UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2022
or
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-35883
SeaWorld Entertainment, Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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27-1220297 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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6240 Sea Harbor Drive Orlando, Florida |
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32821 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (407) 226-5011
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Common Stock, par value $0.01 per share |
SEAS |
New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically 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). Yes ☒ No ☐
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.
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Large accelerated filer |
☒ |
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Accelerated filer |
☐ |
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Non-accelerated filer |
☐ |
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Smaller reporting company |
☐ |
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Emerging growth company |
☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ |
||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The registrant had outstanding 72,654,199 shares of Common Stock, par value $0.01 per share as of April 29, 2022.
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
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PART I. |
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Item 1. |
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Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficit |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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29 |
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Item 4. |
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PART II. |
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Item 1. |
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31 |
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Item 1A. |
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31 |
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Item 2. |
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31 |
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Item 3. |
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31 |
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Item 4. |
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31 |
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Item 5. |
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31 |
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Item 6. |
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32 |
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33 |
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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, 2021 (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:
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the effects of the global Coronavirus (“COVID-19”) pandemic, or any related mutations of the virus, on our business and the economy in general; |
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• |
failure to hire and/or retain employees; |
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• |
various factors beyond our control adversely affecting attendance and guest spending at our theme parks, including, but not limited to, weather, natural disasters, labor shortages, inflationary pressures, supply chain delays or shortages, foreign exchange rates, consumer confidence, the potential spread of travel-related health concerns including pandemics and epidemics, travel related concerns, and governmental actions; |
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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; |
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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; |
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incidents or adverse publicity concerning our theme parks, the theme park industry and/or zoological facilities; |
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a decline in discretionary consumer spending or consumer confidence; |
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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; |
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seasonal fluctuations in operating results; |
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inability to compete effectively in the highly competitive theme park industry; |
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interactions between animals and our employees and our guests at attractions at our theme parks; |
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animal exposure to infectious disease; |
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high fixed cost structure of theme park operations; |
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changing consumer tastes and preferences; |
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cyber security risks to us or our third party service providers and failure to maintain the integrity of internal or guest data; |
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technology interruptions or failures that impair access to our websites and/or information technology systems; |
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increased labor costs, including minimum wage increases, and employee health and welfare benefits; |
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inability to grow our business or fund theme park capital expenditures; |
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inability to realize the benefits of developments, restructurings, acquisitions or other strategic initiatives, and the impact of the costs associated with such activities; |
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inability to remediate an identified material weakness on a timely basis; |
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adverse litigation judgments or settlements; |
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inability to protect our intellectual property or the infringement on intellectual property rights of others; |
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the loss of licenses and permits required to exhibit animals or the violation of laws and regulations; |
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unionization activities and/or labor disputes; |
1
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inability to maintain certain commercial licenses; |
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restrictions in our debt agreements limiting flexibility in operating our business; |
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inability to retain our current credit ratings; |
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our leverage and interest rate risk; |
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inadequate insurance coverage; |
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inability to purchase or contract with third party manufacturers for rides and attractions or construction delays; |
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environmental regulations, expenditures and liabilities; |
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suspension or termination of any of our business licenses, including by legislation at federal, state or local levels; |
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delays, restrictions or inability to obtain or maintain permits; |
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financial distress of strategic partners or other counterparties; |
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tariffs or other trade restrictions; |
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actions of activist stockholders; |
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the ability of Hill Path Capital LP and its affiliates to significantly influence our decisions; |
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the policies of the U.S. President and his administration or any changes to tax laws; |
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changes in the method for determining LIBOR and the potential replacement of LIBOR may affect our cost of capital; |
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mandates related to COVID-19 vaccinations for employees; |
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changes or declines in our stock price, as well as the risk that securities analysts could downgrade our stock or our sector; and |
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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 a 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)
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March 31, |
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December 31, |
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2022 |
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2021 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
380,008 |
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$ |
443,707 |
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Accounts receivable, net |
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74,581 |
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76,948 |
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Inventories |
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45,114 |
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29,478 |
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Prepaid expenses and other current assets |
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24,961 |
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17,263 |
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Total current assets |
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524,664 |
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567,396 |
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Property and equipment, at cost |
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3,426,714 |
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3,385,308 |
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Accumulated depreciation |
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(1,774,203 |
) |
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(1,740,144 |
) |
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Property and equipment, net |
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1,652,511 |
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1,645,164 |
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Goodwill |
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66,278 |
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66,278 |
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Trade names/trademarks, net |
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157,000 |
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157,000 |
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Right of use assets-operating leases |
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|
134,123 |
|
|
|
132,217 |
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Deferred tax assets, net |
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|
24,798 |
|
|
|
23,995 |
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Other assets, net |
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18,590 |
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|
|
18,266 |
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Total assets |
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$ |
2,577,964 |
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$ |
2,610,316 |
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Liabilities and Stockholders’ Deficit |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
152,164 |
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$ |
134,311 |
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Current maturities of long-term debt |
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12,000 |
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12,000 |
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Operating lease liabilities |
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3,158 |
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|
|
2,895 |
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Accrued salaries, wages and benefits |
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19,315 |
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|
|
22,156 |
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Deferred revenue |
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208,046 |
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|
154,793 |
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Other accrued liabilities |
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64,052 |
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|
|
45,811 |
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Total current liabilities |
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458,735 |
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|
371,966 |
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Long-term debt, net |
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2,103,367 |
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2,104,835 |
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Long-term operating lease liabilities |
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|
118,890 |
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|
117,046 |
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Deferred tax liabilities, net |
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|
7,076 |
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|
|
12,803 |
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Other liabilities |
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42,333 |
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|
|
37,582 |
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Total liabilities |
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2,730,401 |
|
|
|
2,644,232 |
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Commitments and contingencies (Note 8) |
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|
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Stockholders’ Deficit: |
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|
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|
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Preferred stock, $0.01 par value—authorized, 100,000,000 shares, no shares issued or outstanding at March 31, 2022 and December 31, 2021 |
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Common stock, $0.01 par value—authorized, 1,000,000,000 shares; 95,838,033 and 95,541,992 shares issued at March 31, 2022 and December 31, 2021, respectively |
|
|
958 |
|
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|
955 |
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Additional paid-in capital |
|
|
711,842 |
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|
711,474 |
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Accumulated deficit |
|
|
(124,274 |
) |
|
|
(115,287 |
) |
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Treasury stock, at cost (21,488,469 and 19,953,042 shares at March 31, 2022 and December 31, 2021, respectively) |
|
|
(740,963 |
) |
|
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(631,058 |
) |
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Total stockholders’ deficit |
|
|
(152,437 |
) |
|
|
(33,916 |
) |
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Total liabilities and stockholders’ deficit |
|
$ |
2,577,964 |
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|
$ |
2,610,316 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
3
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(In thousands, except per share amounts)
|
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For the Three Months Ended March 31, |
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2022 |
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2021 |
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Net revenues: |
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Admissions |
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$ |
150,862 |
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$ |
95,780 |
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Food, merchandise and other |
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|
119,831 |
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|
76,140 |
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Total revenues |
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270,693 |
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|
|
171,920 |
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Costs and expenses: |
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Cost of food, merchandise and other revenues |
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|
23,040 |
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|
|
14,942 |
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Operating expenses (exclusive of depreciation and amortization shown separately below) |
|
|
152,925 |
|
|
|
107,772 |
|
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Selling, general and administrative expenses |
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|
46,059 |
|
|
|
31,464 |
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Severance and other separation costs |
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|
30 |
|
|
|
86 |
|
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Depreciation and amortization |
|
|
38,612 |
|
|
|
36,558 |
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Total costs and expenses |
|
|
260,666 |
|
|
|
190,822 |
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Operating income (loss) |
|
|
10,027 |
|
|
|
(18,902 |
) |
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Other (income) expense, net |
|
|
(12 |
) |
|
|
174 |
|
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Interest expense |
|
|
25,370 |
|
|
|
30,956 |
|
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Loss before income taxes |
|
|
(15,331 |
) |
|
|
(50,032 |
) |
|
Benefit from income taxes |
|
|
(6,344 |
) |
|
|
(5,148 |
) |
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Net loss |
|
$ |
(8,987 |
) |
|
$ |
(44,884 |
) |
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Loss per share: |
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|
|
|
|
|
|
|
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Net loss per share, basic |
|
$ |
(0.12 |
) |
|
$ |
(0.57 |
) |
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Net loss per share, diluted |
|
$ |
(0.12 |
) |
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$ |
(0.57 |
) |
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Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
Basic |
|
|
75,624 |
|
|
|
78,458 |
|
|
Diluted |
|
|
75,624 |
|
|
|
78,458 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
4
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' DEFICIT
(In thousands, except share amounts)
|
|
|
Shares of Common Stock |
|
|
Common Stock |
|
|
Additional Paid-In Capital |
|
|
Accumulated Deficit |
|
|
Treasury Stock, at Cost |
|
|
Total Stockholders' Deficit |
|
||||||
|
Balance at December 31, 2021 |
|
|
95,541,992 |
|
|
$ |
955 |
|
|
$ |
711,474 |
|
|
$ |
(115,287 |
) |
|
$ |
(631,058 |
) |
|
|
(33,916 |
) |
|
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
6,982 |
|
|
|
— |
|
|
|
— |
|
|
|
6,982 |
|
|
Vesting of restricted shares |
|
|
361,403 |
|
|
|
4 |
|
|
|
(4 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Shares withheld for tax withholdings |
|
|
(111,865 |
) |
|
|
(1 |
) |
|
|
(7,737 |
) |
|
|
— |
|
|
|
— |
|
|
|
(7,738 |
) |
|
Exercise of stock options |
|
|
46,503 |
|
|
|
— |
|
|
|
1,127 |
|
|
|
— |
|
|
|
— |
|
|
|
1,127 |
|
|
Repurchase of 1,535,427 shares of treasury stock, at cost |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(109,905 |
) |
|
|
(109,905 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,987 |
) |
|
|
— |
|
|
|
(8,987 |
) |
|
Balance at March 31, 2022 |
|
|
95,838,033 |
|
|
$ |
958 |
|
|
$ |
711,842 |
|
|
$ |
(124,274 |
) |
|
$ |
(740,963 |
) |
|
$ |
(152,437 |
) |
|
|
|
Shares of Common Stock |
|
|
Common Stock |
|
|
Additional Paid-In Capital |
|
|
Accumulated Deficit |
|
|
Treasury Stock, at Cost |
|
|
Total Stockholders' Deficit |
|
||||||
|
Balance at December 31, 2020 |
|
|
94,652,248 |
|
|
$ |
946 |
|
|
$ |
680,360 |
|
|
$ |
(371,800 |
) |
|
$ |
(415,309 |
) |
|
$ |
(105,803 |
) |
|
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
4,473 |
|
|
|
— |
|
|
|
— |
|
|
|
4,473 |
|
|
Vesting of restricted shares |
|
|
130,834 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Shares withheld for tax withholdings |
|
|
(41,271 |
) |
|
|
— |
|
|
|
(1,971 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,971 |
) |
|
Exercise of stock options |
|
|
116,634 |
|
|
|
1 |
|
|
|
2,392 |
|
|
|
— |
|
|
|
— |
|
|
|
2,393 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(44,884 |
) |
|
|
— |
|
|
|
(44,884 |
) |
|
Balance at March 31, 2021 |
|
|
94,858,445 |
|
|
$ |
948 |
|
|
$ |
685,253 |
|
|
$ |
(416,684 |
) |
|
$ |
(415,309 |
) |
|
$ |
(145,792 |
) |
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, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Cash Flows From Operating Activities: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(8,987 |
) |
|
$ |
(44,884 |
) |
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
38,612 |
|
|
|
36,558 |
|
|
Amortization of debt issuance costs and discounts |
|
|
1,532 |
|
|
|
1,717 |
|
|
Deferred income tax benefit |
|
|
(6,531 |
) |
|
|
(5,773 |
) |
|
Equity-based compensation |
|
|
6,982 |
|
|
|
4,473 |
|
|
Other, including loss on sale or disposal of assets, net |
|
|
4,420 |
|
|
|
487 |
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
3,408 |
|
|
|
(28,548 |
) |
|
Inventories |
|
|
(15,601 |
) |
|
|
1,854 |
|
|
Prepaid expenses and other current assets |
|
|
(7,653 |
) |
|
|
(2,533 |
) |
|
Accounts payable and accrued expenses |
|
|
5,599 |
|
|
|
(2,226 |
) |
|
Accrued salaries, wages and benefits |
|
|
(2,841 |
) |
|
|
4,246 |
|
|
Deferred revenue |
|
|
53,584 |
|
|
|
66,386 |
|
|
Other accrued liabilities |
|
|
(5,675 |
) |
|
|
(11,887 |
) |
|
Right of use assets and operating lease liabilities |
|
|
201 |
|
|
|
115 |
|
|
Other assets and liabilities |
|
|
3,744 |
|
|
|
(1,592 |
) |
|
Net cash provided by operating activities |
|
|
70,794 |
|
|
|
18,393 |
|
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(35,110 |
) |
|
|
(15,298 |
) |
|
Net cash used in investing activities |
|
|
(35,110 |
) |
|
|
(15,298 |
) |
|
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
|
(3,000 |
) |
|
|
(3,876 |
) |
|
Purchase of treasury stock |
|
|
(89,736 |
) |
|
|
— |
|
|
Payment of tax withholdings on equity-based compensation through shares withheld |
|
|
(7,738 |
) |
|
|
(1,971 |
) |
|
Exercise of stock options |
|
|
1,127 |
|
|
|
2,393 |
|
|
Other financing activities |
|
|
(211 |
) |
|
|
(2,158 |
) |
|
Net cash used in financing activities |
|
|
(99,558 |
) |
|
|
(5,612 |
) |
|
Change in Cash and Cash Equivalents, including Restricted Cash |
|
|
(63,874 |
) |
|
|
(2,517 |
) |
|
Cash and Cash Equivalents, including Restricted Cash—Beginning of period |
|
|
444,486 |
|
|
|
435,225 |
|
|
Cash and Cash Equivalents, including Restricted Cash—End of period |
|
$ |
380,612 |
|
|
$ |
432,708 |
|
|
Supplemental Disclosure of Noncash Investing and Financing Activities |
|
|
|
|
|
|
|
|
|
Capital expenditures in accounts payable |
|
$ |
31,483 |
|
|
$ |
15,763 |
|
|
Treasury stock purchases not yet settled in other accrued liabilities |
|
$ |
20,169 |
|
|
$ |
— |
|
|
Other financing arrangements |
|
$ |
— |
|
|
$ |
4,239 |
|
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 twelve theme parks within the United States. The Company operates SeaWorld theme parks in Orlando, Florida; San Antonio, Texas; and San Diego, California; and Busch Gardens theme parks in Tampa, Florida and Williamsburg, Virginia. The Company operates water park attractions in Orlando, Florida (Aquatica); San Antonio, Texas (Aquatica); Tampa, Florida (Adventure Island); and Williamsburg, Virginia (Water Country USA). The Company also operates a reservations-only theme park in Orlando, Florida (Discovery Cove) and Sesame Place theme parks in Langhorne, Pennsylvania and San Diego, California.
Impact of Global COVID-19 Pandemic
The Company’s results of operations for the three months ended March 31, 2022 and 2021 continue to be impacted by the global COVID-19 pandemic due in part to a decline in both international and group-related attendance in both periods. Additionally, results of operations for the three months ended March 31, 2021 were also significantly impacted by the following factors: (i) capacity limitations, modified/limited operations and/or temporary park closures; (ii) decreased demand due to public concerns associated with the pandemic; and (iii) restrictions on international travel. In particular, the Company’s SeaWorld park in California was closed at the beginning of 2021 due to State of California guidance. The Company was able to reopen this park on February 6, 2021 on a limited basis, 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. Separately, during the first quarter of 2021, the Company’s Busch Gardens park in Virginia was also significantly impacted by state restrictions. For example, at the beginning of 2021, the State of Virginia had a state mandated capacity restriction of approximately 4,000 guests at a time for this park. On February 1, 2021, in consultation with the State of Virginia, the Company further increased capacity to approximately 6,000 guests. The Company was able to further increase capacity for this park on April 1, 2021 to approximately 13,000 guests. By the end of the second quarter of 2021, all of the Company’s 12 parks were open and operating without COVID-19 related capacity limitations. 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 has had, and may 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, 2021 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, 2021 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, 2022 or any future period due in part 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 seven of its theme parks were historically only open for a portion of the year. However, during 2021, the Company added additional operating days for three of these parks. In particular, the Company began year-round operations at its SeaWorld park in Texas and began to operate on select days on a year round basis at its Busch Gardens park in Virginia and its Sesame Place park in Pennsylvania.
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.
7
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, the valuation of goodwill and other indefinite-lived intangible assets and reviews for potential impairment of long-lived assets. Estimates are based on various factors including current and historical trends, as well as other pertinent company and 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 impact or timing of government restrictions, any future capacity limitations due to social distancing guidelines, public sentiment on social gatherings, travel and attendance patterns, travel restrictions, effectiveness and adoption of vaccines, the impact of new variants, 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 twelve theme parks, which is used by the Chief Operating Decision Maker (“CODM”), as a basis for allocating resources and assessing performance. Each theme park has been identified as an operating segment and meets the criteria for aggregation due to similar economic characteristics. In addition, all of the Company’s theme parks provide similar products and services and share similar processes for delivering services. The theme parks have a high degree of similarity in the workforces and target similar consumer groups. Accordingly, based on these economic and operational similarities and the way the CODM monitors and makes decisions affecting the operations, the Company has concluded that its operating segments may be aggregated and that it has one reportable segment.
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, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Cash and cash equivalents |
|
$ |
380,008 |
|
|
$ |
443,707 |
|
|
Restricted cash, included in prepaid expenses and other current assets |
|
|
604 |
|
|
|
779 |
|
|
Total cash, cash equivalents and restricted cash |
|
$ |
380,612 |
|
|
$ |
444,486 |
|
Share Repurchase Program and Treasury Stock
From time to time, the Company’s Board of Directors (the “Board”) may authorize share repurchases of common stock. Shares repurchased under Board authorizations are currently held in treasury for general corporate purposes. The Company accounts for treasury stock on the trade date under the cost method. Treasury stock at March 31, 2022 and December 31, 2021 is reflected as a reduction within stockholders’ deficit. See further discussion of the Company’s share repurchase program in Note 10–Stockholders’ Deficit.
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. The Company estimates redemption rates using historical and forecasted attendance trends by park for similar products. Attendance trends factor in seasonality and are adjusted based on actual trends periodically. These estimated redemption rates impact the timing of when revenue is recognized on these products. Actual results could materially differ from these estimates based on actual attendance patterns. Revenue is recognized on a pro-rata basis based on the estimated allocated selling price of the admission product. 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. For multi-day admission products, revenue is allocated based on the number of visits included in the pass and recognized ratably based on each admission into the theme park
8
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Food, merchandise and other revenue primarily consists of food and beverage, merchandise, parking 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 and beverage, merchandise and other in-park products when the related products or services are received by the guests.
Deferred revenue primarily includes revenue associated with pass products, admission or in-park products or services with a future intended use date and contract liability balances related to licensing and international agreements collected in advance of the Company satisfying its performance obligations and is expected to be recognized in future periods. At March 31, 2022 and December 31, 2021, 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.
The following table reflects the Company’s deferred revenue balance as of March 31, 2022 and December 31, 2021:
|
|
|
March 31, |
|
|
December 31, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Deferred revenue, including long-term portion |
|
$ |
223,514 |
|
|
$ |
169,333 |
|
|
Less: Deferred revenue, long-term portion, included in other liabilities |
|
|
15,468 |
|
|
|
14,540 |
|
|
Deferred revenue, short-term portion |
|
$ |
208,046 |
|
|
$ |
154,793 |
|
|
|
|
|
|
|
|
|
|
|
International Agreements
The Company has previously received $10.0 million in deferred revenue recorded in other liabilities related to a nonrefundable payment received from a partner in connection with a project in the Middle East to provide certain services pertaining to the planning and design of SeaWorld Abu Dhabi, a marine life theme park on Yas Island (“the Middle East Project”), with funding received expected to offset internal expenses. The Company also receives additional funds from its partner related to agreed-upon services and reimbursements of costs incurred by the Company on behalf of the Middle East Project, including approximately $5.0 million and $4.5 million of additional deferred revenue recorded in other liabilities in the accompanying consolidated balance sheets at March 31, 2022 and December 31, 2021, respectively. Separately, the Company recognizes an asset for the costs incurred to fulfill the contract if the costs are specifically identifiable, enhance resources that will be used to satisfy performance obligations in the future and are expected to be recovered. As a result, approximately $10.6 million and $9.6 million of costs incurred related to the Middle East Project are recorded in other assets in the accompanying unaudited condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively. The related deferred revenue and expense will begin to be recognized when substantially all of the services have been performed. The Company continually monitors performance on the contract and will make adjustments, if necessary. Construction for the Middle East Project is on track and scheduled to be completed by the end of 2022.
2. RECENT ACCOUNTING PRONOUNCEMENTS
The Company reviews new accounting pronouncements as they are issued or proposed by the Financial Accounting Standards Board (“FASB”). There are no recent accounting pronouncements or recently implemented accounting standards that are expected to 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, |
|
|
|||||||||||||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
||||||||||||||||||
|
|
|
Net Loss |
|
|
Shares |
|
|
Per Share Amount |
|
|
Net Loss |
|
|
Shares |
|
|
Per Share Amount |
|
|
||||||
|
|
|
(In thousands, except per share amounts) |
|
|
|||||||||||||||||||||
|
Basic loss per share |
|
$ |
(8,987 |
) |
|
|
75,624 |
|
|
$ |
(0.12 |
) |
|
$ |
(44,884 |
) |
|
|
78,458 |
|
|
$ |
(0.57 |
) |
|
|
Effect of dilutive incentive-based awards |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Diluted loss per share |
|
$ |
(8,987 |
) |
|
|
75,624 |
|
|
$ |
(0.12 |
) |
|
$ |
(44,884 |
) |
|
|
78,458 |
|
|
$ |
(0.57 |
) |
|
9
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 certain unvested restricted stock awards and certain shares of common stock that are issuable upon exercise of stock options. There were approximately 1,555,000 and 2,366,000 potentially dilutive shares excluded from the computation of diluted loss per share during the three months ended March 31, 2022 and 2021, respectively, as their effect would have been anti-dilutive due to the Company’s net loss in those periods. Approximately 1,057,000 and 1,240,000 of the Company’s outstanding performance-vesting restricted stock awards as of March 31, 2022 and 2021, respectively, are considered contingently issuable shares and are excluded from the calculation of diluted loss per share until the performance measure criteria is met as of the end of the reporting period.
4. INCOME TAXES
Income tax expense or benefit and the Company’s effective tax rate is based upon the tax rate expected for the full calendar year applied to the year-to-date pretax income or loss of the interim period, plus the tax effect of any year-to-date discrete tax items. The Company’s consolidated effective tax rate for the three months ended March 31, 2022 was 41.4% and differs from the effective statutory federal income tax rate of 21.0% primarily due to the tax benefit related to equity-based compensation which vested during the quarter. The Company’s consolidated effective tax rate for the three months ended March 31, 2021 was 10.3% and differs from the effective statutory federal income tax rate of 21.0% primarily due to valuation allowance adjustments on federal and state net operating loss carryforwards during the three months ended March 31, 2021.
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. Based on its analysis, the Company believes that some of its deferred tax assets may not be realized. As of March 31, 2022 and December 31, 2021, the Company’s valuation allowance consisted of approximately $4.8 million, net of federal tax benefit, on the deferred tax assets related to state net operating loss carryforwards.
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.
10
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. OTHER ACCRUED LIABILITIES
Other accrued liabilities at March 31, 2022 and December 31, 2021, consisted of the following:
|
|
|
March 31, |
|
|
December 31, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Accrued interest |
|
$ |
13,553 |
|
|
$ |
17,372 |
|
|
Accrued taxes |
|
|
4,908 |
|
|
|
784 |
|
|
Self-insurance reserve |
|
|
8,210 |
|
|
|
8,210 |
|
|
Other |
|
|
37,381 |
|
|
|
19,445 |
|
|
Total other accrued liabilities |
|
$ |
64,052 |
|
|
$ |
45,811 |
|
As of March 31, 2022 and December 31, 2021, other accrued liabilities above includes approximately $10.9 million related to certain contractual liabilities arising from the temporary COVID-19 park closures. As of March 31, 2022, other accrued liabilities above also includes approximately $20.2 million related to share repurchases not yet settled. See further discussion of the Company’s share repurchase program in Note 10–Stockholders’ Deficit.
6. LONG-TERM DEBT
Long-term debt, net, as of March 31, 2022 and December 31, 2021 consisted of the following:
|
|
|
March 31, |
|
|
December 31, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Term B Loans (effective interest rate of 3.50% at March 31, 2022 and December 31, 2021) |
|
$ |
1,194,000 |
|
|
$ |
1,197,000 |
|
|
Senior Notes due 2029 (interest rate of 5.25%) |
|
|
725,000 |
|
|
|
725,000 |
|
|
First-Priority Senior Secured Notes due 2025 (interest rate of 8.75%) |
|
|
227,500 |
|
|
|
227,500 |
|
|
Total long-term debt |
|
|
2,146,500 |
|
|
|
2,149,500 |
|
|
Less: discounts and debt issuance costs |
|
|
(31,133 |
) |
|
|
(32,665 |
) |
|
Less: current maturities |
|
|
(12,000 |
) |
|
|
(12,000 |
) |
|
Total long-term debt, net |
|
$ |
2,103,367 |
|
|
$ |
2,104,835 |
|
Refinancing Transactions
On August 25, 2021 (the “Closing Date”), SEA entered into a Restatement Agreement (the “Restatement Agreement”) pursuant to which SEA amended and restated its existing senior secured credit agreement dated as of December 1, 2009 (as amended, restated, supplemented or otherwise modified from time to time, and the senior secured credit facilities thereunder (the “Existing Secured Credit Facilities”), and, as amended and restated by the Restatement Agreement (the “Amended and Restated Credit Agreement”).
The Amended and Restated Credit Agreement provides for senior secured financing of up to $1,585.0 million, consisting of:
|
|
(i) |
a first lien term loan facility (the “Term Loan Facility” and the loans thereunder, the “Term B Loans”), in an aggregate principal amount of $1,200.0 million which was fully drawn on the Closing Date. The Term Loan Facility will mature on August 25, 2028; and |
|
|
(ii) |
a first lien revolving credit facility (the “Revolving Credit Facility” (and the loans thereunder, the “Revolving Loans”) and, together with the Term Loan Facility, the “Senior Secured Credit Facilities”), in an aggregate committed principal amount of $385.0 million, including both a letter of credit sub-facility and a swingline loan sub-facility. The Revolving Credit Facility will mature on August 25, 2026. |
Also on August 25, 2021, SEA completed a private offering of $725.0 million aggregate principal amount of 5.250% senior notes due 2029 (the “Senior Notes”). See Senior Notes section which follows for more details.
11
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company used proceeds of the Term B Loans drawn on the Closing Date, together with the proceeds from the offering of the Senior Notes and cash on hand, to redeem SEA’s then outstanding 9.500% second-priority senior secured notes due 2025 (the “Second-Priority Senior Secured Notes”), to refinance the SEA’s Existing Secured Credit Facilities, and to pay related expenses of the offering and refinancing (collectively, the “Refinancing Transactions”). As a result of the Refinancing Transactions, on August 25, 2021, SEA terminated its Existing Secured Credit Facilities and associated Term B-5 Loans and repaid all of its related outstanding obligations in respect of principal, interest and fees.
Senior Secured Credit Facilities
Borrowings under the Term B Loans bear interest at a fluctuating rate per annum equal to, at the Company’s option, (i) a base rate equal to the higher of (a) the federal funds rate plus 1/2 of 1%, (b) the rate of interest quoted in the print edition of the Wall Street Journal, Money Rates Section as the prime rate as in effect from time to time and (c) one-month Adjusted LIBOR plus 1% per annum (provided that in no event shall such ABR rate with respect to the Term B Loans be less than 1.50% per annum) (“ABR”), in each case, plus an applicable margin of 2.00% or (ii) a LIBOR rate for the applicable interest period (provided that in no event shall such LIBOR rate with respect to the Term B Loans be less than 0.50% per annum) (“LIBOR”) plus an applicable margin of 3.00%.
Borrowings under the Revolving Loans bear interest at a fluctuating rate per annum equal to, at the Company’s option, (i) ABR (provided that in no event shall such ABR rate with respect to the Revolving Loans be less than 1.00% per annum) plus an applicable margin equal to 1.75% or (ii) LIBOR (provided that in no event shall such LIBOR rate with respect to the Revolving Loans be less than 0.00%) plus an applicable margin of 2.75%. The applicable margin for borrowings of Revolving Loans are subject to one 25 basis point step-down upon achievement by the Company of certain corporate credit ratings.
In addition to paying interest on the outstanding principal under the Senior Secured Credit Facilities, the Company is required to pay a commitment fee equal to 0.50% per annum to the lenders under the Revolving Credit Facility in respect of the unutilized commitments thereunder. The Company will also be required to pay customary agency fees as well as letter of credit participation fees computed at a rate per annum equal to the applicable margin for LIBOR rate borrowings on the dollar equivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit issuer’s customary documentary and processing fees and charges and a fronting fee computed at a rate equal to 0.125% per annum on the daily stated amount of each letter of credit.
The Senior Secured Credit Facilities require scheduled amortization payments on the term loans in quarterly amounts equal to 0.25% of the original principal amount of the Term B Loans, payable quarterly, with the balance to be paid at maturity.
In addition, the Senior Secured Credit Facilities require the Company to prepay outstanding term loan borrowings, subject to certain exceptions, with:
|
|
- |
beginning with the fiscal year ending on December 31, 2022, 50% (which percentage will be reduced to 25% and 0% if the Company satisfies certain net first lien senior secured leverage ratios) of annual excess cash flow, as defined under the Senior Secured Credit Facilities; |
|
|
- |
100% of the net cash proceeds of all non-ordinary course asset sales or other non-ordinary course dispositions of property, in each case subject to certain exceptions and reinvestment rights; |
|
|
- |
100% of the net cash proceeds of any issuance or incurrence of debt, other than proceeds from debt permitted under the Senior Secured Credit Facilities. |
The Company may voluntarily repay outstanding loans under the Senior Secured Credit Facilities at any time, without prepayment premium or penalty, except in connection with a repricing event in respect of the term loans as described below, subject to customary “breakage” costs with respect to LIBOR rate loans.
All borrowings under the Revolving Credit Facility are subject to the satisfaction of customary conditions, including the absence of a default or event of default and the accuracy of representations and warranties in all material respects.
All obligations under the Senior Secured Credit Facilities are unconditionally guaranteed by the Company on a limited-recourse basis and each of SEA’s existing and future direct and indirect wholly owned material domestic subsidiaries, subject to certain exceptions. The obligations are secured by a pledge of SEA’s capital stock directly held by the Company and substantially all of SEA’s assets and those of each guarantor (other than the Company), including a pledge of the capital stock of all entities directly held by SEA or the guarantors, in each case subject to exceptions. Such security interests consist of a first-priority lien with respect to the collateral.
As of March 31, 2022, SEA had approximately $19.7 million of outstanding letters of credit, leaving approximately $365.3 million available under the Revolving Credit Facility, which was not drawn upon as of March 31, 2022.
12
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Senior Notes
The Senior Notes will mature on August 15, 2029. Interest on the Senior Notes will accrue at 5.250% per annum and will be paid semi-annually, in arrears on February 15 and August 15 of each year, with the first interest payment paid on February 15, 2022.
On or after August 15, 2024, SEA may redeem the Senior Notes, in whole at any time or in part from time to time, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, if redeemed during the 12-month period commencing on August 15 of the years as follows: (i) in 2024 at 102.625%; (ii) in 2025 at 101.313%; and (iii) in 2026 and thereafter at 100%. In addition, prior to August 15, 2024, SEA may redeem the Senior Notes at its option, in whole at any time or in part from time to time, at a redemption price equal to 100% of the principal amount of the Senior Notes redeemed, plus the “Applicable Premium” and accrued and unpaid interest, if any, to, but excluding, the redemption date. Notwithstanding the foregoing, subject to the provisions set forth in the Indenture, at any time and from time to time on or prior to August 15, 2024, SEA may redeem in the aggregate up to 40% of the original aggregate principal amount of the Senior Notes (calculated after giving effect to any issuance of additional Senior Notes) in an aggregate amount equal to the net cash proceeds of one or more equity offerings at a redemption price equal to 105.250%, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. Additionally, upon the occurrence of specified change of control events, each holder will have the right to require SEA to repurchase all or any part of such holder’s notes at a purchase price in cash equal to 101%.
SEA’s obligations under the Senior Notes and related indenture are guaranteed, jointly and severally, on a senior secured basis, by the Guarantors, as defined, in accordance with the provisions of the indenture.
First-Priority Senior Secured Notes
The 8.750% first-priority senior secured notes (the “First-Priority Senior Secured Notes”) mature on May 1, 2025 and have interest payment dates of May 1 and November 1. On or after May 1, 2022, SEA may redeem the First-Priority Senior Secured Notes at its option, in whole at any time or in part from time to time, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, if redeemed during the 12-month period commencing on May 1 of the years as follows: (i) in 2022 at 104.375%; (ii) in 2023 at 102.188%; and (iii) in 2024 and thereafter at 100%. SEA may also redeem in the aggregate (at a redemption price expressed as a percentage of principal amount thereof): (i) 100% of the First-Priority Senior Secured Notes after certain events constituting a change of control at a redemption price of 101%, plus accrued and unpaid interest, if any, to, but excluding, the redemption date and (ii) up to 40% of the original aggregate principal amount of the First-Priority Senior Secured Notes with amounts equal to the net cash proceeds of certain equity offerings at a redemption price of 108.750%, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
The First-Priority Senior Secured 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.
Second-Priority Senior Secured Notes
The Second-Priority Senior Secured Notes were scheduled to mature on August 1, 2025 and had interest payment dates of February 1 and August 1 with the first interest payment paid on February 1, 2021. See additional discussion in the preceding Refinancing Transactions section regarding the full redemption of the Second-Priority Senior Secured Notes in 2021.
Restrictive Covenants
The Amended and Restated Credit Agreement governing the Senior Secured Credit Facilities and the indentures governing the Senior Notes and First-Priority Senior Secured Notes (collectively, the “Debt Agreements”), contain covenants that limit the ability of the Company, SEA and its restricted subsidiaries to, among other things: (i) incur additional indebtedness or issue certain preferred shares; (ii) make dividend payments on or make other distributions in respect of their capital stock or make other restricted payments; (iii) make certain investments; (iv) sell certain assets; (v) create or permit to exist dividend and/or payment restrictions affecting their restricted subsidiaries; (vi) create liens on assets; (vii) consolidate, merge, sell or otherwise dispose of all or substantially all of their assets; and (viii) enter into certain transactions with their affiliates. These covenants are subject to a number of important limitations and exceptions and are based, in part on the Company’s ability to satisfy certain tests and engage in certain transactions based on Covenant Adjusted EBITDA. Covenant Adjusted EBITDA differs from Adjusted EBITDA due to certain adjustments permitted under the relevant agreements, including but not limited to estimated cost savings, recruiting and retention costs, public company compliance costs, litigation and arbitration costs and other costs and adjustments as permitted under the Debt Agreements.
The Debt Agreements contain certain customary events of default, including relating to a change of control. If an event of default occurs, the lenders under the Debt Agreements will be entitled to take various actions, including the acceleration of amounts due under the Debt Agreements and all actions permitted to be taken by a secured creditor in respect of the collateral securing the Debt Agreements.
13
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Revolving Credit Facility requires that the Company, commencing as of the last day of the first full fiscal quarter after the Closing Date and subject to a testing threshold, comply on a quarterly basis with a maximum net first lien senior secured leverage ratio of 6.25 to 1.00. The testing threshold will be satisfied (and therefore the covenant must be complied with at the end of such quarter) if the aggregate amount of funded loans and issued letters of credit (excluding up to $30.0 million of undrawn letters of credit under the Revolving Credit Facility and letters of credit that are cash collateralized) under the Revolving Credit Facility on such date exceeds an amount equal to 35% of the then-outstanding commitments under the Revolving Credit Facility.
The Debt Agreements permit an unlimited capacity for restricted payments if the net total leverage ratio on a pro forma basis does not exceed 4.25 to 1.00 after giving effect to the payment of any such restricted payment. As of March 31, 2022, the net total leverage ratio as calculated under the Debt Agreements was 2.42 to 1.00.
As of March 31, 2022, SEA was in compliance with all covenants contained in the documents governing the Debt Agreements.
Long-term debt at March 31, 2022 is repayable as follows and does not include the impact of any future voluntary prepayments:
|
Years Ending December 31, |
|
(In thousands) |
|
|
|
Remainder of 2022 |
|
$ |
9,000 |
|
|
2023 |
|
|
12,000 |
|
|
2024 |
|
|
12,000 |
|
|
2025 |
|
|
239,500 |
|
|
2026 |
|
|
12,000 |
|
|
Thereafter |
|
|
1,862,000 |
|
|
Total |
|
$ |
2,146,500 |
|
Cash paid for interest relating to the Senior Notes, the Senior Secured Credit Facilities, and the Second-Priority Senior Secured Notes, net of amounts capitalized, as applicable, was $27.6 million and $35.8 million in the three months ended March 31, 2022 and 2021, respectively.
7. 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.
Of the Company’s long-term obligations as of March 31, 2022 and December 31, 2021, the Term B Loans are classified in Level 2 of the fair value hierarchy and the First-Priority Senior Secured Notes and the Senior Notes are classified in Level 1 of the fair value hierarchy. The fair value of the Term B Loans approximates their carrying value, excluding unamortized debt issuance costs and discounts, due 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 First-Priority Senior Secured Notes and Senior Notes was determined using quoted prices in active markets for identical instruments. See Note 6–Long-Term Debt for further details.
14
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company did not have any assets measured on a recurring basis at fair value at March 31, 2022 and December 31, 2021. The Company maintains its long-term liabilities at carrying value, net of unamortized debt issuance costs and discounts in the unaudited condensed consolidated balance sheet
The following table presents the Company’s estimated fair value measurements and related classifications for liabilities measured on a recurring basis as of March 31, 2022.
|
(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 $12.0 million and long-term debt, net, of $2.103 billion as of March 31, 2022. |
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, 2021:
|
(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 $12.0 million and long-term debt, net, of $2.105 billion as of December 31, 2021. |
8. COMMITMENTS AND CONTINGENCIES
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 $26 million to $35 million before considering interest. In 2018, defendants moved for partial dismissal of the complaint. In 2019, the Court granted defendants’ motion and dismissed plaintiffs’ Florida state law claims as well as federal securities law claims based on the Company’s second quarter 2013 earnings statements. Discovery is complete and on April 19, 2022 the Court granted in part and denied in part the parties’ summary judgment and Daubert motions. Trial is set to begin September 20, 2022. The Company believes that the lawsuit is without merit and intends to defend the lawsuit vigorously. While there can be no assurance regarding the ultimate outcome of this lawsuit, the Company believes that any potential loss would not be material.
15
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 (the “Tranche 3 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 determination 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 agreed to arbitrate whether the former employees’ claims are subject to arbitration. On October 21, 2021, the arbitrator determined that disputes related to the former employees’ claims for the vesting of the Tranche 3 Shares are governed by the forum selection clauses of the equity award amendments rather than the Company’s dispute resolution process. 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 300,000 shares are at issue. The Company believes that the former employees’ claims are without merit and intends to defend vigorously its positions. While there can be no assurance regarding the ultimate outcome of this matter, the Company believes that any potential loss would not be material.
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.
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”) (the Company opened the Standalone Park in San Diego on March 26, 2022) and minimum annual capital and marketing thresholds. After the opening of the second Standalone Park (counting the existing Sesame Place Standalone Park in Langhorne, Pennsylvania), SEA has 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, 2022, the Company estimates the combined remaining liabilities and obligations for the License Agreement commitments could be up to approximately $25.0 million over the remaining term of the agreement.
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.
16
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. 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 operations as follows:
|
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Equity compensation expense included in operating expenses |
|
$ |
1,965 |
|
|
$ |
938 |
|
|
Equity compensation expense included in selling, general and administrative expenses |
|
|
5,017 |
|
|
|
3,535 |
|
|
Total equity compensation expense |
|
$ |
6,982 |
|
|
$ |
4,473 |
|
Omnibus Incentive Plan
The Company has reserved 15.0 million shares of common stock for issuance under its Omnibus Incentive Plan (the “Omnibus Incentive Plan”), of which approximately 7.5 million shares are available for future issuance as of March 31, 2022.
Bonus Performance Restricted Units
During the three months ended March 31, 2022, the Company granted approximately 105,000 performance-vesting restricted units (the “Bonus Performance Restricted Units”) in accordance with its annual bonus plan for 2022 (the “2022 Bonus Plan”). The 2022 Bonus Plan provides for bonus awards payable 50% in cash and 50% in performance-vesting restricted units (the “Bonus Performance Restricted Units”) and is based upon the Company’s achievement of specified performance goals, as defined by the 2022 Bonus Plan, with respect to the year ended December 31, 2022 (the “Fiscal 2022”). The total number of units eligible to vest into shares of stock is based on the level of achievement of the targets for Fiscal 2022 which ranges from 0% (if below threshold performance), to 100% (if at target performance) with opportunities to earn above 100% when achievement is above the target performance for certain metrics.
The Company also had an annual bonus plan for the fiscal year ended December 31, 2021 (“Fiscal 2021”), under which certain employees were eligible to vest in Bonus Performance Restricted Units based upon the Company’s achievement of certain performance goals with respect to Fiscal 2021. Based on the Company’s actual Fiscal 2021 results, a portion of these Bonus Performance Restricted Units vested and were converted into approximately 120,000 shares in the three months ended March 31, 2022 and the remaining unvested units forfeited in accordance with their terms.
Long-term Incentive Performance Restricted Awards
During the three months ended March 31, 2022, the Company granted long-term incentive plan awards for 2022 (the “2022 Long-Term Incentive Grant”) which were comprised of approximately 50,000 nonqualified stock options (the “Long-Term Incentive Options”) and approximately 145,000 performance-vesting restricted units (the “Long-Term Incentive Performance Restricted Units”) (collectively, the “Long-Term Incentive Awards”).
Long-Term Incentive Options
The Long-Term Incentive Options vest over three years, with one-third vesting on each anniversary of the date of grant, subject to continued employment through the applicable vesting date. Equity compensation expense for these options is recognized for each tranche over the vesting period using the straight-line method. Upon stock option exercises, authorized but unissued shares are issued by the Company.
Long-Term Incentive Performance Restricted Units
The Long-Term Incentive Performance Restricted Units are eligible to vest during the three-year performance period beginning on January 1, 2022 and ending on December 31, 2024 (or, extended through December 31, 2025, as applicable) (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 0% (if below threshold performance) up to 150% (for maximum performance). Upon achievement of at least the threshold performance goals, 50% of the award for a given level of performance will vest, with the remaining 50% subject to a one-year performance test period. Performance for the test period must meet or exceed the prior year’s performance before up to the remaining 50% of the units can be earned.
17
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Other
During the three months ended March 31, 2022, a portion of the previously granted long-term incentive performance restricted units under the 2019 Long-Term Incentive Plan vested based on the Company’s actual Fiscal 2021 results. The remainder of the 2019 Long-Term Incentive Plan awards are eligible to vest in 2023 and/or 2024.
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. If the probability of vesting related to awards that were previously considered not probable of vesting 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.
10. STOCKHOLDERS’ DEFICIT
As of March 31, 2022, 95,838,033 shares of common stock were issued in the accompanying unaudited condensed consolidated balance sheet, which includes 21,488,469 shares of treasury stock held by the Company (see Share Repurchase Program discussion which follows) but excludes 7,214 unvested shares of common stock and 1,927,838 unvested restricted stock units or deferred stock units held by certain participants in the Company’s equity compensation plans or members of the Board (see Note 9–Equity-Based Compensation).
Share Repurchase Program
The Board 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.
On March 10, 2022, the Board approved a replenishment to the Share Repurchase Program of $228.2 million, bringing the total amount authorized for future share repurchases back up to $250.0 million. During the three months ended March 31, 2022, the Company repurchased 1,535,427 shares for an aggregate total of approximately $109.9 million. As of March 31, 2022, the Company had approximately $140.1 million available under the Share Repurchase Program. Subsequent to March 31, 2022, the Company repurchased 2,027,659 shares for an aggregate total of approximately $140.1 million, leaving no amount remaining under the Share Repurchase Program as of April 29, 2022.
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.
18
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” included elsewhere 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, 2021.
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
Our results of operations for the three months ended March 31, 2022 and 2021 continue to be impacted by the global COVID-19 pandemic due in part to a decline in both international and group-related attendance in both periods. Additionally, results of operations for the three months ended March 31, 2021 were also significantly impacted by the following factors: (i) capacity limitations, modified/limited operations and/or temporary park closures; (ii) decreased demand due to public concerns associated with the pandemic; and (iii) restrictions on international travel. See further discussion 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.
As approved vaccines continue to be distributed, the operating environment has improved and COVID-19 related capacity limitations have been eliminated; 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, group events and group-related attendance, public opinion concerning social gatherings, consumer behavior or federal, state and local regulations related to health protocols, capacity limitations and social gatherings. 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.
Current Operating Environment
Our Board has formed a number of committees designed to provide further assistance from Board members with expertise in certain areas by providing enhanced oversight over the operations of the Company. As a result, in the current operating environment, certain members of our Board, including our Chairman of the Board, are actively involved in overseeing certain key operating activities.
The current condition of the overall labor market, the challenging current operating environment and COVID-19 related factors has led to increased turnover and challenges in meeting our staffing goals. These staffing challenges have also led to wage pressures and less than optimal staffing levels. Recently and in 2021, we have also experienced inflationary pressures relating to the costs for labor, goods, services and capital projects. Less than optimal staffing levels have impacted our ability to open some of our food and beverage outlets, caused us to temporarily close some rides or attractions and/or caused longer wait times in certain areas of our parks, particularly food, beverage and/or retail outlets. We continue our efforts to recruit and retain talent and identify cost reduction and efficiency opportunities as well as incremental pricing and revenue opportunities to help offset these cost pressures.
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.
19
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 food and beverage, 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. Revenue from these admissions products are generally recognized based on attendance. Certain pass products are purchased through monthly installment arrangements which allow guests to pay over the product’s initial commitment period. Once the initial commitment period is reached, these products transition to a month-to-month basis providing these guests access to specific parks on a monthly basis with related revenue recognized monthly.
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 (including the impact of pass visitation rates), 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. Pass visitation rates are the number of visits per pass. A higher number of visits per pass would yield a lower admissions per capita as the related revenue is recognized over more visits. 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 food and beverage, 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 (as domestic and international guests typically generate higher in-park per capita spending than local guests or pass holders)), guest 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 and certain guests, 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.
20
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 food and beverage or other in-park offerings.
We 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, including technology initiatives, which we believe will further strengthen our business and, in some instances, improve our guest experiences.
See the “Impact of Global COVID-19 Pandemic” and the “Current Operating Environment” 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 a net loss 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, along with capacity limitations and/or modified/limited operations and other COVID-19 related impacts on our attendance, 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 historically seasonal parks, could change the impact of 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 on a year round basis at both our Busch Gardens park in Virginia and our Sesame Place park in Pennsylvania. Additionally, on March 26, 2022, we opened our Sesame Place San Diego park which is expected to be open more operating days than the Aquatica San Diego park it replaces.
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, 2022 are not directly comparable to the three months ended March 31, 2021 primarily due to COVID-19 related impacts including a temporary park closure and capacity limitations at some of our parks in 2021. See “Impact of Global COVID-19 Pandemic” and “Attendance” for further details. 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.
21
Comparison of the Three Months Ended March 31, 2022 to the Three Months Ended March 31, 2021
The following table presents key operating and financial information for the three months ended March 31, 2022 and 2021:
|
|
|
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
March 31, |
|
|
Variance |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
|
Summary Financial Data: |
|
(In thousands, except per capita data and %) |
|
|||||||||||||
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
$ |
150,862 |
|
|
$ |
95,780 |
|
|
$ |
55,082 |
|
|
|
57.5 |
% |
|
Food, merchandise and other |
|
|
119,831 |
|
|
|
76,140 |
|
|
|
43,691 |
|
|
|
57.4 |
% |
|
Total revenues |
|
|
270,693 |
|
|
|
171,920 |
|
|
|
98,773 |
|
|
|
57.5 |
% |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of food, merchandise and other revenues |
|
|
23,040 |
|
|
|
14,942 |
|
|
|
8,098 |
|
|
|
54.2 |
% |
|
Operating expenses (exclusive of depreciation and amortization shown separately below) |
|
|
152,925 |
|
|
|
107,772 |
|
|
|
45,153 |
|
|
|
41.9 |
% |
|
Selling, general and administrative expenses |
|
|
46,059 |
|
|
|
31,464 |
|
|
|
14,595 |
|
|
|
46.4 |
% |
|
Severance and other separation costs |
|
|
30 |
|
|
|
86 |
|
|
|
(56 |
) |
|
|
(65.1 |
%) |
|
Depreciation and amortization |
|
|
38,612 |
|
|
|
36,558 |
|
|
|
2,054 |
|
|
|
5.6 |
% |
|
Total costs and expenses |
|
|
260,666 |
|
|
|
190,822 |
|
|
|
69,844 |
|
|
|
36.6 |
% |
|
Operating income (loss) |
|
|
10,027 |
|
|
|
(18,902 |
) |
|
|
28,929 |
|
|
NM |
|
|
|
Other (income) expense, net |
|
|
(12 |
) |
|
|
174 |
|
|
|
(186 |
) |
|
NM |
|
|
|
Interest expense |
|
|
25,370 |
|
|
|
30,956 |
|
|
|
(5,586 |
) |
|
|
(18.0 |
%) |
|
Loss before income taxes |
|
|
(15,331 |
) |
|
|
(50,032 |
) |
|
|
34,701 |
|
|
|
69.4 |
% |
|
Benefit from income taxes |
|
|
(6,344 |
) |
|
|
(5,148 |
) |
|
|
(1,196 |
) |
|
|
(23.2 |
%) |
|
Net Loss |
|
$ |
(8,987 |
) |
|
$ |
(44,884 |
) |
|
$ |
35,897 |
|
|
|
80.0 |
% |
|
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attendance |
|
|
3,403 |
|
|
|
2,214 |
|
|
|
1,189 |
|
|
|
53.7 |
% |
|
Total revenue per capita |
|
$ |
79.54 |
|
|
$ |
77.63 |
|
|
$ |
1.91 |
|
|
|
2.5 |
% |
|
Admission per capita |
|
$ |
44.33 |
|
|
$ |
43.25 |
|
|
$ |
1.08 |
|
|
|
2.5 |
% |
|
In-park per capita spending |
|
$ |
35.21 |
|
|
$ |
34.38 |
|
|
$ |
0.83 |
|
|
|
2.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful.
Admissions revenue. Admissions revenue for the three months ended March 31, 2022 increased $55.1 million, or 57.5%, to $150.9 million as compared to $95.8 million for the three months ended March 31, 2021. The improvement was a result of an increase in attendance and an increase in admissions per capita. Total attendance for the first quarter of 2022 increased by approximately 1.2 million guests, or 53.7%, when compared to the prior year quarter. Attendance benefitted from an increase in demand and operating days resulting from a return to more normalized operations when compared to the first quarter of 2021, which included COVID-19 related impacts including limited operating days, a temporary park closure and capacity limitations at some of our parks. Admission per capita increased by 2.5% to $44.33 for the first quarter of 2022 compared to $43.25 in the prior year quarter, primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts, which was largely offset by the impact of the admissions product mix, due in part to an increase in pass visitation, and the impact of park mix when compared to the prior year quarter.
Food, merchandise and other revenue. Food, merchandise and other revenue for the three months ended March 31, 2022 increased $43.7 million, or 57.4%, to $119.8 million as compared to $76.1 million for the three months ended March 31, 2021, primarily as a result of an increase in attendance, as discussed above, along with an increase in in-park per capita spending. In-park per capita spending increased by 2.4% to $35.21 in the first quarter of 2022 compared to $34.38 in the first quarter of 2021. In park per capita spending improved due to a combination of factors including, pricing initiatives, improved product quality and mix and the impact of new or enhanced and expanded in-park offerings, partially offset by a higher mix of pass attendance and the impact of park mix when compared to the first quarter of 2021. In-park per capita spending was also impacted by less than optimal staffing during the first quarter of 2022, that impacted our ability to fully operate and/or open some of our food and beverage and retail outlets.
22
Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the three months ended March 31, 2022 increased $8.1 million, or 54.2%, to $23.0 million as compared to $14.9 million for the three months ended March 31, 2021, primarily due to the increase in related revenue. These costs represent 19.2% and 19.6% of the related revenue earned for the three months ended March 31, 2022 and 2021, respectively. The decrease as a percent of related revenue partly relates to higher realized prices on some of our in-park products and the impact of sourcing cost savings initiatives, partially offset by inflationary pressures.
Operating expenses. Operating expenses for the three months ended March 31, 2022 increased $45.2 million, or 41.9%, to $152.9 million as compared to $107.8 million for the three months ended March 31, 2021. Operating expenses in the first quarter of 2021 were significantly impacted by limited operating days, a temporary park closure and capacity limitations due to the COVID-19 pandemic. As a result, the increase in operating expenses in the first quarter of 2022 primarily results from an increase in labor-related costs and other operating costs due to a return to more normalized operations and an increase in operating days. Operating expenses were also impacted by a non-cash increase in self-insurance reserve adjustments, partially offset by structural cost savings initiatives when compared to the first quarter of 2021. Operating expenses as a percent of revenue were 56.5% and 62.7% for the three months ended March 31, 2022 and 2021, respectively.
Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended March 31, 2022 increased $14.6 million, or 46.4%, to $46.1 million as compared to $31.5 million for the three months ended March 31, 2021. The increase in selling, general and administrative expenses is primarily due to increased marketing-related costs, partially offset by the impact of cost savings and efficiency initiatives. The increased marketing-related costs result from a return to more normalized operations as we substantially reduced marketing-related costs in the prior year quarter. Selling, general and administrative expenses as a percent of revenue were 17.0% and 18.3% for the three months ended March 31, 2022 and 2021, respectively.
Depreciation and amortization. Depreciation and amortization expense for the three months ended March 31, 2022 increased $2.1 million, or 5.6%, to $38.6 million as compared to $36.6 million for the three months ended March 31, 2021. The increase primarily relates to new asset additions partially offset by the impact of asset retirements and fully depreciated assets.
Interest expense. Interest expense for the three months ended March 31, 2022 decreased $5.6 million, or 18.0%, to $25.4 million as compared to $31.0 million for the three months ended March 31, 2021. The decrease primarily relates to the net impact of lower interest as a result of the Refinancing Transactions. 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, 2022 was $6.3 million compared to $5.1 million for the three months ended March 31, 2021. Our consolidated effective tax rate was 41.4% for the three months ended March 31, 2022 compared to 10.3% for the three months ended March 31, 2021. The effective tax rate in the three months ended March 31, 2022 was primarily impacted by a tax benefit related to equity-based compensation which vested during the quarter. The effective tax rate in the three months ended March 31, 2021 was primarily impacted by non-cash valuation allowance adjustments on federal and state net operating loss carryforwards.
23
Supplemental Comparison of the Three Months Ended March 31, 2022 to the Three Months Ended March 31, 2019
We believe a comparison of selected financial results for the three months ended March 31, 2022 to the three months ended March 31, 2019 may provide additional insight due to the impact of the COVID-19 pandemic on our business in 2021. As such, the following supplemental discussion provides an analysis of selected operating and financial results for the three months ended March 31, 2022 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.
|
|
|
For the Three Months Ended March 31, |
|
|
Variance |
|
||||||||||
|
|
|
2022 |
|
|
2019 |
|
|
$ |
|
|
% |
|
||||
|
Selected Summary Financial Data: |
|
(In thousands, except per capita data and %) |
|
|
|
|
|
|
|
|||||||
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
$ |
150,862 |
|
|
$ |
128,913 |
|
|
$ |
21,949 |
|
|
|
17.0 |
% |
|
Food, merchandise and other |
|
$ |
119,831 |
|
|
$ |
91,662 |
|
|
$ |
28,169 |
|
|
|
30.7 |
% |
|
Total revenues |
|
$ |
270,693 |
|
|
$ |
220,575 |
|
|
$ |
50,118 |
|
|
|
22.7 |
% |
|
Selected costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of food, merchandise and other revenues |
|
$ |
23,040 |
|
|
$ |
17,213 |
|
|
$ |
5,827 |
|
|
|
33.9 |
% |
|
Operating expenses (exclusive of depreciation and amortization) |
|
$ |
152,925 |
|
|
$ |
149,885 |
|
|
$ |
3,040 |
|
|
|
2.0 |
% |
|
Selling, general and administrative expenses |
|
$ |
46,059 |
|
|
$ |
42,764 |
|
|
$ |
3,295 |
|
|
|
7.7 |
% |
|
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attendance |
|
|
3,403 |
|
|
|
3,340 |
|
|
|
63 |
|
|
|
1.9 |
% |
|
Total revenue per capita |
|
$ |
79.54 |
|
|
$ |
66.04 |
|
|
$ |
13.50 |
|
|
|
20.4 |
% |
|
Admission per capita |
|
$ |
44.33 |
|
|
$ |
38.60 |
|
|
$ |
5.73 |
|
|
|
14.8 |
% |
|
In-park per capita spending |
|
$ |
35.21 |
|
|
$ |
27.44 |
|
|
$ |
7.77 |
|
|
|
28.3 |
% |
Admissions revenue. Admissions revenue for the three months ended March 31, 2022 increased $21.9 million, or 17.0%, to $150.9 million as compared to $128.9 million for the three months ended March 31, 2019. The increase in admissions revenue was primarily a result of an increase in admissions per cap along with an increase in attendance. Admission per capita increased by 14.8% to $44.33 in the first quarter of 2022 compared to $38.60 in the first quarter of 2019. Admission per capita increased primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts, which was partially offset by the impact of the admissions product mix when compared to the first quarter of 2019. Attendance increased when compared to the first quarter of 2019 due to increased demand and more operating days at some of our parks. Attendance in 2022 was also impacted by a decline from international guest visitation and group-related attendance when compared to 2019. Excluding international guest visitation and group-related attendance, attendance increased by approximately 16.4% 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, 2022 increased $28.2 million, or 30.7%, to $119.8 million as compared to $91.7 million for the three months ended March 31, 2019, primarily as a result of an increase in in-park per capita spending along with an increase in attendance as discussed above. In-park per capita spending increased by 28.3% to $35.21 in the first quarter of 2022 compared to $27.44 in the first quarter of 2019. In-park per capita spending improved primarily due to pricing initiatives, improved product quality and mix and the impact of new or enhanced and expanded in-park offerings, partially offset by a higher mix of pass attendance during the quarter when compared to the first quarter of 2019. In-park per capita spending was also impacted by less than optimal staffing during the first quarter of 2022, that impacted our ability to fully operate and/or open some of our food and beverage and retail outlets.
Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the three months ended March 31, 2022 increased $5.8 million, or 33.9%, to $23.0 million as compared to $17.2 million for the three months ended March 31, 2019, primarily due to the increase in related revenue. These costs represent 19.2% and 18.8% of the related revenue earned for the three months ended March 31, 2022 and 2019, respectively. The increase as a percent of related revenue partly relates to inflationary pressures, partially offset by higher realized prices on some of our in-park products and the impact of sourcing cost savings initiatives.
Operating expenses. Operating expenses for the three months ended March 31, 2022 increased $3.0 million, or 2.0%, to $152.9 million as compared to $149.9 million for the three months ended March 31, 2019. The increase primarily results from operating costs associated with incremental operating days and attractions added in 2022 and an increase in self-insurance reserve adjustments, partially offset by a net reduction in labor-related costs and other operating costs primarily resulting from structural cost savings initiatives. Operating expenses as a percent of revenue were 56.5% and 68.0% for the three months ended March 31, 2022 and 2019, respectively.
Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended March 31, 2022 increased $3.3 million, or 7.7%, to $46.1 million as compared to $42.8 million for the three months ended March 31, 2019. Selling, general and administrative expenses increased primarily due to an increase in non-cash equity compensation expense along with other
24
labor-related costs due in part to centralization efforts, partially offset by the impact of cost savings and efficiency initiatives. Selling, general and administrative expenses as a percent of revenue were 17.0% and 19.4% for the three months ended March 31, 2022 and 2019, respectively.
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), share repurchases and/or other return of capital to stockholders, when permitted. As of March 31, 2022, we had a working capital ratio (defined as current assets divided by current liabilities) of 1.1, due in part to our outstanding cash balance at March 31, 2022. Historically, we typically have operated with a working capital ratio of less than 1 due to a 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.
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 our 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 10–Stockholders’ Deficit in our notes to the unaudited condensed 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, debt service obligations 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, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Net cash provided by operating activities |
|
$ |
70,794 |
|
|
$ |
18,393 |
|
|
Net cash used in investing activities |
|
|
(35,110 |
) |
|
|
(15,298 |
) |
|
Net cash used in financing activities |
|
|
(99,558 |
) |
|
|
(5,612 |
) |
|
Net decrease in cash and cash equivalents, including restricted cash |
|
$ |
(63,874 |
) |
|
$ |
(2,517 |
) |
Cash Flows from Operating Activities
Net cash provided by operating activities was $70.8 million during the three months ended March 31, 2022 as compared to $18.4 million during the three months ended March 31, 2021. The change in net cash provided by operating activities was primarily impacted by improved operating performance including increased sales of admission products and the impact of decreased interest payments.
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, 2022 consisted of capital expenditures of $35.1 million largely related to future attractions. Net cash used in investing activities during the three months ended March 31, 2021 consisted of $15.3 million of capital expenditures.
25
The following table presents detail of our capital expenditures for the periods indicated:
|
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Capital Expenditures: |
|
(Unaudited, in thousands) |
|
|||||
|
Core(a) |
|
$ |
23,020 |
|
|
$ |
10,883 |
|
|
Expansion/ROI projects(b) |
|
|
12,090 |
|
|
|
4,415 |
|
|
Capital expenditures, total |
|
$ |
35,110 |
|
|
$ |
15,298 |
|
|
(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.
Cash Flows from Financing Activities
Net cash used in financing activities during the three months ended March 31, 2022 results primarily from share repurchases of $89.7 million and payment of tax withholdings on equity-based compensation through shares withheld of $7.7 million. Net cash used in financing activities during the three months ended March 31, 2021 results primarily from 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, 2022, our indebtedness consisted of senior secured credit facilities, 5.25% senior notes (the “Senior Notes”) and 8.75% first-priority senior secured notes (the “First-Priority Senior Secured Notes”).
See discussion which follows and Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements for further details related to our long-term debt.
Senior Secured Credit Facilities
SeaWorld Parks & Entertainment, Inc. (“SEA”) is the borrower under the senior secured credit facilities, as amended and restated pursuant to a credit agreement (the “Amended and Restated Credit Agreement”) dated as of August 25, 2021 (the “Senior Secured Credit Facilities”).
As of March 31, 2022, our Senior Secured Credit Facilities consisted of $1.194 billion in Term B Loans which will mature in August 2028, along with a $385.0 million Revolving Credit Facility, which had no amounts outstanding as of March 31, 2022 and will mature in August 2026. As of March 31, 2022, SEA had approximately $19.7 million of outstanding letters of credit, leaving approximately $365.3 million available for borrowing under the Revolving Credit Facility.
Senior Notes and First-Priority Senior Secured Notes
As of March 31, 2022, SEA had outstanding $725.0 million in aggregate principal amount of Senior Notes due on August 15, 2029 and $227.5 million in aggregate principal amount of First-Priority Senior Secured Notes, due on May 1, 2025.
Covenant Compliance
As of March 31, 2022, we were in compliance with all covenants in the credit agreement governing the Senior Secured Credit Facilities and the indentures governing our Senior Notes and First-Priority Senior Secured Notes. See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements for further details relating to our restrictive covenants.
Adjusted EBITDA
We define Adjusted EBITDA as net (loss) income plus (i) income tax (benefit) provision, (ii) interest expense, consent fees and similar financing costs, (iii) depreciation and amortization, (iv) equity-based compensation expense, (v) loss on extinguishment of debt, (vi) certain non-cash charges/credits including those related to asset disposals, (vii) certain business optimization, development and strategic initiative costs, (viii) merger, acquisition, integration and certain investment costs, and (ix) other nonrecurring costs including incremental costs associated with the COVID-19 pandemic or similar unusual events.
26
Under the credit agreement governing the Senior Secured Credit Facilities and the indentures governing our Senior Notes and First-Priority Senior Secured Notes (collectively, the “Debt Agreements”), 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 Covenant Adjusted EBITDA as defined in the Debt Agreements (“Covenant Adjusted EBITDA”).
Covenant Adjusted EBITDA, is defined as Adjusted EBITDA plus certain other items as defined in the Debt Agreements, including estimated cost savings among other adjustments. Cost savings represent annualized estimated savings expected to be realized over the following 24 month period related to certain specified actions including restructurings and cost savings initiatives, net of actual benefits realized during the last twelve months. Other adjustments include (i) recruiting and retention costs, (ii) public company compliance costs, (iii) litigation and arbitration costs, and (iv) other costs and adjustments as permitted by the Debt Agreements.
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, we believe the presentation of Covenant Adjusted EBITDA for the last twelve months is appropriate as it provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the Debt Agreements. See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements for further details relating to our restrictive covenants.
Adjusted EBITDA and Covenant Adjusted EBITDA are not recognized terms 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 are not indicative of income or loss from operations as determined under GAAP. Adjusted EBITDA, Covenant 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 and Covenant Adjusted EBITDA as presented by us, may not be comparable to similarly titled measures of other companies due to varying methods of calculation.
The following table reconciles Adjusted EBITDA and Covenant Adjusted EBITDA to net (loss) income 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, |
|
||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|||
|
|
|
(Unaudited, in thousands) |
|
|||||||||
|
Net (loss) income |
|
$ |
(8,987 |
) |
|
$ |
(44,884 |
) |
|
$ |
292,410 |
|
|
Benefit from income taxes |
|
|
(6,344 |
) |
|
|
(5,148 |
) |
|
|
(1,360 |
) |
|
Loss on early extinguishment of debt and write-off of discounts and debt issuance costs (a) |
|
|
— |
|
|
|
— |
|
|
|
58,827 |
|
|
Interest expense |
|
|
25,370 |
|
|
|
30,956 |
|
|
|
111,056 |
|
|
Depreciation and amortization |
|
|
38,612 |
|
|
|
36,558 |
|
|
|
150,714 |
|
|
Equity-based compensation expense (b) |
|
|
7,877 |
|
|
|
4,473 |
|
|
|
44,422 |
|
|
Loss on impairment or disposal of assets and certain non-cash expenses (c) |
|
|
4,604 |
|
|
|
608 |
|
|
|
11,095 |
|
|
Business optimization, development and strategic initiative costs (d) |
|
|
3,604 |
|
|
|
512 |
|
|
|
11,851 |
|
|
Certain investment costs and other taxes |
|
|
401 |
|
|
|
87 |
|
|
|
1,144 |
|
|
COVID-19 related incremental costs(e) |
|
|
350 |
|
|
|
2,176 |
|
|
|
20,736 |
|
|
Other adjusting items |
|
|
453 |
|
|
|
(149 |
) |
|
|
1,904 |
|
|
Adjusted EBITDA(f) |
|
$ |
65,940 |
|
|
$ |
25,189 |
|
|
$ |
702,799 |
|
|
Items added back to Covenant Adjusted EBITDA, as defined in the Debt Agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated cost savings (g) |
|
|
|
|
|
|
|
|
|
|
6,300 |
|
|
Other adjustments as defined in the Debt Agreements (h) |
|
|
|
|
|
|
|
|
|
|
20,674 |
|
|
Covenant Adjusted EBITDA (i) |
|
|
|
|
|
|
|
|
|
$ |
729,773 |
|
27
|
(a) |
Reflects a loss on early extinguishment of debt and write-off of discounts and debt issuance costs associated with the Refinancing Transactions. See Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details. |
|
(b) |
Reflects non-cash equity compensation expenses and related payroll taxes associated with the grants of equity-based compensation. For the twelve months ended March 31, 2022, includes equity compensation expense related to certain performance vesting restricted awards which were previously not considered probable of vesting. See Note 9–Equity-Based Compensation in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details. |
|
(c) |
For the three and twelve months ended March 31, 2022, includes approximately $3.9 million related to non-cash self-insurance reserve adjustments. For the three months ended March 31, 2022 and 2021 and for the twelve months ended March 31, 2022, also includes non-cash expenses related to asset write-offs and costs related to certain rides and equipment which were removed from service. |
|
(d) |
For the three months ended March 31, 2022, reflects business optimization, development and other strategic initiative costs primarily related to $2.2 million of third-party consulting costs. For the twelve months ended March 31, 2022, reflects business optimization, development and other strategic initiative costs primarily related to; (i) $6.4 million of third-party consulting costs; (ii) $4.0 million of other business optimization costs and strategic initiative costs and (iii) $1.5 million of severance and other separation costs associated with positions eliminated. |
|
(e) |
For the three months ended March 31, 2022, primarily relates to incremental non-recurring costs associated with the COVID-19 pandemic. |
For the three months ended March 31, 2021, primarily relates to incremental non-recurring costs associated with the COVID-19 pandemic, including incremental labor-related costs incurred to prepare and staff the parks and other incremental, nonrecurring, temporary incentives paid to attract employees to return to or remain in the workforce during the COVID-19 related environment.
For the twelve months ended March 31, 2022, includes approximately $12.0 million of nonrecurring contractual liabilities and legal costs impacted by the temporary COVID-19 park closures and approximately $7.3 million of incremental temporary labor-related costs incurred to prepare and staff the parks and certain incremental, nonrecurring, temporary incentives paid to attract employees to return to or remain in the workforce during the COVID-19 related environment.
|
(f) |
Adjusted EBITDA is defined as net (loss) income before income tax expense, interest expense, depreciation and amortization, as further adjusted to exclude certain non-cash, and other items as described above. |
|
(g) |
Our Debt Agreements, which were effective for the twelve months ended March 31, 2022, permit the calculation of certain covenants to be based on Covenant 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 24-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 Debt Agreements and does not impact our reported GAAP net (loss) income. |
|
(h) |
The Debt Agreements, which were effective for the twelve months ended March 31, 2022, permit our calculation of certain covenants to be based on Covenant Adjusted EBITDA as defined above, for the last twelve-month period further adjusted for certain costs as permitted by the Debt Agreements including recruiting and retention expenses, public company compliance costs and litigation and arbitration costs, if any. Prior to the Debt Agreements, these costs were not permitted adjustments in the calculation, as such, these adjustments are not applicable to the prior years. |
|
(i) |
Covenant Adjusted EBITDA is defined in the Debt Agreements as Adjusted EBITDA for the last twelve-month period further adjusted for net annualized estimated savings among other adjustments as described in footnotes (g) and (h) above. |
28
Contractual Obligations
There have been no material changes to our contractual obligations as March 31, 2022 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 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 28, 2022.
Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements as of March 31, 2022.
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. The costs of food, merchandise and other revenues are influenced by inflation and fluctuations in global commodity prices. In addition, other costs, such as the costs of fuel, construction, repairs and maintenance, labor, utilities and insurance are all subject to inflationary pressures. For further discussion, 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.
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.
Prior to 2021, 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. We have no interest rate swap agreements outstanding as of March 31, 2022. We presently manage interest rate risk primarily by managing the amount, sources and duration of our debt funding. At March 31, 2022, approximately $1.2 billion of our outstanding long-term debt represents variable-rate debt. Assuming an average balance on our revolving credit borrowings of approximately $385.0 million, a hypothetical 100 bps increase in LIBOR would increase our annual interest expense by approximately $15.2 million. Assuming no revolving credit borrowings, a hypothetical 100 bps increase in LIBOR would increase our annual interest expense by approximately $11.4 million.
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.
29
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 and that such information 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. The design of any controls and procedures also is based on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our internal controls over financial reporting as of March 31, 2022, based on the criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon this evaluation, our management, including our principal executive officer and principal financial officer, have identified a material weakness in our internal control over financial reporting initially disclosed as of September 30, 2021. Specifically, the Company does not have sufficient policies and procedures related to Board oversight of certain Board engagement within the Company’s control environment. Accordingly, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
Notwithstanding the above, the control deficiency did not result in a material misstatement of any of the Company’s annual or interim consolidated financial statements. Further, management believes and has concluded that the consolidated financial statements for the prior periods and included in this report fairly present, in all material respects, the Company’s financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.
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. There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2022 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Status Update
Management and our Board of Directors are committed to remediating the above noted material weakness. Based upon a recommendation of the Audit Committee, the Board formed a committee (the “Committee”) to develop and execute on a remediation plan. The Committee and management are in the process of developing the remediation plan and have implemented the following:
|
|
• |
Engaged independent consultants to advise the Board’s Committee as it relates to the deficiency. |
|
|
• |
Enhanced our evaluation of the control environment. |
Management and our Board are committed to taking appropriate steps to remediate the deficiency. The material weakness cannot be considered remediated until remediation efforts have operated for a sufficient period of time and management has concluded, that the material weakness has been resolved. Additional remediation measures continue to be considered and will be implemented as appropriate. We will continue to assess the effectiveness of our remediation efforts in connection with our evaluations of internal control over financial reporting.
30
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 28, 2022, 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
There were no unregistered sales of equity securities during the first quarter of 2022. 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, 2022 |
|
January 31, 2022 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
21,845,063 |
|
|
February 1, 2022 |
|
February 28, 2022 |
|
|
71,551 |
|
|
$ |
70.02 |
|
|
|
— |
|
|
|
21,845,063 |
|
|
March 1, 2022 |
|
March 31, 2022 |
|
|
1,575,741 |
|
|
$ |
71.48 |
|
|
|
1,535,427 |
|
|
|
140,094,818 |
|
|
|
|
|
|
|
1,647,292 |
|
|
|
|
|
|
|
1,535,427 |
|
|
$ |
140,094,818 |
|
|
|
(1) |
Except for the 1,535,427 shares of our common stock repurchased as described in footnote (2) below, all other purchases were made pursuant to our Omnibus Incentive Plan, under which participants may satisfy tax withholding obligations incurred upon the vesting of restricted stock by requesting that we withhold shares with a value equal to the amount of the withholding obligation. |
|
|
(2) |
On March 10, 2022, we announced that our Board of Directors approved a replenishment of $228.2 million to our previously authorized share repurchase program (the “Share Repurchase Program”), bringing the total amount authorized for future share repurchases back up to $250.0 million. Under the Share Repurchase Program, we are 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. Pursuant to the Share Repurchase Program, during the quarter ended March 31, 2022, we repurchased a total of 1,535,427 shares of common stock at a total cost of approximately $109.9 million, leaving approximately $140.1 million available under the Share Repurchase Program as of March 31, 2022. All of the common stock is held as treasury shares as of March 31, 2022. The number of shares to be purchased and the timing of purchases will be based on our trading windows and available liquidity, general business and market conditions and other factors, including legal requirements and alternative opportunities. See Note 10–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
31
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.
Item 6. Exhibits
The following is a list of all exhibits filed or furnished as part of this report:
|
Exhibit No. |
|
Description |
|
|
|
|
|
10.1*† |
|
Letter Agreement dated March 11, 2022 between Sharon Nadeau and SeaWorld Entertainment, Inc. |
|
|
|
|
|
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, 2022, 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.
32
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 6, 2022 |
|
By: /s/ Elizabeth C. Gulacsy |
|
|
|
Elizabeth C. Gulacsy |
|
|
|
Chief Financial Officer and Treasurer and Interim Chief Accounting Officer |
|
|
|
(Principal Financial Officer and Principal Accounting Officer) |
33
Exhibit 10.1
Execution Copy
March 11, 2022
Via Email Address On File
Sharon (Sherri) Nadeau
Dear Sherri:
The purpose of this letter agreement (the “Agreement”) is to formalize our agreement with respect to your retirement as Chief Human Resource Officer from SeaWorld Entertainment, Inc. (the “Company” or “SeaWorld”) effective May 1, 2022 (the “Retirement Date”), unless terminated for Cause prior to that date. You agree that you shall step down from your role as Chief Human Resource Officer effective on March 14, 2022 and you shall remain employed by the Company through the Retirement Date as a special advisor to the Chief Executive Officer (the “Transition Period”). For purposes of this Agreement, “Cause” is defined as per Section 2(h) of the SeaWorld Entertainment, Inc. 2017 Omnibus Incentive Plan (the “Plan”).
Transition Period Duties; Base Salary and Benefits
During the Transition Period, you agree to help with the transition of the interim Chief Human Resource Officer and any successor Chief Human Resource Officer and perform such other duties requested by the Company’s Chief Executive Officer, with consideration given to the physical limitations of your illness. Your base salary will continue during the Transition Period at the rate in effect as of February 14, 2022 and you will remain eligible to participate in the Company benefit plans to the same extent you currently participate. You will continue to vest in any currently outstanding equity awards granted under the Plan that are scheduled to vest in their ordinary course during the Transition Period. You will not be eligible for any pro-rated annual bonus or severance payments for the 2022 calendar year. Commencing on the Retirement Date, you will be eligible to continue your health insurance benefits at your expense under COBRA subject to your valid election and compliance with Section 4980B of the Internal Revenue Code and the regulations thereunder.
Consideration
You shall vest in any time vested equity award granted to you under the Plan that is otherwise scheduled to vest on or before May 1, 2022 (the “Subject Awards”) unless your employment with the Company is terminated prior to the Retirement Date by you for any reason or by the Company for Cause. The foregoing agreement is in consideration of and contingent upon your timely execution and non-revocation of both this Agreement (which contains a general release of any and all known claims) and a bring-down release on or following the Retirement Date (as set forth below). If you fail to timely execute (or you revoke) either release or if you violate any restrictive covenants to which you may be subject, you shall not be eligible for any such vesting of the Subject Awards upon termination and you shall be required to repay to the Company the value of any Subject Awards that vest following the date hereof (whether or not accelerated).
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General Release and Waiver of Claims
Except for the obligations of SeaWorld as stated in this Agreement, you agree, of your own free will, to voluntarily waive, release, and forever discharge SeaWorld, its parents, affiliates, subsidiaries, and related business entities, and all of their respective past and present shareholders, officers, directors, owners, partners, attorneys, authorized representatives, employees, agents, and their respective predecessors, successors, and assigns (collectively, the “Releases”) from all actions, lawsuits, proceedings, causes of action(s), claims, causes, debts, charges, complaints, judgments, damages, contracts and promises of any kind, whether known or unknown, which you, your heirs, executors, administrators, successors and assigns may have from all time in the past through the date of execution of this Agreement, including, but not limited to all matters or claims relating to or arising out of your employment with SeaWorld or the termination of your employment with SeaWorld, whether for tort (including negligence), breach of express or implied contract, intentional infliction of emotional distress, unpaid wages or other compensation, wrongful termination, defamation, libel or slander, or under any federal, state, or local law, as amended, pertaining to discrimination based on age, race, sex, national origin, handicap, religion, disability, sexual orientation, gender identity or expression, or any other category protected under federal, state, or local law. This release of claims includes, but is not limited to, all claims arising under Title VII of the Civil Rights Act of 1964, the Employee Retirement Income Security Act of 1974, the Age Discrimination in Employment Act of 1967, the Older Workers’ Benefit Protection Act of 1990, the Americans With Disabilities Act, as amended, the Family Medical Leave Act, the Worker Adjustment and Retraining Notification Act, the Fair Credit Reporting Act, the Federal False Claims Act, the Occupational Safety and Health Act, the Equal Pay Act, the Florida Civil Rights Act, Florida’s private sector and public sector Whistle-Blower Acts, Florida’s Workers Compensation Retaliation law, the Florida AIDS Act, Florida Wage Discrimination Law, the Florida False Claims Act, Florida Wage Payment Laws, the Florida Law Prohibiting Discrimination on the Basis of Sickle Cell Trait, and the Florida Constitution, all as amended, and other federal, state, and local laws, statutes or ordinances; federal and state constitutions; the common law; and any other purported restriction on an employer’s right to terminate the employment of employees. The release contained herein is intended to be a general release of any and all claims to the fullest extent permissible by law. You do not waive or release any claims which arise after the signing of this Agreement. You acknowledge there might have been claims about which you did not know and you further expressly waive and assume the risk of any and all claims for damages which may exist as of the date of execution of this Agreement but which you do not know of or suspect to exist, whether through ignorance, oversight, error, negligence, or otherwise, whether of you or any other person, and which, if known, would materially affect your decision to enter into this Agreement. Even knowing that, you agree to execute this Agreement. Provided you do not revoke this Agreement, this release shall be effective on the 8th day following your execution of this Agreement.
General Release and Waiver of Claims upon the Retirement Date
You agree that on or within the 21 days immediately following the Retirement Date, you will timely execute (and not revoke) a general release and waiver of claims in favor of the Company for any known or unknown claims that exist through the date of execution in the same form as the general release and waiver of claims (the “Bring Down Release”) above (a copy of
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the Bring Down Release is attached as Exhibit A). The Bring Down Release shall be effective on the 8th day following your execution of such release provided you do not revoke such release.
If you have any questions regarding this Agreement, please contact Tony Taylor. If not, please sign below to indicate your acceptance of this Agreement, including the general release and waiver of claims, and return it to me by March 11, 2022 (which is at least 21 days following the date in which you first received the general release and waiver of claims).
SeaWorld Entertainment, Inc.
Sincerely,
/s/ G. Anthony Taylor
Tony Taylor
Chief Legal Officer, General Counsel and Corporate Secretary
Acknowledged and Agreed:
__/s/ Sharon Nadeau_____________3/11/22_____________
Sharon (Sherri) NadeauDate
EXHIBIT A
Bring-Down
General Release and Waiver of Claims
You, hereby acknowledge and certify that you entered into a letter agreement containing a general release and waiver of claims with SeaWorld Entertainment, Inc. (the “Company” or “SeaWorld”) dated March 11, 2022 (the “Agreement”). Capitalized but undefined terms used herein shall have the meaning set forth in the Agreement. In consideration for the benefits described in the Agreement, you hereby agree as follows:
Except for the obligations of SeaWorld as stated in the Agreement, you agree, of your own free will, to voluntarily waive, release, and forever discharge SeaWorld, its parents, affiliates, subsidiaries, and related business entities, and all of their respective past and present shareholders, officers, directors, owners, partners, attorneys, authorized representatives, employees, agents, and their respective predecessors, successors, and assigns (collectively, the “Releases”) from all actions, lawsuits, proceedings, causes of action(s), claims, causes, debts, charges, complaints, judgments, damages, contracts and promises of any kind, whether known or unknown, which you, your heirs, executors, administrators, successors and assigns may have from all time in the past through the date of execution of this General Release and Waiver of Claims (“Release”), including, but not limited to all matters or claims relating to or arising out of your employment with SeaWorld or the termination of your employment with SeaWorld, whether for tort (including negligence), breach of express or implied contract, intentional infliction of emotional distress, unpaid wages or other compensation, wrongful termination, defamation, libel or slander, or under any federal, state, or local law, as amended, pertaining to discrimination based on age, race, sex, national origin, handicap, religion, disability, sexual orientation, gender identity or expression, or any other category protected under federal, state, or local law. This release of claims includes, but is not limited to, all claims arising under Title VII of the Civil Rights Act of 1964, the Employee Retirement Income Security Act of 1974, the Age Discrimination in Employment Act of 1967 (the “ADEA”), the Older Workers’ Benefit Protection Act of 1990, the Americans With Disabilities Act, as amended, the Family Medical Leave Act, the Worker Adjustment and Retraining Notification Act, the Fair Credit Reporting Act, the Federal False Claims Act, the Occupational Safety and Health Act, the Equal Pay Act, the Florida Civil Rights Act, Florida’s private sector and public sector Whistle-Blower Acts, Florida’s Workers Compensation Retaliation law, the Florida AIDS Act, Florida Wage Discrimination Law, the Florida False Claims Act, Florida Wage Payment Laws, the Florida Law Prohibiting Discrimination on the Basis of Sickle Cell Trait, and the Florida Constitution, all as amended, and other federal, state, and local laws, statutes or ordinances; federal and state constitutions; the common law; and any other purported restriction on an employer’s right to terminate the employment of employees. The release contained herein is intended to be a general release of any and all claims to the fullest extent permissible by law. You do not waive or release any claims which arise after the signing of this Release. You acknowledge there might have been claims about which you did not know and you further expressly waive and assume the risk of any and all claims for damages which may exist as of the date of execution of this Release but which you do not know of or suspect to exist, whether through ignorance, oversight, error, negligence, or otherwise, whether of you or any other person, and which, if known, would materially affect your decision to enter into this Release. Even knowing that, you agree to
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execute this Release. Provided you do not revoke this Release, this release shall be effective on the 8th day following your execution of this Release.
You represent that you have not filed or permitted to be filed against any of the Releases, individually or collectively, any lawsuit, complaint, charge, proceeding, or the like, before any local, state, or federal agency, court, or other body (each, a “Proceeding”), and you covenant and agrees that you will not do so at any time hereafter with respect to the subject matter of the Release and claims released pursuant to the Release (including, without limitation, any claims relating to the termination of your employment), except as may be necessary to enforce the Agreement, to seek a determination of the validity of the waiver of your rights under the ADEA, or to initiate or participate in an investigation or proceeding conducted by the Equal Employment Opportunity Commission.
You expressly represent and acknowledge that (i) the Company has advised you to consult with legal counsel, (ii) that you have had twenty-one (21) days to review the Release, (iii) the Release cannot be signed prior to the Retirement Date, (iv) you have the right to revoke the Release for a period of seven days following your execution of the Release (the “Revocation Period”), by giving written notice of such revocation to the Company’s Chief Legal Officer, General Counsel and Corporate Secretary on or before 5:00 p.m. Eastern time on the last day of the Revocation Period and (v) provided you not revoked the Release during the Revocation Period, the Release shall be effective on the eighth day following your execution of this Release.
Nothing in this Release shall prohibit or impede you from communicating, cooperating or filing a complaint on possible violations of U.S. federal, state or local law or regulation to or with any governmental agency or regulatory authority (collectively, a “Governmental Entity”), including, but not limited to, the SEC, EEOC, OSHA, or the NLRB, or from making other disclosures to any Governmental Entity that are protected under the whistleblower provisions of U.S. federal, state or local law or regulation, provided that in each case such communications and disclosures are consistent with applicable law. You understand and acknowledge that (a) an individual shall not be held criminally or civilly liable under any U.S. federal or state trade secret law for the disclosure of a trade secret that is made (i) in confidence to a U.S. federal, state, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, or (ii) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal, and (b) an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal; and does not disclose the trade secret, except pursuant to court order. Moreover, you shall not be required to give prior notice to (or get prior authorization from) SeaWorld regarding any such communication or disclosure. Except as otherwise provided in this paragraph or under applicable law, under no circumstance are you authorized to disclose any information covered by the Company’s or its affiliates’ attorney-client privilege or attorney work product or the Company’s trade secrets without prior written consent of the Company’s Chief Executive Officer.
Acknowledged and agreed:
EXECUTIVE
_______/s/ Sharon Nadeau__________________
Sharon (Sherri) Nadeau
________3/11/2022________________________
Date
[Signature Page to General Release and Waiver of Claims]
Exhibit 31.1
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Marc G. Swanson, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 of SeaWorld Entertainment, Inc.; |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: May 6, 2022 |
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Signature: |
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/s/ Marc G. Swanson |
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Marc G. Swanson |
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Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Elizabeth C. Gulacsy, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 of SeaWorld Entertainment, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: May 6, 2022 |
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Signature: |
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/s/ Elizabeth C. Gulacsy |
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Elizabeth C. Gulacsy |
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Chief Financial Officer and Treasurer and Interim Chief Accounting Officer
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(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SeaWorld Entertainment, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2022 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Marc G. Swanson, Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein. |
Date: May 6, 2022
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/s/ Marc G. Swanson |
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Marc G. Swanson |
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Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SeaWorld Entertainment, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2022 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Elizabeth C. Gulacsy, Chief Financial Officer and Treasurer, and Interim Chief Accounting Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein. |
Date: May 6, 2022
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/s/ Elizabeth C. Gulacsy |
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Elizabeth C. Gulacsy |
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Chief Financial Officer and Treasurer and Interim Chief Accounting Officer
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(Principal Financial Officer) |