UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
|
|
|
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
(Address of principal executive offices) |
|
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
|
|
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
☒ |
|
Accelerated filer |
☐ |
Non-accelerated filer |
☐ |
|
Smaller reporting company |
|
|
|
|
|
|
Emerging growth company |
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The registrant had outstanding
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
|
|
Page No. |
||
|
1 |
|||
|
|
|
|
|
PART I. |
|
|
3 |
|
|
|
|
|
|
Item 1. |
|
|
3 |
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
Unaudited Condensed Consolidated Statements of Comprehensive Loss |
|
4 |
|
|
|
|
|
|
|
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity |
|
5 |
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
Notes to Unaudited Condensed Consolidated Financial Statements |
|
7 |
|
|
|
|
|
Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
20 |
|
|
|
|
|
Item 3. |
|
|
30 |
|
|
|
|
|
|
Item 4. |
|
|
31 |
|
|
|
|
|
|
PART II. |
|
|
|
|
|
|
|
|
|
Item 1. |
|
|
32 |
|
|
|
|
|
|
Item 1A. |
|
|
32 |
|
|
|
|
|
|
Item 2. |
|
|
32 |
|
|
|
|
|
|
Item 3. |
|
|
32 |
|
|
|
|
|
|
Item 4. |
|
|
32 |
|
|
|
|
|
|
Item 5. |
|
|
32 |
|
|
|
|
|
|
Item 6. |
|
|
33 |
|
|
|
|
34 |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of the federal securities laws. All statements, other than statements of historical facts, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, our results of operations, financial position and our business outlook, business trends and other information, may be forward-looking statements. Words such as “might,” “will,” “may,” “should,” “estimates,” “expects,” “continues,” “contemplates,” “anticipates,” “projects,” “plans,” “potential,” “predicts,” “intends,” “believes,” “forecasts,” “future,” “targeted,” “goal” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.
There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Such risks, uncertainties and other important factors that could cause actual results to differ materially include, among others, the risks, uncertainties and factors set forth under “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report on Form 10-K”), filed with the Securities and Exchange Commission (the “SEC”), and under “Part II, Item 1A., Risk Factors” in this Quarterly Report on Form 10-Q, as such risk factors may be updated from time to time in our periodic filings with the SEC, including this report, and are accessible on the SEC’s website at www.sec.gov, including the following:
|
• |
the effects of the global Coronavirus (“COVID-19”) pandemic, or any related mutations of the virus, on our business and the economy in general; |
|
• |
complex federal and state regulations governing the treatment of animals, which can change, and claims and lawsuits by activist groups before government regulators and in the courts; |
|
• |
activist and other third-party groups and/or media can pressure governmental agencies, vendors, partners, and/or regulators, bring action in the courts or create negative publicity about us; |
|
• |
various factors beyond our control adversely affecting attendance and guest spending at our theme parks, including, but not limited to, weather, natural disasters, foreign exchange rates, consumer confidence, the potential spread of travel-related health concerns including pandemics and epidemics, travel related concerns, and governmental actions; |
|
• |
incidents or adverse publicity concerning our theme parks, the theme park industry and/or zoological facilities; |
|
• |
a decline in discretionary consumer spending or consumer confidence; |
|
• |
a significant portion of our revenues have historically been generated in the States of Florida, California and Virginia, and any risks affecting such markets, such as natural disasters, closures due to pandemics, severe weather and travel-related disruptions or incidents; |
|
• |
seasonal fluctuations in operating results; |
|
• |
inability to compete effectively in the highly competitive theme park industry; |
|
• |
interactions between animals and our employees and our guests at attractions at our theme parks; |
|
• |
animal exposure to infectious disease; |
|
• |
high fixed cost structure of theme park operations; |
|
• |
changing consumer tastes and preferences; |
|
• |
cyber security risks and failure to maintain the integrity of internal or guest data; |
|
• |
technology interruptions or failures that impair access to our websites and/or information technology systems; |
|
• |
increased labor costs, including minimum wage increases, and employee health and welfare benefits; |
|
• |
inability to grow our business or fund theme park capital expenditures; |
|
• |
adverse litigation judgments or settlements; |
|
• |
inability to protect our intellectual property or the infringement on intellectual property rights of others; |
|
• |
the loss of licenses and permits required to exhibit animals or the violation of laws and regulations; |
|
• |
loss of key personnel; |
|
• |
unionization activities and/or labor disputes; |
|
• |
inability to meet workforce needs; |
|
• |
inability to realize the benefits of developments, restructurings, acquisitions or other strategic initiatives, and the impact of the costs associated with such activities; |
|
• |
inability to maintain certain commercial licenses; |
1
|
• |
restrictions in our debt agreements limiting flexibility in operating our business; |
|
• |
changes in the method for determining LIBOR and the potential replacement of LIBOR may affect our cost of capital; |
|
• |
inability to retain our current credit ratings; |
|
• |
our substantial leverage; |
|
• |
inadequate insurance coverage; |
|
• |
inability to purchase or contract with third party manufacturers for rides and attractions or construction delays; |
|
• |
environmental regulations, expenditures and liabilities; |
|
• |
suspension or termination of any of our business licenses, including by legislation at federal, state or local levels; |
|
• |
delays, restrictions or inability to obtain or maintain permits; |
|
• |
financial distress of strategic partners or other counterparties; |
|
• |
changes to immigration, foreign trade, investments and/or other policies; |
|
• |
inability to realize the full value of our intangible assets; |
|
• |
changes in tax laws; |
|
• |
tariffs or other trade restrictions; |
|
• |
actions of activist stockholders; |
|
• |
the ability of Hill Path Capital LP to significantly influence our decisions; |
|
• |
changes or declines in our stock price, as well as the risk that securities analysts could downgrade our stock or our sector; and |
|
• |
risks associated with our capital allocation plans and share repurchases, including the risk that our share repurchase program could increase volatility and fail to enhance stockholder value. |
We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this Quarterly Report on Form 10-Q apply only as of the date of this Quarterly Report on Form 10-Q or as of the date they were made or as otherwise specified herein and, except as required by applicable law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise.
All references to “we,” “us,” “our,” “Company” or “SeaWorld” in this Quarterly Report on Form 10-Q mean SeaWorld Entertainment, Inc., its subsidiaries and affiliates.
Website and Social Media Disclosure
We use our websites (www.seaworldentertainment.com and www.seaworldinvestors.com) and our corporate Twitter account (@SeaWorld) as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about SeaWorld when you enroll your e-mail address by visiting the “E-mail Alerts” section of our website at www.seaworldinvestors.com. The contents of our website and social media channels are not, however, a part of this Quarterly Report on Form 10-Q.
Trademarks, Service Marks and Trade Names
We own or have rights to use a number of registered and common law trademarks, service marks and trade names in connection with our business in the United States and in certain foreign jurisdictions, including SeaWorld Entertainment, SeaWorld Parks & Entertainment, SeaWorld®, Shamu®, Busch Gardens®, Aquatica®, Discovery Cove®, Sea Rescue® and other names and marks that identify our theme parks, characters, rides, attractions and other businesses. In addition, we have certain rights to use Sesame Street® marks, characters and related indicia through our license agreement with Sesame Workshop.
Solely for convenience, the trademarks, service marks, and trade names referred to hereafter in this Quarterly Report on Form 10-Q are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks, and trade names. This Quarterly Report on Form 10-Q may contain additional trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service marks and trade names appearing in this Quarterly Report on Form 10-Q are, to our knowledge, the property of their respective owners.
2
PART I — FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
Accounts receivable, net |
|
|
|
|
|
|
|
|
Inventories |
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
|
|
Property and equipment, at cost |
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
Trade names/trademarks, net |
|
|
|
|
|
|
|
|
Right of use assets-operating leases |
|
|
|
|
|
|
|
|
Deferred tax assets, net |
|
|
|
|
|
|
|
|
Other assets, net |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
Liabilities and Stockholders’ Deficit |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
|
|
|
$ |
|
|
Current maturities of long-term debt |
|
|
|
|
|
|
|
|
Operating lease liabilities |
|
|
|
|
|
|
|
|
Accrued salaries, wages and benefits |
|
|
|
|
|
|
|
|
Deferred revenue |
|
|
|
|
|
|
|
|
Other accrued liabilities |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
|
|
Long-term debt, net |
|
|
|
|
|
|
|
|
Long-term operating lease liabilities |
|
|
|
|
|
|
|
|
Deferred tax liabilities, net |
|
|
|
|
|
|
|
|
Other liabilities |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9) |
|
|
|
|
|
|
|
|
Stockholders’ Deficit: |
|
|
|
|
|
|
|
|
Preferred stock, $ or outstanding at March 31, 2021 and December 31, 2020 |
|
|
|
|
|
|
|
|
Common stock, $ |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
|
|
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Treasury stock, at cost ( |
|
|
( |
) |
|
|
( |
) |
Total stockholders’ deficit |
|
|
( |
) |
|
|
( |
) |
Total liabilities and stockholders’ deficit |
|
$ |
|
|
|
$ |
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
3
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS
(In thousands, except per share amounts)
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Net revenues: |
|
|
|
|
|
|
|
|
Admissions |
|
$ |
|
|
|
$ |
|
|
Food, merchandise and other |
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
Cost of food, merchandise and other revenues |
|
|
|
|
|
|
|
|
Operating expenses (exclusive of depreciation and amortization shown separately below) |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
Severance and other separation costs |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
|
|
|
|
|
|
Operating loss |
|
|
( |
) |
|
|
( |
) |
Other expense (income), net |
|
|
|
|
|
|
( |
) |
Interest expense |
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
( |
) |
|
|
( |
) |
Benefit from income taxes |
|
|
( |
) |
|
|
( |
) |
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income: |
|
|
|
|
|
|
|
|
Unrealized income on derivatives, net of tax |
|
|
— |
|
|
|
|
|
Comprehensive loss |
|
$ |
( |
) |
|
$ |
( |
) |
Loss per share: |
|
|
|
|
|
|
|
|
Net loss per share, basic |
|
$ |
( |
) |
|
$ |
( |
) |
Net loss per share, diluted |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
4
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
(In thousands, except share amounts)
|
|
Shares of Common Stock |
|
|
Common Stock |
|
|
Additional Paid-In Capital |
|
|
Accumulated Deficit |
|
|
Accumulated Other Comprehensive (Loss) Income |
|
|
Treasury Stock, at Cost |
|
|
Total Stockholders' Deficit |
|
|||||||
Balance at December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Vesting of restricted shares |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Shares withheld for tax withholdings |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance at March 31, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
Shares of Common Stock |
|
|
Common Stock |
|
|
Additional Paid-In Capital |
|
|
Accumulated Deficit |
|
|
Accumulated Other Comprehensive (Loss) Income |
|
|
Treasury Stock, at Cost |
|
|
Total Stockholders' Equity |
|
|||||||
Balance at December 31, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Unrealized gain on derivatives, net of tax expense of $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Vesting of restricted shares |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Shares withheld for tax withholdings |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Exercise of stock options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Adjustments to previous dividend declarations |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Repurchase of |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance at March 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
5
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Cash Flows From Operating Activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
Amortization of debt issuance costs and discounts |
|
|
|
|
|
|
|
|
Deferred income tax benefit |
|
|
( |
) |
|
|
( |
) |
Equity-based compensation |
|
|
|
|
|
|
( |
) |
Other, including loss on sale or disposal of assets, net |
|
|
|
|
|
|
( |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
( |
) |
|
|
|
|
Inventories |
|
|
|
|
|
|
( |
) |
Prepaid expenses and other current assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable and accrued expenses |
|
|
( |
) |
|
|
|
|
Accrued salaries, wages and benefits |
|
|
|
|
|
|
( |
) |
Deferred revenue |
|
|
|
|
|
|
|
|
Other accrued liabilities |
|
|
( |
) |
|
|
( |
) |
Right of use assets and operating lease liabilities |
|
|
|
|
|
|
|
|
Other assets and liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) operating activities |
|
|
|
|
|
|
( |
) |
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
|
( |
) |
|
|
( |
) |
Proceeds from draws on revolving credit facility |
|
|
— |
|
|
|
|
|
Repayments of revolving credit facility |
|
|
— |
|
|
|
( |
) |
Purchase of treasury stock |
|
|
— |
|
|
|
( |
) |
Payment of tax withholdings on equity-based compensation through shares withheld |
|
|
( |
) |
|
|
( |
) |
Exercise of stock options |
|
|
|
|
|
|
|
|
Debt issuance costs |
|
|
— |
|
|
|
( |
) |
Other financing activities |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by financing activities |
|
|
( |
) |
|
|
|
|
Change in Cash and Cash Equivalents, including Restricted Cash |
|
|
( |
) |
|
|
|
|
Cash and Cash Equivalents, including Restricted Cash—Beginning of period |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, including Restricted Cash—End of period |
|
$ |
|
|
|
$ |
|
|
Supplemental Disclosure of Noncash Investing and Financing Activities |
|
|
|
|
|
|
|
|
Capital expenditures in accounts payable |
|
$ |
|
|
|
$ |
|
|
Other financing arrangements |
|
$ |
|
|
|
$ |
— |
|
See accompanying notes to unaudited condensed consolidated financial statements.
6
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Description of the Business
SeaWorld Entertainment, Inc., through its wholly-owned subsidiary, SeaWorld Parks & Entertainment, Inc. (“SEA”) (collectively, the “Company”), owns and operates
Impact of Global COVID-19 Pandemic
In response to the global COVID-19 pandemic, and in compliance with government restrictions, the Company temporarily closed all of its theme parks effective March 16, 2020. Beginning in June 2020, the Company began the phased reopening of some of its parks with enhanced health, safety and cleaning measures, capacity limitations and modified/limited operations, which at times included reduced hours and/or reduced operating days. By August 2020, the Company had reopened
The Company’s SeaWorld park in California initially reopened in August 2020 on a limited basis, following the State of California’s guidance for reopening zoos. In compliance with revised guidance issued late in the fourth quarter of 2020, the Company once again had to close this park effective December 7, 2020. On January 15, 2021, the Company introduced a limited time drive-through only experience for guests at this park. Based on updated State of California guidance, the Company reopened this park on February 6, 2021 on a limited basis, once again following California guidance for reopening zoos. Subsequently, on April 12, 2021, in accordance with California guidance, this park resumed operations as a theme park with restricted capacity.
Attendance for the Company’s Busch Gardens park in Virginia has also been significantly impacted by state restrictions. Initially the State of Virginia had a state mandated capacity restriction of
The Company continues to operate all of its open parks with capacity limitations and modified/limited operations in accordance with local laws applicable to each park. The Company continuously monitors guidance from federal, state and local authorities and engages with governmental authorities as well as medical/scientific consultants. The Company may adjust its plans accordingly as laws change and new information and guidance becomes available. The COVID-19 pandemic, resulting park closures and limited park reopenings have had, and are likely to continue to have, a material impact on the Company’s financial results.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the SEC. The unaudited condensed consolidated balance sheet as of December 31, 2020 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K.
In the opinion of management, such unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations for the year ending December 31, 2021 or any future period due to the seasonal nature of the Company’s operations. Based upon historical results, the Company typically generates its highest revenues in the second and third quarters of each year and incurs a net loss in the first and fourth quarters, in part because
7
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company’s results of operations for the three months ended March 31, 2020 were materially impacted by the COVID-19 pandemic which ultimately led to temporary park closures effective on March 16, 2020. The timing of these park closures fell during historically high-volume spring break weeks for most of the Company’s parks. The Company’s results of operations for the three months ended March 31, 2021 continue to be impacted by the COVID-19 pandemic due in part to capacity limitations and modified/limited operations.
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including SEA. All intercompany accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions include, but are not limited to, the accounting for self-insurance, deferred tax assets and liabilities, deferred revenue, equity compensation, and the valuation of goodwill and other indefinite-lived intangible assets. Estimates are based on various factors including current and historical trends, as well as other pertinent industry data. The Company regularly evaluates this information to determine if it is necessary to update the basis for its estimates and to adjust for known changes. Actual results could differ from those estimates. Based on the uncertainty relating to the COVID-19 pandemic, including but not limited to the extent, duration and impact of government restrictions, capacity limitations due to social distancing guidelines, public sentiment on social gatherings, travel and attendance patterns, travel restrictions, effectiveness and adoption of vaccines, potential supply chain disruptions and additional actions which could be taken by government authorities to manage the pandemic, the Company is not certain of the ultimate impact the COVID-19 pandemic could have on its estimates, business or results of operations.
Segment Reporting
The Company maintains discrete financial information for each of its
Restricted Cash
Restricted cash is recorded in prepaid expenses and other current assets in the accompanying unaudited condensed consolidated balance sheets. Restricted cash consists primarily of funds received from strategic partners for use in approved marketing and promotional activities.
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
|
|
(In thousands) |
|
|||||
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
Restricted cash, included in prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
Total cash, cash equivalents and restricted cash |
|
$ |
|
|
|
$ |
|
|
Revenue Recognition
Admissions revenue primarily consists of single-day tickets, annual or season passes or other multi-day or multi-park admission products. For single-day tickets, the Company recognizes revenue at a point in time, upon admission to the park. Annual passes, season passes, or other multi-day or multi-park passes allow guests access to specific parks over a specified time period. For these pass and multi-use products, revenue is deferred and recognized over the terms of the admission product based on estimated redemption rates for similar products and is adjusted periodically. For pass products purchased on an installment plan that have met their initial commitment period and have transitioned to a month-to-month basis, monthly charges are recognized as revenue as payments are received each month, with the exception of payments received during the temporary park closures (see further discussion which follows).
8
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company estimates future redemption and recognition patterns for admission pass products, which impacts the timing of when revenue is recognized on these products. Actual results could materially differ from these estimates depending on the ultimate extent of the effects of the COVID-19 pandemic. As a result of the temporary park closures due to the global COVID-19 pandemic, in 2020, the Company upgraded some of its pass products and extended pass expiration dates for at least the equivalent period the related parks were closed. As a result, the Company adjusted its estimated redemption and recognition patterns on these products to reflect the fact that there was no attendance during the park closures and accordingly the Company did not recognize revenue from these admission products while the parks were closed. For passes under installment plans that had transitioned to a month-to-month basis, the Company temporarily paused monthly charges when the related parks reopened for the equivalent period the respective parks were closed. Accordingly, payments received during the closure period were recorded as deferred revenue and recognized as revenue once the respective parks reopened, which may not necessarily reflect attendance patterns for these guests.
Food, merchandise and other revenue primarily consists of culinary, merchandise and other in-park products and also includes other miscellaneous revenue which is not significant in the periods presented. The Company recognizes revenue for food, merchandise and other in-park products when the related products or services are received by the guests.
At March 31, 2021 and December 31, 2020, the long-term portion of deferred revenue included in other liabilities in the accompanying unaudited condensed consolidated balance sheets primarily relates to the Company’s international agreement, as discussed in the following section.
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
|
|
(In thousands) |
|
|||||
Deferred revenue, including long-term portion |
|
$ |
|
|
|
$ |
|
|
Less: Deferred revenue, long-term portion, included in other liabilities |
|
|
|
|
|
|
|
|
Deferred revenue, short-term portion |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
International Agreements
The Company has received $
2. RECENT ACCOUNTING PRONOUNCEMENTS
The Company reviews new accounting pronouncements as they are issued or proposed by the Financial Accounting Standards Board (“FASB”).
Recently Implemented Accounting Standards
On January 1, 2021, the Company adopted the following Accounting Standards Updates (“ASUs”) which had no material impact on its unaudited condensed consolidated financial statements or disclosures:
|
• |
ASU 2020-04, Reference Rate Reform (Topic 848), provides optional transition guidance to ease the potential accounting burden associated with transitioning away from the London Interbank Offered Rate (“LIBOR”), with optional expedients related to the application of GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. The provisions of this ASU are effective upon issuance and can be applied prospectively through December 31, 2022. The adoption of this ASU did not have a material impact on the Company’s unaudited condensed consolidated financial statements or disclosure. |
9
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
• |
ASU 2019-12, Simplifying the Accounting for Income Taxes, simplifies various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for the Company beginning January 1, 2021. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The adoption of this ASU did not have a material impact on the Company’s unaudited condensed consolidated financial statements or disclosures. |
3. LOSS PER SHARE
Loss per share is computed as follows:
|
|
For the Three Months Ended March 31, |
|
|
|||||||||||||||||||||
|
|
2021 |
|
|
2020 |
|
|
||||||||||||||||||
|
|
Net Loss |
|
|
Shares |
|
|
Per Share Amount |
|
|
Net Loss |
|
|
Shares |
|
|
Per Share Amount |
|
|
||||||
|
|
(In thousands, except per share amounts) |
|
|
|||||||||||||||||||||
Basic loss per share |
|
$ |
( |
) |
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
$ |
( |
) |
|
Effect of dilutive incentive-based awards |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Diluted loss per share |
|
$ |
( |
) |
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
$ |
( |
) |
|
In accordance with the Earnings Per Share Topic of the ASC, basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period (excluding treasury stock and unvested restricted stock awards). Unvested restricted stock awards are eligible to receive dividends; if any, however, dividend rights will be forfeited if the award does not vest. Accordingly, only vested shares of formerly restricted stock are included in the calculation of basic loss per share. The weighted average number of repurchased shares during the period, if any, which are held as treasury stock, are excluded from shares of common stock outstanding.
Diluted loss per share is determined using the treasury stock method based on the dilutive effect of unvested restricted stock and certain shares of common stock that are issuable upon exercise of stock options. There were approximately
4. INCOME TAXES
Income tax expense or benefit is recognized based on the Company’s estimated annual effective tax rate which is based upon the tax rate expected for the full calendar year applied to the pretax income or loss of the interim period. The Company’s consolidated effective tax rate for the three months ended March 31, 2021 and 2020 was
Due to the uncertainty of realizing the benefit from deferred tax assets, tax positions are reviewed at least quarterly by assessing future expected taxable income from all sources. Realization of deferred tax assets, primarily arising from net operating loss carryforwards and charitable contribution carryforwards, is dependent upon generating sufficient taxable income prior to expiration of the carryforwards, which may include the reversal of deferred tax liability components. Based on its analysis, the Company believes that some of its deferred tax assets may not be realized. Therefore, as of March 31, 2021 and December 31, 2020, respectively, the Company recorded valuation allowances of approximately $
10
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company has determined that there are no positions currently taken that would rise to a level requiring an amount to be recorded or disclosed as an unrecognized tax benefit. If such positions do arise, it is the Company’s intent that any interest or penalty amount related to such positions will be recorded as a component of the income tax provision (benefit) in the applicable period.
The computation of the estimated annual effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the forecasted pre-tax income or loss for the year, projections of the proportion of income and/or loss earned and taxed in respective jurisdictions, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. The volatile global economic conditions resulting from the COVID-19 pandemic, the impacts of which are difficult to predict, may cause fluctuations in the Company’s forecasted pre-tax income or loss for the year, which could create volatility in its estimated annual effective tax rate. The estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or as the Company’s tax environment changes. To the extent that the estimated annual effective tax rate changes, the effect of the change on prior interim periods is included in the income tax provision in the period in which the change in estimate occurs. The Company’s valuation allowances, in part, also rely on estimates and assumptions related to future financial performance. Given the macroeconomic environment related to the COVID-19 pandemic and the uncertainties regarding the related impact on financial performance, the Company’s valuation allowances may need to be further adjusted in the future.
5. OTHER ACCRUED LIABILITIES
Other accrued liabilities at March 31, 2021 and December 31, 2020, consisted of the following:
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
|
|
(In thousands) |
|
|||||
Accrued interest |
|
$ |
|
|
|
$ |
|
|
Accrued taxes |
|
|
|
|
|
|
|
|
Self-insurance reserve |
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Total other accrued liabilities |
|
$ |
|
|
|
$ |
|
|
6. LONG-TERM DEBT
Long-term debt, net, as of March 31, 2021 and December 31, 2020 consisted of the following:
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
|
|
(In thousands) |
|
|||||
Term B-5 Loans (effective interest rate of March 31, 2021 and December 31, 2020) |
|
$ |
|
|
|
$ |
|
|
Second-Priority Senior Notes (interest rate of |
|
|
|
|
|
|
|
|
Senior Notes (interest rate of |
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
|
|
|
|
|
|
Less: unamortized discounts and debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Less: current maturities |
|
|
( |
) |
|
|
( |
) |
Total long-term debt, net |
|
$ |
|
|
|
$ |
|
|
Senior Secured Credit Facilities
SEA is the borrower under the senior secured credit facilities, as amended pursuant to a credit agreement (the “Amended Credit Agreement”) dated as of December 1, 2009, as the same may be amended, restated, supplemented or modified from time to time (the “Senior Secured Credit Facilities”).
On March 10, 2020, SEA entered into an amendment, Amendment No. 10 (the “Amendment No. 10”) to its Amended Credit Agreement. Pursuant to Amendment No. 10, SEA increased the revolving credit commitments available under the Amended Credit Agreement from $
11
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2021, the Senior Secured Credit Facilities consisted of $
The Term B-5 Loans amortize in equal quarterly installments in aggregate annual amounts equal to
As of March 31, 2021, SEA had approximately $
First-Priority Senior Secured Notes
On April 30, 2020, SEA closed on a private offering of $
The Senior Notes mature
The Senior Notes are fully and unconditionally guaranteed by the Company, any subsidiary of the Company that directly or indirectly owns
Second-Priority Senior Secured Notes
On August 5, 2020, SEA closed on a private offering of $
The Second-Priority Senior Notes mature on
12
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Second-Priority Senior Notes are fully and unconditionally guaranteed by the Company, any subsidiary of the Company that directly or indirectly owns 100% of the issued and outstanding equity interests of SEA, and subject to certain exceptions, each of SEA’s subsidiaries that guarantees SEA’s existing senior secured credit facilities.
Restrictive Covenants
The Senior Secured Credit Facilities contain a number of customary negative covenants. Such covenants, among other things, restrict, subject to certain exceptions, the ability of SEA and its restricted subsidiaries to incur additional indebtedness; make guarantees; create liens on assets; enter into sale and leaseback transactions; engage in mergers or consolidations; sell assets; make fundamental changes; pay dividends and distributions or repurchase SEA’s capital stock; make investments, loans and advances, including acquisitions; engage in certain transactions with affiliates; make changes in the nature of the business; and make prepayments of junior debt. All of the net assets of SEA and its consolidated subsidiaries are restricted and there are no unconsolidated subsidiaries of SEA.
Long-term debt at March 31, 2021 is repayable as follows and does not include the impact of any future voluntary prepayments:
Years Ending December 31, |
|
(In thousands) |
|
|
Remainder of 2021 |
|
$ |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
Total |
|
$ |
|
|
Interest Rate Swap Agreements
The Company previously had
SEA designated the Interest Rate Swap Agreements above as qualifying cash flow hedge accounting relationships as further discussed in Note 7–Derivative Instruments and Hedging Activities which follows.
Cash paid for interest relating to the Senior Secured Credit Facilities, Senior Notes, Second-Priority Senior Notes and the Interest Rate Swap Agreements, net of amounts capitalized, as applicable, was $
13
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk primarily by managing the amount, sources and duration of its debt funding and at times through the use of derivative financial instruments. Specifically, the Company previously entered into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments were used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings. The Company does not speculate using derivative instruments.
In May 2020, the Company’s Interest Rate Swap Agreements expired. As such, the Company did
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives were to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily used interest rate swaps at times as part of its interest rate risk management strategy. During the three months ended March 31, 2020, such derivatives were used to hedge a portion of the variable cash flows associated with existing variable-rate debt.
The Interest Rate Swap Agreements were designated as cash flow hedges of interest rate risk. The changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income and were subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives were reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.
Tabular Disclosure of the Effect of Derivative Instruments on the Statements of Comprehensive Loss
The table below presents the pretax effect of the Company’s derivative financial instruments in the unaudited condensed consolidated statements of comprehensive loss for the three months ended March 31, 2020:
|
|
Three Months Ended March 31, |
|
|
|
|
2020 |
|
|
Derivatives in Cash Flow Hedging Relationships: |
|
(In thousands) |
|
|
Loss recognized in accumulated other comprehensive loss |
|
$ |
( |
) |
Amounts reclassified from accumulated other comprehensive loss to interest expense |
|
$ |
|
|
8. FAIR VALUE MEASUREMENTS
Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement is required to be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
14
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Of the Company’s long-term obligations, the Term B-5 Loans are classified in Level 2 of the fair value hierarchy as of March 31, 2021 and December 31, 2020, and the Senior Notes and Second-Priority Senior Notes are classified in Level 1 of the fair value hierarchy as of March 31, 2021 and December 31, 2020. The fair value of the Term B-5 Loans approximate their carrying value, excluding unamortized debt issuance costs and discounts, due in part to the variable nature of the underlying interest rates and the frequent intervals at which such interest rates are reset. The fair value of the Senior Notes and Second-Priority Senior Notes was determined using quoted prices in active markets for identical instruments.
The Company did
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
Significant |
|
|
|
|
|
|
|
|
|
||
|
for Identical |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|||
|
Assets and |
|
|
Observable |
|
|
Unobservable |
|
|
Balance at |
|
||||
|
Liabilities |
|
|
Inputs |
|
|
Inputs |
|
|
March 31, |
|
||||
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
2021 |
|
||||
Liabilities: |
(In thousands) |
|
|||||||||||||
Long-term obligations (a) |
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
(a) |
Reflected at carrying value, net of unamortized debt issuance costs and discounts, in the unaudited condensed consolidated balance sheet as current maturities of long-term debt of $ |
The following table presents the Company’s estimated fair value measurements and related classifications for liabilities measured on a recurring basis as of December 31, 2020:
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
Significant |
|
|
|
|
|
|
|
|
|
||
|
for Identical |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|||
|
Assets and |
|
|
Observable |
|
|
Unobservable |
|
|
Balance at |
|
||||
|
Liabilities |
|
|
Inputs |
|
|
Inputs |
|
|
December 31, |
|
||||
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
2020 |
|
||||
Liabilities: |
(In thousands) |
|
|||||||||||||
Long-term obligations (a) |
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
(a) |
Reflected at carrying value, net of unamortized debt issuance costs and discounts, in the unaudited condensed consolidated balance sheet as current maturities of long-term debt of $ |
9. COMMITMENTS AND CONTINGENCIES
2020 Settled Matters
In 2020, the Company received final court approval of a settlement for a previously disclosed stockholder class action lawsuit, captioned Baker v. SeaWorld Entertainment, Inc., et al. The settlement required the Company to pay $
15
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In 2020, the Company received final court approval of a settlement for a previously disclosed putative derivative lawsuit captioned Kistenmacher v. Atchison, et al. Pursuant to the settlement, the Company received $
Legal Proceedings
Securities Class Action Lawsuit
On June 14, 2018, a lawsuit captioned Highfields Capital I LP et al v. SeaWorld Entertainment, Inc. et al, was filed in the United States District Court in the Southern District of California against the Company and certain of the Company’s former and present executive officers. The plaintiffs allege, among other things, that the defendants made false and misleading statements in violation of the federal securities laws and Florida common law, regarding the impact of the film Blackfish on SeaWorld’s business. The complaint further alleges that such statements were made to induce plaintiffs to purchase common stock of the Company at artificially-inflated prices and that plaintiffs suffered investment losses as a result. The plaintiffs have indicated to the Company they believe the damages are in the range of $
Other Lawsuits
In October 2018, the Company received a demand letter from attorneys representing certain former employees who claim that the terms of their respective separation agreements entitle them to certain favorable modifications made to certain performance vesting restricted shares issued under the Company’s 2013 Omnibus Incentive Plan (the “Plan”).
In November 2020, the Company filed in the Court of Chancery of the State of Delaware an action for declaratory judgment seeking a declaration that the threatened claims of the former employees are time-barred and without merit. In response, the defendant former employees filed a motion to dismiss or in the alternative to stay and compel arbitration. The parties are currently discussing participation in an arbitration. In terms of potential exposure, the value of the total shares at issue for these certain former employees depends largely upon the Company’s current share price, which fluctuates daily. Approximately
Other Matters
The Company is a party to various other claims and legal proceedings arising in the normal course of business. In addition, from time to time the Company is subject to audits, inspections and investigations by, or receives requests for information from, various federal and state regulatory agencies, including, but not limited to, the U.S. Department of Agriculture’s Animal and Plant Health Inspection Service (“APHIS”), the U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”), the California Occupational Safety and Health Administration (“Cal-OSHA”), the Florida Fish & Wildlife Commission (“FWC”), the Equal Employment Opportunity Commission (“EEOC”), the Internal Revenue Service (“IRS”) the U.S. Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”).
Other than those matters discussed above, from time to time, various parties also bring other lawsuits against the Company. Matters where an unfavorable outcome to the Company is probable and which can be reasonably estimated are accrued. Such accruals, which are not material for any period presented, are based on information known about the matters, the Company’s estimate of the outcomes of such matters, and the Company’s experience in contesting, litigating and settling similar matters. Matters that are considered reasonably possible to result in a material loss are not accrued for, but an estimate of the possible loss or range of loss is disclosed, if such amount or range can be determined. At this time, management does not expect any such known claims, legal proceedings or regulatory matters to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
16
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
License Commitments
Pursuant to a license agreement (“License Agreement”) with Sesame Workshop, the Company pays a specified annual license fee, as well as a specified royalty based on revenues earned in connection with sales of licensed products, all food and beverage items utilizing the licensed elements and any events utilizing such elements if a separate fee is paid for such event. The Company’s principal commitments pursuant to the License Agreement include, among other items, the opening of a second standalone park (“Standalone Park”) no later than mid-2021 and minimum annual capital and marketing thresholds. The Company is currently in discussion with Sesame Workshop regarding the License Agreement as a result of the impacts of the COVID-19 pandemic. After the opening of the second Standalone Park (counting the existing Sesame Place Standalone Park in Langhorne, Pennsylvania), SEA will have the option to build additional Standalone Parks in the Sesame Territory within agreed upon timelines. The License Agreement has an initial term through December 31, 2031, with an automatic additional 15-year extension plus a five-year option added to the term of the License Agreement from December 31st of the year of each new Standalone Park opening. As of March 31, 2021, the Company estimates the combined remaining obligations for these commitments could be up to approximately $
Anheuser-Busch, Incorporated has granted the Company a perpetual, exclusive, worldwide, royalty-free license to use the Busch Gardens trademark and certain related domain names in connection with the operation, marketing, promotion and advertising of certain of the Company’s theme parks, as well as in connection with the production, use, distribution and sale of merchandise sold in connection with such theme parks. Under the license, the Company is required to indemnify ABI against losses related to the use of the marks.
10. EQUITY-BASED COMPENSATION
In accordance with ASC 718, Compensation-Stock Compensation, the Company measures the cost of employee services rendered in exchange for share-based compensation based upon the grant date fair market value. The cost is recognized over the requisite service period, which is generally the vesting period unless service or performance conditions require otherwise. The Company recognizes the impact of forfeitures as they occur.
Equity compensation expense is included in operating expenses and in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of comprehensive loss as follows:
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
|
|
(In thousands) |
|
|||||
Equity compensation included in operating expenses |
|
$ |
|
|
|
$ |
( |
) |
Equity compensation included in selling, general and administrative expenses |
|
|
|
|
|
|
( |
) |
Total equity compensation expense |
|
$ |
|
|
|
$ |
( |
) |
The credit in equity compensation expense for the three months ended March 31, 2020 was primarily due to the reversal of expense related to certain performance vesting restricted units which were no longer considered probable of vesting and also included the reversal of expense related to outstanding unvested equity awards previously held by the Company’s former chief executive officer which were forfeited in connection with his departure. See Long-term Incentive Performance Restricted Awards section which follows for further details.
Omnibus Incentive Plan
The Company has reserved
17
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Bonus Performance Restricted Units
During the three months ended March 31, 2021, the Company granted approximately
Due to the impact of the COVID-19 pandemic, the Company did not have an annual bonus plan for the fiscal year ended December 31, 2020 (“Fiscal 2020”); however, based on a discretionary review of performance in light of the negative impact of the COVID-19 pandemic on the Company’s business, the Compensation Committee determined to make discretionary equity awards to the Company’s bonus eligible employees during the three months ended March 31, 2020. These awards were paid entirely in restricted stock units that vest
Long-term Incentive Performance Restricted Awards
During the three months ended March 31, 2021, the Company granted long-term incentive plan awards for 2021 (the “2021 Long-Term Incentive Grant”) which were comprised of approximately
Long-Term Incentive Options
The Long-Term Incentive Options vest over
Long-Term Incentive Performance Restricted Units
The Long-Term Incentive Performance Restricted Units are expected to vest following the end of the three-year performance period beginning on January 1, 2021 and ending on December 31, 2023 (the “Performance Period”) based upon the Company’s achievement of specified performance goals during the Performance Period. The total number of Long-Term Incentive Performance Restricted Units eligible to vest will be based on the level of achievement of the performance goals and ranges from
The Company recognizes equity compensation expense for its performance-vesting restricted awards ratably over the related performance period, if the performance condition is probable of being achieved. Based on the Company’s progress towards its respective performance goals, a portion of its performance-vesting restricted awards are not considered probable of vesting as of March 31, 2021; therefore, equity compensation expense has not yet been recorded related to these awards. If the probability of vesting related to these awards changes in a subsequent period, all equity compensation expense related to those awards that would have been recorded over the requisite service period had the awards been considered probable at the new percentage from inception, will be recorded as a cumulative catch-up at such subsequent date.
11. STOCKHOLDERS’ DEFICIT
As of March 31, 2021,
18
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Share Repurchase Program
The Board had previously authorized a share repurchase program of up to $
During the three months ended March 31, 2020, prior to the COVID-19 temporary park closures, the Company completed a share repurchase of
The Share Repurchase Program has no time limit and may be suspended or discontinued completely at any time. The number of shares to be purchased and the timing of purchases will be based on the Company’s trading windows and available liquidity, general business and market conditions, and other factors, including legal requirements, debt covenant restrictions and alternative investment opportunities.
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References to our “theme parks” or “parks” in the discussion that follows includes all of our separately gated parks. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.
Introduction
The following discussion and analysis is intended to facilitate an understanding of our business and results of operations and should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion should also be read in conjunction with our consolidated financial statements and related notes thereto, and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, 2020.
Business Overview
We are a leading theme park and entertainment company providing experiences that matter and inspiring guests to protect animals and the wild wonders of our world. We own or license a portfolio of recognized brands, including SeaWorld, Busch Gardens, Aquatica, Discovery Cove and Sesame Place. Over our more than 60-year history, we have developed a diversified portfolio of 12 differentiated theme parks that are grouped in key markets across the United States. Many of our theme parks showcase our one-of-a-kind zoological collection and feature a diverse array of both thrill and family-friendly rides, educational presentations, shows and/or other attractions with broad demographic appeal which deliver memorable experiences and a strong value proposition for our guests.
Recent Developments
Impact of Global COVID-19 Pandemic
Since the global COVID-19 pandemic began we have taken proactive measures for the safety of our guests, employees and animals, to manage costs and expenditures, and to provide liquidity. In compliance with government restrictions, we temporarily closed all of our theme parks effective March 16, 2020. Beginning in June 2020, we began the phased reopening of some of our parks with capacity limitations and modified/limited operations. By August 2020, we had reopened 10 of our 12 parks on a limited basis. See further discussion relating to the capacity limitations for some of our parks in Note 1–Description of the Business and Basis of Presentation to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
At the start of the first quarter of 2021, seven of our 12 parks were open, compared to eight of our 12 parks at the start of 2020. At the end of the first quarter of 2021, 10 of our 12 parks were open, compared to all of our parks temporarily closed at the end of the first quarter of 2020. We continue to operate all of our open parks with capacity limitations and modified/limited operations.
In response to the COVID-19 pandemic, we have implemented enhanced health and safety protocols for our parks including capacity limitations, increased cleaning measures, physical distancing practices, face covering requirements and temperature screening of both guests and employees. Additionally, we have managed the number of operating days and operating hours by park to optimize cash flow. We also continue our focus on reducing costs, improving operating margins and streamlining our labor structure to better align with our strategic business objectives. Since the start of the COVID-19 pandemic, we have spent significant time reviewing our operations and have identified meaningful cost savings opportunities which we believe will further strengthen our business as we return to normalized operations.
With approved vaccines being distributed, we anticipate public health conditions, the operating environment and capacity limitations to improve; however, there can be no certainty of the extent and effectiveness of the vaccines or how they will impact these factors and others, including domestic or international travel, public opinion concerning social gatherings, consumer behavior or federal, state and local regulations related to health protocols, capacity limitations and social gatherings.
We have also experienced recent challenges in meeting our seasonal staffing goals due in part to COVID-19 related and other factors.
For further discussion relating to strategic measures we have taken to operate in the current environment, see the “Results of Operations” section which follows. For other factors concerning the global COVID-19 pandemic, see the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.
20
Leadership Changes
On May 6, 2021, we announced our Board of Directors (the “Board”) appointed Marc G. Swanson, who had been serving as the Company’s Interim Chief Executive Officer, to serve as Chief Executive Officer and Elizabeth C. Gulacsy, who had been serving as the Company’s Interim Chief Financial Officer and Treasurer, to serve as our Chief Financial Officer and Treasurer. Both roles are effective immediately. Separately, on April 26, 2021, we announced the appointment of Christopher Yarris as Chief Accounting Officer of the Company effective on such date.
Principal Factors and Trends Affecting Our Results of Operations
Revenues
Our revenues are driven primarily by attendance in our theme parks and the level of per capita spending for admission and per capita spending for culinary, merchandise and other in-park products. We define attendance as the number of guest visits. Attendance drives admissions revenue as well as total in-park spending. Admissions revenue primarily consists of single-day tickets, annual passes (which generally expire after a 12-month term), season passes (including our fun card products and, collectively with annual passes, referred to as “passes” or “season passes”) or other multi-day or multi-park admission products.
Total revenue per capita, defined as total revenue divided by total attendance, consists of admission per capita and in-park per capita spending:
|
• |
Admission Per Capita. We calculate admission per capita as total admissions revenue divided by total attendance. Admission per capita is primarily driven by ticket pricing, the admissions product mix and the park attendance mix, among other factors. The admissions product mix, also referred to as the attendance or visitation mix, is defined as the mix of attendance by ticket category such as single day, multi-day, annual/season passes or complimentary tickets and can be impacted by the mix of guests as domestic and international guests generally purchase higher admission per capita ticket products than our local guests. A higher mix of complimentary tickets will lower our admissions per capita. The park attendance mix is defined as the mix of theme parks visited and can impact admission per capita based on the theme park’s respective pricing which, on average, is lower for our water parks compared to our other theme parks. |
|
• |
In-Park Per Capita Spending. We calculate in-park per capita spending as total food, merchandise and other revenue divided by total attendance. Food, merchandise and other revenue primarily consists of culinary, merchandise, parking and other in-park products and also includes other miscellaneous revenue, including online transaction fees, not necessarily generated in our parks, which is not significant in the periods presented. In-park per capita spending is primarily driven by pricing changes, new product offerings, the mix of guests (such as local, domestic or international guests), penetration levels (percentage of guests purchasing) and the mix of in-park spending, among other factors. |
See further discussion in the “Results of Operations” section which follows and in Note 1–Description of the Business and Basis of Presentation to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. For other factors affecting our revenues, see the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.
Attendance
The level of attendance in our theme parks is generally a function of many factors, including affordability, the opening of new attractions and shows, competitive offerings, weather, marketing and sales efforts, awareness and type of ticket and park offerings, travel patterns of both our domestic and international guests, fluctuations in foreign exchange rates and global and regional economic conditions, consumer confidence, the external perceptions of our brands and reputation, industry best practices and perceptions as to safety. The external perceptions of our brands and reputation have at times impacted relationships with some of our business partners, including certain ticket resellers that have terminated relationships with us and other zoological-themed attractions.
As a result of the COVID-19 pandemic, we believe the level of attendance in our theme parks, including the mix of attendance from certain markets, has been and will continue to be impacted by public concerns over the COVID-19 pandemic, the number of reported local cases of COVID-19, domestic and international travel restrictions, federal, state and local regulations related to public places, limits on social gatherings, the availability and/or effectiveness of vaccines for adults and children, and overall public safety sentiment. We continuously monitor factors impacting our attendance, making strategic operations, marketing and sales adjustments as necessary.
21
Costs and Expenses
Historically, the principal costs of our operations are employee wages and benefits, driven partly by staffing levels, advertising, maintenance, animal care, utilities and insurance. Factors that affect our costs and expenses include fixed operating costs, competitive wage pressures including minimum wage legislation, commodity prices, costs for construction, repairs and maintenance, other inflationary pressures and attendance levels, among other factors. The mix of products sold compared to the prior year period can also impact our costs as generally retail products have a higher cost of sales component than our culinary or other in-park offerings.
As a result of the impact of the COVID-19 pandemic on our business, costs and expenses as a percent of revenue for the three months ended March 31, 2021 and 2020, are not necessarily indicative of costs and expenses as a percent of revenue for any future period, due in part to the impact of fixed operating costs and certain other costs which are not dependent on attendance levels, as well as certain costs associated with the COVID-19 pandemic.
See the “Impact of Global COVID-19 Pandemic” section for further details. For other factors affecting our costs and expenses, see the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.
Seasonality
The theme park industry is seasonal in nature. Historically, we generate the highest revenues in the second and third quarters of each year, in part because seven of our theme parks were historically only open for a portion of the year. As a result, approximately two-thirds of our attendance and revenues were historically generated in the second and third quarters of the year and we generally incurred net losses in the first and fourth quarters. The percent mix of revenues by quarter is relatively constant each year, but revenues can shift between the first and second quarters due to the timing of Easter and spring break holidays and between the first and fourth quarters due to the timing of holiday breaks around Christmas and New Year. Even for our five theme parks which have historically been open year-round, attendance patterns have significant seasonality, driven by holidays, school vacations and weather conditions. Changes in school calendars that impact traditional school vacation breaks could also impact attendance patterns. Due in part to the temporary park closures, capacity limitations and modified/limited operations, the COVID-19 pandemic has impacted the seasonality of our business and it is difficult to estimate how the COVID-19 pandemic will impact seasonality in the future. Furthermore, any changes to the operating schedule of a park such as increasing operating days for our seasonal parks, could impact seasonality in the future. During the first quarter of 2021, we began year-round operations at our SeaWorld park in Texas and began to operate on select days at both our Busch Gardens park in Virginia and our Sesame Place park in Pennsylvania. See ““Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.
Results of Operations
Our results for the three months ended March 31, 2021 are not directly comparable to the three months ended March 31, 2020 primarily due to temporary park closures, effective on March 16, 2020, capacity limitations, and modified/limited operations associated with the COVID-19 pandemic. Our business continues to be impacted by the COVID-19 pandemic; however, we have seen improvement in operating results during the three months ended March 31, 2021 due in part to strategic measures we have taken both before and during the COVID-19 pandemic.
See “Attendance” for further discussion of the adverse impacts of the COVID-19 pandemic on our business. The following data should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
22
Comparison of the Three Months Ended March 31, 2021 to the Three Months Ended March 31, 2020
The following table presents key operating and financial information for the three months ended March 31, 2021 and 2020:
|
|
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
March 31, |
|
|
Variance |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
$ |
|
|
% |
|
||||
Summary Financial Data: |
|
(In thousands, except per capita data and %) |
|
|||||||||||||
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
$ |
95,780 |
|
|
$ |
90,506 |
|
|
$ |
5,274 |
|
|
|
5.8 |
% |
Food, merchandise and other |
|
|
76,140 |
|
|
|
63,055 |
|
|
|
13,085 |
|
|
|
20.8 |
% |
Total revenues |
|
|
171,920 |
|
|
|
153,561 |
|
|
|
18,359 |
|
|
|
12.0 |
% |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of food, merchandise and other revenues |
|
|
14,942 |
|
|
|
13,104 |
|
|
|
1,838 |
|
|
|
14.0 |
% |
Operating expenses (exclusive of depreciation and amortization shown separately below) |
|
|
107,772 |
|
|
|
132,999 |
|
|
|
(25,227 |
) |
|
|
(19.0 |
%) |
Selling, general and administrative expenses |
|
|
31,464 |
|
|
|
26,954 |
|
|
|
4,510 |
|
|
|
16.7 |
% |
Severance and other separation costs |
|
|
86 |
|
|
|
65 |
|
|
|
21 |
|
|
|
32.3 |
% |
Depreciation and amortization |
|
|
36,558 |
|
|
|
38,013 |
|
|
|
(1,455 |
) |
|
|
(3.8 |
%) |
Total costs and expenses |
|
|
190,822 |
|
|
|
211,135 |
|
|
|
(20,313 |
) |
|
|
(9.6 |
%) |
Operating loss |
|
|
(18,902 |
) |
|
|
(57,574 |
) |
|
|
38,672 |
|
|
|
67.2 |
% |
Other (income) expense, net |
|
|
174 |
|
|
|
(12 |
) |
|
|
186 |
|
|
NM |
|
|
Interest expense |
|
|
30,956 |
|
|
|
19,153 |
|
|
|
11,803 |
|
|
|
61.6 |
% |
Loss before income taxes |
|
|
(50,032 |
) |
|
|
(76,715 |
) |
|
|
26,683 |
|
|
|
34.8 |
% |
Benefit from income taxes |
|
|
(5,148 |
) |
|
|
(20,196 |
) |
|
|
15,048 |
|
|
|
74.5 |
% |
Net Loss |
|
$ |
(44,884 |
) |
|
$ |
(56,519 |
) |
|
$ |
11,635 |
|
|
|
20.6 |
% |
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attendance |
|
|
2,214 |
|
|
|
2,318 |
|
|
|
(104 |
) |
|
|
(4.5 |
%) |
Total revenue per capita |
|
$ |
77.63 |
|
|
$ |
66.25 |
|
|
$ |
11.39 |
|
|
|
17.2 |
% |
Admission per capita |
|
$ |
43.25 |
|
|
$ |
39.05 |
|
|
$ |
4.20 |
|
|
|
10.8 |
% |
In-park per capita spending |
|
$ |
34.38 |
|
|
$ |
27.20 |
|
|
$ |
7.18 |
|
|
|
26.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful.
Admissions revenue. Admissions revenue for the three months ended March 31, 2021 increased $5.3 million, or 5.8%, to $95.8 million as compared to $90.5 million for the three months ended March 31, 2020. The improvement was a result of an increase in admissions per capita partially offset by a decline in attendance. Admission per capita increased by 10.8% to $43.25 for the first quarter of 2021 compared to $39.05 in the prior year quarter, primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts when compared to the prior year quarter. Total attendance for the first quarter of 2021 decreased by approximately 0.1 million guests, or 4.5%, when compared to the prior year quarter. Attendance declined due to COVID-19 related impacts including capacity limitations and modified/limited operations, partially offset by an increase of 34% more operating days in the first quarter of 2021 compared to the first quarter of 2020 due in part to the temporary park closures which fell during the spring break period in 2020 at most of our parks.
Food, merchandise and other revenue. Food, merchandise and other revenue for the three months ended March 31, 2021 increased $13.1 million, or 20.8%, to $76.1 million as compared to $63.1 million for the three months ended March 31, 2020, primarily as a result of an increase in in-park per capita spending, partially offset by the decline in attendance as discussed above. In-park per capita spending increased by 26.4% to $34.38 in the first quarter of 2021 compared to $27.20 in the first quarter of 2020, primarily due to increased guest spending, an improved product mix and higher realized prices and fees during the quarter.
Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the three months ended March 31, 2021 increased $1.8 million, or 14.0%, to $14.9 million as compared to $13.1 million for the three months ended March 31, 2020, primarily due to the increase in related revenue. These costs represent 19.6% and 20.8% of the related revenue earned for the three months ended March 31, 2021 and 2020, respectively. The decrease as a percent of related revenue partly relates to the impact of higher realized prices on some of our in-park products.
23
Operating expenses. Operating expenses for the three months ended March 31, 2021 decreased $25.2 million, or 19.0%, to $107.8 million as compared to $133.0 million for the three months ended March 31, 2020. The decrease primarily relates to a net reduction in labor-related costs and other operating costs resulting from structural cost savings initiatives and the impact of COVID-19 modified/limited operations, which more than offset the impact of additional operating days during the first quarter of 2021 and incremental operating expenses associated with our response to the COVID-19 pandemic. Due in part to the impact of fixed operating costs and certain other costs which are not dependent on attendance levels, operating expenses as a percent of revenue are not comparable to the prior year period primarily due to the impact of the temporary park closures in 2020.
Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended March 31, 2021 increased $4.5 million, or 16.7%, to $31.5 million as compared to $27.0 million for the three months ended March 31, 2020. Excluding the impact of certain legal settlement proceeds in the prior year period, selling, general and administrative expenses decreased by approximately $8.0 million primarily related to a reduction in marketing related costs due in part to cost savings initiatives and the impact of COVID-19 modified/limited operations and a decrease in legal costs. The legal settlement proceeds in the prior year period related to approximately $12.5 million received related to a legal matter. See Note 9–Commitments and Contingencies to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.
Depreciation and amortization. Depreciation and amortization expense for the three months ended March 31, 2021 decreased $1.5 million, or 3.8%, to $36.6 million as compared to $38.0 million for the three months ended March 31, 2020. The decrease primarily relates to a decline in new asset additions in 2020 along with the impact of asset retirements and fully depreciated assets.
Interest expense. Interest expense for the three months ended March 31, 2021 increased $11.8 million, or 61.6%, to $31.0 million as compared to $19.2 million for the three months ended March 31, 2020. The increase primarily relates to interest related to the Senior Notes issued in April 2020 and the Second-Priority Senior Secured Notes issued in August 2020, partially offset by the impact of decreased LIBOR rates. See Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements and the “Our Indebtedness” section which follows for further details.
Benefit from income taxes. Benefit from income taxes in the three months ended March 31, 2021 was $5.1 million compared to $20.2 million for the three months ended March 31, 2020. Our consolidated effective tax rate was 10.3% for the three months ended March 31, 2021 compared to 26.3% for the three months ended March 31, 2020. The effective tax rate decreased primarily due to non-cash valuation allowance adjustments on federal and state net operating loss carryforwards, a valuation allowance adjustment on federal tax credits and charitable contributions, changes in state tax rates, and other permanent items including equity-based compensation.
24
Supplemental Comparison of the Three Months Ended March 31, 2021 to the Three Months Ended March 31, 2019
We believe a comparison of selected financial results for the three months ended March 31, 2021 to the three months ended March 31, 2019 may provide additional insight regarding the current impact of the COVID-19 pandemic on our business. As such, the following supplemental discussion provides an analysis of selected operating results for the three months ended March 31, 2021 compared to the three months ended March 31, 2019. The selected summary financial data for the first quarter of 2019 was derived from the Company’s Quarterly Report on Form 10-Q for three months ended March 31, 2019. The following table presents selected key operating and financial information for the three months ended March 31, 2021 and 2019:
|
|
For the Three Months Ended March 31, |
|
|
Variance |
|
||||||||||
|
|
2021 |
|
|
2019 |
|
|
$ |
|
|
% |
|
||||
Selected Summary Financial Data: |
|
(In thousands, except per capita data and %) |
|
|
|
|
|
|
|
|||||||
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
$ |
95,780 |
|
|
$ |
128,913 |
|
|
$ |
(33,133 |
) |
|
|
(25.7 |
%) |
Food, merchandise and other |
|
|
76,140 |
|
|
|
91,662 |
|
|
|
(15,522 |
) |
|
|
(16.9 |
%) |
Total revenues |
|
$ |
171,920 |
|
|
$ |
220,575 |
|
|
$ |
(48,655 |
) |
|
|
(22.1 |
%) |
Selected costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of food, merchandise and other revenues |
|
$ |
14,942 |
|
|
$ |
17,213 |
|
|
$ |
(2,271 |
) |
|
|
(13.2 |
%) |
Operating expenses (exclusive of depreciation and amortization) |
|
$ |
107,772 |
|
|
$ |
149,885 |
|
|
$ |
(42,113 |
) |
|
|
(28.1 |
%) |
Selling, general and administrative expenses |
|
$ |
31,464 |
|
|
$ |
42,764 |
|
|
$ |
(11,300 |
) |
|
|
(26.4 |
%) |
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attendance |
|
|
2,214 |
|
|
|
3,340 |
|
|
|
(1,126 |
) |
|
|
(33.7 |
%) |
Total revenue per capita |
|
$ |
77.63 |
|
|
$ |
66.04 |
|
|
$ |
11.59 |
|
|
|
17.6 |
% |
Admission per capita |
|
$ |
43.25 |
|
|
$ |
38.60 |
|
|
$ |
4.65 |
|
|
|
12.0 |
% |
In-park per capita spending |
|
$ |
34.38 |
|
|
$ |
27.44 |
|
|
$ |
6.94 |
|
|
|
25.3 |
% |
Admissions revenue. Admissions revenue for the three months ended March 31, 2021 decreased $33.1 million, or 25.7%, to $95.8 million as compared to $128.9 million for the three months ended March 31, 2019. The decline in admissions revenue was primarily a result of a decrease in attendance of approximately 1.1 million guests, or 33.7%, partially offset by an increase in admission per capita. Attendance declined when compared to 2019 due to COVID-19 related impacts including capacity limitations and modified/limited operations at all of our open parks. Admission per capita increased by 12.0% to $43.25 in 2021 compared to $38.60 in 2019. Admission per capita increased primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts when compared to the first quarter of 2019.
Food, merchandise and other revenue. Food, merchandise and other revenue for the three months ended March 31, 2021 decreased $15.5 million, or 16.9%, to $76.1 million as compared to $91.7 million for the three months ended March 31, 2019, primarily as a result of a decrease in attendance as discussed above, partially offset by an increase in in-park per capita spending. In-park per capita spending increased by 25.3% to $34.38 in the first quarter of 2021 compared to $27.44 in the first quarter of 2019. In-park per capita spending improved primarily due to increased guest spending, an improved product mix and higher realized prices and fees during the quarter.
Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the three months ended March 31, 2021 decreased $2.3 million, or 13.2%, to $14.9 million as compared to $17.2 million for the three months ended March 31, 2019, primarily due to the decrease in volume. These costs represent 19.6% and 18.8% of the related revenue earned for the three months ended March 31, 2021 and 2019, respectively. The increase as a percent of related revenue partly relates to a higher mix of retail products sold, which generally have a higher cost of sales component than our culinary or other in park products.
Operating expenses. Operating expenses for the three months ended March 31, 2021 decreased $42.1 million, or 28.1%, to $107.8 million as compared to $149.9 million for the three months ended March 31, 2019. The decrease largely results from a reduction in labor-related costs and other operating costs primarily resulting from structural cost savings initiatives and the impact of COVID-19 modified/limited operations, partially offset by incremental operating expenses associated with our response to the COVID-19 pandemic.
Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended March 31, 2021 decreased $11.3 million, or 26.4%, to $31.5 million as compared to $42.8 million for the three months ended March 31, 2019. The decrease primarily relates to a reduction in marketing related costs and the impact of cost savings and efficiency initiatives.
25
Liquidity and Capital Resources
Overview
Generally, our principal sources of liquidity are cash generated from operations, funds from borrowings and existing cash on hand. Our principal uses of cash include the funding of working capital obligations, debt service, investments in theme parks (including capital projects), and could include share repurchases, when permitted. As of March 31, 2021, we had a working capital ratio (defined as current assets divided by current liabilities) of 1.4, due in part to our outstanding cash balance at March 31, 2021. Historically, we typically operate with a working capital ratio less than 1 due to significant deferred revenue balance from revenues paid in advance for our theme park admissions products and high turnover of in-park products that result in limited inventory balances. Our cash flow from operations, along with our revolving credit facilities, have historically allowed us to meet our liquidity needs. See the “Impact of Global COVID-19 Pandemic” section and the “Our Indebtedness” section for further details concerning the proactive measures we have taken to address liquidity in response to the COVID-19 pandemic.
As market conditions warrant and subject to our contractual restrictions and liquidity position, we or our affiliates, may from time to time purchase our outstanding equity and/or debt securities, including our outstanding bank loans in privately negotiated or open market transactions, by tender offer or otherwise. Any such purchases may be funded by incurring new debt, including additional borrowings under the Senior Secured Credit Facilities. Any new debt may also be secured debt. We may also use available cash on our balance sheet. The amounts involved in any such transactions, individually or in the aggregate, may be material. Further, since some of our debt may trade at a discount to the face amount among current or future syndicate members, any such purchases may result in our acquiring and retiring a substantial amount of any particular series, with the attendant reduction in the trading liquidity of any such series. Depending on conditions in the credit and capital markets and other factors, we will, from time to time, consider other financing transactions, the proceeds of which could be used to refinance our indebtedness or for other purposes.
Share Repurchases
See Note 11–Stockholders’ Deficit in our notes to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information on the Share Repurchase Program.
Other
We believe that existing cash and cash equivalents, cash flow from operations, and available borrowings under our revolving credit facility will be adequate to meet the capital expenditures and working capital requirements of our operations for at least the next 12 months.
The following table presents a summary of our cash flows provided by (used in) operating, investing, and financing activities for the periods indicated:
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
|
|
(In thousands) |
|
|||||
Net cash provided by (used in) operating activities |
|
$ |
18,393 |
|
|
$ |
(40,767 |
) |
Net cash used in investing activities |
|
|
(15,298 |
) |
|
|
(49,249 |
) |
Net cash (used in) provided by financing activities |
|
|
(5,612 |
) |
|
|
242,819 |
|
Net (decrease) increase in cash and cash equivalents, including restricted cash |
|
$ |
(2,517 |
) |
|
$ |
152,803 |
|
Cash Flows from Operating Activities
Net cash provided by operating activities was $18.4 million during the three months ended March 31, 2021 as compared to net cash used in operating activities of $40.8 million during the three months ended March 31, 2020. The change in net cash provided by (used in) operating activities was primarily impacted by improved operating performance including increased sales of admission products, partially offset by the impact of increased interest payments and deferred vendor payments in the first quarter of 2021 when compared to the first quarter of 2020, which was impacted by the temporary park closures. The deferred vendor payments in the first quarter of 2021 relate to certain vendor payments during the period, which were previously deferred in order to manage liquidity in response to the temporary park closures and limited re-openings related to the COVID-19 pandemic.
Cash Flows from Investing Activities
Investing activities consist principally of capital investments we make in our theme parks for future attractions and infrastructure. Net cash used in investing activities during the three months ended March 31, 2021 consisted of capital expenditures of $15.3 million largely related to future attractions. Net cash used in investing activities during the three months ended March 31, 2020 consisted of $49.2 million of capital expenditures.
26
The following table presents detail of our capital expenditures for the periods indicated:
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Capital Expenditures: |
|
(Unaudited, in thousands) |
|
|||||
Core(a) |
|
$ |
10,883 |
|
|
$ |
44,518 |
|
Expansion/ROI projects(b) |
|
|
4,415 |
|
|
|
4,731 |
|
Capital expenditures, total |
|
$ |
15,298 |
|
|
$ |
49,249 |
|
(a) |
Reflects capital expenditures for park rides, attractions and maintenance activities. |
(b) |
Reflects capital expenditures for park expansion, new properties, and revenue and/or expense return on investment (“ROI”) projects. |
The amount of our capital expenditures may be affected by general economic and financial conditions, among other things, including restrictions imposed by our borrowing arrangements. Historically, we generally expect to fund our capital expenditures through our operating cash flow. See the “Impact of Global COVID-19 Pandemic” section for further details regarding proactive measures we have taken starting in March 2020 relating to our capital expenditures including delaying the opening of certain new rides.
Cash Flows from Financing Activities
Net cash used in financing activities during the three months ended March 31, 2021 results primarily repayments on long-term debt of $3.9 million. Net cash used in financing activities during the three months ended March 31, 2020 results primarily from net draws of $262.5 million on our revolving credit facility, partially offset by share repurchases of $12.4 million and net repayments on long-term debt of $3.9 million. See Note 6–Long-term Debt in our notes to the unaudited condensed consolidated financial statements for further details.
Our Indebtedness
We are a holding company and conduct our operations through our subsidiaries, which have incurred or guaranteed indebtedness as described below. As of March 31, 2021, our indebtedness consisted of senior secured credit facilities, first-priority senior secured notes (“Senior Notes”) and second-priority senior secured notes (“Second-Priority Senior Notes”).
See discussion which follows and Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements for further details concerning our long-term debt.
Senior Secured Credit Facilities
SeaWorld Parks & Entertainment, Inc. (“SEA”) is the borrower under the senior secured credit facilities, as amended pursuant to a credit agreement (the “Amended Credit Agreement”) dated as of December 1, 2009, as the same may be amended, restated, supplemented or modified from time to time (the “Senior Secured Credit Facilities”).
As of March 31, 2021, our Senior Secured Credit Facilities consisted of $1.489 billion in Term B-5 Loans which will mature on March 31, 2024, along with a $332.5 million Revolving Credit Facility, which had no amounts outstanding as of March 31, 2021. As of March 31, 2021, SEA had approximately $20.5 million of outstanding letters of credit, leaving approximately $312.0 million available for borrowing under the Revolving Credit Facility. See “Covenant Compliance” discussion which follows for information regarding our required quarterly liquidity test which could impact amounts available for borrowing.
Senior Secured Notes
On April 30, 2020, SEA closed on a private offering of $227.5 million aggregate principal amount of 8.750% Senior Notes and on August 5, 2020, SEA closed on a private offering of $500.0 million aggregate principal amount of 9.500% Second-Priority Senior Notes.
27
Covenant Compliance
As of March 31, 2021, we were in compliance with all covenants in the credit agreement governing the Senior Secured Credit Facilities.
The Revolving Credit Facility requires that we comply with a springing maximum first lien secured leverage ratio of 6.25x to be tested as of the last day of any fiscal quarter, solely to the extent that on such date the aggregate amount of funded loans and letters of credit (excluding undrawn letters of credit in an amount not to exceed $30.0 million and cash collateralized letters of credit) under the Revolving Credit Facility exceeds an amount equal to 35% of the then outstanding commitments under the Revolving Credit Facility. Pursuant to Amendment No. 12, among other terms, SEA is exempt from complying with its first lien secured leverage ratio covenant through the end of 2021, after which SEA will be required to comply with such covenants starting at the first quarter of 2022. See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements for further details relating to the calculation beginning in the first quarter of 2022. In addition, SEA will be required to comply with a quarterly minimum liquidity test (defined as unrestricted cash and cash equivalents and available commitments under the Revolving Credit Facility) of not less than $75.0 million until the earlier of September 30, 2022 or the date on which we elect to use actual Adjusted EBITDA for purposes of calculating our financial maintenance covenant.
Adjusted EBITDA
Under the credit agreement governing the Senior Secured Credit Facilities, our ability to engage in activities such as incurring additional indebtedness, making investments, refinancing certain indebtedness, paying dividends and entering into certain merger transactions is governed, in part, by our ability to satisfy tests based on “Adjusted EBITDA”. The Senior Secured Credit Facilities defines “Adjusted EBITDA” as net income or loss before interest expense, income tax expense, depreciation and amortization, as further adjusted to exclude certain unusual, non-cash, and other items permitted in calculating covenant compliance under the Senior Secured Credit Facilities, subject to certain limitations. Adjusted EBITDA as defined in the Senior Secured Credit Facilities is consistent with our reported Adjusted EBITDA.
We believe that the presentation of Adjusted EBITDA is appropriate as it eliminates the effect of certain non-cash and other items not necessarily indicative of a company’s underlying operating performance. We use Adjusted EBITDA in connection with certain components of our executive compensation program. In addition, investors, lenders, financial analysts and rating agencies have historically used EBITDA related measures in our industry, along with other measures, to estimate the value of a company, to make informed investment decisions and to evaluate companies in the industry. In addition, the presentation of Adjusted EBITDA for the last twelve months provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the Senior Secured Credit Facilities. See the “Our Indebtedness-Covenant Compliance” section for further details.
Adjusted EBITDA is not a recognized term under accounting principles generally accepted in the United States of America (“GAAP”), should not be considered in isolation or as a substitute for a measure of our financial performance prepared in accordance with GAAP and is not indicative of income or loss from operations as determined under GAAP. Adjusted EBITDA and other non-GAAP financial measures have limitations which should be considered before using these measures to evaluate our financial performance. Adjusted EBITDA, as presented by us, may not be comparable to similarly titled measures of other companies due to varying methods of calculation.
28
The following table reconciles Adjusted EBITDA, as defined in the Amended Credit Agreement, to net loss for the periods indicated:
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES |
|||||||||||||
UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES |
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
Last Twelve Months Ended March 31, |
|
|
||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
|||
|
|
(Unaudited, in thousands) |
|
|
|||||||||
Net loss |
|
$ |
(44,884 |
) |
|
$ |
(56,519 |
) |
|
$ |
(300,686 |
) |
|
Benefit from income taxes |
|
|
(5,148 |
) |
|
|
(20,196 |
) |
|
|
(15,477 |
) |
|
Interest expense |
|
|
30,956 |
|
|
|
19,153 |
|
|
|
112,710 |
|
|
Depreciation and amortization |
|
|
36,558 |
|
|
|
38,013 |
|
|
|
149,091 |
|
|
Equity-based compensation expense (a) |
|
|
4,473 |
|
|
|
(3,601 |
) |
|
|
15,541 |
|
|
Loss on impairment or disposal of assets and certain non-cash expenses (b) |
|
|
608 |
|
|
|
385 |
|
|
|
7,410 |
|
|
Business optimization, development and strategic initiative costs (c) |
|
|
512 |
|
|
|
2,035 |
|
|
|
5,745 |
|
|
Certain investment costs and other taxes(d) |
|
|
87 |
|
|
|
102 |
|
|
|
1,029 |
|
|
Other adjusting items (e) |
|
|
2,027 |
|
|
|
(10,225 |
) |
|
|
7,493 |
|
|
Adjusted EBITDA(f) |
|
$ |
25,189 |
|
|
$ |
(30,853 |
) |
|
$ |
(17,144 |
) |
|
Items added back to Adjusted EBITDA, after cost savings, as defined in the Amended Credit Agreement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated cost savings (g) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
Adjusted EBITDA, after cost savings (h) |
|
|
|
|
|
|
|
|
|
$ |
(17,144 |
) |
|
(a) |
Reflects non-cash equity compensation expenses associated with the grants of equity compensation. For the three months ended March 31, 2020, includes a reversal of equity compensation for certain performance vesting restricted units which were no longer considered probable of vesting. See Note 10–Equity-Based Compensation in our notes to the unaudited condensed consolidated financial statements for further details. |
(b) |
Reflects primarily non-cash expenses related to miscellaneous fixed asset disposals. For the twelve months ended March 31, 2021, reflects asset write-offs primarily related to certain rides and equipment which were removed from service. |
(c) |
For the three months ended March 31, 2020, reflects business optimization, development and other strategic initiative costs primarily related to $1.8 million of third party consulting costs. For the twelve months ended March 31, 2021, reflects business optimization, development and other strategic initiative costs primarily related to $2.8 million of severance and other employment costs and $1.4 million of third party consulting costs. |
(d) |
For the twelve months ended March 31, 2021, includes costs associated with a Registration Statement on Form S-3 filed in 2020. |
(e) |
Reflects the impact of expenses, net of insurance recoveries and adjustments, incurred primarily related to certain matters, which we are permitted to exclude under the credit agreement governing our Senior Secured Credit Facilities due to the unusual nature of the items. For the three months ended March 31, 2021, primarily relates to incremental non-recurring costs associated with the COVID-19 pandemic, primarily associated with incremental labor-related costs to prepare, staff and operate the parks with enhanced safety measures. |
For the three months ended March 31, 2020, includes $12.5 million of insurance proceeds related to a legal settlement gain as previously disclosed.
For the twelve months ended March 31, 2021, includes approximately $11.0 million of incremental non-recurring costs associated with the COVID-19 pandemic, partially offset by approximately $4.4 million related to the return of funds previously paid for a legal settlement. See Note 9–Commitments and Contingencies in our notes to the unaudited condensed consolidated financial statements for further details. The costs associated with the COVID-19 pandemic primarily relate to incremental labor-related costs to prepare, staff and operate the parks with enhanced safety measures, incremental third-party consulting costs primarily related to our COVID-19 response and safety communication strategies, contract termination or modification costs related to impacts from the temporary COVID-19 park closures, legal costs related to COVID-19 related matters, and temporary or initial purchases of safety monitoring and personal protective equipment.
29
(f) |
Adjusted EBITDA is defined as net loss before income tax expense, interest expense, depreciation and amortization, as further adjusted to exclude certain non-cash, and other items permitted in calculating covenant compliance under the credit agreement governing our Senior Secured Credit Facilities. |
(g) |
The Senior Secured Credit Facilities permits the calculation of certain covenants to be based on Adjusted EBITDA, as defined above, for the last twelve month period further adjusted for net annualized estimated savings we expect to realize over the following 18 month period related to certain specified actions, including restructurings and cost savings initiatives. These estimated savings are calculated net of the amount of actual benefits realized during such period. These estimated savings are a non-GAAP Adjusted EBITDA add-back item only as defined in the Amended Credit Agreement and does not impact our reported GAAP net (loss) income. The Amended Credit Agreement limits the amount of such estimated savings which may be reflected to 25% of Adjusted EBITDA, calculated for the last twelve months before the impact of these estimated cost savings. |
(h) |
The Senior Secured Credit Facilities permits our calculation of certain covenants to be based on Adjusted EBITDA, as defined above, for the last twelve month period further adjusted for net annualized estimated savings as described in footnote (g) above. |
Contractual Obligations
There have been no material changes to our contractual obligations as March 31, 2021 from those previously disclosed in our Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, revenues and expenses, and disclosure of contingencies during the reporting period. Significant estimates and assumptions include the valuation and useful lives of long-lived tangible and intangible assets, the valuation of goodwill and other indefinite-lived intangible assets, the accounting for income taxes, the accounting for self-insurance and revenue recognition. Actual results could differ from those estimates. The critical accounting estimates associated with these policies are described in our Annual Report on Form 10-K under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our Annual Report on Form 10-K, filed on February 26, 2021.
Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements as of March 31, 2021.
Recently Issued Financial Accounting Standards
Refer to Note 2–Recent Accounting Pronouncements in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Inflation
The impact of inflation has affected, and will continue to affect, our operations significantly. Our costs of food, merchandise and other revenues are influenced by inflation and fluctuations in global commodity prices. In addition, costs for construction, repairs and maintenance are all subject to inflationary pressures.
Interest Rate Risk
We are exposed to market risks from fluctuations in interest rates, and to a lesser extent on currency exchange rates, from time to time, on imported rides and equipment. The objective of our financial risk management is to reduce the potential negative impact of interest rate and foreign currency exchange rate fluctuations to acceptable levels. We do not acquire market risk sensitive instruments for trading purposes.
We previously managed interest rate risk through the use of a combination of fixed-rate long-term debt and interest rate swaps that fixed a portion of our variable-rate long-term debt. In May 2020, our interest rate swap agreements expired, as such, we did not have any derivative instruments outstanding as of March 31, 2021. We presently manage interest rate risk primarily by managing the amount, sources and duration of our debt funding. At March 31, 2021, approximately $1.5 billion of our outstanding long-term debt represents variable-rate debt. Assuming an average balance on our revolving credit borrowings of approximately $312.0 million, a hypothetical 100 bps increase in LIBOR would increase our annual interest expense by approximately $8.5 million. Assuming no revolving credit borrowings, a hypothetical 100 bps increase in LIBOR would increase our annual interest expense by approximately $5.4 million.
30
COVID-19 Risks and Uncertainties
For further discussion of the adverse impacts of the COVID-19 pandemic on our business and financial performance, see the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Regulations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), require public companies, including us, to maintain “disclosure controls and procedures,” which are defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required or necessary disclosures. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. Our principal executive officer and principal financial officer have concluded, based on the evaluation of the effectiveness of the disclosure controls and procedures by our management as of the end of the fiscal quarter covered by this Quarterly Report, that our disclosure controls and procedures were effective to accomplish their objectives at a reasonable assurance level.
Changes in Internal Control over Financial Reporting
Regulations under the Exchange Act require public companies, including our Company, to evaluate any change in our “internal control over financial reporting” as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. We have not experienced any material impact to our internal controls over financial reporting despite the fact that some of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness. There have been no changes in our internal control over financial reporting during the fiscal quarter covered by this Quarterly Report that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
31
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
See Note 9–Commitments and Contingencies under the caption “Legal Proceedings” in our notes to the unaudited condensed consolidated financial statements for further details concerning our other legal proceedings.
Item 1A. Risk Factors
There have been no material changes to the risk factors set forth in Item 1A.to Part I of our Annual Report on Form 10-K, as filed on February 26, 2021, except to the extent factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors, which is incorporated herein by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company had no unregistered sales of equity securities during the first quarter of 2021. The following table sets forth information with respect to shares of our common stock purchased by the Company during the periods indicated:
Period Beginning |
|
Period Ended |
|
Total Number of Shares Purchased(1)(2) |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) |
|
|
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(2) |
|
||||
January 1, 2021 |
|
January 31, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
237,594,184 |
|
February 1, 2021 |
|
February 28, 2021 |
|
|
4,126 |
|
|
$ |
39.43 |
|
|
|
— |
|
|
|
237,594,184 |
|
March 1, 2021 |
|
March 31, 2021 |
|
|
37,145 |
|
|
$ |
48.69 |
|
|
|
— |
|
|
|
237,594,184 |
|
|
|
|
|
|
41,271 |
|
|
|
|
|
|
|
— |
|
|
$ |
237,594,184 |
|
|
(1) |
All purchases were made pursuant to the Company’s Omnibus Incentive Plan, under which participants may satisfy tax withholding obligations incurred upon the vesting of restricted stock by requesting the Company to withhold shares with a value equal to the amount of the withholding obligation. |
|
(2) |
The Company’s Board of Directors had previously authorized a share repurchase program of up to $250.0 million of the Company’s common stock (the “Share Repurchase Program”). Under the Share Repurchase Program, the Company is authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. As of March 31, 2021, the Company had approximately $237.6 million available under the Share Repurchase Program In connection with Amendment No. 12 to our Amended Credit Agreement, the Company is restricted from making restricted payments, including share repurchases, through the third quarter of 2022 unless certain conditions are met. See Note 6–Long-Term Debt and Note 11–Stockholders’ Deficit in the notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Rule 10b5-1 Plans
Our policy governing transactions in our securities by our directors, officers and employees permits such persons to adopt stock trading plans pursuant to Rule 10b5-1 promulgated by the SEC under the Exchange Act. Our directors, officers and employees have in the past and may from time to time establish such stock trading plans. We do not undertake any obligation to disclose, or to update or revise any disclosure regarding, any such plans and specifically do not undertake to disclose the adoption, amendment, termination or expiration of any such plans.
32
Item 6. Exhibits
The following is a list of all exhibits filed or furnished as part of this report:
Exhibit No. |
|
Description |
|
|
|
4.1* |
|
|
4.2* |
|
|
10.1*† |
|
Form of Option Grant Notice and Option Agreement (Employees—Time-Based Options) |
10.2*† |
|
|
|
|
|
10.3*† |
|
|
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
32.1* |
|
|
|
|
|
32.2* |
|
|
|
|
|
|
|
|
101.INS* |
|
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
|
|
|
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
104 |
|
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL |
* |
Filed herewith |
† |
Identifies exhibits that consist of a management contract or compensatory plan or arrangement |
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
SEAWORLD ENTERTAINMENT, INC. |
|
|
(Registrant) |
Date: May 7, 2021 |
|
By: /s/ Elizabeth C. Gulacsy |
|
|
Elizabeth C. Gulacsy |
|
|
Chief Financial Officer and Treasurer |
|
|
(Principal Financial Officer) |
34