UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended
June 30, 2015
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition
period from to
Commission file number:
001-35898
LINDBLAD EXPEDITIONS
HOLDINGS, INC.
(Exact Name of Registrant
as Specified in Its Charter)
Delaware |
|
27-4749725 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
96 Morton Street,
9th Floor, New York, New York, 10014
(Address of principal
executive offices)
(212) 261-9000
(Issuer’s telephone
number)
Check whether the issuer (1) filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. Yes ☒
No ☐
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes ☒
No ☐
Indicate by check mark whether the Registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
Accelerated filer |
☒ |
|
|
|
|
Non-accelerated filer |
☐ |
Smaller reporting company |
☐ |
(Do not check if smaller reporting company) |
|
|
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
As of August 7, 2015, 44,717,759 shares of common stock, par
value $0.0001 per share, were issued and outstanding.
LINDBLAD EXPEDITIONS HOLDINGS, INC.
Quarterly Report On
Form 10-Q
For The Quarter Ended
June 30, 2015
Table
of Contents
|
|
Page(s) |
|
|
PART I FINANCIAL INFORMATION |
|
|
|
ITEM 1. |
Financial Statements (unaudited) |
1 |
|
|
|
|
Lindblad Expeditions Holdings,
Inc. (formerly Capitol Acquisition Corp. II:) |
|
|
Condensed
Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014 |
1 |
|
Condensed Statements
of Operations for the Three and Six Months Ended June 30, 2015 and 2014 (unaudited) |
2 |
|
Condensed
Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2015 and 2014 (unaudited) |
3 |
|
Condensed Statement
of Cash Flows for the Six Months Ended June 30, 2015 and 2014 (unaudited) |
4 |
|
Notes to the
Condensed Financial Statements (unaudited) |
5 |
|
|
|
ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 |
ITEM 3. |
Quantitative and Qualitative Disclosures about Market Risk |
19 |
ITEM 4. |
Controls and Procedures |
19 |
|
|
|
PART II OTHER INFORMATION |
|
|
|
ITEM 1. |
Legal Proceedings |
20 |
ITEM 1A. |
Risk Factors |
20 |
ITEM 2. |
Unregistered Sale of Equity Securities and Use of Proceeds |
33 |
ITEM 3. |
Defaults Upon Senior Securities |
35 |
ITEM 4. |
Mine Safety Disclosure |
35 |
ITEM 5. |
Other Information |
36 |
|
|
|
|
Lindblad Expeditions,
Inc.: |
|
|
Condensed
Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014 |
37 |
|
Condensed Consolidated Income Statements for the
Three and Six Months Ended June 30, 2015 and 2014 (unaudited) |
38 |
|
Condensed
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014 (unaudited) |
39 |
|
Notes
to the Condensed Consolidated Financial Statements (unaudited) |
40 |
|
|
|
|
Lindblad’s Management’s Discussion and Analysis of Financial Condition and Results of Operations |
56 |
|
|
|
ITEM 6. |
Exhibits |
65 |
|
|
|
SIGNATURES |
66 |
PART 1: FINANCIAL INFORMATION
Item 1:
Financial Statements
Lindblad
Expeditions Holdings, Inc. (Formerly Capitol Acquisition Corp. II)
Condensed Balance Sheets
| |
June, 30 2015 | | |
December 31, 2014 | |
| |
(unaudited) | | |
| |
ASSETS | |
| | |
| |
Current assets | |
| | |
| |
Cash | |
$ | 15,949 | | |
$ | 28,634 | |
Investment in marketable securities | |
| 10,005 | | |
| 9,998 | |
Cash and cash equivalents held in trust account, interest income available for working capital and taxes | |
| 936 | | |
| 22,421 | |
Accrued interest receivable | |
| - | | |
| 6,530 | |
Prepaid expenses and other current assets | |
| 48,832 | | |
| 62,132 | |
Total current assets | |
| 75,722 | | |
| 129,715 | |
| |
| | | |
| | |
Cash and cash equivalents held in trust account, restricted | |
| 200,000,000 | | |
| 200,000,000 | |
Other assets | |
| - | | |
| - | |
Total current assets | |
$ | 200,075,722 | | |
$ | 200,129,715 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable and accrued expenses (including
accrued professional fees of $1,254,382 as of June 30, 2015 and $6,696 as of December 31, 2014)
| |
$ | 1,340,366 | | |
$ | 81,559 | |
Accrued franchise tax payable | |
| 90,000 | | |
| 360,000 | |
Due to related parties | |
| 1,611,329 | | |
| 470,000 | |
Total current liabilities | |
| 3,041,695 | | |
| 911,559 | |
| |
| | | |
| | |
Commitments and contingencies | |
| | | |
| | |
| |
| | | |
| | |
Common stock, subject to possible redemption, 18,798,187 shares at June 30, 2015 and 18,798,215 shares at December 31, 2014, at redemption value | |
| 187,981,868 | | |
| 187,982,148 | |
| |
| | | |
| | |
Stockholders’ equity | |
| | | |
| | |
Preferred, $0.0001 per share, 1,000,000 shares authorized, none issued or outstanding | |
| - | | |
| - | |
Common stock, $0.0001 par value, 200,000,000 shares authorized; 24,999,972 and 25,000,000 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively (1) | |
| 620 | | |
| 620 | |
Additional paid-in-capital | |
| 12,975,932 | | |
| 12,975,932 | |
Accumulated deficit | |
| (3,924,429 | ) | |
| (1,740,573 | ) |
Accumulated other comprehensive income | |
| 36 | | |
| 29 | |
Total stockholders’ equity | |
| 9,052,159 | | |
| 11,236,008 | |
Total liabilities and stockholders’ equity | |
$ | 200,075,722 | | |
$ | 200,129,715 | |
(1) | Share amounts include 1,250,000 shares that are subject
to forfeiture if the last sales price of the Company’s stock does not equal or exceed $13.00
per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and
the like) for any 20 trading days within any 30-trading day period within four years following the
closing of the company’s initial business combination. |
The accompanying notes
are an integral part of these condensed financial statements
Lindblad
Expeditions Holdings, Inc. (Formerly Capitol Acquisition Corp. II)
Condensed Statements of Operations
(unaudited)
| |
For the three months ended June 30, 2015 | | |
For the three months ended June 30, 2014 | | |
For the six months ended June 30, 2015 | | |
For the six months ended June 30, 2014 | |
| |
| | |
| | |
| | |
| |
Revenue | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| 773,574 | | |
| 279,005 | | |
| 2,185,134 | | |
| 543,983 | |
Loss from operations | |
| (773,574 | ) | |
| (279,005 | ) | |
| (2,185,134 | ) | |
| (543,983 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income and (expense) | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| - | | |
| (9,180 | ) | |
| - | | |
| (16,200 | ) |
Interest income | |
| 13 | | |
| 24,552 | | |
| 1,278 | | |
| 54,569 | |
Total other income | |
| 13 | | |
| 15,372 | | |
| 1,278 | | |
| 38,369 | |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (773,561 | ) | |
$ | (263,633 | ) | |
$ | (2,183,856 | ) | |
$ | (505,614 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding, basic and diluted (1) | |
| 6,201,785 | | |
| 6,201,785 | | |
| 6,201,785 | | |
| 6,201,785 | |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted net loss per share | |
$ | (0.12 | ) | |
$ | (0.04 | ) | |
$ | (0.35 | ) | |
$ | (0.08 | ) |
(1)
|
Share amounts include 1,250,000 shares that are
subject to forfeiture if the last sales price of the Company’s stock does not equal or exceed $13.00 per share (as adjusted
for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading
day period within four years following the closing of the Company’s initial business combination. |
The accompanying notes are an integral
part of these condensed financial statements
Lindblad
Expeditions Holdings, Inc. (Formerly Capitol Acquisition Corp. II)
Condensed Statements of Comprehensive
Loss
(unaudited)
| |
For the three months ended June 30, 2015 | | |
For the three months ended June 30, 2014 | | |
For the six months ended June 30, 2015 | | |
For the six months ended June 30, 2014 | |
| |
| | |
| | |
| | |
| |
Net loss | |
$ | (773,561 | ) | |
$ | (263,633 | ) | |
$ | (2,183,856 | ) | |
$ | (505,614 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other comprehensive income, net of tax: | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Unrealized gain on securities | |
| 4 | | |
| 15 | | |
| 7 | | |
| 28 | |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive loss | |
$ | (773,557 | ) | |
$ | (263,618 | ) | |
$ | (2,183,849 | ) | |
$ | (505,586 | ) |
The accompanying notes
are an integral part of these condensed financial statements
Lindblad
Expeditions Holdings, Inc. (Formerly Capitol Acquisition Corp. II)
Condensed Statements
of Cash Flows (unaudited)
| |
For the Six Months Ended June 30, 2015 | | |
For the Six Months Ended June 30, 2014 | |
| |
| | |
| |
Cash Flows from Operating Activities | |
| | |
| |
Net loss | |
$ | (2,183,856 | ) | |
$ | (505,614 | ) |
| |
| | | |
| | |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Deferred rent | |
| - | | |
| (1,340 | ) |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses and other current assets | |
| 13,300 | | |
| (68,140 | ) |
Accrued interest receivable | |
| 6,530 | | |
| 4,333 | |
Accounts payable and accrued expenses | |
| 1,258,807 | | |
| 32,907 | |
Accrued franchise tax payable | |
| (270,000 | ) | |
| 90,000 | |
Net cash used in operating activities | |
| (1,175,219 | ) | |
| (447,854 | ) |
| |
| | | |
| | |
Cash Flows from Investing Activities | |
| | | |
| | |
Trust Account, interest income available for working capital and taxes | |
| 21,485 | | |
| 7,111 | |
Net cash provided by investing activities
| |
| 21,485 | | |
| 7,111 | |
| |
| | | |
| | |
Cash Flows from Financing Activities | |
| | | |
| | |
Proceeds from notes payable, related party | |
| 1,141,329 | | |
| 250,000 | |
Decrease in common stock subject to possible redemption | |
| (280 | ) | |
| - | |
Net cash provided by financing activities | |
| 1,141,049 | | |
| 250,000 | |
Net decrease in cash | |
| (12,685 | ) | |
| (190,743 | ) |
Net cash beginning of period | |
| 28,634 | | |
| 312,298 | |
Net cash end of period | |
$ | 15,949 | | |
$ | 121,555 | |
| |
| | | |
| | |
Supplemental Disclosure of Cash Flow Information: | |
| | | |
| | |
Cash paid for taxes | |
$ | - | | |
$ | 633
| |
Cash paid for interest | |
$ | 47,108 | | |
$ | - | |
The accompanying notes are an integral part of these condensed financial statements
Lindblad
Expeditions Holdings, Inc. (Formerly Capitol Acquisition Corp. II)
Notes
to Condensed Financial Statements (unaudited)
Note 1 - Organization, Plan of Business
Operations and Liquidity
Capitol Acquisition Corp.
II (the “Company”) was incorporated in Delaware on August 9, 2010 as a blank check company whose objective is
to acquire, through a merger, share exchange, asset acquisition, stock purchase, plan of arrangement, recapitalization, reorganization
or other similar business combination, one or more businesses or entities (a “Business Combination”).
On March 9, 2015,
the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Argo Expeditions, LLC, a Delaware
limited liability company and the Company’s wholly-owned subsidiary (“LLC Sub”), Argo Merger Sub, Inc., a Delaware
corporation and wholly-owned subsidiary of LLC Sub (“Merger Sub”), and Lindblad Expeditions, Inc., a New York corporation
(“Lindblad”) (See Note 7). On July 8, 2015, the Company completed the merger with Lindblad.
On May 14, 2015,
in connection with the transaction with Lindblad, the Company obtained stockholder approval to extend the date by which it had
to complete a Business Combination until July 31, 2015 (the “Extension”).
The Company’s
units are listed on The NASDAQ Capital Market (“NASDAQ”). Pursuant to NASDAQ Listing Rules, the target business
or businesses with which the Company completes a Business Combination needed to collectively have a fair market value equal to
at least 80% of the balance of the funds in the Trust Account (less taxes payable) at the time of the execution of the definitive
agreement for the initial Business Combination, although the Company could have acquired a target business whose fair value significantly
exceeded 80% of the Trust Account balance.
Upon the closing
of the Company’s initial public offering (the “Offering”) on May 15, 2013, $200,000,000 ($10.00 per share sold
in the Offering), including the proceeds from a private placement of 5,600,000 warrants for $5,600,000 to the Company’s
sponsors, was placed in a trust account (the “Trust Account”). The Company, after signing a definitive agreement for
the acquisition of a target business, is required to provide shareholders who acquired shares in the Public Offering (“Public
Shareholders”) with the opportunity to redeem their public shares for a pro rata share of the Trust Account by means of
conducting redemptions in conjunction with a proxy solicitation pursuant to the proxy rules. Each Public Shareholder
was entitled to receive a full pro rata portion of the amount then in the Trust Account ($10.00 per share, plus any pro rata interest
earned on the funds held in the Trust Account and not previously released by the Company or necessary to pay taxes). Public shareholders
of 28 common shares redeemed their shares for cash on May 14, 2015 in connection with the proxy solicitation to extend the time
Capitol had to complete its business combination with Lindblad from May 15, 2015 to July 31, 2015. Public shareholders of 300,000
shares redeemed their shares for cash on July 8, 2015 in connection with the proxy solicitation for the merger with Lindblad.
In connection with
any stockholder vote required to approve any Business Combination, the Company’s sponsor and the other initial stockholders
of the Company (collectively, the “Initial Stockholders”) had agreed (i) to vote any of their respective shares in
favor of the initial Business Combination and (ii) not to convert any of their respective shares. Public stockholders who convert
their stock will continue to have the right to exercise any warrants they may hold.
The Company has
experienced significant recurring net operating losses as well as negative cash flows from operations. The Company’s
main source of liquidity was from the Offering, a private placement of 5,600,000 warrants for gross proceeds of $5,600,000, and
loans from related parties of $1,611,329 (see Note 5), proceeds from which were used to fund the search for a prospective target
business. Following the merger with Lindblad, the Company believes it has sufficient liquidity to meet funding requirements for
the next twelve months.
Note 2 - Significant Accounting Policies
Basis of Presentation
The accompanying
unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the
United States (“GAAP”) for interim financial information and the instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by GAAP. In the opinion of management, all adjustments (consisting
of normal accruals) considered for a fair presentation have been included. These unaudited condensed interim financial
statements should be read in conjunction with the audited financial statements and notes thereto for the fiscal year ended December
31, 2014 in the Company’s Form 10-K filed on March 13, 2015 with the Securities and Exchange Commission. The accounting
policies used in preparing these unaudited condensed financial statements are consistent with those described in the December 31,
2014 audited financial statements. Operating results for the six months ended June 30, 2015 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2015 or any other period.
Cash and Cash Equivalents
The Company considers
all short-term investments with an original maturity of three months or less when purchased to be cash equivalents except for the
cash held in the Trust Account, which due to the restrictions on its use, is treated as a non-current asset.
Cash and Cash Equivalents Held in Trust Account –
Restricted
The Company considers
the restricted portion of the funds held in the Trust Account as being a non-current asset. A current asset is one
that is reasonably expected to be used to pay current liabilities, such as accounts payable or short-term debt or to pay current
operating expenses, or will be used to acquire other current assets. Since the acquisition of a business is principally
considered to be a long-term purpose, with long-term assets such as property and intangibles, typically being a major part of
the acquired assets, the Company has reported the funds anticipated to be used in the acquisition as a non-current asset.
Investment in Marketable
Securities
Marketable securities
consist of government obligations. The Company has classified its investment as available for sale. Accordingly,
such investment is reported at fair value with the unrealized gain or loss reported as a separate component of stockholders’
equity.
Fair Value Measurements and Disclosure
The Company applies ASC
820, “Fair Value Measurements and Disclosures,” which expands disclosures for assets and liabilities that are measured
and reported at fair value on a recurring basis. ASC 820 defines fair value as the price that would be received from
selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC
820 established a fair value hierarchy that prioritizes the inputs to valuation techniques utilized to measure fair value into
three broad levels as follows:
Level 1 - Quoted market
prices (unadjusted) in active markets for the identical assets or liability that the reporting entity has the ability to access
at measurement date.
Level 2 - Quoted market
prices for identical assets or liabilities in markets that are not active, quoted market prices for similar assets or liabilities
in active markets, and where fair value is determined through the use of models or other valuation methodologies.
Level 3 - Unobserved
inputs for the asset or liability. Fair value is determined by the reporting entity’s own assumptions utilizing
the best information available, and includes situations where there is little market activity for the investment.
Fair Value of Financial Instruments:
The Company’s financial
instruments are cash, cash held in trusts and accounts payable. The recorded values of cash, cash held in trust and
accounts payable approximate their fair values based on their short term maturities.
Income Taxes
The Company accounts
for income taxes under Accounting Standards Codification (“ASC”) 740, “Income Taxes” (“ASC 740”).
ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the
financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss
and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than
not that all or a portion of deferred tax assets will not be realized.
ASC 740 also clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition
threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination
by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. The Company is required to file income tax returns in the United States (federal)
jurisdiction. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions
requiring recognition in the Company’s financial statements. The Company believes that its income tax positions and deductions
would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position.
The Company’s conclusions
regarding uncertain tax positions may be subject to review and adjusted at a later date based upon ongoing analyses of tax laws,
regulations, and interpretations thereof as well as other factors. Generally, federal and state authorities may examine
the tax returns for three years from the date of filing; therefore the years ended December 31, 2014, 2013, 2012 and 2011 remain
subject to examination as of June 30, 2015. There are currently no ongoing income tax examinations.
The Company’s policy
for recording interest and penalties associated with audits is to record such expense as a component of income tax expense. There
were no amounts accrued for penalties or interest for the six months ended June 30, 2015 and 2014. Management is currently unaware
of any issues under review that could result in significant payments, accruals or material deviations from its position.
Loss per Share
Basic loss per share
is calculated using the weighted-average number of shares of common stock and diluted loss per share is computed on the basis
of the average number of common stock outstanding plus the effect of outstanding warrants using the “treasury stock method.”
Common shares subject
to possible conversion of 18,798,187 and 18,798,215 at June 30, 2015 and December 31, 2014, respectively, have been excluded from
the calculation of basic and diluted earnings per share since such shares, if converted, only participate in their pro rata shares
of the trust earnings.
Diluted loss per common
share amounts, assuming dilution, gives the effect to dilutive options, warrants, and other potential common stock outstanding
during the period. The Company has not considered the effect of its outstanding warrants in the calculation of diluted
loss per share since they are anti-dilutive.
Concentration of Credit Risk
Financial instruments
that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which
at times, may exceed the Federal depository insurance coverage. At June 30, 2015, the Company had not experienced losses
on these accounts and management believes the Company was not exposed to significant risks on such accounts.
Use of Estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual
results could differ from those estimates.
Recent Accounting Pronouncements
In August 2014,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15,
Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s
Ability to Continue as a Going Concern. The objective of the ASU is to require an entity’s management to evaluate whether
there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue
as a going concern within one year after the date that the financial statements are issued (or within one year after the date that
the financial statements are available to be issued when applicable). Management does not believe that the pronouncement has a
material effect on the accompanying financial statements.
Management does not believe
that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect
on the accompanying financial statements.
Subsequent Events
Management of the
Company evaluated events that have occurred after the balance sheet date but before the financial statements are issued. Management
did not identify any recognized or non-recognized subsequent event that would have required adjustment or disclosure in the financial
statements other than those related to the transaction consummated with Lindblad Expeditions, Inc. on July 8, 2015 described in
Note 9.
Note 3 - Initial Public Offering and Insider Warrants
In connection with
the Offering, on May 15, 2013, the Company sold 20,000,000 units at $10.00 per unit, including 2,000,000 units under the underwriters’
over-allotment option, generating gross proceeds of $200,000,000. On May 17, 2013, the underwriters in the Offering indicated to
the Company that they would not exercise the remaining portion of the over-allotment option. As a result, on May 20,
2013, the Company’s Initial Stockholders forfeited an aggregate of 175,000 shares of common stock issued to them prior to
the Offering. Each unit consists of one share of the Company’s common stock, $0.0001 par value, and one
half of one redeemable warrant to purchase one share of common stock. The shares of common stock and the warrants included
in the units traded as a unit from the Offering until July 1, 2013 when separate trading of common stock and warrants began. No
fractional warrants will be issued and only whole warrants will trade. Holders then had the option to continue to hold units or
separate their units into the component pieces. In connection with the consummation of the merger with Lindblad, Capitol forced
the separation of the units into the separate components of common stock and warrants. Each whole warrant entitles its holder,
upon exercise, to purchase one share of common stock for $11.50 subject to certain adjustments, during the period commencing thirty
days after the completion by the Company of the Business Combination with Lindblad and terminating on the five-year anniversary
of the completion by the Company of the Business Combination with Lindblad. At June 30, 2015 and December 31, 2014,
there were 15,600,000 warrants outstanding, which include 5,600,000 sponsor’s warrants purchased by the Initial Stockholders
in the Private Placement and 10,000,000 warrants purchased in connection with the sale of units related to the Offering.
The warrants may be redeemed
by the Company, at its option, in whole and not in part, at a price of $0.01 per warrant at any time the warrants are exercisable,
upon a minimum of 30 days’ prior written notice of redemption, if, and only if, the last sales price of the Company’s
shares of common stock equals or exceeds $24.00 per share (as adjusted for stock splits, stock dividends, reorganizations
and recapitalizations) for any 20 trading days within a 30 trading day period ending three business days before the Company sends
the redemption notice; and if, and only if, there is a current registration statement in effect with respect to the shares of
common stock underlying such warrants.
If the Company calls
the warrants for redemption as described above, the Company’s management will have the option to require all holders that
wish to exercise warrants to do so on a “cashless basis.” In such event, each holder would pay the exercise price
by surrendering the warrants for that number of shares of common stock equal to the quotient obtained by dividing (x) the product
of the number of shares of common stock underlying the warrants, multiplied by the difference between the exercise price of the
warrants and the fair market value by (y) the fair market value. The fair market value shall mean the average reported last sale
price of the shares of common stock for the 5 trading days ending on the third trading day prior to the date on which the notice
of redemption is sent to the holders of warrants.
Simultaneously with the
consummation of the Offering, the Company consummated the Private Placement of 5,600,000 sponsor’s warrants at a price of
$1.00 per warrant, generating total proceeds of $5,600,000. The sponsor’s warrants are identical to the warrants included
in the units sold in the Offering except that the sponsor’s warrants: (i) will not be redeemable by the Company and (ii)
may be exercised for cash or on a cashless basis, in each case so long as they are held by the initial purchasers or any of their
permitted transferees. The purchasers of the sponsor’s warrants have also agreed not to transfer, assign or sell any of
the sponsor’s warrants, including the common stock issuable upon exercise of the sponsor’s warrants (except to certain
permitted transferees), until 30 days after the completion of an initial Business Combination.
Note 4 - Investment in Marketable Securities and
Fair Value of Financial Instruments
The Company accounts
for securities owned in accordance with ASC 320, “Investments - Debt and Equity Securities.” ASC 320 requires
investments in debt and equity securities to be classified as either “held to maturity,” “trading,” or
“available for sale.” At June 30, 2015 and December 31, 2014 management had classified $10,005 and $9,998
respectively, of marketable securities as available for sale, which are reported at fair market value, with unrealized gains and
losses reported as a separate component of stockholders’ equity. Gains or losses on the sale of securities are recognized
on a specific identification basis.
At June 30, 2015, Level
1 marketable securities consist of the following:
| |
Cost | | |
Fair Value | | |
Unrealized Gain * | |
United States Treasury Notes
(matures in December 2015) | |
$ | 9,969 | | |
$ | 10,005 | | |
$ | 36 | |
At December 31, 2014,
Level 1 marketable securities consist of the following:
| |
Cost | | |
Fair Value | | |
Unrealized Gain * | |
United States Treasury Notes (matures in December
2015) | |
$ | 9,969 | | |
$ | 9,998 | | |
$ | 29 | |
*Included in other comprehensive income.
Note 5 – Related Party Transactions
An affiliate of
the Company’s Chief Executive Officer agreed that, until the Company consummated a Business Combination, it would make available
to the Company certain office space and administrative and support services, as might be required by the Company from time to time. The
Company agreed to pay such affiliate $7,500 per month for such services commencing on May 9, 2013. Another affiliate
of the Company’s Chief Executive Officer agreed to provide certain administrative and support services and was reimbursed
for all costs incurred. For the six months ended June 30, 2015 and 2014, the total amount paid to these affiliates for
office space and administrative and support services was $45,000 and $45,000, respectively.
On May 20, 2014
and September 22, 2014, (i) an entity controlled by the Company’s Chief Executive Officer and (ii) the Company’s Chief
Financial Officer (the “Lenders”) loaned the Company an aggregate of $250,000 and $220,000, respectively, which were
evidenced by Convertible Notes. On January 27, 2015, March 3, 2015 and March 13, 2015, the Lenders loaned the Company an aggregate
of $191,329, $425,000, and $309,240, respectively, which were evidenced by Non-Convertible Notes. On March 13, 2015, two independent
directors loaned the Company $21,920 each for an aggregate amount of $43,840 and on March 19, 2015 the other independent director
loaned the Company $21,920. Each director’s loans were evidenced by a Convertible Note in the amount of $10,000 and a Non-Convertible
Note in the amount of $11,920. On May 20, 2015 and June 15, 2015, the Lenders loaned the Company an aggregate of $90,000 and $60,000,
respectively. The loans were evidenced by Non-Convertible Notes.
The total amount
due to the Lenders at June 30, 3015 was $1,545,569 and the total amount due to the independent directors was $65,760. All of the
loans were non-interest bearing and were payable at the consummation by the Company of a Business Combination with the $500,000
Convertible Notes thereof, convertible, at the holders’ option, to warrants at a price of $1.00 per warrant.
Prior to the consummation
of the Business Combination with Lindblad, the holders of the $500,000 of Convertible Notes exercised their right to convert the
notes to 500,000 warrants at a price of $1.00 per warrant. The terms of the warrants are identical to the warrants issued by the
Company in its initial public offering except that such warrants are non-redeemable by the Company and are exercisable for cash
or on a “cashless” basis, in each case, if held by the initial holders or their permitted transferees. The remaining
$1,111,329 amount due to the Lenders and the independent directors was repaid in connection with the closing of the Business Combination
with Lindblad. If a Business Combination had not been consummated, the full amount of the notes would not have been repaid by the
Company and all amounts owed thereunder by the Company would have been forgiven except to the extent that the Company had funds
available to it outside of the Trust Account.
Note 6 — Income Taxes
For the six months
ended June 30, 2015 and 2014, there are no provisions for income taxes or corporate taxes payable due to the net operating losses
of $2,183,856, and $505,614, respectively, incurred in each period.
Deferred income
taxes, if applicable, are provided for the differences between the basis of assets and liabilities for financial reporting and
income tax purposes. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected
to be realized. The Company has approximately $3,933,000 net operating losses that expire through 2035 and if realized would have
a tax benefit of approximately $1,710,000. The Company has recorded a full valuation allowance against this deferred tax
benefit since the Company believes it is more likely than not that the Company will not utilize the losses in the future, and
accordingly, it has not been recorded as a deferred tax asset. As a result of the merger with Lindblad on July 8, 2015, the Company
has not completed an analysis whether an ownership change occurred under Internal Revenue Code Section 382, which, if it did occur,
could substantially limit its ability in the future to utilize its net operating losses and other tax carryforwards.
A reconciliation of the
provision for income taxes with the amounts computed by applying the statutory Federal income tax rate to income from continuing
operations before provision for income taxes is as follows:
| |
For the Six Months Ended June 30, 2015 | | |
For the Six Months Ended June 30, 2014 | |
| |
| | |
| |
Tax provision at statutory rate – federal | |
| (34.0 | %) | |
| (34.0 | %) |
Tax provision at effective state and local rates | |
| (9.5 | %) | |
| (9.5 | %) |
Effect of valuation allowance on deferred tax asset | |
| 43.5 | % | |
| 43.5 | % |
| |
| | | |
| | |
Effective tax rate | |
| 0.0 | % | |
| 0.0 | % |
Note 7 - Commitments and Contingencies and Related
Party Transactions
On May 10, 2013,
the Company entered into an agreement with the underwriters (“Underwriting Agreement”). Pursuant to the Underwriting
Agreement, the Company paid an underwriting discount of 2.0% of the gross proceeds of the Offering, or $4,000,000. Prior to the
closing, the Company was also to pay the underwriters in the Offering an additional deferred underwriting discount of 4.0% of the
gross proceeds of the Offering (“Deferred Commissions”) which was be placed in the Trust Account and was paid only
upon consummation of the Business Combination. The Deferred Commissions were paid upon the completion of the merger with Lindblad.
The Company entered
into two consulting arrangements for services to help identify and introduce the Company to potential targets and provide assistance
with due diligence, deal structuring, documentation and obtaining stockholder approval for a Business Combination. These
agreements provided for an aggregate annual fee of $330,000, reduced to $220,000 upon the cancelation of one of the consulting
contracts, and success fees of $450,000 upon the consummation of a Business Combination, all of which was paid at the consummation
of the merger with Lindblad. The Company also paid additional success fees of $120,000 upon the closing of the merger with
Lindblad on July 8, 2015.
On May 23, 2013, the
Company entered into a fifteen month office lease for office space in New York, New York, commencing on June 1, 2013 and expiring
on August 31, 2014. The lease called for monthly rent of $6,700 plus additional fees for administrative support and included
free rent on the first, fifth and ninth month of the lease term. The rent has been straight-lined for financial statement
purposes. For the six months ended June 30, 2015, and 2014 rent expense under this agreement totaled $0, and $19,429,
respectively.
On September 1, 2014,
the Company entered into a month to month agreement for the utilization of office space and support services in New York for $4,050
per month through April 2015 and $3,100 per month for May and June 2015, plus additional fees for administrative items. For the
six months ended June 30, 2015, the amount paid for utilization of office space under this agreement totaled $22,400.
On March 9, 2015,
the Company entered into the Merger Agreement with LLC Sub, Merger Sub, and Lindblad. The transaction was consummated on July 8,
2015, after the required approval by the Company’s stockholders and the fulfillment of certain other conditions.
Pursuant to the
Merger Agreement, Merger Sub merged with and into Lindblad to form an interim corporation (“Interim Corporation”),
and such Interim Corporation immediately thereafter merged with and into LLC Sub to form the surviving company as the Company’s
wholly-owned subsidiary. In connection with the transaction, the stockholders of Lindblad received merger consideration having
an aggregate value of approximately $330,000,000, comprised of approximately $90,000,000 in cash and approximately 24,000,000 shares
of the Company’s common stock, including options to purchase shares of the Company’s common stock.
In connection with
the transaction, the Company agreed to pay a finder fee to Worth Capital 8 LLC equal to 1% of the cash released from the Trust
Account after payments made to Public Shareholders seeking to convert their shares for a pro rata portion of the Trust Account,
subject to a minimum fee of $1,000,000. Also in connection with the transaction, the Company incurred certain legal fees amounting
to approximately $1,063,000 as of June 30, 2015, and such amount was subject to an additional premium upon successful completion
of the transaction.
Note 8 – Delinquencies
On January 2, 2015,
the Company received a notice from the NASDAQ Listing Qualifications Department stating that the Company had failed to solicit
proxies and hold an annual meeting of the stockholders within 12 months after its year ended December 31, 2013 as required by
NASDAQ Listing Rules 5620(a) and (b). The Company appealed the Department’s determination and a hearing was held before
the NASDAQ Hearings Panel on February 5, 2015. On February 9, 2015, the Company received notice that the NASDAQ Hearings Panel
had granted the Company’s request for continued listing of the Company’s securities on the NASDAQ until May 15, 2015.
In May 2015, the Company notified the NASDAQ Hearing Panel that the Company was seeking the Extension. On May 19, 2015, the Company
received notice that the NASDAQ Hearings Panel had granted the Company a further extension to regain compliance with the continued
listing requirements until July 1, 2015. On July 1, 2015, the Company held an annual meeting of stockholders in order to comply
with NASDAQ Listing Rules 5620(a) and (b). As a result, the Company believes that it regained compliance with NASDAQ’s listing
requirements on such date.
As of December 31, 2014,
the Company had not paid its Delaware franchise tax for the years ended December 31, 2014 and 2013. The calculated tax was $180,000
per year for a total of $360,000. This tax amount plus accrued interest of $81,559 has been included in the financial statements
as of December 31, 2014. On March 3, 2015 the Company paid all of its delinquent Delaware Franchise taxes in full.
Note 9 – Subsequent Events
On July 8, 2015,
Capitol completed a series of mergers (the “Lindblad Mergers”) pursuant to the Agreement and Plan of Merger (the “Merger
Agreement”), dated as of March 9, 2015 and as amended, by and among Capitol, Argo Expeditions, LLC, Capitol’s direct
wholly-owned subsidiary, Argo Merger Sub, Inc., a direct wholly-owned subsidiary of Argo Expeditions, LLC, and Lindblad. As consideration
for the Lindblad Mergers, the former Lindblad stockholders received an aggregate of (i) $90.0 million in cash (a portion of which
was paid as transaction bonuses) and (ii) 20,017,787 shares of common stock of Capitol. Capitol also assumed outstanding Lindblad
stock options and converted such options into options to purchase an aggregate of 3,821,696 shares of common stock of Capitol with
an exercise price of $1.76 per share, which was determined pursuant to a formula set forth in the Merger Agreement.
As a result of the
Lindblad Mergers, Lindblad became a direct wholly-owned subsidiary of Capitol. Immediately following the Lindblad Mergers, Capitol
changed its name to Lindblad Expeditions Holdings, Inc. Lindblad provides expedition cruising and adventure travel experiences.
In connection with
the closing of the Lindblad Mergers: (i) an aggregate of $90.0 million was paid from the Trust Account to the former stockholders
of Lindblad as a portion of the merger consideration (including a portion of which was paid as transaction bonuses); (ii) an aggregate
of approximately $13.6 million was paid from the Trust Account to various third parties for expenses, including expenses such as
deferred underwriting costs, brokerage fees and legal expenses; (iii) an aggregate of approximately $1.1 million was paid from
the Trust Account to repay loans made to Capitol from former and current directors, former officers and founders; and (iv) an aggregate
of $3.0 million was paid from the Trust Account to former stockholders of Capitol as a result of redemptions made on 300,000 shares
of common stock at Capitol’s special meeting of stockholders held on July 8, 2015. The balance of the Trust Account, consisting
of an aggregate of approximately $92.3 million, was released from the Trust Account to the Company to be used for general corporate
purposes. In addition, an aggregate of $500,000 of convertible debt was converted into 500,000 warrants to purchase shares of common
stock with the same terms as the sponsor’s warrants.
Item
2: |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Cautionary
Note Regarding Forward-Looking Statements
Any
statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, prospects, financial condition,
assumptions or future events or performance are not historical facts and are “forward-looking statements” as that
term is defined under the federal securities laws. These statements are often, but not always, made through the use of words or
phrases such as “believe,” “anticipate,” “should,” “intend,” “plan,”
“will,” “expects,” “estimates,” “projects,” “positioned,” “strategy,”
“outlook” and similar words. You should read the statements that contain these types of words carefully. Such forward-looking
statements are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially
from what is expressed or implied in such forward-looking statements. There may be events in the future that we are not able to
predict accurately or over which we have no control. Potential risks and uncertainties include, but are not limited to:
|
● |
the
anticipated results of the mergers of Capitol with Lindblad Expeditions, Inc.; |
|
● |
changes
adversely affecting the business in which we are engaged; |
|
● |
management
of our growth and our ability to execute on our planned growth; |
|
● |
general
economic conditions; |
|
● |
our
business strategy and plans; |
|
● |
our
compliance with laws and regulations, including the U.S. Citizenship and Cabotage laws principally contained in 46 U.S.C.
§50501(a), (b) and (d) and 46 U.S.C. Chapter 551 and the regulations promulgated thereunder (the “Jones Act”); |
|
● |
compliance
with the financial and/or operating covenants in our amended credit agreement; |
|
● |
adverse
publicity regarding the cruise industry in general; |
|
● |
loss
of business due to competition; |
|
● |
the
result of future financing efforts; and |
|
● |
those
risks discussed in our Annual Report on Form 10-K for the year ended December 31, 2014 and in “Item 1A Risk Factors"
in this Form 10-Q. |
We
urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We do
not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or uncertainties
after the date hereof or to reflect the occurrence of unanticipated events.
Unless
the context otherwise requires, in this Form 10-Q, (i) “Capitol” refers Capitol Acquisition Corp. II and its subsidiaries
prior to the Lindblad Mergers (defined below); (ii) “Lindblad” refers to Lindblad Expeditions, Inc., a New York corporation,
and its subsidiaries prior to the Lindblad Mergers and (iii) “Company,” “we,” “us,” “our”
and “ours” refer to the combined company and its subsidiaries following the Lindblad Mergers.
Overview
Capitol
was incorporated in Delaware on August 9, 2010 as a blank check company to acquire, through a merger, share exchange, asset acquisition,
stock purchase, plan of arrangement, recapitalization, reorganization or other similar business combination, one or more businesses
or entities.
On July 8, 2015,
Capitol completed a series of mergers (the “Lindblad Mergers”) pursuant to the Agreement and Plan of Merger (the “Merger
Agreement”), dated as of March 9, 2015 and as amended, by and among Capitol, Argo Expeditions, LLC, Capitol’s direct
wholly-owned subsidiary, Argo Merger Sub, Inc., a direct wholly-owned subsidiary of Argo Expeditions, LLC, and Lindblad. As consideration
for the Lindblad Mergers, the former Lindblad stockholders received an aggregate of (i) $90.0 million in cash (a portion of which
was paid as transaction bonuses) and (ii) 20,017,787 shares of common stock of Capitol. Capitol also assumed outstanding Lindblad
stock options and converted such options into options to purchase an aggregate of 3,821,696 shares of common stock of Capitol with
an exercise price of $1.76 per share, which was determined pursuant to a formula set forth in the Merger Agreement.
As
a result of the Lindblad Mergers, Lindblad became a direct wholly-owned subsidiary of Capitol. Immediately following the Lindblad
Mergers, Capitol changed its name to Lindblad Expeditions Holdings, Inc. Lindblad provides expedition cruising and adventure travel
experiences. It provides itineraries that feature up-close encounters with wildlife and nature and promote guest empowerment and
interactivity.
Prior to the completion
of the Lindblad Mergers, Capitol had no revenue, incurred losses since inception from incurring formation costs and had no other
operations other than the active solicitation of a target business with which to complete a business combination. Capitol
had relied upon the sale of securities and loans from former officers and directors to fund its operations. On May 15, 2013,
Capitol consummated a public offering of common stock and warrants and received proceeds net of the underwriter’s discount
and other offering expenses of $195,333,700 and simultaneously received $5.6 million from the issuance of 5.6 million warrants
in a private placement. From the net proceeds, $933,700 was available for working capital and tax purposes and $200.0 million was
placed in escrow in a trust account (the “Trust Account”) pending a business combination.
In connection with
the closing of the Lindblad Mergers: (i) an aggregate of $90.0 million was paid from the Trust Account to the former stockholders
of Lindblad as a portion of the merger consideration (including a portion of which was paid as transaction bonuses); (ii) an aggregate
of approximately $13.6 million was paid from the Trust Account to various third parties for expenses, including expenses such as
deferred underwriting costs, brokerage fees and legal expenses; (iii) an aggregate of approximately $1.1 million was paid from
the Trust Account to repay loans made to Capitol from former and current directors, former officers and founders; and (iv) an aggregate
of $3.0 million was paid from the Trust Account to former stockholders of Capitol as a result of redemptions made on 300,000 shares
of common stock at Capitol’s special meeting of stockholders held on July 8, 2015. The balance of the Trust Account, consisting
of an aggregate of approximately $92.3 million, was released from the Trust Account to the Company to be used for general corporate
purposes. In addition, an aggregate of $500,000 of convertible debt was converted into 500,000 warrants to purchase shares of common
stock with the same terms as the sponsor’s warrants.
Upon the closing
of the Lindblad Mergers, Sven-Olof Lindblad, Mark D. Ein, L. Dyson Dryden, John M. Fahey and Paul J. Brown were elected or re-elected,
as the case may be, as directors of the Company, with Mark D. Ein being designated as Chairman. In addition, Mr. Ein resigned
as the Company’s Chief Executive Officer, Treasurer and Secretary and Mr. Dryden resigned as the Company’s Chief Financial
Officer. The following executive officers were appointed: Sven-Olof Lindblad, as Chief Executive Officer and President; Ian Rogers,
as Chief Operating Officer, Chief Financial Officer and Vice President; Trey Byus, as Chief Expedition Officer; Richard Fontaine,
as Chief Marketing Officer; and Pete Miller, as Senior Vice President, Fleet Operations, who subsequently provided notice of resignation
to pursue interests outside the cruise industry.
Prior
to the Lindblad Mergers, Capitol was a blank check company with no operations. Therefore, because Lindblad is now a wholly-owned
subsidiary of Capitol, we have presented Lindblad’s information as that of the Company. In addition, we have presented a
separate Management’s Discussion and Analysis for each of Lindblad and Capitol for the three and six months ended June 30,
2015 and 2014, which periods are prior to the completion of the Lindblad Mergers on July 8, 2015.
Capitol’s
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis of Capitol’s financial condition and results of operations should be read together with
Capitol’s unaudited condensed consolidated financial statements and related notes included in this Form 10-Q, as well as
its audited consolidated financial statements and related notes included in Capitol’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2014.
Critical
Accounting Policies
For a detailed discussion
of the Critical Accounting Policies, please see Note 2 to the audited financial statements included in our Annual Report on Form
10-K for the fiscal year ended December 31, 2014, filed on March 13, 2015 with the Securities and Exchange Commission.
Results
of Operations
Capitol’s
entire activity from inception up to the closing of its initial public offering (the “Offering”) on May 15, 2013 was
in preparation for the Offering. Since the Offering, Capitol’s activity has been limited to the evaluation of business combination
candidates, negotiating, structuring and pursuing the consummation of the business combination with Lindblad. Capitol did not generate
any revenues from services until the closing and completion of its business combination with Lindblad. Capitol generated small
amounts of non-operating income in the form of interest income on cash and cash equivalents. Interest income was not significant
in view of current low interest rates on risk-free investments (treasury securities).
Three
Months Ended June 30, 2015 Compared to the Three Months Ended June 30, 2014
Capitol incurred
net losses of $773,561 and $263,633 for the three months ended June 30, 2015 and 2014, respectively. Capitol incurred operating
expenses of $773,574 and $279,005 for the three months ended June 30, 2015 and 2014, respectively. These costs consist mainly
of professional and consulting fees, rent and office administrative costs, in addition to merger-related costs in 2015.
Six
Months Ended June 30, 2015 Compared to the Six Months Ended June 30, 2014
Capitol incurred
net losses of $2,183,856 and $505,614 for the six months ended June 30, 2015 and 2014, respectively. Capitol incurred operating
expenses of $2,185,134 and $543,983 for the six months ended June 30, 2015 and 2014, respectively. These costs consist mainly
of professional and consulting fees, rent and office administrative costs, in addition to merger-related costs in 2015.
Financial
Condition and Liquidity
The net proceeds
from Capitol’s initial public offering and private placement of sponsor warrants, after deducting offering expenses of approximately
$666,300 and underwriting discounts of $4,000,000, were approximately $200,933,700. Of this amount, $200,000,000 was placed in
the Trust Account. The remaining net proceeds not in trust became available for use for working capital purposes. Generally, the
proceeds held in the Trust Account could not to be released to Capitol until the earlier of (i) its completion of an initial business
combination and (ii) its redemption of 100% of the outstanding public shares upon its failure to consummate a business combination
within the required time period. The amount held in the Trust Account was released to Capitol in connection with the completion
of the merger with Lindblad on July 8, 2015.
As of June 30, 2015
and December 31, 2014, Capitol had cash of $15,949 and $28,634, respectively, and marketable securities of $10,005 and $9,998,
respectively. In addition, it had $200,000,936 and $200,022,421, respectively, in cash and cash equivalents held in trust, of which
$936 and $22,421, respectively, represented interest income earned and $200,000,000 represented restricted funds to be used for
an initial business combination or to convert its common shares submitted for redemption. As of June 30, 2015, Capitol had withdrawn
approximately $120,000 of interest income from the trust account for working capital. As of June 30, 2015, the balance of the trust
account was invested in a United States treasury securities money market fund.
Capitol incurred
significant costs in pursuit of the business combination with Lindblad. Capitol’s sponsor and its prior officers and directors
had provided certain loans to Capitol to fund its operations that were non-interest bearing and were payable at the consummation
of a business combination. On July 8, 2015, upon the closing of the Lindblad Mergers, an aggregate of approximately $1.1 million
was paid from the Trust Account to repay these loans made to Capitol. In addition, an aggregate of $500,000 of convertible debt
was converted into 500,000 warrants to purchase shares of common stock at a price of $1.00 per warrant with the same terms as the
sponsor’s warrants. Following the merger with Lindblad, the Company believes it has sufficient liquidity to meet funding
requirements for the next twelve months.
Off-Balance
Sheet Arrangements
Capitol
did not have any off-balance sheet arrangements as of June 30, 2015 and December 31, 2014.
Item
3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to
market risk in the normal course of our business primarily due to our international operations. The primary exposure relates to
the exchange rate fluctuations between our U.S. dollar functional reporting currency and other currencies. This exposure includes
trade receivables denominated in currencies other than our functional currency. To date, fluctuations in exchange rates have not
had a material impact on our results of operations.
In
addition, we have ship maintenance contracts and may in the future have ship construction contracts which are denominated in currencies
other than the U.S. Dollar. While we have entered into, and may in the future enter into, forward contracts and collar options
to manage a portion of the currency risk associated with these contracts, we are or may be exposed to fluctuations in the exchange
rates for the portions of the contracts that have not been hedged. Additionally, if a shipyard is unable to perform under such
a contract, any foreign currency hedges that were entered into to manage the currency risk would need to be terminated.
Due
to the specific geographies in which we operate and the cost of providing access to fuel in remote destinations, we have historically
not experienced significant fluctuations in fuel costs with changes in world fuel commodity prices and has not hedged its fuel
purchases historically
We
are also exposed to market risk from changes in interest rates charged on debt. The impact on earnings is subject to change as
a result of movements in market rates. A hypothetical increase in interest rates of 100 basis points would result in potential
reduction of future pre-tax earnings of approximately $0.1 million per year for every $10.0 million outstanding under the Amended
Credit Agreement. Our ability to meet our debt service obligations will be dependent upon our future performance which, in turn,
is subject to future economic conditions and to financial, business and other factors.
Item
4: Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Under
the supervision and with the participation of our management, including our principal executive officer and principal financial
and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end
of the fiscal quarter ended June 30, 2015, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and principal
financial and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures
were effective.
Disclosure
controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is
recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to our management, including our principal executive officer and principal financial
officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes
in Internal Control over Financial Reporting
There was no change
in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form
10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part
2: OTHER INFORMATION
Item
1: LEGAL PROCEEDINGS
Capitol
was not involved in any litigation. We have protection and
indemnity insurance that would be expected to cover any damages.
ITEM
1A: RISK FACTORS
We
operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial
condition or future results, some of which are beyond our control. In addition to the additional risk factors set forth below,
the risks and uncertainties that we believe are most important for you to consider are discussed in Part I — Item 1A under
the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which we
filed with the SEC on March 13, 2015.
Adverse
worldwide economic, geopolitical or other conditions could reduce the demand for expedition cruises and adversely impact our operating
results, cash flows and financial condition, including potentially impairing the value of our fleet, goodwill and other assets.
The
demand for expedition cruises may be affected by international, national and local economic and geopolitical conditions. In particular,
challenging global economic conditions that adversely affect discretionary income and consumer confidence may, in turn, result
in expedition booking slowdowns, decreased expedition prices and lower onboard revenues for the cruise and expedition cruise industries
as compared to more robust economic times. In addition, any significant deterioration of global economic conditions could result
in a prolonged period of booking slowdowns, depressed expedition prices and reduced onboard revenues. Demand for our expedition
cruises may also be influenced by geopolitical events. Unfavorable conditions, such as cross-border conflicts, civil unrest and
governmental changes, can undermine consumer demand and/or pricing for expeditions in areas affected by such conditions.
We
may not be able to obtain sufficient financing or capital for our needs or may not be able to do so on terms that are acceptable
or consistent with our expectations.
To
fund our capital expenditures and scheduled debt payments, we have historically relied on a combination of cash flows provided
by operations, drawdowns under available credit facilities, the incurrence of additional indebtedness and the sale of equity securities
in private securities markets. Any circumstance or event which leads to a decrease in consumer cruise spending, such as worsening
global economic conditions or significant incidents impacting the cruise industry, the expedition cruise industry, or the travel
industry, could negatively affect our operating cash flows. See “—Adverse worldwide economic, geopolitical or other
conditions…” and “—Incidents or adverse publicity concerning the cruise vacation industry…”
for more information.
Although
we believe that we have sufficient cash flows from operations and will have sufficient access to capital to fund our operations
and obligations as expected, there can be no assurances to that effect. Our ability to access additional funding as and when needed,
our ability to timely refinance and/or replace outstanding debt and credit facilities on acceptable terms and our cost of funding
will depend upon numerous factors including but not limited to the condition of the financial markets, our financial performance
and credit ratings and the performance of our industry in general.
Any
inability to satisfy any covenants required by existing or future credit facilities could adversely impact our liquidity.
On
July 8, 2015, we entered into the Amended Credit Agreement with Credit Suisse A.G. as Administrative Agent and Collateral Agent.
The Amended Credit Agreement (i) requires us to maintain a total net leverage ratio of 4.75 to 1.00 initially, which ratio is
reduced by 0.25 on March 31, 2016 with equal reductions annually thereafter until March 31, 2020, when the total net leverage
ratio shall be 3.50 to 1.00 thereafter; (ii) limits the amount of indebtedness we may incur generally and specifically for intercompany
debt, debt incurred to finance acquisitions and improvements, for capital and synthetic lease obligations, for standby letters
of credit, and in connection with refinancings; (iii) limits the amount we may spend in connection with certain types of investments;
and (iv) requires the delivery of certain periodic financial statements and an operating budget. The Amended Credit Agreement
is secured by substantially all of our assets.
Any
failure to comply with such terms, conditions, and covenants could result in an event of default. Further, if an event of default
under a credit facility were to occur, cross default provisions, if any, could cause our other outstanding debt, if any, to be
immediately due and payable. Upon such an occurrence, there could be no assurance that we would have sufficient liquidity to repay
or the ability to refinance the borrowings under any such credit facilities or settle other outstanding contracts if such amounts
were accelerated upon an event of default.
Incidents
or adverse publicity concerning the cruise vacation industry, the expedition cruise industry, or the travel industry, weather
conditions and other natural disasters or disruptions could affect our reputation as well as impact our sales and results of operations.
The
operation of cruise ships, airplanes, land tours, port facilities and shore excursions involves the risk of accidents, illnesses,
mechanical failures, environmental incidents and other incidents which may bring into question safety, health, security and vacation
satisfaction which could negatively impact our reputation. Incidents involving cruise ships, and, in particular the safety and
security of guests and crew, media coverage thereof, as well as adverse media publicity concerning the cruise vacation industry
have impacted and could in the future impact demand for our expedition cruises and pricing in the industry. The considerable expansion
in the use of social media over recent years has compounded the potential scope of the negative publicity that could be generated
by those incidents. If any such incident occurs during a time of high seasonal demand, the effect could disproportionately impact
our results of operations for the year. In addition, incidents involving cruise ships may result in additional costs to our business,
increasing government or other regulatory oversight and, in the case of incidents involving our fleet, potential litigation.
Our
fleet and port facilities may also be adversely impacted by weather patterns or natural disasters or disruptions, such as hurricanes,
earthquakes and changes in ice flows. It is possible that we could be forced to alter itineraries or cancel an expedition or a
series of expeditions due to these or other factors, which would have an adverse effect on our sales and profitability. In addition,
these and any other events which impact the travel industry more generally may negatively impact our ability to deliver guests
or crew to our expeditions and/or interrupt our ability to obtain services and goods from key vendors in our supply chain. Any
of the foregoing could have an adverse impact on our results of operations and on industry performance.
An
increase in capacity worldwide or excess capacity in a particular market could adversely impact our expedition sales and/or pricing.
Expedition
sales and/or pricing may be impacted both by the introduction of new ships into the marketplace and by deployment decisions of
us and our competitors. The further growth in capacity from these new ships and future orders, without an increase in the cruise
industry’s share of the vacation market, could depress expedition prices and impede our ability to achieve yield improvement.
In addition, to the extent that we or our competitors deploy ships to a particular itinerary and the resulting capacity in that
region exceeds the demand, we may consider lower pricing which may result in lower than anticipated profitability. Any of the
foregoing could have an adverse impact on our results of operations, cash flows and financial condition including potentially
impairing the value of our ships, goodwill and other assets.
If
we are unable to appropriately balance our cost management strategies with our goal of satisfying guest expectations, our business
may be adversely impacted.
Our
goals call for us to provide high quality products and deliver high quality services. There can be no assurances that we can successfully
balance these goals with our cost management strategies.
We
may lose business to competitors throughout the vacation market.
We
operate in the vacation market, and expedition cruising is one of many alternatives for people choosing a vacation. We therefore
risk losing business not only to other cruise lines, but also to other vacation operators, which provide other leisure options
including hotels, resorts and package holidays and tours.
We
face significant competition from other vacation operators and cruise companies on the basis of pricing, destination, travel agent
preference and also in terms of the nature of ships and services it offers to guests. Our competition within the expedition and
cruise vacation industry depends on the destination and is fragmented and primarily comprised of private operators.
In
the event that we do not compete effectively with other vacation operators and cruise companies, our results of operations and
financial position could be adversely affected.
Fears
of terrorist and pirate attacks, war, and other hostilities and the spread of contagious diseases could have a negative impact
on our results of operations.
Events
such as terrorist and pirate attacks, war, and other hostilities and the resulting political instability, travel restrictions,
the spread of contagious diseases and concerns over safety, health and security aspects of traveling or the fear of any of the
foregoing have had, and could have in the future, a significant adverse impact on demand and pricing in the travel and vacation
industry. In view of our global operations, we are susceptible to a wide range of adverse events.
Fluctuations
in foreign currency exchange rates could affect our financial results.
We
earn revenues, pay expenses, recognize assets and incur liabilities in currencies other than the U.S. dollar, including, among
others, the Euro, the Australian Dollar, the Swedish Krona, and the British Pound. In 2014, we derived approximately 21% of our
guest ticket revenues from operations outside the United States. Because our consolidated financial statements are presented in
U.S. dollars, we must convert revenues, income and expenses, as well as assets and liabilities, into U.S. dollars at exchange
rates in effect during or at the end of each reporting period. Therefore, absent offsetting changes in other foreign currencies,
increases or decreases in the value of the U.S. dollar against other major currencies will affect our revenues, net income and
the value of balance sheet items denominated in foreign currencies. We use derivative financial instruments to mitigate our net
balance sheet exposure to currency exchange rate fluctuations. However, there can be no assurances that fluctuations in foreign
currency exchange rates, particularly the strengthening of the U.S. dollar against major currencies, would not materially affect
our financial results.
In
addition, we have ship maintenance contracts and may in the future have ship construction contracts which are denominated in currencies
other than the U.S. Dollar. While we have entered into, and may in the future enter into, forward contracts and collar options
to manage a portion of the currency risk associated with these contracts, we are or may be exposed to fluctuations in the exchange
rates for the portions of the contracts that have not been hedged. Additionally, if a shipyard is unable to perform under such
a contract, any foreign currency hedges that were entered into to manage the currency risk would need to be terminated. Termination
of these contracts could result in a significant loss.
Environmental,
labor, health and safety, financial responsibility and other maritime regulations could affect operations and increase operating
costs.
The
United States and various state and foreign government or regulatory agencies have enacted or are considering new environmental
regulations or policies, such as requiring the use of low sulfur fuels, increasing fuel efficiency requirements, further restricting
emissions, or other initiatives to limit greenhouse gas emissions that could increase our cost for fuel, cause us to incur significant
expenses to purchase and/or develop new equipment and adversely impact the cruise vacation industry. Some environmental groups
have also lobbied for more stringent regulation of cruise ships and have generated negative publicity about the cruise vacation
industry and its environmental impact. An increase in fuel prices not only impacts our fuel costs, but also some of our other
expenses, such as crew travel, freight and commodity prices.
In
addition, we are subject to various international, national, state and local laws, regulations and treaties that govern, among
other things, safety standards applicable to our ships, treatment of disabled persons, health and sanitary standards applicable
to our guests, security standards on board our ships and at the ship/port interface areas, and financial responsibilities to our
guests. These issues are, and we believe will continue to be, an area of focus by the relevant authorities throughout the world,
especially in light of several recent incidents involving cruise ships. This could result in the enactment of more stringent regulation
of cruise ships that could subject us to increasing compliance costs in the future.
Conducting
business globally may result in increased costs and other risks.
We
operate our business globally. Operating internationally exposes us to a number of risks, including unstable local economic conditions,
volatile local political conditions, potential changes in duties and taxes, including changing interpretations of existing tax
laws and regulations, required compliance with additional laws and policies affecting cruising, vacation or maritime businesses
or governing the operations of foreign-based companies, currency fluctuations, interest rate movements, government controlled
fuel prices, difficulties in operating under local business environments, U.S. and global anti-bribery laws or regulations, imposition
of trade barriers and restrictions on repatriation of earnings. If we are unable to address these risks adequately, our financial
position and results of operations could be adversely affected, including potentially impairing the value of our ships, goodwill
and other assets.
Operating
globally also exposes us to numerous and sometimes conflicting legal and regulatory requirements. In many parts of the world,
including countries in which we operate, practices in the local business communities might not conform to international business
standards. We must adhere to policies designed to promote legal and regulatory compliance as well as applicable laws and regulations.
However, we might not be successful in ensuring that our employees, agents, representatives and other third parties with whom
we associate throughout the world properly adhere to them.
Failure
by us, our employees or any of these third parties to adhere to our policies or applicable laws or regulations could result in
penalties, sanctions, damage to our reputation and related costs which in turn could negatively affect our results of operations
and cash flows.
Our
attempts to expand our business into new markets may not be successful.
While
our historical focus has been to serve guests from the North American expedition cruise market, we have expanded our focus to
include the Australian market. Expansion into new markets requires significant levels of investment. There can be no assurance
that any new markets will develop as anticipated or that we will have success in any new markets, and if we do not, we may be
unable to recover our investment, which could adversely impact our business, financial condition and results of operations, including
potentially impairing the value of our goodwill.
If
our redeployment of the vessel National Geographic Orion to a new market with new itineraries is not successful, our business
and operating results may be adversely affected.
Following
its 2016 expedition season in the Antarctic, the National Geographic Orion will be deployed to Europe for curated itineraries,
the details of which have not yet been finalized. Because the National Geographic Orion has been operating primarily in
the Pacific since its acquisition and because the details of the European itineraries have not yet been finalized, we cannot predict
whether the expeditions to be offered for the National Geographic Orion in Europe will attract a number of guests comparable
to the number of guests the National Geographic Orion’s other expeditions have attracted. Further, until the details
of the European itineraries have been finalized and published, we are likely to experience a decreased number of advance bookings
and payments made with respect to the National Geographic Orion’s European expeditions. If the National Geographic
Orion’s European expeditions do not attract as many guests as its past expeditions or if there is a delay in finalizing
or marketing the new European itineraries, our business and operating results may be adversely affected.
Ship
construction, repair or revitalization delays or mechanical faults may result in cancellation of expeditions or unscheduled drydockings
and repairs and thus adversely affect our results of operations.
We
depend on shipyards to construct, repair and revitalize our ships on a timely basis and to ensure they remain in good working
order. The sophisticated nature of building, repairing and revitalizing a ship involves risks. Delays in ship construction, repair
or revitalization or mechanical faults have in the past and may in the future result in delays or cancellation of expeditions
or necessitate unscheduled drydocks and repairs of ships. These events and any related adverse publicity could result in lost
revenue, increased operating expenses, or both, and thus adversely affect our results of operations.
Our
operating costs, especially fuel expenditures, could increase due to market forces and economic or geopolitical factors beyond
our control.
Expenditures
for fuel represent a significant cost of operating our business. If fuel prices rise significantly in a short period of time,
we may be unable to increase fares or other fees sufficiently to offset fully our increased fuel costs. In addition, volatility
in fuel prices or disruptions in fuel supplies could have a material adverse effect on our results of operations, financial condition
and liquidity.
Our
other capital expenditure and operating costs, including food, hotel, payroll, maintenance and repair, airfare, taxes, insurance
and security costs, are subject to increases due to market forces and economic or political conditions or other factors beyond
our control. Increases in these capital expenditure and operating costs could adversely affect our profitability.
Price
increases for commercial airline service for our guests or major changes or reductions in commercial airline service and/or availability
could adversely impact the demand for cruises and undermine our ability to provide reasonably priced vacation packages to our
guests.
Most
of our guests depend on scheduled commercial airline services to transport them to or from the ports where our expeditions embark
or disembark passengers. Increases in the price of airfare would increase the overall price of the expedition vacation to our
guests, which may adversely impact demand for our expeditions. In addition, changes in the availability of commercial airline
services could adversely affect our guests’ ability to obtain airfare, which could adversely affect our results of operations.
Our
reliance on travel agencies to sell and market our cruises exposes us to certain risks that, if realized, could adversely impact
our business.
Because
we rely on travel agencies to generate bookings for our ships, we must ensure that our commission rates and incentive structures
remain competitive. If we fail to offer competitive compensation packages, these agencies may be incentivized to sell vacation
packages offered by our competitors to our detriment, which could adversely impact our operating results. In addition, the travel
agent industry is sensitive to economic conditions that impact discretionary income. Significant disruptions or contractions in
the industry could reduce the number of travel agencies available for us to market and sell our expeditions, which could have
an adverse impact on our financial condition and results of operations.
Disruptions
in our shoreside operations or our information systems may adversely affect our results of operations.
Our
principal executive office is located in New York, New York, our principal shoreside operations are located in Seattle, Washington,
and we have a sales office in Australia. Actual or threatened natural disasters (e.g., hurricanes, earthquakes, tornadoes, fires,
floods) or similar events in these locations may have a material impact on our business continuity, reputation and results of
operations. In addition, substantial or repeated information systems failures, computer viruses or cyber-attacks impacting our
shoreside or shipboard operations could adversely impact our business. We do not generally carry business interruption insurance
for our shoreside operations or our information systems. As such, any losses or damages incurred by us could have an adverse impact
on our results of operations.
Failure
to develop the value of our brand and differentiate our products could adversely affect our results of operations.
Our
success depends on the strength and continued development of our expedition brand and on the effectiveness of our brand strategies.
Failure to protect and differentiate our brand from competitors throughout the vacation market could adversely affect our results
of operations. We have a co-branding strategy with National Geographic, which is memorialized through an Alliance and License
Agreement. Failure to maintain our relationship with National Geographic as a result of a breach of the Alliance and License Agreement,
a termination event caused by a change of control in which Sven-Olof Lindblad or his designated successor ceases to hold a senior
management role with the company, a failure to meet the conditions necessary to extend the relationship through 2025, or otherwise
could adversely affect our results of operations.
We
have an on-going relationship with National Geographic. Termination or alterations in this relationship may have an adverse effect
on our business.
National
Geographic is one of the largest non-profit scientific and educational institutions in the world. Its interests include geography,
archaeology and natural science, the promotion of environmental and historical conservation, and the study of world culture and
history. In furtherance of similar interests and goals, we have entered into a Tour Operator Agreement and an Alliance and License
Agreement (collectively, the “Agreements”) with National Geographic.
Pursuant
to the Agreements, our owned vessels contain the phrase “National Geographic” in their names, we have access to certain
of National Geographic’s marks and images for advertising purposes and we and our guests have access to National Geographic
photographers, naturalists and other experts. If the Agreements with National Geographic are terminated or the terms of the Agreements
are modified in any material respect, our results of operations may be adversely affected.
The
loss of key personnel, our inability to recruit or retain qualified personnel, or disruptions among our shipboard personnel due
to strained employee relations could adversely affect our results of operations.
Our
success depends, in large part, on the skills and contributions of key executives (including Sven-Olof Lindblad, in particular)
and other employees, and on our ability to recruit and retain high quality personnel. We must continue to sufficiently recruit,
retain, train and motivate our employees to maintain our current business and support our projected growth. A loss of key executives
or other key employees or disruptions among our personnel could adversely affect our results of operations.
We
rely on third-party providers of various services integral to the operation of our businesses. These third parties may act in
ways that could harm our business.
In
order to achieve cost and operational efficiencies, we outsource to third-party vendors certain services that are integral to
the operations of our global businesses, such as our onboard concessionaires, certain of our call center operations and operation
of a large part of our information technology systems. We are subject to the risk that certain decisions are subject to the control
of third-party service providers and that these decisions may adversely affect our activities. A failure to adequately monitor
a third-party service provider’s compliance with a service level agreement or regulatory or legal requirements could result
in significant economic and reputational harm to us. There is also a risk that the confidentiality, privacy and/or security of
data held by third parties or communicated over third-party networks or platforms could become compromised. Such a breach could
adversely affect our reputation and in turn adversely affect our business.
A
failure to keep pace with developments in technology or technological obsolescence could impair our operations or competitive
position.
Our
business continues to demand the use of sophisticated technology and systems. These technologies and systems must be refined,
updated, and/or replaced with more advanced systems in order to continue to meet our guests’ demands and expectations. If
we are unable to do so in a timely manner or within reasonable cost parameters or if we are unable to appropriately and timely
train our employees to operate any of these new systems, our business could suffer. We also may not achieve the benefits that
we anticipate from any new technology or system, and a failure to do so could result in higher than anticipated costs or could
impair our operating results.
We
may be exposed to risks and costs associated with protecting the integrity and security of our guests’ and employees’
personal information.
We
are subject to various risks associated with the collection, handling, storage and transmission of sensitive information, including
risks related to compliance with applicable laws and other contractual obligations, as well as the risk that our systems collecting
such information could be compromised. In the course of doing business, we collect large volumes of internal and guest data, including
personally identifiable information for various business purposes. If we fail to maintain compliance with the various applicable
data collection and privacy laws or with credit card industry standards or other applicable data security standards, we could
be exposed to fines, penalties, restrictions, litigation or other expenses, and our business could be adversely impacted. In addition,
even if we are fully compliant with legal standards and contractual requirements, we still may not be able to prevent security
breaches involving sensitive data. Any breach, theft, loss, or fraudulent use of guest, employee or company data could cause consumers
to lose confidence in the security of ours information technology systems and choose not to purchase from us and expose us to
risks of data loss, business disruption, litigation and other liability, any of which could adversely affect our business.
A
change in our tax status under the United States Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”),
or other jurisdictions, may have adverse effects on our income.
At
the present time, our subsidiaries that are foreign corporations do not derive any significant income from sources within the
United States, and are not subject to significant United States federal income taxes. Any income earned by these subsidiaries
from sources within the United States generally is subject to United States federal income tax (and United States branch profits
tax) unless the requirements of the exemption under Section 883 of the Internal Revenue Code are met. Although we expect that
any United States source income of our foreign subsidiaries will generally qualify for the benefits of the Section 883 exemption,
there is no assurance that such benefits will be available.
If
budgetary constraints adversely impact the jurisdictions in which we operate, such as Australia or Ecuador, increases in income
tax regulations or tax reform affecting our operations may be imposed.
Litigation,
enforcement actions, fines or penalties could adversely impact our financial condition or results of operations and/or damage
our reputation.
Our
business is subject to various United States and international laws and regulations that could lead to enforcement actions, fines,
civil or criminal penalties or the assertion of litigation claims and damages. In addition, improper conduct by our employees,
agents, partners, or expedition representatives could damage our reputation and/or lead to litigation or legal proceedings that
could result in civil or criminal penalties, including substantial monetary fines. In certain circumstances it may not be economical
to defend against such matters and/or a legal strategy may not ultimately result in us prevailing in a matter. Such events could
lead to an adverse impact on our financial condition or results of operations.
Failure
to comply with international safety regulations may subject us to increased liability that may adversely affect our insurance
coverage resulting in a denial of access to, or detention in, certain ports which could adversely affect our business.
The
operation of vessels is affected by the requirements of the International Maritime Organization’s International Safety Management
Code for the Safe Operation of Ships and Pollution Prevention (“ISM Code”). The ISM Code requires ship owners and
bareboat charterers to develop and maintain an extensive “Safety Management System” that includes the adoption of
a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures
for dealing with emergencies. Our failure to comply with the ISM Code may subject us to increased liability, invalidate existing
insurance or decrease available insurance coverage for the affected vessels and result in a denial of access to or detention in
certain ports, all of which could materially and adversely affect our results of operations and liquidity.
Compliance
with environmental and other laws and regulations could adversely affect our business.
Extensive
and changing environmental protection and other laws and regulations directly affect the operation of our vessels. These laws
and regulations take the form of international conventions and agreements, including the International Maritime Organization conventions
and regulations and the International Convention for the Safety of Life at Sea (“SOLAS”), which are applicable to
all internationally trading vessels, and national, state and local laws and regulations, all of which are amended frequently.
Under these laws and regulations, various governmental and quasi-governmental agencies and other regulatory authorities may require
us to obtain permits, licenses and certificates in connection with our operations. Some countries in which we operate have laws
that restrict the nationality of a vessel’s crew and prior and future ports of call, as well as other considerations relating
to particular national interests. Changes in governmental regulations and safety or other equipment standards may require unbudgeted
expenditures for alterations or the addition of new equipment for our vessels.
Restrictions
on travel or access to certain protected or preserved areas could adversely affect our business.
We
believe that our expedition itineraries are a major reason why guests choose our expedition cruises over competing cruises and
vacation options. However, our ability to follow our planned itinerary for any particular expedition cruise may be affected by
a number of factors, including security concerns, adverse weather conditions and natural disasters, local government regulations
and restrictions, and other restrictions on access to protected or preserved areas. For instance, the number of visitors admitted
to the Galapagos National Park at any given time is limited by the number of cupos permits issued by the Galapagos National Parks
Service. If the Galapagos National Parks Service were to further restrict access to the park, we might be required to alter certain
of our travel itineraries which would negatively impact our business and revenues. Further, changes in other governmental and
environmental rules and regulations in the Galapagos Islands and elsewhere could cause sudden losses in revenue and additional
expenditures for alterations in our itineraries. In addition, restrictions on access by us and our guests to other protected or
preserved areas, including national parks, may result in losses in revenues typically generated by our expeditions to such areas.
If
we do not restrict the amount of ownership of our common stock by non-U.S. citizens, we could be prohibited from operating vessels
in U.S. coastwise trade, which would adversely impact our business and operating results.
To the extent any
of our United States flagged vessels are engaged in U.S. coastwide trade, we will be subject to the Jones Act, which governs,
among other things, the ownership and operation of passenger vessels used to carry cargo and passengers between U.S. ports. Subject
to limited exceptions, the Jones Act requires that vessels engaged in the U.S. coastwise trade be built in the United States,
registered under the U.S. flag, manned by predominantly U.S. crews, and beneficially owned and operated by U.S. organized companies
that are controlled and at least 75% owned by U.S. citizens within the meaning of the Jones Act. A failure to maintain compliance
would adversely affect our financial position and our results of operations and we would be prohibited from operating vessels
in the U.S. coastwise trade during any period in which we do not comply or cannot demonstrate to the satisfaction of the relevant
governmental authorities our compliance with the Jones Act. In addition, a failure to maintain compliance could subject us to
fines and our vessels could be subject to seizure and forfeiture for violations of the Jones Act and the related U.S. vessel documentation
laws.
Restrictions
on non-U.S. citizen ownership of certain U.S. flagged vessels could limit our ability to sell off a portion of our business or
result in the forfeiture of certain of our vessels.
Compliance with
the Jones Act requires that non-U.S. citizens within the meaning of the Jones Act beneficially own no more than 24.99% in the
entities that directly or indirectly own the vessels that operate in the U.S. coastwise trade. If we were to seek to sell any
portion of our business that owns any of these vessels, we would have fewer potential purchasers, because some potential purchasers
might be unable or unwilling to satisfy the U.S. citizenship restrictions described above. As a result, the sales price for that
portion of the business may not attain the amount that could be obtained in an unregulated market. Furthermore, if at any point
we or any of the entities that directly or indirectly own our vessels cease to satisfy the requirements to be a U.S. citizen within
the meaning of the Jones Act, we would become ineligible to operate in the U.S. coastwise trade and may become subject to penalties
and risk forfeiture of our United States flagged vessels.
Our
amended and restated certificate of incorporation limits the beneficial ownership of our common stock by individuals and entities
that are not U.S. citizens within the meaning of the Jones Act. These restrictions may affect the liquidity of our common stock
and may result in non-U.S. citizens being required to disgorge profits, sell their shares at a loss or relinquish their voting,
dividend and distribution rights.
Under
the Jones Act, and so long as we operate U.S. flagged vessels in coastwise trade, at least 75% of the outstanding shares of each
class or series of our capital stock must be beneficially owned and controlled by U.S. citizens within the meaning of the Jones
Act. Certain provisions of our amended and restated certificate of incorporation are intended to facilitate compliance with this
requirement and may have an adverse effect on certain holders or proposed transferees of shares of our common stock.
Under
the provisions of our amended and restated certificate of incorporation, any transfer, or attempted transfer, of any shares of
capital stock will be void if the effect of such transfer, or attempted transfer, would be to cause one or more non-U.S. citizens
in the aggregate to own (of record or beneficially) shares of any class or series of our capital stock in excess of 22% of the
outstanding shares of such class or series. The liquidity or market value of the shares of common stock may be adversely impacted
by such transfer restrictions.
In
the event such restrictions voiding transfers would be ineffective for any reason, our amended and restated certificate of incorporation
provides that if any transfer would otherwise result in the number of shares of any class or series of capital stock owned (of
record or beneficially) by non-U.S. citizens being in excess of 22% of the outstanding shares of such class or series, such transfer
will cause such excess shares to be automatically transferred to a trust for the exclusive benefit of one or more charitable beneficiaries
that are U.S. citizens. The proposed transferee will have no rights in the shares transferred to the trust, and the trustee, who
is a U.S. citizen chosen by us and unaffiliated with us or the proposed transferee, will have all voting, dividend and distribution
rights associated with the shares held in the trust. The trustee will sell such excess shares to a U.S. citizen within 20 days
of receiving notice from us and distribute to the proposed transferee the lesser of the price that the proposed transferee paid
for such shares and the amount received from the sale, and any gain from the sale will be paid to the charitable beneficiary of
the trust.
These
trust transfer provisions also apply to situations where ownership of a class or series of capital stock by non-U.S. citizens
in excess of 22% would be exceeded by a change in the status of a record or beneficial owner thereof from a U.S. citizen to a
non-U.S. citizen, in which case such person will receive the lesser of the market price of the shares on the date of such status
change and the amount received from the sale. In addition, under our amended and restated certificate of incorporation, if the
sale or other disposition of shares of common stock would result in non-U.S. citizens owning (of record or beneficially) in excess
of 22% of the outstanding shares of common stock, the excess shares shall be automatically transferred to a trust for disposal
by a trustee in accordance with the trust transfer provisions described above. As part of the foregoing trust transfer provisions,
the trustee will be deemed to have offered the excess shares in the trust to us at a price per share equal to the lesser of (i)
the market price on the date we accept the offer and (ii) the price per share in the purported transfer or original issuance of
shares, as described in the preceding paragraph, or the market price per share on the date of the status change, that resulted
in the transfer to the trust.
As
a result of the above trust transfer provisions, a proposed transferee that is a non-U.S. citizen or a record or beneficial owner
whose citizenship status change results in excess shares may not receive any return on its investment in shares it purportedly
purchases or owns, as the case may be, and it may sustain a loss.
To
the extent that the above trust transfer provisions would be ineffective for any reason, our amended and restated certificate
of incorporation provides that, if the percentage of the shares of any class or series of capital stock owned (of record or beneficially)
by non-U.S. citizens is known to us to be in excess of 22% for such class or series, we, in our sole discretion, shall be entitled
to redeem all or any portion of such shares most recently acquired (as determined by us in accordance with guidelines that are
set forth in our amended and restated certificate of incorporation), by non-U.S. citizens, or owned (of record or beneficially)
by non-U.S. citizens as a result of a change in citizenship status, in excess of such permitted percentage for such class or series
at a redemption price based on a fair market value formula that is set forth in our amended and restated certificate of incorporation.
Such excess shares shall not be accorded any voting, dividend or distribution rights until they have ceased to be excess shares,
provided that they have not been already redeemed by us. As a result of these provisions, a stockholder who is a non-U.S. citizen
may be required to sell its shares of common stock at an undesirable time or price and may not receive any return on its investment
in such shares. Further, we may have to incur additional indebtedness, or use available cash (if any), to fund all or a portion
of such redemption, in which case our financial condition may be materially weakened.
In
order to assist our compliance with the Jones Act, our amended and restated certificate of incorporation permit us to require
that any record or beneficial owner of any shares of our capital stock provide us with certain documentation concerning such owner’s
citizenship. These provisions include a requirement that every person acquiring, directly or indirectly, five percent (5%) or
more of the shares of any class or series of our capital stock must provide us with specified citizenship documentation. In the
event that any person does not submit such requested or required documentation to us, our amended and restated certificate of
incorporation provides us with certain remedies, including the suspension of the voting rights of the person’s shares owned
by persons unable or unwilling to submit such documentation and the payment of dividends and distributions with respect to those
shares into a segregated account. As a result of non-compliance with these provisions, a record or beneficial owner of the shares
of our common stock may lose significant rights associated with those shares.
In
addition to the risks described above, the foregoing ownership restrictions on non-U.S. citizens could delay, defer or prevent
a transaction or change in control that might involve a premium price for common stock or otherwise be in the best interest of
our stockholders.
If
non-U.S. citizens own more than 22% of our common stock, we may not have the funds or the ability to redeem any excess shares
and the charitable trust mechanism described above may deemed invalid or unenforceable, all with the result that we could be forced
to either suspend our operations in the U.S. coastwise trade or be subject to substantial penalties.
Our
amended and restated certificate of incorporation contains provisions voiding transfers of shares of any class or series of our
capital stock that would result in non-U.S. citizens within the meaning of the Jones Act, in the aggregate, owning in excess of
22% of the shares of such class or series. In the event that this transfer restriction would be ineffective, our amended and restated
certificate of incorporation provides for the automatic transfer of such excess shares to a trust specified therein. These trust
provisions also apply to excess shares that would result from a change in the status of a record or beneficial owner of shares
of our capital stock from a U.S. citizen to a non-U.S. citizen. In the event that these trust transfer provisions would also be
ineffective, our amended and restated certificate of incorporation permits us to redeem such excess shares. The per-share redemption
price may be paid, as determined by our Board of Directors, by cash or redemption notes or the shares may be redeemed for warrants.
However, we may not be able to redeem such excess shares for cash because our operations may not have generated sufficient excess
cash flow to fund such redemption. Further, the methodology for transfer to and sale by a charitable trust could be deemed invalid
or unenforceable in one or more jurisdictions. If, for any reason, we are unable to effect a redemption or charitable sale when
beneficial ownership of shares by non-U.S. citizens is in excess of 24.99% of the common stock, or otherwise prevent non-U.S.
citizens in the aggregate from beneficially owning shares in excess of 24.99% of any class or series of capital stock, or fail
to exercise our redemption or forced sale rights because it is unaware that ownership exceeds such percentage, we will likely
be unable to comply with the Jones Act and will likely be required by the applicable governmental authorities to suspend our operations
in the U.S. coastwise trade. Any such actions by governmental authorities would have a severely detrimental impact on our financial
position, results of operations and cash flows and any failure to suspend operations in violation of the Jones Act could cause
us to be subject to material financial and operational penalties.
Item
2: UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On May 15, 2013,
Capitol consummated its initial public offering of 20,000,000 units, including 2,000,000 units under the underwriters’ over-allotment
option, with each unit consisting of one share of common stock and one half of one warrant, each whole warrant to purchase one
share of common stock. The shares of common stock and the warrants included in the units traded as a unit until
July 1, 2013 when separate trading of common stock and warrants began. No fractional warrants will be issued and only
whole warrants will trade. In connection with the Lindblad Mergers, Capitol forced the separation of the units into the separate
components. Each whole warrant entitles its holder, upon exercise, to purchase one share of common stock for $11.50 subject to
certain adjustments, during the period commencing after a registration statement registering the shares of common stock upon issuance
is effective, and terminating on July 8, 2020 or earlier upon redemption. The units were sold at an offering price of $10.00 per
unit, generating gross proceeds of $200,000,000. Citigroup Global Markets Inc. and Deutsche Bank Securities Inc. acted
as the joint book-running managers of the initial public offering. Ladenburg Thalmann & Co. Inc. and Imperial Capital
LLC served as co-managers. The units sold in the offering were registered under the Securities Act of 1933 on registration
statements on Form S-1 (Nos. 333-187519 and 333-188503). The Securities and Exchange Commission declared the registration statement
effective on May 9, 2013.
Simultaneously
with the consummation of the offering, Capitol consummated the private placement of 5,600,000 sponsor’s warrants at a price
of $1.00 per warrant, generating total proceeds of $5,600,000. The sponsor’s warrants are identical to the warrants included
in the units sold in the Offering except that the sponsor’s warrants: (i) will not be redeemable by the Company and (ii)
may be exercised for cash or on a cashless basis, in each case so long as they are held by the initial purchasers or any of their
permitted transferees. The purchasers of the sponsor’s warrants have also agreed not to transfer, assign or sell any of
the sponsor’s warrants, including the common stock issuable upon exercise of the sponsor’s warrants (except to certain
permitted transferees), until 30 days after July 8, 2015. These issuances were made pursuant to the exemption from
registration contained in Section 4(2) of the Securities Act.
Capitol
incurred a total of $4,000,000 in underwriting discounts and commissions (not including deferred fees) and $666,300 for other
costs and expenses related to the offering.
After
deducting the underwriting discounts and commissions and the offering expenses, the total net proceeds to Capitol from the offering
were $200,933,700. Of this amount, $200,000,000 Capitol received from the sale of units in the offering and private placement
of sponsor’s warrants was deposited into the trust account. A description of the use of proceeds of the offering is set
forth in Part I, Item II of this Form 10-Q and is incorporated herein by reference.
Item
3: DEfaults
upon senior securities
Not
applicable.
Item
4: MINE
safety disclosures
Not
applicable.
Item
5: Other
information
Lindblad Expeditions, Inc.:
LINDBLAD EXPEDITIONS, INC. AND SUBSIDIARIES
Table of Contents
LINDBLAD EXPEDITIONS, INC. AND SUBSIDIARIES |
Condensed Consolidated Balance Sheets |
| |
As of | |
| |
June 30,
2015 | | |
December
31, 2014 | |
| |
(unaudited) | | |
| |
ASSETS | |
| | |
| |
Current Assets: | |
| | |
| |
Cash and cash equivalents | |
$ | 53,473,021 | | |
$ | 39,678,720 | |
Restricted cash and marketable securities | |
| 47,478,278 | | |
| 8,334,632 | |
Inventories | |
| 1,921,917 | | |
| 1,700,226 | |
Marine operating supplies | |
| 5,145,250 | | |
| 5,078,552 | |
Prepaid expenses and other current
assets | |
| 10,994,135 | | |
| 11,320,698 | |
Total current assets | |
| 119,012,601 | | |
| 66,112,828 | |
| |
| | | |
| | |
Property and equipment, net | |
| 119,175,217 | | |
| 121,873,440 | |
Due from shareholder | |
| - | | |
| 1,500,926 | |
Deferred financing costs, net | |
| - | | |
| 2,019,503 | |
Operating rights | |
| 6,528,949 | | |
| 6,528,949 | |
Deferred tax assets | |
| 253,829 | | |
| 101,860 | |
Investment in CFMF | |
| - | | |
| 47,787,835 | |
Total assets | |
$ | 244,970,596 | | |
$ | 245,925,341 | |
| |
| | | |
| | |
LIABILITIES | |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Unearned passenger revenues | |
$ | 79,042,259 | | |
$ | 73,195,195 | |
Accounts payable and accrued expenses | |
| 18,070,214 | | |
| 20,028,315 | |
Long-term debt - current | |
| 1,500,000 | | |
| 4,934,030 | |
Obligations to repurchase shares of Class A common stock | |
| 4,965,792 | | |
| 4,965,792 | |
Due to CFMF | |
| - | | |
| 22,733,000 | |
Total current liabilities | |
| 103,578,265 | | |
| 125,856,332 | |
| |
| | | |
| | |
Long-term debt, less current portion | |
| 138,271,507 | | |
| 51,755,608 | |
Other long term liabilities | |
| 418,070 | | |
| 447,145 | |
Deferred income taxes - long term | |
| 408,226 | | |
| 299,035 | |
Total liabilities | |
| 242,676,068 | | |
| 178,358,120 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| | | |
| | |
| |
| | | |
| | |
SHAREHOLDERS’ EQUITY | |
| | | |
| | |
Common
stock, Class A, no par value, 450,000 shares authorized;
90,000 shares issued and outstanding. | |
| - | | |
| - | |
Common stock, Class
B, no par value, 50,000 shares authorized;
0 issued and outstanding. | |
| - | | |
| - | |
Additional paid-in capital | |
| (59,574,152 | ) | |
| 21,466,308 | |
Retained earnings | |
| 61,868,680 | | |
| 46,100,913 | |
Total shareholders' equity | |
| 2,294,528 | | |
| 67,567,221 | |
Total liabilities and shareholders'
equity | |
$ | 244,970,596 | | |
$ | 245,925,341 | |
The following table includes assets to be
used to settle liabilities of the consolidated variable interest entities ("VIEs"). These assets and liabilities are
included in the condensed consolidated balance sheet above. See Note 2 for additional information on the Company's VIEs.
| |
As of | |
| |
June 30,
2015 | | |
December
31, 2014 | |
| |
(unaudited) | | |
| |
ASSETS | |
| | |
| |
Cash and cash equivalents | |
$ | 2,000 | | |
$ | 2,000 | |
Property and equipment | |
| 1,562,701 | | |
| 1,755,446 | |
| |
| | | |
| | |
LIABILITIES | |
| | | |
| | |
Accounts payable and accrued expenses | |
| 633,254 | | |
| 55,456 | |
Long-term debt | |
| - | | |
| 2,170,000 | |
The accompanying notes are an integral part
of these condensed consolidated financial statements.
LINDBLAD
EXPEDITIONS, INC. AND SUBSIDIARIES
Condensed Consolidated
Income Statements
(unaudited)
| |
For
the Three Months Ended June 30, | | |
For
the Six Months Ended
June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Tour revenues | |
$ | 49,531,025 | | |
$ | 50,790,991 | | |
$ | 104,951,551 | | |
$ | 102,165,680 | |
| |
| | | |
| | | |
| | | |
| | |
Cost of tours | |
| 21,485,767 | | |
| 24,100,955 | | |
| 45,886,988 | | |
| 46,077,828 | |
Gross
profit | |
| 28,045,258 | | |
| 26,690,036 | | |
| 59,064,563 | | |
| 56,087,852 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
General and administrative | |
| 14,556,935 | | |
| 7,973,652 | | |
| 25,682,431 | | |
| 15,242,723 | |
Selling and marketing | |
| 8,189,162 | | |
| 7,730,227 | | |
| 17,351,646 | | |
| 15,846,423 | |
Depreciation
and amortization | |
| 2,895,026 | | |
| 2,873,736 | | |
| 5,646,825 | | |
| 5,747,794 | |
Total
operating expenses | |
| 25,641,123 | | |
| 18,577,615 | | |
| 48,680,902 | | |
| 36,836,940 | |
| |
| | | |
| | | |
| | | |
| | |
Operating
income | |
| 2,404,135 | | |
| 8,112,421 | | |
| 10,383,661 | | |
| 19,250,912 | |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Change in fair value
of obligation to repurchase shares of Class A common stock | |
| - | | |
| 857,565 | | |
| - | | |
| (572,431 | ) |
Gain (loss) on foreign
currency | |
| (78,329 | ) | |
| 178,607 | | |
| (194,367 | ) | |
| (219,286 | ) |
Gain on transfer of assets | |
| 7,525,926 | | |
| - | | |
| 7,525,926 | | |
| - | |
Other income (expense),
net | |
| 5,000,000 | | |
| - | | |
| 5,000,000 | | |
| - | |
(Loss) on investment in
CFMF | |
| (235,000 | ) | |
| - | | |
| - | | |
| - | |
Interest
expense, net | |
| (3,888,204 | ) | |
| (1,337,238 | ) | |
| (5,077,627 | ) | |
| (2,657,499 | ) |
Total
other income (expense) | |
| 8,324,393 | | |
| (301,066 | ) | |
| 7,253,932 | | |
| (3,449,216 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income before
income taxes | |
| 10,728,528 | | |
| 7,811,355 | | |
| 17,637,593 | | |
| 15,801,696 | |
| |
| | | |
| | | |
| | | |
| | |
Income
tax expense | |
| 1,893,259 | | |
| 2,646,957 | | |
| 1,869,831 | | |
| 2,242,492 | |
| |
| | | |
| | | |
| | | |
| | |
Net
income | |
$ | 8,835,269 | | |
$ | 5,164,398 | | |
$ | 15,767,762 | | |
$ | 13,559,204 | |
| |
| | | |
| | | |
| | | |
| | |
Class
A Common Stock | |
| | | |
| | | |
| | | |
| | |
Net
income available to Class A Common Stockholders | |
$ | 8,835,269 | | |
$ | 4,906,163 | | |
$ | 15,767,762 | | |
$ | 12,881,204 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average shares
outstanding | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 154,817 | | |
| 244,287 | | |
| 199,769 | | |
| 244,287 | |
Diluted | |
| 159,596 | | |
| 244,287 | | |
| 203,057 | | |
| 244,287 | |
| |
| | | |
| | | |
| | | |
| | |
Earnings per share | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 57.07 | | |
$ | 20.08 | | |
$ | 78.93 | | |
$ | 52.73 | |
Diluted | |
$ | 55.36 | | |
$ | 20.08 | | |
$ | 77.65 | | |
$ | 52.73 | |
| |
| | | |
| | | |
| | | |
| | |
Class
B Common Stock | |
| | | |
| | | |
| | | |
| | |
Net
income available to Class B Common Stockholders | |
$ | - | | |
$ | 258,235 | | |
$ | - | | |
$ | 678,000 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average shares
outstanding | |
| | | |
| | | |
| | | |
| | |
Basic | |
| - | | |
| 12,858 | | |
| - | | |
| 12,858 | |
Diluted | |
| - | | |
| 12,858 | | |
| - | | |
| 12,858 | |
| |
| | | |
| | | |
| | | |
| | |
Earnings per share | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | - | | |
$ | 20.08 | | |
$ | - | | |
$ | 52.73 | |
Diluted | |
$ | - | | |
$ | 20.08 | | |
$ | - | | |
$ | 52.73 | |
The accompanying notes are an integral part
of these condensed consolidated financial statements.
LINDBLAD
EXPEDITIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash
Flows
(unaudited)
| |
For the Six
Months Ended
June 30, | |
| |
2015 | | |
2014 | |
Cash Flows From Operating Activities | |
| | |
| |
Net income | |
$ | 15,767,762 | | |
$ | 13,559,204 | |
Adjustments to reconcile net income to net cash provided
by operating activities: | |
| | |
Depreciation and amortization | |
| 5,646,825 | | |
| 5,747,794 | |
Amortization of debt discount and deferred financing costs | |
| 2,208,948 | | |
| 543,303 | |
Stock-based compensation | |
| 2,427,447 | | |
| - | |
Deferred income taxes | |
| (42,778 | ) | |
| 277,895 | |
(Gain) loss on currency translation | |
| (194,367 | ) | |
| (219,286 | ) |
Gain on transfer of assets | |
| (7,502,668 | ) | |
| - | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Inventories and Marine operating supplies | |
| (251,188 | ) | |
| 262,949 | |
Prepaid expenses and other current assets | |
| 316,966 | | |
| (433,860 | ) |
Unearned passenger revenues | |
| 6,021,897 | | |
| (496,242 | ) |
Other long term liabilities | |
| (29,075 | ) | |
| 110,120 | |
Accounts payable and accrued expenses | |
| (1,168,060 | ) | |
| (417,785 | ) |
| |
| | | |
| | |
Net cash provided by operating activities | |
| 23,201,709 | | |
| 18,934,092 | |
| |
| | | |
| | |
Cash Flows From Investing Activities | |
| | | |
| | |
Purchase of investment in CFMF | |
| (68,087,953 | ) | |
| - | |
Purchase of property and equipment, net | |
| (2,567,268 | ) | |
| (2,336,841 | ) |
Advance from (to) shareholder | |
| 1,500,926 | | |
| (47,163 | ) |
Purchase of restricted cash and marketable
securities | |
| (39,143,646 | ) | |
| (7,923,356 | ) |
| |
| | | |
| | |
Net cash used in investing activities | |
| (108,297,941 | ) | |
| (10,307,360 | ) |
| |
| | | |
| | |
Cash Flows From Financing Activities | |
| | | |
| | |
Proceeds from long-term debt | |
| 150,000,000 | | |
| - | |
Deferred financing costs | |
| (10,532,175 | ) | |
| - | |
Repayments of long-term debt | |
| (41,003,232 | ) | |
| (2,167,434 | ) |
Repurchase of stock from Class A
shareholders | |
| - | | |
| 572,430 | |
| |
| | | |
| | |
Net cash provided by (used in) financing
activities | |
| 98,464,593 | | |
| (1,595,004 | ) |
| |
| | | |
| | |
Effect of exchange rate changes on
cash | |
| 425,940 | | |
| (230,956 | ) |
| |
| | | |
| | |
Net increase in cash and cash equivalents | |
| 13,794,301 | | |
| 6,800,772 | |
| |
| | | |
| | |
Cash and cash equivalents at beginning of year | |
| 39,678,720 | | |
| 44,353,563 | |
| |
| | | |
| | |
Cash and cash equivalents at end of year | |
$ | 53,473,021 | | |
$ | 51,154,335 | |
| |
| | | |
| | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Cash paid during the year for | |
| | | |
| | |
Interest | |
$ | 2,087,329 | | |
$ | 2,129,629 | |
| |
| | | |
| | |
Income taxes | |
$ | 298,226 | | |
$ | 247,645 | |
| |
| | | |
| | |
Non-cash investing and financing activities: | |
| | | |
| | |
Investment in CFMF liquidation of Junior debt asset, warrant | |
$ | 84,903,567 | | |
| - | |
CFMF liquidation of Junior debt long term debt, additional
paid in capital | |
| (84,903,567 | ) | |
| - | |
The accompanying notes are an integral
part of these condensed consolidated financial statements.
Notes
to the Condensed Consolidated Financial Statements (unaudited)
NOTE 1 — BUSINESS
Overview
Lindblad Expeditions, Inc.
(“LEX”), a New York corporation and its subsidiaries, (together “Lindblad” or the “Company”),
provide tour and travel related services in the United States and destinations in many parts of the world. The Company’s
subsidiaries include Lindblad Maritime Enterprises, Ltd (“LME”) a Cayman Islands corporation and two variable interest
entities, SPEX Sea Lion, Ltd. a Nevada corporation (“Sea Lion”), and SPEX Sea Bird Ltd, a Nevada corporation (“Sea
Bird”).
LME either directly, or
through subsidiaries, owns or operates four vessels that travel in non-United States territories throughout the year. These vessels
are the National Geographic Explorer, National Geographic Orion, National Geographic Endeavour and National Geographic
Islander.
LEX operates two vessels
comprised of National Geographic Sea Bird and National Geographic Sea Lion.
Lindblad was founded by
Sven-Olof Lindblad (“Mr. Lindblad”), whose father, renowned adventure-travel pioneer Lars-Eric Lindblad, led some
of the first non-scientific groups of travelers to the Galapagos (1967) and Antarctica (1966).
Lindblad operates a year
round fleet of six expedition ships and several seasonal charter vessels. Lindblad also has an alliance with the National
Geographic Society, who often provide lecturers and National Geographic experts, including photographers, writers, marine biologists,
naturalists, field researchers and film crews.
New Credit Agreement
On May 8, 2015, Lindblad
entered into a new credit agreement with Credit Suisse A.G. (“Credit Suisse”) as Administrative Agent and Collateral
Agent (“Credit Agreement”) for a $150.0 million facility in the form of a $130.0 million U.S. term loan (the “U.S.
Term Loan”) and a $20.0 million Cayman term loan for the benefit of Lindblad’s foreign subsidiaries (the “Cayman
Loan,” and together with the U.S. Term Loan, the “Loans”). On July 8, 2015, Lindblad entered into a larger and
syndicated amended and restated credit agreement with Credit Suisse (“Amended Credit Agreement”), increasing the facility
by $25.0 million, resulting in a $155.0 million U.S. Term Loan (See Note 3 – Long-Term Debt).
Lindblad Mergers
On March 9, 2015 the Company
and Capitol Acquisition Corp. II (“Capitol”), a public investment vehicle formed for the purpose of effecting a merger,
acquisition or similar business combination, entered into a definitive agreement to merge in a transaction valued at approximately
$439 million.
The merger was approved
by shareholders of both the Company and Capitol and closed on July 8, 2015 during the third quarter of 2015 (the “Lindblad
Mergers”). As consideration for the Lindblad Mergers, the former Lindblad stockholders received an aggregate of (i) $90.0
million in cash (a portion of which was paid as transaction bonuses) and (ii) 20,017,787 shares of common stock of Capitol. Capitol
also assumed outstanding Lindblad stock options and converted such options into options to purchase an aggregate of 3,821,696
shares of common stock of Capitol with an exercise price of $1.76 per share. As a result of the Lindblad Mergers, Lindblad became
a direct wholly-owned subsidiary of Capitol. Immediately following the Lindblad Mergers, Capitol changed its name to Lindblad
Expeditions Holdings, Inc. The combined Company’s common stock and warrants are listed on The NASDAQ Capital Market.
In connection with
the closing of the Lindblad Mergers: (i) an aggregate of $90.0 million was paid from Capitol’s trust account to the former
stockholders of Lindblad as a portion of the merger consideration (including a portion of which was paid as transaction bonuses);
(ii) an aggregate of $13.6 million was paid from the trust account to various third parties for expenses, including expenses such
as deferred underwriting costs, brokerage fees and legal expenses; (iii) an aggregate of $1.1 million was paid from the trust
account to repay loans made to Capitol from former and current directors, former officers and founders; and (iv) an aggregate
of $3.0 million was paid from the trust account to former stockholders of Capitol as a result of redemptions made on 300,000 shares
of common stock at Capitol’s special meeting of stockholders held on July 8, 2015. The balance of the trust account, consisting
of an aggregate of approximately $92.3 million, was released from the trust to the Company to be used for general corporate purposes.
In addition, an aggregate of $500,000 of convertible debt was converted into 500,000 warrants to purchase shares of common stock
with the same terms as the sponsor’s warrants.
Purchase of CFMF and Repayment of Junior Debt and Senior
Debt
On March 3, 2009, the Company
issued a note payable to Cruise/Ferry Master Fund I, N.V. (“CFMF”) (See Note 3 – Long-Term Debt). On December
11, 2014, Lindblad entered into a Profit Participation Loan Purchase Agreement with DVB Bank America, N.V. (“DVB”),
a Profit Participation Rights Purchase Agreement with Buss Kreuzfahrtfonds 1 GmbH & Co. KG and Buss Kreuzfahrtfonds 2 GmbH
& Co. KG, and a Stock Purchase Agreement with Cruise/Ferry Finance Partners Private Foundation. These three agreements enabled
Lindblad to purchase the financial and equity interests in CFMF in order to recapture and extinguish an outstanding warrant to
purchase 60% of the outstanding equity of Lindblad on a fully diluted basis. On December 11, 2014, the date of the purchase agreements,
an initial payment of $25,000,000 was made to DVB under the Profit Participation Loan Purchase Agreement. The remaining payments
of (i) $22,733,000 to DVB, (ii) $48,440,000 to Buss Kreuzfahrtfonds 1 GmbH & Co. KG and Buss Kreuzfahrtfonds 2 GmbH &
Co. KG, as increased by $339,100 per month from December 31, 2014 until the close of the transaction, and (iii) $1.00 to Cruise/Ferry
Financing Partners Private Foundation were made on May 8, 2015 (“CFMF Closing”). In connection with the CFMF Closing,
the 60% warrant was cancelled; the junior debt note receivable was cancelled; and the related junior debt facility offset by the
outstanding unamortized balance of the debt discount was cancelled, resulting in a gain on the transfer of assets, and the Company
commenced liquidation procedures on CFMF. Utilizing the proceeds from the new Loans, the Company also paid in full its preexisting
senior debt facility in the amount of $39.8 million held by DVB.
Assignment and Assumption Agreement
In connection with the
Company’s agreement to purchase CFMF, Mr. Lindblad earned a success fee of $5,000,000 from DVB for the purchase of CFMF
(the “DVB Fee”) (DVB was a partner in CFMF and the lender of the Company’s preexisting senior debt facility).
On March 9, 2015, Mr. Lindblad
and Lindblad entered into an Assignment and Assumption Agreement pursuant to which Mr. Lindblad (i) assigned and transferred to
Lindblad his right to receive a $5,000,000 fee payable to Mr. Lindblad personally by DVB and (ii) exercised his outstanding option
to purchase 2,857 shares of Lindblad’s stock for $92,538 in aggregate exercise proceeds. In exchange for the assignment
to Lindblad of the fee payable by DVB, all of Mr. Lindblad’s obligations under his loan agreement with the Company (the
“Mr. Lindblad Loan Agreement”), which had a balance of principal and accrued interest of $2,830,447 as of March 9,
2015, were deemed satisfied in full, the Mr. Lindblad Loan Agreement and related promissory note were terminated, and Mr.
Lindblad’s obligation to pay the aggregate exercise price for the exercise of the option described above was satisfied
in full. On May 8, 2015, the Company received the $5,000,000 fee from DVB and the Company compensated Mr. Lindblad $4,956,160,
which was paid by settling the $2,830,447 outstanding amount of principal and interest owed and the aggregate exercise proceeds
of $92,538 payable in connection with the exercise of the option (above), and also offset by $2,033,175 in required withholding
taxes.
The DVB Fee assigned to
the Company was recorded on the Company’s condensed consolidated balance sheet as “Due from DVB.” The amount
payable to Mr. Lindblad was recorded on the Company’s condensed consolidated balance sheet as “Due to shareholder.”
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited
interim condensed consolidated financial statements and footnotes have been prepared in accordance with generally accepted
accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities
and Exchange Commission (the “SEC”) regarding unaudited interim financial information. In the opinion of management,
the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the Company’s Condensed Consolidated Balance
Sheets, Income Statements and Cash Flows for the interim periods presented. Operating results for the interim periods presented
are not necessarily indicative of the results of operations to be expected for the full year due to seasonal and other factors.
Certain information and footnote disclosures normally included in the consolidated financial statements in accordance with
U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC. Accordingly, these unaudited interim condensed
consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial
statements and accompanying notes thereto for the year ended December 31, 2014 contained in Capitol’s definitive merger
proxy statement filed with the SEC on June 24, 2015.
Principles of Consolidation
The condensed consolidated
financial statements of the Company include LEX, its wholly owned subsidiary, LME, as well as the subsidiaries of LME, and
Sea Lion and Sea Bird as variable interest entities (“VIEs”). LEX controls the activities which most significantly
impact the economic performance of Sea Lion and Sea Bird. LEX determined itself to be the primary beneficiary and accordingly,
these entities were determined to be VIEs. All significant inter-company accounts and transactions have been eliminated
in consolidation.
Use of Estimates
The preparation of condensed
consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of
the condensed consolidated financial statements, and also affect the amounts of revenues and expenses reported for each
period. Actual results could differ from those which result from using such estimates. Management utilizes various estimates,
including but not limited to determining the estimated lives of long-lived assets, determining the fair value of assets acquired
and liabilities assumed in business combinations, the fair value of the Company’s common stock and related warrants, the
valuation of securities underlying stock based compensation, income tax expense, the valuation of deferred tax assets, the value
of contingent consideration and to assess its litigation, other legal claims and contingencies. The results of any changes in
accounting estimates are reflected in the condensed consolidated financial statements in the period in which the changes
become evident. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period
that they are determined to be necessary.
Earnings per Common Share
Earnings per common share
is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings
per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding
during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options
(if such option is an equity instrument)(using the treasury stock method). Basic weighted average shares outstanding included
the shares underlying a warrant to purchase 60% of the outstanding common shares. As the shares underlying this warrant can be
issued for little consideration (an aggregate exercise price of $10), these shares are deemed to be issued for purposes of basic
earnings per share. Effective May 8, 2015, in connection with the Company closing on a transaction to purchase 100% of CFMF, the
warrant was cancelled (as discussed in Note 1 – Business).
The two-class method is
used in the calculation of basic and diluted earnings per share. Under the two-class method, earnings per common share are allocated
to the Class A and Class B common shareholders based on the weighted average shares outstanding.
For the three and six months
ended June 30, 2015 and 2014, the Company calculated earnings per share in accordance with ASC 260 as follows:
| |
For
the Three Months Ended June 30, | | |
For
the Six Months Ended
June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Net income for
basic and diluted earnings per share) | |
$ | 8,835,269 | | |
$ | 5,164,398 | | |
$ | 15,767,762 | | |
$ | 13,559,204 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding: | |
| | | |
| | | |
| | | |
| | |
Shares outstanding, weighted
for time outstanding | |
| 90,000 | | |
| 102,858 | | |
| 90,000 | | |
| 102,858 | |
Shares
issuable under warrant for nominal consideration | |
| 64,817 | | |
| 154,287 | | |
| 109,769 | | |
| 154,287 | |
Total weighted average
shares outstanding, basic | |
| 154,817 | | |
| 257,145 | | |
| 199,769 | | |
| 257,145 | |
| |
| | | |
| | | |
| | | |
| | |
Effect of dilutive securities: | |
| | | |
| | | |
| | | |
| | |
Assumed
exercise of stock options, treasury method | |
| 4,779 | | |
| - | | |
| 3,288 | | |
| - | |
Dilutive
potential common shares | |
| 4,779 | | |
| - | | |
| 3,288 | | |
| - | |
Total weighted average
shares outstanding, diluted | |
| 159,596 | | |
| 257,145 | | |
| 203,057 | | |
| 257,145 | |
| |
| | | |
| | | |
| | | |
| | |
Class
A Common Stock | |
| | | |
| | | |
| | | |
| | |
Net income available to
Class A Common Stockholders | |
$ | 8,835,269 | | |
$ | 4,906,163 | | |
$ | 15,767,762 | | |
$ | 12,881,204 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average shares
outstanding | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 154,817 | | |
| 244,287 | | |
| 199,769 | | |
| 244,287 | |
Diluted | |
| 159,596 | | |
| 244,287 | | |
| 203,057 | | |
| 244,287 | |
| |
| | | |
| | | |
| | | |
| | |
Earnings per share | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 57.07 | | |
$ | 20.08 | | |
$ | 78.93 | | |
$ | 52.73 | |
Diluted | |
$ | 55.36 | | |
$ | 20.08 | | |
$ | 77.65 | | |
$ | 52.73 | |
| |
| | | |
| | | |
| | | |
| | |
Class
B Common Stock | |
| | | |
| | | |
| | | |
| | |
Net income available to
Class B Common Stockholders | |
$ | - | | |
$ | 258,235 | | |
$ | - | | |
$ | 678,000 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average shares
outstanding | |
| | | |
| | | |
| | | |
| | |
Basic | |
| - | | |
| 12,858 | | |
| - | | |
| 12,858 | |
Diluted | |
| - | | |
| 12,858 | | |
| - | | |
| 12,858 | |
| |
| | | |
| | | |
| | | |
| | |
Earnings per share | |
| | | |
| | | |
| | | |
| | |
Basic | |
| - | | |
$ | 20.08 | | |
| - | | |
$ | 52.73 | |
Diluted | |
| - | | |
$ | 20.08 | | |
| - | | |
$ | 52.73 | |
For the three and six months
ended June 30, 2015, the Company excluded 6,747 shares of Class A Common Stock as these shares were subject to the put liability
described in Note 2 “Fair Value Measurements.”
As of June 30, 2015, there
were 90,000 shares outstanding. Upon completion of the Lindblad Mergers on July 8, 2015, Capitol had 44,717,759 shares of common
stock outstanding. Capitol is authorized to issue 200,000,000 shares of common stock, par value $0.0001, and 1,000,000 shares
of preferred stock, par value $0.0001. Capitol also assumed the outstanding Lindblad stock options above and converted such options
into options to purchase an aggregate of 3,821,696 shares of common stock of Capitol with an exercise price of $1.76 per share.
Capitol’s board of directors and stockholders approved a 2015 Long-Term Incentive Plan (the “2015 Plan”), which
includes the authority to issue up to 2,500,000 shares of Capitol’s common stock under the 2015 Plan.
Restricted Cash and Marketable Securities
Included in “Restricted
cash and marketable securities” on the accompanying condensed consolidated balance sheets are restricted cash and marketable
securities, consisting of six-month certificates of deposit and short-term investments. Restricted cash and marketable securities
consist of the following:
| |
As
of | |
| |
June
30,
2015 | | |
December
31, 2014 | |
| |
(unaudited) | | |
| |
Restricted cash and marketable securities: | |
| | |
| |
Credit Suisse escrow | |
$ | 30,000,000 | | |
$ | - | |
Federal Maritime Commission escrow | |
| 11,259,414 | | |
| 2,115,158 | |
Credit negotiation and credit
card processor reserves | |
| 4,650,000 | | |
| 5,030,000 | |
Other restricted securities | |
| 1,530,000 | | |
| 1,150,000 | |
Certificates of deposit | |
| 38,864 | | |
| 39,474 | |
Total restricted
cash and marketable securities | |
$ | 47,478,278 | | |
$ | 8,334,632 | |
The amounts held in restricted
cash and marketable securities represent principally funds required to be held in certificates of deposit by certain vendors
and regulatory agencies and are classified as restricted assets since such amounts cannot be used by the Company until the
restrictions are removed by those vendors and regulatory agencies. Interest income is recognized when earned.
The Company has classified
marketable securities, principally money funds, as trading securities which are recorded at market value. Unrealized gains and
losses are included in current operations. Gains and losses on the disposition of securities are recognized by the specific
identification method in the period in which they occur.
In order to operate guest
tour expedition vessels from U.S. ports, the Company is required to post a performance bond with the Federal Maritime Commission
or escrow all unearned guest deposits in restricted accounts. To satisfy this requirement, the Company entered into an agreement
with a financial institution to escrow all unearned guest revenues collected for sailings from U.S. ports.
In accordance to
the new Credit Agreement entered into with Credit Suisse, the Company was required to segregate $30,000,000 in an escrow account
for repayment to the lender should the consummation of the merger not occur within thirty (30) days after the loan closing date.
The funds were subsequently released and moved to cash and cash equivalents on July 21, 2015.
A cash reserve totaling
$4,650,000 and $5,030,000, at June 30, 2015 and December 31, 2014, respectively, is required for credit card deposits by third-party
credit card processors. The above arrangements are included in restricted cash and marketable securities on the accompanying condensed
consolidated balance sheets.
Amounts in the escrow accounts
include cash, certificates of deposit, and marketable securities. Cost of these short-term investments approximates fair
value.
Inventories and Marine Operating Supplies
Inventories consist primarily
of gift shop merchandise and other items for resale and are stated at the lower of cost or market. Cost is determined using the
first-in, first-out method.
Marine operating supplies
consist primarily of fuel, provisions, spare parts, items required for maintenance, and supplies used in the operation of marine
expeditions. Marine operating supplies are stated at the lower of cost or market. Cost is determined using the first-in first-out
method.
Revenue Recognition
Tour revenue consists of
guest ticket revenue, as well as other revenues from the sale of pre- and post-expedition excursions, hotel accommodations, land-based
expeditions, air transportation to and from the ships, good and services rendered onboard that are not included in guest ticket
prices, trip insurance, and cancellation fees. Revenue from the sale of guest tickets and other revenue are recognized gross,
as the Company is the primary obligation in the arrangement, has discretion in supplier selection and is involved in the determination
of the service specifications.
The Company’s tour
guests remit deposits in advance of tour embarkation. Guest tour deposits consist of guest ticket revenue as well as revenues
from the sale of pre- and post-expedition excursions, hotel accommodations, land-based expeditions, air transportation to and
from the ships and trip insurance. Guest tour deposits represent unearned revenues and are initially included in unearned passenger
revenue when received. Guest deposits are subsequently recognized as tour revenues on the date of embarkation. Tour expeditions
average ten days in duration. For tours in excess of ten days, the Company recognizes revenue based upon expeditions days earned.
Guest cancellation fees are recognized as tour revenues at the time of the cancellation. Revenues from the sale of additional
good and services rendered onboard are recognized upon purchase.
Concentration of Credit Risk
The Company maintains cash
in several financial institutions in the United States and other countries which, at times, may exceed the federally insured
limits. Accounts held in the United States are guaranteed by the Federal Deposit Insurance Corporation up to certain limits. The
Company has not experienced any losses in such accounts. As of June 30, 2015 and December 31, 2014, the Company’s cash held
in financial institutions outside the United States amounted to $3,156,046 and $2,504,064, respectively.
Investment in CFMF and Additional Paid-In Capital
The Company uses the equity
method of accounting for business investments when it has active involvement, but not control, in the venture. The Company had
accounted for its minority interest in CFMF using the equity method, and at each reporting period recognized its proportionate
share of CFMF’s earnings in the condensed consolidated income statement. In June 2015, the Company changed its accounting
treatment for the investment in CFMF to the cost method and derecognized any earnings previously reported in the current year
and adjusted the treatment of the CFMF transaction.
The investment in CFMF
was liquidated subsequent to the purchase on May 8, 2015. The CFMF assets acquired were the junior mortgage note receivable and
warrant and both were canceled and resulted in the removal of the junior mortgage note receivable, which had a relative fair value
of $8.5 million, and related junior debt, which had a fair value of $16.0 million (a face value of $20.0 million less the debt
discount of $4.0 million), resulting in a $7.5 million gain on the transfer of assets and a $83.7 million adjustment to additional
paid-in capital for the cancellation of the warrant.
Fair Value Measurements
The carrying amounts of
cash and cash equivalents, accounts payable and accrued expenses, approximate fair value due to the short-term nature of these
instruments.
Fair value is defined
as an exit price, representing the amount that would be received upon the sale of an asset or payment to transfer a liability
in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions
that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the
inputs in measuring fair value as follows:
Level 1 |
Quoted prices in active markets for identical assets
or liabilities. |
|
|
Level 2 |
Quoted prices for similar assets or liabilities in active markets,
quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable,
either directly or indirectly. |
|
|
Level 3 |
Significant unobservable inputs that cannot be corroborated
by market data. |
The assets or liability’s
fair value measurement within the fair value hierarchy is based upon the lowest level of any input that is significant to
the fair value measurement. The following table provides a summary of the liabilities that are measured at fair value on a recurring
basis.
| |
Total | | |
Quoted Prices
in Active Markets for Identical Assets or Liabilities (Level 1) | | |
Quoted Prices
for Similar Assets or Liabilities in Active Markets (Level 2) | | |
Significant
Unobservable Inputs (Level 3) | |
June 30, 2015 | |
| | |
| | |
| | |
| |
Obligation for the repurchase of Class A common
shares subject to put | |
$ | 4,965,792 | | |
$ | - | | |
$ | - | | |
$ | 4,965,792 | |
December 31, 2014 | |
| | | |
| | | |
| | | |
| | |
Obligation for the repurchase of Class A common shares subject
to put | |
$ | 4,965,792 | | |
$ | - | | |
$ | - | | |
$ | 4,965,792 | |
The Company and certain
of its stockholders who acquired shares through the exercise of stock options, entered into agreements providing for the redemption
of outstanding shares at any time by the holder. Accordingly, these shares are subject to repurchase under the terms of these
agreements. As of June 30, 2015 and December 31, 2014, there were 6,747 shares outstanding subject to such redemption.
There was no change in
the fair value of the obligation for the repurchase of Class A common shares subject to put during the six months ended June 30,
2015.
Level 3 liabilities are
valued using unobservable inputs to the valuation methodology that are significant to the measurement of fair value. For
fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s Chief Financial Officer determined
its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements
and fair value calculations are the responsibility of the Company’s Chief Financial Officer with support from the Company’s
consultants and which are approved by the Chief Financial Officer.
Level 3 financial
liabilities consist of obligations for which there is no current market for these securities such that the determination of fair
value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the
fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.
A significant decrease
in the expected book value of the Company would result in a significantly lower fair value measurement for the obligation
for repurchased shares put back to the Company. A significant decrease in the trend of profitable performance for
the tours conducted on the Islander vessel would result in a significantly lower fair value measurement for the contingent
purchase price obligation. Changes in the values of the obligation for repurchased shares and the contingent purchase price obligation
are recorded in other income (expense) in the statement of operations.
During the six months ended
June 30, 2015, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy.
The fair value of the Company’s
common stock was determined by the Company and was derived from a valuation prepared by the Company’s Chief Financial Officer
using a weighted analysis of peer multiples of earnings before interest, taxes, depreciation and amortization (“EBITDA”)
and discounted cash flows.
Income Taxes
Deferred tax assets and
liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled. The measurement of net deferred tax assets is reduced by the amount of any tax benefit
that, based on available evidence, is not expected to be realized, and a corresponding valuation allowance is established. The
determination of the required valuation allowance against net deferred tax assets was made without taking into account the deferred
tax liabilities created from the book and tax differences on indefinite-lived assets.
The Company accounts for
income taxes using the asset and liability method, under which it recognizes deferred income taxes for the tax consequences attributable
to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities, as
well as for tax loss carryforwards and tax credit carryforwards. The Company measures deferred tax assets and liabilities using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable
or settled. The Company recognizes the effect on deferred taxes of a change in tax rates in income in the period that includes
the enactment date. The Company provides a valuation allowance against deferred tax assets if, based upon the weight of available
evidence, the Company does not believe it is “more-likely-than-not” that some or all of the deferred tax assets will
be realized. The Company will continue to evaluate the deferred tax asset valuation allowance balances in all of our foreign and
U.S. companies to determine the appropriate level of valuation allowances.
The Company is subject
to income taxes in both the U.S. and the non-U.S. jurisdictions in which it operates. The Company regularly assesses the potential
outcome of current and future examinations in each of the taxing jurisdictions when determining the adequacy of the provision
for income taxes. The Company has only recorded financial statement benefits for tax positions which it believes reflect
the “more-likely-than-not” criteria of the Financial Accounting Standards Board’s (“FASB”) authoritative
guidance on accounting for uncertainty in income taxes, and it has established income tax reserves in accordance with this guidance
where necessary. Once a financial statement benefit for a tax position is recorded or a tax reserve is established,
the Company adjusts it only when there is more information available or when an event occurs necessitating a change. While the
Company believes that the amount of the recorded financial statement benefits and tax reserves reflect the more-likely-than-not
criteria, it is possible that the ultimate outcome of current or future examinations may result in a reduction to the tax benefits
previously recorded on its condensed consolidated financial statements or may exceed the current income tax reserves in
amounts that could be material. As of June 30, 2015 and December 31, 2014, the Company had a liability for unrecognized tax benefits
of $461,375 and $447,145, respectively, which was included in other long-term liabilities on the Company’s condensed consolidated
balance sheets. The guidance also discusses the classification of related interest and penalties on income taxes. The Company’s
policy is to record interest and penalties on uncertain tax positions as a component of income tax expense. During the three months
ended June 30, 2015 and 2014, included in income tax expense was $10,462 and $10,462, respectively, representing interest and
penalties on uncertain tax positions. During the six months ended June 30, 2015 and 2014, included in income tax expense was $20,924
and $20,924, respectively, representing interest and penalties on uncertain tax positions.
The Company is subject
to tax audits in all jurisdictions for which it files tax returns. Tax audits by their very nature are often complex and
can require several years to complete. Currently, there is a U.S. federal tax audit pending for 2013, and no state or foreign
jurisdiction tax audits pending. The Company’s corporate U.S. federal and state tax returns from 2009 to 2013 remain subject
to examination by tax authorities and the Company’s foreign tax returns from 2009 to 2013 remain subject to examination
by tax authorities.
Management’s Evaluation of Subsequent Events
Management evaluated events
that have occurred after the balance sheet date through the date the financial statements are issued. Based upon the evaluation,
other than as described in Note 1 – Business, Note 3 – Long-Term Debt, and Note 7 – Pro Forma Financial Information,
management did not identify any recognized or nonrecognized subsequent events that would have required adjustment or disclosure
in the condensed consolidated financial statements.
Recent Accounting Pronouncements
In April 2015, FASB issued
Accounting Standards Update (“ASU”) No. 2015-03, “Interest–Imputation of Interest: Simplifying the Presentation
of Debt Issuance Costs” (Subtopic 835-30). This ASU requires that debt issuance costs related to a recognized debt liability
be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt
discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. For
public business entities, the amendments in this ASU are effective for financial statements issued for fiscal years beginning
after December 15, 2015, and interim periods within those fiscal years. The Company adopted this ASU in the second quarter of
2015 and its adoption did not have a material impact to the Company’s condensed consolidated financial statements.
In May 2014, FASB issued
ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), which supersedes the revenue recognition requirements
in ASC Topic 605, “Revenue Recognition,” and most industry-specific guidance. This ASU is based on the principle
that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure
about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant
judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The amendments
in the ASU must be applied using one of two retrospective methods and are effective for annual and interim periods beginning after
December 15, 2016. Early adoption is not permitted. The Company will evaluate the effects, if any, that adoption of this ASU will
have on its condensed consolidated financial statements.
In February 2015, FASB
issued ASU No. 2015-02, “Amendments to the Consolidation Analysis, Consolidation” (Topic 810). This ASU provides modifications
to the evaluation of variable interest entities that may impact consolidation of reporting entities. It is effective for public
business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15,
2015. The Company currently consolidates variable interest entities and may create or acquire variable interest entities for future
endeavors. The Company is still evaluating the possible impact this ASU may have on the financial presentation of the Company’s
condensed consolidated financial statements.
NOTE 3 — LONG-TERM DEBT
New Credit Facility
On May 8, 2015, Lindblad
entered into a Credit Agreement with Credit Suisse as Administrative Agent and Collateral Agent for a $150.0 million facility
in the form of a $130.0 million U.S. Term Loan and a $20.0 million Cayman Loan for the benefit of Lindblad’s foreign
subsidiaries. The gross proceeds from the Loans, net of discounts, fees and expenses, were $139.5 million. The Loans bear interest
at a rate based on an adjusted ICE Benchmark administration LIBO Rate (subject to a floor of 1.00%) plus a spread of 5.50%. The
Credit Agreement (i) requires Lindblad to satisfy certain financial covenants as set forth in the Credit Agreement; (ii)
limits the amount of indebtedness Lindblad may incur; (iii) limits the amount Lindblad may spend in connection with certain types
of investments; (iv) requires the delivery of certain periodic financial statements and an operating budget, and (v) requires
the mortgaged vessels to be maintained in good working condition. The U.S. Term Loan and the Cayman Loan both mature on May 8,
2021. The net proceeds from the term loan advances were used to repay Lindblad’s existing debt, fund a portion of the purchase
consideration paid in connection with Lindblad’s purchase of the financial and equity interests owned by CFMF and
for general corporate purposes.
On July 8, 2015, Lindblad
entered into an amended and restated credit agreement with Credit Suisse as Administrative Agent and Collateral Agent increasing
by $25.0 million the U.S. Term Loan to a $155.0 million facility (total facility of $175.0 million). The gross proceeds net of
discounts, fees and expenses from the larger Amended Credit Agreement were $24.7 million, which will be used for general corporate
purposes. The Loans bear interest at a rate based on an adjusted ICE Benchmark administration LIBO Rate (subject to a floor of
1.00%) plus a spread of 4.50%. The Credit Agreement (i) requires Lindblad to satisfy certain financial covenants as set
forth in the Amended Credit Agreement; (ii) limits the amount of indebtedness Lindblad may incur; (iii) limits the amount Lindblad
may spend in connection with certain types of investments; and (iv) requires the delivery of certain periodic financial
statements and an operating budget. The U.S. Term Loan matures on May 8, 2021. In accordance to the new Credit Agreement entered
into with Credit Suisse, the Company was required to segregate $30.0 million in an escrow account for repayment to the lender
should the consummation of the merger not occur within thirty (30) days after the loan closing date.
Senior Credit Facility
On October 16, 2007, the
Company entered into a senior secured term loan (the “Original Senior Credit Facility”) with DVB for up to the maximum
of the lesser of $35,000,000 or an amount equal to 60% of the fair market value of the Company’s vessels. On July 19, 2012
and April 12, 2103, the Company amended and restated the Original Senior Credit Facility (“Senior Credit Facility”).
On May 8, 2015, using the
proceeds from the Loans (as discussed in Note 1 – Business), the Company paid off the Senior Credit Facility in full. The
outstanding principal and accrued interest balance on the Senior Credit Facility was $39,778,117 and $212,103, respectively.
Junior Credit Facility
On October 16, 2007, the
Company entered into a junior secured term loan (the “Original Junior Credit Facility”) with DVB for up to the maximum
of the lesser of $11,000,000 or an amount equal to 76% of the fair market value of the Company’s vessels. On March 9, 2009,
the Company entered into an amendment to its Original Junior Credit Facility (the “Amended Junior Credit Facility”).
The amendment (a) named DVB as agent for new lenders — Cruise Ferry Master Fund I N.V., (b) increased the facility to a
term loan of $15,000,000 and a revolving loan of $10,000,000, and (c) extended the maturity of the junior facility to January
18, 2014. In consideration for this amendment and certain other accommodations under the terms of the Original Junior Credit Facility,
the Company issued a warrant for the purchase of 60% of the fully diluted shares of the Company to CFMF. On January 19, 2010 and
on July 19, 2012, the Company amended its Amended Junior Credit Facility.
On May 8, 2015, using the
proceeds from the Loans (as discussed in Note 1 – Business), the Company paid off the Amended Junior Credit Facility in
full. The outstanding principal balance and accrued interest on the Junior Credit Facility was $20,000,000 and $1,222,222.
For the three months ended
June 30, 2015 and 2014, total debt discount and deferred financing costs charged to amortization and interest expense was $1,965,359
and $269,048, respectively. For the six months ended June 30, 2015 and 2014, total debt discount and deferred financing costs
charged to amortization and interest expense was $2,208,948 and $543,303, respectively.
Long-Term Debt Outstanding
As of June 30, 2015 and
December 31, 2014, the following long-term debt instruments were outstanding:
| |
As of | |
| |
June 30,
2015 | | |
December
31, 2014 | |
| |
(unaudited) | | |
| | |
| | |
| |
| |
Principal | | |
Discount
and Deferred Financing Costs | | |
Balance, net
of discount | | |
Principal | | |
Discount | | |
Balance, net
of discount | |
Credit Facility | |
$ | 150,000,000 | | |
$ | 10,228,493 | | |
$ | 139,771,507 | | |
$ | - | | |
$ | - | | |
$ | - | |
Senior Credit Facility | |
| - | | |
| - | | |
| - | | |
| 41,003,232 | | |
| - | | |
| 41,003,232 | |
Junior Credit Facility | |
| - | | |
| - | | |
| - | | |
| 20,000,000 | | |
| 4,313,594 | | |
| 15,686,406 | |
Total long-term debt | |
| 150,000,000 | | |
| 10,228,493 | | |
| 139,771,507 | | |
| 61,003,232 | | |
| 4,313,594 | | |
| 56,689,638 | |
Less current portion | |
| 1,500,000 | | |
| - | | |
| 1,500,000 | | |
| 4,934,030 | | |
| - | | |
| 4,934,030 | |
Total long-term debt, non-current | |
$ | 148,500,000 | | |
$ | 10,228,493 | | |
$ | 138,271,507 | | |
$ | 56,069,202 | | |
$ | 4,313,594 | | |
$ | 51,755,608 | |
Future minimum principal
payments of long-term debt as of June 30, 2015 are as follows:
Year | |
Amount | |
2015 | |
$ | 750,000 | |
2016 | |
| 1,500,000 | |
2017 | |
| 1,500,000 | |
2018 | |
| 1,500,000 | |
2019 | |
| 1,500,000 | |
2020 | |
| 1,500,000 | |
2021 | |
| 141,750,000 | |
| |
$ | 150,000,000 | |
NOTE 4 — COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases office
space and equipment under long-term leases, which are classified as operating leases.
Rent expense was approximately
$221,603 and $458,379 for the three and six months ended June 30, 2015, respectively, and $208,467 and $415,072 for the three
and six months ended June 30, 2014, respectively. These amounts are recorded within general and administrative expenses on the
accompanying condensed consolidated income statements.
Royalty Agreement — National Geographic
The Company is engaged
in an alliance and license agreement with National Geographic Society, which allows the Company to use the National Geographic
name and logo. In return for these rights, the Company is charged a royalty fee. The royalty fee is booked as a selling and administrative
expense within the financial statements. The amount is calculated based upon a percentage of ticket revenue less travel
agent commission, including the revenue received from cancellation fees and any revenue received from the sale of voyage extensions.
A voyage extension occurs when a guest extends their trip with pre- or post-voyage hotel nights and is included within other revenue.
The royalty expense is recognized at the time of revenue recognition. Royalty expense for the three and six months ended June
30, 2015 was $1,147,765 and $2,386,639, respectively, and for the three and six months ended June 30, 2014 was $1,132,690 and
$2,122,718, respectively.
The balances outstanding
to National Geographic as of June 30, 2015 and December 31, 2014, are $1,179,015 and $999,064, respectively, and are included
in accounts payable and accrued expenses on the accompanying condensed consolidated balance sheets.
In March 2015, the Company
and National Geographic extended their alliance and license agreement until the year 2025. No additional consideration was given
by the Company for the agreement to extend the agreement. Payment of royalties earned during the extension period will be valued
and recorded in the Company’s condensed consolidated financial statements in a manner consistent with the foregoing
disclosure.
Charter Commitments
From time to time, the
Company enters into agreements to charter vessels onto which it holds its tours and expeditions. Future minimum payments on its
charter agreements are as follows:
For the years ended December 31, | |
Amount | |
2015 (Six Months) | |
$ | 2,020,986 | |
2016 | |
| 4,303,633 | |
2017 | |
| 202,140 | |
Total | |
$ | 6,526,759 | |
Legal Proceedings
The Company is involved
in various claims, legal actions and regulatory proceedings arising from time to time in the ordinary course of business.
NOTE 5 — EMPLOYEE BENEFIT PLAN
The Company has a 401(k)
profit sharing plan and trust for its employees. The Company matches 25% of employee contributions up to annual maximum
of $1,800 and $1,500 for 2015 and 2014, respectively. For the three months ended June 30, 2015 and 2014, the Company’s benefit
plan contribution amounted to $47,741 and $40,500, respectively. For the six months ended June 30, 2015 and 2014, the Company’s
benefit plan contribution amounted to $113,640 and $98,944, respectively. The benefit plan contribution is recorded within
general and administrative expenses on the accompanying condensed consolidated income statements.
NOTE 6 — STOCK BASED COMPENSATION
Stock Options
The fair value of stock
options is amortized on a straight line basis over the requisite service periods of the respective awards. Stock based compensation
expense related to stock options was $1,213,722 and $0 for the three months ended June 30, 2015 and 2014, respectively. Stock
based compensation expense related to stock options was $2,427,447 and $0 for the six months ended June 30, 2015 and 2014, respectively.
Stock compensation expense is included in selling, general and administrative expenses on the accompanying condensed consolidated
income statements. As of June 30, 2015, the unamortized value of options was $11,863,157, and is expected to be expensed over
a period of 2.4 years.
On March 9, 2015, Mr. Lindblad
exercised his stock option and received 2,857 shares of the Company’s common stock. These shares are subject to be put back
to the Company at the option of Mr. Lindblad and are included in “obligation to repurchased Class A common shares”
on the Company’s condensed consolidated balance sheets.
The following table is
a summary of activity under the Company’s 2012 Incentive Stock Plan:
| |
| | |
Weighted | | |
Weighted | | |
Weighted | | |
| |
| |
| | |
Average | | |
Average | | |
Average | | |
Aggregate | |
| |
| | |
Exercise | | |
Grant Date | | |
Contractual | | |
Intrinsic | |
| |
Shares | | |
Price | | |
Fair Value | | |
Life (Years) | | |
Value | |
Options outstanding at January 1, 2015 | |
| 16,337 | | |
$ | 417 | | |
$ | 1,054 | | |
| 9.7 | | |
$ | 16,315,198 | |
Granted | |
| - | | |
| - | | |
| - | | |
| | | |
| | |
Exercised | |
| (2,857 | ) | |
| 32 | | |
| 926 | | |
| | | |
| | |
Forfeited | |
| - | | |
| - | | |
| - | | |
| | | |
| | |
Options outstanding
at June 30, 2015 | |
| 13,480 | | |
| 498 | | |
| 1,080 | | |
| 9.3 | | |
| 33,643,678 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Exercisable at January 1, 2015 | |
| 2,857 | | |
| 32 | | |
| 926 | | |
| 8.0 | | |
| 3,950,802 | |
Vested | |
| - | | |
| - | | |
| - | | |
| | | |
| | |
Exercised | |
| (2,857 | ) | |
| 32 | | |
| 926 | | |
| | | |
| | |
Forfeited | |
| - | | |
| - | | |
| - | | |
| | | |
| | |
Exercisable at June
30, 2015 | |
| - | | |
| - | | |
| - | | |
| | | |
| | |
Lindblad’s
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis
addresses material changes in the financial condition and results of operations of Linblad Expeditions, Inc. and Subsidiaries
for the periods presented. This discussion and analysis should be read in conjunction with Capitol’s unaudited condensed
consolidated financial statements and related notes included in this Form 10-Q, as well as Lindblad’s audited consolidated
financial statements and related notes, and management’s discussion and analysis of Lindblad’s financial condition
and results and operations included in Capitol’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014
included in Capitol’s Definitive Proxy Statement, filed with the Securities and Exchange Commission on June 24, 2015.
Overview
The
key components of our business strategy are to deliver exceptional guest experiences, maximize occupancy levels, continually optimize
pricing methodologies, effectively manage itinerary offerings to meet guest demand, maximize and grow net yields, elevate brand
awareness and loyalty, and expand the business in a safe, prudent and disciplined manner.
In the three months
ended June 30, 2015, Lindblad generated revenues of $49.5 million compared to revenues of $50.8 million for the three months ended
June 30, 2014, which represents a decrease of $1.3 million, or 2.6%. The change was primarily the result of a decrease in guest
ticket revenue from $44.0 million for the three months ended June 30, 2014 to $43.2 million for the three months ended June 30,
2015, brought about by an increase in discounts related to cabin revenue received for Indian Ocean-based voyages. Net income was
$8.8 million and $5.2 million for the three months ended June 30, 2015 and 2014, respectively. The increase in net income was
primarily the result of income from the fee received from DVB Bank America, N.V. (“DVB”) for the completion of the
Lindblad Mergers and the gain on the sale of Cruise/Ferry Master Fund I, N.V. (“CFMF”) (see Note 1 – Business).
For the three months ended June 30, 2015 Adjusted EBITDA amounted to $12.0 million compared to $11.0 million for the three months
ended June 30, 2014.
In
the six months ended June 30, 2015, Lindblad generated revenues of $105.0 million, which represented an increase of 2.7% from
revenues of $102.2 million for the six months ended June 30, 2014. The increase in revenue was primarily the result of an increase
in tour prices and increased revenue from additional chartered tours compared to the six months ended June 30, 2014. In addition,
a strong demand for pre- and post-extensions and increased air ticket sales also increased revenue. Net income was $15.8 million
and $13.6 million for the six months ended June 30, 2015 and 2014, respectively. The increase in net income was primarily the
result of income from fee received from DVB for the completion of the Lindblad Mergers and the gain on the sale of CFMF (see Note
1 – Business). For the six months ended June 30, 2015 Adjusted EBITDA amounted to $26.3 million compared to $25.1 million
for the six months ended June 30, 2014.
Lindblad
continues to focus on its core objectives of maximizing occupancy and optimizing pricing to drive strong net yield levels across
the Company. In 2014, Lindblad began the process of redeploying the National Geographic Orion, which came under Lindblad
management in 2013. This included adding departures from the Antarctic Peninsula and extensive travel across the Pacific Ocean
as well as marketing the vessel’s 2014 offerings in the United States, Lindblad’s core marketing region where the
Company commands strong pricing. In 2016, Lindblad will further reposition the National Geographic Orion when the ship
will be redeployed from serving the Western Australian geographies to voyages in Europe for the northern hemisphere summer. Lindblad
deploys chartered vessels for various seasonal offerings and continually seeks to optimize its charter fleet to balance its inventory
with demand and maximize yields. The Company uses its charter inventory as a mechanism to both increase travel options of its
existing and prospective guests and also to test demand for certain areas and seasons to understand the potential for longer term
deployments and additional vessel needs.
Lindblad has evaluated
a range of strategies for expansion of guest capacity. The Company considers closely the expected return on invested capital and
the range of possibilities, such as new build programs, adding selected charters, and the acquisition of existing ships or small
operators, such as the acquisition of the National Geographic Orion. As a result of the merger with Capitol, the Company
plans to order two new coastal vessels for delivery targeted in 2017 and 2018. These vessels are expected to have capacity of
approximately 100 guests each and management considers this investment to be an important step to meet increasing demand for Lindblad’s
offerings. The newbuild process will expose the Company to certain risks typically associated with new ship construction, which
the Company is prepared to manage through detailed planning and close monitoring by its internal marine team. The purchase of
the ships will be funded through a combination of cash raised in the Lindblad Mergers, funds from the Company’s Amended
Credit Agreement and excess cash flow generated by the Company’s existing operations.
Due to the specific
geographies in which Lindblad operates and the cost of providing access to fuel in its remote destinations, the Company has historically
not experienced significant fluctuations in fuel costs with changes in world fuel commodity prices. The continued downward pressure
is now becoming evident on fuel prices in all areas of the world in which Lindblad operates. Fuel costs represented 3.4% and 4.5%
of tour revenue for the three months and six months ended June 30, 2015, respectively, and 5.4% and 6.2% of tour revenue for the
three and six months ended June 30, 2014, respectively. Lindblad has not hedged its fuel purchases historically.
Lindblad maintains its
fleet in accordance with applicable regulations, international conventions and insurance requirements. This includes regularly
scheduled, periodic inspections, dry docking, and overhaul. In addition, renovations and replacements of various vessel elements
are part of the ongoing process of maintaining the vessels to a high standard. Following the acquisition of the National Geographic
Orion, the vessel underwent an extensive dry dock process during which Lindblad added its own specific modifications in order
for the ship to meet its operational requirements. Although the age of the Company’s owned vessels varies, to date, the
age itself has not been a material factor in the annual maintenance expense incurred by Lindblad. On a year-to-year basis, increases
in maintenance expense for the current owned fleet are anticipated to grow in line with inflation.
Similar to others
in the industry, Lindblad has historically operated with a meaningful working capital deficit. This deficit is mainly attributable
to the fact that, under Lindblad’s business model, a vast majority of guest ticket receipts are collected in advance of
the applicable sailing date. These advance passenger receipts remain a current liability until the sailing date and the cash generated
from them is used interchangeably with cash on hand from other cash from operations. As a result of the Amended Credit Agreement,
Lindblad had net working capital of $15.4 million as of June 30, 2015 as compared to a working capital deficit of $59.7 million
as of December 31, 2014.
The
discussion and analysis of Lindblad’s financial condition and results of operations has been organized to present
the following:
|
● |
a
review of Lindblad’s financial presentation, including the descriptions of certain line items and key operational
and financial metrics; |
|
● |
a
discussion of Lindblad’s results of operations for the three and six months ended June 30, 2015 compared to the same
periods in 2014; and |
|
● |
a
discussion of liquidity and capital resources, including future capital and potential funding sources. |
Financial
Presentation
Description of Certain Line Items
Tour
revenue
Tour
revenue consists of the following:
|
● |
Guest
ticket revenue recognized from the sale of guest tickets; and |
|
● |
Other
revenues from the sale of pre- or post-expedition excursions, hotel accommodations, and land-based expeditions; air transportation
to and from the ships, goods and services rendered onboard that are not included in guest ticket prices, trip insurance, and
cancellation fees. |
Cost
of tours
Cost
of tours includes the following:
|
● |
Direct
costs associated with revenues, including cost of pre- or post-expedition excursions, hotel accommodations, and land-based
expeditions, air and other transportation expenses, and cost of goods and services rendered onboard; |
|
● |
Payroll
costs and related expenses for shipboard personnel; |
|
● |
Food
costs for guests and crew, including complimentary food and beverage amenities for guests; |
|
● |
Fuel
costs and related costs of delivery, storage and safe disposal of waste; and |
|
● |
Other
expenses, such as land costs, port costs, repairs and maintenance, equipment expense, dry dock, ship insurance, and charter
hire costs. |
Selling
and marketing
Selling
and marketing expenses include commissions and a broad range of advertising and promotional expenses.
General
and administrative
General
and administrative expenses include the cost of shoreside vessel support, reservations and other administrative functions, including
salaries and related benefits, credit card commissions, professional fees and rent.
Key
Operational and Financial Metrics
Lindblad uses a
variety of operational and financial metrics, which are defined below, to evaluate its performance and financial condition. Lindblad
uses certain non-GAAP financial measures, such as EBITDA, Adjusted EBITDA, Net Yields and Net Cruise Costs, to enable the Company
to analyze its performance and financial condition. The Company utilizes these financial measures to manage its business on a day-to-day
basis and believes that they are the most relevant measures of performance. Some of these measures are commonly used in the cruise
industry to measure performance. Lindblad believes these non-GAAP measures provide expanded insight to measure revenue and cost
performance, in addition to the standard GAAP-based financial measures. There are no specific rules or regulations for determining
non-GAAP measures, and as such, they may not be comparable to measures used by other companies within the industry. The presentation
of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information
prepared and presented in accordance with GAAP. You should read this discussion and analysis of the Company’s financial condition
and results of operations together with the consolidated financial statements of Lindblad and the related notes thereto also included
within.
EBITDA
is net income (loss) excluding depreciation and amortization, net interest expense and income tax benefit (expense).
Adjusted
EBITDA is net income (loss) excluding depreciation and amortization, net interest expense, other income (expense), and income
tax benefit (expense), and other supplemental adjustments. Lindblad believes Adjusted EBITDA, when considered along with
other performance measures, is a useful measure as it reflects certain operating drivers of the business, such as sales
growth, operating costs, selling and administrative expense and other operating income and expense. Lindblad believes Adjusted
EBITDA can provide a more complete understanding of the underlying operating results and trends and an enhanced overall understanding
of the Company’s financial performance and prospects for the future. While Adjusted EBITDA is not a recognized measure
under GAAP, management uses this financial measure to evaluate and forecast business performance. Adjusted EBITDA is not
intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income as it does not
take into account certain requirements such as unearned passenger revenue, capital expenditures and related depreciation, principal
and interest payments, and tax payments. Lindblad’s use of Adjusted EBITDA may not be comparable to other companies within
the industry. Management compensates for these limitations by using Adjusted EBITDA as only one of several measures for evaluating
its business performance. In addition, capital expenditures, which impact depreciation and amortization, interest expense, and
income tax benefit (expense), are reviewed separately by management.
Available
Guest Nights is a measurement of capacity and represents double occupancy per cabin (except single occupancy for a single
capacity cabin) multiplied by the number of cruise days for the period. Lindblad also records the number of guest nights available
on its limited land programs in this definition. Lindblad uses this measure to perform capacity and rate analysis to identify
the main non-capacity drivers that cause revenue and expense to vary.
Gross
Cruise Cost represents the sum of cost of tours plus selling and marketing expense and general and administrative expense.
Gross
Yield represents tour revenue divided by Available Guest Nights.
Guest
Nights Sold represents the number of guests carried for the period multiplied by the number of nights sailed within the
period.
Maximum
Guests is a measure of capacity and represents the maximum number of guests in a period and is based on double occupancy per
cabin (except single occupancy for a single capacity cabin).
Net
Cruise Cost represents Gross Cruise Cost excluding commissions and certain other direct costs of guest ticket revenue and
other revenue.
Net
Cruise Cost excluding Fuel represents Net Cruise Cost excluding fuel costs.
Net
Revenue represents tour revenue less commissions and direct costs of other revenue.
Net
Yield represents Net Revenue divided by Available Guest Nights.
Number
of Guests represents the number of guests that travel with the Company in a period.
Occupancy
is calculated by dividing Guest Nights Sold by Available Guest Nights.
Foreign
Currency Translation
Lindblad
translates the assets and liabilities of its foreign operations that have functional currencies other than the U.S. dollar at
exchange rates in effect at the balance sheet date. Revenues and expenses of these foreign operations are translated at weighted-average
exchange rates for the period. Where the U.S. dollar is the functional currency, remeasurement adjustments and gains or losses
resulting from foreign currency transactions are recorded as foreign exchange gains or losses in the condensed consolidated income
statements.
Lindblad
became subject to foreign currency translation in connection with its acquisition of Fillmore Pearl Holdings Ltd., which operates
partially in Australia and whose functional currency is the U.S. dollar.
Results
of Operations for the Three and Six Months Ended June 30, 2015 and 2014
Lindblad
reported tour revenue, cost of tours, operating expenses, operating income and net income for the three and six months ended June
30, 2015 and 2014 are shown in the following table:
| |
Three
Months Ended
June 30, | | |
Six
Months Ended
June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Tour revenue | |
$ | 49,531,025 | | |
$ | 50,790,991 | | |
$ | 104,951,551 | | |
$ | 102,165,680 | |
Cost of tours | |
| 21,485,767 | | |
| 24,100,955 | | |
| 45,886,988 | | |
| 46,077,828 | |
Operating expenses | |
| 25,641,123 | | |
| 18,577,615 | | |
| 48,680,902 | | |
| 36,836,940 | |
Operating income | |
| 2,404,135 | | |
| 8,112,421 | | |
| 10,383,661 | | |
| 19,250,912 | |
Net income | |
| 8,835,269 | | |
| 5,164,398 | | |
| 15,767,762 | | |
| 13,559,204 | |
Earnings per share – Class A | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 57.07 | | |
$ | 20.08 | | |
$ | 78.93 | | |
$ | 52.73 | |
Diluted | |
| 55.36 | | |
| 20.08 | | |
| 77.65 | | |
| 52.73 | |
Earnings per share – Class B | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | - | | |
$ | 20.08 | | |
$ | - | | |
$ | 52.73 | |
Diluted | |
| - | | |
| 20.08 | | |
| - | | |
| 52.73 | |
The
following table sets forth the Company’s operating data as a percentage of total revenue:
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Tour revenues | |
| 100.0 | % | |
| 100.0 | % | |
| 100.0 | % | |
| 100.0 | % |
| |
| | | |
| | | |
| | | |
| | |
Cost of tours | |
| 43.4 | % | |
| 47.5 | % | |
| 43.7 | % | |
| 45.1 | % |
Gross profit | |
| 56.6 | % | |
| 52.5 | % | |
| 56.3 | % | |
| 54.9 | % |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
General and administrative | |
| 29.4 | % | |
| 15.7 | % | |
| 24.5 | % | |
| 14.9 | % |
Selling and marketing | |
| 16.5 | % | |
| 15.2 | % | |
| 16.5 | % | |
| 15.5 | % |
Depreciation and amortization | |
| 5.8 | % | |
| 5.6 | % | |
| 5.4 | % | |
| 5.6 | % |
Total operating expenses | |
| 51.7 | % | |
| 36.5 | % | |
| 46.4 | % | |
| 36.0 | % |
| |
| | | |
| | | |
| | | |
| | |
Operating income | |
| 4.9 | % | |
| 16.0 | % | |
| 9.9 | % | |
| 18.9 | % |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Change in fair value of obligation to repurchase shares of Class A common stock | |
| 0.0 | % | |
| 1.7 | % | |
| 0.0 | % | |
| (0.6 | %) |
Gain (loss) on foreign currency | |
| (0.2 | %) | |
| 0.3 | % | |
| (0.2 | %) | |
| (0.2 | %) |
Gain on transfer of assets | |
| 15.2 | % | |
| 0.0 | % | |
| 7.2 | % | |
| 0.0 | % |
Other income (expense), net | |
| 10.1 | % | |
| 0.0 | % | |
| 4.8 | % | |
| 0.0 | % |
(Loss) on investment in CFMF | |
| (0.5 | %) | |
| 0.0 | % | |
| 0.0 | % | |
| 0.0 | % |
Interest expense, net | |
| (7.9 | %) | |
| (2.6 | %) | |
| (4.9 | %) | |
| (2.6 | %) |
Total other income (expense) | |
| 16.7 | % | |
| (0.6 | %) | |
| 6.9 | % | |
| (3.4 | %) |
| |
| | | |
| | | |
| | | |
| | |
Income before income taxes | |
| 21.6 | % | |
| 15.4 | % | |
| 16.8 | % | |
| 15.5 | % |
| |
| | | |
| | | |
| | | |
| | |
Income tax expense | |
| 3.8 | % | |
| 5.2 | % | |
| 1.8 | % | |
| 2.2 | % |
| |
| | | |
| | | |
| | | |
| | |
Net income | |
| 17.8 | % | |
| 10.2 | % | |
| 15.0 | % | |
| 13.3 | % |
The
following table sets forth Lindblad’s Available Guest Nights, Guest Nights Sold, Occupancy, Maximum Guests and Number of
Guests for the three and six months ended June 30, 2015 and 2014:
| |
Three
Months Ended
June 30, | | |
Six
Months Ended
June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Available Guest Nights | |
| 44,193 | | |
| 42,538 | | |
| 91,164 | | |
| 89,760 | |
Guest Nights Sold | |
| 40,597 | | |
| 40,751 | | |
| 83,807 | | |
| 85,402 | |
Occupancy | |
| 91.9 | % | |
| 95.8 | % | |
| 91.9 | % | |
| 95.1 | % |
Maximum Guests | |
| 5,171 | | |
| 5,014 | | |
| 10,610 | | |
| 10,268 | |
Number of Guests | |
| 4,818 | | |
| 4,829 | | |
| 9,806 | | |
| 9,804 | |
The
following table shows the calculations of Gross Yield and Net Yield for the three and six months ended June 30, 2015 and 2014.
Gross Yield is calculated by dividing tour revenue by Available Guest Nights, and Net Yield is calculated by dividing Net Revenue
by Available Guest Nights.
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Guest ticket revenue | |
$ | 43,153,749 | | |
$ | 43,970,745 | | |
$ | 90,953,547 | | |
$ | 89,504,670 | |
Other revenue | |
| 6,377,276 | | |
| 6,820,246 | | |
| 13,998,004 | | |
| 12,661,010 | |
Tour Revenue | |
| 49,531,025 | | |
| 50,790,991 | | |
| 104,951,551 | | |
| 102,165,680 | |
Less: Commissions | |
| (3,436,535 | ) | |
| (3,379,574 | ) | |
| (7,123,099 | ) | |
| (6,692,010 | ) |
Less: Other expense | |
| (3,532,318 | ) | |
| (4,003,552 | ) | |
| (8,112,295 | ) | |
| (7,219,797 | ) |
Net Revenue | |
$ | 42,562,172 | | |
$ | 43,407,865 | | |
$ | 89,716,157 | | |
$ | 88,253,873 | |
Available Guest Nights | |
| 44,193 | | |
| 42,538 | | |
| 91,164 | | |
| 89,760 | |
Gross Yield | |
$ | 1,120.79 | | |
$ | 1,194.01 | | |
$ | 1,151.24 | | |
$ | 1,138.21 | |
Net Yield | |
$ | 963.10 | | |
$ | 1,020.45 | | |
$ | 984.12 | | |
$ | 983.22 | |
The
following table shows the calculations of Gross Cruise Cost per Available Guest Night and Net Cruise Costs per Available Guest
Night for the three and six months ended June 30, 2015 and 2014.
| |
Three
Months Ended
June 30, | | |
Six Months
Ended
June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Cost of tours | |
$ | 21,485,767 | | |
$ | 24,100,955 | | |
$ | 45,886,988 | | |
$ | 46,077,828 | |
Plus: Selling and marketing | |
| 8,189,162 | | |
| 7,730,227 | | |
| 17,351,646 | | |
| 15,846,423 | |
Plus: General and administrative | |
| 14,556,935 | | |
| 7,973,652 | | |
| 25,682,431 | | |
| 15,242,723 | |
Gross
Cruise Cost | |
$ | 44,231,864 | | |
$ | 39,804,834 | | |
$ | 88,921,065 | | |
$ | 77,166,974 | |
Less: Commission expense | |
| (3,436,535 | ) | |
| (3,379,574 | ) | |
| (7,123,099 | ) | |
| (6,692,010 | ) |
Less: Other expenses | |
| (3,532,318 | ) | |
| (4,003,552 | ) | |
| (8,112,295 | ) | |
| (7,219,797 | ) |
Net
Cruise Cost | |
$ | 37,263,011 | | |
$ | 32,421,708 | | |
$ | 73,685,671 | | |
$ | 63,255,167 | |
Less: Fuel expense | |
| (1,677,789 | ) | |
| (2,740,215 | ) | |
| (4,724,586 | ) | |
| (6,361,522 | ) |
Net
Cruise Cost Excluding Fuel | |
$ | 35,585,222 | | |
$ | 29,681,493 | | |
$ | 68,961,085 | | |
$ | 56,893,645 | |
Non-GAAP Adjustments
| |
| | | |
| | | |
| | | |
| | |
Stock based compensation | |
| (1,213,722 | ) | |
| - | | |
| (2,427,447 | ) | |
| - | |
Non-recurring merger related expenses | |
| (5,536,354 | ) | |
| - | | |
| (7,804,602 | ) | |
| - | |
Non-recurring acquisition related
expenses | |
| - | | |
| - | | |
| - | | |
| (112,000 | ) |
Adjusted
Net Cruise Cost Excluding Fuel | |
$ | 28,835,146 | | |
$ | 29,681,493 | | |
$ | 58,729,036 | | |
$ | 56,781,645 | |
Available Guest Nights | |
| 44,193 | | |
| 42,538 | | |
| 91,164 | | |
| 89,760 | |
Gross Cruise Cost per Available Guest Night | |
$ | 1,000.88 | | |
$ | 935.75 | | |
$ | 975.40 | | |
$ | 859.70 | |
Net Cruise Cost per Available Guest Night | |
$ | 843.19 | | |
$ | 762.18 | | |
$ | 808.28 | | |
$ | 704.71 | |
Net Cruise Cost Excluding Fuel per Available Guest
Night | |
$ | 805.22 | | |
$ | 697.76 | | |
$ | 756.45 | | |
$ | 633.84 | |
Adjusted Net Cruise Cost per Available Guest Night | |
$ | 690.45 | | |
$ | 762.18 | | |
$ | 696.04 | | |
$ | 703.47 | |
Adjusted Net Cruise Cost Excl. Fuel per Available Guest
Night | |
$ | 652.48 | | |
$ | 697.76 | | |
$ | 644.21 | | |
$ | 632.59 | |
The
following outlines the calculation of EBITDA and Adjusted EBITDA for the periods presented.
| |
Three
Months Ended
June 30, | | |
Six
Months Ended
June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Net income | |
$ | 8,835,269 | | |
$ | 5,164,398 | | |
$ | 15,767,762 | | |
$ | 13,559,204 | |
Income tax expense | |
| 1,893,259 | | |
| 2,646,957 | | |
| 1,869,831 | | |
| 2,242,492 | |
Interest expense, net | |
| 3,888,204 | | |
| 1,337,238 | | |
| 5,077,627 | | |
| 2,657,499 | |
Depreciation and amortization
expense | |
| 2,895,026 | | |
| 2,873,736 | | |
| 5,646,825 | | |
| 5,747,794 | |
EBITDA | |
| 17,511,758 | | |
| 12,022,329 | | |
| 28,362,045 | | |
| 24,206,989 | |
Change in fair value of obligation to repurchase
shares of Class A common stock | |
| - | | |
| (857,565 | ) | |
| - | | |
| 572,431 | |
Gain (loss) on foreign currency translation | |
| 78,329 | | |
| (178,607 | ) | |
| 194,367 | | |
| 219,286 | |
Stock based compensation | |
| 1,213,722 | | |
| - | | |
| 2,427,447 | | |
| - | |
Gain on transfer of assets | |
| (7,525,926 | ) | |
| - | | |
| (7,525,926 | ) | |
| - | |
Other non-cash income | |
| (4,765,000 | ) | |
| - | | |
| (5,000,000 | ) | |
| - | |
Non-recurring merger related expenses | |
| 5,536,354 | | |
| - | | |
| 7,804,602 | | |
| - | |
Non-recurring acquisition related
expenses | |
| - | | |
| - | | |
| - | | |
| 112,000 | |
Adjusted
EBITDA | |
$ | 12,049,237 | | |
$ | 10,986,157 | | |
$ | 26,262,535 | | |
$ | 25,110,706 | |
Comparison
of Three and Six Months Ended June 30, 2015 to Three and Six Months Ended June 30, 2014
Tour
Revenues
In the three months
ended June 30, 2015, Lindblad generated revenues of $49.5 million compared to revenues of $50.8 million for the three months ended
June 30, 2014, which represents a decrease of $1.3 million, or 2.6%. The change was primarily the result of a decrease in guest
ticket revenue from $44.0 million for the three months ended June 30, 2014 to $43.2 million for the three months ended June 30,
2015, brought about by an increase in discounts related to cabin revenue received for Indian Ocean-based voyages. Net Yield for
the three months ended June 30, 2015 decreased 5.6% to $963.10 compared to $1,020.45 for the three months ended June 30, 2014.
Tour revenues
for the six months ended June 30, 2015 increased $2.8 million, or 2.7%, to $105.0 million from $102.2 million for the six
months ended June 30, 2014. This increase was due to the increase in guest ticket revenue from additional chartered voyages
and an increase in tour prices. In addition, other revenue increased by $1.3 million to $14.0 million for the six months
ended June 30, 2015, compared to $12.7 million for the six months ended June 30, 2014. This increase was primarily driven by
strong demand for pre- and post-voyage extensions as well as increased revenue from air ticket sales. Net Yield for the six
months ended June 30, 2015 increased 0.1% to $984.12 compared to $983.22 for the six months ended June 30, 2014.
Cost
of Tours
Total cost of tours
decreased $2.6 million, or 10.8%, to $21.5 million for the three months ended June 30, 2015 from $24.1 million for the three months
ended June 30, 2014. This decrease was primarily the result of a decrease in the cost of fuel in the second quarter of 2015 compared
to 2014 and a decrease in dry dock costs and maintenance costs for the owned fleet. Adjusted Net Cruise Cost per Available Guest
Night decreased 9.4% to $690.45 for the three months ended June 30, 2015 compared to $762.18 for the three months ended June 30,
2014.
Total
cost of tours decreased $0.2 million, or 0.4%, to $45.9 million from $46.1 million for the six months ended June 30, 2014. This
was primarily the result of a decrease in fuel costs, maintenance expenditures for the owned fleet, partially offset by an increase
in charter hire for additional voyages, increase land costs and air expense. Adjusted Net Cruise Cost per Available Guest Night
decreased 1.1% to $696.04 for the six months ended June 30, 2015 compared to $703.47 for the six months ended June 30, 2014.
General
and Administrative Expenses
General and administrative
expenses for the three months ended June 30, 2015 amounted to $14.6 million compared to $8.0 million for the three months ended
June 30, 2014. This increase was primarily due to the $5.0 million in success fee compensation expense, $1.2 million in stock options
incentive compensation expense and $0.5 million of one-time professional fees associated with the merger transaction between Lindblad
and Capitol.
General and administrative
expenses for the six months ended June 30, 2015 amounted to $25.7 million compared to $15.2 million for the six months ended June
30, 2014. This increase was primarily due to the $5.0 million in success fee compensation expense, $2.8 million of one-time professional
fees associated with the merger transaction between Lindblad and Capitol, and $2.4 million in stock options incentive compensation
expense recorded in the first half of 2015.
Selling
and Marketing Expenses
Selling and marketing
expenses for the three months ended June 30, 2015 increased $0.5 million, or 6.5%, to $8.2 million from $7.7 million for the three
months ended June 30, 2014. This increase was due to higher expense related to increased advertising, collateral printing and
postage to ensure high yields for the remainder of 2015. These particular costs increased $0.4 million to $1.8 million for the
three months ended June 30, 2015 compared to $1.4 million for the three months ended June 30, 2014.
Selling and marketing
expenses for the six months ended June 30, 2015 increased $1.5 million, or 9.4%, to $17.4 million from $15.9 million for the six
months ended June 30, 2014. This increase was due to higher expense related to increased advertising, collateral printing and postage
to ensure high yields for the remainder of 2015. These costs increased $0.8 million to $4.3 million for the six months ended June
30, 2015 compared to $3.5 million for the six months ended June 30, 2015. Also contributing to the increase were higher commissions,
which increased $0.4 million to $7.1 million for the six months ended June 30, 2015 compared to $6.7 million for the six months
ended June 30, 2014.
Depreciation
and Amortization Expenses
Depreciation and
amortization expenses for the three months ended both June 30, 2015 and 2014 was $2.9 million.
Depreciation
and amortization expenses for the six months ended June 30, 2015 decreased $0.1 million to $5.6 million from $5.7 million for
the six months ended June 30, 2014.
Other
(Expense) Income
Other
income was $8.3 million for the three months ended June 30, 2015 compared to $0.3 million in expense for the three months ended
June 30, 2014, which represents an $8.6 million increase. This change was primarily due to the following factors.
|
● |
Interest expense, net, increased $2.6 million to $3.9 million for the three months ended June 30, 2015 from
$1.3 million for the three months ended June 30, 2014. The increase was primarily the result of accelerated amortization of deferred
finance costs of $1.9 million related to the repayment of our senior debt in May 2015, as well as higher debt levels in 2015. |
|
● |
Additional income of $12.5 million in the three months ended June 30, 2015 related to the $5.0 million success
fee income in connection with the new debt financing in May 2015 and a $7.5 million gain on the disposal of assets related to the
junior debt in the CFMF transaction. |
|
● |
For
the three months ended June 30, 2015 and 2014, Lindblad recorded $0.1 million in foreign currency translation losses and $0.2
million in foreign currency translation gains, respectively. The $0.3 million net change was primarily related to the strengthening
of the Australian dollar compared to the U.S. dollar. |
Other
income was a $7.3 million for the six months ended June 30, 2015 compared to $3.4 million expense for the three months ended June
30, 2014, which represents a $10.7 million increase. This change was primarily due to the following factors.
|
● |
Interest expense, net, increased $2.4 million, to $5.1 million for the six months ended June 30, 2015 from
$2.7 million for the six months ended June 30, 2014. The increase was primarily the result of accelerated amortization of deferred
finance costs of $1.9 million related to the repayment of our senior debt in May 2015, as well as higher debt levels in 2015. |
|
● |
Additional
income of $12.5 million in the six months ended June 30, 2015 related to the $5.0 million success fee income for the new debt
financing in May 2015 and the gain on the disposal of assets of $7.5 million related to the junior debt in the CFMF transaction. |
|
● |
For
the six months ended June 30, 2015 and 2014, Lindblad recorded $0.2 million in foreign currency translation losses. The losses
are primarily related to the strengthening of the Australian dollar compared to the U.S. dollar. |
Liquidity
and Capital Resources
Sources
and Uses of Cash for the Six Months Ended June 30, 2015 and 2014
Net cash provided
by operating activities increased by $4.3 million for the six months ended June 30, 2015 to $23.2 million from $18.9 million
for the six months ended June 30, 2014, primarily due to increases in unearned passenger revenues.
Net cash used
in investing activities was $108.3 million for the six months ended June 30, 2015 compared to $10.3 million for the six months
ended June 30, 2014. The $98.0 million increase in cash used in investing activities was primarily related to the purchase in
May 2015 of our investment in CFMF and the restricted cash escrow established in connection with the Amended Credit Agreement
pending the consummation of the merger with Capitol.
Net
cash provided by (used in) financing activities was cash provided by financing activities of $98.5 million for the six
months ended June 30, 2015 compared to cash used in financing activities of $1.6 million for the six months ended June 30, 2014.
The $100.1 million difference was primarily related to the $150.0 million in proceeds from the new debt offset by the $41.0 repayment
of senior debt and the addition of $10.5 million in deferred financing costs.
Funding
Needs and Sources
Lindblad has historically
relied on a combination of cash flows provided by operations and the incurrence of additional debt and/or the refinancing of existing
debt to fund obligations. As of June 30, 2015, Lindblad had liquidity of $53.5 million in cash and cash equivalents, excluding
restricted cash. As a result of the Amended Credit Agreement, Lindblad had net working capital of $15.4 million as of June 30,
2015 as compared to a working capital deficit of $59.7 million as of December 31, 2014. Similar to others in the industry, Lindblad
historically operated with a meaningful working capital deficit. The deficit as of December 31, 2014 was mainly attributable to
the fact that, under Lindblad’s business model, a vast majority of guest ticket receipts are collected in advance of the
applicable sailing date. These advance passenger receipts remain a current liability until the sailing date. The cash generated
from these advance receipts is used interchangeably with cash on hand from other cash from operations. The cash received as advanced
receipts can be used to fund operating expenses for the applicable future sailing or otherwise, pay down credit facilities, invest
in long term investments or any other use of cash.
As of June 30, 2015,
Lindblad had approximately $139.8 million in long-term debt obligations, including the current portion of long-term debt offset
by debt discounts and deferred financing costs. Lindblad believes that its cash on hand, expected future operating cash inflows,
its ability to issue debt securities, its ability to raise additional equity, and the cash proceeds to Lindblad from the mergers
and the Amended Credit Agreement will be sufficient to fund operations, debt service requirements, and capital expenditures, and
to maintain compliance with financial covenants under the agreements governing Lindblad’s indebtedness, over the next twelve-month
period. There can be no assurance, however, that cash flows from operations and additional funding will be available in the future
to fund future obligations.
On May 8, 2015, Lindblad
entered into a new credit agreement with Credit Suisse A.G. as Administrative Agent and Collateral Agent (“Credit Agreement”)
for a $150.0 million facility, which was subsequently increased to $175.0 million upon syndication on July 8, 2015 (“Amended
Credit Agreement”), in the form of a $155.0 million U.S. term loan (the “U.S. Term Loan”) and a $20.0 million
Cayman term loan for the benefit of Lindblad’s foreign subsidiaries (the “Cayman Loan,” and together with the
U.S. Term Loan, the “Loans”). The gross proceeds from the Loans, net of discounts, fees and expenses, were approximately
$164.2 million. The Loans bear interest at a rate based on an adjusted ICE Benchmark Administration LIBO Rate (subject to a floor
of 1.00%) plus a spread of 4.50%. The Credit Agreement (i) requires Lindblad to satisfy certain financial covenants as set forth
in the Amended Credit Agreement; (ii) limits the amount of indebtedness Lindblad may incur; (iii) limits the amount Lindblad may
spend in connection with certain types of investments; and (iv) requires the delivery of certain periodic financial statements
and an operating budget. The U.S. Term Loan and the Cayman Loan both mature on May 8, 2021. The net proceeds from the term loan
advances were used to repay Lindblad’s existing debt, fund a portion of the purchase consideration paid in connection with
Lindblad’s purchase of the financial and equity interests in CFMF and for general corporate purposes.
Debt Covenants
Lindblad’s
Credit Agreement as of June 30, 2015 contains financial covenants that, among other things, (i) requires Lindblad to maintain
a total net leverage ratio of 4.00 to 1.00 initially, (the ratio was subsequently changed to 4.75 to 1.00 on the closing of the
Amended Credit Agreement on July 8, 2015), with 0.25 equal reductions annually thereafter until December 31, 2020, when the total
net leverage ratio shall be 3.50 to 1.00 thereafter; (ii) limits the amount of indebtedness Lindblad may incur generally and specifically
for intercompany debt, debt incurred to finance acquisitions and improvements, for capital and synthetic lease obligations, for
standby letters of credit, and in connection with refinancings; (iii) limits the amount Lindblad may spend in connection with
certain types of investments; and (iv) requires the delivery of certain periodic financial statements and an operating budget.
As of June 30, 2015, Lindblad was in compliance with the financial covenants.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements.
Inflation
Our
results from operations have not been, and we do not expect them to be, materially affected by inflation.
Item
6: exhibits
Number | |
Description | |
Included | |
Form | |
Filing Date |
2.1 | |
Amendment
No. 1 to Agreement and Plan of Merger, dated as of April 30, 2015, by and among Capitol Acquisition Corp. II, Argo Expeditions,
LLC, Argo Merger Sub, Inc. and Lindblad Expeditions, Inc. | |
By Reference | |
8-K | |
May 4, 2015 |
2.2 | |
Amendment No. 2 to
Agreement and Plan of Merger, dated as of May 1, 2015, by and among Capitol Acquisition Corp. II, Argo Expeditions, LLC, Argo
Merger Sub, Inc. and Lindblad Expeditions, Inc. | |
By Reference | |
8-K | |
May 4, 2015 |
3.1 | |
Second Amended and
Restated Certificate of Incorporation. | |
By Reference | |
DEFM 14-A | |
June 24, 2015 |
4.1 | |
Specimen Common Stock
Certificate. | |
By Reference | |
Form 8-K | |
July 10, 2015 |
4.2 | |
Specimen Warrant
Certificate. | |
By Reference | |
Form 8-K | |
July 10, 2015 |
10.1 | |
2015 Long-Term Incentive
Plan*. | |
By Reference | |
DEFM 14-A | |
June 24, 2015 |
10.2 | |
Credit Agreement,
dated as of May 8, 2015, among Lindblad Expeditions, Inc. and Lindblad Maritime Enterprises, Ltd. as borrowers, the lenders
party thereto, and Credit Suisse AG, as Administrative Agent and Collateral Agent. | |
By Reference | |
Form 8-K | |
July 10, 2015 |
10.3 | |
Amended and Restated
Credit Agreement, dated as of July 8, 2015, among Lindblad Expeditions, Inc. and Lindblad Maritime Enterprises, Ltd. as borrowers,
the lenders from time to time party thereto, and Credit Suisse AG, as Administrative Agent and Collateral Agent. | |
By Reference | |
Form 8-K | |
July 10, 2015 |
10.4 | |
Non-Competition
Agreement between Sven-Olof Lindblad and the Company. | |
By Reference | |
Form 8-K | |
July 10,
2015 |
10.5 | |
Employment Agreement
between Ian Rogers and the Company and Assignment and Assumption of Option Award Agreement*. | |
By Reference | |
Form 8-K | |
July 10, 2015 |
10.6 | |
Employment Agreement
between Trey Byus and the Company and Assignment and Assumption of Option Award Agreement*. | |
By Reference | |
Form 8-K | |
July 10, 2015 |
10.7 | |
Registration Rights
Agreement between the stockholders of Lindblad Expeditions, Inc. and Capitol Acquisition Corp. II. | |
By Reference | |
Form 8-K | |
July 10, 2015 |
10.8 | |
Alliance and License
Agreement, dated as of December 12, 2011, by and between National Geographic Society and Lindblad Expeditions, Inc. † | |
By Reference | |
Form 8-K | |
July 10, 2015 |
10.9 | |
Amendment to Alliance
and License Agreement by and between National Geographic Society and Lindblad Expeditions, Inc., dated as of November 20,
2014.† | |
By Reference | |
Form 8-K | |
July 10, 2015 |
10.10 | |
Second Amendment
to Alliance and License Agreement by and between National Geographic Society and Lindblad Expeditions, Inc., dated as of March
9, 2015. | |
By Reference | |
Form 8-K | |
July 10, 2015 |
10.11 | |
Tour Operator Agreement,
dated as of December 12, 2011, by and between National Geographic Society and Lindblad Expeditions, Inc.† | |
By Reference | |
Form 8-K | |
July 10, 2015 |
10.12 | |
Amendment to Tour
Operator Agreement by and between National Geographic Society and Lindblad Expeditions, Inc., dated as of November 20, 2014.† | |
By Reference | |
Form 8-K | |
July 10, 2015 |
10.13 | |
Second Amendment
to Tour Operator Agreement by and between National Geographic Society and Lindblad Expeditions, Inc., dated as of March 9,
2015.† | |
By Reference | |
Form 8-K | |
July 10, 2015 |
10.14 | |
Lindblad 2012 Stock
Incentive Plan.* | |
By Reference | |
Form 8-K | |
July 10, 2015 |
31.1 | |
Certification of
Chief Executive Officer of Lindblad Expeditions Holdings, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under
the Securities Exchange Act of 1934, as amended. | |
Herewith | |
| |
|
31.2 | |
Certification of
Chief Financial Officer of Lindblad Expeditions Holdings, Inc. pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under
the Securities Exchange Act of 1934, as amended. | |
Herewith | |
| |
|
32.1 | |
Certification of
Chief Executive Officer of Lindblad Expeditions Holdings, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities
Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. | |
Herewith | |
| |
|
32.2 | |
Certification of
Chief Financial Officer of Lindblad Expeditions Holdings, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities
Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. | |
Herewith | |
| |
|
101.INS | |
XBRL Instance Document | |
Herewith | |
| |
|
101.SCH | |
Taxonomy extension
schema document | |
Herewith | |
| |
|
101.CAL | |
Taxonomy extension
calculation linkbase document | |
Herewith | |
| |
|
101.LAB | |
Taxonomy extension
label linkbase document | |
Herewith | |
| |
|
101.PRE | |
Taxonomy extension
presentation linkbase document | |
Herewith | |
| |
|
*
Certain exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(b)(2). We agree to
furnish supplementally a copy of all omitted exhibits and schedules to the Securities and Exchange Commission upon its request.
†
Certain portions of the exhibit have been omitted pursuant to a request for confidential treatment. An unredacted copy of the
exhibit has been filed separately with the United States Securities and Exchange Commission pursuant to a request for confidential
treatment.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, on August 7, 2015.
|
LINDBLAD EXPEDITIONS HOLDINGS, INC. |
|
(Registrant) |
|
|
|
|
By |
/s/ Sven-Olof Lindblad |
|
|
Sven-Olof Lindblad |
|
|
Chief Executive Officer and
President |
66
Exhibit
31.1
Certification
I,
Sven-Olof Lindblad, certify that:
| 1. | I
have reviewed this Quarterly Report on Form 10-Q of Lindblad Expeditions Holdings, Inc. |
| 2. | Based
on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
| 3. | Based
on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented
in this report; |
| 4. | The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed
such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation;
and |
| d) | Disclosed
in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s
fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and |
| 5. | The
registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions): |
| a) | All
significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information;
and |
| b) | Any
fraud, whether or not material, that involves management or other employees who have
a significant role in the registrant’s internal control over financial reporting. |
Date:
August 7, 2015
|
/s/ Sven-Olof
Lindblad |
|
Sven-Olof
Lindblad |
|
Chief
Executive Officer and President |
Exhibit 31.2
Certification
I,
Ian Rogers, certify that:
| 1. | I
have reviewed this Quarterly Report on Form 10-Q of Lindblad Expeditions Holdings, Inc. |
| 2. | Based
on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
| 3. | Based
on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented
in this report; |
| 4. | The
registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed
such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation;
and |
| d) | Disclosed
in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s
fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and |
| 5. | The
registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions): |
| a) | All
significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information;
and |
| b) | Any
fraud, whether or not material, that involves management or other employees who have
a significant role in the registrant’s internal control over financial reporting. |
Date:
August 7, 2015
|
/s/ Ian Rogers |
|
Ian
Rogers |
|
Chief
Financial Officer, Chief Operating Officer
and Vice President |
Exhibit
32.1
Certification
of CEO Pursuant To
18
U.S.C. Section 1350,
As
Adopted Pursuant To
Section
906 Of The Sarbanes-Oxley Act Of 2002
In
connection with the Quarterly Report of Lindblad Expeditions Holdings, Inc., a Delaware corporation (the “Company”),
on Form 10-Q for the period ended June 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Sven-Olof Lindblad, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:
| 1) | The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and |
| 2) | The
information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company. |
|
Date:
August 7, 2015 |
|
|
|
|
/s/
Sven-Olof
Lindblad |
|
Sven-Olof
Lindblad |
|
Chief
Executive Officer |
A
signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit
32.2
Certification
of CFO Pursuant To
18
U.S.C. Section 1350,
As
Adopted Pursuant To
Section
906 Of The Sarbanes-Oxley Act Of 2002
In
connection with the Quarterly Report of Lindblad Expeditions Holdings, Inc., a Delaware corporation (the “Company”),
on Form 10-Q for the period ended June 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Ian Rogers, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:
| 1) | The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and |
| 2) | The
information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company. |
|
Date:
August 7, 2015 |
|
|
|
|
/s/ Ian Rogers |
|
Ian
Rogers |
|
Chief
Financial Officer |
A
signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff upon request.
Lindblad Expeditions (NASDAQ:LIND)
Gráfico Histórico do Ativo
De Jun 2024 até Jul 2024
Lindblad Expeditions (NASDAQ:LIND)
Gráfico Histórico do Ativo
De Jul 2023 até Jul 2024