UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended SeptemberJune 30, 20172018

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to

Commission file number 001-35898

LINDBLAD EXPEDITIONS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

96 Morton Street, 9^th Floor, New York, New York, 10014

(Address of principal executive offices) (Zip Code)

(212) 261-9000

(Registrant’s telephone number, including area code)

NOT APPLICABLEN/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of November 3, 2017, 45,433,152July 31, 2018, 45,786,647 shares of common stock, par value $0.0001 per share, were issued and outstanding.

LINDBLAD EXPEDITIONS HOLDINGS, INC.

Quarterly Report On Form 10-Q

For The Quarter Ended SeptemberJune 30, 20172018

Table of Contents

PART 1: FINANCIAL INFORMATION

LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

The accompanying notes are an integral part of these condensed consolidated financial statements.

LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of IncomeOperations

(In thousands, except share and per share data)

(Unaudited)(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ EquityComprehensive Income (Loss)

(In thousands, except share and per share data)

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash FlowsStockholders’ Equity

(In thousands)thousands, except share data)

(Unaudited)(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

LINDBLAD EXPEDITIONS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Lindblad Expeditions Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

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. A new coastal vessel, theNational Geographic Quest, joinedbrand and operate eco-conscious expeditions and nature-focused, small-group tours under the fleet in the third quarter of 2017. The Company has contracted for two additional vessels, theNational Geographic Venture, a coastal vessel, is expected to be completed in the fourth quarter of 2018, and a polar ice class vessel, targeted to be completed in January 2020, with potential accelerated delivery to November 2019.Natural Habitat brand.

Lindblad’s mission is to offeroffering life-changing adventures on all seven continents and to pioneerpioneering 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 SocietyPartners (“National Geographic”), which often provides lecturers and National Geographic experts, including photographers, writers, marine biologists, naturalists, field researchers and film crews. The arrangement with National Geographic extends through 2025.crews, that join the Company’s expeditions.

Natural Habitat Acquisition

On May 4, 2016, the Company acquired an 80.1% ownership interest in Natural Habitat, Inc. (“Natural Habitat”), an adventure travel and ecotourism company based in Colorado. Natural Habitat was founded by Benjamin L. Bressler, who retains a 19.9% noncontrolling interest in Natural Habitat. With the acquisition ofThrough its subsidiary, Natural Habitat, the Company expanded itsalso offers land-based offeringstrips 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 andtravel, which is sustainable travel that directly protects nature. This agreement with WWF extends through 2023.contributes to the protection of nature and wildlife.

The Company’s common stock and warrants are listed on the NASDAQ Capital Market under the symbols “LIND” and “LINDW,” respectively.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements and footnotes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding unaudited interim financial information. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Income, Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity, and Condensed Consolidated Statements of Cash Flowsfinancial statements for the interim periods presented. Operating results for the interim periods presented are not necessarily indicative of the results of operations to be expected for the full year due to seasonality and other factors. Certain information and footnote disclosures normally included in the condensed consolidated financial statements in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC.SEC for interim reporting. All intercompany balances and transactions have been eliminated in the accompanyingthese unaudited condensed consolidated financial statements. Accordingly, theseThese unaudited interim condensed consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto for the year ended December 31, 20162017 contained in the Annual Report on Form 10-K filed with the SEC on March 7, 2017. 2, 2018.

Principles of Consolidation

The condensed consolidated financial statements of the Company as of September 30, 2017 and December 31, 2016 includedinclude Lindblad Expeditions Holdings, Inc. and its consolidated subsidiaries All significant intercompany accounts and transactions have been eliminated in consolidation.subsidiaries.

Reclassifications

Certain items in the condensed consolidated financial statements of the Companyprior period amounts have been reclassified to conform to the 2017 classification. The reclassifications hadcurrent period presentation, with no effectimpact on previously reported results of operationsconsolidated net income or retained earnings.cash flows.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets, and liabilities, as of the date of the condensed consolidated financial statements, and also affect the amounts of revenues and expenses reported for each period.expenses. Actual results could differ from those which result from using such estimates. Management utilizes various estimates including but not limited toinclude 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 and liabilities, the fair value of derivative instruments, the value of contingent consideration and to assessassessing its litigation, other legal claims and contingencies. The results of any changes in accounting estimates are reflected in the condensed consolidated financial statements in the period in which the changes become evident. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the condensed consolidated financial statements in the period that they are determined to be necessary.

Revenue Recognition

Tour revenue consistsRevenues are measured based on consideration specified in the Company’s contracts with guests and are recognized as the related performance obligations are satisfied.

The majority of the Company’s revenues are derived from guest ticket revenue recognized from the sale of guest tickets and othercontracts which are reported as tour revenues fromin the salecondensed consolidated statements of operations. The Company’s primary performance obligation under these contracts is to provide an expedition and may include pre- and post-expedition excursions, hotel accommodations, land-based expeditions and air transportation to and from the ships. Upon satisfaction of these performance obligations, the Company recognizes revenue over the duration of each expedition.

Tour revenues also include revenues from the sale of goods and services onboard our ships, cancellation fees and trip insurance. Revenues from the sale of goods and services rendered onboard that are not included in guest ticket prices,recognized upon purchase. Guest cancellation fees are recognized as tour revenues at the time of the cancellation. The Company records a liability for estimated trip insurance and cancellation fees. Revenueclaims based on the Company’s claims history. Proceeds received from the saletrip insurance premiums in excess of guest tickets and otherthis liability are recorded as revenue are recognized gross, as the Company has the primary obligation in the arrangement, has discretionperiod in supplier selectionwhich they are received.

Customer Deposits and is involved in the determination of the service specifications.Contract Liabilities

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 and air transportation to and from the ships, and trip insurance.ships. Guest tour deposits represent unearned revenues and are initially included inreported as unearned passenger revenuerevenues in the condensed consolidated balance sheet when received. Guest depositsreceived and are subsequently recognized as tour revenue over the duration of the expedition. Accounting Standards Codification,Revenue from Contracts with Customers (Topic 606) defines a “contract liability” as an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration from the customer. The Company does not consider guest deposits to be a contract liability until the guest no longer has the right, resulting from the passage of time, to cancel their reservation and receive a full refund. Unearned passenger revenues onpresented in our condensed consolidated balance sheets include contract liabilities of $66.2 million and $62.1 million as of June 30, 2018 and December 31, 2017, respectively. During the date of embarkation. Tour expeditions average ten days in duration. For tours in excess of ten days, the Company recognizes revenue based upon expeditions days earned. Guest cancellation fees arethree and six months ended June 30, 2018, $0.6 million and $62.1 million, respectively, was recognized as tour revenues at the timerevenue in relation to contract liabilities as of the cancellation. Revenues from the sale of additional goods and services rendered onboard are recognized upon purchase.December 31, 2017.

Earnings per Common Share

Earnings per common share areis 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 areis 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 associated with restricted stock awards, shares issuable upon the exercise of stock which may include options and warrants, and vesting of restricted stock, which was accounted for utilizingusing the treasury stock method.

For the three and ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, the Company calculated earnings per share in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260 and 805-40-45 as follows:

ForThe Company’s Board of Directors and stockholders approved the three and nine months ended September2015 Long-Term Incentive Plan, which includes the authority to issue up to 2.5 million shares of Lindblad common stock. As of June 30, 2017,2018, approximately 1.5 million shares were available for future grants under the Company determined, using the treasury stock method, there were 1,260,857 and 1,080,682 dilutive common shares, respectively, related to stock options. For the three and nine months ended September 30, 2016 the Company determined, using the treasury stock method, there were 764,814 and 690,272 dilutive common shares, respectively, related to stock options.

plan.

As of SeptemberJune 30, 2018 and 2017, options to purchase an aggregate of 220,000 and 2016 there2,035,036 shares of the Company’s common stock, respectively, with a weighted average exercise price of $9.63 and $2.61 per share, respectively, were outstanding. These options were anti-dilutive for the three and six months ended June 20, 2017, as the Company incurred a loss, and were not included in the calculation of diluted weighted average shares outstanding for those periods.

As of June 30, 2018 and 2017, 10,088,074 and 10,673,015 and 12,040,937,warrants, respectively, warrantsexpiring July 8, 2020 were outstanding to purchase common stock at a price of $11.50 per share. The Company determined theseThese warrants were anti-dilutive for the three months ended June 30, 2017 and the six months ended June 30, 2018 and 2017 and were not consideredincluded in the calculation of diluted weighted average shares outstanding. outstanding for those periods.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with an original maturity of threesix 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 SeptemberJune 30, 20172018 and December 31, 2016,2017, the Company’s cash held in financial institutions outside of the U.S. amounted $4.5to $6.5 million and $2.7$4.1 million, respectively.

Restricted Cash and Marketable Securities

“Restricted cash and marketable securities” onsecurities consist of the accompanying condensed consolidated balance sheets consists of:following:

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.

 During the first quarter of 2017, our required credit card reserves were permanently decreased by $3.5 million to $1.5 million for credit card deposits for our third-party credit card processors.

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 collectedthe required amounts.

At June 30, 2018 and December 31, 2017, a cash reserve of approximately $1.5 million is required for sailings from U.S. ports. 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.

Inventories and Marine Operating Supplies and Inventories

Inventories consist primarily of gift shop merchandise and other items for resale and are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method.

Marine operating supplies consist primarily of fuel, provisions, spare parts, items required for maintenance and supplies used in the operation of marine expeditions. Marine operating supplies are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method.

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:

Property and Equipment Net

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization were computed using the straight linestraight-line method over the estimated useful lives of the assets, as follows:

As of September 30, 2017, the Company owned and operated seven vessels. A new coastal vessel, theNational Geographic Quest, joined the fleet in the third quarter of 2017. The Company has contracted for two additional vessels, theNational Geographic Venture,a coastal vessel, is expected to be completed in the fourth quarter of 2018, and a polar ice class vessel, which is targeted to be completed in January 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.

The Company began to capitalize interest in January 2016 for its two new build coastal vessels under accounting guidance in ASC 835-20, which requires companies to capitalize interest cost incurred during the construction of assets. The capitalized interest has been and will continue to be added to the historical cost of the asset, and depreciate over its useful life. For the nine months ended September 30, 2017, and the year ended December 31, 2016, the Company recognized $2.0 million and $1.5 million, respectively, in capitalized interest in property and equipment on the condensed consolidated balance sheet. 

Goodwill

Goodwill includes the cost of the acquired business in excess of the fair value of the tangible net assets recorded in connectionIn accordance with the acquisition of Natural Habitat (see Note 1 – Business). Accounting Standards Codification 350, “Intangibles – Goodwill and Other” (“ASC 350”ASC”), requires 360, the Company to assess goodwilltests for impairment annually as of September 30, or more frequently if a triggering event occurs. Due towarranted. As of June 30, 2018 there was no indication of impairment. The Company completed the acquisitionannual impairment test as of Natural Habitat on May 4, 2016, the Company recordedSeptember 30, 2017 with no indication of goodwill in the amount of $22.1 million, in Natural Habitat’s reporting unit. The Company’s policy is to first perform a qualitative assessment to determine if that it was more likely or not if Natural Habitat’s reporting unit’s carrying value is less than the fair value of the reporting unit, indicating the potential for goodwill impairment. If the reporting unit fails the qualitative test then the Company proceeds with the quantitative two step goodwill impairment calculation. During the third quarter of 2017, the Company performed a qualitative assessment of Natural Habitat’s fair value which included assessing the impact of certain factors such as general economic conditions, limitations on accessing capital, changes in forecasted operating results, and fluctuations in foreign exchange rates. Based on our qualitative assessment, we concluded that it was more-likely-than-not that the estimated fair value of Natural Habitat’s reporting unit exceeded its carrying value and thus, we did not proceed to the two-step goodwill impairment test.

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 waswere 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: theNational Geographic Endeavour IIwith 95 berths and theNational Geographic Islanderwith 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 was updated in November 2015. A Presidential Decree issued by President Correa of Ecuador in November 2015 established that cupos, which were in effect as ofsince July 2015, will have a validity of nine years so theyears. The Company’s operating rights are up for renewal in July 2024. 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 SeptemberJune 30, 20172018 and December 31, 2016,2017, there was no triggering event and the Company did not record an impairment for intangible assets.

Long-Lived Assets

The Company reviews its long-lived assets, principally its vessels, for impairment whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. Upon the occurrence of a triggering event, the assessment of possible impairment is based on the Company’s ability to recover the carrying value of its asset, which is determined by using the asset’s estimated undiscounted future cash flows. If these estimated undiscounted future cash flows are less than the carrying value of the asset, an impairment charge is recognized for the excess if any, of the asset’s carrying value over its estimated fair value. A significant amount of judgment is required in estimating the future cash flows and fair values of its vessels. As of SeptemberJune 30, 20172018 and December 31, 2016,2017, there was no triggering event that caused, norand the Company did the Companynot record an impairment of its long-lived assets.

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:

Fair Value Measurements and Disclosure

The Company applies ASC 820, “Fair Value Measurements and Disclosures,” which expands disclosures for assets and liabilities that are measured and reported at fair value on a recurring basis. Fair value is defined as an exit price, representing the amount that would be received upon the sale of an asset or payment to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:

The carrying amounts of cash and cash equivalents, accounts payable and accrued expenses, approximate fair value due to the short-term nature of these instruments.

The carrying value of long-term debt approximates fair value given that the terms of the agreement were comparable to the market as of SeptemberJune 30, 20172018. As of June 30, 2018 and December 31, 2016. As of September 30, 2017, and December 31, 2016, the Company had no other significant 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.

Derivative Instruments and Hedging Activities

By entering into derivative instrument contracts, the Company exposes itself, from time to time, to counterparty credit risk. Counterparty credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is in an asset position, the counterparty has a liability to the Company, which creates credit risk for the Company. The Company continues to monitor counterparty credit risk as part of its ongoing hedge assessments.

The Company records derivatives on a gross basis in other long-term assets and other liabilities in the condensed consolidated balance sheets at fair value. The accounting for changes in value of the derivative depends on whether or not the transaction has been designated and qualifies for hedge accounting. Derivatives that are not designated as hedges are reported and measured at fair value through earnings.

The Company applies hedge accounting to its interest rate derivatives entered into for risk management purposes. To qualify for hedge accounting, a derivative must be highly effective at reducing the risk associated with the exposure being hedged. In addition, key aspects of achieving hedge accounting are documentation of hedging strategy and hedge effectiveness at the hedge inception and substantiating hedge effectiveness on an ongoing basis. A derivative must be highly effective in accomplishing the hedge objective of offsetting changes in the cash flows of the hedged item for the risk being hedged. The effective portion of changes in the fair value of derivatives designated in a hedge relationship and that qualify as cash flow hedges is recorded in accumulated other comprehensive income, net of tax, and is subsequently reclassified into earnings in the period that the hedged transaction affects earnings.

The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking cash flow hedges to specific assets and liabilities on the balance sheet or to specific forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items.

The Company is exposed to market risks attributable to changes in interest rates on its term loan facility and seeks to hedge the risk of variability in cash flows associated with the changes in US$-LIBOR-Intercontinental Exchange associated with interest payments on its variable rate debt (“Amended Credit Agreement”).

During the second quarter 2018, the Company entered into interest rate cap agreements to hedge its exposure to interest rate movements and to manage its interest expense related to the Term Facility under its Amended Credit Facility and designated these interest rate caps as a cash flow hedge. The Company receives payments on the cap for any period that the one-month USD LIBOR rate increase beyond the strike rate. The termination date of the cap agreement is May 31, 2023. The detailed terms of the interest rate caps and the portion of the corporate Term Facility that it hedges are as follows:

The notional amount of outstanding debt associated with the interest rate cap agreements was $100.0 million as of June 30, 2018, with a fair value of $1.5 million recorded within other long-term assets. Changes in the fair value of this interest rate cap are recorded in accumulated other comprehensive income, pursuant to the guidelines of cash flow hedge accounting as outlined in ASC 815 and ASU 2017-12. During the three and six months ended June 30, 2018, the Company recognized $0.1 million, respectively, of gains in accumulated other comprehensive income related to the change in fair value. The Company does not expect any gains currently recorded in accumulated other comprehensive income to be recognized in earnings over the next 12 months. The cost of the interest rate cap will be amortized to interest expense over its life, from the effective date through termination date.

The effects of cash flow hedge accounting on accumulated other comprehensive income (loss) were as follows:

The amounts included in accumulated other comprehensive income will be reclassified to interest expense should the hedge no longer be considered effective. No amount of the hedge was considered to be ineffective and included in net income for the quarter ended June 30, 2018. The Company will continue to assess the effectiveness of the hedge on an ongoing basis.

Income Taxes

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The measurement of net deferred tax assets is reduced by the amount of any tax benefit that, based on available evidence, is not expected to be realized, and a corresponding valuation allowance is established. The determination of the required valuation allowance against net deferred tax assets was made without taking into account the deferred tax liabilities created from the book and tax differences on indefinite-lived assets.

The Company accounts for income taxes using the asset and liability method, under which it recognizes deferred income taxes for the tax consequences attributable to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities, as well as for tax loss carryforwards and tax credit carryforwards. The Company measures deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable or settled. The Company recognizes the effect on deferred taxes of a change in tax rates in income in the period that includes the enactment date. The Company provides a valuation allowance against deferred tax assets if, based upon the weight of available evidence, the Company does not believe it is “more-likely-than-not” that some or all of the deferred tax assets will be realized. The Company will continue to evaluate the deferred tax asset valuation allowance balances in all of our foreign and U.S. companies to determine the appropriate level of valuation allowances.

The Company is subject to income taxes in both the U.S. and the non-U.S. jurisdictions in which it operates. The Company regularly assesses the potential outcome of current and future examinations in each of the taxing jurisdictions when determining the adequacy of the provision for income taxes. The Company has only recorded financial statement benefits for tax positions which it believes reflect the “more-likely-than-not” criteria of FASB’s authoritative guidance on accounting for uncertainty in income taxes, and it has established income tax reserves in accordance with this guidance where necessary. Once a financial statement benefit for a tax position is recorded or a tax reserve is established, the Company adjusts it only when there is more information available or when an event occurs necessitating a change. While the Company believes that the amount of the recorded financial statement benefits and tax reserves reflect the more-likely-than-not criteria, it is possible that the ultimate outcome of current or future examinations may result in a reduction to the tax benefits previously recorded on its condensed consolidated financial statements or may exceed the current income tax reserves in amounts that could be material. As of SeptemberJune 30, 2017,2018, and December 31, 2016,2017, the Company had a liability for unrecognized tax benefits of $0.4 million, which was included in other long-term liabilities on the Company’s condensed consolidated balance sheets. The guidance also discusses the classification of related interest and penalties on income taxes.liabilities. The Company’s policy is to record interest and penalties on uncertain tax positions as a component of income tax expense. During the ninethree and six months ended SeptemberJune 30, 20172018 and 2016,2017, interest and penalties related to uncertain tax positions included in income tax expense are immaterial. 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.

The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), codified as Accounting Standards Update (“ASU”) 2018-05, to address the application of U.S. 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. SAB 118 is effective for reporting periods that include December 22, 2017. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company made reasonable estimates of the effects and recorded provisional amounts in its financial statements as of December 31, 2017, resulting in additional tax expense of $12.7 million in that period. As the Company collects and prepares the necessary data, and interprets the Tax Act and any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, it may make adjustments to the provisional amounts. Those adjustments may materially impact the Company’s provision for income taxes and effective tax rate in the period in which the adjustments are made. To date, management has not made any adjustments to the provisional amounts for the remeasurement of deferred tax assets/liabilities and the deemed repatriation of certain foreign subsidiary earnings. The accounting for the tax effects of the Tax Act will be completed in 2018.

Stock-Based Compensation

The Company accounts for equity instruments issued to employees, non-employee Directorsdirectors or other service providers in accordance with accounting guidance that requires that awards are recorded at their fair value on the date of grant and are amortized over the service period of the award. The Company recognizes compensation costs on a straight-line basis over the requisite service period of the award, which is generally the vesting term of the equity instrument issued. To the extent that an equity award later becomes eligible to be put back to the Company, then the fair value of that award or those exercised shares are transferred out of additional paid-in-capital to a liability account and is thereafter marked-to-market annually to fair value.

Segment Reporting

We are an expedition and adventure travelThe Company is primarily a specialty cruise operator with operations in two segments, Lindblad and Natural Habitat. We evaluateThe Company evaluates the performance of our business based largely on the results of our operating segments. We provide discrete financial information in total, by ship and type of ship. The chief operating decision maker, or CODM, and management review operating results monthly, and base operating decisions on the total results at a consolidated level, as well as at a segment level. OurThe reports provided to the Board of Directors are at a consolidated level and also contain information regarding the separate results of both segments. Management performance and related compensation is primarily based on total results. While both segments have similar characteristics, the two operating and reporting segments cannot be aggregated because they fail to meet the ASC 280 requirements for aggregation.

Recent Accounting Pronouncements

In August 2017, FASBFebruary 2016, the Financial Accounting Standards Board (“FASB”) issued accounting Standards Update ASU No. 2017-12, Derivatives2016-02,Leases (Topic 842). The guidance requires the recognition of lease right of use assets and Hedging (Topic 815) Targeted Improvementslease liabilities by lessees for those leases previously classified as operating. This guidance was issued to Accounting for Hedging Activities. The FASB’s new 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 and comparability among organizations by disclosing key information about leasing arrangements and requiring the recognition of right of use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as to the scope and results of hedging programs. The requirementoperating leases. ASU 2016-02 is effective for public business entities to apply this update prospectively for all new awardsyears beginning after annual reporting periods beginning December 15, 2018 with early2018. Early adoption permitted, including in current period. Managementis permitted. The Company is currently assessingevaluating the impacteffect adoption of this guidance will have on the condensedits consolidated financial statements of the Company. 

In May 2017, FASB, issued Accounting Standards Update ASU No. 2017-09, Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting. An entity may change the terms or conditions of a share-based payment award for many different reasons, and the nature and effect of the change can vary significantly. The FASB Accounting Standards Codification currently defines the term modification as “a change in any of the terms or conditions of a share-based payment award”. Under the new guidance, modification accounting treatment will be utilized unless all three of the following criteria have been met; the fair value of the original award is the same as the fair value of the modified award; vesting period did not change; and the classification of the award has not changed. The requirement is for public business entities to apply this update prospectively for all new awards after annual reporting periods beginning December 15, 2017.statements. The Company plans to adopt this ASU in the first quarter of 2018 as per guidance and does not expectbelieve the prospective application toadoption of this guidance will have a material impact on our cash flows or results of operations.

Accounting Pronouncements Recently Adopted

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. The Company adopted the revenue recognition guidance beginning January 1, 2018, using the modified retrospective transition method applied to those contracts which were not completed as of the adoption date. Prior periods have not been restated. The adoption of this guidance was not material to the Company’s condensed consolidated financial statements.position and results of operations.

In January 2017, the FASB issued Accounting Standards Update ASU No. 2017-04,Intangibles and OtherOther (Topic 350):Simplifying the Test for Goodwill Impairment.Impairment. The pronouncement eliminatesamendment was issued in response from stakeholders’ regarding the cost and complexity of the goodwill impairment test. To simplify the subsequent measurement of goodwill, the FASB 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. The requirement is for public business entities to apply theCompany adopted this guidance to annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual impairment tests after January 1, 2017. The Company does2018, which did not believe the adoption of this ASU will have a material impact prospectively, to the Company’s condensed consolidatedon its financial statements.position or results of operations.

In January 2017, the FASB issued Accounting Standards Update ASU No. 2017-01, “BusinessBusiness Combinations (Topic 805):Clarifying the Definition of a Business”Business. The amendmentguidance 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)or disposals of assets or businesses. The amendments in this ASUguidance provide a screen to determine when a set (inputs and processes that produce an output) is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (oror disposed of)of is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. The requirement is for public business entities to apply the guidance to annual reporting periods beginning after December 15, 2017. The Company doesadopted this guidance beginning January 1, 2018, which did not believe the adoption of this ASU will have a material impact prospectively, to the Company’s condensed consolidatedon its financial statements.position or results of operations.

In August 2017, the FASB issued ASU 2017-12,Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12), which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. The amendments also ease the application of hedge accounting in certain situations, including eliminating the requirement to separately measure and report hedge ineffectiveness for cash flow hedges. ASU 2017-12 is effective for fiscal years beginning after December 31, 2018, and earlier adoption is permitted. The Company has elected early adoption of ASU 2017-02 and has accounted for its cash flow hedges in accordance with the amended rules.

NOTE 3 – 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 March 7, 2016,27, 2018, the Company entered into a second amendedThird Amended and restated credit agreement with Credit Suisse (“Restated Credit Agreement (the “Amended Credit Agreement”), amending its senior providing for a refinancing and amendment of the terms of the Company’s prior secured credit facility, withdated as of March 7, 2016 (the “Superseded Agreement”).

The Amended Credit Suisse (“Restated Credit Facility”). The Restated Credit FacilityAgreement provides for $175.0a $200.0 million senior secured first lien term loan facility (consisting(the “Term Facility”), which represents an increase of a $155.0$25.0 million U.S.from the senior secured first lien term loan (the “U.S.facility under the Superseded Agreement. The Term Loan”) and a $20.0 million Cayman term loan for the benefit of the Company’s foreign subsidiaries (the “Cayman Loan”, and togetherFacility matures March 27, 2025. Consistent with the U.S. Term Loan, (the “Loans”)) andSuperseded Agreement, the Amended Credit Agreement also provides for a $45.0 million senior secured incremental revolving credit facility (“Revolving Credit(the “Revolving Facility”), which includes a $5.0 million letter of credit subfacility.sub-facility. The Company’s obligations under the RestatedAmended Credit Facility areAgreement remain secured by substantially all of the assets of the Company.

In connection with the Amended Credit Agreement, the Company capitalized $4.2 million related to lender and third-party fees. In addition, the entry into the Amended Credit Agreement was considered a debt modification with a partial extinguishment, as a result the Company expensed $1.0 million of related costs during the six months ended June 30, 2018, which is included in general and administrative expenses on the accompanying condensed consolidated statements of operations.

Borrowings under the LoansTerm Facility bear interest at an adjusted Intercontinental Exchange (“ICE”) Benchmark administration LIBOR plus a spread of 3.50%, which steps down to 3.25% if the Company’s debt rating from Moody’s and S&P are both B1 (stable) or better and BB (negative) or better, respectively. The interest rate at June 30, 2018 is 6.00%. Borrowings under the Revolving Facility will bear interest at an adjusted ICE Benchmark Administration LIBO Rate (subject to a floor of 1.00%)administration LIBOR plus a spread of 4.50%. As of September 30, 2017, the interest rate was 5.95%. The U.S. Term Loan and the Cayman Loan both mature on May 8, 2021. Borrowings under the Revolving Credit Facility bear interest at an adjusted ICE Benchmark Administration LIBO Rate plus a spread of 4.00%3.00%, or, at the option of the Company, an alternative base rate plus a spread of 3.00%2.00%. The Company is also required to pay a 0.50%0.5% annual commitment fee on undrawn amounts under the Revolving Credit Facility, which matures on May 8, 2020. As of September 30, 2017, the Company had no borrowings under the Revolving Credit Facility.March 27, 2023.

The RestatedAmended Credit Agreement (i) requires the Company to satisfy certain financial covenants;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 SeptemberJune 30, 2017,2018, the Company was in compliance with the financial covenants.

Borrowings under the Revolving Facility may be used for general corporate and working capital purposes and related fees and expenses. As of June 30, 2018, the Company had no borrowings under the Revolving Facility.

For the three months ended SeptemberJune 30, 20172018 and 2016, total debt discount and2017, deferred financing costs charged to interest expense was $0.6$0.4 million and $0.5$0.6 million, respectively. For the ninesix months ended SeptemberJune 30, 20172018 and 2016, total debt discount and2017, deferred financing costs charged to amortization and interest expense was $1.7$1.0 million and $1.7 million.$1.1 million, respectively.

NOTE 4 – ACQUISTIONSenior 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 ice class vessel, theNational Geographic Endurance, 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 Company is also required to pay an annual commitment fee of 1.3% until drawdown of the Export Credit Agreement. 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. As of June 30, 2018, the Company was in compliance with the covenants.

Note Payable

On May 4, 2016, in connection with the Company acquired an 80.1% ownership interest in Natural Habitat acquisition, Natural Habitat issued an adventure travel and ecotourism company based in Colorado. The acquisition providedunsecured promissory note to Benjamin L. Bressler, the Company with a platform to expand our land-based expeditions with a strong, trusted brand complementary to Lindblad. In 2016, the Company incurred $1.0 million of acquisition costs related to the acquisitionfounder of Natural Habitat, which is included in general and administrative expenses in the Company’s condensed consolidated statementswith an outstanding principal amount of income for the nine months ended September 30, 2016. 

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$2.5 million due 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.

Mr. Bressler’s noncontrolling interest in the remaining 19.9% interest in Natural Habitat is subject to a put/call arrangement. 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 to the Companymaturity on December 31, 2020. The Company has a call option, but not an obligation, with an expiration of December 31, 2025, for which it can buy Mr. Bressler’s remainingpromissory note accrues interest at a similar fair value measure as Mr. Bressler’s put option.

Acquisitionrate of Natural Habitat, Inc.:

(In thousands)

Natural Habitat contributed revenues of $17.1 million and operating income of $1.5 million to Lindblad Expeditions for the three months ended September 30, 2017, and revenues of $35.4 million and operating income of $0.8 million for the nine months ended September 30, 2017. For the three months ended September 30, 2016, Natural Habitat contributed revenues of $14.6 million and operating income of $0.3 million and revenues of $20.3 million and operating loss of $0.5 million for the acquisition period beginning May 5, 2016 to September 30, 2016.

The following unaudited pro forma summary presents consolidated information of Lindblad Expeditions for the nine period ended September 30, 2016 as if the business combination1.44% annually, with Natural Habitat had occurred on January 1, 2016:interest payable every six months.

These pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Natural Habitat to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied from January 1, 2016, with tax effects.

NOTE 54 – EMPLOYEE BENEFIT PLAN

The Company has a 401(k) profit sharing plan and trust for its employees. The Company matches 30% of employee contributions up to the annual maximum of $2,100 and $1,800 as of SeptemberJune 30, 20172018 and 2016, respectively.2017. For the three months ended SeptemberJune 30, 20172018 and 2016,2017, the Company’s benefit plan contribution amounted towas $0.1 million.million and $0.1 million, respectively. For the ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, the Company’s benefit plan contribution amounted to $0.3was $0.2 million and $0.2 million, respectively. The benefit plan contribution is recorded withinincluded in general and administrative expenses on the accompanying condensed consolidated statements of income. operations.

NOTE 65 – STOCKHOLDERS’ EQUITY

The Company’s common stock and warrants are listed on the NASDAQ Capital Market under the symbols “LIND” and “LINDW,” respectively. As of September 30, 2017 and December 31, 2016, there were 45,155,621 and 45,659,762 shares of common stock outstanding, respectively, and 10,673,015 and 11,186,387 warrants outstanding (inclusive of certain warrants issued to the Company’s founders on substantially the same terms as all other warrants), respectively.

Capital Stock

The Company has a total of 201,000,000 authorized shares of capital stock, consisting of 1,000,000 shares of preferred stock authorized, $0.0001 par value and 200,000,000 shares of common stock authorized, $0.0001 par value.

Stock and Warrant Repurchase Plan

In November 2015, theThe Company’s Board of Directors approved a $20.0 million stock and warrant repurchase plan and(“Repurchase Plan”) in November 2016,2015 and increased the authorization by $15.0repurchase plan to $35.0 million to a total of $35.0 million. Thisin November 2016. The Repurchase Plan authorizes the Company to purchase from time to time the Company’s outstanding common stock and warrants through open market repurchases in compliance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended, and/or in privately negotiated transactions based on market and business conditions, applicable legal requirements and other factors.warrants. Any shares and warrants repurchasedpurchased will be retired. The Repurchase Plan has no time deadline and will continue until otherwise modified or terminated at the sole discretion of the Company’s Board of Directors at any time.Directors. These repurchases exclude shares repurchased to settle statutory employee tax withholding related to the exercise of stock options and vesting of stock awards. All repurchases were made using cash resources. During the threesix months ended SeptemberJune 30, 2017, the Company did not repurchase shares of common stock or warrants. During the nine months ended September 30, 20172018 the Company repurchased 547,0589,030 shares of common stock for $5.1$0.1 million and 513,372568,446 warrants for $1.1$0.8 million. The Company has cumulatively repurchased 855,776864,806 shares of common stock for $8.1 million and 5,426,9856,011,926 warrants for $13.9$14.7 million, since plan inception. The balance as of June 30, 2018 for the Repurchase Plan was $12.1 million.

20172018 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.

TheDuring the six months ended June 30, 2018, the Company granted 171,393162,850 RSUs on April 3, 2017 atwith a weighted average grant price of $8.98.$10.46. The RSU’sRSUs will vest in equal installments on each of the first three equal annual installments followinganniversaries of the April 2017 grant date, subject to the recipient’s continued employment or service with usthe Company or ourits 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,During the six months ended June 30, 2018, the Company awarded 126,95388,851 of targeted PSUs with thea weighted average grant price of $10.27. The number of shares were determined based upon the closing price of our common stock on March 31, 2017 of $8.96. Based on the financial statements as of September 30, 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 PSU’s expected to vest.award.

2016 CEO Share Allocation Plan 

In April 2016, the Company’s Board of Directors adopted the 2016 CEO Share Allocation Plan and in June 2016, the Company’s stockholders approved the 2016 CEO Share Allocation Plan, pursuant to which the Company may 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 is authorized to 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 are 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 with the first vesting date of January 10, 2017 and the remaining two vesting dates of January 10, 2018 and 2019, respectively. On January 10, 2017, 238,850 restricted shares vested, with 93,320 of such shares withheld and retired by the Company in order to pay the payroll withholdings to cover the transactions.  

Stock Options

On August 2, 2017, 95,542During the six months ended June 30, 2018, 955,424 stock options, net were exercised at a market price on the date ofweighted average exercise of $9.76 per share and a grant price of $1.76 per share 17,229in cashless transactions, resulting in the issuance of 442,820 shares were withheld by the Company to provide the $0.2 million required to exercise the options. In addition, 28,192 shares were withheld by the Company in order to pay the payroll withholding taxes for the transactions. The balance of 50,121 option shares were issued as a result of the transaction. common stock.

During March 2017, an additional 95,542 options were exercised. Using the market price at the date of exercise of $8.72 per share and the grant price of $1.76 per share, 19,284 shares were withheld by the Company to provide the $0.2 million required to exercise the options. In addition, 23,145 of such shares were withheld by the Company in order to pay the payroll withholding taxes for the transactions. The balance of 53,113 option shares were issued as a result of the transaction.

NOTE 76 – COMMITMENTS AND CONTINGENCIES

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 $53.6 million related tofirst vessel, theNational Geographic Quest and the vessel, was delivered in July of 2017. The Company amended the agreement for the second vessel, theNational Geographic Venture, in October 2017. The current contract price is $57.0$57.4 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 SeptemberJune 30, 2017,2018, the Company has paid Ice Floe, LLC $18.1$47.4 million related to theNational Geographic Venture.Venture. The Company may terminate the applicable Agreement in the event the Builderbuilder fails to deliver the vessel within one hundred eighty180 days of the applicable due date or the Builderbuilder 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, theNational Geographic Endurance,with a total purchase price of 1,066.0 million Norwegian Kroner (NOK). Subsequently, LMEthe Company 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 is to bewas 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.

vessels.

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 condensed consolidated statements of income.operations. The amount is calculated based upon a percentage of certain ticket revenuerevenues less travel agent commission, including the revenuerevenues received from cancellation fees and any revenuerevenues received from the sale of voyage extensions. A voyage extension occurs when a guest extends theirhis or her trip with pre- or post-voyage hotel nights and is included within tour revenues on the accompanying condensed consolidated statements of income.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 three and ninesix months ended SeptemberJune 30, 20172018 totaled $1.6$1.5 million and $3.9$3.1 million, respectively, and for the three and ninesix months ended SeptemberJune 30, 20162017 totaled $1.2$1.1 million and $3.6$2.3 million, respectively.

The balances outstanding to National Geographic as of SeptemberJune 30, 20172018 and December 31, 20162017 are $1.9$1.6 million and $1.5$1.7 million, respectively, and are included in accounts payable and accrued expenses on the accompanying condensed consolidated balance sheets.

Royalty Agreement – World Wildlife Fund

Natural Habitat has a license agreement with WWF,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 condensed consolidated statements of income. For the threeoperations. The annual royalty payment and nine months ended September 30, 2017, thesegross sales fees totaled $0.2 million and $0.4 million, respectively.are paid on a quarterly basis. For the three months ended SeptemberJune 30, 20162018 and the acquisition period beginning May 5, 2016 to September 30, 2016,2017, these fees totaled $0.1 million and $0.1 million, respectively. For the six months ended June 30, 2018 and 2017, these fees totaled $0.3 million and $0.2 million, and $0.3 million, respectively.

Charter Commitments

From time to time, the Company enters into agreements to charter vessels ononto which it holds its tours and expeditions. Future minimum payments on its charter agreements as of June 30, 2018 are as follows:

Insurance Revenue

During the first quarter, the Company recorded $1.9 million of insurance revenue related to cancelled voyages on theNational Geographic Orion. During the three months ended September 30, 2017 an additional $0.2 million of insurance claims were received and recorded as insurance revenue related to those cancelled voyages from theNational Geographic Orion. Recorded revenue does not include any contested claims, and the amount recognized is recorded in tour revenues in the Company’s condensed consolidated statements of income. 

NOTE 87 – 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.

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 three and ninesix months ended SeptemberJune 30, 20172018 and 2016, the2017 operating results were as follows: