Notes
to the Condensed Consolidated Financial Statements
(Unaudited)
NOTE
1 – BUSINESS
Organization
Lindblad Expeditions Holdings,
Inc., a Delaware corporation, and its wholly-owned subsidiaries (the “Company” or “LEX”) currently operate
a fleet of six expedition ships owned by its subsidiaries and four seasonal charter vessels. LEX’s mission is offering life-changing
adventures on all seven continents, and pioneering innovative ways to allow its guests to connect with exotic and remote places.
LEX’s expedition ships are customized, nimble and intimately-scaled vessels that are able to venture where larger cruise
ships cannot, thus allowing LEX to offer up-close experiences in the planet’s wild and remote places and capitals of culture.
Many of these expeditions involve travel to remote places with limited infrastructure and ports (such as Antarctica and the Arctic)
or places that are best accessed by a ship (such as the Galápagos, Alaska, Baja’s Sea of Cortez, Costa Rica, and
Panama), and foster active engagement by guests. Each expedition ship is designed to be comfortable and inviting, while being
fully equipped with state-of-the-art tools for in-depth exploration. The Company also has an alliance with the National Geographic
Society (“National Geographic”), which often provides lecturers and National Geographic experts, including photographers,
writers, marine biologists, naturalists, field researchers, and film crews.
Completion
of Merger with Capitol
Capitol
Acquisition Corp. II (“Capitol”) was originally 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 whereby Lindblad Expeditions, Inc. (“Lindblad”), a New York corporation,
became Capitol’s wholly-owned subsidiary. As consideration for the mergers, the total purchase price consisted of 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 Capitol common
stock. Capitol also assumed outstanding Lindblad stock options and converted such options into options to purchase an aggregate
of 3,821,696 shares of Capitol common stock with an exercise price of $1.76 per share. The Company has completed an analysis of
the ownership change under Internal Revenue Code Section 382, and it allows the Company to utilize Capitol’s net operating
losses with minor limitations.
As
a result of the mergers, Lindblad became a direct wholly-owned subsidiary of Capitol. Immediately following the mergers, Capitol,
which had no operations, changed its name to Lindblad Expeditions Holdings, Inc. and therefore LEX has presented Lindblad’s
information as that of the Company.
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 accounting principles
generally accepted 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, Condensed
Consolidated Statements of Income, Condensed Consolidated Statement of Stockholders’ Equity, and Condensed Consolidated
Statements of 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 condensed consolidated financial statements in accordance with U.S. GAAP have
been omitted in accordance with the rules and regulations of the SEC. All intercompany balances and transactions have been eliminated
in the accompanying unaudited condensed consolidated financial statements. 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, 2015 contained in the Annual Report on Form 10-K filed with the SEC on March 14,
2016.
Principles
of Consolidation
The
condensed consolidated financial statements of the Company as of March 31, 2016 and December 31, 2015 included Lindblad Expeditions
Holdings, Inc. and its wholly-owned subsidiaries.
Reclassifications
Certain
items in the condensed consolidated financial statements of the Company have been reclassified to conform to the 2016 classification.
The reclassifications had no effect on previously reported results of operations or retained earnings.
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.
Revenue
Recognition
Tour
revenue consists of guest ticket revenue recognized from the sale of guest tickets and other revenues from the sale of pre- and
post-expedition excursions, hotel accommodations, 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. Revenue from the
sale of guest tickets and other revenue are recognized gross, as the Company has 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 revenues
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 in the condensed consolidated balance sheet 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 goods and services rendered onboard are recognized upon purchase.
Earnings
per Common Share
Earnings
per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period.
Diluted earnings per share are 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 dilutive incremental common shares issuable upon
the exercise of stock options (if such option is an equity instrument, using the treasury stock method). For the three months
ended March 31, 2016, the Company determined, using the treasury method, there were 652,689 dilutive common shares related to
stock options.
On
July 8, 2015, as a result of the mergers, in accordance with FASB ASC 805-40-45 and related to the reverse merger treatment and
recapitalization, all historical weighted average common shares were adjusted by the exchange ratios established by the merger
agreement. For the three months ended March 31, 2015, the Company determined the stock options were anti-dilutive.
For
the three months ended March 31, 2016 and 2015, the Company calculated earnings per share in accordance with Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260 and 805-40-45 as follows:
|
|
For the Three Months Ended
March 31,
|
|
(In thousands, except share and per share data)
|
|
2016
|
|
|
2015
|
|
Net income for basic and diluted earnings per share
|
|
$
|
10,467
|
|
|
$
|
6,933
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Shares outstanding, weighted for time outstanding
|
|
|
45,470,155
|
|
|
|
44,717,759
|
|
Total weighted average shares outstanding, basic
|
|
|
45,470,155
|
|
|
|
44,717,759
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Assumed exercise of stock options, treasury method
|
|
|
652,689
|
|
|
|
-
|
|
Dilutive potential common shares
|
|
|
652,689
|
|
|
|
-
|
|
Total weighted average shares outstanding, diluted
|
|
|
46,122,844
|
|
|
|
44,717,759
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
10,467
|
|
|
$
|
6,933
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
45,470,155
|
|
|
|
44,717,759
|
|
Diluted
|
|
|
46,122,844
|
|
|
|
44,717,759
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.23
|
|
|
$
|
0.16
|
|
Diluted
|
|
$
|
0.23
|
|
|
$
|
0.16
|
|
As
of March 31, 2016, there were 45,531,868 shares outstanding. The Company 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. The Company’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 LEX’s common stock under the 2015 Plan. As of March 31, 2016, options to purchase an aggregate of 2,230,848 shares
of the Company’s common stock with a weighted average exercise price of $3.03 per share were outstanding.
As
of March 31, 2016, there were 33,300 unvested restricted shares and restricted share units granted to board members at a grant
date value of $11.26 per share. The Company determined these shares were anti-dilutive and were not considered in the calculation
of diluted weighted average shares outstanding.
As
of March 31, 2016, 12,040,937 warrants to purchase common stock at a price of $11.50 per share were outstanding. The Company determined
these warrants were anti-dilutive and were not considered in the calculation of diluted weighted average shares outstanding.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments with an original maturity of three months or less, as well as deposits in financial
institutions, to be cash and cash equivalents.
Concentration
of Credit Risk
The
Company maintains cash in several financial institutions in the U.S. and other countries which, at times, may exceed the federally
insured limits. Accounts held in the U.S. are guaranteed by the Federal Deposit Insurance Corporation up to certain limits. The
Company has not experienced any losses in such accounts. As of March 31, 2016 and December 31, 2015, the Company’s cash
held in financial institutions outside of the U.S. amounted to $5.0 million and $3.9 million, respectively.
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
|
|
(In thousands)
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Restricted cash and marketable securities:
|
|
|
|
|
|
|
Credit negotiation and credit card processor reserves
|
|
$
|
5,030
|
|
|
$
|
5,030
|
|
Federal Maritime Commission escrow
|
|
|
9,278
|
|
|
|
2,233
|
|
Certificates of deposit and other restricted securities
|
|
|
1,190
|
|
|
|
1,197
|
|
Total restricted cash and marketable securities
|
|
$
|
15,498
|
|
|
$
|
8,460
|
|
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 market 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 plus an additional 10% 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.
A
$5.0 million cash reserve at March 31, 2016 and December 31, 2015 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 net realizable value.
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 net realizable value. Cost is determined
using the first-in first-out method.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization were computed using
the straight line method over the estimated useful lives of the assets, as follows:
|
|
Years
|
Vessels and vessel improvements
|
|
15-25
|
Furniture and equipment
|
|
5
|
Computer hardware and software
|
|
5
|
Leasehold improvements, including port facilities
|
|
Shorter of lease term or related asset life
|
The tour and expedition
industry is very capital intensive and as of March 31, 2016 and December 31, 2015, the Company owned and operated six vessels
and had two new coastal vessels under construction.
Therefore, the Company has a capital program that it develops for the improvement of its vessels and for asset replacements in
order to enhance the effectiveness and efficiency of its operations; comply with, or exceed all relevant legal and statutory requirements
related to health, environment, safety, security and sustainability; and gain strategic benefits or provide newer improved product
innovations to its guests.
Vessel
improvement costs that add value to the Company’s vessels, such as those discussed above, are capitalized to the vessels
and depreciated over the shorter of the improvements or the vessel’s estimated remaining useful life, while costs of repairs
and maintenance, including minor improvement costs and drydock expenses, are charged to expense as incurred and included in other
vessels operating expenses. Drydock costs primarily represent planned major maintenance activities that are incurred when a vessel
is taken out of service for scheduled maintenance. For U.S. flagged ships, the statutory requirement is an annual docking and
U.S. Coast Guard inspections, normally conducted in drydock. Internationally flagged ships have scheduled dockings approximately
every 12 months, for a period of up to three to six weeks.
The
Company began to capitalize interest in January 2016 for its two newbuild coastal vessels under accounting guidance in ASC 835-20,
which requires companies to capitalize interest cost incurred during the construction of assets. The capitalized interest has
been and will continue to be added to the historical cost of the asset, and depreciate over its useful life. For the three months
ended March 31, 2016, the Company recognized $0.2 million in capitalized interest in property and equipment on the condensed consolidated
balance sheet.
Long-Lived
Assets
The
Company reviews its long-lived assets, principally its vessels and operating rights, for impairment whenever events or changes
in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. Upon the occurrence of a triggering
event, the assessment of possible impairment is based on the Company’s ability to recover the carrying value of its asset,
which is determined by using the asset’s estimated undiscounted future cash flows. If these estimated undiscounted future
cash flows are less than the carrying value of the asset, an impairment charge is recognized for the excess, if any, of the asset’s
carrying value over its estimated fair value. A significant amount of judgment is required in estimating the future cash flows
and fair values of its vessels and operating rights.
As
of March 31, 2016 and December 31, 2015, there was no triggering event and the Company did not record an impairment of its long-lived
assets. The Company reviewed the remaining useful life of the
National Geographic Endeavour
, which is expected to be replaced
by the
National Geographic Endeavour II
, formerly
Via Australis
,
in the fourth quarter of 2016. The evaluation
of the
National Geographic Endeavour’s
useful life as of December 31, 2015 indicated a shorter remaining useful life
of less than one year versus the previous estimated remaining useful life of seven years. The Company also does not expect any
residual value for the
National Geographic Endeavour
after the end of the fourth quarter of 2016.
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. 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
market prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability
to access at measurement date.
|
|
|
Level
2
|
Quoted
market 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. Fair value is determined
through the use of models or other valuation methodologies.
|
|
|
Level
3
|
Significant
unobservable inputs for assets or liabilities that cannot be corroborated by market data. 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.
|
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.
The
carrying value of long-term debt approximates fair value given that the terms of the agreement were comparable to the market as
of March 31, 2016.
As of March 31, 2016 and December
31, 2015, the Company had no other liabilities that were measured at fair value on a recurring basis.
The
asset’s 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.
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.
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 FASB’s 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 March 31, 2016 and December 31, 2015, the Company had a liability for unrecognized
tax benefits of $0.7 million and $0.7 million, 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 March 31, 2016 and 2015, included in income tax expense was $7.4 thousand and $10.5 thousand,
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 2012 to 2014
remain subject to examination by tax authorities and the Company’s foreign tax returns from 2011 to 2014 remain subject
to examination by tax authorities.
Stock-Based
Compensation
The
Company accounts for equity instruments issued to employees in accordance with accounting guidance that requires that awards are
recorded at their fair value on the date of grant and are amortized over the vesting period of the award. The Company recognizes
compensation costs on a straight line basis over the requisite service period of the award, which is generally the vesting term
of the equity instrument issued. To the extent that an equity award later becomes eligible to be put back to the Company, then
the fair value of that award or those exercised shares is transferred out of additional paid-in-capital to a liability account
and is thereafter marked-to-market annually to fair value.
Recent
Accounting Pronouncements
In
April 2016, FASB issued Accounting Standards Update (“ASU”) No. 2016-10, “Revenue from Contracts with Customers
– Identifying Performance Obligations and Licensing” (Topic 606). The amendments clarify two aspects of ASU No. 2014-09,
“Revenue from Contracts with Customers,” by providing (1) guidance for identifying performance obligations and (2)
licensing implementation guidance. Public business entities should apply the guidance similar to Update 2014-09 to annual reporting
periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted
only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting
period. The Company will evaluate the effects, if any, that adoption of this ASU will have on its condensed consolidated financial
statements.
In March
2016, FASB issued ASU No. 2016-09, “Compensation – Stock Compensation: Improvements to Employee Share-Based Payment
Accounting” (Topic 718). The amendments in this ASU is to significantly reduce the complexity and cost of accounting for
excess tax benefits and tax deficiencies related to employee share-based payment transactions, which include restricted stock
and stock options. Also, ASU No. 2016-09 requires an entity to run excess tax benefits and deficiencies through its income statement,
which in effect eliminates the concept of additional paid-in capital. For public business entities, the amendments in this ASU
are effective for financial statements issued for annual periods beginning after December 15, 2016, including interim periods
within those annual periods. The Company will evaluate the effects, if any, that adoption of this ASU will have on its condensed
consolidated financial statements.
In March 2016,
FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers – Principal versus Agent Considerations (Reporting
Gross versus Net)” (Topic 606). The amendments clarify implementation guidance of ASU No. 2014-09, “Revenue from Contracts
with Customers,” by improving the operability and understandability of principal versus agent considerations. Public business
entities should apply the guidance similar to Update 2014-09 to annual reporting periods beginning after December 15, 2017, including
interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning
after December 15, 2016, including interim reporting periods within that reporting period. The Company will evaluate the effects,
if any, that adoption of this ASU will have on its condensed consolidated financial statements.
In
August 2015, FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers – Deferral of the Effective Date”
(Topic 606). The amendments in this ASU defer the effective date of ASU No. 2014-09, “Revenue from Contracts with Customers,”
for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should
apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting
periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December
15, 2016, including interim reporting periods within that reporting period. The Company will evaluate the effects, if any, that
adoption of this ASU will have on its 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.
Management
does not believe that any other recently issued, but not yet effective, accounting standards upon adoption would have a material
effect on the accompanying condensed consolidated financial statements.
NOTE
3 – LONG-TERM DEBT
Credit Facility
On May 8, 2015,
the Company entered into a 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 the Company’s foreign subsidiaries
(the “Cayman Loan,” and together with the U.S. Term Loan, the “Loans”). The Loans incurred 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%.
On July 8, 2015,
the Company 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 excluded $11.0 million
in deferred financing costs) (“Amended Credit Agreement”). 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%. As of March 31, 2016, the interest
rate was 5.50%. The Credit Agreement (i) requires the Company to satisfy certain financial covenants as set forth in the Amended
Credit Agreement; (ii) limits the amount of indebtedness the Company may incur; (iii) limits the amount the Company 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 and related inventory to be maintained in good working condition. The U.S. Term
Loan and the Cayman Loan both mature on May 8, 2021.
On
March 7, 2016, the Company entered into a second amended and restated credit agreement with Credit Suisse as Administrative Agent
and Collateral Agent (“Restated Credit Agreement”), amending its existing senior secured credit facility with Credit
Suisse (“Restated Credit Facility”). The Restated Credit Facility provides for the Company’s existing $175.0
million senior secured first lien term loan facility and a new $45.0 million senior secured incremental revolving credit facility,
which includes a $5.0 million letter of credit subfacility (“Revolving Credit Facility”). The Company’s obligations
under the Restated Credit Facility are secured by substantially all the assets of the Company. The Revolving Credit Facility matures
on May 8, 2020.
Borrowings
under the Loans will continue to bear interest at an adjusted ICE Benchmark administration LIBO Rate (subject to a floor of 1.00%)
plus a spread of 4.50%. Borrowings under the Revolving Credit Facility will bear interest at an adjusted ICE Benchmark administration
LIBO Rate plus a spread of 4.00%, or, at the option of the Company, an alternative base rate plus a spread of 3.00%. The Company
is also required to pay a 0.50% annual commitment fee on undrawn amounts under the Revolving Credit Facility.
The
Restated Credit Agreement contains the same financial and operational covenants as the Amended Credit Agreement. As of March 31,
2016, the Company was in compliance with the financial covenants.
Borrowings
under the Revolving Credit Facility will be used for general corporate and working capital purposes and related fees and expenses.
As of March 31, 2016, the Company had no borrowings under the Revolving Credit Facility.
For
the three months ended March 31, 2016 and 2015, total debt discount and deferred financing costs charged to amortization and interest
expense was $0.6 million and $0.2 million, respectively.
Long-Term
Debt Outstanding
As
of March 31, 2016 and December 31, 2015, the following long-term debt instruments were outstanding:
|
|
As of
|
|
|
|
March 31, 2016 (Unaudited)
|
|
|
December 31, 2015
|
|
(In thousands)
|
|
Principal
|
|
|
Discount and Deferred Financing Costs, net
|
|
|
Balance, net of discount
|
|
|
Principal
|
|
|
Discount and Deferred Financing Costs, net
|
|
|
Balance, net of discount
|
|
Credit Facility
|
|
$
|
173,687
|
|
|
$
|
10,617
|
|
|
$
|
163,070
|
|
|
$
|
174,125
|
|
|
$
|
9,682
|
|
|
$
|
164,443
|
|
Total long-term debt
|
|
|
173,687
|
|
|
|
10,617
|
|
|
|
163,070
|
|
|
|
174,125
|
|
|
|
9,682
|
|
|
|
164,443
|
|
Less current portion
|
|
|
1,750
|
|
|
|
-
|
|
|
|
1,750
|
|
|
|
1,750
|
|
|
|
-
|
|
|
|
1,750
|
|
Total long-term debt, non-current
|
|
$
|
171,937
|
|
|
$
|
10,617
|
|
|
$
|
161,320
|
|
|
$
|
172,375
|
|
|
$
|
9,682
|
|
|
$
|
162,693
|
|
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 $0.2 million for each of the three months ended March 31, 2016 and 2015, respectively. These amounts
are recorded within general and administrative expenses on the accompanying condensed consolidated statements of income.
Fleet
Expansion
On
December 2, 2015, the Company entered into two separate Vessel Construction Agreements, (collectively, the “Agreements”)
with Ice Floe, LLC, a Washington limited liability company doing business as Nichols Brothers Boat Builders (the “Builder”).
The Agreements provide for the Builder to construct two new 236-foot 100-passenger cruise vessels at a purchase price of $48.0
million and $46.8 million, respectively, payable monthly based on the value of the work performed through the end of the preceding
month.
The
Builder is required to deliver the vessels in the second quarter of 2017 and the second quarter of 2018, respectively, subject
to extension for certain events, such as change orders. The Company may terminate the applicable Agreements in the event the Builder
fails to deliver the vessel within 180 days of the applicable due date or the Builder becomes insolvent or otherwise bankrupt.
The Agreements also contain customary representations, warranties, covenants, and indemnities.
On
December 29, 2015, a subsidiary of the Company entered into a Memorandum of Agreement to purchase a ship known as the
Via Australis
,
which was renamed
National Geographic Endeavour II
, for a purchase price of $18.0 million. The Company paid a deposit of
$1.8 million on January 4, 2016 recorded in property and equipment, net on the accompanying condensed consolidated balance sheet
as of March 31, 2016 and paid the balance of $16.2 million on April 25, 2016, when the ship was delivered. The Memorandum of Agreement
contained customary representations, warranties, covenants and conditions.
Royalty
Agreement – National Geographic
The
Company is engaged in an alliance and license agreement with National Geographic, 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 included within
selling and marketing expense on accompanying condensed consolidated statements of income. 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 tour revenues on the accompanying condensed consolidated statements of income. The royalty
expense is recognized at the time of revenue recognition. See Note 2 for a description of the Company’s revenue recognition
policy. Royalty expense for the three months ended March 31, 2016 and 2015 totaled $1.3 million and $1.2 million, respectively.
The
balances outstanding to National Geographic as of March 31, 2016 and December 31, 2015 are $1.3 million, respectively, and are
included in accounts payable and accrued expenses on the accompanying condensed consolidated balance sheets.
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
|
|
|
|
(In thousands)
|
|
2016 (nine months)
|
|
$
|
6,131
|
|
2017
|
|
|
7,135
|
|
2018
|
|
|
2,248
|
|
2019
|
|
|
1,482
|
|
Total
|
|
$
|
16,996
|
|
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 for 2016 and 2015. For the three months ended March 31, 2016 and 2015, the Company’s benefit plan
contribution amounted to $0.1 million, respectively. The benefit plan contribution is recorded within general and administrative
expenses on the accompanying condensed consolidated statements of income.
NOTE
6 – STOCKHOLDERS’ EQUITY
Capital
Stock
The
Company has a total of 201,000,000 authorized shares of capital stock, consisting of 1,000,000 shares of preferred stock, $0.0001
par value and 200,000,000 shares of common stock, $0.0001 par value.
Stock
and Warrant Repurchase Plan
In
November 2015, the Company’s Board of Directors approved a $20.0 million stock and warrant repurchase plan (“Repurchase
Plan”). This Repurchase Plan authorizes the Company to purchase from time to time the Company’s outstanding common
stock and warrants through open market repurchases in compliance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended,
and/or in privately negotiated transactions based on market and business conditions, applicable legal requirements
and other factors. Any shares and warrants purchased will be retired. The Repurchase Plan has no time deadline and will continue
until otherwise modified or terminated at the sole discretion of the Company’s Board of Directors at any time. In January
2016, the Company repurchased 1,967,445 warrants for $5.4 million.
Restricted
Shares and Restricted Share Units
Restricted
shares are shares of stock granted to an employee for which sale is prohibited for a specified period of time. Restricted share
units (“RSUs”) represent a promise to deliver shares to the employee at a future date if certain vesting conditions
are met. The difference between RSUs and restricted shares is primarily the timing of the delivery of the underlying shares. A
company that grants RSUs does not deliver the shares to the employee until the vesting conditions are met.
Under
the 2015 Plan, four members of the Board were granted restricted shares and one member of the Board was granted RSUs on January
4, 2016. There were 6,660 restricted shares or RSUs granted to each member and they vest in three installments on August 8, 2016,
2017 and 2018 and are not subject to any performance-based conditions.
Based
on the terms above, each share had a value of $11.26 per share for a total of $0.4 million for all five board members. Stock compensation
of $0.4 million for all five board members will be amortized over the service period between January 4, 2016 and August 8, 2018.
The amortization of the stock compensation for all board members was $34.5 thousand for the three months ended March 31, 2016.
As of March 31, 2016, the unamortized value of options was $0.3 million and is expected to be expensed over a period of 2.4 years.
The
following table is a summary of restricted stock and RSU activity under the Company’s 2015 Plan:
|
|
Restricted Shares and RSU's
|
|
|
Weighted Average Grant date Fair Value
|
|
|
|
|
|
|
|
|
Restricted shares outstanding as of December 31, 2015
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
33,300
|
|
|
|
11.26
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Restricted shares outstanding as of March 31, 2016
|
|
|
33,300
|
|
|
$
|
11.26
|
|
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 $1.3 million and $1.2 million for the three months ended March 31, 2016 and 2015, respectively.
Stock compensation expense is included in general and administrative expenses on the accompanying condensed consolidated statements
of income. As of March 31, 2016, the unamortized value of options was $9.9 million and is expected to be expensed over a weighted
average period of 2.1 years.
During January 2016,
638,223 option shares vested and were exercised. The option shares were issued using cashless transactions, approved by management,
and were used in exchange for the required exercise proceeds and payment of any related payroll withholding taxes. Using a weighted
average fair value of $10.68 per share and an exercise price of $1.76 per share, 105,206 shares were transferred to provide the
$1.1 million in exercise proceeds required for the transactions. In addition, 252,670 shares were transferred to provide the $2.7
million in proceeds required to pay the payroll withholding taxes for the transactions. The balance of the option shares of 280,347
shares were issued as a result of the transactions.
The
following table is a summary of stock options activity under the Company’s legacy 2012 Incentive Stock Plan and its 2015
Plan:
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of December 31, 2015
|
|
|
2,849,071
|
|
|
$
|
2.69
|
|
|
|
3.7
|
|
|
$
|
23,992,814
|
|
Granted
|
|
|
20,000
|
|
|
|
11.26
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(638,223
|
)
|
|
|
1.76
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options outstanding as of March 31, 2016
|
|
|
2,230,848
|
|
|
$
|
3.03
|
|
|
|
3.8
|
|
|
$
|
15,412,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest after March 31, 2016
|
|
|
2,230,848
|
|
|
$
|
3.03
|
|
|
|
3.8
|
|
|
$
|
15,412,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2015
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
638,223
|
|
|
|
1.76
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(638,223
|
)
|
|
|
1.76
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercisable as of March 31, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
NOTE
7 – SUBSEQUENT EVENTS
On April 29, 2016,
John T. McClain tendered his resignation as Chief Financial Officer of the Company, effective August 16, 2016, to pursue other
business opportunities. The Company has undertaken a search to find a suitable replacement and expects an orderly transition.
On April 8, 2016,
the Company’s Board of Directors adopted a new equity incentive plan (the “2016 CEO Share Allocation Plan”),
subject to stockholder approval at the 2016 Annual Meeting on June 2, 2016, pursuant to which the Company will grant awards covering
up to 1,000,000 shares of the Company’s common stock in the form of restricted stock, restricted stock units, and/or other
stock- or cash-based awards to eligible employees and other service providers of the Company. The 2016 CEO Share Allocation Plan
was adopted in connection with a contribution agreement (the “Contribution Agreement”) that the Company expects to
enter into with Mr. Lindblad, pursuant to which Mr. Lindblad will agree to transfer up to 1,000,000 shares of the Company’s
common stock (i.e., an equivalent number of shares as is reserved for issuance under the 2016 CEO Share Allocation Plan) (the “Contribution
Shares”) to the Company as a contribution to the capital of the Company. Mr. Lindblad will not receive any consideration
in exchange for the Contribution Shares. However, as a condition to the contribution of any Contribution Shares, the Company must
grant awards under the 2016 CEO Share Allocation Plan, such that the number of Contribution Shares that Mr. Lindblad actually contributes
to the Company will equal the number of shares corresponding to awards granted under the plan. The contribution of the Contribution
Shares by Mr. Lindblad to the Company will effectively reduce the number of shares of the Company’s common stock that are
outstanding by the same number of shares that would be issued under the 2016 CEO Share Allocation Plan (or a lesser number in the
event awards are settled in cash). Such contributions will be effective as of the later of the date the Company grants corresponding
awards under the 2016 CEO Share Allocation Plan and the date the Company’s stockholders approve the 2016 CEO Share Allocation
Plan (and such contributions will occur only if the 2016 CEO Share Allocation Plan is approved by stockholders). The administrator
may amend, suspend or terminate the 2016 CEO Share Allocation Plan at any time.
On May 3, 2016,
the Company announced that it had appointed Philip Auerbach to serve as Chief Commercial Officer, effective May 26, 2016.
On May 4, 2016,
the Company acquired 80.1% of the outstanding common stock of Natural Habitat, Inc. (“Natural Habitat Shares”), an
adventure travel and ecotourism company based in Colorado, pursuant to that certain Stock Purchase Agreement (the “Stock
Purchase Agreement”) dated as of May 4, 2016, by and among the Company, Lindblad Expeditions, LLC, a Delaware limited liability
company, Gaiam, Inc., a Colorado corporation, Gaiam Travel, Inc., a Colorado corporation, and Ben Bressler, the founder and President
of Natural Habitat, Inc. The acquisition provides the Company a platform for expansion into land-based offerings. Pursuant to
the Stock Purchase Agreement, the consideration for the Natural Habitat Shares consisted of $14.85 million in cash, shares of
common stock of the Company with a value of $2.65 million, or 264,208 shares, and an unsecured promissory note issued
to Mr. Bressler in an outstanding principal amount of $2.5 million.
On May 5, 2016,
the Company appointed Catherine B. Reynolds as an independent director of the Company.