Note 10 - Commitments and Contingencies

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

NOTE 10 — COMMITMENTS AND CONTINGENCIES

Redeemable Non-Controlling Interest Contingent Arrangements

Mr. Bressler, founder of Natural Habitat, retains a 19.9% noncontrolling interest in Natural Habitat, which is subject to a put/call arrangement, amended in May 2020. The arrangement between the Company and Mr. Bressler was established in order to provide a formal exit opportunity for Mr. Bressler and a path to 100% ownership for the Company. Mr. Bressler has a put option that under certain conditions, and subject to providing notice by January 31, 2024, that enables him, but does not obligate him, to sell his remaining interest in Natural Habitat to the Company, valued as of  December 31, 2023. The Company has a call option, but not an obligation, with an expiration of March 31, 2029, under which it can buy Mr. Bressler’s remaining interest at a similar fair value measure as Mr. Bressler’s put option, subject to a call purchase price minimum. 

Mr. Lawrence, President of Off the Beaten Path, through a combination of his original minority interest and the profit interest units he received, retains a 19.9% noncontrolling interest in Off the Beaten Path, which is subject to a put/call arrangement. The arrangement between the Company and Mr. Lawrence was established in order to provide a formal exit opportunity for Mr. Lawrence and a path to 100% ownership for the Company. Mr. Lawrence has a put option, that under certain conditions and subject to providing notice by  October 31, 2025, that enables him, but does not obligate him, to sell his remaining interest in Off the Beaten Path to the Company, valued as of  December 31, 2025. The Company has a call option, but not an obligation, on or after  October 31, 2025, with an expiration of  December 31, 2030, under which it can buy Mr. Lawrence’s remaining interest at a similar fair value measure as Mr. Lawrence’s put option.

Mr. Levine, founder of DuVine, retains a 30% noncontrolling interest in DuVine, which is subject to a put/call arrangement. The arrangement between the Company and Mr. Levine was established in order to provide a formal exit opportunity for Mr. Levine and a path to 100% ownership for the Company. Mr. Levine has a put option, that under certain conditions and subject to providing notice by  January 31, 2026, that enables him, but does not obligate him, to sell his remaining interest in DuVine to the Company, valued as of  December 31, 2025. The Company has a first call option, but not an obligation, on or after  December 31, 2023, expiring  December 31, 2025, to acquire an additional 10% of DuVine from Mr. Levine, and a second call option, but not an obligation, on or after  December 31, 2025, with an expiration of  December 31, 2030, under which it can buy Mr. Levine’s remaining interest at a similar fair value measure as Mr. Levine’s put option, subject to a call purchase price minimum.

Mr. and Mrs. Piegza, founders of Classic Journeys, retain a 19.9% noncontrolling interest in Classic Journeys, which is subject to a put/call arrangement. The arrangement between the Company and Mr. and Mrs. Piegza was established in order to provide a formal exit opportunity for Mr. and Mrs. Piegza and a path to 100% ownership for the Company. Mr. and Mrs. Piegza have a put option that under certain conditions, and subject to providing notice by November 13, 2026, that enables them, but does not obligate them, to sell their remaining interest in Classic Journeys to the Company, valued as of the fiscal quarter prior to the put notice. The Company has a call option, but not an obligation, under which it can buy Mr. and Mrs. Piegza’s remaining interest at a similar fair value measure as Mr. and Mrs. Piegza’s put option. 

Since the redemption of these noncontrolling interests is not solely in the Company’s control, the Company is required to record the redeemable noncontrolling interest outside of stockholders’ equity but after its total liabilities. In addition, if it is probable that the instrument will become redeemable, as such solely due to the passage of time, the redeemable noncontrollable interest should be adjusted to the redemption value via one of two measurement methods.

The Company elected the income classification-excess adjustment and accretion method for recognizing changes in the redemption value of the put options. Under this methodology, a calculation of the present value of the redemption value is compared to the carrying value of the redeemable noncontrolling interest and the carrying value of the redeemable noncontrolling interest is adjusted to the redemption value’s present value. Any adjustments to the carrying value of the redeemable noncontrolling interest, up to the fair value of the of the noncontrolling interest, are classified to retained earnings. Adjustments in excess of the fair value of the noncontrolling interest, are treated as a decrease to net income available to common stockholders. The fair value of the put options was determined using a discounted cash flow model. The redemption values were adjusted to their present values using the Company’s weighted average cost of capital.

At December 31, 2021, the fair value of the noncontrolling interest exceeded the present value of the put option redemption value, and the Company recorded a $0.2 million adjustment, which increased the carrying amount of redeemable noncontrolling interest and decreased the Company’s retained earnings. At December 31, 2020, the fair value of the noncontrolling interest was less than the present value of the put option redemption value, and the Company recorded a $7.2 million adjustment, which decreased the carrying amount of redeemable noncontrolling interest and increased the Company’s retained earnings. At December 31, 2019, the fair value of the noncontrolling interest exceeded the present value of the put option redemption value, and the Company recorded a $7.2 million adjustment, which increased the carrying amount of redeemable noncontrolling interest and reduced the Company’s retained earnings.

	For the years ended December 31,
(In thousands)	2021		2020			2019
Beginning balance	$	7,494	$	16,112		$	6,502
Net income (loss) attributable to noncontrolling interest		38		(1,403	)		2,395
Acquired businesses' noncontrolling interest		2,892		-			-
Fair value adjustment of put option		202		(7,215	)		7,215
Balance September 30,	$	10,626	$	7,494		$	16,112

In connection with the 2016 acquisition of Natural Habitat, Mr. Bressler has an equity incentive opportunity to earn an award of options based on the future financial performance of Natural Habitat, where if the final year equity value of Natural Habitat, as defined in Mr. Bressler's employment agreement, exceeds $25.0 million, effective as of December 31, 2023, Mr. Bressler will be granted options with a fair value equal to 10.1% of such excess, subject to certain conditions.

Lease Commitments 

The Company leases office space and equipment under long-term leases, which are classified as operating leases. As of December 31, 2021, the Company’s remaining weighted average operating lease terms were approximately 41 months. A reconciliation of operating lease payments undiscounted cash flows to lease liabilities recognized as of December 31, 2021 is as follows:

(In thousands)	Operating Lease Payments
2022	$	1,557
2023		1,447
2024		1,456
2025		711
2026		-
Present value discount (6% weighted average)		(440	)
Total	$	4,731

Lease expense was approximately $2.0 million, $1.8 million and $1.7 million for the years ended December 31, 2021, 2020 and 2019, respectively. These amounts are recorded within general and administrative expenses on the accompanying consolidated statements of operations.

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, 2021, 2020 and 2019 was $1.7 million, $1.3 million and $5.8 million, respectively.

The royalty balances payable to National Geographic as of December 31, 2021 and 2020 is $0.9 and $0.0 million, respectively, and are included in accounts payable and accrued expenses on the accompanying consolidated balance sheets.

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, 2021, 2020 and 2019, these fees totaled $0.6 million, $0.2 million and $0.9 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. The related royalty payments are charged to cost of tours expenses. Royalty expense for the years ended December 31, 2021, 2020 and 2019 was $0.0 million, $0.4 million and $0.8 million, respectively.

Charter Commitments

From time to time, the Company enters into agreements to charter vessels onto which it holds its tours and expeditions. Additionally, due to certain restrictions on travel during the COVID-19 pandemic, the Company entered into an agreement with a third party to provide chartered air service for guests and crew on its 2020-2021 Antarctica expeditions. 

Future minimum payments on its charter agreements are as follows:

For the years ended December 31,	Amount
(In thousands)
2022	$	13,762
2023		2,095
Total	$	15,857

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.

In certain instances when not fully covered through an insurance company, 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 Islands 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, 2022 and renews annually.

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, after consulting legal counsel, there are no outstanding proceedings that are expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.