Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of
delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions
of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 30, 2017 (the last business
day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the common stock held
by non-affiliates of the registrant was approximately $229.0 million based on the closing sales price of $10.50 on the NASDAQ Capital
Market.
Portions of the registrant’s Definitive
Proxy Statement relating to its 2018 Annual Meeting of Shareholders are incorporated by reference in Part III, Items 10-14 of this
Annual Report on Form 10-K as indicated herein.
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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delays and costs overruns with respect to the construction and delivery of newly constructed vessels;
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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
seven 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 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 longstanding
relationship with the National Geographic Society, which was founded in 2004 on a shared interest in exploration, research, technology
and conservation. This relationship includes co-selling, co-marketing and branding arrangements with National Geographic Partners,
LLC (“National Geographic”) 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 26, 2018, 90% of the Lindblad segment’s expected guest ticket revenues for 2018 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 primarily visit the High Arctic regions of the world, the Canadian Maritimes, Europe,
the South Pacific and Alaska. In the northern hemisphere winter months, we primarily 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 seven vessels owned and five chartered ships to provide our signature marine-based adventures to over 40
destinations
on seven 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 northern hemisphere summer and various
destinations during the intermediate months, offering itineraries that last from five to 24 days. We also operate three ships
in Alaska during the summer months that travel south along the U.S. coastline to the Sea of Cortez and to Belize, Guatemala, 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 have
operated above 87% occupancy rate for each of the years ended December 31, 2017, 2016 and 2015, 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 2017 itineraries
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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 Quest
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2017
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96
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50
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Alaska, Canada, Pacific Northwest, Costa Rica, Panama
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U.S.A.
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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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Harmony V*
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2004
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44
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23
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Cuba
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Greece
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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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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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*
Chartered Vessel
The following
table presents summary information concerning the two new passenger cruise vessels under construction.
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 Venture
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December 2018
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96
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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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Polar Ice Class Vessel
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January 2020
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126
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69
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Bahamas
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Owned Vessels
National Geographic
Endeavour II
operates in the Galápagos. The
National Geographic Endeavour II
joined the fleet in the second
quarter of 2016 and, following a significant renovation, deployed during the fourth quarter of 2016. The
National Geographic
Endeavour II
accommodates 95 guests in 50 cabins and offers public areas designed for maximum viewing of nature and wildlife.
National Geographic
Explorer
joined the fleet in 2008 as our ultimate expedition ship. The
National Geographic 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
National
Geographic Explorer
is equipped to visit some of the most remote and extreme areas on the planet. The
National Geographic
Explorer
accommodates 148 guests in 81 cabins, including 13 cabins with private balconies and six suites. The
National Geographic
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
National Geographic
Islander
sails 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
National Geographic 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
National Geographic Orion
is a blue water, ice class vessel, equipped
with advanced technology, including large retractable stabilizers, sonar, radar and an ice-strengthened hull, which operates in
the Artic, Antarctic, Patagonia and the South Pacific A shallow draft as well as bow and stern thrusters allow for maneuvering
close to shore. The
National Geographic 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
Quest
operates in the Alaska, the Pacific Northwest and Central America. The
National Geographic Quest
is a new
vessel, which joined the fleet during the third quarter of 2017. The vessel was built in the United States to meet the precise
needs of our unique expeditions. The ship features the latest satellite communication and navigation technology, designed with
superior viewing experiences from the decks and common areas, and is equipped with reinforced Zodiacs. The
National Geographic
Quest
has a shallow draft and small size and can reach places inaccessible to larger ships. The vessel accommodates 96 guests
in 50 cabins.
National Geographic
Sea Bird
is the twin ship of the
National Geographic Sea Lion
and offers expedition cruises in Alaska, the Pacific
Northwest, Baja California and the Sea of Cortez. The
National Geographic Sea Bird
has a shallow draft and small size and
can reach places inaccessible to larger ships. The
National Geographic Sea Bird
accommodates 62 guests in 31 outside cabins
and has an open bow that provides for shared wildlife viewing experiences.
National Geographic
Sea Lion
is the twin ship of the
National Geographic Sea Bird
and operates in Alaska, the Pacific Northwest, Baja
California, the Sea of Cortez, Costa Rica and Panama. The
National Geographic Sea Lion
has a shallow draft and a small
size so that it can reach places inaccessible to larger ships. The
National Geographic 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 built to explore the Peruvian Amazon. The
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. The
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. The
Lord of the Glens
accommodates 48 guests
in 26 outside cabins.
Harmony V
is an expedition vessel used for exploration of the southern coastline and islands of Cuba. It can accommodate 44 guests
in 23 outside cabins. The ship is fully air-conditioned, has a Sun Deck with an al fresco area that can also be enclosed
and used as a venue for presentations and recaps. The ship is equipped with stabilizers and satellite communications.
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. The
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 practicable 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-based 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,
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.
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 are built on the Lindblad family’s decades of experience in expedition adventure travel. Sven-Olof Lindblad,
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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2017 Travel + Leisure World’s
Best: Top Small-ship Ocean Cruise Lines
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2017 Andrew Harper Grand Award for Best
Cruise: Antarctica on National Geographic Explorer
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2017 Andrew Harper Grand Award Staff of
the Year: The staff on National Geographic Explorer
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2017 Travvy Award: Best Cruise Line -
Expedition/Adventure
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2017 Travel Age West Wave Awards:
Best Expedition Cruise Line (ocean-going)
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2017 Recommend Magazine’s Readers’
Choice Awards: Best Cruise Line in Expedition Cruises, Silver Award
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Conde Nast Traveler 2017 Readers Choice
Awards: Top Small Ship Cruise Lines
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2017 Porthole Cruise Readers’ Choice Awards:
Best Expedition Cruise Line
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2017 Town & Country Travel Cruise
Awards: Best Active Itineraries
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2017 Cruise Critic Editors’ Picks
Award: Best for Adventure
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Afar Magazine’s Travelers’ Choice
Cruise Awards: Best Expedition Cruise Lines
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USA Today’s 10Best.com Readers’
Choice Awards - Best Adventure Cruise Lines
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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 over the next three
years. This includes two contracted vessels, a new coastal vessel and a new polar ice class vessel. The expected deliveries
of the first two vessels are scheduled for the fourth quarter of 2018 and first quarter of 2020, 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.
Strategic Alliance with National
Geographic
We benefit from a longstanding
relationship with the National Geographic Society, 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.
Founded in 1888, the National Geographic Society 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 represented approximately
25% of our guest ticket revenues for the year ended December 31, 2017. 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 with terms until December 31, 2025.
Sven-Olof Lindblad,
our founder, also serves on the National Geographic Society’s International Council of Advisors, which is composed of individuals
identified by the National Geographic Society 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 the National Geographic Society’s mission
since 1888. Mr. John M. Fahey, Jr., one of our directors, previously served as the Chairman and Chief Executive Officer of the
National Geographic Society.
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 80 different itineraries in more than 30 countries spanning seven 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 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 25 days, with an average of 10 days.
Natural Habitat has
partnered with World Wildlife Fund (“WWF”), since 2003 to promote sustainable conservation 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 through 2023 in return
for a royalty fee.
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 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%.
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.
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, Quark 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. Companies within the vacation market are dependent on consumer discretionary spending.
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 ship, the long lead time necessary to construct new ships and limited newbuild shipyard capacity.
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 floe, 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 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 the selected voyage. As of February 26, 2018, 90% of the Lindblad segment’s expected guest ticket
revenues for 2018 has 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 into 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,
we have achieved strong occupancy rates for the Lindblad segment in the last three years (based on two persons per cabin), operating
at above 87% occupancy rate for the years ended December 31, 2017, 2016 and 2015.
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 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 $985, $976 and $971 in 2017, 2016 and 2015, respectively. Furthermore, our historical net yield
has been 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 longstanding 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 2017, 41% 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 marine based adventure vacation experiences.
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.
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 divisions. The National Geographic channel
represented approximately 25%, 27% and 24% of guest ticket revenues for 2017, 2016 and 2015, respectively.
We maintain an active
presence on numerous social media platforms, focusing primarily on those with the greatest reach to our target demographic. In
addition, we routinely feed content to National Geographic’s social media platforms, which extend the reach of our brand
significantly.
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 operators. We currently have a new coastal vessel under construction scheduled for delivery
in 2018 and a new polar ice class vessel under construction scheduled for delivery in 2020. We also have options for two additional
polar ice class vessels. 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 direct mail, 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 90%, 89% and 85% of our total global expedition cruise guests’ ticket revenue in 2017, 2016 and
2015, 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 41%, 39% and 43% of guest ticket revenues for 2017, 2016 and 2015, respectively.
We also generate significant
bookings from travel agents and wholesalers, representing approximately 27% for the year ended 2017 and 27% for the years ended
2016 and 2015. 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 25%, 27% and 24% of guest ticket revenues for 2017, 2016 and 2015, respectively.
The remainder of our
bookings, 6%, 7% and 5% of guest ticket revenues for 2017, 2016 and 2015, 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. 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 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 the National Geographic Society, 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, education and community development projects in the places we explore. Together with our guests,
we have raised $9 million since the Fund was established in 2008. In addition, 500,000 shares of Lindblad common stock were contributed,
or committed to be contributed, to the LEX-NG Fund 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 the National Geographic Society together cover
the LEX-NG Fund’s operating costs, 100% of guest contributions go directly to on-the-ground projects. In 2017, eight key
regions plus two major National Geographic conservation and education initiatives were supported with an aggregate amount of $1.5
million. The majority of funds were donated by guests traveling aboard our fleet. The LEX-NG Fund is managed jointly by one of
our staff members and two National Geographic Society staff members, and the Board is currently comprised of five members, including
Sven-Olof Lindblad, our founder, President and Chief Executive Officer, and Dr. Jonathan Baillie, Chief Scientist and Senior Vice
President, Science & Exploration at the National Geographic Society.
We currently operate
a fleet of seven owned expedition ships and five seasonal charter vessels under the Lindblad brand. We have a longstanding relationship
with the National Geographic Society, which was founded on a shared interest in exploration, research, technology and conservation.
This relationship includes co-selling, co-marketing and branding arrangements with National Geographic Partners, LLC (“National
Geographic”) whereby our owned vessels carry the National Geographic name and National Geographic sells our expeditions through
its 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.
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. Natural Habitat is a seasonal business, with the majority of its tour revenue recorded in the third and fourth quarter
from its summer season departures and polar bear tours.
Suppliers
Our largest capital
expenditures are for ship acquisition and maintenance. 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 (“SOLAS”),
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 0.5% 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
, the
National Geographic Sea Lion
and the
National Geographic Quest,
are
subject to the U.S. laws relating to the transport of passengers or cargo between U.S. ports in the U.S. coastwise trade. Our newbuild
coastal vessel, the
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.
Regulations Regarding Protection of Disabled Persons
Our U.S. flag vessels,
the
National Geographic Sea Bird
, the
National Geographic Sea Lion
and the
National Geographic Quest,
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, 2017, we had approximately
528 employees,
including 312 shipboard employees, 213 full-time employees and three 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
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 after
we 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.
You should carefully
consider the risk factors set forth below and the other information in this Annual Report on Form 10-K. The matters discussed in
the risk factors, and additional risks and uncertainties not currently known to us or that we currently deem immaterial, could
have a material adverse effect on our business, financial condition, results of operation and future growth prospects.
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.
The demand for travel
experiences, including expedition cruises and land-based travel, may be adversely affected by international, national and local
economic and geopolitical conditions. In particular, a deterioration in global economic conditions that adversely affects discretionary
income and consumer confidence may, in turn, result in decreased bookings, prices and onboard revenues for the expedition and cruise
industries. Demand for our expeditions may also be influenced by geopolitical events. Unfavorable conditions, such as cross-border
conflicts, civil unrest and governmental changes, can decrease consumer demand and result in reduced pricing for expeditions in
areas affected by such conditions.
Incidents or adverse publicity concerning
the cruise 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 and/or
use of cruise ships, land tours, port facilities and shore excursions involves the risk of accidents, illnesses, mechanical failures,
environmental incidents including oil spills, and other incidents. Such incidents may cause guests and potential guests to question
their safety, health, security and vacation satisfaction, and could negatively impact our reputation. Incidents involving cruise
ships, particularly the safety and security of guests and crew, media coverage thereof, as well as adverse media publicity in general
concerning the cruise industry, have impacted and could in the future impact demand for our expeditions 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, including costs related to increasing government or other regulatory oversight. Incidents involving our
own fleet may result in litigation.
Our fleet and the port
facilities we use may also be adversely impacted by weather patterns or natural disasters or disruptions, such as hurricanes, earthquakes
and changes in ice floes. From time to time, we may be forced to alter itineraries or cancel expeditions due to these or other
factors, which could negatively impact our sales and profitability. Increases in the frequency, severity or duration of severe
weather events, including those related to climate change, could exacerbate the impact and cause further disruption to our operations.
In addition, these and any other events that 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 repair or revitalization delays
or mechanical issues on existing vessels may result in cancellation of expeditions or unscheduled drydockings and repairs and thus
adversely affect our results of operations.
We depend on shipyards
to repair, maintain and revitalize our ships on a timely basis and to ensure they remain in good working order. The sophisticated
nature of repairing and revitalizing a ship involves risks, and shipyards may encounter financial, technical or design problems
when doing these jobs. Delays in ship repair or revitalization or mechanical failures have in the past and may in the future result
in delays or cancellations of expeditions and 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
delays, cancellations of expeditions and/or unscheduled drydockings 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 or cost overruns caused by conditions beyond our control, including one or more of the following:
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unforeseen engineering or construction problems;
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changes 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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lack of shipyard availability;
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work stoppages; and
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weather interference.
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Significant delays, cost overruns and failure
to timely deliver new vessels we have committed to service our guests could adversely affect us in several ways, including delaying
the implementation of our business strategies, materially increasing our cost of servicing our commitments to our guests or resulting
in the cancellation of scheduled expeditions. In addition, there are a limited number of shipyards with the capability and capacity
to build our new ships and, accordingly, increased demand for available new construction slots could impact our ability to construct
new ships when and as planned and/or result in stronger bargaining power on the part of the shipyards.
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 those 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 are currently making
substantial capital expenditures to increase the size of our fleet by constructing new vessels and may acquire existing vessels
from other parties in the future. Shipyards generally require us to make installment payments on any new ship build prior to delivery,
which requires us to expend a significant amount of money to build a new vessel without any corresponding revenue for an extended
period of time. In addition, we may not receive the expected demand for our newly constructed or acquired vessels, which could
have an adverse impact on our operations
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.
Fears of terrorist and pirate attacks,
war and other hostilities, travel restrictions 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, such as travel bans
to and from certain geographical areas and heightened regulations around customs and border control, the spread of contagious diseases,
such as the Zika virus, and other related concerns over the 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, potential changes in local laws, rules 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 may expand 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 an on-going partnership with
National Geographic and the termination or alterations in this relationship may have an adverse effect on our business.
The National Geographic
Society 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 Partners, LLC.
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. National Geographic may in certain instances terminate the Alliance and License Agreement
with us, including upon 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.
If the NG Agreements are terminated or 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 and the 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 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 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 that 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.
Our Restated Credit
Agreement contains certain financial covenants and 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, particularly
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.
To date, we have not hedged our fuel costs with any fuel derivative instruments. If we decide to enter into such instruments in
the future, we will be subject to the risk that the fuel derivatives will not provide adequate protection against significant increases
in fuel prices and could in fact result in hedging losses and result in us effectively paying higher than market prices for fuel.
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 expedition travel.
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 a substantial portion of the 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
offices are located in New York, New York, and 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 2017, 2016 and 2015, we derived approximately
10%, 11% and 15%, respectively, of our guest ticket revenues from guests 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, and 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 reputation, 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,
many of 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.
In addition, the enactment
of legislation implementing changes in taxation of international business activities, the adoption of other corporate tax reform
policies, or changes in tax legislation or policies could materially affect our financial position and results of operations. In
general, changes in tax laws may affect our tax rate, increase our tax liabilities, carrying value of deferred tax assets, or our
deferred tax liabilities. Any substantial changes in international corporate tax policies, enforcement activities or legislative
initiatives may materially and adversely affect our business, the amount of taxes we are required to pay and our financial condition
and results of operations generally.
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
in effect as of July 2015 will have a validity of nine years. Our rights to operate in the Galapagos will therefore expire in July
2024 and based on the new law and decree, we will begin the renewal process in 2020.
Although the current
holders of cupos will have the opportunity to re-apply for them, other enterprises and individuals will also have the opportunity
to bid on cupos as they become subject to renewal. All bidders in this process must present proof that they fulfill the conditions
to properly utilize the license. Notable criteria include, without limitation, access to a vessel, experience in tourism, a proven
record of environmentally sensitive behavior, marketing requirements, 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. Such a development would
negatively impact our business and revenues.
Changes in other governmental
and environmental rules and regulations in the Galápagos Islands and other travel destinations could also cause sudden losses
in revenue, together with additional expenditures due to the need to revise our existing itineraries. Restrictions on access for
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.
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, we are not protected against all risks and there can
be no assurance 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. Our protection and indemnity (“P&I”)
liability insurance is placed on a mutual basis and we are subject to additional premium calls in amounts based on claim records
of all members of the P&I Club. We are also subject to additional premium assessments including, but not limited to, investment
or underwriting shortfalls experienced by the P&I Club. 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 vessels used to carry cargo or passengers between U.S. ports. Subject to limited exceptions,
the Jones Act requires that such 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 with the Jones Act
would adversely affect our financial position and our results of operations as 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.
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 shareholder 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 shareholders.
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” until December 31, 2018. 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 February 26,
2018, we had issued and outstanding warrants to purchase 10,103,828 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 shareholders 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 shareholders 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.
An active trading market for our common stock may not
be sustained, and you may not be able to resell your shares at or above the price at which you purchased them.
An active trading market
for our shares may not be sustained. In the absence of an active trading market for our common stock, shares of common stock may
not be able to be resold at or above the purchase price of such shares. Although there can be no assurances, we expect that our
common stock will continue to be listed on the NASDAQ Stock Market. However, even if our common stock continues to be listed on
the NASDAQ Stock Market, there is no assurance that an active market for our common stock will continue in the foreseeable future.
We do not intend to pay any dividends
to shareholders 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.
Provisions in our amended and restated certificate of
incorporation and bylaws and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing
to pay in the future for our common stock and could entrench management.
Our amended and restated
certificate of incorporation and bylaws contain provisions that may discourage unsolicited takeover proposals that stockholders
may consider to be in their best interests. Our board of directors is divided into three classes, each of which will generally
serve for a term of three years with only one class of directors being elected in each year. As a result, at a given annual meeting
only a minority of the board of directors may be considered for election. Since our “staggered board” may prevent our
stockholders from replacing a majority of our board of directors at any given annual meeting, it may entrench management and discourage
unsolicited stockholder proposals that may be in the best interests of stockholders. Moreover, our Board of Directors has the ability
to designate the terms of and issue new series of preferred stock.
We are also subject
to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together these provisions may
make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium
over prevailing market prices for our 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 Expeditions, 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 judgment 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
|
Not applicable.
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 seven 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 Partners (“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 (“Mr. 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.
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.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial
statements and accompanying footnotes have been prepared in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”).
The merger with LEX
has been accounted for as a reverse acquisition. 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 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.
Reclassifications
We have reclassified
certain prior period amounts to conform to the current period presentation, with no impact on consolidated net income or cash flows.
Use of Estimates
The preparation of
consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets, liabilities, revenues and expenses. Actual results could differ from such
estimates. Management estimates include 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 assessing its litigation, other legal claims and contingencies. Estimates and assumptions
are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements 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, insurance proceeds, 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 included as 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 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 recoverable 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.
For the years ended
December 31, 2017 and 2016, the Company self-insures for medical insurance claims up to $100,000 and $60,000, respectively. In
addition, for the years ended December 31, 2017 and 2016 the Company maintains Stop Loss coverage for medical claims in excess
of the $100,000 and $60,000, respectively, which have an aggregate deductible of $57,500. As of December 31, 2017 and 2016, the
Company recorded a liability for Incurred-But-Not-Recorded (“IBNR”) medical claims, which was determined based on claims
experience over the prior four years.
The Company also extends
cancellation insurance to guests. 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.
General and Administrative Expense
Administrative expenses
primarily represent the costs of our shore-side vessel support, reservations and other administrative functions, and includes salaries
and related benefits, professional fees and occupancy costs.
Selling and Marketing Expense
Selling and marketing
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 $16.4 million, $14.7 million and
$13.0 million for the years ended December 31, 2017, 2016 and 2015, respectively. The largest component of advertising expense
was direct mail, which totaled $6.3 million, $5.5 million and $5.8 million for the years ended December 31, 2017, 2016 and 2015,
respectively.
Earnings per Common Share
Earnings per common
share is computed by dividing net income available to common shareholders, 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 year ended December 31, 2017, there were no dilutive shares because the Company had a net loss. For the years ended 2016 and
2015, the Company determined, using the treasury method, there were 806,950 and 657,558, respectively, of dilutive common shares
related to stock-based compensation.
On July 8, 2015, as
a result of the mergers 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,
2017 and 2016, 10,656,520 and 11,186,387 warrants, respectively, 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.
Prior to the mergers,
basic weighted average shares outstanding included the shares underlying a warrant to purchase 60% of the outstanding common shares.
As the shares underlying this warrant 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 year ended December 31, 2015, 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, 2017, 2016 and 2015, the Company calculated earnings per share as follows:
|
|
For the years ended December 31,
|
|
(In thousands, except share and per share data)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net (loss) income available to common stockholders
|
|
$
|
(8,661
|
)
|
|
$
|
4,864
|
|
|
$
|
19,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average shares outstanding, basic
|
|
|
44,576,912
|
|
|
|
45,649,971
|
|
|
|
44,917,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
44,576,912
|
|
|
|
46,456,921
|
|
|
|
45,575,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share available to Lindblad
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.19
|
)
|
|
$
|
0.11
|
|
|
$
|
0.44
|
|
Diluted
|
|
$
|
(0.19
|
)
|
|
$
|
0.10
|
|
|
$
|
0.43
|
|
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, 2017 and 2016, the Company’s cash held in financial institutions
outside of the U.S. amounted to $4.1 million and $2.7 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)
|
|
2017
|
|
|
2016
|
|
Federal Maritime Commission escrow
|
|
$
|
4,186
|
|
|
$
|
2,571
|
|
Credit negotiation and credit card processor reserves
|
|
|
1,530
|
|
|
|
5,030
|
|
Certificates of deposit and other restricted securities
|
|
|
1,341
|
|
|
|
1,414
|
|
Total restricted cash and marketable securities
|
|
$
|
7,057
|
|
|
$
|
9,015
|
|
The amounts held in
restricted cash and marketable securities represent principally funds required to be held in certificates of deposit by certain
vendors and regulatory agencies and are classified as restricted assets since such amounts cannot be used by the Company until
the restrictions are removed by those vendors and regulatory agencies. Interest income is recognized when earned.
The Company has classified
marketable securities, principally money market funds, as trading securities which are recorded at market value. Unrealized gains
and losses are included in current operations. Gains and losses on the disposition of securities are recognized by the specific
identification method in the period in which they occur.
In order to operate
guest tour expedition vessels from U.S. ports, the Company is required to post a performance bond with the Federal Maritime Commission
or escrow all unearned guest deposits plus an additional 10% in restricted accounts. To satisfy this requirement, the Company entered
into an agreement with a financial institution to escrow all unearned guest revenues collected for sailings from U.S. ports.
At December 31,
2017 and 2016 a cash reserve of $1.5 million and $5.0 million, respectively, is required for credit card deposits by third-party
credit card processors.
Amounts in the escrow
accounts include cash, certificates of deposit and marketable securities. Cost of these short-term investments approximates fair
value.
Marine Operating Supplies and Inventories
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.
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.
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)
|
|
2017
|
|
|
2016
|
|
Prepaid tour expenses
|
|
$
|
9,846
|
|
|
$
|
11,593
|
|
Prepaid air expense
|
|
|
3,621
|
|
|
|
2,432
|
|
Prepaid client insurance
|
|
|
2,525
|
|
|
|
2,141
|
|
Prepaid marketing, commissions and other expenses
|
|
|
2,495
|
|
|
|
1,823
|
|
Prepaid corporate insurance
|
|
|
1,033
|
|
|
|
931
|
|
Prepaid port agent fees
|
|
|
1,022
|
|
|
|
1,038
|
|
Prepaid income taxes
|
|
|
809
|
|
|
|
824
|
|
Total prepaid expenses
|
|
$
|
21,351
|
|
|
$
|
20,782
|
|
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. As of December 31 2017, the Company owned and operated seven vessels, including
a new coastal vessel, the
National Geographic Quest,
which joined the fleet in the third quarter of 2017. The Company has
contracted for two additional vessels. The
National Geographic Venture,
a coastal vessel, is expected to be completed in
the fourth quarter of 2018, and a polar ice class vessel is targeted to be completed in the first quarter of 2020, with potential
accelerated delivery to November 2019. The polar ice class contract includes options to build two additional ice class vessels,
the first for delivery twelve months after the initial vessel and the second for delivery twelve months thereafter. The Company
has a capital program for the improvement of its vessels and for asset replacements in order to enhance the effectiveness and efficiency
of its operations; comply with, or exceed all relevant legal and statutory requirements related to health, environment, safety,
security and sustainability; and gain strategic benefits or provide newer improved product innovations to its guests.
Vessel improvement
costs that add value to the Company’s vessels, such as those discussed above, are capitalized to the vessels and depreciated
over the shorter of the improvements or the vessel’s estimated remaining useful life, while costs of repairs and maintenance,
including minor improvement costs and drydock expenses, are charged to expense as incurred and included in cost of tours. Drydock
costs primarily represent planned maintenance activities that are incurred when a vessel is taken out of service. 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
The authoritative guidance
requires that goodwill be assessed annually for impairment. The Company completed the annual impairment test as of September 30,
2017 with no indication of goodwill impairment. Future impairment tests will be performed annually as of September 30, or sooner
if warranted. See Notes 4 and 5 for further details on goodwill.
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 were 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 since 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. Operating rights are amortized over their remaining government
mandated lives.
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, 2017 and 2016, 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 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.
As of December 31,
2017 and 2016, 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. 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,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
Accounts payable
|
|
$
|
7,791
|
|
|
$
|
7,573
|
|
Accrued other expense
|
|
|
7,001
|
|
|
|
5,999
|
|
Bonus compensation liabilty
|
|
|
3,736
|
|
|
|
4,186
|
|
New build liability
|
|
|
2,730
|
|
|
|
4,011
|
|
Employee liability
|
|
|
2,644
|
|
|
|
3,494
|
|
Refunds and commissions payable
|
|
|
1,805
|
|
|
|
1,454
|
|
Royalty payable
|
|
|
1,673
|
|
|
|
1,468
|
|
Income tax liabilities
|
|
|
1,490
|
|
|
|
884
|
|
Travel certificate liability
|
|
|
1,120
|
|
|
|
1,218
|
|
Accrued travel insurance expense
|
|
|
432
|
|
|
|
375
|
|
Total accounts payable and accrued expenses
|
|
$
|
30,422
|
|
|
$
|
30,662
|
|
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 and office equipment with lease terms ranging from three to six years.
Fair Value Measurements and Disclosure
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,
2017 and 2016. As of December 31, 2017 and 2016, 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 U. S. Tax Cuts
and Jobs Act (the “Tax Act”) introduces significant changes to U.S. income tax law that have a meaningful impact on
our provision for income taxes. Due to the timing of the enactment and the complexity involved in applying the provisions
of the Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our financial statements for the
year ended December 31, 2017. Accounting for the income tax effects of the Tax Act requires significant judgments and estimates
in the interpretation and calculations of the provisions of the Tax Act. The U.S. Treasury Department, the Internal Revenue Service
(IRS), and other standard-setting bodies may issue guidance on how the provisions of the Tax Act will be applied or otherwise administered
that is different from our interpretation. As we collect and prepare necessary data, and interpret the Tax Act and any additional
guidance issued by the IRS or other standard-setting bodies, we may make adjustments to the provisional amounts that could materially
affect our financial statements in the period in which the adjustments are made.
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, 2017 and 2016, the Company had a liability for unrecognized
tax benefits of $0.4 million and $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, 2017 and 2016, interest and penalties on uncertain tax positions included in income tax expense
was insignificant.
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 for the current year and three prior years remain subject to examination by tax authorities
and the Company’s foreign tax returns for the current year and four prior years remain subject to examination by tax authorities.
Other Long-Term Assets
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 Society entered into a Call Option agreement where
Mr. Lindblad agreed to grant National Geographic Society 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, 2017 and 2016 was $6.5 and
$9.5 million, respectively. As of December 31, 2017 and December 31, 2016, the balance in other long-term assets was $10.0 million
and $13.1 million, respectively. See Note 9 – Commitments and Contingencies for more details.
Deferred Financing Costs
For the years ended
December 31, 2017, 2016 and 2015, the Company recorded deferred financing costs of $0.4 million, $1.6 million and $11.0 million,
respectively, 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.
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 operations.
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.
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. 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 requirements
for aggregation.
Recent Accounting Pronouncements
In August 2017, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) No. 2017-12,
Derivatives and Hedging
(Topic 815)
Targeted Improvements
to Accounting for Hedging Activities
. This guidance will make more financial and nonfinancial hedging strategies eligible for
hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. It
is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of
hedge accounting, and increase transparency as to the scope and results of hedging programs. Update No. 2017-12 is effective for
years beginning after December 15, 2018. Early adoption is permitted. Management is currently assessing the impact this
guidance will have on the financial position or results of operations.
In May 2017, the
FASB issued ASU No. 2017-09,
Compensation - Stock Compensation
(Topic 718)
: Scope of Modification Accounting
.
The purpose of Update No. 2017-09 is to provide guidance about which changes to the terms or conditions of a share-based payment
award require an entity to apply modification accounting. Update No. 2017-09 is effective for years beginning after December 15,
2017. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on our financial position
or results of operations.
In January 2017, the
FASB issued ASU No. 2017-04,
Intangibles and Othe
r (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. Update No. 2017-04 is effective for years beginning after December 15,
2017. Early adoption is permitted. The Company does not believe the adoption of this guidance will have a material impact on our
financial position or results of operations.
In January 2017, the
FASB issued ASU No. 2017-01,
Business Combinations
(Topic 805):
Clarifying the Definition of a Business
. The guidance
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 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. ASU No. 2017-01 is effective for years beginning after December 15,
2017. Early adoption is permitted The Company does not believe the adoption of this guidance will have a material impact on our
financial position or results of operations.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases
(Topic 842). The guidance requires the recognition of lease right
of use assets and lease liabilities by lessees for those leases previously classified as operating. This guidance was issued to
increase transparency and comparability among organizations by disclosing key information about leasing arrangements. ASU 2016-02
is effective for years beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating
the effect adoption of this guidance will have on its consolidated financial statements.
In 2014,
the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
(Topic 606). This ASU is based on the principle that
revenue is recognized upon 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 clarifying ASU’s issued
subsequent to ASU 2014-09. We will adopt the guidance related to revenue recognition beginning in the first quarter of 2018, using
the modified retrospective transition method applied to those contracts which were not completed as of the adoption date. Upon
adoption, we will recognize the cumulative effect of adopting this guidance as an adjustment to the opening balance of retained
earnings. Prior periods will not be restated. The Company does not believe the adoption of this guidance will have a material effect
on our financial position or results of operations.
Accounting Pronouncements Recently Adopted
In March
2016, FASB issued ASU No. 2016-09, “Compensation – Stock Compensation: Improvements to Employee Share- Based Payment
Accounting” (Topic 718). This ASU significantly reduces the complexity and cost of accounting for excess tax benefits and
tax deficiencies related to stock-based compensation. The Company adopted this guidance as required during the quarter ending March
31, 2017. As a result of the new guidance, the Company recorded a de minimis benefit related to the exercise of stock options during
the quarter ended March 31, 2017. The Company recognized an increase in deferred tax assets and retained earnings in the amount
of $1.8 million in accordance with the retrospective method of applying this guidance.
NOTE 3 – PROPERTY AND EQUIPMENT, NET
Property and equipment, net are as follows:
|
|
As of December 31,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
Vessels and improvements
|
|
$
|
346,895
|
|
|
$
|
267,415
|
|
Furniture and equipment
|
|
|
11,731
|
|
|
|
10,726
|
|
Leasehold improvements
|
|
|
1,425
|
|
|
|
1,425
|
|
Total property and equipment, gross
|
|
|
360,051
|
|
|
|
279,566
|
|
Less: Accumulated depreciation and amortization
|
|
|
(109,099
|
)
|
|
|
(93,330
|
)
|
Property and equipment, net
|
|
$
|
250,952
|
|
|
$
|
186,236
|
|
Total depreciation and amortization expense of the Company’s
property and equipment for the years ended December 31, 2017, 2016 and 2015 were $15.8 million, $17.1 million and $11.3 million,
respectively.
For the year ended
December 31, 2017, the Company had $80.5 million in capital expenditures, including capitalized interest, added to property and
equipment, net. This amount primarily included $42.8 million for the two newbuild coastal vessels and $27.2 million toward the
purchase of its new polar ice class vessel. The Company began to capitalize interest in January 2016 for its two newbuild coastal
vessels, its renovation improvements to the
National Geographic Endeavour II
, and the polar ice class vessel. The capitalized
interest has been and will continue to be added to the historical cost of the assets and depreciated over their useful lives beginning
upon completion. For the year ended December 31, 2017 and 2016, the Company recognized $2.6 and $1.5 million, respectively, 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 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, under 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
|
|
|
2,525
|
|
Lindblad restricted shares (264,208 shares)
|
|
|
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:
(In thousands)
|
|
|
|
Assets acquired:
|
|
|
|
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, 2015.
|
|
Pro forma years ended
|
|
|
|
December 31,
|
|
(In thousands)
|
|
2016
|
|
|
2015
|
|
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, 2015, with tax effects.
NOTE 5 – INTANGIBLES, NET
The carrying amounts
and accumulated amortization of the Company’s intangibles, net are as follows:
|
|
As of December 31,
|
|
|
|
2017
|
|
|
|
|
|
2016
|
|
(In thousands)
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Amount
|
|
|
Weighted Average Useful Life (years)
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Amount
|
|
Tradenames
|
|
$
|
2,900
|
|
|
$
|
(322
|
)
|
|
$
|
2,578
|
|
|
|
13.3
|
|
|
$
|
2,900
|
|
|
$
|
(129
|
)
|
|
$
|
2,771
|
|
Customer lists
|
|
|
3,300
|
|
|
|
(1,100
|
)
|
|
$
|
2,200
|
|
|
|
3.3
|
|
|
|
3,300
|
|
|
|
(440
|
)
|
|
$
|
2,860
|
|
Operating rights
|
|
|
6,529
|
|
|
|
(1,753
|
)
|
|
$
|
4,776
|
|
|
|
6.6
|
|
|
|
6,529
|
|
|
|
(1,028
|
)
|
|
$
|
5,501
|
|
Total intangibles, net
|
|
$
|
12,729
|
|
|
$
|
(3,175
|
)
|
|
$
|
9,554
|
|
|
|
7.7
|
|
|
$
|
12,729
|
|
|
$
|
(1,597
|
)
|
|
$
|
11,132
|
|
The decrease in the
Company’s intangibles, net is the result of amortization expense associated with intangible assets acquired in connection
with 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. The Company
did not record a goodwill impairment charge for the year ended December 31, 2017. 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 a description of, and rationale for, amortizing operating rights.
For the years ended
December 31, 2017, 2016 and 2015, amortization expense for intangibles, net was $1.6 million, $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,
2018, 2019 and 2020. For the year ended December 31, 2021 and 2022, we expect amortization expense to be $1.1 million and $0.9
million, respectively, with the balance of $2.8 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 operations.
NOTE 6 – LETTERS OF CREDIT
As of December 31,
2017 and 2016, the Company had $1.15 million and $4.65 million, respectively, in letters of credit outstanding with financial institutions.
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 that mature in July 2018.
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 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, 2017, the interest rate was 6.34%. The Loans 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, 2017, the Company was in
compliance with the 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, 2017, the Company had no borrowings under the Revolving Credit Facility.
For the years ended
December 31, 2017, 2016 and 2015, deferred financing costs charged to interest expense were $2.2 million, $2.2 million and $3.6
million, respectively.
Senior Secured Credit Agreement
On January 8, 2018, the Company and its
indirect, wholly-owned subsidiary (the “Borrower”) entered into a senior secured credit agreement (the “Export
Credit Agreement”) with Citibank, N.A., London Branch (“Citi”) and Eksportkreditt Norge AS (together with Citi,
the “Lenders”). Pursuant to the Export Credit Agreement, the Lenders have agreed to make available to the Borrower,
at the Borrower’s option and subject to certain conditions, a loan in an aggregate principal amount not to exceed $107.7
million for the purpose of providing financing for up to 80% of the purchase price of the Company’s new expedition ice-class
cruise vessel targeted to be completed in January 2020. Seventy percent of the loan will be guaranteed by Garantiinstituttet for
Eksportkreditt, the official export credit agency of Norway. If drawn upon, the loan will be made at the time of delivery of the
vessel.
At the Borrower’s election, the loan
will bear interest either at a fixed interest rate effectively equal to 5.78% or a floating interest rate equal to three-month
LIBOR plus a margin of 3.00% per annum. The loan will amortize quarterly based on a twelve-year profile, with 70% maturing over
twelve years from drawdown, and 30% maturing over five years from drawdown. The loan will be secured by a first priority mortgage
over the new vessel and the assignment of related insurances. The Export Credit Agreement also contains customary events of default
and mandatory prepayment events for, among other things, non-payment, breach of covenants, default on certain other indebtedness,
certain large judgments and a change of control of the Company or the Borrower. In addition to paying interest on any outstanding
loans under the facility, the Borrower is required to pay customary coordination, arrangement, agency, collateral and commitment
fees. Amounts drawn under the Export Credit Agreement may be voluntarily prepaid at any time subject to customary breakage costs.
All obligations of the Borrower under the Export Credit Agreement are guaranteed by the Company.
Long-Term Debt Outstanding
As of December 31,
2017 and 2016, the following long-term debt existed:
|
|
As of December 31,
|
|
|
|
2017
|
|
|
2016
|
|
(In thousands)
|
|
Principal
|
|
|
Deferred Financing Costs, net
|
|
|
Balance
|
|
|
Principal
|
|
|
Deferred Financing Costs, net
|
|
|
Balance
|
|
Note payable
|
|
$
|
2,525
|
|
|
$
|
-
|
|
|
$
|
2,525
|
|
|
$
|
2,525
|
|
|
$
|
-
|
|
|
$
|
2,525
|
|
Credit Facility
|
|
|
170,625
|
|
|
|
(7,214
|
)
|
|
|
163,411
|
|
|
|
172,375
|
|
|
|
(9,022
|
)
|
|
|
163,353
|
|
Total long-term debt
|
|
|
173,150
|
|
|
|
(7,214
|
)
|
|
|
165,936
|
|
|
|
174,900
|
|
|
|
(9,022
|
)
|
|
|
165,878
|
|
Less current portion
|
|
|
(1,750
|
)
|
|
|
-
|
|
|
|
(1,750
|
)
|
|
|
(1,750
|
)
|
|
|
-
|
|
|
|
(1,750
|
)
|
Total long-term debt, non-current
|
|
$
|
171,400
|
|
|
$
|
(7,214
|
)
|
|
$
|
164,186
|
|
|
$
|
173,150
|
|
|
$
|
(9,022
|
)
|
|
$
|
164,128
|
|
Future
minimum principal payments of long-term debt are as follows:
Year
|
|
Amount
|
|
(In thousands)
|
|
|
|
2018
|
|
|
1,750
|
|
2019
|
|
|
1,750
|
|
2020
|
|
|
4,275
|
|
2021
|
|
|
165,375
|
|
|
|
$
|
173,150
|
|
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 for the years ended December 31, 2017, 2016 and 2015 are presented below:
|
|
For the years ended December 31,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Domestic
|
|
$
|
(10,423
|
)
|
|
$
|
(8,696
|
)
|
|
$
|
(3,700
|
)
|
Foreign
|
|
|
12,896
|
|
|
|
10,555
|
|
|
|
20,793
|
|
Total
|
|
$
|
2,473
|
|
|
$
|
1,859
|
|
|
$
|
17,093
|
|
The
income tax provisions at December 31, 2017, 2016 and 2015 are comprised of the following:
|
|
For the years ended December 31,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Current
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(15
|
)
|
|
$
|
-
|
|
|
$
|
(38
|
)
|
State
|
|
|
529
|
|
|
|
51
|
|
|
|
(3
|
)
|
Foreign - Other
|
|
|
1,062
|
|
|
|
164
|
|
|
|
805
|
|
Total current
|
|
|
1,576
|
|
|
|
215
|
|
|
|
764
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
8,168
|
|
|
|
(3,015
|
)
|
|
|
(3,140
|
)
|
State
|
|
|
242
|
|
|
|
(426
|
)
|
|
|
(247
|
)
|
Foreign - Other
|
|
|
16
|
|
|
|
26
|
|
|
|
(26
|
)
|
Total deferred
|
|
|
8,426
|
|
|
|
(3,415
|
)
|
|
|
(3,413
|
)
|
Income tax expense (benefit)
|
|
$
|
10,002
|
|
|
$
|
(3,200
|
)
|
|
$
|
(2,649
|
)
|
The U.S. Tax Cuts and
Jobs Act (the “Tax Act”) was enacted on December 22, 2017 and introduces significant changes to U.S. income tax law.
Effective in 2018, the Tax Act reduces the U.S. statutory tax rate from 35% to 21%, transitions the U.S international taxation
from a worldwide tax system to a territorial system, and creates new taxes on certain foreign-sourced earnings and certain related-party
payments, which are referred to as the global intangible low-taxed income tax and the base erosion tax, respectively. In addition,
in 2017 we were subject to a one-time transition tax on accumulated foreign subsidiary earnings not previously subject to U.S.
income tax.
On December 22, 2017,
Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of US GAAP in situations when a registrant
does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete
the accounting for certain income tax effects of the Tax Act. Due to the timing of the enactment and the complexity involved in
applying the provisions of the Tax Act, we have made reasonable estimates of the effects and recorded provisional amounts in our
financial statements as of December 31, 2017. As we collect and prepare necessary data, and interpret the Tax Act and any additional
guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, we may make adjustments to the provisional
amounts. Those adjustments may materially impact our provision for income taxes and effective tax rate in the period in which the
adjustments are made. The accounting for the tax effects of the Tax Act will be completed in 2018.
Provisional amounts
for the following income tax effects of the Tax Act have been recorded as of December 31, 2017 and are subject to change during
2018.
One-time transition
tax
The Tax Act requires
us to increase our U.S. taxable income for accumulated foreign subsidiary earnings not previously subject to U.S. income tax at
a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings. We recorded
a provisional amount for our one-time transitional tax liability as a reduction of net operating loss carryforwards totaling $14.5
million. We have recorded provisional amounts based on estimates of the effects of the Tax Act as the analysis requires significant
data from our foreign subsidiaries that is not regularly collected or analyzed. Additional work is necessary to do a more detailed
analysis of historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustment to these amounts
will be recorded to current tax expense in the quarter of 2018 when the analysis is complete.
Deferred tax effects
The Tax Act reduces
the U.S. statutory tax rate from 35% to 21% for years after 2017. Accordingly, we have remeasured our deferred taxes as of December
31, 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized. We recognized
a deferred tax benefit of $1.8 million to reflect the reduced U.S. tax rate and other effects of the Tax Act. Although the tax
rate reduction is known, we have not collected the necessary data to complete our analysis of the effect of the Tax Act on the
underlying deferred taxes and as such, the amounts recorded as of December 31, 2017 are provisional.
The net tax expense
recognized in 2017 related to the Tax Act was $12.7 million. As we complete our analysis of the Tax Act and incorporate additional
guidance that may be issued by the U.S. Treasury Department, the IRS or other standard-setting bodies, we may identify additional
effects not reflected as of December 31, 2017.
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,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Tax provision at statutory rate – federal
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
U.S. tax reform toll charge
|
|
|
562.2
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Tax rate change deferred revaluation
|
|
|
(63.3
|
%)
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Tax provision at effective state and local rates
|
|
|
23.9
|
%
|
|
|
(21.1
|
%)
|
|
|
(1.5
|
%)
|
Foreign tax rate differential
|
|
|
(158.3
|
%)
|
|
|
(216.4
|
%)
|
|
|
(46.5
|
%)
|
GAAP gain on transfer of assets
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
(15.3
|
%)
|
Transaction costs
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
8.3
|
%
|
Subpart F income
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
5.2
|
%
|
Nondeductible expenses
|
|
|
6.5
|
%
|
|
|
51.7
|
%
|
|
|
0.0
|
%
|
Uncertain tax provisions
|
|
|
1.2
|
%
|
|
|
0.2
|
%
|
|
|
0.2
|
%
|
Valuation allowance
|
|
|
2.8
|
%
|
|
|
22.1
|
%
|
|
|
0.6
|
%
|
Prior period adjustments
|
|
|
11.2
|
%
|
|
|
(37.7
|
%)
|
|
|
0.0
|
%
|
Stock compensation
|
|
|
(9.5
|
%)
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Tax credits
|
|
|
(7.3
|
%)
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Other
|
|
|
0.0
|
%
|
|
|
(5.9
|
%)
|
|
|
(1.5
|
%)
|
Total effective income tax rate
|
|
|
404.4
|
%
|
|
|
(172.1
|
%)
|
|
|
(15.5
|
%)
|
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
(liabilities) as of December 31, 2017 and 2016 are comprised of the following:
|
|
As of December 31,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
Net operating loss carryforward
|
|
$
|
16,292
|
|
|
$
|
15,032
|
|
Property and equipment
|
|
|
(8,880
|
)
|
|
|
(236
|
)
|
Valuation allowance
|
|
|
(8,863
|
)
|
|
|
(8,795
|
)
|
Stock-based compensation
|
|
|
9
|
|
|
|
124
|
|
Intangibles
|
|
|
(1,022
|
)
|
|
|
(1,923
|
)
|
Other
|
|
|
20
|
|
|
|
(84
|
)
|
Deferred tax (liabilities) assets
|
|
$
|
(2,444
|
)
|
|
$
|
4,118
|
|
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, 2017, the Company had deferred tax
assets related to Australian loss carryforwards of approximately $22.7 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 $26.8
million, which begin to expire in 2027. 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.
As a result of the transition
to the territorial tax regime effectuated by the Tax Act described above, any potential dividends from our foreign subsidiaries
would no longer be subject to tax in the United States. We continue to assert our prior position regarding the repatriation of
historical foreign earnings from our Ecuadorian and Australian subsidiaries. We currently have no intention to remit any additional
undistributed earnings of our Ecuadorian and Australian subsidiaries in a taxable manner. We no longer remain permanently reinvested
in the earnings of our Cayman subsidiary. No taxes have been accrued as a result of this change because no taxes are expected to
be imposed by either the United States or the Cayman Islands upon such a remittance.
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, 2017, 2016 and 2015:
|
|
For the years ended December 31,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Beginning of year
|
|
$
|
447
|
|
|
$
|
473
|
|
|
$
|
447
|
|
Current year positions
|
|
|
-
|
|
|
|
(26
|
)
|
|
|
26
|
|
Prior year positions
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
-
|
|
End of year
|
|
$
|
421
|
|
|
$
|
447
|
|
|
$
|
473
|
|
The amount of uncertain
tax positions that, if recognized, would impact the effective tax rate at December 31, 2017 and 2016 was $0.3 million. Any changes
in the next twelve months are not anticipated to have significant impact on the results of operations, financial position or cash
flows of the Company.
The Company has elected
an accounting policy to classify interest and penalties related to unrecognized tax benefits as a component of income tax expense.
As of December 31, 2017, 2016 and 2015, interest and penalties included in income tax expense were not significant.
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 for the current year and the three prior years remain subject to examination by tax
authorities and the Company’s foreign tax returns for the current year and the four prior years 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, 2017 are as follows:
|
|
Minimum
|
|
|
|
Lease
|
|
For the years ended December 31,
|
|
Payments
|
|
(In thousands)
|
|
|
|
2018
|
|
$
|
936
|
|
2019
|
|
|
1,154
|
|
2020
|
|
|
1,094
|
|
2021
|
|
|
1,049
|
|
2022
|
|
|
1,104
|
|
Thereafter
|
|
|
2,737
|
|
|
|
$
|
8,074
|
|
The amounts above include
the future minimum rental commitment of $3.1 million related to the 88 months lease for the shoreside facility in Seattle that
was executed February 8, 2018.
Rent expense was approximately
$1.2 million, $1.1 million and $0.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. These amounts are
recorded within general and administrative expenses on the accompanying consolidated statements of operations.
Fleet Expansion
On December 2, 2015,
the Company entered into two separate Vessel Construction Agreements, (collectively, the “Agreements”) with Ice Floe,
LLC, a Washington limited liability company doing business as Nichols Brothers Boat Builders (the “Builder”). The Agreements
provide for the Builder to construct two new 236-foot 100-passenger cruise vessels.
The company paid
Ice Floe LLC $53.6 million related to the
National Geographic Quest
and the vessel was delivered in July of 2017. The
Company amended the agreement for the second vessel, the
National Geographic Venture
, in October 2017. The current
contract price is $57.0 million and the vessel is scheduled to be completed in the fourth quarter of 2018, subject to
extension for certain events, such as change orders. As of December 31, 2017, the Company has paid Ice Floe, LLC $23.8
million related to the
National Geographic Venture
. The Company may terminate the applicable Agreement in the event
the Builder fails to deliver the vessel within one hundred eighty days of the applicable due date or the Builder becomes
insolvent or otherwise bankrupt. The Agreement also contains customary representations, warranties, covenants and
indemnities.
In November 2017, the
Company entered into an agreement with Ulstein Verft to construct a polar ice class vessel with a total purchase price of 1,066.0
million Norwegian Kroner (NOK). Subsequently, LME exercised its right to make payments in United States Dollars, which resulted
in a purchase price of $134.6 million, including hedging costs. The purchase price is subject to potential adjustments from contract
specifications for variations in speed, deadweight, fuel consumption and delivery date, and is due in installments. The first twenty
percent of the purchase price was paid shortly after execution of the Agreement with the remaining eighty percent due upon delivery
and acceptance of the vessel. The vessel is targeted to be delivered in January 2020, with potential accelerated delivery to November
2019. The contract also includes options to build two additional ice class vessels, the first for delivery twelve months after
the initial vessel and the second for delivery twelve months thereafter.
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 operations. 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 operations. 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, 2017, 2016 and 2015 totaled $5.2 million, $4.9 million
and $4.8 million, respectively.
The balances payable
to National Geographic as of December 31, 2017 and 2016 are $1.7 million and $1.5 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, 2017 and 2016, the Company recorded amortization of the National Geographic fee of $2.9 million and $2.9
million, respectively, within selling and marketing expense on the consolidated statements of operations. 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 operations. The annual royalty payment and gross sales fees are paid on a quarterly
basis. For the years ended December 31, 2017 and 2016, these fees totaled $0.6 million and $0.5 million, respectively.
Royalty Agreement – Islander
Under
a perpetual royalty agreement, the Company is obligated to pay a third party, based upon net revenues generated through tours conducted
on the
National Geographic Islander
. Royalty payments are charged to cost of tours expenses. Royalty expense for the years
ended December 31 2017, 2016 and 2015 was $0.7
million, $0.7
million and $0.7 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)
|
|
|
|
2018
|
|
|
9,334
|
|
2019
|
|
|
5,241
|
|
Total
|
|
$
|
14,575
|
|
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 matched 30% in 2017 and 25% in 2016 and 2015, respectively, of employee
contributions up to annual maximum of $2,100 for 2017, $1,800 for 2016 and $1,500 for 2015. For the years ended December 31, 2017,
2016 and 2015, the Company’s benefit plan contribution amounted to $0.3 million, $0.2 million and $0.2 million, respectively.
The benefit plan contribution is recorded within general and administrative expenses on the consolidated statements of operations.
NOTE 11 – STOCKHOLDERS’ EQUITY
Capital Stock
The
Company has 1,000,000 shares of
preferred stock authorized,
$0.0001 par value and 200,000,000 shares of common stock authorized, $0.0001 par value.
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.
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.
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 $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. 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. The repurchases exclude shares repurchased to settle statutory employee tax
withholding related to the vesting of stock awards. All repurchases were made using cash resources. 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 and 308,718 shares of
its common stock for $3.0 million. In 2017 the Company repurchased a total of 529,867 warrants for $1.1 million and 547,058 shares
of common stock for $5.1 million pursuant to the Repurchase Plan. The Company has cumulatively repurchased 855,776 shares of common
stock for $8.1 million and 5,443,480 warrants for $14.0 million, since plan inception. The balance as of February 26, 2018 for
the repurchase plan was $12.1 million.
2017 Long-Term Incentive Compensation
In March 2017, the
Company’s compensation committee (or a subcommittee thereof) approved awards of restricted stock units (“RSUs”)
and performance share units (“PSUs”) to key employees under the Company’s 2015 Long-Term Incentive Plan. The
Company granted 171,388 RSUs on April 3, 2017 at a grant price of $8.98. The RSU’s will vest in equal installments on each
of the first three anniversaries of the grant date, subject to the recipient’s continued employment or service with us or
our subsidiaries on the applicable vesting date.
The PSUs are performance-vesting
equity incentive awards that will be earned based on our performance against metrics relating to annual Adjusted EBITDA, annual
revenue, and guest satisfaction. Awards will vest after a three-year performance period and may be earned at a level ranging from
0%-200% of the number of PSUs granted, depending on performance. On April 3, 2017, the Company awarded 126,953 of targeted PSUs
with the number of shares determined based upon the closing price of our common stock on March 31, 2017 of $8.96. Based on the
financial statements as of December 31, 2017, the Company assessed the applicable metrics related to the PSU grants, determined
the blended probability of achieving the performance metrics and valued the awards based on the fair value at the date of grant
with the amount of stock compensation expense determined based on the number of PSU’s expected to vest.
2016 CEO Share Allocation Plan
In April 2016, the
Company’s Board of Directors adopted the 2016 CEO Share Allocation Plan (the “2016 Plan”) and in June 2016, the
Company’s shareholders 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.
On January 10, 2017,
Mr. Lindblad contributed to the Company and the Company thereafter granted, 716,550 restricted shares at a grant price of $9.65.
The grants vest in three equal installments on January 10, 2017, January 10, 2018 and January 10, 2019.
2015 Long-Term Incentive Plan
In July 2015, the Company’s
Board of Directors and shareholders approved the 2015 Long-Term Incentive Plan (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. 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.
Performance Share Units
Performance 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. PSUs 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 Company does not deliver the shares associated with the PSUs to the
employee, non-employee director or other service providers until the vesting conditions are met.
The following table
is a summary of restricted stock and PSU activity under the Company’s 2015 Plan:
|
|
PSU’s
|
|
|
Weighted Average Grant Date Fair Value
|
|
PSUs unvested as of December 31, 2016
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
126,953
|
|
|
|
8.98
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(39,161
|
)
|
|
|
8.98
|
|
PSUs unvested as of December 31, 2017
|
|
|
87,792
|
|
|
$
|
8.98
|
|
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 Company does not deliver the shares associated with the RSUs to the employee,
non-employee director or other service providers until the vesting conditions are met.
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 outstanding as of December 31, 2016
|
|
|
202,091
|
|
|
$
|
9.90
|
|
Granted
|
|
|
940,147
|
|
|
|
9.56
|
|
Vested
|
|
|
(299,951
|
)
|
|
|
9.72
|
|
Forfeited
|
|
|
(63,945
|
)
|
|
|
9.41
|
|
Restricted shares and RSUs outstanding as of December 31, 2017
|
|
|
778,342
|
|
|
$
|
9.60
|
|
Stock Options
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 in years
|
|
|
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, 2016
|
|
|
2,130,848
|
|
|
$
|
2.57
|
|
|
|
2.8
|
|
|
$
|
14,654,221
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
955,424
|
|
|
|
1.76
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Options outstanding as of December 31, 2017
|
|
|
1,175,424
|
|
|
$
|
3.23
|
|
|
|
2.4
|
|
|
$
|
7,707,255
|
|
Exercisable as of December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Vested #
|
|
|
955,424
|
|
|
|
1.76
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(955,424
|
)
|
|
|
1.76
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
# Vested shares do not include 955,424 shares vested as of December
31, 2017 but not exercisable until January 1, 2018.
Stock Compensation Expense
Stock-based compensation
expense for 2017, 2016 and 2015 was $10.6 million, $5.4 million and $4.9 million,
respectively, and is included in general and administrative expenses. The total income tax benefit recognized for stock based compensation
plans for 2017, 2016 and 2015 was $0.1 million, $0.1 million and $1.3 million, respectively.
As of December 31, 2017, unrecognized stock-based compensation costs were $6.0 million. This amount is expected to be recognized
over a weighted average period of approximately one year.
NOTE
12 – RELATED PARTY TRANSACTIONS – STOCKHOLDER
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 shareholders (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 year ended
December 31, 2015, the aggregate cash fee paid to Venturehouse Group, LLC was $45.0 thousand.
To meet Capitol’s
working capital needs, from time to time, Capitol’s officers, directors, initial shareholders 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 shareholders 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 shareholders, 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 2017, LEX paid an aggregate of $5.2 million to National
Geographic under these agreements, which are included within selling and marketing expenses on the accompanying consolidated statements
of operations. 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).
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.
In connection with
the mergers, the shareholders 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,
2017 and 2016, total assets for the Lindblad segment and Natural Habitat segment were $382.7 and $49.6 and $366.0 million
and $41.7 million, respectively. As of December 31, 2017 and 2016, there were $4.8 and $5.5 million, respectively, of intangibles,
net related to the Lindblad segment. As of December 31, 2017 and 2016 there were $22.1 million in goodwill and $4.8 and $5.6 million
in intangibles, respectively, net on the accompanying consolidated balance sheet that were related to the Natural Habitat segment.
For the years ended
December 31, 2017 and 2016, amortization of tradenames of $0.2 million and $0.1 million, respectively, and customer lists of $0.7
million and $0.5 million, respectively, were related to the Natural Habitat segment. For the years ended December 31, 2017 and
2016 there were $1.4 million and $0.9 million in depreciation and amortization expense and $0.7 and $0.1 million in capital expenditures,
respectively, related to the Natural Habitat segment. There were $2.0 and $0.5 million in intercompany tour revenues between the
Lindblad and Natural Habitat segments eliminated in consolidation for the years ended December 31, 2017 and 2016, respectively.
For the years ended December 31, 2017, 2016 and 2015, amortization expense related to operating rights were $0.7, $0.7 and $0.3
million, respectively, for the Lindblad segment. Capital expenditures for the years ended December 31, 2017, 2016 and 2015 were
$79.8, $75.9 and $14.8 million, respectively, for the Lindblad segment. Depreciation and amortization expense for the years ended
December 31, 2017, 2016 and 2015 were $16.0, $18.0 and $11.6 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, 2017, 2016
and 2015, the following operating results were:
|
|
For the years ended December 31,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
%
|
|
|
2015
|
|
|
Change
|
|
|
%
|
|
Tour revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lindblad
|
|
$
|
216,815
|
|
|
$
|
207,836
|
|
|
$
|
8,979
|
|
|
|
4
|
%
|
|
$
|
209,985
|
|
|
$
|
(2,149
|
)
|
|
|
(1
|
%)
|
Natural Habitat*
|
|
|
49,689
|
|
|
|
34,510
|
|
|
|
15,179
|
|
|
|
44
|
%
|
|
|
-
|
|
|
|
34,510
|
|
|
|
NA
|
|
Total tour revenues
|
|
$
|
266,504
|
|
|
$
|
242,346
|
|
|
$
|
24,158
|
|
|
|
10
|
%
|
|
$
|
209,985
|
|
|
$
|
32,361
|
|
|
|
15
|
%
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lindblad
|
|
$
|
7,292
|
|
|
$
|
11,794
|
|
|
$
|
(4,502
|
)
|
|
|
(38
|
%)
|
|
$
|
15,502
|
|
|
$
|
3,708
|
|
|
|
(24
|
%)
|
Natural Habitat*
|
|
|
3,452
|
|
|
|
2,187
|
|
|
|
1,265
|
|
|
|
58
|
%
|
|
|
-
|
|
|
|
(2,187
|
)
|
|
|
NA
|
|
Total operating income
|
|
$
|
10,744
|
|
|
$
|
13,981
|
|
|
$
|
(3,237
|
)
|
|
|
(23
|
%)
|
|
$
|
15,502
|
|
|
$
|
1,521
|
|
|
|
(10
|
%)
|
* The 2016 Natural Habitat segment results represent activity
from acquisition date of May 2016 through December 31, 2016.
NOTE 14 – QUARTERLY FINANCIAL
DATA – UNAUDITED
The following is the
quarterly financial data for the years ended December 31, 2017 and 2016:
|
|
2017
|
|
(In thousands, except per share data)
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Year
|
|
Tour revenues
|
|
$
|
63,128
|
|
|
$
|
55,571
|
|
|
$
|
84,584
|
|
|
$
|
63,221
|
|
|
$
|
266,504
|
|
Gross profit
|
|
$
|
30,525
|
|
|
$
|
26,874
|
|
|
$
|
46,104
|
|
|
$
|
27,475
|
|
|
$
|
130,978
|
|
Net income (loss)
|
|
$
|
625
|
|
|
$
|
(2,578
|
)
|
|
$
|
9,443
|
|
|
$
|
(15,019
|
)
|
|
$
|
(7,529
|
)
|
Diluted earnings (loss) per share
|
|
$
|
0.01
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.20
|
|
|
|
(0.36
|
)
|
|
$
|
(0.19
|
)
|
|
|
2016
|
|
(In thousands, except per share data)
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
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
|
|