PART
I
Cautionary
Note Regarding Forward-Looking Statements
Any
statements in this Annual Report on Form 10-K (the “Form 10-K”) 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:
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general
economic conditions;
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unscheduled
disruptions in our business due to weather events, mechanical failures, or other events;
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changes
adversely affecting the business in which we are engaged;
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management
of our growth and our ability to execute on our planned growth;
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our
business strategy and plans;
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compliance
with laws and regulations,
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compliance
with the financial and/or operating covenants in our Second Amended & Restated Credit
Agreement (“Restated Credit Agreement”);
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adverse
publicity regarding the cruise industry in general;
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loss
of business due to competition;
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the
result of future financing efforts;
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the
inability to meet revenue and Adjusted EBITDA projections; and
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those
risks discussed in Item 1A. Risk Factors.
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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-K, “Company,” “Lindblad,” “we,” “us,”
“our,” and “ours” refer to Lindblad Expeditions Holdings, Inc., and its subsidiaries.
Overview
Lindblad
provides expedition cruising and adventure travel experiences using itineraries that feature up-close encounters with wildlife,
nature, history, and culture, and promote guest empowerment and interactivity. Our mission is to offer life-changing adventures
on all seven continents and pioneer innovative ways to allow our guests to connect with exotic and remote places. Our expedition
ships, which consist of six owned vessels and five seasonal charter vessels are customized, nimble and intimately-scaled vessels
that are able to venture where larger cruise ships cannot, thus allowing us 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) including places that are best accessed by a ship (such as the Galápagos,
Alaska, Baja’s Sea of Cortez, Costa Rica, Cuba 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. In
addition to our sea- based expeditions, we offer land-based, eco-conscious expeditions from Antarctica to Zambia primarily through
our ownership of Natural Habitat, Inc. (“Natural Habitat”).
We
have a strategic business alliance with the National Geographic Society (“National Geographic”), which is founded
on a shared interest in exploration, research, technology, and conservation. This relationship includes co-selling, co-marketing
and branding arrangements whereby our owned vessels carry the National Geographic name and National Geographic sells our expeditions
through their internal travel divisions. We collaborate with National Geographic on expedition planning to enhance the guest experience
by having National Geographic experts, including photographers, writers, marine biologists, naturalists, field researchers, and
film crews, join our expeditions. Guests have the ability to interface with these experts through lectures, excursions, dining,
and other experiences throughout their expedition.
Our
offerings appeal to a wide range of travelers, both individuals and families, with affluent individuals in the U.S. aged 50 years
or older representing our largest demographic category. The quality of our offerings has enabled us to achieve and maintain premium
pricing in the market instead of pursuing the type of discounting in which most large cruise lines that are focused on the broader
market engage. Our product offering, value proposition and differentiated pricing approach enable us to achieve high net yields
and occupancy rates.
Our
business benefits from significant visibility into future revenues, as our guests generally plan and book their voyages far in
advance of their departure dates. As of February 28, 2017, 82% of Lindblad’s expected guest ticket revenues for 2017 have
been booked.
We
choose to visit geographic areas based upon many factors, including weather, marine conditions, migration patterns, and various
natural phenomena. In the northern hemisphere summer months, we visit the High Arctic regions of the world, the Canadian Maritimes,
Europe, and Alaska. In the northern hemisphere winter months, we travel to Antarctica, South America, Costa Rica, Baja California,
and the Caribbean. The Galápagos Islands are a year-round destination offering a diverse variety of marine, land and airborne
wildlife.
Lindblad
Expeditions, Ships and Voyages
Itineraries
Currently we operate a
fleet of six vessels owned through our subsidiaries and five chartered ships to provide our signature marine-based adventures to
over 40 destinations on five continents of the world. We have extensive experience operating in the Galápagos Islands, Alaska,
Antarctica and the Arctic, with the Lindblad family having been among the first to bring non-scientist travelers to these regions.
We currently operate two vessels in the Galápagos, providing week-long itineraries throughout the year. We operate two polar
vessels that serve in Antarctica during the northern hemisphere winter, in the Arctic during the summer and various destinations
during the intermediate months, offering itineraries that last from five to 24 days. We also operate two ships in Alaska during
the summer months that travel south along the U.S. coastline to the Sea of Cortez and to Costa Rica and Panama for the winter.
In addition, we charter five vessels for seasonal itineraries in the Amazon, Scotland, the Caribbean, the Mediterranean, Cuba,
Cambodia, and Vietnam.
We
place a strong focus on innovation, which we seek to achieve by introducing new expedition options and continuously making improvements
to our fleet and voyage experiences as new technology or operating procedures are developed. We make deployment decisions with
the goal of optimizing the overall profitability of our portfolio, with these decisions generally made 18 to 24 months in advance.
We operated at above 90.0% occupancy rate for the three years ended December 31, 2016, 2015 and 2014, indicating strong consumer
interest in our offerings. Adding new capacity will allow us to expand our inventory of existing itineraries and expand into new
markets and destinations. The following table presents summary information concerning the ships we currently operate and their
geographic areas of operation based on 2016 itineraries:
Vessel Name
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Date Built
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Guest
Capacity
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Cabins
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Primary Areas of
Operation
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Flag
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National Geographic Endeavour II
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2005, renovated in 2016
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95
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50
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Galápagos
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Ecuador
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National Geographic Explorer
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1982, rebuilt in 2008
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148
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81
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Arctic, Antarctica, Europe, British Isles, Canada, Patagonia, South America and Transatlantic
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Bahamas
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National Geographic Islander
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1995
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47
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24
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Galápagos
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Ecuador
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National
Geographic Orion
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2003
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102
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53
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Antarctica,
Europe, South America and Arctic
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Bahamas
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National Geographic Sea Bird
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1981
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62
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31
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Alaska, Baja California and Pacific Northwest
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U.S.A.
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National Geographic Sea Lion
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1982
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62
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31
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Alaska, Costa Rica, Panama, Baja California and Pacific Northwest
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U.S.A.
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Delfin II*
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2009
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28
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14
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Amazon
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Peru
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Jahan*
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2011
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48
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24
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Vietnam and Cambodia
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Vietnam
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Lord of the Glens*
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1985,
renovated in 2016
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48
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26
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Scotland
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UK
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Panorama II*
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2004
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42
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22
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Cuba
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Greece
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Sea Cloud*
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1931, rebuilt in 1979,
renovated in 2011
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58
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28
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Caribbean and Mediterranean
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Malta
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The following table
presents summary information concerning the two new passenger cruise vessels under construction with expected launch to be in
June of 2017 and 2018, respectively:
Vessel Name
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Expected Launch Date
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Guest
Capacity
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Cabins
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Primary Areas of
Operation
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Flag
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National Geographic Quest
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June
2017
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100
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50
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West Coast
North America and
Central America
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U.S.A
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National Geographic Venture
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June
2018
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100
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50
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West Coast
North America and
Central America
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U.S.A.
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Owned
Vessels
National
Geographic Endeavour II
operates in the Galápagos. The
Endeavour
II joined the fleet in the second quarter
of 2016 and, following a significant renovation, deployed during the fourth quarter of 2016. The
Endeavour II
accommodates
95 guests in 50 cabins and offers public areas designed for maximum viewing of nature and wildlife.
National
Geographic Explorer
,
our flagship vessel, joined the fleet in 2008 as our ultimate expedition ship. The
Explorer
is equipped with an ice-strengthened hull, advanced navigation equipment for polar expeditions and a well-appointed interior
with multiple interior and exterior locations specifically designed for observing wildlife and the natural environment. Accordingly,
the
Explorer
is equipped to visit some of the most remote and extreme areas on the planet. The
Explorer
accommodates
148 guests in 81 cabins, including 13 cabins with private balconies and six suites. The
Explorer
is spacious and modern,
with a variety of public areas that offer views of the passing landscape, including a window-lined library and observation lounge
located at the top of the ship, several observation decks and a forward-facing chart room.
National
Geographic Islander
is a twin-hulled, yacht-scale ship designed for active exploration. The
Islander
was originally
built for service in the Caribbean, and then later used for expeditions in the Scottish Highlands. Since 2004, the
Islander
has been sailing year-round in the Galápagos, which it is ideally suited for as its trim design and maneuvering abilities
enable it to visit areas larger vessels cannot, allowing guests to experience the islands from a more up-close perspective. The
Islander
accommodates 47 guests in 24 outside cabins, including two suites. On board there are open decks that are complete
with hammocks as well as a large dining room and large lounges that form part of the social hub of the ship.
National
Geographic Orion
joined the fleet in 2013. The
Orion
is a blue water, ice class vessel, equipped with advanced technology, including large retractable stabilizers, sonar, radar and an ice-strengthened hull.
A shallow draft as well as bow and stern thrusters allow for maneuvering close to shore. The
Orion
accommodates 102 guests
in 53 cabins, including several with balconies and a variety of public spaces that offer panoramic views of the passing landscape.
The public rooms include a window-lined main lounge, as well as an observation lounge and library at the top of the ship, with
numerous observation decks.
National
Geographic Sea Bird
is the twin ship of the
Sea Lion
and offers expedition cruises in Alaska, the Pacific Northwest,
Baja California and the Sea of Cortez. The
Sea Bird
has a shallow draft and small size and can reach places inaccessible
to larger ships. The
Sea Bird
accommodates 62 guests in 31 outside cabins.
National
Geographic Sea Lion
is the twin ship of the
Sea Bird
and operates in Alaska, the Pacific Northwest, Baja California,
the Sea of Cortez, Costa Rica, and Panama. The
Sea Lion
has a shallow draft and a small size so that it can reach places
inaccessible to larger ships. The
Sea Lion
accommodates 62 guests in 31 outside cabins and has an open bow that provides
for shared wildlife viewing experiences.
Chartered
Vessels
Delfin
II
is a riverboat recently built to explore the Peruvian Amazon.
Delfin II
accommodates 28 guests in 10 suites
and four master suites. The entire third deck is open-air, offering a view of the river and the rainforest. The ship is purpose
built to serve the waterways of the Amazon and the ship is decorated with handicrafts from the ribereños, indigenous people
of the native wildlife preserves.
Jahan
is a riverboat built in 2011 for exploring Vietnam and Cambodia.
Jahan
accommodates 48 guests in 24 cabins, including
two suites. Every cabin has a private balcony and the suites each have a private jacuzzi.
Jahan
has four decks and has
several public areas where the expedition community can gather to watch life along the riverbank. The public spaces include a
covered, open-air observatory, open bow and a pool on the top deck.
Lord
of the Glens
is specifically sized to be able to sail through the Caledonian Canal in Scotland, which connects the North
Sea to the Atlantic, and can navigate the coastline and venture to the islands of the Inner Hebrides.
Lord of the Glens
accommodates 48 guests in 26 outside cabins.
Panorama
II
is a two-masted sailing yacht for exploring Cuba and accommodates 42 guests in 22 cabins.
Panorama II
has two
decks, which are semi-covered or sun-exposed, a library area and facilities for films, slide shows and presentations.
Sea
Cloud
offers the experience of sailing aboard a fully-rigged ship in the Caribbean and Mediterranean and accommodates
58 guests in 28 outside cabins, including two original owner’s suites that still feature original marble baths and fireplaces.
Sea Cloud
has extensive public spaces on the top deck, a dining room that can accommodate all guests at once for single
seating and a lounge.
Ship
Repair and Maintenance
In
addition to routine repairs and maintenance performed on an ongoing basis and in accordance with applicable requirements, each
of our expedition ships is taken out of service for a scheduled deeper maintenance period to conduct repairs and improvements.
We maintain our fleet in accordance with applicable regulations, international conventions and insurance requirements. This includes
regularly scheduled maintenance, periodic inspections, drydocking, wetdocking, 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. 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. Drydock interval
and required inspections are statutory requirements controlled under chapters of the International Convention of the Safety of
Life at Seas (“SOLAS”) and Classification Society instructions. Under these regulations, passenger ships must be inspected
in drydock twice in five years, with the maximum duration between each drydock inspection not to exceed three years, and an underwater
hull inspection is required annually. To the extent practical, each ship’s crew, and hotel staff remain with the ship during
docking periods and assist in performing repair and maintenance work. We do not earn revenue while ships are in dock. Accordingly,
dockings are typically planned during non-peak demand periods to minimize the adverse effect on revenue that results from ships
being out of service.
Guest
Activities and Services
We
provide our guests the opportunity and the tools to be active and engaged explorers.
Our
vessels carry a variety of equipment for exploration which, depending on the ship and destination, may include Zodiacs for water-level
activities and quick transfers to shore, kayaks for personal exploration, motorized skiffs, an underwater camera, a remotely operated
vehicle, a video microscope to study some of the smallest organisms of the marine ecosystem, a crow’s nest camera atop a
ship’s mast, hydrophones for listening to vocalizations of marine mammals, snorkeling gear, scuba gear, and wetsuits. An
experienced and knowledgeable expedition staff leads guests in exploration while zodiac riding, hiking onshore, paddling on the
water or observing wildlife from ashore or onboard the ship. All voyages feature a certified photo instructor onboard and many
include photographers from National Geographic.
Our
ships allow guests to be close to wild nature, but at the same time, enjoy a high level of comfort, convenience and safety. High
quality dining is an integral part of our expedition experience with influences and flavors that reflect the regions being explored,
along with traditional fare. Food prepared aboard is sourced locally whenever practicable from sustainable providers. Seating
is open and the atmosphere is relaxed. Our ships offer a range of services and amenities which allow our guests to travel in comfort.
Depending on the ship, these may include a fitness center, a spa offering a variety of treatments, a photo kiosk for photographers
to edit and sort photos, a pool, 24-hour beverage service, internet connection, laundry facilities, and a doctor on call.
We
offer to handle virtually all travel aspects related to guest reservations and transportation, simplifying the planning and booking
process for our guests. We also provide guests the opportunity to purchase pre- and post-expedition extensions or services that
may include additional hotel nights, air travel, private transfers, excursions, land travel packages, and travel protection insurance.
Strategic
Alliance with National Geographic
We
benefit from a strategic alliance with National Geographic, one of the world’s leading proponents of eco-tourism and natural
history. The strategic alliance, which began in 2004, is built on our shared interest in exploration, research, technology, and
conservation. Since 1888, National Geographic has enabled people to explore the world through its magazines and, more recently,
its television programs, website and social media. It is one of the largest non-profit scientific and educational institutions
in the world with interests ranging from geography, archaeology and natural science, to the promotion of environmental and historical
conservation. Working to inspire, illuminate and teach, National Geographic reaches more than 600 million people a month through
a wide range of media, including print, TV and digital. The National Geographic name has significant value for use in connection
with travel-related goods and services. The Lindblad/National Geographic alliance includes a co-selling and co-marketing arrangement
through which National Geographic promotes our offerings in its marketing campaigns across web-based, email, print, and other
marketing platforms and sells our expeditions through its internal travel division. The National Geographic sales channel represents
approximately 27% of our guest ticket revenues for the year ended December 31, 2016. We believe that the alliance with National
Geographic provides us with a substantial competitive advantage in the expedition market based on the brand enhancement, expanded
marketing reach and the relationship with National Geographic’s naturalists and photographers.
Through
this alliance, we collaborate with National Geographic on exploration, research, technology, and conservation in order to provide
travel experiences and disseminate geographic knowledge around the globe. The Lindblad/National Geographic alliance is set forth
in an Alliance and License Agreement and a Tour Operator Agreement that have terms until December 31, 2025.
Mr.
Lindblad also serves on National Geographic’s International Council of Advisors, which is composed of individuals identified
by National Geographic as visionary leaders from a range of professions and industries across the globe that exemplify the intellectual
curiosity and quest for adventure that has driven National Geographic’s mission since 1888. Mr. John M. Fahey, Jr., one
of our directors, previously served as the Chairman and Chief Executive Officer of National Geographic.
Competitive
Strengths
Our
management team believes the following characteristics of our business model will enable us to successfully execute our strategy:
Expertise
and Name Recognition
Our
leadership and expertise today is built on the Lindblad family’s decades of experience in expedition adventure travel. Sven-Olof
Lindblad, the founder, President and Chief Executive Officer of the Company, comes from a rich expedition heritage. The International
Association of Antarctica Tour Operators, which was established in 1991, believes that the concept of expedition cruising, coupled
with education as a major theme, began when Lars-Eric Lindblad, Sven Olof Lindblad’s father, led the first traveler’s
expedition to Antarctica in 1966. Lars-Eric Lindblad has also been recognized by
The New York Times
,
Travel + Leisure
Magazine and other publications for his vision and leadership in developing what is today known as expedition travel. Believing
that educated people who saw things with their own eyes would be a potent force for the preservation of the places they visited,
Lars-Eric Lindblad worked to promote conservation and restoration projects worldwide. Sven-Olof Lindblad founded Lindblad in 1979,
expanding the legacy of his father by providing expanded marine experiences around the world.
Under
Mr. Lindblad’s leadership, we have led innovation in the expedition adventure travel industry. We pioneered expeditions
in the High Arctic and Baja California’s Sea of Cortez and created what we view as the most innovative and in-depth expedition
program in Alaska. We initiated the use of kayaks for active exploration in the Polar Regions and in the Galápagos, a feature
which is now available on all of our owned vessels to enable personal, water-level encounters with nature. We were also one of the
first to develop an undersea exploration program as part of a small ship expedition utilizing state-of-the-art equipment and technology.
As
a pioneer in the expedition adventure travel sector, we have established deep expertise and knowledge of operating expedition
cruises in extreme locations. We have earned awards and honors from various representatives of the travel industry, including
recognition for the quality of our offerings and our support for conservation and sustainable tourism. Some of the awards we have
earned are as follows:
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In
2016 and 2015,
Conde Nast Traveler
rated us as one of the Top Small Ship Cruise
Lines. We have also been named to the
Travel + Leisure
World’s Best List
for Small-Ship Cruise Lines seven times since 2008.
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2016
Celebrated Living Magazines, Platinum List Awards: Best Boutique Cruises.
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2016
Virtuoso Best VAST Partner Award
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2016
Town & Country Cruise Awards: Best for Families, Expedition Cruises
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2016
World Tourism Award
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2016
Recommend Readers’ Choice Awards: Best Expedition Cruise Line.
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2016
Cruise Critic U.S. Editors’ Picks Awards: Best for Adventure.
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In
2015, we were awarded the Legacy in Travel Philanthropy Award by Tourism Cares, the charitable
arm of the travel and tourism industry, recognizing our longstanding commitment to environmental
conservation.
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We
were also named the 2015 World’s Leading Green Cruise Line by the World Travel
Awards.
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When
customers select an expedition provider for the types of journeys that we offer, we believe that being known as a trusted brand
in the market is a significant competitive strength.
Compelling
Expedition Offerings
Our
brand is known for delivering voyages that offer in-depth exploration opportunities in locations around the world. Expeditions
are operated on intimately-scaled ships with capacities ranging between 28 and 148 guests, fostering a friendly atmosphere on
board and extensive interaction between guests, crew and the teams of world class scientists, naturalists, researchers, and photographers
that participate in the expeditions. The vessels are nimble and can access locations that are unattainable for large cruise ships,
allowing for in-depth exploration itineraries and viewpoints. The ships are customized to provide our signature adventure experiences
and activities, such as kayaking among Antarctic icebergs to view penguins or traveling on a Zodiac for an up-close encounter
with a whale.
We
are continuously focused on maintaining and elevating the guest experience and identifying new opportunities to help people discover
the wonders of the world. We believe that our expedition offerings and our track record of innovation represent significant competitive
advantages for us.
Strong
Financial Profile
Our
business model allows us to generate consistent free cash flow with high revenue visibility. Our guests plan and book their expeditions
on average nine months in advance, with a deposit due upon booking, providing us insight into future revenue and a source of cash
flow. Based on our product offerings, we are able to support premium pricing with minimal discounting, and benefit from low requirements
for maintenance capital expenditures, minimal working capital needs and favorable tax attributes.
We
also have a strong cash position, providing us with ample financial flexibility to pursue growth opportunities through investment
in new vessels, new charters, tactical land-based products or potential acquisitions of ships or other operators, while still
maintaining a prudent capital structure.
Significant
Growth Opportunities
We
believe affluent Americans view their retirement as “a time to travel and explore new places,” favoring travel experiences
such as expedition cruising. This has led to strong growth in the specialty cruise segment and we believe these trends will continue.
We plan to expand the number of ships in our fleet, including chartered vessels, from 11 current vessels to 13 vessels over the
next two years, which includes two new coastal vessels currently under construction with expected deliveries on target for the
second quarter of 2017 and 2018, respectively. Additionally, we believe that our platform is well positioned to opportunistically
seek accretive purchases of operators that lack scale and capital, further extending our growth prospects.
Natural Habitat,
Inc.
On May 4, 2016,
we acquired an 80.1% ownership interest in Natural Habitat, an adventure travel, land-based, ecotourism company located in Colorado.
Natural Habitat offers over seventy-five different itineraries in more than thirty-five countries spanning six continents. Natural
Habitat focuses on small groups led by award-winning naturalists to achieve close-up wildlife and nature experiences. Examples
of expeditions offered by Natural Habitat include African safaris in Botswana, grizzly bear adventures in Alaska and polar bear
tours in Canada and many of Natural Habitat’s expeditions feature access to private wildlife reserves, remote corners of
national parks and distinctive lodges and camps for the best wildlife viewing. The smallest expeditions average between eight to
nine guests with itineraries running from six to twenty-five days, with an average of ten days.
Natural Habitat
has been partnered with World Wildlife Fund (“WWF”), since 2003 to promote conservation travel, sustainable travel
that directly promotes and protects nature. WWF is one of the world’s leading conservation groups with over six million
members globally. Natural Habitat’s exclusive license agreement with WWF allows Natural Habitat to use the WWF name and
logo in return for a royalty fee, through 2023.
Experienced
Management Team
We are led by a management
team comprised of individuals drawing on a diverse knowledge base and skill sets acquired through extensive experience in expedition
cruising and adventure travel. Mr. Lindblad, our founder, President and Chief Executive Officer, who has decades of experience
in the sector, built the Company up to our current fleet of six owned and five chartered vessels while carefully establishing the
values and brand for which we are now known. Ian T. Rogers, our Chief Operating Officer, joined us in 2009 and has over 25 years
of hospitality and cruise experience. Craig Felenstein, our Chief Financial Officer, joined us in 2016 and brings a long history
of leadership positions in a wide range of public companies. In addition, Philip Auerbach our Chief Commercial Officer, joined
the Company in 2016 from a leading entertainment and hospitality company where he served as Senior Vice President and regional
Chief Marketing Officer. Our Chief Expedition Officer, Dean (Trey) Byus III, joined the Company in 1993 as an expedition leader
and has held various senior level positions with the Company. Trey has served as Chief Expedition Officer since 2009.
Competition
We compete with
a number of cruise lines with competition varying by destination. The market is fragmented and primarily comprised of private
operators. The primary competitors that operate in the geographic regions we serve include Silversea Expeditions, Compagnie du
Ponant, Hurtigruten, and Un-Cruise Adventures. For our land-based expeditions, we compete with a variety of companies offering
itineraries in the countries in which we operate. These range from small private operators to larger companies operating across
multiple countries. Some of our larger competitors include Abercrombie & Kent, Overseas Adventure Travel and GeoEx. We also
compete with other vacation alternatives such as land-based resort hotels and sightseeing destinations for guests’ leisure
time. Demand for such activities is influenced by political and general economic conditions. Companies within the vacation market
are dependent on consumer discretionary spending.
Our
principal competitive strengths, particularly our established reputation, experienced management team, product offerings, and
associations with National Geographic and WWF, provide us with a competitive advantage in the specialty expedition segment of
the market.
The
cruise industry in general and the expedition cruise industry specifically are characterized by high barriers to entry, including
the existence of several established and recognizable brands, the large investment required to build a new, sophisticated cruise
or expedition ship, the long lead time necessary to construct new ships, and limited newbuild shipyard capacity.
Industry
and Market
We
believe the specialty and small ship cruising segment of the cruise industry demonstrates the following positive fundamentals:
Strong
Growth in Specialty and Small Ship Cruising Segment
The
specialty and small ship cruising segment of the cruise industry is characterized by the smallest vessel size, unique itineraries,
active adventures, gourmet culinary programs, highly personalized service, and a more inclusive offering. These exclusive attributes,
combined with limited supply growth and a growing worldwide target population, provide specialty and small ship cruising operators
with significant pricing leverage as compared to the other segments of the cruise industry.
The
specialty cruise segment has demonstrated strong growth as consumers increasingly prefer experiences over other forms of discretionary
spending. According to Cruise Lines International Association (“CLIA”), specialty cruises grew by 21% annually from
2009 to 2014. In a December 2016 survey of CLIA-member travel agents, 75% expected increased bookings in 2017 from the prior year,
with 33% of the agents anticipating growth of 10% or greater. Despite this consistent growth, we believe the specialty cruise
industry still has low penetration levels compared to similar land-based vacations, which we believe highlights the continued
growth potential for the specialty cruise market.
Attractive
Target Market Demographics
Our
offerings appeal to a wide range of travelers, both individuals and families, but affluent individuals in the U.S. aged 50 years
or older represent our largest demographic category. We believe that our small ship expedition offerings, with itineraries that
promote up-close encounters with wildlife, nature and culture, have significant appeal to this target market. These individuals
are also generally near-retirement or retired and have the leisure time and disposable income available to pursue the type of
activities that we provide. Based on the U.S. Census Bureau’s 2015 National Projections, the age group of 50 years and older
numbered approximately 111 million individuals in 2015, or approximately 35% of the U.S. population, and is expected to grow to
approximately 120 million in 2020, an increase of approximately 8%. In comparison, over the same time period the age group of
19 years and younger is projected to increase by approximately 1% and the age group of 20 years to 49 years is projected to increase
by approximately 3%.
High
Barriers to Entry
The
adventure travel and specialty cruise industries in which we operate are characterized by high barriers to entry, which include
the expertise and experience required to operate safely and effectively in remote locations, the existence of well-established
and trusted brands, the time and personal relationships required to develop strong networks of experts to lead and support expeditions,
the cost and time required to build the strong travel agent network partnerships necessary for success, local permits or licenses
required to operate in a diverse range of geographies, large capital expenditures, and operational insight required to build new
and sophisticated ships suited for such specialized activities.
The
growth of the cruise industry depends, however, on consumers’ discretionary spending, and in the event that consumers’
disposable income or consumer confidence decreases as a result of an economic downturn or other factors, demand for cruises could
decrease.
Business
and Growth Strategies
The
following are the key components of our business strategy:
Deliver
Exceptional Guest Experiences
Our
chief governing principle throughout the organization is to ensure that everything adds value to the guest experience. This applies
to every step of the process from the first engagement with a potential guest, through the booking process and travel preparations,
the actual expedition, whether onboard the vessel or off on explorations, and once back at home.
We
believe that our guests do not want to be passive tourists, so our expeditions foster active engagement. Our ships are equipped
with tools for exploration to get our guests out in the open for up-close forays, or to let guests see deeper into the marine
or terrestrial environments surrounding them. It is our goal to provide guests with differentiated opportunities with an experienced
expedition team that adds to the guests’ understanding and appreciation, through dedicated observation, insightful commentary
and engaging presentations, weaving the expedition into a cohesive narrative. This could include an opportunity for the guest
to watch a killer whale circling a seal on an ice flow, while standing next to a marine biologist and an experienced nature photographer
from National Geographic. This intense focus on seeking to elevate the overall experience and engaging with guests has resulted
in highly favorable customer feedback. We believe that by consistently delivering exceptional experiences to our guests, we have
built a highly valuable and trusted brand in the expedition cruising and land-based expedition market, which attracts a growing
number of customers, and discerning and affluent guests who are prepared to pay a premium for our offerings.
High
Visibility and Differentiated Revenue Management Strategy
Given
the nature of our expeditions and the expectation that our guests will seek to plan such trips with substantial notice, we begin
to market our voyages approximately 12 to 24 months in advance of the departure date, depending on the destination. Guests book
their trips, on average, nine months prior to sail date, paying a deposit at booking and the final payment 60 to 120 days within
the date of travel, dependent upon selected voyage. As of February 28, 2017, 82% of our expected guest ticket revenues for 2017
have been booked.
Unlike
the large cruise line operators that serve the broader market, our product offering is inclusive of most costs and therefore the
advance customer payments provide us strong visibility into future revenues and the associated cash flows. By having such visibility
of future business, we can more effectively manage any additional sales and marketing efforts that may be required to ensure that
the programs reach their targeted occupancy levels. We do not believe in driving participation through discounting and do not
generally pursue such strategies. Instead, we focus on voyage enhancements that add significant value to the product without significant
incremental cost, as well as targeted marketing efforts in order to strengthen occupancy rates, if required. Based on our offerings,
the targeted audience and premium pricing, our guests are generally older, more affluent and do not travel with three or four
individuals in one cabin. As it is industry convention to base 100% occupancy on two persons per cabin, we may report occupancy
levels that are somewhat lower than the large cruise lines serving the broader market. However, the occupancy statistics nevertheless
reflect appropriately that we are operating close to full occupancy. We have achieved strong occupancy rates for the Lindblad
segment in the last three years (based on two persons per cabin), maintaining above 90.0% occupancy rate for the years-ended December
31, 2016, 2015 and 2014.
Maximize
and Grow Net Yields
We
have historically achieved high net yields and continue to see opportunities for growth. Net yield is a frequently referenced
metric used in the cruise industry and refers to tour revenues net of commissions and certain direct costs in a specific period
divided by the number of available guest nights. Our net yields are driven by our offerings, premium pricing and ancillary guest
revenue, such as pre- or post-voyage trip extensions, add-on optional activities, trip insurance, and onboard spend, including
spa services and alcoholic beverages. Our net yields were $976, $971 and $950 in 2016, 2015 and 2014, respectively. Furthermore,
our net yield in 2016 was significantly higher than the large scale cruise line operators. We expect to be able to continue our
track record of maintaining strong pricing and growing ancillary guest revenues through increased sales focus and marketing efforts,
particularly of pre- and post-voyage extensions on which we have not historically placed significant emphasis.
Elevate
Brand Awareness and Loyalty
Our
brand is recognizable by our guests primarily due to our heritage, decades of sales and marketing investment and long-standing
strategic alliance with National Geographic. We believe we have fostered strong guest and brand loyalty, which is evidenced by
our high levels of repeat guests. In 2016, 38% of guests booked through our U.S. office were past guests. We have closely aligned
our marketing efforts with National Geographic to maximize impact in the marketplace and have engaged in a co-branding strategy
with respect to our owned vessels. In addition, we are recognized as a leader in promoting the issue of conservation of the planet
and encourage our guests to become engaged through the Lindblad Expeditions – National Geographic Joint Fund for Exploration
and Conservation (“LEX-NG Fund”). In the past, we have organized high level meetings in the Arctic, Antarctic, Galápagos,
and Baja California to put a spotlight on key environmental issues in conjunction with organizations such as the Aspen Institute,
TED and the WWF. These efforts help to build our brand and network of relationships and enhance our thought leadership. We will
continue to focus on ensuring that each of our guests associates our brand with high-quality overseas adventure vacation experiences.
Disciplined
Expansion
We
are focused on growing our business in a prudent and disciplined manner. When evaluating various strategies for expansion of guest
capacity, we consider closely the expected return on invested capital and the range of possibilities, such as a newbuild program,
adding selected charters and the acquisitions of existing ships or small operators. We currently have two new coastal vessels
under construction for delivery in 2017 and 2018, respectively. We believe that we have ample capital and financial flexibility
to fund this investment and management considers it to be an important step to meet increasing demand for our offerings.
Operations
Sales
and Marketing
We place a strong emphasis
on identifying the needs of our guests and creating expedition opportunities and products that guests’ value. We use communication
strategies and marketing campaigns designed to strengthen brand awareness and to emphasize the distinctive qualities of each expedition
we offer. Marketing strategies include the use of traditional media, social media, brand websites, and travel agencies.
We
source our business through a combination of direct selling, travel agency networks and our strategic alliance with National Geographic.
We invest in maintaining strong relationships with our key travel agency network partners and seek to maintain commission rates
and incentive structures that are competitive within the marketplace.
Historically,
our focus has been to primarily source guests for our expeditions from the United States. Expedition cruise guests sourced from
the U.S. represented approximately 89%, 85% and 80% of our total global expedition cruise guests’ ticket revenue in 2016, 2015
and 2014, respectively.
Our
largest channel for guest bookings is direct contact, either by guests calling our toll-free number
(1-800-EXPEDITION)
and speaking with our expedition specialists, or requesting a reservation online at our website, expeditions.com. The direct channel
represented nearly 39%, 43% and 49% of guest ticket revenues for 2016, 2015 and 2014, respectively.
We
also generate significant bookings from travel agents and wholesalers, representing approximately 27% for the year ended
2016 and 28% for the years ended 2015 and 2014. Agent outreach efforts are focused primarily on consortiums, or travel agent
networks, which target affluent travelers. The four consortiums with which we have preferred partner agreements are
Virtuoso, Signature, American Express, and Ensemble. Preferred status provides their agents with financial incentives to book
their customers on our expeditions and provides us the opportunity for enhanced marketing to their agents and end-user
customers. Our agent and affinity sales team meet with hundreds of highly-targeted agents annually, at consortium conferences
and training seminars, and in-person at agency offices to provide hands-on training, support and product
knowledge.
The
National Geographic relationship also serves as a channel for bookings. Our alliance with National Geographic includes a co-selling
and co-marketing arrangement through which National Geographic promotes our offerings in its marketing campaigns across web-based,
email, print, and other marketing platforms and sells our expeditions through its internal travel division. The National Geographic
channel represented approximately 27%, 24% and 20% of guest ticket revenues for 2016, 2015 and 2014, respectively.
The
remainder of our bookings, 7%, 5% and 3% of guest ticket revenues for 2016, 2015 and 2014, respectively, comes from affinity groups
and charters. Affinity groups are predominantly college and university alumni associations, and other travel organizations targeting
specific market niches.
We
have a broad and diverse marketing mix across multiple media platforms and channels, allowing us to effectively communicate our
product offerings to past guests and prospective guests. We continually optimize our media mix to reach our target demographic.
The majority of our annual global marketing spend is focused on consumer-direct channels, with direct mail being the largest segment
of our marketing expenditures. Our detailed brochures present our expedition offerings comprehensively, providing guests with
all the information needed to make an informed travel decision. We also execute direct mail campaigns with the primary purpose
of generating qualified leads, upon which we will fulfill requests with the appropriate product brochure and/or digital media.
We also promote our expeditions across a variety of print media, primarily magazines targeting affluent travelers, as well as
nature and photography enthusiasts.
Our
website, www.expeditions.com, is supported internally by a dynamic content management system, allowing frequent updates, a visually-impactful
design, large photos, and video display with simple, straightforward navigation. We also send weekly mobile-optimized emails to
our database of opt-in email subscribers, which link back to key areas on expeditions.com. In addition, we routinely offer webinars
to offer greater insights into our expeditions, hosted by members of the expedition teams with intimate knowledge of the geographies
featured.
We
maintain an active presence on numerous social media platforms, focusing primarily on those with the greatest reach to our target
demographic: Facebook, Instagram, Twitter, and YouTube. In addition, we routinely feed content to National Geographic’s
social media platforms, which extend the reach of our brand significantly.
Our
marketing team encompasses broad and diverse skill sets including product and channel marketing, digital marketing, database marketing,
copywriting and creative, video production, and research and analytics.
Expedition
Cruise Pricing
Our
voyage prices typically include accommodations and all expedition activities and meals, other than items of a personal nature,
such as alcohol, airfare to and from an expedition, spa treatments, and certain other specialized events or activities. Prices
vary depending on many factors, including the vessel, the destinations on a particular voyage, number of guest berths available,
expedition length, cabin category selected, and time of year during which the expedition takes place. Payment terms generally
require an upfront deposit to confirm a reservation, with the balance due prior to departure.
We
focus on maintaining list pricing of our offerings and any discounting that we pursue is tactical, targeted and infrequent. In
addition to our standard expedition packages, we may be able to offer a complete vessel for charter and may provide incentives
for this type of arrangement. Group and multi-generational family travel may also be eligible for additional incentives based
upon the voyage, duration and number of guests travelling. From time to time, we may incentivize guests to book with us with a
variety of offers, including free or reduced price air transportation, hotel nights or other value added items. We offer rewards
to our guests through our loyalty program,
Friends for Life,
to encourage repeat business.
Lindblad
Expeditions – National Geographic Joint Fund for Exploration and Conservation
We
seek to inspire people to explore and care about the planet. One of our governing principles is to positively impact the areas
we explore and in which we work. To this end, we, along with National Geographic, created the LEX-NG Fund to support projects
at the global, regional and local level. The objective of the LEX-NG Fund is to protect the last wild places in the ocean, support
innovative local projects and facilitate conservation, research, educational, and community development projects in the places
we explore. Together with our guests, we have raised more than $12.7 million since 1997, along with the 500,000 common shares
contributed by the founders of Capitol Acquisition Corp. II in connection with the merger with Lindblad Expeditions, Inc., to
support the regions that we visit. Since we and National Geographic together cover the LEX-NG Fund’s operating costs, 100%
of guest contributions go directly to on-the-ground projects. In 2016, nine key areas were supported with an aggregate amount
of $1.5 million. The majority of funds were donated by guests traveling aboard our fleet; National Geographic also contributed
10% of royalty payments we made to National Geographic. In some instances, matching funds have been negotiated with third parties.
The LEX-NG Fund is managed jointly by one of our staff members and a National Geographic staff member, and the Board is currently
comprised of four members, including Sven-Olof Lindblad, the founder, President and Chief Executive Officer of Lindblad Expeditions
Holdings, Inc., and Terry Garcia, Chief Science and Exploration Officer of National Geographic Society.
Environmental
Stewardship
Our
staff is involved in organizations such as the International Association of Antarctic Tour Operators and the Association of Arctic
Expedition Cruise Operators, which seek to lead the tourism industry with management best practices for visiting places such as
Antarctica, the Arctic and the Galápagos Islands. Our staff also works with the MarViva Foundation (a non-governmental
organization focused on promoting the conservation and sustainable use of coastal and marine ecosystems in the eastern tropical
Pacific) to provide a consumer market for sustainably caught fish from the first designated responsible fishing area of Costa
Rica. We also work with the Charles Darwin Research Station and Charles Darwin Foundation on conservation initiatives geared toward
preserving the Galápagos Islands.
Seasonality
Our
tour revenues from the sale of guest tickets are mildly seasonal, historically larger in the first and third quarters. The seasonality
of our operating results fluctuates due to our vessels being taken out of service for scheduled maintenance or drydocking, which
is typically during nonpeak demand periods, in the second and fourth quarters. Our drydock schedules are subject to cost
and timing differences from year to year due to the availability of shipyards for certain work, drydock locations based on ship
itineraries, operating conditions experienced especially in the polar regions, and the applicable regulations of class societies
in the maritime industry, which require more extensive reviews periodically. Drydocking impacts operating results by reducing
tour revenues and increasing cost of tours.
Suppliers
Our
largest capital expenditures are for ship maintenance and acquisition, and our largest operating expenditures are for payroll,
fuel, food and beverage, travel agent services, and advertising and marketing. Most of the supplies that we require are available
from numerous sources at competitive prices.
Insurance
We
maintain comprehensive insurance coverage at commercially reasonable rates and believe that our current coverage is at appropriate
levels to protect against most of the risk involved in the conduct of our business.
We
maintain insurance on the hull and machinery of each of our ships that includes additional coverage for disbursements, earnings
and increased value. We also maintain protection and indemnity insurance for each of our owned ships. In addition, we maintain
war risk insurance on each ship, which covers damage due to acts of war, including invasion, insurrection, terrorism, rebellion,
piracy and hijacking. This coverage includes coverage for physical damage to the ship, which is not covered under the hull policies,
as a result of war exclusion clauses in such hull policies. We also maintain protection and indemnity war risk coverage. Consistent
with most marine war risk policies, under the terms of the war risk insurance coverage, underwriters can give notice that the
policy will be canceled and reinstated at higher premium rates. We also maintain insurance coverage for shoreside property, shipboard
inventory and marine and non-marine general liability risks, as well as business interruption insurance for our owned ships based
on the evaluation of the financial exposure per vessel for profitability. In addition, we maintain workers compensation, directors
and officers’ liability and other insurance coverage.
We
historically have been able to obtain insurance coverage in amounts and at premiums we have deemed to be commercially acceptable.
No assurance can be given that affordable and secure insurance markets will be available in the future, particularly for war risk
insurance. All of our insurance coverage is subject to certain limitations, exclusions and deductible levels.
Regulation
Our
ships are regulated by various international, national, state and local laws, regulations, and treaties in force in the jurisdictions
in which they operate. In addition, certain ships are registered in the U.S., the Bahamas or Ecuador, as applicable. Each ship
is subject to regulations issued by its country of registry, including regulations issued pursuant to international treaties governing
the safety of the ships, guests and crew as well as environmental protection. Each country of registry conducts periodic inspections
to verify compliance with these regulations. Ships operating out of U.S. ports are subject to inspection by the U.S. Coast Guard
for compliance with international treaties and by the United States Public Health Service for sanitary and health conditions.
Ships are also subject to similar inspections pursuant to the laws and regulations of various other countries visited. We consider
ourselves to be in material compliance with all the regulations applicable to our ships and that we have all licenses necessary
to conduct our business. Health, safety, security, environmental, and financial responsibility issues are, and will continue to
be, an area of focus by the relevant government authorities in the U.S. and internationally. From time to time, various regulatory
and legislative changes may be proposed that could impact operations and subject us to increasing compliance costs in the future.
Safety
and Security Regulations
Our
ships are required to comply with international safety standards defined in the International Convention for Safety of Life at
Sea, which among other things, establishes requirements for ship design, structural features, materials, construction, life-saving
equipment and safe management, and operation of ships to ensure guest and crew safety. The SOLAS standards are revised from time
to time and the most recent modifications were phased in through 2010. SOLAS incorporates the International Safety Management
Code (“ISM Code”), which provides an international standard for the safe management and operation of ships and for
pollution prevention. The ISM Code is mandatory for all vessels, including passenger vessel operators. All of our operations and
ships are regularly audited by various national authorities and maintain the required certificates of compliance with the ISM
Code.
Our
ships are also subject to various security requirements, including the International Ship and Port Facility Security Code (“ISPS
Code”), which is part of SOLAS, and the U.S. Maritime Transportation Security Act of 2002 (“MTSA”), which applies
to ships that operate in U.S. ports. In order to satisfy these security requirements, we implement security measures, conduct
vessel security assessments and develop security plans. The security plans for all of the ships have been submitted to, and approved
by, the respective countries of registry for compliance with the ISPS Code and the MTSA.
The
Cruise Vessel Security and Safety Act of 2010, which applies to passenger vessels that embark passengers from or include port
stops within the U.S., requires the implementation of certain safety design features as well the establishment of practices for
the reporting of and dealing with allegations of crime.
Environmental
Regulations
We
are subject to various U.S. and international laws and regulations relating to environmental protection. Under such laws and regulations,
we are prohibited from, among other things, discharging certain materials, such as petrochemicals and plastics, into the waterways.
From time to time, environmental and other regulators may consider more stringent regulations, which may affect our operations
and increase compliance costs.
The
ships are subject to the International Maritime Organization’s regulations under the International Convention for the Prevention
of Pollution from Ships (the “MARPOL Regulations”), which includes requirements designed to minimize pollution by
oil, sewage, garbage, and air emissions. We have obtained the relevant international compliance certificates relating to oil,
sewage and air pollution prevention for all of our ships.
The
MARPOL Regulations impose global limitations on the sulfur content of fuel used by ships operating worldwide and also establish
special Emission Control Areas (“ECAs”) with stringent limitations on sulfur and nitrogen oxide emissions in these
areas. As of February 2014, there were four established ECAs: the Baltic Sea, the North Sea/English Channel, certain of the waters
surrounding the North American coast, and the waters surrounding Puerto Rico and the U.S. Virgin Islands. Currently, ships operating
in ECAs are required to operate on fuel with a sulfur content of not more than 0.1% m/m (mass by mass). Ships operating elsewhere
are subject to a limit of 3.5%, which is expected to be reduced to not more than 0.50% m/m on and after January 1, 2020 (or January
1, 2025 if the International Maritime Organization elects to defer the new cap of sulfur content following a review of the availability
of low sulfur fuel for use by ships).
In
July 2011, MARPOL Regulations introduced mandatory measures to reduce greenhouse gas emissions. These include the utilization
of an energy efficiency design index (“EEDI”) for new ships as well as the establishment of an energy efficient management
plan for all ships. The EEDI is a performance-based mechanism that requires a certain minimum energy efficiency in new ships.
These regulations apply to new vessels commissioned after January 1, 2013. In June 2013, the European Commission proposed legislation
which would require cruise ship operators using ports in the European Union to monitor and report on the vessels’ annual
carbon dioxide emissions starting in 2018.
The
Jones Act
As
U.S. flag vessels, the
National Geographic Sea Bird
and the
National Geographic Sea Lion
are subject to the U.S.
laws relating to the transport of passengers and cargo between U.S. ports in the U.S. coastwise trade. Our two newbuild coastal
vessels, the
National Geographic Quest
and
National Geographic Venture
, currently under construction, will also
be U.S. flagged.
These
laws relating to vessels are principally contained in 46 U.S.C. Chapter 551 and 46 U.S.C. §50501 and the federal regulations
promulgated thereunder and are commonly referred to collectively as the “Jones Act.” Subject to limited exceptions,
the Jones Act requires, among other things, that vessels engaged in U.S. coastwise trade be owned and operated by “citizens
of the United States” within the meaning of the Jones Act. For purposes of the Jones Act, a corporation, for example, must
satisfy at least the following requirements to be deemed a U.S. citizen: (i) the corporation must be organized under the laws
of the U.S. or of a state, territory or possession thereof; (ii) each of the chief executive officer and the chairman of the board
of directors of such corporation, and each person authorized to act in the absence or disability of such persons, must be a U.S.
citizen; (iii) no more than a minority of the number of directors of such corporation necessary to constitute a quorum for the
transaction of business can be non-U.S. citizens; and (iv) at least 75% of each class or series of stock in such corporation must
be beneficially owned by U.S. citizens within the meaning of the Jones Act.
Labor
Regulations
The
International Labour Organization, an agency of the United Nations that develops worldwide employment standards, adopted a Consolidated
Maritime Labour Convention (the “Convention”) in 2006, which became effective in August 2013. The Convention reflects
a broad range of standards and conditions governing all aspects of crew management for ships in international commerce, including
additional requirements not previously in effect relating to the health, safety, repatriation, entitlements and status of crewmembers
and crew recruitment practices. Each of our ships, except for our two ships operating in Ecuador (not a signatory to the Convention),
has received its certification of compliance with the requirements of the Convention.
Consumer
Financial Responsibility Regulations
U.S.
law requires the operators of passenger vessels embarking passengers at U.S. ports to be certified by the United States Federal
Maritime Commission as to their ability to satisfy obligations with respect to unearned passenger revenue in case of non-performance,
and for liability in case of casualty or personal injury. We satisfy these requirements with respect to our operation of the
National
Geographic Sea Bird
,
National Geographic Sea Lion
and
National Geographic Quest
through an escrow account for
passenger deposits and through our liability insurers.
Certain
jurisdictions require that we establish financial responsibility to our guests resulting from the non-performance of our obligations;
however, the related amounts do not have a material effect on our costs.
In
Australia and parts of Europe, we are obligated to honor guests’ cruise payments made by them to their travel agents regardless
of whether we receive such payments.
Regulations
Regarding Protection of Disabled Persons
As
our U.S. flag vessels, the
National Geographic Sea Bird
and the
National Geographic Sea Lion,
are subject to the
Americans with Disabilities Act (ADA), which creates affirmative requirements intended to facilitate access by disabled persons.
The ADA requires that our U.S. flagged vessels make “reasonable accommodation” in their policies, practices, and procedures
to facilitate the carriage of passengers with disabilities.
In
June 2013, the U.S. Architectural and Transportation Barriers Compliance Board proposed guidelines for the construction and alteration
of passenger vessels to ensure that the vessels are readily accessible to and usable by passengers with disabilities. If and when
finalized, these guidelines will be used by the U.S. Department of Transportation and U.S. Department of Justice to implement
mandatory and enforceable standards for passenger vessels covered by the Americans with Disabilities Act. We cannot, at this time,
accurately predict whether we will be required to make material modifications or incur significant additional expenses given the
status of the proposed guidelines.
Employees
As
of December 31, 2016, we had approximately 470 employees, including 273 shipboard employees, 195 full-time employees and two part-time
employees in our shoreside operations.
Corporate
Information and History
We
were originally incorporated in Delaware on August 9, 2010 with the name Capitol Acquisition Corp. II 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, we completed a series of mergers whereby Lindblad Expeditions, Inc., a New York corporation, became our wholly-owned
subsidiary. Immediately following the mergers, we changed our name to Lindblad Expeditions Holdings, Inc.
Our
corporate headquarters are located at 96 Morton Street, 9
th
Floor, New York, New York 10014. Our telephone number is
(212) 261-9000. Our Internet website address is
www.expeditions.com
. Our corporate filings, including our Annual Report
on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, our proxy statements and reports filed by our
officers and directors under Section 16(a) of the Securities Exchange Act, and any amendments to those filings, are available,
free of charge, on our website as soon as reasonably practicable after we electronically file such material with the Securities
and Exchange Commission. We do not intend for information contained on our website to be a part of this Annual Report on Form
10-K.
Set
forth below are some of the risks and uncertainties that, if they were to occur, could materially and adversely affect our business
or could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained
in this Form 10-K and the other public statements we make.
Risks
Related to Our Business and Operations
Adverse
worldwide economic, geopolitical or other conditions could reduce the demand for expedition travel 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 travel experiences, including expedition cruises and land-based travel 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 expedition and 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 and land-based trips 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.
Incidents
or adverse publicity concerning the cruise vacation industry, the expedition travel industry, or the travel industry in general,
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, including oil spills, and other incidents which may bring into question safety,
health, security and vacation satisfaction, 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.
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, maintain 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. If there is a significant accident, mechanical failure or similar problem
involving a ship, we may have to place a ship in drydock for an extended period for repairs. Any such unscheduled drydockings,
interruptions or disruptions in service of any of our vessels resulting from weather conditions, natural disasters, mechanical
failures or otherwise could have a material adverse effect on our business, results of operations and financial condition. 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.
Delays
or cost overruns in building new vessels (including the failure to deliver new vessels) could harm us.
Building
new vessels is subject to risks of delay (including the failure to timely deliver new vessels to customers) or cost overruns caused
by one or more of the following:
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engineering or construction problems;
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to design specifications;
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delays
or unanticipated shortages with respect to necessary materials, equipment or skilled
labor;
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inability
to obtain the requisite permits, approvals or certifications from governmental authorities
and the applicable classification society upon completion of work;
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financial
difficulties of the shipyard building a vessel, including bankruptcy;
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of shipyard availability;
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Significant
delays, cost overruns and failure to timely deliver new vessels we have committed to service one or more of our customers could
adversely affect us in several ways, including delaying the implementation of our business strategies or materially increasing
our cost of servicing our commitments to our customers.
We
must make substantial capital expenditures to maintain and/or expand our fleet.
We
must make substantial capital expenditures to maintain our fleet in good working order. Maintenance capital expenditures include
capital expenditures associated with drydocking a vessel, modifying an existing vessel or acquiring a new vessel. These expenditures
could increase as a result of changes in the cost of labor and materials; customer requirements; increases in our fleet size or
the cost of replacement vessels; governmental regulations and maritime self-regulatory organization standards relating to safety,
security or the environment; and competitive standards. In addition, maintenance capital expenditures will vary from quarter to
quarter based on the number of vessels drydocked during that quarter. Significant unexpected maintenance capital expenditures
could have an adverse impact on our operations.
We
will make substantial capital expenditures to increase the size of our fleet. We intend to expand our fleet by constructing new
vessels or acquiring existing vessels from other parties. We generally will be required to make installment payments on any new
shipbuild prior to their delivery in the future. Accordingly, we may be required to expend a significant amount of money to acquire
or build a vessel for delivery well in the future.
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 pricing adjustments, 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.
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, such as the Zika virus, 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, which
could decrease demand and adversely affect our business.
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, who 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 we offer to guests. Our competition within the expedition and
cruise vacation industries depends on the destination and is fragmented and primarily comprised of private operators.
In
the event that we do not differentiate our offerings or otherwise do not compete effectively with other vacation operators and
cruise companies, our results of operations and financial position could be adversely affected.
Conducting
business globally may result in increased costs and other risks.
We
operate our business globally and plan to continue to expand our international presence. 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
efforts 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 are expanding our focus to
include other global markets. 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 vessels to a new market with new itineraries is not successful, our business and operating results may be
adversely affected.
We
cannot predict whether new expeditions and new itineraries offered by any vessels redeployed will attract a number of guests comparable
to previous expeditions. If redeployments and new expeditions do not attract as many guests as past expeditions or if there is
a delay in finalizing or marketing the new itineraries, our business and operating results may be adversely affected.
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 termination due to our failure to achieve specified year over year revenue growth percentage
requirements, 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 partnership 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 “NG Agreements”) with National Geographic.
Pursuant
to the NG 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 NG Agreements are terminated or the terms of the NG Agreements
are modified in any material respect, due to any of the reasons set forth above or otherwise, our results of operations may be
materially adversely affected.
We
have a relationship with World Wildlife Fund (“WWF”) through our Natural Habitat subsidiary. Termination or alterations
in this relationship may have an adverse effect on our Natural Habitat business.
WWF
is a leading conservation organization whose mission is to conserve nature and reduce the most pressing threats to the diversity
of life on Earth. Natural Habitat partners with WWF to offer conservation travel, sustainable travel that directly protects nature
through a license agreement that allows Natural Habitat to use the WWF name and logo in return for a royalty fee, through 2023.
If
Natural Habitat’s license agreement with World Wildlife Fund was terminated or the terms of the agreement were modified
in any material respect, our results of operations for the Natural Habitat segment may be materially adversely affected.
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.
Any
circumstance or event which leads to a decrease in consumer cruise and land-based travel 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.
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
March 7, 2016, we entered into a second amended and restated agreement with Credit Suisse A.G. (“Credit Suisse”) as
Administrative Agent and Collateral Agent, amending our existing senior secured credit
facility with Credit Suisse. The Restated Credit Agreement contains financial covenants that, among other things, (i) require
us to maintain a total net leverage ratio of 4.50 to 1.00, with 0.25 equal reductions annually thereafter until March 31, 2020,
when the total net leverage ratio shall be 3.50 to 1.00 thereafter; (ii) limit 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) limit the amount we may spend in connection
with certain types of investments; and (iv) require the delivery of certain periodic financial statements and an operating budget.
The Restated 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.
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,
in particular, 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, air travel, 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.
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 increase our operating expenses and 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 air transport, 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.
Actual or threatened natural disasters (e.g., hurricanes, earthquakes, tornadoes, fires, and floods), terrorist attacks, or other
similar disruptive 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.
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 Canadian Dollar, the Australian Dollar, the Swedish Krona, and the British Pound. In 2016, 2015 and 2014,
we derived approximately 11%, 15%, and 19%, respectively, 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
limited 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. We 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 forward
contracts that were entered into to manage the currency risk would need to be terminated. Termination of these contracts could
result in a significant loss.
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. Our management team is comprised of individuals
with a diverse knowledge base and skill sets acquired through extensive experience in expedition cruising, adventure travel, and
hospitality. 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. 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, such as reservations and reporting 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 our 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.
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 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, including access to protected or preserved areas.
For
instance, the number of visitors admitted to the Galápagos National Park at any given time is limited by the number of
cupos permits issued by the Galápagos National Parks Service. In June 2015, a new Ecuadorian Special Law for Protected
Areas was approved and updated in November 2015. A Presidential Decree issued by President Correa of Ecuador in November 2015
established that cupos, which were in effect as of July 2015, will have a validity of nine years. Our operating rights are up
for renewal in July 2024 and based on the new law, we will begin the renewal process in 2020. The current “owners”
of the cupos will have the opportunity to re-apply for them, but any other enterprise or individual will have the opportunity
to bid for the cupos. All bidders must present proof that they fulfill the conditions to properly utilize the license (access
to a vessel, experience in tourism, proven environmental behavior, marketing, etc.). If the Galápagos 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 Galápagos Islands and elsewhere could cause
sudden losses in revenue and additional expenditures for alterations in our itineraries. 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.
In
addition, our expedition voyages in Cuba are currently allowed under a general license from the Office of Foreign Assets Control
of the United States Department of Treasury authorizing the organization and implementation of people-to-people trips to Cuba.
Any change in regulations or limitations with respect to the general license, or a change in law or regulation by the Cuban government,
could limit our ability to conduct our voyages in Cuba, which may result in losses in revenue.
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.
In
addition, as a result of any ship-related or other incidents, litigation claims, enforcement actions and regulatory actions and
investigations, including, but not limited to, those arising from personal injury, loss of life, loss of or damage to personal
property, business interruption losses or environmental damage to any affected coastal waters and the surrounding area, may be
asserted or brought against various parties, including us and/or our subsidiaries. The time and attention of our management may
also be diverted in defending such claims, actions and investigations. Subject to applicable insurance coverage, we may also incur
costs both in defending against any claims, actions and investigations and for any judgments, fines, civil or criminal penalties
if such claims, actions or investigations are adversely determined.
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, 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.
An
inability to obtain adequate insurance coverage could adversely affect our business, financial condition and results of operations.
While
we maintain comprehensive insurance and believe that our current coverage is at appropriate levels, there can be no assurance
that all of our risks are fully insured against or that any particular claim will be fully paid by our insurance. Such losses,
to the extent they are not adequately covered by contractual remedies or insurance, could affect our financial results. If we
were to sustain significant losses in the future, our ability to obtain insurance coverage at all or at commercially reasonable
rates could be materially adversely affected. Moreover, irrespective of the occurrence of such events, there can still be no assurance
that we will be able to obtain adequate insurance coverage at commercially reasonable rates or at all.
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. coastwise 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.
Risks
Related to Our Securities
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 permits 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 be 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 we are 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.
We
are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging
growth companies will make our shares of common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the Jumpstart our Business Startups Act of 2012 (“JOBS Act”).
We will remain an “emerging growth company” for up to five years. However, if our non-convertible debt issued within
a three year period or revenues exceeds $1 billion, or the market value of our shares of common stock that are held by non-affiliates
exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, we would cease to be an emerging growth
company as of the following fiscal year. As an emerging growth company, we are not required to comply with the auditor attestation
requirements of section 404 of the Sarbanes-Oxley Act. We cannot predict if investors will find our shares of common stock less
attractive because we may rely on these provisions. If some investors find our shares of common stock less attractive as a result,
there may be a less active trading market for our shares and our share price may be more volatile.
Our
outstanding warrants may have an adverse effect on the market price of shares of common stock.
As of March 2, 2017, we
had issued and outstanding warrants to purchase 10,673,015 shares of common stock. The sale, or even the possibility of sale, of
the shares underlying the warrants could have an adverse effect on the market price for our securities or on our ability to obtain
future financing. If and to the extent these warrants are exercised, you may experience dilution to your holdings.
We
may redeem the warrants at a time that is not beneficial to public investors.
We
may call the public warrants for redemption at any time after the redemption criteria described in the prospectus for our initial
public offering have been satisfied. If we call the public warrants for redemption, public stockholders may be forced to accept
a nominal redemption price or sell or exercise the warrants when they may not wish to do so.
Our
management’s ability to require holders of our warrants to exercise such warrants on a cashless basis will cause holders
to receive fewer shares of common stock upon their exercise of the warrants than they would have received had they been able to
exercise their warrants for cash.
If
we call our public warrants for redemption after the redemption criteria described in the prospectus for our initial public offering
have been satisfied, our management will have the option to require any holder that wishes to exercise its warrant (including
any warrants held by our initial stockholders or their permitted transferees) to do so on a “cashless basis.” If our
management chooses to require holders to exercise their warrants on a cashless basis, the number of shares of common stock received
by a holder upon exercise will be fewer than it would have been had such holder exercised his warrant for cash. This will have
the effect of reducing the potential “upside” of the holder’s investment in our company.
We
do not intend to pay any dividends to stockholders in the foreseeable future.
We
have not paid any cash dividends on our shares of common stock to date and do not intend to pay cash dividends in the foreseeable
future. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements
and general financial conditions. The payment of any dividends is within the discretion of our Board of Directors. It is the present
intention of our Board of Directors to retain all earnings, if any, for use in our business operations and, accordingly, our Board
of Directors does not anticipate declaring any dividends in the foreseeable future. As a result, any gain you will realize on
our securities will result solely from the appreciation of such securities.
Item
1B.
|
Unresolved Staff
Comments
|
None.
Our
principal executive office is located at 96 Morton Street, New York, New York where we lease approximately 13,000 square feet.
Our principal shoreside operations are located at 1415 Western Avenue, Seattle, Washington, consisting of approximately 7,200
square feet. We also lease our Natural Habitat office in Louisville, Colorado, a media studio in Burlington, Vermont and an office
in Sydney, Australia. A description of our vessels is set forth in Item 1 under the subheading “Lindblad Expedition Ships
and Voyages.”
Item
3.
|
Legal Proceedings
|
We
are involved in various claims, legal actions and regulatory proceedings arising from time to time in the ordinary course of business.
We are not currently involved in any litigation nor to our knowledge, is any litigation threatened against us, the outcome of
which would, in our judgement based on information currently available to us, have a material adverse effect on our financial
position or results of operations.
Item
4.
|
Mine Safety Disclosures
|
None.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
Notes to the Consolidated Financial Statements
NOTE 1 – BUSINESS
Organization
Lindblad Expeditions Holdings,
Inc. and its consolidated subsidiaries (the “Company” or “Lindblad”) currently operate a fleet of six owned
expedition ships and five seasonal charter vessels under the Lindblad brand.
Lindblad’s mission
is to offer life-changing adventures on all seven continents and pioneering innovative ways to allow its guests to connect with
exotic and remote places. The Company’s expedition ships are customized, nimble and intimately-scaled vessels that are able
to venture where larger cruise ships cannot, thus allowing Lindblad 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 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.
Natural Habitat Acquisition
On May 4, 2016, the Company
acquired an 80.1% ownership interest in Natural Habitat, Inc. (“Natural Habitat”), an adventure travel and ecotourism
company based in Colorado. Natural Habitat was founded by Benjamin L. Bressler, who retains a 19.9% noncontrolling interest in
Natural Habitat. With the acquisition of Natural Habitat, the Company expanded its itineraries to include land-based offerings
around the globe. Natural Habitat’s expeditions include polar bear tours in Churchill, Canada, Alaskan grizzly bear adventures,
small-group Galápagos tours and African safaris. In addition to its land offerings, Natural Habitat offers select itineraries
on seven small chartered vessels for parts of the year. Natural Habitat has partnered with World Wildlife Fund (“WWF”)
to offer conservation travel, sustainable travel that directly protects nature. This agreement with WWF extends through 2023.
Stock and Warrant Repurchase Plan
On November 2, 2016, the
Company’s Board of Directors approved a $15.0 million increase to the Company’s existing stock and warrant repurchase
plan (“Repurchase Plan”) to a total of $35.0 million. This Repurchase Plan, which was authorized in November 2015,
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. See Note 11 – Shareholders’
Equity for more details.
Amended and Restated Credit Agreement
On March 7, 2016, the Company
entered into a second amended and restated credit agreement with Credit Suisse A.G. (“Credit Suisse”) (“Restated
Credit Agreement”), adding a $45.0 million revolving credit facility. See Note 7 – Long-Term Debt for more details.
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, 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. (“LEX”) 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 LEX
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.
As a result of the mergers,
LEX 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 Lindblad has presented LEX’s information as that of the Company.
The Company’s common
stock and warrants are listed on the NASDAQ Capital Market under the symbols “LIND” and “LINDW,” respectively.
Capitol Initial Public Offering and Warrants
In connection with its
initial public offering, on May 15, 2013, Capitol 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 $200.0 million. Each unit consisted of one share of Capitol’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 until July 1, 2013 when separate trading of common stock and warrants
began. In connection with the consummation of the merger with LEX, 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 that commenced thirty days after the completion of the merger
between LEX and terminating five years thereafter. As of December 31, 2016, there were 11,186,387 warrants outstanding.
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 will mean the average reported last sale price of the
shares of common stock for the five 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.
Certain of the outstanding
warrants were privately acquired from the Company by Capitol’s sponsor and certain of the Company’s initial officers
and directors and are identical to the warrants included in the units sold in the offering except that such warrants: (i) are 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.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated
financial statements and footnotes as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 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 audited annual
financial information.
The merger with LEX has
been accounted for as a reverse acquisition in accordance with U.S. GAAP, Financial Accounting Standards Board (“FASB”),
Accounting Standards Codification (“ASC”) 805-40-45. Under this method of accounting, Capitol has been treated as the
“acquired” company for financial reporting purposes. This determination was primarily based on LEX comprising the ongoing
operations and assets of the combined entity and LEX senior management comprising the senior management of the combined company.
In accordance with guidance applicable to these circumstances, the merger has been considered to be a capital transaction in substance.
Accordingly, for accounting purposes, the merger has been treated as the equivalent of LEX issuing shares for the net assets of
Capitol, accompanied by a recapitalization. The net assets of Capitol have been stated at historical cost, with no goodwill or
other intangible assets recorded. Operations prior to the merger are those of LEX. Additionally, the historical financial statements
of LEX are now reflected as those of the Company.
Principles of Consolidation
The consolidated financial
statements of the Company as of December 31, 2016 and 2015 included Lindblad Expeditions Holdings, Inc. and its consolidated subsidiaries.
Natural Habitat’s balance sheet as of December 31, 2016 and results of operations for the period beginning May 5, 2016 and
ending December 31, 2016 are included in the Company’s consolidated financial statements. The consolidated financial statements
of the Company as of December 31, 2015 and 2014 included LEX, its wholly-owned subsidiary, Lindblad Maritime Enterprises, Ltd (“LME”),
a Cayman Islands corporation, as well as the subsidiaries of LME, and
Sea Bird
and
Sea Lion
as variable interest
entities (“VIEs”). LEX controlled the activities which most significantly impacted 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 intercompany accounts and transactions have been eliminated in consolidation. The VIEs were transferred
to Lindblad and became wholly-owned subsidiaries of the Company at the merger date, July 8, 2015.
Reclassifications
Certain items in the 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 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 consolidated financial
statements, and also affect estimates and assumptions of 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 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 revenues consist of
guest ticket revenues recognized from the sale of guest tickets and other tour 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. Revenues from the sale of guest tickets
and other tour revenues 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
revenues in the 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 of owned vessels in excess of ten days, where the tour
days span a quarter end or year end, the Company recognizes revenue based upon expedition 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.
Insurance
The Company maintains insurance
to cover a number of risks including illness and injury to crew, guest injuries, pollution, other third-party claims in connections
with its tour expedition activities, damages to hull and machinery for each of its vessels, war risks, workers’ compensation,
employee health, directors and officers liability, property damages and general liabilities for third-party claims. The Company
recognizes insurance recoverables from third-party insurers for incurred expenses at the time the recovery is probable and upon
realization for amounts in excess of incurred expenses. All of the Company’s insurance policies are subject to coverage limits,
exclusions and deductible levels.
The Company self-insures
for medical insurance claims up to sixty thousand dollars and cancellation insurance extended to guests. The Company has Stop Loss
coverage for medical claims in excess of the sixty thousand dollars amount. As of December 31, 2016 and 2015, the Company recorded
a liability for Incurred-But-Not-Recorded (“IBNR”) medical claims, which was determined based on claims experience
over the prior three years. The Company uses an insurance company to manage passenger insurance purchased to cover a variety of
insurable losses including cancellations, interruption, missed connections, travel delays, accidental death and dismemberment,
medical coverage and baggage issues. The Company is self-insured for the claims only which cover cancellations, interruption, missed
connections and travel delays. The required reserve was determined based on claims experience over the prior four years. While
the Company believes its estimated IBNR and accrued claims reserves are adequate, the ultimate losses may differ.
The Company participates
in a traditional marine industry reinsurance solution for liability exposure through their Protection and Indemnity (“P&I
Club”) Reinsurers, which are similar to mutual marine P&I Club’s that join and severally indemnify each other to
provide discounted primary and excess Protection and Indemnity coverage to club members. The resulting aggregated surplus of the
clubs combines to provide the Company with below market primary and high excess liability coverage for covered losses. For consideration
of long-term below market P&I rates, the joint and several liability obligation requires the down-stream indemnification by
their members, including the Company.
Selling and Administrative Expense
Selling expenses include
commissions and a broad range of advertising and marketing expenses. These include direct mail, print and online advertising costs,
as well as costs associated with website development and maintenance. Also included are social media and corporate sponsorship
costs. Advertising is charged to expense as incurred. Advertising expenses totaled $14.7 million, $13.0 million and $12.5 million
for the years ended December 31, 2016, 2015 and 2014, respectively. The largest component of advertising expense was direct mail,
which totaled $5.5 million, $5.8 million and $5.8 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Administrative expenses
represent the costs of our shore-side vessel support, reservations and other administrative functions, and incudes salaries and
related benefits, professional fees, and occupancy costs, which are typically expensed as incurred.
Earnings per Common Share
Earnings per common share
is computed by dividing net income available to common stockholders, 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 outstanding 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 years ended December 31, 2016 and 2015, the Company determined, using the treasury method, there were 782,565 and 657,558,
respectively, of dilutive common shares related to stock options. For the year ended December 31, 2016, the Company determined,
using the treasury method, there were 24,385 dilutive common shares related to restricted shares. For the years ended December
31, 2015 and 2014, the Company determined there were no dilutive potential common shares.
In 2014, the two-class
method was used in the calculation of basic and diluted earnings per share. Under the two-class method, earnings per common share
were allocated to the Class A (common as a result of the merger) and Class B common shareholders of LEX based on the weighted average
shares outstanding.
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.
As of December 31, 2016,
11,186,387 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.
Basic weighted average
shares outstanding prior to the mergers included the shares underlying a warrant to purchase 60% of the outstanding common shares.
As the shares underlying this warrant could have been issued for little consideration (an aggregate exercise price of $10.00),
these shares were formerly deemed to be issued for purposes of basic earnings per share. Effective May 8, 2015, in connection with
LEX closing on a transaction to purchase 100% of Cruise/Ferry Master Fund I, N.V. (“CFMF”), the warrant was cancelled.
On July 8, 2015, as a result of the merger agreement, and the reverse merger treatment and recapitalization, these shares were
not considered part of the recapitalization and therefore not included in basic or dilutive weighted average shares outstanding.
For the years ended December 31, 2015 and 2014, the Company excluded 1,912,833 (converted from 6,747 shares as a result of the
merger) shares of common stock as these shares were subject to the warrants described above.
For the years ended December
31, 2016, 2015 and 2014, the Company calculated earnings per share in accordance with FASB ASC 260 and 805-40-45 as follows:
|
|
For the Years Ended
December 31,
|
|
(In thousands, except share and per share data)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net income attributable to Lindblad for basic and diluted earnings per share
|
|
$
|
4,864
|
|
|
$
|
19,742
|
|
|
$
|
22,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average shares outstanding, basic
|
|
|
45,649,971
|
|
|
|
44,917,829
|
|
|
|
50,878,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed exercise of stock options, treasury method
|
|
|
782,565
|
|
|
|
657,558
|
|
|
|
-
|
|
Assumed exercise of restricted shares, RSU's, treasury method
|
|
|
24,385
|
|
|
|
-
|
|
|
|
-
|
|
Dilutive potential common shares
|
|
|
806,950
|
|
|
|
657,558
|
|
|
|
-
|
|
Total weighted average shares outstanding, diluted
|
|
|
46,456,921
|
|
|
|
45,575,387
|
|
|
|
50,878,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
4,864
|
|
|
$
|
19,742
|
|
|
$
|
19,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
45,649,971
|
|
|
|
44,917,829
|
|
|
|
44,717,759
|
|
Diluted
|
|
|
46,456,921
|
|
|
|
45,575,387
|
|
|
|
44,717,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to Lindblad
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
Diluted
|
|
$
|
0.10
|
|
|
$
|
0.43
|
|
|
$
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to Class B common stockholders
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
-
|
|
|
|
-
|
|
|
|
6,161,135
|
|
Diluted
|
|
|
-
|
|
|
|
-
|
|
|
|
6,161,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to Lindblad
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
0.44
|
|
Diluted
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
0.44
|
|
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 December 31, 2016 and 2015, the Company’s cash held in financial institutions outside
of the U.S. amounted to $2.7 million and $3.9 million, respectively.
Restricted Cash and Marketable Securities
Included in “Restricted
cash and marketable securities” on the accompanying 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 December 31,
|
|
(In thousands)
|
|
2016
|
|
|
2015
|
|
Restricted cash and marketable securities:
|
|
|
|
|
|
|
Credit negotiation and credit card processor reserves
|
|
$
|
5,030
|
|
|
$
|
5,030
|
|
Federal Maritime Commission escrow
|
|
|
2,571
|
|
|
|
2,233
|
|
Certificates of deposit and other restricted securities
|
|
|
1,414
|
|
|
|
1,197
|
|
Total restricted cash and marketable securities
|
|
$
|
9,015
|
|
|
$
|
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.
A $5.0 million cash reserve
at December 31, 2016 and 2015 is required for credit card deposits by third-party credit card processors. We were notified our
required deposit of $3.5 million, will no longer be required as of January 27, 2017. As a result, restricted cash of $3.5 million
will be reclassified to cash and cash equivalents in the first quarter of 2017.
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.
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.
Prepaid Expenses and Other Current Assets
The Company records prepaid
expenses and other current assets at cost and expenses them in the period the services are provided or the goods are delivered.
The Company’s prepaid expenses and other current assets consist of the following:
|
|
As of December 31,
|
|
(In thousands)
|
|
2016
|
|
|
2015
|
|
Prepaid tour expenses
|
|
$
|
11,593
|
|
|
$
|
5,269
|
|
Prepaid client insurance
|
|
|
2,141
|
|
|
|
1,706
|
|
Prepaid air expense
|
|
|
2,432
|
|
|
|
1,379
|
|
Prepaid port agent fees
|
|
|
1,038
|
|
|
|
1,080
|
|
Prepaid income taxes
|
|
|
824
|
|
|
|
938
|
|
Prepaid corporate insurance
|
|
|
931
|
|
|
|
753
|
|
Prepaid marketing, commissions and other expenses
|
|
|
1,823
|
|
|
|
1,141
|
|
Total prepaid expenses
|
|
$
|
20,782
|
|
|
$
|
12,266
|
|
Property
and Equipment, net
Property and equipment, net is
stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line
method over the estimated useful lives of the assets, as follows:
|
|
Years
|
Vessels and vessel improvements
|
|
15-25
|
Furniture & equipment
|
|
5
|
Computer hardware and software
|
|
5
|
Leasehold improvements, including expedition sites and port facilities
|
|
Shorter of lease term or related asset life
|
The ship-based tour and
expedition industry is very capital intensive and as of December 31, 2016 and 2015, the Company owned and operated six vessels
and has two new coastal vessels under construction. Therefore, the Company has a capital program that it develops for the improvement
of its vessels, expedition sites 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.
Improvement costs that
add value to the Company’s vessels and expedition sites, such as those discussed above, are capitalized to the vessels and
site improvements and depreciated over the shorter of the improvements or the vessel’s or other improvements 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.
Goodwill
Goodwill
includes the cost of the acquired business in excess of the fair value of the tangible net assets recorded in connection with
the acquisition of Natural Habitat (see Note 1 – Business). SFAS No. 142, “
Goodwill and Other Intangible Assets
”
(“SFAS 142”), requires the Company to assess goodwill for impairment annually or more frequently if a triggering event
occurs. Due to the acquisition of Natural Habitat on May 4, 2016, the Company recorded goodwill in the amount of $22.1 million,
in Natural Habitat’s reporting unit. The Company’s policy is to first perform a qualitative assessment to determine
if Natural Habitat’s reporting unit’s carrying value is less than the fair value of the reporting unit, indicating
the potential for goodwill impairment. The quantitative two step goodwill impairment calculation is then performed if the reporting
unit fails the qualitative test. The Company performed a qualitative assessment for goodwill impairment as of September 30, 2016
for Natural Habitat’s reporting unit with no indication of goodwill impairment.
Intangibles, net
Intangibles, net include
tradenames, customer lists and operating rights. Tradenames are words, symbols, or other devices used in trade or business to indicate
the source of products and to distinguish it from other products and are registered with government agencies and are protected
legally by continuous use in commerce. Customer lists are established relationships with existing customers that resulted in repeat
purchases and customer loyalty. Based on the Company’s analysis, amortization of the tradenames and customer lists was computed
using the estimated useful lives of 15 and 5 years, respectively.
The Company operates two
vessels year-round in the Galápagos National Park in Ecuador; the
National Geographic Endeavour II
with 95 berths
and the
National Geographic Islander
with 47 berths. In order to operate these vessels within the park, the Company is required
to have in its possession cupos (licenses) sufficient to cover the total available berths on each vessel.
In June 2015, a new Ecuadorian
Special Law for Protected Areas was approved and updated in November 2015. A Presidential Decree issued by President Correa of
Ecuador in November 2015 established that cupos, which were in effect as of July 2015, will have a validity of nine years. The
Company’s operating rights are up for renewal in July 2024 and based on the new law, the Company will begin the renewal process
in 2020. The current “owners” of the cupos will have the opportunity to re-apply for them, but any other enterprise
or individual will have the opportunity to bid for the cupos. All bidders must present proof that they fulfill the conditions to
properly utilize the license (access to a vessel, experience in tourism, proven environmental behavior, marketing, etc.). While
the Company believes that, based on the expected criteria to retain cupos and its past operating history in the Galápagos,
there is a strong possibility that the Company will retain its cupos, from an accounting perspective, it will assume they retain
no value after July 2024. Once the renewal process has begun and if it can be determined that the Company will be successful in
its bid, then the Company will adjust its amortization prospectively.
Upon the occurrence of
a triggering event, the assessment of possible impairment of the Company’s intangibles, net will be 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 tradenames, customer lists and operating rights.
As of December 31, 2016 and 2015, there was no triggering event and the Company did not record an impairment for intangible assets.
Long-Lived Assets
The Company reviews its
long-lived assets, principally its vessels, 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 December 31, 2016
and 2015, there was no triggering event and the Company did not record an impairment of its long-lived assets. In the first quarter
of 2016, the Company reviewed the remaining useful life of the
National Geographic Endeavour
, which was replaced by the
National Geographic Endeavour II
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 (see Note 3 – Property and Equipment). As a result, the Company accelerated the depreciation
in order to fully depreciate the asset by the end of the fourth quarter of 2016.
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. In 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.
On March 3, 2009, LEX issued
a note payable to Cruise/Ferry Master Fund I, N.V. (see Note 7 – Long-Term Debt). On December 11, 2014, LEX 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 LEX 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 LEX
on a fully diluted basis. On December 11, 2014, the date of the purchase agreements, an initial payment of $25.0 million was made
to DVB under the Profit Participation Loan Purchase Agreement. The remaining payments of (i) $22.7 million to DVB, (ii) $48.4 million
to Buss Kreuzfahrtfonds 1 GmbH & Co. KG and Buss Kreuzfahrtfonds 2 GmbH & Co. KG, as increased by $0.3 million 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 LEX commenced liquidation procedures on CFMF.
Utilizing the proceeds from the new loans, LEX also paid in full its preexisting senior debt facility in the amount of $39.8 million
held by DVB.
The investment in CFMF
was liquidated subsequent to the purchase of CFMF on May 8, 2015. The CFMF assets acquired were the junior mortgage note receivable
and warrant and both were cancelled 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). This resulted in a $7.5 million gain on the transfer of assets and an $83.7 million adjustment
to additional paid-in capital for the cancellation of the warrant.
Assignment and Assumption Agreement
In connection with LEX’s
agreement to purchase CFMF, Sven-Olof Lindblad (“Mr. Lindblad”) earned a success fee of $5.0 million from DVB for the
purchase of CFMF (DVB was a partner in CFMF and the lender of LEX’s preexisting senior debt facility).
On March 9, 2015, Mr. Lindblad
and LEX entered into an Assignment and Assumption Agreement pursuant to which Mr. Lindblad (i) assigned and transferred to LEX
his right to receive a $5.0 million fee payable to Mr. Lindblad personally by DVB and (ii) exercised his outstanding option to
purchase 809,984 shares (converted from 2,857 shares at the merger date) of LEX’s stock for $0.1 million in aggregate exercise
proceeds. In exchange for the assignment to LEX of the fee payable by DVB, all of Mr. Lindblad’s obligations under his loan
agreement with LEX (the “Mr. Lindblad Loan Agreement”), which had a balance of principal and accrued interest of $2.8
million 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, LEX received the $5.0 million fee from DVB and compensated Mr. Lindblad $5.0 million (success fee compensation
expense), which was paid by settling the $2.8 million outstanding amount of principal and interest owed and the aggregate exercise
proceeds of $0.1 million payable in connection with the exercise of the option (above), and also offset by $2.1 million in required
withholding taxes.
Accounts Payable and Accrued Expenses
The Company records accounts
payable and accrued expenses for the cost of such items when the service is provided or when the related product is delivered.
The Company’s accounts payable and accrued expenses consist of the following:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Accounts payable
|
|
$
|
7,573
|
|
|
$
|
4,761
|
|
Accrued other expense
|
|
|
6,265
|
|
|
|
5,385
|
|
Bonus compensation liability
|
|
|
4,186
|
|
|
|
2,800
|
|
Employee liability
|
|
|
3,228
|
|
|
|
2,597
|
|
Income tax liabilities
|
|
|
884
|
|
|
|
2,045
|
|
New build liability
|
|
|
4,011
|
|
|
|
4,082
|
|
Travel certificate liability
|
|
|
1,218
|
|
|
|
1,312
|
|
Refunds and commissions payable
|
|
|
1,454
|
|
|
|
1,388
|
|
Royalty payable
|
|
|
1,468
|
|
|
|
1,310
|
|
Accrued travel insurance expense
|
|
|
375
|
|
|
|
288
|
|
Total accounts payable and accrued expenses
|
|
$
|
30,662
|
|
|
$
|
25,968
|
|
Leases
The Company leases office
space with lease terms ranging from one to ten years. The Company amortizes the total lease costs on a straight-line basis over
the minimum lease term.
The Company leases computer
hardware and software, office equipment and vehicles with lease terms ranging from three to six years.
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 and unearned passenger revenue 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 December 31, 2016 and 2015.
As of December 31, 2016 and 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
The
Company is subject to income taxes in both the U.S. and the non-U.S. jurisdictions in which it operates. Significant management
judgment is required in projecting ordinary income to determine the Company’s estimated effective tax rate.
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 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. As of December 31, 2016 and 2015, the Company had a liability for unrecognized
tax benefits of $0.4 million, respectively, which was included in other long-term liabilities on the Company’s 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 years ended
December 31, 2016 and 2015, included in income tax expense was $0.1 million, 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 are no U.S. federal, state or foreign jurisdiction tax audits pending. The Company’s
corporate U.S. federal and state tax returns from 2013 to 2015 remain subject to examination by tax authorities and the Company’s
foreign tax returns from 2012 to 2015 remain subject to examination by tax authorities.
Other Long-Term Assets
In 2015, the Company recorded
deferred financing costs of $11.0 million for the Credit Facility in long-term debt, amortizing the costs over the term of the
financing using the straight-line and effective interest method (see Note 7 – Long-Term Debt).
In 2016, the Company recorded
a $3.6 million tax asset for long-term prepaid value-added taxes related to the importation of the N
ational Geographic Endeavour
II
and expect to earn tax credits that will reduce the asset over the next several years.
In connection with the
merger on July 8, 2015, the Company, Mr. Lindblad and National Geographic entered into a Call Option agreement where Mr. Lindblad
agreed to grant National Geographic an option to purchase 2,387,499 of Mr. Lindblad’s shares in the Company as consideration
for the assumption of the NG Agreements. The Company recorded a $13.8 million long-term asset using a fair value of $5.76 per option
share. The balance of the license agreement asset as of December 31, 2016 was $9.5 million. As of December 31, 2016 and December
31, 2015, the balance in other long-term assets was $13.1 million and 12.4 million, respectively. (See Note 9 – Commitments
and Contingencies for more details).
Foreign Currency Translation
The U.S. dollar is the
functional currency in the Company’s foreign operations and remeasurement adjustments and gains or losses resulting from
foreign currency transactions are recorded as foreign exchange gains or losses in the consolidated statements of income.
Stock-Based Compensation
The Company accounts for
equity instruments issued to employees, non-employee directors or other service providers 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 service 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 are transferred out of additional paid-in-capital
to a liability account and is thereafter marked-to-market annually to fair value.
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,
management did identify a subsequent event that requires disclosure in the consolidated financial statements (see Note 11 –
Shareholders’ Equity).
Segment Reporting
We are primarily a specialty
cruise operator with operations in two segments, Lindblad and Natural Habitat. We evaluate the performance of our business based
largely on the results of our operating segments. We provide discrete financial information in total, by ship and type of ship.
The chief operating decision maker, or CODM, and management review operating results monthly, and base operating decisions on
the total results at a consolidated level, as well as at a segment level. Our reports provided to the Board of Directors are at
a consolidated level and also contain information regarding the separate results of both segments. Management performance and
related compensation is primarily based on total results. While both segments have similar characteristics, the two operating
and reporting segments cannot be aggregated because they fail to meet the ASC 280 requirements for aggregation.
Recent Accounting Pronouncements
In January 2017, FASB issued
Accounting Standards Update ASU No. 2017-04, Intangibles and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The
amendment was issued in response from stakeholders’ regarding the cost and complexity of the goodwill impairment test. To
simplify the subsequent measurement of goodwill, the Board eliminated Step 2 from the goodwill impairment test. In computing the
implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment
testing date of its assets and liabilities (including unrecognized assets and liabilities). Now the entity compares the fair value
of the reporting unit with its carrying amount. Public business entities should apply the guidance to annual reporting periods
beginning after December 15, 2019. Early adoption is permitted for interim or annual impairment tests after January 1, 2017. The
Company does not believe the adoption of this ASU will have a material impact prospectively, to the Company’s consolidated
financial statements.
In January 2017, FASB issued
Accounting Standards Update ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”.
The amendment was issued to clarify the definition of a business with the objective of adding guidance to assist entities with
evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments
in this Update provide a screen to determine when a set (inputs and processes that produce an output) is not a business. The screen
requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single
identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions
that need to be further evaluated. Public business entities should apply the guidance to annual reporting periods beginning after
December 15, 2017. The Company does not believe the adoption of this ASU will have a material impact prospectively, to the Company’s
consolidated financial statements.
In November
2016, FASB issued Accounting Standards Update ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash. This
update requires that a Statement of Cash Flow explain the change during the period in the total cash, cash equivalents and amounts
generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash
should be included with cash & cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown
on the Statement of Cash Flows. Public business entities should apply the guidance to annual reporting periods beginning after
December 15, 2017 with early adoption permitted. The Company is currently evaluating the effects, if any, that adoption of this
ASU will have on its consolidated financial statements.
In October 2016,
FASB issued Accounting Standards Update ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other
Than Inventory”. The amendment was issued to improve the accounting for the income tax consequences of intra-entity transfers
of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity
asset transfer until the asset has been sold to an outside party. FASB decided that an entity should recognize the income tax consequences
of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendments in this Update
eliminate the exception for an intra-entity transfer of an asset other than inventory. Public business entities should apply the
guidance to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.
Earlier application is permitted. The Company is currently evaluating the effects, if any, that adoption of this ASU will have
on its consolidated financial statements.
In August 2016, FASB issued
ASU No. 2016-15, “Statement of Cash Flows – Classification of certain Cash Receipts and Cash Payments” (Topic
230). ASU No. 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of
cash flows. For public business entities, this ASU is effective for financial statements issued for annual periods beginning after
December 15, 2017, including interim periods within those annual periods. Early adoption is permitted, provided that all of the
amendments are adopted in the same period. The Company adopted this ASU in the third quarter of 2016 and its adoption did not have
a material impact to the Company’s 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 are 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 is currently evaluating the potential impact, if any, that adoption of this ASU will have on its consolidated financial
statements.
In February
2016, FASB issued ASU No. 2016-02, “Leases” (Topic 842). The main difference between previous GAAP and Topic 842 is
the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous
GAAP. The FASB is issuing this Update to increase transparency and comparability among organizations by recognizing lease assets
and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. To meet that objective, the
FASB is amending the FASB ASC and creating Topic 842, Leases. For public business entities, the amendments in this ASU are effective
for financial statements issued for annual periods beginning after December 15, 2018, and interim periods within those annual periods.
The Company is currently evaluating the effects, adoption of this ASU will have on its consolidated financial statements.
In January
2016, FASB issued ASU No. 2016-01, “Financial Instruments- Overall” (Topic 825-10). The amendments in this ASU address
certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. They supersede the guidance
to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale)
and require equity securities (including other ownership interests, such as partnerships, unincorporated joint ventures, and limited
liability companies) to be measured at fair value with changes in the fair value recognized through net income. An entity’s
equity investments that are accounted for under the equity method of accounting or result in consolidation of an investee are not
included within the scope of this Update. The amendments allow equity investments that do not have readily determinable fair values
to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of an impairment.
The amendments also require enhanced disclosures about those investments. The amendments improve financial reporting by providing
relevant information about an entity’s equity investments and reducing the number of items that are recognized in other comprehensive
income. For public business entities, the amendments in this ASU are effective for financial statements issued for annual periods
beginning after December 15, 2017, and interim periods within those annual periods. The Company is currently evaluating the effects,
if any, that adoption of this ASU will have on its consolidated financial statements.
In 2014, FASB
issued ASU 2014-09, “Revenue from Contracts with Customers” (Topic 606). 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. There have been multiple ASU’s issued subsequent to
ASU 2014-09, each of which is listed in chronological order below with a brief summary. We are currently assessing the impact of
the guidance utilizing a comprehensive approach to assess the impact of the guidance on our revenue by reviewing our current accounting
policies and practices to identify potential differences that would result from applying the new requirements to our revenue contracts,
including evaluation of our performance obligations, principal versus agent and variable consideration. We continue to make significant
progress on our contract reviews and are also in the process of evaluating the impact, if any, on changes to our business processes,
systems and controls to support recognition and disclosure under the new guidance. We currently expect to adopt all of the new
guidance related to revenue recognition, beginning in the first quarter of 2018. Summary of subsequent ASU’s related to ASU
2014-09 is as follows:
In May 2016,
FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers – Narrow-Scope Improvements and Practical Expedients”
(Topic 606).
In April 2016,
FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers – Identifying Performance Obligations and Licensing”
(Topic 606).
In March 2016,
FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers – Principal versus Agent Considerations (Reporting
Gross versus Net)” (Topic 606).
In August 2015,
FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers – Deferral of the Effective Date” (Topic
606).
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 consolidated financial statements.
NOTE
3 – PROPERTY AND EQUIPMENT, NET
Property
and equipment, net are as follows:
|
|
As of December 31,
|
|
(In thousands)
|
|
2016
|
|
|
2015
|
|
Vessels and improvements
|
|
$
|
267,415
|
|
|
$
|
214,170
|
|
Furniture and equipment
|
|
|
10,726
|
|
|
|
8,169
|
|
Leasehold improvements
|
|
|
1,425
|
|
|
|
1,439
|
|
Total property and equipment, gross
|
|
|
279,566
|
|
|
|
223,778
|
|
Less: Accumulated depreciation and amortization
|
|
|
(93,330
|
)
|
|
|
(98,307
|
)
|
Property and equipment, net
|
|
$
|
186,236
|
|
|
$
|
125,471
|
|
Total depreciation and
amortization expense of the Company’s property and equipment for the years ended December 31, 2016, 2015 and 2014 were $17.1
million, $11.3 million and $10.9 million, respectively.
For the year ended December
31, 2016, the Company had $75.9 million in capital expenditures, including capitalized interest, added to property and equipment,
net. This amount included $33.4 million for the purchase and renovation of its
National Geographic Endeavour II
, and $36.9
million for the two newbuild coastal vessels. The Company began to capitalize interest in January 2016 for its two newbuild coastal
vessels and its renovation improvements to the
National Geographic Endeavour II
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 assets and depreciate over the useful lives. For the year ended December
31, 2016, the Company recognized $1.5 million in capitalized interest in property and equipment, net on the accompanying consolidated
balance sheet.
As
part of the transition from
National Geographic Endeavour
to
National Geographic Endeavour II
, we removed the
National
Geographic Endeavour
from operation
s
in December 2016 and incurred a loss on disposal of asset, of approximately $0.8
million. Loss on disposal includes costs associated with inventory items and accrued expenses for anticipated costs to dispose
of the
National Geographic Endeavour
, including but not limited to port costs, fuel, and crew expenses.
NOTE
4 – ACQUISITION
On May 4, 2016, the Company
acquired an 80.1% ownership interest in Natural Habitat, an adventure travel and ecotourism company based in Colorado. The acquisition
provides the Company with a platform to expand our land-based expeditions with a strong, trusted brand complimentary to Lindblad.
In 2016, the Company incurred $1.0 million of acquisition costs related to the acquisition of Natural Habitat, which is included
in general and administrative expenses of the Company’s consolidated statement of income.
The Company recorded this transaction using the acquisition method for business combinations. The Company
measured the identifiable assets, liabilities and non-controlling interest of Natural Habitat at their fair market value as of
the acquisition date and separately measured goodwill at its fair market value as of the acquisition date. Goodwill is an intangible
asset arising as a result of name, reputation, customer loyalty, location, products, and similar factors not separately identified.
The recorded goodwill has no tax basis and is therefore not tax deductible.
The Company, according
to ASC 805-20-30-1, recognized a noncontrolling interest in Natural Habitat and measured the noncontrolling interest at fair value
on the acquisition date. The noncontrolling interest is recognized as a redeemable noncontrolling interest to the extent that
the risks and rewards of ownership substantially remain with the noncontrolling interest.
Mr. Bressler’s
noncontrolling interest in
the
remaining 19.9%
interest in Natural Habitat is
subject to a put/call
arrangement. The arrangement
between the Company
and
Mr. Bressler
was
established
in order to provide
a
formal
exit
opportunity
for
Mr.
Bressler and
a
path to 100%
ownership
for
the Company.
Mr.
Bressler
has a
put option under
certain conditions and
subject
to
providing notice by October
31, 2020, that enables him, but does not obligate
him, to sell
his remaining
interest in
Natural Habitat on
December
31, 2020. The
Company has
a call
option,
but not an obligation, with an expiration of December 31, 2025,
for which it can
buy
Mr. Bressler’s remaining interest at a
similar
fair
value
measure as Mr.
Bressler’s put option.
These
rights
to purchase
or
sell the noncontrolling
interest
may be
at
a
fixed
or
variable price, or
at
fair
value, and
may
be
exercisable
on a
fixed
date
or any time at
some
point in
the
future.
The existence of
these rights impacts (1) whether separate assets
or
liabilities
should be
recognized for these
rights,
(2)
the
classification of any minority
ownership
as a
liability,
equity or redeemable
noncontrolling
interest, and (3) the amount of
earnings
recognized in the financial statements.
As
the
purchase prices indicated
similar fair
value measures, the put/call arrangement had
been struck at fair value and
each
party is
in
agreement
that the
valuation is
indicative
of fair value, the asset and
liability
position would be netted and it is
expected
that
the resulting value
would
be immaterial given the structure of the arrangement.
As Mr.
Bressler is responsible
for
the
management
of
Natural Habitat,
the risks and rewards of ownership substantially remain with the noncontrolling interest. The
existence of
the
put/call
arrangement
does not indicate a
separate
obligation or liability for either party. Based on the existence
of redemptive rights
by
Mr.
Bressler,
and the existence of
risks
and rewards
of
ownership, the noncontrolling interest was recorded
separately
as a redeemable
noncontrolling
interest. The put
right
is not redeemable unless notice
is
provided
as
per
the requirements
of
the agreement.
The total purchase price
of the acquisition is as follows:
(In thousands)
|
|
|
|
Cash consideration
|
|
$
|
14,850
|
|
Long-term debt - non-cash
|
|
|
2,525
|
|
Lindblad restricted shares (264,208 shares) - non-cash
|
|
|
2,650
|
|
Total purchase price
|
|
$
|
20,025
|
|
Below is a summary, which
details the allocation of assets acquired and liabilities assumed as a result of this acquisition:
Assets acquired:
|
|
|
|
(In thousands)
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,904
|
|
Prepaid expenses and other current assets
|
|
|
9,623
|
|
Property and equipment
|
|
|
2,068
|
|
Goodwill and other intangibles
|
|
|
28,305
|
|
Total assets
|
|
$
|
44,900
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
2,472
|
|
Unearned passenger revenues
|
|
|
15,000
|
|
Deferred tax liability
|
|
|
2,428
|
|
Noncontrolling interest in consolidated subsidiaries
|
|
|
4,975
|
|
Total liabilities
|
|
$
|
24,875
|
|
|
|
|
|
|
Total cash price paid upon acquisition and fair value of existing equity interest
|
|
$
|
20,025
|
|
The
acquired business contributed revenues of $34.5 million and operating income of $2.2 million to Lindblad Expeditions for the period
from May 5, 2016 to December 31, 2016. The following unaudited pro forma summary presents consolidated information of Lindblad
Expeditions as if the business combination had occurred on January 1, 2016.
|
|
Pro Forma
Years Ended
|
|
|
December
31,
|
|
|
2016
|
|
|
2015
|
(In thousands)
|
|
Unaudited
|
|
|
Unaudited
|
Revenues
|
|
$
|
254,567
|
|
|
$
|
249,819
|
Operating
income
|
|
$
|
15,345
|
|
|
$
|
17,883
|
The
Company adjusted $1.0 million for nonrecurring pro forma adjustments directly attributable to the business combination included
in the reported pro forma earnings as a result of acquisition costs incurred by Lindblad Expeditions. These pro forma amounts
have been calculated after applying the Company’s accounting policies and adjusting the results of Natural Habitat to reflect
the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant
and equipment and intangible assets had been applied from January 1, 2016, with tax effects.
NOTE 5 – INTANGIBLES, NET
The following information details the carrying
amounts and accumulated amortization of the Company’s intangibles, net:
|
|
As of December 31,
|
|
(In thousands)
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Average
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Useful Life
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
(Years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Tradenames
|
|
$
|
2,900
|
|
|
$
|
(129
|
)
|
|
$
|
2,771
|
|
|
|
14.3
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Customer lists
|
|
|
3,300
|
|
|
|
(440
|
)
|
|
|
2,860
|
|
|
|
4.3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Operating rights
|
|
|
6,529
|
|
|
|
(1,028
|
)
|
|
|
5,501
|
|
|
|
7.6
|
|
|
|
6,529
|
|
|
|
(302
|
)
|
|
|
6,227
|
|
Total intangibles, net
|
|
$
|
12,729
|
|
|
$
|
(1,597
|
)
|
|
$
|
11,132
|
|
|
|
8.4
|
|
|
$
|
6,529
|
|
|
$
|
(302
|
)
|
|
$
|
6,227
|
|
The
increase in the Company’s intangibles, net is the result of the acquisition of Natural Habitat on May 4, 2016. As part of
the acquisition, the Company acquired Natural Habitat’s tradenames, customer lists and goodwill in the amounts of $2.9 million,
$3.3 million and $22.1 million, respectively. See Note 4 – Acquisitions, for additional information regarding this acquisition.
The Company began amortizing operating rights with a gross carrying value of $6.5 million in July 2015 as a result of changes
to cupos in the Galapagos National Park. See Note 2 – Summary of Significant Policies,
Intangibles, net
for description
and rationale for amortizing operating rights.
For
the years ended December 31, 2016 and 2015, amortization expense for intangibles, net was $1.3 million and $0.3 million, respectively.
The Company expects amortization expense related to these intangibles, net to be $1.6 million for the years ended December 31,
2017, 2018, 2019 and 2020, respectively. For the year ended December 31, 2021, we expect amortization expense to be $1.1 million
with the balance of $3.7 million amortized thereafter. Amortization expense for tradenames, customer lists and operating rights
were recorded in depreciation and amortization expense in the accompanying consolidated
statements of income.
NOTE 6 – LETTERS OF CREDIT
As of December 31, 2016
and 2015, the Company had $4.65 million in letters of credit outstanding with financial institutions in the amounts of $150,000,
$1.0 million and $3.5 million. We were notified our letter of credit for $3.5 million, will no longer be required as of January
27, 2017. The required deposit of $3.5 million will be reclassified from restricted cash to cash equivalents in the first quarter
of 2017. The annual fee for letters of credit is 1% of the outstanding balance. The letters of credit are secured by a certificate
of deposit maintained at the financial institutions and mature on July 28, 2017.
NOTE 7 – LONG-TERM DEBT
Note Payable
On
May 4, 2016, in connection with the Natural Habitat acquisition, Natural Habitat issued an unsecured promissory note to Mr. Bressler
with an outstanding principal amount of $2.5 million due at maturity on December 31, 2020. The promissory note accrues interest
at a rate of 1.44% annually, with interest payable every six months.
Credit Facility
On May 8, 2015, the Company
entered into a credit agreement with Credit Suisse, 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 the Company’s foreign subsidiaries (the “Cayman Loan,” and together with
the U.S. Term Loan, the “Loans”). On March 7, 2016, the Company entered into a Restated Credit Agreement with Credit
Suisse, 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 (“Revolving Credit Facility”), which includes a
$5.0 million letter of credit subfacility. The Company’s obligations under the Restated Credit Facility are secured by substantially
all the assets of the Company.
Borrowings under the Loans
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%. As of December 31, 2016, the interest rate was 5.50%. The U.S. Term Loan and the Cayman Loan both mature on May 8, 2021.
Borrowings under the Revolving Credit Facility 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, which matures on May 8, 2020.
The Restated 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. As of December 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 December 31,
2016, the Company had no borrowings under the Revolving Credit Facility.
For the years ended December
31, 2016, 2015 and 2014, total debt discount and deferred financing costs charged to amortization and interest expense was $2.2
million, $3.6 million and $0.7 million, respectively.
Long-Term Debt Outstanding
As of December 31, 2016
and 2015, the following long-term debt instruments were outstanding:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
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
|
|
Note payable
|
|
$
|
2,525
|
|
|
$
|
-
|
|
|
$
|
2,525
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Credit Facility
|
|
|
172,375
|
|
|
|
(9,022
|
)
|
|
|
163,353
|
|
|
|
174,125
|
|
|
|
(9,682
|
)
|
|
|
164,443
|
|
Total long-term debt
|
|
|
174,900
|
|
|
|
(9,022
|
)
|
|
|
165,878
|
|
|
|
174,125
|
|
|
|
(9,682
|
)
|
|
|
164,443
|
|
Less current portion
|
|
|
(1,750
|
)
|
|
|
-
|
|
|
|
(1,750
|
)
|
|
|
(1,750
|
)
|
|
|
-
|
|
|
|
(1,750
|
)
|
Total long-term debt, non-current
|
|
$
|
173,150
|
|
|
$
|
(9,022
|
)
|
|
$
|
164,128
|
|
|
$
|
172,375
|
|
|
$
|
(9,682
|
)
|
|
$
|
162,693
|
|
Future minimum principal
payments of long-term debt are as follows:
Year
|
|
Amount
|
|
|
|
(In thousands)
|
|
2017
|
|
$
|
1,750
|
|
2018
|
|
|
1,750
|
|
2019
|
|
|
1,750
|
|
2020
|
|
|
4,275
|
|
2021
|
|
|
165,375
|
|
|
|
$
|
174,900
|
|
NOTE 8 — INCOME TAXES
The Company (a “C”
Corporation) provides for income taxes based on the Federal and state statutory rates on taxable income. U.S. and foreign components
of income before incomes taxes are presented below:
The components of our income
(loss) before income taxes for the years ended December 31, 2016, 2015 and 2014 are comprised of the following:
|
|
For the Years Ended December 31,
|
|
(In thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Domestic
|
|
$
|
(8,696
|
)
|
|
$
|
(3,700
|
)
|
|
$
|
1,930
|
|
Foreign
|
|
|
10,555
|
|
|
|
20,793
|
|
|
|
23,115
|
|
Total
|
|
$
|
1,859
|
|
|
$
|
17,093
|
|
|
$
|
25,045
|
|
The income tax provisions
at December 31, 2016, 2015 and 2014 are comprised of the following:
|
|
For
the Years Ended December 31,
|
|
(In thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
(38
|
)
|
|
$
|
613
|
|
State
|
|
|
51
|
|
|
|
(3
|
)
|
|
|
109
|
|
Foreign
- Other
|
|
|
164
|
|
|
|
805
|
|
|
|
1,789
|
|
Total current
|
|
|
215
|
|
|
|
764
|
|
|
|
2,511
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(3,015
|
)
|
|
|
(3,140
|
)
|
|
|
283
|
|
State
|
|
|
(426
|
)
|
|
|
(247
|
)
|
|
|
32
|
|
Foreign
- Other
|
|
|
26
|
|
|
|
(26
|
)
|
|
|
(26
|
)
|
Total deferred
|
|
|
(3,415
|
)
|
|
|
(3,413
|
)
|
|
|
289
|
|
Income tax (benefit ) expense
|
|
$
|
(3,200
|
)
|
|
$
|
(2,649
|
)
|
|
$
|
2,800
|
|
A reconciliation of the
U.S. federal statutory income tax (benefit) expense to the Company’s effective income tax provision is as follows:
|
|
For the Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Tax provision at statutory rate – federal
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
34.0
|
%
|
Tax provision at effective state and local rates
|
|
|
(21.1
|
%)
|
|
|
(1.5
|
%)
|
|
|
0.4
|
%
|
Foreign tax rate differential
|
|
|
(216.4
|
%)
|
|
|
(46.5
|
%)
|
|
|
(23.3
|
%)
|
GAAP gain on transfer of assets
|
|
|
0.0
|
%
|
|
|
(15.3
|
%)
|
|
|
0.0
|
%
|
Transaction costs
|
|
|
0.0
|
%
|
|
|
8.3
|
%
|
|
|
0.0
|
%
|
Subpart F income
|
|
|
0.0
|
%
|
|
|
5.2
|
%
|
|
|
0.0
|
%
|
Nondeductible expenses
|
|
|
51.7
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Uncertain tax provisions
|
|
|
0.2
|
%
|
|
|
0.2
|
%
|
|
|
0.9
|
%
|
Valuation allowance
|
|
|
22.1
|
%
|
|
|
0.6
|
%
|
|
|
(1.2
|
%)
|
Incentive stock options
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.4
|
%
|
Over accrual of foreign taxes
|
|
|
(37.7
|
%)
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Other
|
|
|
(5.9
|
%)
|
|
|
(1.5
|
%)
|
|
|
0.0
|
%
|
Total effective income tax rate
|
|
|
(172.1
|
%)
|
|
|
(15.5
|
%)
|
|
|
11.2
|
%
|
The Company, through its
subsidiaries and affiliated entities in the U.S., the Cayman Islands, Ecuador and Australia are subject to US Federal, US state,
Ecuadorian Federal and Australian Federal income taxes. The Cayman Islands do not impose federal or local income taxes.
Deferred tax assets as of
December 31, 2016 and 2015 are comprised of the following:
|
|
As of December 31,
|
|
(In thousands)
|
|
2016
|
|
|
2015
|
|
Net operating loss carryforward
|
|
$
|
15,032
|
|
|
$
|
11,809
|
|
Property and equipment
|
|
|
(236
|
)
|
|
|
(274
|
)
|
Valuation allowance
|
|
|
(8,795
|
)
|
|
|
(8,385
|
)
|
Stock-based compensation
|
|
|
124
|
|
|
|
(50
|
)
|
Intangibles
|
|
|
(1,923
|
)
|
|
|
-
|
|
Other
|
|
|
(84
|
)
|
|
|
116
|
|
Deferred tax assets (liabilities)
|
|
$
|
4,118
|
|
|
$
|
3,216
|
|
The Company recognizes valuation
allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. In assessing the likelihood
of realization, management considers: (i) future reversals of existing taxable temporary differences; (ii) future taxable income
exclusive of reversing temporary differences and carryforwards; (iii) taxable income in prior carryback year(s) if carryback is
permitted under applicable tax law; and (iv) tax planning strategies. As of December 31, 2016, the Company had deferred tax assets
related to Australian loss carryforwards of approximately $22.5 million and capital loss carryforwards of $6.8 million, which
may be carried forward indefinitely. The Company also had deferred tax assets related to U.S. loss carryforwards of $21.6 million,
which begin to expire in 2021. The Company excluded $4.6 million of U.S. net operating loss carryforwards from the calculation
of the deferred tax assets presented above because it represents excess stock option deductions that did not reduce taxes payable
in the U.S. The tax effect of these unrealized excess stock option deductions, if realized in the future, will result in an increase
to paid-in capital rather than a reduction to the income tax expense. The timing and manner in which the Company will utilize
the net operating loss carryforwards in any year, or in total, may be limited in the future as a result of changes in the Company’s
ownership and any limitations imposed by the jurisdictions in which the Company operates.
We continued to assert our
prior position regarding the repatriation of historical foreign earnings back to the U.S. Except for earnings that have been previously
taxed in the U.S. under the subpart F rules and can be remitted to the U.S. without incurring additional income taxes, we currently
have no intention to remit any additional undistributed earnings of our foreign subsidiaries in a taxable manner. As of December
31, 2016 and 2015, we have approximately $91.1 million and $78.6 million, respectively, of foreign undistributed earnings, respectively.
Should additional amounts of our foreign subsidiaries’ undistributed earnings be remitted to the U.S. as taxable dividends,
we would expect that this would result in additional U.S. tax at a statutory rate of up to 35% and offset by any potential foreign
tax credits. Due to uncertainty surrounding the timing and manner in which such distributions could occur, it is not practicable
to estimate the amount of such liability.
The Company is subject to
income taxes in the U.S. and various state and foreign jurisdictions. Significant judgment is required in evaluating tax positions
and determining the provision for income taxes. The Company establishes liabilities for tax-related uncertainties based on estimates
of whether, and the extent to which, additional taxes may be due. These liabilities are established when the Company believes that
certain positions might be challenged despite its belief that its tax return positions are fully supportable. The Company adjusts
these liabilities in light of changing facts and circumstances, such as the outcome of a tax audit. The provision for income taxes
includes the impact of changes to these liabilities.
The following is a tabular
reconciliation of the total amounts of unrecognized tax benefits and does not include related interest and penalties for the years
ended December 31, 2016, 2015 and 2014:
|
|
For the Years Ended December 31,
|
|
(In thousands)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Beginning of year
|
|
$
|
473
|
|
|
$
|
447
|
|
|
$
|
263
|
|
Current year positions
|
|
|
(26
|
)
|
|
|
26
|
|
|
|
194
|
|
Currency adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
(10
|
)
|
End of year
|
|
$
|
447
|
|
|
$
|
473
|
|
|
$
|
447
|
|
The amount of uncertain
tax positions that, if recognized, would impact the effective tax rate at December 31, 2016 and 2015 was $0.3 million. Any changes
are not anticipated to have significant impact on the results of operations, financial position or cash flows of the Company.
All of the Company’s uncertain tax positions, if recognized, would affect its income tax expense.
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 are no U.S. federal, state or foreign jurisdiction tax audits
pending. The Company’s corporate U.S. federal and state tax returns from 2013 to 2015 remain subject to examination by tax
authorities and the Company’s foreign tax returns from 2012 to 2015 remain subject to examination by tax
authorities.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases office
space and equipment under long-term leases, which are classified as operating leases.
Future
minimum rental commitments, under non-cancellable operating leases as of December 31, 2016 are as follows:
|
|
Minimum
|
|
|
|
Lease
|
|
For
the Years Ended December 31,
|
|
Payments
|
|
|
|
|
(In thousands)
|
|
2017
|
|
$
|
988
|
|
2018
|
|
|
890
|
|
2019
|
|
|
750
|
|
2020
|
|
|
682
|
|
2021
|
|
|
624
|
|
Thereafter
|
|
|
2,050
|
|
|
|
$
|
5,984
|
|
Rent
expense was approximately $1.1 million, $0.9 million and $0.8 million for the years ended December 31, 2016, 2015 and 2014, respectively.
These amounts are recorded within general and administrative expenses on the accompanying consolidated statements of income.
Fleet
Expansion
On
December 2, 2015, the Company entered into two separate Vessel Construction Agreements, (collectively, the “Vessel Agreements”)
with Ice Floe, LLC, a Washington limited liability company doing business as Nichols Brothers Boat Builders (the “Builder”).
The Vessel 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. As of December 31, 2016, the Company has spent a total of $47.0 million for the construction of these two coastal
vessels.
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 risk of loss or damage to the vessels remains with the Builder until
the vessel is delivered to and accepted by the Company. If the Builder fails to deliver either vessel within 30 days following
the applicable delivery date, the Company is entitled to liquidated damages in the amount of $15,000 per day thereafter (not to
exceed $500,000 for either vessel). The Vessel Agreements each provide for a one-year warranty of the vessels for defects in workmanship
or materials under normal use and service, which is capped at $3.0 million in the aggregate for both vessels. The Company may
terminate the applicable Vessel 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 Vessel Agreements also contain customary representations,
warranties, covenants, and indemnities.
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 the accompanying consolidated statements of income. The amount is calculated based upon a percentage
of certain ticket revenues less travel agent commission, including the revenues received from cancellation fees and any revenues
received from the sale of voyage extensions. A voyage extension occurs when a guest extends his or her trip with pre- or post-voyage
hotel nights and is included within tour revenues on the accompanying consolidated statements of income. The royalty expense is
recognized at the time of revenue recognition. See Note 2 – Summary of Significant Accounting Policies for a description
of the Company’s revenue recognition policy. Royalty expense for the years ended December 31, 2016, 2015 and 2014 totaled
$4.9 million, $4.8 million and $4.1 million, respectively.
The
balances outstanding to National Geographic as of December 31, 2016 and 2015 are $1.5 million and $1.3 million, respectively,
and are included in accounts payable and accrued expenses on the accompanying consolidated balance sheets.
In
March 2015, Lindblad and National Geographic extended their alliance and license agreement until the year 2025. Payment of royalties
earned during the extension period will be valued and recorded in the Company’s consolidated financial statements in a manner
consistent with the foregoing disclosure.
In
connection with the merger on July 8, 2015, the Company, Mr. Lindblad and National Geographic entered into a Call Option agreement
where Mr. Lindblad agreed to grant National Geographic an option to purchase 2,387,499 of Mr. Lindblad’s shares in the Company
as consideration for the assumption of the alliance and license agreements and the tour operator agreement. The Company recorded
a $13.8 million long-term asset using a fair value of $5.76 per option share. The Company is amortizing the cost until March 31,
2020. For the years ended December 31, 2016 and 2015, the Company recorded within selling and marketing expense on the consolidated
statements of income, $2.9 million and $1.4 million, respectively, in amortization of the National Geographic fee. The asset was
valued using a Black-Scholes valuation method with the following assumptions:
Stock
price at July 9, 2015:
|
|
$
|
10.75
|
|
Exercise
price:
|
|
$
|
10.00
|
|
Expected
term:
|
|
|
5
years
|
|
Volatility:
|
|
|
60
|
%
|
Risk
free rate:
|
|
|
1.58
|
%
|
Dividend
rate:
|
|
|
0
|
%
|
Royalty
Agreement – World Wildlife Fund
Natural
Habitat has a license agreement with World Wildlife Fund, which allows it to use the WWF name and logo. In return for these rights,
Natural Habitat is charged a royalty fee and a fee based on annual gross sales. The fees are included within selling and marketing
expense on the accompanying consolidated statements of income. The annual royalty payment and gross sales fees are paid on a quarterly
basis. For the year ended December 31, 2016, these fees totaled $0.5 million.
Royalty
Agreement – Islander
Under
a perpetual royalty agreement, the Company is obligated to pay annually a royalty based upon net revenues generated through tours
conducted on the
National Geographic Islander
as provided in the table below.
Annual
Net Revenue
|
|
Royalty
|
|
Less
than or equal to $6.0 million (minimum annual royalty payment)
|
|
$
|
225,000
|
|
Less
than or equal to $7.0 million but more than $6.0 million
|
|
$
|
275,000
|
|
More
than $7.0 million
|
|
|
$275,000
+ 5% of excess
|
|
Royalty
payments from inception were charged against the contingent royalty obligation. Royalty payments in excess of the contingent royalty
obligation were charged to cost of tours expenses. As of December 31, 2016 and 2015, there was no remaining balance of the contingent
royalty obligation. Royalty expense for the years ended December 31 2016, 2015 and 2014 was $0.7 million, $0.7 million and $0.6
million, respectively.
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)
|
|
2017
|
|
|
10,075
|
|
2018
|
|
|
5,795
|
|
2019
|
|
|
1,482
|
|
Total
|
|
$
|
17,352
|
|
Other Commitments
The
Company participates, with other tour operators, in the Consumer Protection Insurance Plan sponsored by the United States Tour
Operators Association (“USTOA”). The USTOA requires a $1.0 million performance bond, letter of credit or assigned
certificate of deposit from its members to insure this plan. The Company has assigned a $1.0 million letter of credit to the USTOA
to satisfy this requirement. This letter of credit will be used only if the Company becomes insolvent and cannot refund its customers’
deposits.
The
Company self-insures cancellation insurance extended to guests. Further, the Company contracts with an unrelated insurance company
to administer the guest insurance program, which includes additional guest-related insurance coverage purchased by guests. In
connection with the program, the Company has provided a $150,000 letter of credit to the insurance company to cover unpaid premiums.
Operational
Agreement
The
Company maintains an agreement with a third party in the Galápagos who provides operations support for the Company’s
vessels stationed there. On February 11, 2015, the Company entered into a renewal agreement with Empresa Turistica Internacional
C.A., the third-party company that provides advisory and administrative services along with the required actions for the secure
and successful operation of the
National Geographic Endeavour II
and
National Geographic Islander
in the Galápagos.
This agreement is in effect from January 1, 2015 through December 31, 2019.
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. In the opinion of management, there are no outstanding proceedings that are expected to have a material adverse effect
on our financial position, results of operations or cash flows.
NOTE
10 – 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 and $1,500 for 2014. For the years ended December 31, 2016, 2015 and 2014, the Company’s
benefit plan contribution amounted to $0.2 million, $0.2 million and $0.1 million, respectively. The benefit plan contribution
is recorded within general and administrative expenses on the accompanying consolidated statements of income.
NOTE
11 – SHAREHOLDERS’ 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 and in November
2016, the Board of Directors approved an increase of $15.0 million for a total of $35.0 million. 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 2015, the Company repurchased 2,091,618 warrants for $5.5 million. In
2016, the Company repurchased 2,821,995 warrants for $7.3 million. In November and December 2016, the Company repurchased 308,718
shares of its common stock for $3.0 million. In January through March 2, 2017, the Company has repurchased a total of 513,372
warrants for $1.1 million and 342,875 shares of common stock for $3.2 million pursuant to the Repurchase Plan. The balance as
of March 2, 2017, for the repurchase plan was $14.8 million.
2015
Long-Term Incentive Plan
In
July 2015, the Company’s Board of Directors and stockholders approved the 2015 Plan, which is administered by the Board
of Directors, allowing the Company to issue up to 2,500,000 shares of its common stock to employees, consultants and non-employee
directors providing a valuable service to the Company. The 2015 Plan provides for the grant of stock options, including incentive
stock options and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock
or cash-based awards. The Board of Directors has the authority to determine the amount and type of each award. The 2015 Plan expires
on July 8, 2025. All options granted under the 2015 Plan will be at exercise prices not less than 100% of the fair market value
of the Company’s common stock on the date of grant.
2016
CEO Share Allocation Plan
In
April 2016, the Company’s Board of Directors adopted the 2016 CEO Share Allocation Plan and in June 2016, the Company’s
stockholders approved the 2016 CEO Share Allocation Plan, 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 that the Company entered into with Sven-Olof Lindblad, Chief Executive Officer and President of
the Company, pursuant to which Mr. Lindblad will transfer up to 1,000,000 shares from his holdings 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 date the Company grants corresponding
awards under the 2016 CEO Share Allocation Plan. The administrator may amend, suspend or terminate the 2016 CEO Share Allocation
Plan at any time.
Restricted
Shares and Restricted Share Units
Restricted
shares are shares of stock granted to an employee, non-employee director or other service providers for which sale is prohibited
for a specified period of time. RSUs represent a promise to deliver shares to the employee, non-employee director or other service
providers 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, non-employee
director or other service providers until the vesting conditions are met. As summary of our Plan(s) activity was as follows:
2015
Plan Activity
|
|
|
|
|
|
Shares
|
|
|
|
Date
|
|
Persons
|
|
Type
|
|
Granted
|
|
|
Vesting
*
|
01/04/16
|
|
Four
non-employee directors
|
|
Restricted
shares
|
|
|
26,640
|
|
|
Three
installments on August 8, 2016, 2017, and 2018
|
01/04/16
|
|
One
non-employee director
|
|
RSU's
|
|
|
6,660
|
|
|
Three
installments on August 8, 2016, 2017, and 2018
|
05/11/16
|
|
One
non-employee director
|
|
Restricted
shares
|
|
|
1,864
|
|
|
Three
installments on August 8, 2016, 2017, and 2018
|
05/26/16
|
|
One
employee
|
|
Restricted
shares
|
|
|
90,000
|
|
|
Four
installments on May 26, 2017, 2018, 2019 and 2020
|
08/08/16
|
|
Five
non-employee directors
|
|
Restricted
shares
|
|
|
40,540
|
|
|
Three
installments on August 8, 2017, 2018, and 2019
|
08/08/16
|
|
One
non-employee director
|
|
RSU's
|
|
|
8,108
|
|
|
Three
installments on August 8, 2017, 2018, and 2019
|
09/06/16
|
|
One
employee
|
|
Restricted
shares
|
|
|
40,000
|
|
|
Four
installments on September 6, 2017, 2018, 2019 and 2020
|
|
|
|
|
|
|
|
213,812
|
|
|
|
2016
CEO Plan Activity
|
|
|
|
|
|
Shares
|
|
|
|
Date
|
|
Persons
|
|
Type
|
|
Granted
|
|
|
Vesting
*
|
01/10/17
|
|
200
Employees
|
|
Restricted
shares
|
|
|
716,550
|
|
|
Three
installments on January 10, 2017, 2018, and 2019
|
*
There are no performance obligations for any of the shares listed.
On January 10,
2017, the Company granted 716,550 restricted shares under the CEO Allocation Plan with a fair value of $9.65 per share as of the
grant date.
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 and RSUs awarded as of December 31, 2015
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
213,812
|
|
|
|
9.97
|
|
Vested
|
|
|
(11,721
|
)
|
|
|
11.20
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Restricted
shares and RSUs awarded as of December 31, 2016
|
|
|
202,091
|
|
|
$
|
9.90
|
|
Stock
Options
On
December 11, 2014, the Company granted stock options for the purchase of 13,480 shares of its Class A common stock at an exercise
price of $498 per share under the 2012 Stock Incentive Plan (the “Lindblad Plan”) to two officers of the Company.
At the merger date, the Company assumed the 13,480 outstanding Lindblad stock options granted under the Lindblad Plan and converted
such options into options to purchase an aggregate of 3,821,696 shares of common stock of the Company with an exercise price of
$1.76 per share. Under the assumption agreement, the exercise proceeds, service period and other terms remained the same, except
for the vesting dates and option term. There were no incremental costs resulting from the modification of the equity awards and
the requisite service is expected to be rendered with no change in the service period. Therefore, the total recognized compensation
cost for the equity awards remains the fair value at the original grant date (ASC 718-20). The original grant date value per share
for the equity awards was $1,423.62 per share and at the merger date, the original grant date value was converted to $3.81 per
share.
During
September 2015, 1,272,625 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 fair value of $9.30 per share and an exercise price of $1.76 per share, 240,841 shares were transferred to provide
the $2.2 million in exercise proceeds required for the transactions. Using a fair value of $9.30 per share, 524,662 shares were
transferred to provide the $4.9 million in proceeds required to pay the payroll withholding taxes for the transactions. The balance
of the option shares of 507,122 shares were issued as a result of the transactions.
During
January 2016, 638,223 option shares vested and were exercised. The option shares were issued using cashless transactions, approved
by management, and were issued 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 withheld
by the Company to provide the $1.1 million in exercise proceeds required for the transactions. In addition, 252,670 shares were
withheld by the Company to provide the $2.7 million in proceeds required to pay the payroll withholding taxes for the transactions.
The net balance of the option shares of 280,347 shares were issued as a result of the transactions.
Stock compensation expense related to options are recorded based on the fair value of stock option grants,
amortized on a straight-line basis over the employee’s required service period. The
Company estimated the fair value of employee stock options using the Black-Scholes option pricing model. The fair values of employee
stock options granted under the Lindblad Plan and 2015 Plan were estimated using the following assumptions:
|
|
Option
grants
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
12/11/14
|
|
|
11/10/15
|
|
|
2016
|
|
Stock
price
|
|
$
|
5.02
|
|
|
$
|
10.58
|
|
|
$
|
9.63
|
|
Exercise
price
|
|
|
1.76
|
|
|
|
10.58
|
|
|
|
9.63
|
|
Dividend
yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected
volatility
|
|
|
60.00
|
%
|
|
|
60.00
|
%
|
|
|
60.00
|
%
|
Risk-free
interest rate
|
|
|
2.19
|
%
|
|
|
1.72
|
%
|
|
|
1.18
|
%
|
Expected
term
|
|
|
5.11
|
|
|
|
5.11
|
|
|
|
5.11
|
|
The
following table is a summary of activity under the Lindblad Plan and 2015 Plan:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
*
Option
|
|
|
Average
Exercise
|
|
|
Contractual
* Life
|
|
|
Aggregate
Intrinsic
|
|
|
|
Shares
|
|
|
*
Price
|
|
|
(Years)
|
|
|
*
Value
|
|
Options
outstanding as of December 31, 2013
|
|
|
1,992,782
|
|
|
$
|
0.11
|
|
|
|
9.0
|
|
|
$
|
6,926,869
|
|
Granted
|
|
|
3,821,696
|
|
|
|
1.76
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,182,798
|
)
|
|
|
0.11
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options
outstanding as of December 31, 2014
|
|
|
4,631,680
|
|
|
|
1.47
|
|
|
|
9.7
|
|
|
$
|
16,315,198
|
|
Granted
|
|
|
300,000
|
|
|
|
10.58
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,082,609
|
)
|
|
|
1.12
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options
outstanding as of December 31, 2015
|
|
|
2,849,071
|
|
|
|
2.69
|
|
|
|
3.7
|
|
|
$
|
23,992,814
|
|
Granted
|
|
|
220,000
|
|
|
|
9.63
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(638,223
|
)
|
|
|
1.76
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(300,000
|
)
|
|
|
10.58
|
|
|
|
|
|
|
|
|
|
Options
outstanding as of December 31, 2016
|
|
|
2,130,848
|
|
|
$
|
2.57
|
|
|
|
2.8
|
|
|
$
|
14,654,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
and expected to vest after December 31, 2016
|
|
|
2,130,848
|
|
|
$
|
2.57
|
|
|
|
2.8
|
|
|
$
|
14,654,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
as of December 31, 2013
|
|
|
1,992,782
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,182,798
|
)
|
|
|
0.11
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercisable
as of December 31, 2014
|
|
|
809,984
|
|
|
|
0.11
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
1,272,625
|
|
|
|
1.76
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,082,609
|
)
|
|
|
1.12
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercisable
as of December 31, 2015
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
#
Vested
|
|
|
638,223
|
|
|
|
1.76
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(638,223
|
)
|
|
|
1.76
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercisable
as of December 31, 2016
|
|
|
-
|
|
|
$
|
1.76
|
|
|
|
|
|
|
|
|
|
*Option
shares and values were adjusted for conversion at the merger date, July 8, 2015.
#
Vested shares do not include 955,424 share vested as of December 31, 2016 but not exercisable until January 1, 2017.
Stock
Compensation expense
Total
stock compensation (in thousands) by award type included in general and administrative expenses in our Consolidated
Statements of Income were as follows:
|
|
For
the Years Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Stock
options
|
|
$
|
5,035
|
|
|
$
|
4,913
|
|
|
$
|
274
|
|
Restricted
stock
|
|
|
376
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
5,411
|
|
|
$
|
4,913
|
|
|
$
|
274
|
|
Total
unrecognized stock compensation expense (in thousands) and expected weighted average life (in years) by award type as of
December 31, 2016, 2015 and 2014 were as follows:
|
|
Unrecognized
Compensation Expense
|
|
|
Weighted
Average Life (years)
|
|
Stock options - As of December 31, 2014
|
|
|
14,291
|
|
|
|
2.9
|
|
Stock
options - As of December 31, 2015
|
|
$
|
11,041
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
$
|
5,635
|
|
|
|
1.5
|
|
Restricted
stock
|
|
|
1,755
|
|
|
|
3.1
|
|
As
of December 31, 2016
|
|
$
|
7,390
|
|
|
|
1.9
|
|
NOTE
12 – RELATED PARTY TRANSACTIONS – SHAREHOLDER LOANS
Other
than as described below, since January 1, 2015, the Company has not entered into, and there are no currently proposed, related
party transactions.
Capitol
Acquisition Corp. II
All
of the initial shares of common stock issued by Capitol to its sponsor and initial stockholders (Capitol Acquisition Management
2 LLC, L. Dyson Dryden, Lawrence Calcano, Richard C. Donaldson and Piyush Sodha) were placed in escrow with Continental Stock
Transfer & Trust Company, as escrow agent, until one year after the date of the consummation of the Capitol’s merger
with Lindblad (July 8, 2016) including certain founder forfeiture shares which are subject to forfeiture in the event the last
sales price of our 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 July 8, 2015.
The portion of the founder shares not subject to forfeiture were released from escrow following July 8, 2016. The founder forfeiture
shares remain in escrow and will be released from escrow when and if the conditions for release set forth above are satisfied.
Commencing
on May 10, 2013, Capitol paid Venturehouse Group, LLC, an affiliate of Mark D. Ein, a fee of $7,500 per month for providing Capitol
with office space and certain office and administrative services through the initial business combination of July 8, 2015. This
arrangement was solely for Capitol’s benefit and was not intended to provide Mr. Ein compensation in lieu of a salary. For
the years ended December 31, 2015 and 2014, the aggregate cash fee paid to Venturehouse Group, LLC was $45.0 thousand and $90.0
thousand, respectively.
To
meet Capitol’s working capital needs, from time to time, Capitol’s officers, directors, initial stockholders or their
affiliates loaned Capitol funds in their sole discretion prior to the initial business combination. The aggregate amount of the
loans was approximately $1.6 million. All loans were repaid upon consummation of the Company’s initial business combination,
without interest, with the exception of $0.5 million of the notes that were converted into warrants at a price of $1.00 per warrant
at such time.
The
holders of Capitol’s initial shares, as well as the holders of the sponsor warrants and all note conversion warrants are
entitled to registration rights pursuant to an agreement signed in connection with Capitol’s initial public offering. The
Company filed a Form S-3 resale registration statement required by such registration rights agreement that was declared effective
by the Securities and Exchange Commission on September 16, 2015.
Capitol reimbursed its officers and directors for reasonable out-of-pocket business expenses incurred by them
in connection with certain activities on its behalf such as identifying and investigating possible target businesses and business
combinations prior to the initial business combination. As of July 8, 2015, Capitol had reimbursed its initial stockholders approximately
$0.1 million for out-of-pocket business expenses incurred by them in connection with activities on its behalf.
Other
than the fees described above and reimbursable out-of-pocket expenses payable to Capitol’s officers and directors, no compensation
or fees of any kind, including finder’s fees, consulting fees or other similar compensation, were paid to any of Capitol’s
initial stockholders, including its officers or directors, or to any of their respective affiliates, prior to or for services
rendered in connection with the business combination.
Lindblad
Expeditions, Inc.
On
November 3, 2014, LEX and Sven-Olof Lindblad entered into a certain Loan and Security Agreement (“Loan Agreement”)
and a certain Promissory Note made by Mr. Lindblad in favor of LEX for a maximum aggregate principal amount of up to $3.5 million.
The interest rates of the Promissory Note were the applicable federal rate for loans of equal tenor for the months in which amounts
were provided to Mr. Lindblad by LEX, as published by the Internal Revenue Service for purposes of Section 1274(d) of the Internal
Revenue Code. Mr. Lindblad pledged his right, title and interest in and to all of the issued and outstanding shares of capital
stock of LEX held by him to LEX as collateral for repayment of the Promissory Note. The Promissory Note was satisfied and the
Loan Agreement terminated on March 9, 2015 pursuant to the Assignment and Assumption Agreement described below. Prior to such
satisfaction and termination, approximately $2.8 million had been advanced by LEX to Mr. Lindblad and no principal or interest
had been repaid by Mr. Lindblad.
On
March 9, 2015, Mr. Lindblad and LEX entered into an Assignment and Assumption Agreement pursuant to which Mr. Lindblad (i) assigned
and transferred to LEX his right to receive a $5.0 million fee payable by DVB and (ii) exercised his outstanding option to purchase
2,857 shares of LEX’s stock for an aggregate exercise price of $92.5 thousand. In exchange for the assignment to LEX of
the fee payable by DVB, all of Mr. Lindblad’s obligations under the Loan Agreement described above were deemed satisfied
in full, the 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. Following receipt of the fee from DVB, LEX
paid to Mr. Lindblad an amount equal to (a) the fee paid by DVB, less (b) the outstanding amount of principal and interest owed
under the Loan Agreement at the time of entry into the Assignment and Assumption Agreement, the aggregate exercise price payable
in connection with the exercise of the option, and a collection premium equal to one percent of the outstanding amount of principal
and interest payable in connection with the loan, and less (c) any required withholding taxes.
Prior
to the debt refinancing and the completion of the purchase of CFMF on May 8, 2015, CFMF served as the junior lender pursuant to
LEX’s junior credit facility. CFMF was deemed to have control of LEX through (a) CFMF’s possession of a warrant to
purchase 60% of LEX for nominal consideration that could be exercised at any time and (b) a shareholder agreement between CFMF
and LEX under which CFMF was declared to be in control of LEX and for which CFMF was awarded two of the three seats on LEX’s
Board of Directors. On December 11, 2014, LEX entered into a Profit Participation Loan Purchase Agreement with 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 LEX to purchase the financial
and equity interests in CFMF in order to recapture and extinguish a warrant to purchase 60% of the outstanding equity of LEX on
a fully diluted basis. On December 11, 2014, the date of the purchase agreements, an initial payment of $25.0 million was made
to DVB under the Profit Participation Loan Purchase Agreement. The remaining payments of (i) $22.7 million to DVB, (ii) $48.4
million 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. DVB served as agent and security trustee under LEX’s credit facilities prior to the refinancing
on May 8, 2015, and was one of the Senior Lenders under the then current senior credit facility. In connection with the purchase
of CFMF completed on May 8, 2015, the senior credit facility was paid off and the junior credit facility was cancelled.
The
Company and National Geographic collaborate on exploration, research, technology and conservation in order to provide travel experiences
and disseminate geographic knowledge around the globe. The Lindblad/National Geographic alliance is set forth in (i) an Alliance
and License Agreement and (ii) a Tour Operator Agreement. During calendar year 2016, LEX paid an aggregate of $4.9 million to
National Geographic under these agreements, which are included within selling and marketing expenses on the accompanying consolidated
statements of income. The extension of the agreements between LEX and National Geographic in connection with the mergers was contingent
on the execution by Mr. Lindblad of an option agreement granting National Geographic the right to purchase from Mr. Lindblad,
for a per share price of $10.00 per share, five percent of the issued and outstanding shares of Capitol’s common stock as
July 8, 2015, including all outstanding options, warrants or other derivative securities (excluding options granted under the
2015 Plan, 15,600,000 shares issuable upon the exercise of warrants and 1,250,000 shares of escrowed common stock, unless such
escrowed shares are released from escrow, in which case such shares will be included in the 5% calculation).
Natural
Habitat partners with World Wildlife Fund, which is a leading conservation organization whose mission is to conserve nature and
reduce the most pressing threats to the diversity of life on Earth. Natural Habitat partners with WWF to offer conservation travel,
sustainable travel that directly protects nature through a license agreement that allows Natural Habitat to use the WWF name and
logo in return for a royalty fee through 2023. During calendar year 2016, Natural Habitat paid an aggregate of $0.5 million to
WWF under this agreement and recorded the corresponding expense in selling and marketing expenses on the accompanying consolidated
statements of income.
In
connection with the mergers, the stockholders of Capitol prior to its initial public offering — Capitol Acquisition Management
2 LLC, L. Dyson Dryden, Lawrence Calcano, Richard C. Donaldson and Piyush Sodha —collectively agreed to make a charitable
contribution of an aggregate of 500,000 founder’s shares in Capitol to the Lindblad Expeditions – National Geographic
Joint Fund for Exploration and Conservation (“LEX-NG Fund”), established by National Geographic, for no additional
consideration. The LEX-NG Fund is managed jointly by a Lindblad staff member and a National Geographic staff member and the board
is comprised of five members with Mr. Lindblad acting as Chairman.
NOTE
13 – SEGMENT INFORMATION
During
the second quarter of 2016, the Company completed its acquisition of Natural Habitat. As a result of the acquisition, the Company
updated its reporting information and its operating segments to add Natural Habitat as a separate operating and reporting segment.
As
of December 31, 2016, total assets for the Lindblad segment and Natural Habitat segment were $366
.0 million and $41.7
million, respectively. As of December 31, 2016 there was $22.1 million in goodwill and $5.6 million in intangibles, net on the
accompanying consolidated balance sheet that were related to the Natural Habitat segment.
For
the year ended December 31, 2016, tradenames and customer list amortization of $0.1 million and $0.5 million, respectively, was
related to the Natural Habitat segment. For the year ended December 31, 2016 there was $0.9 million in depreciation and amortization
and $0.1 million in capital expenditures related the Natural Habitat segment. There was $0.5 million in intercompany tour revenues
between the Lindblad and Natural Habitat segments eliminated in consolidation for the year ended December 31, 2016. For the year
ended December 31, 2016, amortization expense related to operating rights was $0.7 million for the Lindblad segment. Depreciation
and amortization expense and capex for the year ended December 31, 2016 was $16.2 million and $75.9 million, respectively for
the Lindblad segment.
The
Company evaluates the performance of its business segments based largely on tour revenues and operating income, and results of
the segments without allocating other income and expenses, net, income taxes, and interest expense, net. For the years ended December
31, 2016, 2015 and 2014, the following operating results were:
|
|
For
the Years Ended
December 31,
|
|
(In
thousands)
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
%
|
|
|
2014
|
|
|
Change
|
|
|
%
|
|
Tour
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lindblad
|
|
$
|
207,836
|
|
|
$
|
209,985
|
|
|
$
|
(2,149
|
)
|
|
|
(1
|
%)
|
|
$
|
198,459
|
|
|
$
|
11,526
|
|
|
|
6
|
%
|
Natural
Habitat
|
|
|
34,510
|
|
|
|
-
|
|
|
|
34,510
|
|
|
|
NA
|
|
|
|
-
|
|
|
|
-
|
|
|
|
NA
|
|
Total
tour revenues
|
|
$
|
242,346
|
|
|
$
|
209,985
|
|
|
$
|
32,361
|
|
|
|
15
|
%
|
|
$
|
198,459
|
|
|
$
|
11,526
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lindblad
|
|
$
|
11,794
|
|
|
$
|
15,502
|
|
|
$
|
(3,708
|
)
|
|
|
(24
|
%)
|
|
$
|
30,420
|
|
|
$
|
(14,918
|
)
|
|
|
(49
|
%)
|
Natural
Habitat
|
|
|
2,187
|
|
|
|
-
|
|
|
|
2,187
|
|
|
|
NA
|
|
|
|
-
|
|
|
|
-
|
|
|
|
NA
|
|
Total
operating income
|
|
$
|
13,981
|
|
|
$
|
15,502
|
|
|
$
|
(1,521
|
)
|
|
|
(10
|
%)
|
|
$
|
30,420
|
|
|
$
|
(14,918
|
)
|
|
|
(49
|
%)
|
NOTE
14 – QUARTERLY FINANCIAL DATA – UNAUDITED
The
following presents quarterly financial data for the years ended December 31, 2016 and 2015:
|
|
Fiscal
Year 2016
|
|
(In
thousands, except per share data)
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Fiscal
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tour
revenues
|
|
$
|
61,573
|
|
|
$
|
53,871
|
|
|
$
|
70,774
|
|
|
$
|
56,128
|
|
|
$
|
242,346
|
|
Gross
profit
|
|
$
|
36,299
|
|
|
$
|
24,481
|
|
|
$
|
38,328
|
|
|
$
|
24,261
|
|
|
$
|
123,369
|
|
Net
income (loss)
|
|
$
|
10,467
|
|
|
$
|
(4,494
|
)
|
|
$
|
7,447
|
|
|
$
|
(8,361
|
)
|
|
$
|
5,059
|
|
Diluted
earnings (loss) per share
|
|
$
|
0.23
|
|
|
$
|
(0.10
|
)
|
|
$
|
0.16
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.10
|
|
|
|
Fiscal
Year 2015
|
|
(In
thousands, except per share data)
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Fiscal
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tour
revenues
|
|
$
|
55,421
|
|
|
$
|
49,531
|
|
|
$
|
58,561
|
|
|
$
|
46,472
|
|
|
$
|
209,985
|
|
Gross
profit
|
|
$
|
31,019
|
|
|
$
|
28,045
|
|
|
$
|
33,118
|
|
|
$
|
22,386
|
|
|
$
|
114,568
|
|
Net
income (loss)
|
|
$
|
6,933
|
|
|
$
|
8,835
|
|
|
$
|
4,416
|
|
|
$
|
(442
|
)
|
|
$
|
19,742
|
|
Diluted
earnings (loss) per share
|
|
$
|
0.16
|
|
|
$
|
0.20
|
|
|
$
|
0.10
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.43
|
|
F-38