219,324       2,012,128
Less:
Commissions, transportation and other expense       410,531         415,030         410,709         379,532
Onboard and other expense                           173,916         173,916         169,329         153,137

Net Revenue                                     $ 1,691,799     $ 1,704,149     $ 1,639,286     $ 1,479,459

Capacity Days                                     9,602,730       9,602,730       9,454,570       8,790,980
Gross Yield                                     $    237.04     $    238.80     $    234.74     $    228.89
Net Yield                                       $    176.18     $    177.47     $    173.39     $    168.29

Gross Cruise Cost, Net Cruise Cost and Net Cruise Cost Excluding Fuel were calculated as follows (in thousands, except Capacity Days and per Capacity Day data):

                                                              Year Ended December 31,
                                                               2012
                                                             Constant
                                               2012          Currency          2011            2010
Total cruise operating expense              $ 1,478,433     $ 1,487,544     $ 1,467,876     $ 1,347,176
Marketing, general and administrative
expense                                         251,183         252,615         251,351         264,152

Gross Cruise Cost                             1,729,616       1,740,159       1,719,227       1,611,328
Less:
Commissions, transportation and other
expense                                         410,531         415,030         410,709         379,532
Onboard and other expense                       173,916         173,916         169,329         153,137

Net Cruise Cost                               1,145,169       1,151,213       1,139,189       1,078,659
Less: Fuel expense                              283,678         283,678         243,503         207,210

Net Cruise Cost Excluding Fuel              $   861,491     $   867,535     $   895,686     $   871,449

Capacity Days                                 9,602,730       9,602,730       9,454,570       8,790,980
Gross Cruise Cost per Capacity Day          $    180.12     $    181.22     $    181.84     $    183.29
Net Cruise Cost per Capacity Day            $    119.25     $    119.88     $    120.49     $    122.70
Net Cruise Cost Excluding Fuel per
Capacity Day                                $     89.71     $     90.34     $     94.74     $     99.13

Adjusted EBITDA was calculated as follows (in thousands):

                                                    Year Ended December 31,
                                              2012           2011           2010
    Net income                              $ 168,556      $ 126,859      $  22,986
    Interest expense, net                     189,930        190,187        173,672
    Depreciation and amortization expense     189,537        183,985        170,191
    Other (income) expense                     (1,393 )         (934 )       33,951 (2)
    Other(1)                                    9,004          5,942          4,313

    Adjusted EBITDA                         $ 555,634      $ 506,039      $ 405,113

(1) Includes non-cash compensation and costs related to the Shipboard Retirement Plan.

(2) Includes a $33.1 million charge for foreign exchange contracts associated with the financing of Norwegian Epic.

Year Ended December 31, 2012 ("2012") Compared to Year Ended December 31, 2011
("2011")

Revenue

Total revenue increased 2.6% to $2,276.2 million in 2012 compared to $2,219.3 million in 2011. Net Revenue increased 3.2% in 2012, primarily due to an increase in Net Yield of 1.6% and an increase in Capacity Days of 1.6%. The increase in Net Yield was primarily due to an increase in passenger ticket pricing and the increase in Capacity Days in 2012 was primarily due to the timing of certain repairs and maintenance. On a Constant Currency basis, Net Yield increased 2.4% in 2012 compared to 2011.

Expense

Total cruise operating expense increased slightly in 2012 compared to 2011 due to an increase in Capacity Days as described above and higher ship operating expenses. The increase in ship operating expenses was primarily due to an increase in fuel expense as a result of a 16.3% increase in average fuel price to $664 per metric ton in 2012 from $571 per metric ton in 2011. Total other operating expense increased slightly compared to 2011 due to an increase in depreciation expense related to the purchase of Norwegian Sky primarily offset by lower general and administrative expenses as a result of ongoing business improvement initiatives. Net Cruise Cost increased slightly in 2012 primarily due to an increase in Capacity Days. On a Capacity Day basis, Net Cruise Cost decreased 1.0% primarily due to the decrease in general and administrative expenses discussed above substantially offset by an increase in fuel expense. Excluding fuel expense, Net Cruise Cost per Capacity Day decreased 5.3%. On a Constant Currency basis, Net Cruise Cost per Capacity Day decreased slightly and excluding fuel expense decreased 4.6%.

Interest expense, net of capitalized interest, was $189.9 million in 2012 compared to $190.2 million in 2011.

Year Ended December 31, 2011 ("2011") Compared to Year Ended December 31, 2010
("2010")

Revenue

Total revenue increased 10.3% to $2,219.3 million in 2011 compared to $2,012.1 million in 2010. Net Revenue increased 10.8% in 2011, primarily due to an increase in Net Yield of 3.0% and an increase in Capacity Days of 7.5%. The increase in Net Yield was due to an increase in passenger ticket pricing and onboard revenue. The increase in onboard revenue was primarily due to an increase in revenue from our gaming operations, beverage sales and spa. The increase in Capacity Days was due to the addition of Norwegian Epic to the fleet in late June 2010. On a Constant Currency basis, Net Yield increased 2.4% in 2011 compared to 2010.

Expense

Total cruise operating expense increased 9.0% in 2011 compared to 2010 due to an increase in Capacity Days as described above and higher ship operating expenses. The increase in ship operating expenses was primarily due to an increase in fuel expense as a result of a 14.2% increase in average fuel price to $571 per metric ton in 2011 from $500 per metric ton in 2010. Total other operating expense increased slightly compared to 2010 due to an increase in depreciation expense related to Norwegian Epic which entered service in late June 2010 primarily offset by lower general and administrative expenses as a result of ongoing business improvement initiatives and non-recurring expenses related to the launch of Norwegian Epic in 2010.

Net Cruise Cost increased 5.6% in 2011 primarily due to an increase in Capacity Days. On a Capacity Day basis, Net Cruise Cost decreased 1.8% primarily due to the decrease in general and administrative expenses discussed above substantially offset by an increase in fuel expense. Excluding fuel expense, Net Cruise Cost per Capacity Day decreased 4.4%. On a Constant Currency basis, Net Cruise Cost per Capacity Day decreased 2.0% and excluding fuel expense decreased 4.7%.

Interest expense, net of capitalized interest, increased to $190.2 million in 2011 from $173.8 million in 2010 primarily due to an increase in average outstanding borrowings related to the financing of Norwegian Epic and higher average interest rates. Other income (expense) was $0.9 million in 2011 compared to $(34.0) million in 2010. The expense in 2010 was primarily due to losses on foreign exchange contracts associated with the financing of Norwegian Epic.

Liquidity and Capital Resources

General

As of December 31, 2012, our liquidity was $470.1 million consisting of $45.5 million in cash and cash equivalents and $424.6 million available under our $750.0 million senior secured revolving credit facility. Our main ongoing liquidity requirements are to finance working capital, capital expenditures, and debt service.

Sources and Uses of Cash

In this section, references to 2012 refer to the year ended December 31, 2012, references to 2011 refer to the year ended December 31, 2011 and references to 2010 refer to the year ended December 31, 2010.

Net cash provided by operating activities was $398.6 million in 2012 as compared to $357.0 million in 2011and $430.4 million in 2010. The change in net cash provided by operating activities in 2012 reflects the increase in net income to $168.6 million in 2012 compared to $126.9 million in 2011, as well as timing differences in cash receipts and payments relating to operating assets and liabilities and $6.0 million related to the premium received from the issuance of $100.0 million of senior unsecured notes. In 2010, we received a release of the cash collateral from our service providers of $89.3 million. The change in net cash provided by operating activities also reflects net income of $126.9 million in 2011 compared to net income of $23.0 million in 2010, as well as timing differences in cash receipts and payments relating to operating assets and liabilities.

Net cash used in investing activities was $303.8 million in 2012, primarily related to payments for construction of Norwegian Breakaway and Norwegian Getaway, the purchase of Norwegian Sky, and other ship improvements and shoreside projects. Net cash used in investing activities was $184.8 million in 2011, primarily related to payments for construction of Norwegian Breakaway and Norwegian Getaway, and $977.5 million in 2010, primarily related to payments for construction of Norwegian Epic.

Net cash used in financing activities was $108.2 million in 2012, primarily due to repayments of our revolving credit facilities, other borrowings and loan arrangement fees which were partially offset by borrowings on our revolving credit facilities and by the issuance of $100.0 million of senior unsecured notes. Net cash used in financing activities was $168.3 million in 2011, primarily due to repayments of our revolving credit facility and repayments of borrowings related to Norwegian Epic partially offset by borrowings related to the construction of Norwegian Breakaway and Norwegian Getaway. Net cash provided . . .