Note 2 - Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Significant Accounting Policies [Text Block]

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of Lindblad Expeditions Holdings, 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”).

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 and intangible assets, determining the fair value of assets acquired and liabilities assumed in business combinations, the valuation of stock-based compensation awards, 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, trip or tour, and may include pre- and post-expedition excursions, hotel accommodations, land-based expeditions and air transportation to and from the ships or the trip or tour beginning or end point. Upon satisfaction of the Company’s primary performance obligation, revenue is recognized over the duration of each expedition, trip or tour.

Tour revenues also include revenues from the sale of goods and services onboard the Company’s 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.

The Company sources its guest bookings through a combination of direct selling and various agency networks and alliances. The following table disaggregates tour revenues by the sales channel it was derived from:

	For the years ended December 31,
	2021			2020			2019
Guest ticket revenue:
Direct		56	%		41	%		45	%
National Geographic		14	%		18	%		17	%
Agencies		18	%		25	%		23	%
Affinity		5	%		5	%		6	%
Guest ticket revenue		93	%		89	%		91	%
Other tour revenue		7	%		11	%		9	%
Tour revenues		100	%		100	%		100	%

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. In conjunction with the suspension or rescheduling of expeditions, the Company provided guests an option of either a refund or future travel certificates, which in some instances exceeded the original cash deposit. The Company has recorded liabilities up to the amount of cash deposits and additional value of any future travel certificates are being recognized as a discount when applied to future expeditions. 

The change in contract liabilities within unearned passenger revenues presented in the Company's consolidated balance sheets are as follows:

	Contract Liabilities
(In thousands)
Balance as of January 1, 2021	$	73,267
Recognized in tour revenues during the period		(139,796	)
Additional contract liabilities in period		214,312
Balance as of December 31, 2021	$	147,783

Cost of Tours

Cost of tours represents the direct costs associated with revenues during expeditions, trips and tours, 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, guides 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, 2021 and 2020, the Company self-insured for medical insurance claims up to $125,000 per claim. In addition, as of December 31, 2021 and 2020, the Company maintained Stop Loss coverage for medical claims in excess of the $125,000, which had an aggregate deductible of $57,500. As of December 31, 2021 and 2020, the Company recorded a liability for Incurred-But-Not-Recorded (“IBNR”) medical claims, which was determined based on prior years claims experience.

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. In certain instances, 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 from its estimates.

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 jointly 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.

General and Administrative Expense

General and administrative expenses primarily represent the costs of the Company’s 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 advertising costs of direct mail, email, digital media, traditional media, travel agencies and brand websites, as well as costs associated with website development and maintenance, social media and corporate sponsorship costs. Advertising is charged to expense as incurred. Advertising expenses totaled $19.1 million, $9.3 million and $22.4 million for the years ended December 31, 2021, 2020 and 2019, respectively. The largest component of advertising expense for the years ended December 31, 2021 and 2020 was online advertising, which totaled $9.8 million and $3.5 million, respectively, and for the year ended December 31, 2019 the largest component was direct mail, which totaled $6.0 million.

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:

	For the years ended December 31,
	2021		2020		2019
(In thousands)
Cash and cash equivalents	$	150,753	$	187,531	$	101,579
Restricted cash		21,940		16,984		7,679
Total cash, cash equivalents and restricted cash as presented in the statement of cash flows	$	172,693	$	204,515	$	109,258

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, 2021 and 2020, the Company’s cash held in financial institutions outside of the U.S. amounted to $1.0 million and $7.2 million, respectively.

Restricted Cash and Marketable Securities

The amounts held in restricted cash on the accompanying consolidated balance sheets represent principally funds required to be held by certain vendors and regulatory agencies and are classified as restricted cash since such amounts cannot be used by the Company until the restrictions are removed by those vendors and regulatory agencies. These amounts are principally held in certificates of deposit and interest income is recognized when earned. 

The Company has classified marketable securities, principally money market funds or other short-term investments, 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. Cost of these short-term investments approximates fair value.

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 $32 million. To satisfy this requirement, the Company entered into an agreement with a financial institution to escrow the required amounts.

Restricted cash and marketable securities consist of the following:

	As of December 31,
	2021		2020
(In thousands)
Credit card processor reserves	$	10,536	$	1,945
Federal Maritime Commission escrow		9,814		13,856
Certificates of deposit and other restricted securities		1,590		1,183
Total restricted cash	$	21,940	$	16,984

As of December 31, 2021, and 2020, cash reserves of approximately $10.5 million and $1.9 million, respectively, were required by third-party credit card processors.

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,
	2021		2020
(In thousands)
Prepaid tour expenses	$	10,337	$	5,630
Prepaid marketing, commissions and other expenses		4,791		3,504
Prepaid client insurance		4,304		2,283
Prepaid air expense		4,051		3,817
Prepaid port agent fees		2,012		530
Prepaid corporate insurance		1,397		1,105
Prepaid income taxes		202		145
Total prepaid expenses	$	27,094	$	17,014

Property and Equipment

Property and equipment, net is stated at cost less accumulated depreciation. Depreciation 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, 2021, the Company owned and operated ten expedition vessels, with an additional vessel currently being renovated to replace the National Geographic Islander in the Galapagos during 2022. 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 traditionally is an annual docking and U.S. Coast Guard inspections, normally conducted in drydock. Internationally flagged ships have scheduled dockings approximately every 12 months, for a period of up to three to six weeks.

Goodwill

In accordance with ASC 360, the Company tests for impairment annually as of September 30, or more frequently if warranted. The Company assesses 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, 2021 with no indication of goodwill impairment. At December 31, 2020, the effects of COVID-19 on the Company’s expected future operating cash flows was a potential indicator that the carrying value of the Company's goodwill may not be recoverable. The Company therefore performed a discounted cash flow analysis of its goodwill for potential impairment as of December 31, 2020, and based on the analysis, it was determined that there was no impairment to the Company's goodwill. As of December 31, 2021, the Company determined that there was no triggering event regarding goodwill. See Note 5—Goodwill and Intangible Assets for further details on the Company’s 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 5—Goodwill and Intangible Assets for further information on the Company’s intangible assets.

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 48 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 November 2021, the Special Law of Special Regimen for Province of Galápagos was modified to provide owners of cupos a 20-year term contract with the Province of Galápagos, which was executed by the Company on  February 25, 2022. The contract is subject to early termination by the government for non-compliance with the terms of the contract and applicable law regulations. The 20-year term is renewable by the cupos owner upon expiration of the contract, and cupos contracts that are terminated early shall, within one year of the non-renewal or early termination, be submitted to a public auction for a 20 year-term upon verification of compliance with certain environmental regulatory conditions. Our rights to operate in the Galápagos Islands are therefore subject to annual renewal based on the law and decree regarding the compliance with environmental and other applicable laws and regulations. 

If the Galápagos National Parks Service were to further restrict access to the park, we might be required to alter certain of our travel itineraries. Such a development would negatively impact our business and revenues.

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, 2020, the effects of COVID-19 on the Company’s expected future operating cash flows was a potential indicator that the carrying value of the Company's intangible assets may not be recoverable. The Company, therefore, performed a discounted cash flow analysis of its intangible assets for potential impairment as of December 31, 2020, and based on the analysis, it was determined that there was no impairment to the Company's intangible assets. As of December 31, 2021, the Company determined that there was no triggering event regarding 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, 2020, the effects of COVID-19 on the Company’s expected future operating cash flows was a potential indicator that the carrying value of the Company's long-lived assets may not be recoverable. The Company therefore performed an undiscounted cash flow analysis of its long-lived assets for potential impairment as of December 31, 2020, and based on the analysis, it was determined that there was no impairment to the Company's long-lived assets. As of December 31, 2021, the Company determined that there was no triggering event regarding long-lived assets, as the Company returned to operations.

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,
	2021		2020
(In thousands)
Accrued other expense	$	11,774	$	5,645
CERTS Grant		11,595		-
Accounts payable		9,692		5,285
Bonus compensation liability		5,348		2,963
Employee liability		4,396		3,495
Refunds and commissions payable		4,185		1,803
Royalty payable		887		-
Travel certificate liability		870		870
Accrued travel insurance expense		505		270
Income tax liabilities		-		2
Foreign currency forward contract liability		-		2,008
Total accounts payable and accrued expenses	$	49,252	$	22,341

During the year ended December 31, 2021, the Company received $27.0 million under the CERTS Act, which provided grants to eligible motorcoach, school bus, passenger vessel, and pilotage companies that have experienced annual revenue losses of 25 percent or more as result of COVID-19. The priority use of grant funds must be for payroll costs, though grants may be used for operating expenses and the repayment of debt accrued to maintain payroll. The Company is accounting for the grant as a current liability on its balance sheet, as any amounts not appropriately used within one year of the grant date must be returned to the U.S. Treasury, and will recognize the grant within other income on the consolidated statement of operations as permitted expenses under the grant are incurred. During the year ended December 31, 2021, the Company recognized $15.4 million of the CERTS grant in other income for permitted payroll costs and ship and other operating expenses.

Leases

The Company leases office and warehousing space with lease terms ranging from one to ten years, and computer hardware and software and office equipment with lease terms ranging from three to six years.

The Company accounts for its various operating leases in accordance with ASC 842-Leases. At the inception of a lease, the Company recognizes right-of-use lease assets and related lease liabilities measured as the present value of future lease payments on its balance sheet. Lease expense is recognized on a straight-line basis over the term of the lease. The Company reviewed its contracts with vendors and customers, determining that its right-to-use lease assets consisted primarily of office space operating leases. In determining the right-to-use lease assets and related lease liabilities, the Company did not recognize any lease extension options and elected to exclude leases with terms of 12-months or less. Short-term leases are accounted for monthly 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.

In connection with the acquisition of Classic Journeys during the year ended December 31, 2021, the Company makes recurring fair value measurements of contingent acquisition consideration using level 3 unobservable inputs. See Note 7—Financial Instruments and Fair Value Measurements.

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, 2021 and 2020. As of December 31, 2021 and 2020, other than derivative instruments and contingent acquisition consideration, 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.

Derivative Instruments and Hedging Activities

Currency Risk. The Company uses currency exchange contracts to manage its exposure to changes in currency exchange rates associated with certain of its non-U.S. dollar denominated receivables and payables. The Company primarily hedges a portion of its current-year currency exposure to several currencies, which normally include, but are not limited to, the Canadian and New Zealand dollars, the Brazilian real, South African rand, Indian rupee, the euro and the British pound sterling. The fluctuations in the value of these forward contracts largely offset the impact of changes in the value of the underlying risk they economically hedge. The Company also uses foreign exchange forward contracts, designated as cash flow hedges, from time-to-time as necessary, to manage its exposure to foreign denominated contracts. 

Interest Rate Risk. The Company uses interest rate caps, designated as cash flow hedges, to manage the risk related to its floating rate corporate debt.

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’s derivative assets consist principally of interest rate caps and currency exchange contracts, which 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.

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 applies hedge accounting to interest rate and foreign exchange 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.

Income Taxes

The Company is subject to income taxes in both the U.S. and the non-U.S. jurisdictions in which it operates. Significant management judgment is required in projecting ordinary income to determine the Company’s estimated effective tax rate.

The Company accounts for income taxes using the asset and liability method, under which it recognizes deferred income taxes for the tax consequences attributable to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities, as well as for tax loss carryforwards and tax credit carryforwards. The Company measures deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable or settled. The Company provides a valuation allowance against deferred tax assets if, based upon the weight of available evidence, the Company does not believe it is “more-likely-than-not” that some or all of the deferred tax assets will be realized. The Company will continue to evaluate the deferred tax asset valuation allowance balances in all of its 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, 2021 and 2020, the Company had no unrecognized tax positions. 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, 2021 and 2020, interest and penalties on uncertain tax positions included in income tax expense was insignificant.

The Company is subject to tax audits in all jurisdictions for which it files tax returns. Tax audits by their very nature are often complex and can require several years to complete. Currently, there are no U.S. federal, state or foreign jurisdiction tax audits pending. The Company’s corporate U.S. federal and state tax returns for the current year and four prior years remain subject to examination by tax authorities and the Company’s foreign tax returns for the current year and five prior years remain subject to examination by tax authorities.

Other Long-Term Assets

In 2016, the Company recorded a $3.6 million tax asset for long-term prepaid value-added taxes related to the importation of the National Geographic Endeavour II and expects to earn tax credits that will reduce the asset. 

In 2015, the Company, Mr. Lindblad, the Co-Chairmen of the Board of the Company, and National Geographic Society entered into an agreement where Mr. Lindblad granted 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. The Company recorded a $13.8 million long-term asset for the license agreement that was amortized over the agreement’s life. In the year ended December 31, 2019, National Geographic Society exercised its rights in full under the option agreement to acquire the shares, and in a cashless transaction acquired shares from Mr. Lindblad. See Note 14—Related Party Transactions for more details. 

Loan Receivable

In December 2019, the Company and Ulstein Verft AS (“Ulstein Verft”) amended the National Geographic Resolution construction agreement. The amended agreement provides for a $4.0 million loan to Ulstein Verft, with repayment to be 112% of the principal loan balance, due on maturity in December 2023. The Company incurred approximately $0.1 million in legal fees related to this loan that were capitalized and will be amortized to interest expense, net over the life of the loan. This loan receivable is recorded at amortized cost within other long-term assets. During 2021, the Company reduced the loan amount to be repaid in lieu of cash payment for a change order with the shipyard. The Company reviewed its loan receivable for credit losses for the periods ended December 31, 2021 and 2020. In evaluating the allowance for loan losses, the Company considered factors such as historical loss experience, the type and amount of loan, adverse situations that may affect the borrower’s ability to repay and prevailing economic conditions. Based on these credit loss estimation and experience factors, the Company realized no allowance for loan loss for the years ended December 31, 2021, 2020 and 2019.

The following is a roll-forward of the loan receivable balance:

	Loan Receivable
(In thousands)
Balance as of January 1, 2020	$	4,084
Accrued interest		161
Amortization of deferred costs		(25	)
Balance as of December 31, 2020		4,220
Adjustment for ship building expense		(390	)
Accrued interest		145
Amortization of deferred costs		(54	)
Legal invoices deferred		43
Balance as of December 31, 2021	$	3,964

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 6—Long-term Debt.

Foreign Currency Translation

The Company’s functional currency is the U.S. dollar. Any 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 awards to be recorded at their fair value on the date of grant and amortized over the service period of the award. The Company recognizes stock-based 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.

Series A Redeemable Convertible Preferred Stock 

The Company’s Series A redeemable convertible preferred stock is accounted for as a temporary equity instrument, presented on the consolidated balance sheets in the temporary equity section. The redemption or conversion of the preferred stock into shares of the Company’s common stock is not solely controlled by the Company. At the six-year anniversary of the issuance, the holders have the right to require the Company to repurchase their redeemable convertible preferred stock. The redeemable convertible preferred stock is convertible into the Company’s common stock (i) any time at the holder’s election, (ii) at the six-year anniversary of the issuance of those shares not redeemed at the request of the holder, or (iii) after the third anniversary of the issuance by the Company under certain circumstances. 

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)–Simplifying the Accounting for Income Taxes. The amendments of this ASU are intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company adopted this ASU January 1, 2021, as required, and it did not have a material impact to the Company’s consolidated financial statements.

In  March 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848)–Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The guidance of this ASU is designed to provide relief from the accounting analysis and impacts that  may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, borrowings) necessitated by reference rate reform. It also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by reference rate reform. Application of the guidance is optional, is only available in certain situations, and is only available for companies to apply until  December 31, 2022. The Company adopted this ASU during the year ended December 31, 2021, and it will not have a material impact to the Company’s consolidated financial statements as the related LIBOR designated agreements are modified with the lending institutions to an alternate reference rate.

In  August 2020, the FASB issued ASU 2020-06, Debt–Debt with conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging–Contracts in Entity's Own Equity (Subtopic 815-40)–Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The amendments in this ASU address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The amendments reduce the number of accounting models for convertible debt instruments and convertible preferred stock, and address convertible instruments with conversion features, as well as other items. The Company adopted this ASU on January 1, 2021, as required, and it did not have a material impact to the Company’s consolidated financial statements.

During October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update require that an entity, the acquirer, recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC 606 as if it had originated the contracts. The amendments also apply to contract assets and contract liabilities from other contracts to which the provisions of ASC 606 apply, such as contract liabilities from the sale of nonfinancial assets within the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets. If acquired revenue contracts are considered to have terms that are unfavorable or favorable relative to market terms, the acquirer should recognize a liability or asset for the off-market contract terms at the acquisition date. This ASU is effective for fiscal years beginning after December 31, 2022, including interim periods within those fiscal years and early adoption is permitted. The Company adopted this ASU, retrospectively, during its year ended December 31, 2021, and it did not have a material impact on the Company’s consolidated financial instruments.

During November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832)–Disclosures by Business Entities about Government Assistance. The amendments in this update require disclosures about transactions with a government that have been accounted for by analogizing to a grant or contribution accounting model to increase transparency about (i) the types of transactions, (ii) the accounting for the transactions, and (iii) the effect of the transactions on an entity’s financial statements. This ASU is effective for financial statements issued for annual periods beginning after December 15, 2021 and early application of the amendments is permitted. The Company adopted this ASU during its year ended December 31, 2021, and provided the disclosures required in its consolidated financial statements.