LINDBLAD EXPEDITIONS HOLDINGS, INC. (Form: 10-K, Received: 02/28/2019 17:40:11)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of Lindblad Expeditions Holding, Inc. and its consolidated subsidiaries, after elimination of all intercompany accounts and transactions. 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”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”).

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 and liabilities, the fair value of derivative instruments, 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

Revenues 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 contracts which are reported as tour revenues in the 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 the Company’s primary performance obligation, revenue is recognized over the duration of each expedition.

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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 are 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 claims based on the Company’s claims history. Proceeds received from trip insurance premiums in excess of this liability are recorded as revenue in the period in which they are received.

Customer Deposits and Contract Liabilities

The Company’s guests remit deposits in advance of tour embarkation. Guest 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. Guest deposits represent unearned revenues and are reported as unearned passenger revenues in the consolidated balance sheet when received and are subsequently recognized as tour revenue over the duration of the expedition. Accounting Standards Codification ("ASC"), 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 presented in our consolidated balance sheets include contract liabilities of $70.9 million and $62.1 million as of December 31, 2018 and December 31, 2017, respectively. All of our contract liabilities as of December 31, 2017 were recognized and reported within tour revenues in our consolidated statement of operations for the year ended December 31, 2018.

Cost of Tours

Cost of tours represents the direct costs associated with revenues during expeditions, including costs of pre- or post-expedition excursions, hotel accommodations, land-based expeditions, air and other transportation expenses and costs of goods and services rendered onboard, payroll and related expenses for shipboard and expedition personnel, food costs for guests and crew, fuel and related costs and other expenses such as land costs, port costs, repairs and maintenance, equipment expense, drydock, ship insurance and charter hire expenses.

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.

As of December 31, 2018 and 2017, the Company self-insured for medical insurance claims up to $125,000 and $100,000, respectively. In addition, as of December 31, 2018 and 2017, the Company maintained Stop Loss coverage for medical claims in excess of the $125,000 and $100,000, respectively, which had an aggregate deductible of $57,500. As of December 31, 2018 and 2017, 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. 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 Protection and Indemnity rates, the joint and several liability obligation requires the down-stream indemnification by their members, including the Company.

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General and Administrative Expense

General and 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, royalties 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 $16.9 million, $16.4 million and $14.7 million for the years ended December 31, 2018, 2017 and 2016, respectively. The largest component of advertising expense was direct mail, which totaled $5.4 million, $6.3 million and $5.5 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with an original maturity of six months or less, as well as deposits in financial institutions, to be cash and cash equivalents.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows:

	As of December 31,
(In thousands)	2018		2017
Cash and cash equivalents	$	113,396	$	96,443
Restricted cash and marketable securities		8,755		7,057
Total cash, cash equivalents and restricted cash shown in statement of cash flows	$	122,151	$	103,500

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. As of December 31, 2018 and 2017, the Company’s cash held in financial institutions outside of the U.S. amounted to $6.4 million and $4.1 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,
	2018		2017
(In thousands)
Federal Maritime Commission escrow	$	5,823	$	4,186
Credit card processor reserves		1,530		1,530
Certificates of deposit and other restricted securities		1,402		1,341
Total restricted cash and marketable securities	$	8,755	$	7,057

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 either post a performance bond with the Federal Maritime Commission or escrow all unearned guest deposits plus an additional 10% in restricted accounts, up to a maximum of $30 million. To satisfy this requirement, the Company entered into an agreement with a financial institution to escrow the required amounts.

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At December 31, 2018 and 2017, a cash reserve of approximately $1.5 million was 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)	2018		2017

Prepaid tour expenses	$	10,617	$	9,846
Prepaid air expense		2,973		3,621
Prepaid marketing, commissions and other expenses		2,622		2,495
Prepaid client insurance		2,516		2,525
Prepaid port agent fees		1,433		1,022
Prepaid corporate insurance		1,078		1,033
Prepaid income taxes		24		809
Total prepaid expenses	$	21,263	$	21,351

Property and Equipment

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 2018, the Company owned and operated eight expedition vessels, including the new coastal vessels National Geographic Quest and National Geographic Venture, which joined the fleet in the third quarter of 2017 and the fourth quarter of 2018, respectively. The Company has contracted for a polar ice class vessel, the National Geographic Endurance, targeted to be delivered in the first quarter of 2020. 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 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.

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Goodwill

In accordance with ASC 360, the Company tests for impairment annually as of September 30, or more frequently if warranted. The Company assessed qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of goodwill is less than its carrying amount. The Company completed the annual impairment test as of September 30, 2018 with no indication of goodwill impairment. See Notes 5 - Acquisition and 6 - Goodwill and Intangible Assets for further details on goodwill.

Intangible Assets

Intangible assets 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. See Note 6 - Goodwill and Intangible Assets for further information.

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. 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 assumes 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 intangible assets 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, 2018 and 2017, there was no triggering event and the Company did not record impairment for its 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, 2018 and 2017, 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. As a result, the Company accelerated the depreciation in order to fully depreciate the asset by the end of the fourth quarter of 2016. See Note 4 – Property and Equipment.

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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)	2018		2017

Accrued other expenses	$	11,851	$	7,664
Accounts payable		9,326		7,791
Bonus compensation liability		5,195		3,736
Employee liability		2,943		2,644
Refunds and commissions payable		1,533		1,805
Travel certificate liability		1,088		1,120
Royalty payable		1,005		1,010
Income tax liabilities		576		1,490
Accrued travel insurance expense		427		432
New build liability		-		2,730
Total accounts payable and accrued expenses	$	33,944	$	30,422

Leases

The Company leases office space with lease terms ranging from one to ten years. The Company leases computer hardware and software and office equipment with lease terms ranging from three to six years. The Company amortizes the total lease costs on a straight-line basis over the lease term.

Fair Value Measurements

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.

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.

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, 2018 and 2017. As of December 31, 2018 and 2017, 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.

The Company’s derivative assets consist principally of interest rate caps and are carried at fair value based on significant observable inputs (Level 2 inputs). Derivatives entered into by the Company are typically executed over-the-counter and are valued using internal valuation techniques, as quoted market prices are not readily available. The valuation technique and inputs depend on the type of derivative and the nature of the underlying exposure. The Company principally uses discounted cash flows along with fair value models that primarily use market observable inputs. These models take into account a variety of factors including, where applicable, maturity, currency exchange rates, interest rate yield curves and counterparty credit risks.

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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 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 held foreign exchange forward derivative instruments with notional values of approximately $32.8 million and $21.5 million as of December 31, 2018 and 2017, respectively. The fair value of these (level 2) instruments, as of December 31, 2018 was approximately $1.3 million, included in accounts payable and accrued expenses as a current liability, and as of December 31, 2017 was approximately $1.0 million, included in prepaid expenses and other current assets.

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 Third Amended and Restated Credit Agreement (the “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 first lien loan facility (the “Term Facility”) under its Amended Credit Agreement 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 they hedge are as follows:

	Interest Rate Caps	Corporate Debt
Trade date and borrowing date	May 29, 2018	March 27, 2018
Effective date	September 27, 2018	Not applicable
Termination date	May 31, 2023	March 31, 2025
Notional amount	$100,000,000	$100,000,000
Fixed interest rate (plus spread)	2.50% until November 30, 2018	Not applicable
	2.75% December 1, 2018 until April 30, 2019
	3.00% May 1, 2019 until maturity
Variable interest rate	1 month LIBOR	1 month LIBOR + 3.50%
Settlement	Monthly on last day of each month	Monthly on last day of each month
Interest payment dates	Monthly on last day of each month	Monthly on last day of each month
Reset dates	Last day of each month	Last day of each month

The notional amount of outstanding debt associated with the interest rate cap agreements was $100.0 million as of December 31, 2018, with a fair value of $0.7 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 Accounting Standards Update ("ASU") 2017-12. During the year ended December 31, 2018, the Company recorded approximately $0.7 million of losses 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.

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

	For the years ended December 31,

(in thousands)	2018			2017		2016
Beginning balance:	$	-		$	-	$	-
Net change in period		(671	)		-		-
Accumulated Other Comprehensive Income	$	(671	)	$	-	$	-

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 period ended December 31, 2018. The Company will continue to assess the effectiveness of the hedge on an ongoing basis.

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 issued guidance on how the provisions of the Tax Act will be applied or otherwise administered that could have been different from our interpretation in our 2017 consolidated financial statements.

During 2018, we recorded tax charges for the impact of the Tax Act effects using the current available information and technical guidance on the interpretations of the Tax Act. As permitted by SEC Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, we recorded provisional estimates and have subsequently finalized our accounting analysis based on the guidance, interpretations, and data available as of December 22, 2018. In the fourth quarter of 2018, we recorded a benefit of $0.6 million related to the state tax treatment of the one-time mandatory repatriation of foreign earnings. No other adjustments made during 2018 were considered material.

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 regularly assesses the potential outcome of current and future examinations in each of the taxing jurisdictions when determining the adequacy of the provision for income taxes. The Company has only recorded financial statement benefits for tax positions which it believes reflect the “more-likely-than-not” criteria of the Financial Accounting Standards Board's ("FASB") authoritative guidance on accounting for uncertainty in income taxes, and it has established income tax reserves in accordance with this guidance where necessary. As of December 31, 2018 and 2017, the Company had a liability for unrecognized tax benefits of $0.3 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, 2018 and 2017, interest and penalties on uncertain tax positions included in income tax expense was insignificant.

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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. During 2018, the Company recently closed tax audits on its three Ecuadorian entities. 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 (except for the Ecuador entities, where the Company's foreign tax returns have been audited through 2017).

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 National Geographic Endeavour II and expects to earn tax credits that will reduce the asset over the next several years. As of December 31, 2018 and 2017, the long-term prepaid value-added taxes balances were $2.7 million and $3.5 million, respectively.

In 2015, the Company, Mr. Lindblad, the Chief Executive Officer and President of the Company, and National Geographic Society entered into an 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 Tour Operator Agreement and an Alliance and License Agreement between the Company and National Geographic Partners, LLC. The Company recorded a $13.8 million long-term asset to be amortized through March 2020. The balance of the license agreement asset as of December 31, 2018 and 2017 was $3.6 and $6.5 million, respectively. See Note 10 – Commitments and Contingencies for more details.

Deferred Financing Costs

Deferred financing costs relate to the issuance costs of recognized debt liabilities and are presented in the consolidated balance sheets as direct deduction from the debt carrying amount. Deferred financing costs are amortized over the life of the debt or loan agreement through interest expense, net in the consolidated statements of operations. See Note 8 - 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 stock-based compensation issued to employees, non-employee directors or other service providers in accordance with ASC 718, Compensation - Stock Compensation, 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, within general and administrative expenses.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This amendment is intended to improve the effectiveness of fair value measurement disclosures by adding and modifying a few disclosure requirements, as well as eliminating several disclosures. ASU 2018-13 is effective for fiscal years beginning after December 15, 2018. The Company will adopt this guidance on January 1, 2019, and does not believe that the adoption of this guidance will have a material impact on its financial position or results of operations.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) and in July 2018 ASU 2018-11, Leases (Topic 842): Targeted Improvements. 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 and requiring the recognition of current and non-current right-of-use assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. The Company will adopt this guidance on January 1, 2019, as required, electing to apply retrospectively at the period of adoption. The adoption of this guidance will have a material impact on the Company’s balance sheet for the present value of its operating lease liabilities and related right-of-use assets, for which the Company will record approximately $6.4 million of lease liabilities and right-of-use assets. The Company does not believe that the adoption of this guidance will have a material effect on its future results of operations, cash flows or debt covenants.

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Accounting Pronouncements Recently Adopted

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 2017-12, adopted during the second quarter of 2018, and has accounted for its cash flow hedges in accordance with the amended rules under this guidance.

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. The Company adopted this guidance beginning January 1, 2018, which did not have a material impact on its financial position or results of operations.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendment was issued in response from stakeholders’ regarding the cost and complexity of the goodwill impairment test. To simplify the subsequent measurement of goodwill, 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 Company adopted this guidance beginning January 1, 2018, which did not have a material impact on its 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. The Company adopted this guidance beginning January 1, 2018, which did not have a material impact on its financial position or results of operations.

In November 2016, FASB issued Accounting Standards Update ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash. This update requires that a statement of cash flow explain the change during the period in the total cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash should be included with cash & cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for years beginning after December 15, 2017. The adoption of this guidance did not have material impact on the Company's financial statement, other than changing the statement of cash flows reconciliation to reconcile the change in cash, cash equivalents and restricted cash and restricted marketable securities.

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 financial position and results of operations.

NOTE 9 — 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, 2018, 2017 and 2016 are presented below:

	For the years ended December 31,
(In thousands)	2018			2017			2016
Domestic	$	(13,015	)	$	(10,423	)	$	(8,696	)
Foreign		25,183			12,896			10,555
Total	$	12,168		$	2,473		$	1,859

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The income tax provisions at December 31, 2018, 2017 and 2016 are comprised of the following:

	For the years ended December 31,
(In thousands)	2018			2017			2016
Current
Federal	$	191		$	(15	)	$	-
State		(14	)		529			51
Foreign - Other		578			1,062			164
Total current		755			1,576			215
Deferred
Federal		937			8,168			(3,015	)
State		(1,161	)		242			(426	)
Foreign - Other		85			16			26
Total deferred		(139	)		8,426			(3,415	)
Income tax expense (benefit)	$	616		$	10,002		$	(3,200	)

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.

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 $13.9 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 2019 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 were 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.

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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,
	2018	2017	2016
Tax provision at statutory rate – federal	21.0%	35.0%	35.0%
U.S. tax reform toll charge	0.0%	562.2%	0.0%
Tax rate change deferred revaluation	0.0%	(63.3%)	0.0%
Tax provision at effective state and local rates	(9.6%)	23.9%	(21.1%)
Foreign tax rate differential	(12.8%)	(158.3%)	(216.4%)
Subpart F income	22.7%	0.0%	0.0%
Nondeductible expenses	0.2%	6.5%	51.7%
Uncertain tax provisions	(0.4%)	1.2%	0.2%
Valuation allowance	(11.9%)	2.8%	22.1%
Prior period adjustments	(3.2%)	11.2%	(37.7%)
Stock compensation	(0.8%)	(9.5%)	0.0%
Tax credits	(0.1%)	(7.3%)	0.0%
Other	0.0%	0.0%	(5.9%)
Total effective income tax rate	5.1%	404.4%	(172.1%)

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, 2018 and 2017 are comprised of the following:

	As of December 31,
(In thousands)	2018			2017
Net operating loss carryforward	$	15,235		$	16,292
Property and equipment		(17,164	)		(8,880	)
Disallowed interest carryforward		1,549			-
Valuation allowance		(1,549	)		(8,863	)
Stock-based compensation		57			9
Intangibles		(949	)		(1,022	)
Other		34			20
Deferred tax (liabilities) assets	$	(2,787	)	$	(2,444	)

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, 2018, the Company filed its final tax return in Australia. As a result, it no longer has Australian net operating or capital loss carryforwards (and no corresponding valuation allowance). The Company also had deferred tax assets related to U.S. loss carryforwards of $56.3 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 Federal 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.

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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, 2018, 2017 and 2016:

	For the years ended December 31,
(In thousands)	2018			2017			2016
Beginning of year	$	421		$	447		$	473
Current year positions		-			-			(26	)
Prior year positions		(123	)		(26	)		-
End of year	$	298		$	421		$	447

The amount of uncertain tax positions that, if recognized, would impact the effective tax rate at December 31, 2018 and 2017 was $0.3 million. It is reasonably possible that approximately $0.3 million of the uncertain tax position could reverse in the next twelve months, as a result of the dissolution of related legal entities.

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, 2018, 2017 and 2016, 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. During 2018, the Company recently closed tax audits on its three Ecuadorian entities. 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 (except for the Ecuador entities, where the Company's foreign tax returns have been audited through 2017).

NOTE 10 – 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, 2018 are as follows:

For the Years Ended December 31,	Minimum lease payments
(In thousands)
2019	$	1,180
2020		1,193
2021		1,226
2022		1,287
2023		1,212
Thereafter		1,603
Total	$	7,701

Rent expense was approximately $1.3 million, $1.2 million and $1.1 million for the years ended December 31, 2018, 2017 and 2016, respectively. These amounts are recorded within general and administrative expenses on the accompanying consolidated statements of operations.

Fleet Expansion

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, the 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 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. See Note 8 - Long-Term Debt for more information.

In February 2019, the Company entered into an agreement with Ulstein Verft to construct a polar ice class vessel, a sister ship of the National Geographic Endurance, targeted to be delivered in September 2021. See Note 17 - Subsequent Events.

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Royalty Agreement – National Geographic

The Company is engaged in an alliance and license agreement with National Geographic through 2025, 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, 2018, 2017 and 2016 totaled $5.0 million, $4.5 million and $4.2 million, respectively.

The royalty balances payable to National Geographic as of December 31, 2018 and 2017 was $1.0 million and are included in accounts payable and accrued expenses on the accompanying consolidated balance sheets.

In 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 initially recorded a $13.8 million long-term asset in other long-term assets, using a fair value of $5.76 per option share, and is amortizing the cost through March 31, 2020. The balance of the license agreement as of December 31, 2018 and 2017 was $3.6 million and $6.5 million, respectively. For the years ended December 31, 2018, 2017 and 2016, the Company recorded amortization of the National Geographic fee of $2.9 million 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 (years):		5
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, 2018, 2017 and 2016, these fees totaled $0.8 million, $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 each of the years ended December 31 2018, 2017 and 2016 was $0.7 million.

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)
2019	$	10,921
2020		9,467
2021		2,031
2022		1,850
Total	$	24,269

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.

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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 advisory and administrative services, and operational support for the Company’s vessels stationed there, the National Geographic Endeavour II and National Geographic Islander. This agreement is in effect 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 13 – STOCK-BASED COMPENSATION

In 2017, the Company’s compensation committee approved an employee incentive plan which authorizes awarding restricted stock units (“RSUs”) and performance share units (“PSUs”) to key employees under the Company’s 2015 Long-Term Incentive Plan.

The Company's stock-based compensation program is a long-term retention program that provides for the grant of options, restricted stock, restricted stock units and performance-based restricted shares or units in order to attract, retain and provide incentives for directors, officers and employees. The maximum number of shares reserved for the grant of awards under the plan is 2.5 million, with approximately 2.2 million shares available as of December 31, 2018. The Company typically settles stock-based awards with newly issued shares.

Time-based awards generally vest ratably over a three-year period following the date of grant, and performance-based awards generally vest three years following the date of grant based on the attainment of performance- or market-based goals, all of which are subject to a service condition.

2018 Long-Term Incentive Compensation

During the year ended December 31, 2018, the Company granted under the 2015 Long-Term Incentive Plan 178,648 RSUs with a weighted average grant price of $10.73, 88,851 of targeted PSUs with a weighted average grant price of $10.27, and 38,555 restricted shares with a weighted average grant price of $12.97, which vest over one year from grant date. The RSUs will primarily 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 the Company or its subsidiaries on the applicable vesting date.

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The PSUs are performance-vesting equity incentive awards that will be earned based on the Company's performance against metrics relating to annual Adjusted EBITDA and annual revenue. 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. The number of PSUs determined was based upon the closing price of our common stock on the award date. 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.

2017 Long-Term Incentive Compensation

In March 2017, the Company’s compensation committee (or a subcommittee thereof) approved awards of RSUs and 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.

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 PSU activity:

	Number of Shares			Weighted Average Grant Date Fair Value
Balance, January 1, 2017		-		$	-
Granted		126,953			8.98
Vested and released		-			-
Forfeited		(39,161	)		8.98
Balance, December 31, 2017		87,792			8.98
Granted		88,851			10.27
Vested and released		-			-
Forfeited		(13,863	)		8.98
Balance, December 31, 2018		162,780			9.63

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.

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The following table is a summary of restricted stock and RSU activity:

	Number of Shares			Weighted Average Grant Date Fair Value
Balance, January 1, 2016		-		$	-
Granted		213,812			9.97
Vested and released		(11,791	)		11.20
Forfeited		-			-
Balance, December 31, 2016		202,021			9.90
Granted		940,147			9.56
Vested and released		(299,951	)		9.72
Forfeited		(63,945	)		9.41
Balance, December 31, 2017		778,272			9.60
Granted		217,203			11.12
Vested and released		(352,116	)		9.67
Forfeited		(23,633	)		9.60
Balance, December 31, 2018		619,726			10.16

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 Company's incentive plans were estimated using the following assumptions:

	2016 Grants
Stock price	$	9.63
Exercise price	$	9.63
Dividend yield		0.00	%
Expected volatility		60.00	%
Risk-free interest rate		1.18	%
Expected term in years		5.11

The following table is a summary of stock option activity:

	Number of Options			Weighted Average Exercise Price		Weighted Average Contractual Live (Years)		Aggregate Intrinsic Value
Options outstanding as of January 1, 2016		2,849,071		$	2.69		3.7	$	23,992,814
Granted		220,000			9.63
Exercised		(638,223	)		1.76
Forfeited		(300,000	)		10.58
Options outstanding as of December 31, 2016		2,130,848			2.57		2.8		146,542,221
Granted		-			-
Exercised		(955,424	)		1.76
Forfeited		-			-
Options outstanding as of December 31, 2017		1,175,424			3.23		2.4		7,707,255
Granted		-			-
Exercised		(955,424	)		1.76
Forfeited		-			-
Options outstanding as of December 31, 2018		220,000			9.63		7.6		842,000

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	As of December 31, 2018
	Number of Options		Weighted Average Exercise Price		Weighted Average Contractual Live (Years)		Aggregate Intrinsic Value
Options vested and/or expected to vest		220,000	$	9.63		7.6	$	842,000
Options exercisable		113,333		9.68		7.6		428,333

During the year ended December 31, 2018, 955,424 stock options, net were exercised at a weighted average exercise price of $1.76 per share in cashless transactions, resulting in the issuance of 442,820 shares of common stock.

Stock-based Compensation Expense

Stock-based compensation expense for 2018, 2017 and 2016 was $4.4 million, $10.6 million and $5.4 million, respectively, and is included in general and administrative expenses. The total income tax benefit recognized for stock-based compensation plans for the years ended December 31, 2018, 2017 and 2016 was $0.2 million, $0.1 million and $0.1 million, respectively. As of December 31, 2018, unrecognized stock-based compensation expense was $4.4 million. This amount is expected to be recognized over a weighted average period of approximately 1.8 years.

Delaware		27-4749725
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

96 Morton Street, 9th Floor, New York, New York		10014
(Address of Principal Executive Offices)		(Zip Code)

Title of each class		Name of each exchange on which registered

Common Stock, par value $0.0001 per share		The NASDAQ Stock Market LLC

Warrants, each to purchase one share of Common Stock at an exercise price of $11.50		The NASDAQ Stock Market LLC

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☐
	Emerging growth company ☐

		Page(s)

PART I

Item 1.	Business	1
Item 1A.	Risk Factors	15
Item 1B.	Unresolved Staff Comments	25
Item 2.	Properties	25
Item 3.	Legal Proceedings	25
Item 4.	Mine Safety Disclosures	25

PART II

Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	26
Item 6.	Selected Financial Data	28
Item 7.	Management’s Discussion and Analysis of the Results of Operations and Financial Condition	28
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 8.	Financial Statements and Supplementary Data	42
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	42
Item 9A.	Controls and Procedures	42
Item 9B.	Other Information	43

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	44
Item 11.	Executive Compensation	44
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	44
Item 13.	Certain Relationships and Related Transactions, and Director Independence	44
Item 14.	Principal Accounting Fees and Services	44

PART IV

Item 15.	Exhibits, Financial Statement Schedules	45
	Signatures	48

	●	general economic conditions;

	●	unscheduled disruptions in our business due to weather events, mechanical failures, or other events;

	●	changes adversely affecting the business in which we are engaged;

	●	management of our growth and our ability to execute on our planned growth;

	●	our business strategy and plans;

	●	our ability to maintain our relationship with National Geographic Society;

	●	compliance with new and existing laws and regulations, including environmental regulations;

	●	compliance with the financial and/or operating covenants in our debt arrangements;

	●	adverse publicity regarding the cruise industry in general;

	●	loss of business due to competition;

	●	the result of future financing efforts;

	●	delays and costs overruns with respect to the construction and delivery of newly constructed vessels;

	●	the inability to meet revenue and Adjusted EBITDA projections; and

	●	those risks discussed in Item 1A. Risk Factors.

Vessel Name	Date Built	Guest Capacity	Cabins	Primary Areas of Operation	Flag

National Geographic Endeavour II	2005, renovated in 2016	95	50	Galápagos	Ecuador
National Geographic Explorer	1982, rebuilt in 2008	148	81	Arctic, Antarctica, Europe and the British Isles	Bahamas
National Geographic Islander	1995	47	24	Galápagos	Ecuador
National Geographic Orion	2003	102	53	Arctic, Antarctica and South America	Bahamas
National Geographic Quest	2017	96	50	Alaska, Canada, the Pacific Northwest, Costa Rica and Panama	U.S.A.
National Geographic Sea Bird	1981	62	31	Alaska, Baja California and the Pacific Northwest	U.S.A.
National Geographic Sea Lion	1982	62	31	Alaska, Costa Rica, Panama and the Pacific Northwest	U.S.A.
National Geographic Venture	2018	96	50	Alaska and Baja California	U.S.A.
Delfin II*	2009	28	14	Amazon	Peru
Jahan*	2011	48	24	Vietnam and Cambodia	Vietnam
Lord of the Glens*	1985, renovated in 2016	48	26	Scotland	UK
Oberoi Philae*	1996, renovated in 2015	44	22	Egypt	Egypt
Sea Cloud*	1931, rebuilt in 1979, renovated in 2011	58	28	Caribbean and Mediterranean	Malta

Vessel Name	Expected Launch Date	Guest Capacity	Cabins	Primary Areas of Operation	Flag

National Geographic Endurance	Q2 2020	126	69	Arctic, Antarctic, Greenland and Norway	Bahamas
Polar Ice Class Vessel	Q4 2021	126	69	Arctic, Antarctic, Greenland and Norway	-

	●	Cruise Critic Editors' Picks Award: Best for Adventure

	●	Conde Nast Traveler 2018 Readers Choice Awards: Top Small Ship Cruise Lines

	●	Virtuoso Sustainable Tourism Leadership – Partner

	●	2018 Travel Weekly Magazine Gold Magellan Award: Best Cruise Line Itinerary for Celebrating The Year Of The Bird In South Georgia & The Falklands

	●	Travel + Leisure World’s Best: Top Small Ship Ocean Cruise Lines

	●	Conde Nast Traveler 2018 Gold List: The World's Best Cruises: Antarctica, South Georgia and the Falklands aboard National Geographic Orion

	●	AFAR VANGUARD Award – Sven Lindblad

	●	Rocking the Boat's Whitehall Award – Sven Lindblad

	●	Cruise Critic Cruisers’ Choice Awards: #1 Best Dining (Small Ship Category): National Geographic Explorer

	●	2018 Community Distinctions Awards at the Educational Travel Consortium: Covenant Award

	●	Recommend Magazine 2018 Readers’ Choice Awards: Silver Award for Best Cruise Line in the Luxury Expedition category

	●	unforeseen engineering or construction problems;

	●	changes to design specifications;

	●	delays or unanticipated shortages with respect to necessary materials, equipment or skilled labor;

	●	inability to obtain the requisite permits, approvals or certifications from governmental authorities and the applicable classification society upon completion of work;

	●	financial difficulties of the shipyard building a vessel, including bankruptcy;

	●	lack of shipyard availability;

	●	work stoppages; and

	●	weather interference.

●		in the event of a change of control in which Sven-Olof Lindblad or his designated successor ceases to hold a senior management role with the company,

●		our failure to achieve specified year-over-year percentage revenue growth requirements, or

●		a failure to meet the conditions necessary to extend the relationship through 2025.

	12/31/13		12/31/14		12/31/15		12/31/16		12/31/17		12/31/18
LIND	$	100.00	$	102.70	$	115.97	$	98.23	$	101.77	$	139.92
S&P 500		100.00		111.39		126.53		121.38		144.65		135.63
FTSE 100 Index		100.00		97.29		92.49		105.83		113.91		108.00

	For the years ended December 31,
(In thousands, except share and per share data)	2018		2017			2016		2015		2014
Income Statement Data:
Tour revenues	$	309,734	$	266,504		$	242,346	$	209,985	$	198,459
Operating income		25,338		10,744			13,981		15,502		30,420
Net income (loss)		11,552		(7,529	)		5,059		19,742		22,245
Per Share Data:
Earnings (loss) per share:
Basic	$	0.25	$	(0.19	)	$	0.11	$	0.44	$	0.44
Diluted	$	0.24	$	(0.19	)	$	0.10	$	0.43	$	0.44
Weighted average shares outstanding, basic		45,378,188		44,576,912			45,649,971		44,917,829		50,878,894
Weighted average shares outstanding, diluted		46,340,054		44,576,912			46,456,921		45,575,387		50,878,894

	●	a description of certain line items and operational and financial metrics we utilize to assist us in managing our business;

	●	a comparable discussion of our consolidated and segment results of operations for the years ended December 31, 2018 , 2017 and 2016;

	●	a discussion of our liquidity and capital resources, including future capital and contractual commitments and potential funding sources; and

	●	a review of our critical accounting policies.

	●	Guest ticket revenues recognized from the sale of guest tickets; and

	●	Other tour revenues from the sale of pre- or post-expedition excursions, hotel accommodations and land-based expeditions; air transportation to and from the ships, goods and services rendered onboard that are not included in guest ticket prices, trip insurance and cancellation fees.

	As of December 31,
(In thousands)	2018		2017		2016		2015		2014
Balance Sheet Data:
Total assets	$	473,409	$	424,348	$	407,701	$	381,613	$	245,925
Long-term debt		190,089		165,936		165,878		164,443		56,690
Total liabilities		350,863		311,724		288,722		267,692		178,358
Total stockholders' equity		116,044		106,322		113,809		113,921		67,567

	For the years ended December 31,
(In thousands)	2018		2017		Change		%			2016		Change			%
Tour revenues:
Lindblad	$	246,334	$	216,815	$	29,519		14	%	$	207,836	$	8,979			4	%
Natural Habitat (a)		63,400		49,689		13,711		28	%		34,510		15,179			44	%
Total tour revenues	$	309,734	$	266,504	$	43,230		16	%	$	242,346	$	24,158			10	%
Operating income (loss):
Lindblad	$	19,798	$	7,292	$	12,506		172	%	$	11,794	$	(4,502	)		(38	%)
Natural Habitat (a)		5,540		3,452		2,088		60	%		2,187		1,265			58	%
Total operating income	$	25,338	$	10,744	$	14,594		136	%	$	13,981	$	(3,237	)		(23	%)
Adjusted EBITDA:
Lindblad	$	47,815	$	38,655	$	9,160		24	%	$	38,624	$	31			0	%
Natural Habitat (a)		7,031		4,834		2,197		45	%		3,038		1,796			59	%
Total Adjusted EBITDA	$	54,846	$	43,489	$	11,357		26	%	$	41,662	$	1,827			4	%

	For the years ended December 31,
	2018			2017			2016
Available Guest Nights		200,849			186,719			181,990
Guest Nights Sold		182,298			163,256			164,423
Occupancy		91	%		87	%		90	%
Maximum Guests		25,449			22,805			21,715
Number of Guests		23,102			20,140			19,735
Voyages		330			308			290

	For the years ended December 31,
(In thousands, except for Available Guest Nights, Gross and Net Yield)	2018			2017			2016
Guest ticket revenues	$	220,841		$	191,113		$	183,851
Other tour revenues		25,493			25,702			23,985
Tour Revenues		246,334			216,815			207,836
Less: Orion Insurance Proceeds ^(a)		-			(2,273	)		-
Adjusted Tour Revenues		246,334			214,542			207,836
Less: Commissions		(19,521	)		(16,365	)		(14,954	)
Less: Other tour expenses		(17,106	)		(14,325	)		(15,253	)
Net Revenue	$	209,707		$	183,852		$	177,629
Available Guest Nights		200,849			186,719			181,990
Gross Yield	$	1,226		$	1,149		$	1,142
Net Yield		1,044			985			976

	●	Direct costs associated with revenues, including cost of pre- or post-expedition excursions, hotel accommodations and land-based expeditions, air and other transportation expenses and cost of goods and services rendered onboard;

	●	Payroll costs and related expenses for shipboard and expedition personnel;

	●	Food costs for guests and crew, including complimentary food and beverage amenities for guests;

	●	Fuel costs and related costs of delivery, storage and safe disposal of waste; and

	●	Other tour expenses, such as land costs, port costs, repairs and maintenance, equipment expense, drydock, ship insurance and charter hire costs.

	For the years ended December 31,
(In thousands, except per share data)	2018		2017			Change		%			2016		Change			%
Tour revenues	$	309,734	$	266,504		$	43,230		16	%	$	242,346	$	24,158			10	%
Cost of tours		153,743		135,526			18,217		13	%		118,977		16,549			14	%
Gross profit		155,991		130,978			25,013		19	%		123,369		7,609			6	%
General and administrative		62,898		60,529			2,369		4	%		51,896		8,633			17	%
Selling and marketing		46,987		42,354			4,633		11	%		39,072		3,282			8	%
Depreciation and amortization		20,768		17,351			3,417		20	%		18,420		(1,069	)		(6	%)
Operating income	$	25,338	$	10,744		$	14,594		136	%	$	13,981	$	(3,237	)		(23	%)
Net income (loss)	$	11,552	$	(7,529	)	$	19,081		253	%	$	5,059	$	(12,588	)		(249	%)
Earnings (loss) per share available to common stockholders
Basic	$	0.25	$	(0.19	)	$	0.44				$	0.11	$	(0.30	)
Diluted	$	0.24	$	(0.19	)		0.43				$	0.10	$	(0.29	)

	●	In 2018, we recorded a $2.2 million loss in foreign currency translation compared to a gain of $1.1 million in 2017 due to the weakening of the U.S. dollar primarily in relation to the Canadian dollar.

	●	Interest expense, net, increased $1.1 million to $10.8 million in 2018 from $9.7 million in 2017 due to additional borrowings under our first lien term loan facility and the commitment fees for our new senior secured credit agreement, partially offset by higher capitalized interest for the National Geographic Endurance and the National Geographic Venture.

	●	2017 included a $0.5 million gain on sale related to the sale of the National Geographic Endeavour.

	●	In 2017, we recorded a $1.1 million gain in foreign currency translation compared to a loss of $0.7 million in 2016 due to the strength of the U.S. dollar in relation to the Canadian dollar and the Euro.

	●	In 2017, we recognized a $0.5 million gain on sale related to the sale of the National Geographic Endeavour. We had previously recognized a loss on disposal of $0.8 million in 2016 related to the National Geographic Endeavour.

	●	Interest expense, net, decreased $0.4 million to $9.7 million in 2017 from $10.1 million in 2016 due to higher capitalized interest primarily related to the National Geographic Quest and the National Geographic Venture offset by higher cash interest from higher rates.

	Payments due by period
(In thousands)	Total		2019		2020-2021		2022-2023		After 5 years
Operating Activities:
Operating lease obligations	$	7,701	$	1,180	$	2,419	$	2,499	$	1,603
Charter commitments		24,269		10,921		11,498		1,850		-
Other long-term liabilities		554		-		-		-		554
Investing activities:
Purchase obligations - Fleet expansion		108,000		-		108,000		-		-
Financing Activities:
Long-term debt obligations		201,525		2,000		6,525		4,000		189,000
Interest on long-term debt		72,809		12,031		23,660		34,460		2,658
Total	$	414,858	$	26,132	$	152,102	$	42,809	$	193,815

	●	the straight-line method of allocating compensation cost for service-based options;

	●	the Black-Scholes option pricing formula for time-based options;

	●	the simplified method to calculate the expected term for options;

	●	an estimate of expected volatility based on the historical volatility of our share price; and

	●	an estimate for expected forfeitures.

Plan category		Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)				Weighted average exercise price of outstanding options, warrants and rights				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders (1)			1,002,506			$	9.63				2,482,276	(2)

(1)	Information is as of December 31, 2018.
(2)	Consists of shares available for issuance under our 2016 CEO Allocation Plan and our 2015 Long-Term Incentive Plan.

Number	Description	Included	Form	Filing Date

3.1	Second Amended and Restated Certificate of Incorporation.	By Reference	DEFM 14-A	June 24, 2015
3.2	Bylaws.	By Reference	S-1	February 15, 2011
4.1	Specimen Common Stock Certificate.	By Reference	8-K	July 10, 2015
4.2	Specimen Warrant Certificate.	By Reference	8-K	July 10, 2015
4.3	Warrant Agreement.	By Reference	8-K	May 15, 2013
10.1	Registration Rights Agreement among the Company and each of Capitol Acquisition Management 2 LLC, Lawrence Calcano, Richard C. Donaldson, Piyush Sodha and L. Dyson Dryden.	By Reference	8-K	May 15, 2013
10.2	Sponsor Warrants Purchase Agreement among the Company, Graubard Miller and each of Capitol Acquisition Management 2 LLC, Lawrence Calcano, Richard C. Donaldson, Piyush Sodha and L. Dyson Dryden.	By Reference	8-K	May 15, 2013


10.3	2015 Long-Term Incentive Plan.*	By Reference	DEFM 14-A	June 24, 2015
10.4	Non-Competition Agreement between Sven-Olof Lindblad and the Company.	By Reference	8-K	July 10, 2015
10.5	Employment Agreement between Trey Byus and the Company and Assignment and Assumption of Option Award Agreement.*	By Reference	8-K	July 10, 2015
10.6	Registration Rights Agreement between the shareholders of Lindblad Expeditions, Inc. and Capitol Acquisitions Corp. II.	By Reference	8-K	July 10, 2015
10.7	Alliance and License Agreement, dated as of December 12, 2011, by and between National Geographic Society and Lindblad Expeditions, Inc.†	By Reference	8-K	September 2, 2015
10.8	Amendment to Alliance and License Agreement, dated as of November 20, 2014, by and between National Geographic Society and Lindblad Expeditions, Inc.†	By Reference	8-K	July 10, 2015
10.9	Second Amendment to Alliance and License Agreement, dated as of March 9, 2015, by and between National Geographic Society and Lindblad Expeditions, Inc.†	By Reference	8-K	July 10, 2015
10.10	Tour Operator Agreement, dated as of December 12, 2011, by and between National Geographic Society and Lindblad Expeditions, Inc.†	By Reference	8-K	July 10, 2015
10.11	Amendment to Tour Operator Agreement, dated as of November 20, 2014, by and between National Geographic Society and Lindblad Expeditions, Inc.†	By Reference	8-K	July 10, 2015
10.12	Second Amendment to Tour Operator Agreement, dated as of March 9, 2015, by and between National Geographic Society and Lindblad Expeditions, Inc.†	By Reference	8-K	July 10, 2015
10.13	Lindblad 2012 Stock Incentive Plan.*	By Reference	8-K	July 10, 2015
10.14	Form of Executive Officer Stock Option Award Agreement.*	By Reference	8-K	October 30, 2015
10.15	Employment Agreement by and between Lindblad Expeditions Holdings, Inc. and Tyler Skarda.*	By Reference	8-K	December 2, 2015

*	Management compensatory agreement.
†	Certain portions of the exhibit have been omitted pursuant to a confidential treatment order. An unredacted copy of the exhibit has been filed separately with the United States Securities and Exchange Commission pursuant to the request for confidential treatment.
††	Certain portions of the exhibit have been omitted pursuant to a request for confidential treatment. An unredacted copy of the exhibit has been filed separately with the United States Securities and Exchange Commission pursuant to a request for confidential treatment.

	LINDBLAD EXPEDITIONS HOLDINGS, INC.
	(Registrant)

	By:	/s/ Sven-Olof Lindblad
		Sven-Olof Lindblad
		Chief Executive Officer and President
		(Principal Executive Officer)

Signature	Title	Date

/s/ Sven-Olof Lindblad	Chief Executive Officer and Director	February 28, 2019
Sven-Olof Lindblad	(Principal Executive Officer)

/s/ Craig I. Felenstein	Chief Financial Officer	February 28, 2019
Craig I. Felenstein	(Principal Financial and Accounting Officer)

/s/ Bernard W. Aronson	Director	February 28, 2019
Bernard W. Aronson

/s/ Elliott Bisnow	Director	February 28, 2019
Elliott Bisnow

/s/ L. Dyson Dryden	Director	February 28, 2019
L. Dyson Dryden

/s/ Mark D. Ein	Chairman of the Board	February 28, 2019
Mark D. Ein

/s/ Daniel J. Hanrahan	Director	February 28, 2019
Daniel J. Hanrahan

/s/ John M. Fahey Jr.	Director	February 28, 2019
John M. Fahey Jr.

/s/ Catherine B. Reynolds	Director	February 28, 2019
Catherine B. Reynolds

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2018 and 2017	F-3
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016	F-4
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016	F-5
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016	F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016	F-7
Notes to Consolidated Financial Statements	F-8

	Common Stock					Additional Paid-In			Retained			Accumulated Other Comprehensive			Total Stockholders'
	Shares			Amount		Capital			Earnings			Income			Equity
Balance as of December 31, 2015		45,224,881		$	5	$	48,073		$	65,843		$	-		$	113,921
Stock-based compensation		199,044			-		5,411			-			-			5,411
Issuance of stock for equity compensation plans, net		280,347			-		(2,694	)		-			-			(2,694	)
Repurchase of shares and warrants		(308,718	)		-		(10,343	)		-			-			(10,343	)
Acquisition of Natural Habitat Inc.		264,208			-		2,650			-			-			2,650
Net income		-			-		-			4,864			-			4,864
Balance as of December 31, 2016		45,659,762			5		43,097			70,707			-			113,809
Stock-based compensation		-			-		10,627			-			-			10,627
Issuance of stock for equity compensation plans, net		314,326			-		(5,034	)		-			-			(5,034	)
Repurchase of shares and warrants		(547,058	)		-		(6,192	)		-			-			(6,192	)
Cumulative effect of change in accounting principle		-			-		-			1,773			-			1,773
Net loss		-			-		-			(8,661	)		-			(8,661	)
Balance as of December 31, 2017		45,427,030			5		42,498			63,819			-			106,322
Stock-based compensation		-			-		4,405			-			-			4,405
Issuance of stock for equity compensation plans, net		396,925					(4,510	)		-			-			(4,510	)
Repurchase of shares and warrants		(9,030	)		-		(854	)		-			-			(854	)
Other comprehensive income, net		-			-		-			-			(671	)		(671	)
Net income		-			-		-			11,352			-			11,352
Balance as of December 31, 2018		45,814,925		$	5	$	41,539		$	75,171		$	(671	)	$	116,044

(In thousands)
Cash consideration	$	14,850
Long-term debt		2,525
Lindblad restricted shares (264,208 shares)		2,650
Total purchase price	$	20,025

(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

	Pro forma years ended
	December 31,
(In thousands)	2016		2015
Revenues	$	254,567	$	249,819
Operating income	$	15,345	$	17,883

Year	Amount
	(In thousands)
2019	$	1,579
2020		1,579
2021		1,139
2022		919
2023		919
Thereafter		1,840
	$	7,975

	2018
(In thousands, except per share data)	First Quarter		Second Quarter			Third Quarter		Fourth Quarter			Year
Tour revenues	$	82,410	$	69,473		$	87,242	$	70,609		$	309,734
Gross profit	$	46,539	$	35,663		$	42,278	$	31,511		$	155,991
Net income (loss)	$	10,917	$	(159	)	$	5,346	$	(4,552	)	$	11,552
Diluted earnings (loss) per share	$	0.24	$	0.00		$	0.11	$	(0.10	)	$	0.24