NCL Stock Offering

NCL Holding, parent company of Norwegian Cruise Line (NCL), plans to offer 10 million American Depository Shares representing 40 million ordinary shares in NCL Holding.

Slated to be completed in early August, the offering is expected to raise $226.3 million net for NCL, and the shares will be listed on the New York Stock Exchange.

NCL intends to use $26 million to fund a portion of the cost of lengthening the Norwegian Majesty; $12 million to complete its acquisition of Orient Lines; $71 million to buy back shares from Kvaerner Masa in conjunction with NCL’s purchase of the Norwegian Majesty; $85 million to build a second Sky­ class ship (the first of the four newbuildings coming after the Norwegian Sky); and $32.2 million for general corporate purposes.

Second Quarter

NCL also announced preliminary results for the three-month period ended June 30, 1998 with net income of $1.6 million on revenues of $181.7 million, compared to net income of $0.0 on revenues of $156.8 million for the second quarter of 1997.

NCL estimated that its load factor was 98.7 percent for the second quarter of 1998 compared to 105.0 percent for the same quarter last year.

Financial Record

In a prospectus, previous years’ losses were attributed to high operating costs and interest expenses related to substantial indebtedness.

After restructuring its finances and cutting costs, NCL said it posted net income of $2.7 million on revenues of $652 million in 1997.

In addition, NCL stated that it believes its ship modernization and expansion plans, which include newbuildings, acquisitions and strategic alliances, will increase operating efficiencies and profitability by spreading its overhead expenses across a larger revenue base and by sailing higher-yield ships and itineraries.

Plans call for expanding NCL from 8,751 berths in June of 1997 to 15,542 berths by December 2000, plus an additional 6,000 berths between 2001 and 2003.

The principal elements of the expansion plans are to purchase existing ships (Aida, Norwegian Majesty), lengthening of ships (Norwegian Dream, Wind and Majesty), and the construction of new ships (Norwegian Sky).

In addition, the prospectus stated that NCL also plans to consider selective acquisitions of companies and ships and strategic alliances as elements of its capacity expansion plan. Thus, NCL has signed a joint venture with the Thomas Cook Group to operate cruises beginning in 1999 or 2000 in the Caribbean and the Mediterranean that will be marketed primarily in the U.K. market.

New Ships

The first new 2,000-passenger Sky-class ship, the Norwegian Sky, is scheduled to be delivered in August 1999. NCL has signed a letter of intent to build one more Sky-class ship and has options on three more.

NCL contracted the construction of the Norwegian Sky at Lloyd Werft Bremerhaven for a price of approximately $301 million and said it obtained an effective discount of approximately $50 million by purchasing the unfinished hull.

NCL also said it plans to deploy the Norwegian Sky initially in Europe, Canada/New England, and the Western Caribbean.

The second Sky-class ship will be built at a contract cost of approximately $351 million.

Thus, the berth cost of the new ships will range from approximately $150,000 to $175,000.

Meanwhile, the lengthening of three ships is said to increase the capacity of each ship by 40 percent while operating costs for each ship increased by approximately 20 percent.


According to the prospectus, management’s strategy is to differentiate NCL’s products by providing high service and to increase its presence in higher yielding markets. NCL will focus on the high end of the contemporary market and the low end of the premium market.

In addition, NCL defined three customer targets: new passengers, people who have not cruised; repeat passengers; and passengers from outside of the United States.

In 1997, ticket sales outside of North America accounted for approximately 12.1 percent of NCL’s revenues.

Cruises are sold almost exclusively through approximately 19,000 travel agents worldwide although in the United States, for instance, 25 percent of the travel agencies provide 75 percent to 80 percent of the company’s passengers. But no single travel agency accounted for more than one percent of NCL’s revenues.

NCL has already taken steps to position its ships in less competitive markets and has reduced its exposure to the traditional mass market-oriented Caribbean cruises departing from southern Florida and San Juan from approximately 61 percent of its capacity in 1995 to 40 percent in 1998.

The Thomas Cook alliance will take more NCL capacity out of the American mass market as will Norwegian Capricorn Line which launches year-round service this fall with the Norwegian Star sailing from Australia. Norwegian Capricorn Line is a joint venture between NCL and Australian interests.

And, although the Aida has been chartered back to her original owners, she gives NCL a presence in the domestic German-speaking markets.

Orient Lines

By acquiring Orient Lines earlier this summer, NCL is also branching out into two brand names. The company has stated that it intends to continue to maintain Orient Lines under its current trade name which operates in higher yielding markets. There are also plans to grow Orient Lines from a one-ship to a two-ship operation – presumably by moving an NCL ship over to Orient Lines.

In the short term, Orient Lines also gives NCL a much-needed contribution to its bottom line. According to the prospectus, Orient Lines generated net income of $7.9 million on revenues of $105.9 million for the year ended April 30, 1998, compared to net income of $3.8 million on revenues of $96.6 million in 1997, and a net loss of $14 million on revenues of $70.7 million in 1996.


Still, in spite of its recent maneuverings and improved bottom line, NCL is not yet out of the financial storms that have surrounded the company in the last decade or so.

As of March 31, 1998, NCL had a total debt of $739.9 million for a total debt-to-capitalization-ratio of approximately 68 percent.

During 1995, 1996 and 1997, NCL said that it did not generate sufficient cash from operations to meet its debt payment obligations and relied upon cash generated from the sale of ships, sales of equity, and refinancing of debt to fund the difference.

The company has also been unable to meet the cash-flow-to-debt-service coverage required by its credit facilities and has obtained waivers for non­ compliance.

Meanwhile, considerable financial assistance has been provided by the owners who have been instrumental in arranging credit facilities and various loans in return for fees and stock options.

Also, as of March 31, 1998, 80 percent of the company’s debt was based on floating interest rates and any rate increases would thus increase debt obligations.

NCL anticipates that it will incur an estimated $490 million of debt to finance the Norwegian Sky, the lengthening of the Norwegian Majesty and for the construction of the second Sky-class ship.

NCL said it will require substantial additional borrowings in order to finance its expansion plans.


As of June 30, 1998, approximately 212 million shares were outstanding.

It is unclear who owns how much since large shareholdings are owned by companies in which NCL directors hold ownership, but the majority owner is Kristian Siem, who is also chairman, with an estimated 22.7 percent of the outstanding shares. Siem acquired ownership and control in 1995 when he launched the turn around effort that has led to this share offering in the U.S. Trygve Hegnar, former CEO and board member, holds an estimated 18.4 percent; Fidelity Investments owns 10 percent; and Geir Aune, CEO of NCL, owns 3.2 percent.


In Norway, NCL has risen from a low share price of approximately $0.62 in 1996 to a high of approximately $6.00 in the second quarter of 1998.

What will happen on the New York Stock Exhange depends partially on factors that are largely beyond NCL’s control – weather, economic and social conditions.

Meanwhile, NCL has worked hard at factors which it can control – financing, cost control, itineraries, price, reputation, product and service quality, and marketing.

The managing underwriters are Donaldson, Lufkin & Jenrette Securities Corporation and BT Alex Brown Incorporated.

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