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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/09/23 SeaWorld Entertainment, Inc. 10-Q 9/30/23 62:7.3M Donnelley … Solutions/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 2.28M
2: EX-10.1 Material Contract HTML 142K
3: EX-10.2 Material Contract HTML 65K
4: EX-31.1 Certification -- §302 - SOA'02 HTML 24K
5: EX-31.2 Certification -- §302 - SOA'02 HTML 24K
6: EX-32.1 Certification -- §906 - SOA'02 HTML 21K
7: EX-32.2 Certification -- §906 - SOA'02 HTML 21K
13: R1 Document and Entity Information HTML 71K
14: R2 Unaudited Condensed Consolidated Balance Sheets HTML 134K
15: R3 Unaudited Condensed Consolidated Balance Sheets HTML 38K
(Parenthetical)
16: R4 Unaudited Condensed Consolidated Statements of HTML 95K
Operations
17: R5 Unaudited Condensed Consolidated Statements of HTML 91K
Changes in Stockholders' Deficit
18: R6 Unaudited Condensed Consolidated Statements of HTML 22K
Changes in Stockholders' Deficit (Parenthetical)
19: R7 Unaudited Condensed Consolidated Statements of HTML 111K
Cash Flows
20: R8 Pay vs Performance Disclosure HTML 32K
21: R9 Insider Trading Arrangements HTML 28K
22: R10 Description of the Business and Basis of HTML 80K
Presentation
23: R11 Recent Accounting Pronouncements HTML 31K
24: R12 Earnings per Share HTML 106K
25: R13 Income Taxes HTML 30K
26: R14 Other Accrued Liabilities HTML 47K
27: R15 Long-Term Debt HTML 108K
28: R16 Fair Value Measurements HTML 98K
29: R17 Commitments and Contingencies HTML 35K
30: R18 Equity-Based Compensation HTML 66K
31: R19 Stockholders' Deficit HTML 36K
32: R20 Description of the Business and Basis of HTML 97K
Presentation (Policies)
33: R21 Description of the Business and Basis of HTML 58K
Presentation (Tables)
34: R22 Earnings per Share (Tables) HTML 101K
35: R23 Other Accrued Liabilities (Tables) HTML 44K
36: R24 Long-Term Debt (Tables) HTML 73K
37: R25 Fair Value Measurements (Tables) HTML 92K
38: R26 Equity-Based Compensation (Tables) HTML 50K
39: R27 Description of the Business and Basis of HTML 44K
Presentation - Additional Information (Detail)
40: R28 Description of the Business and Basis of HTML 32K
Presentation - Summary of Cash, Cash Equivalents
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41: R29 Description of the Business and Basis of HTML 27K
Presentation - Deferred Revenue Balances (Detail)
42: R30 Earnings per Share - Schedule of Earnings per HTML 49K
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43: R31 Earnings per Share - Additional Information HTML 26K
(Detail)
44: R32 Income Taxes - Additional Information (Detail) HTML 32K
45: R33 Other Accrued Liabilities - Schedule of Other HTML 30K
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46: R34 Other Accrued Liabilities - Additional Information HTML 21K
(Detail)
47: R35 Long-Term Debt - Summary of Long-Term Debt, Net HTML 42K
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48: R36 Long-Term Debt - Summary of Long-Term Debt, Net HTML 37K
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49: R37 Long-Term Debt - Additional Information (Detail) HTML 149K
50: R38 Long-Term Debt - Summary of Long-Term Debt HTML 38K
Repayable (Detail)
51: R39 Fair Value Measurements - Additional Information HTML 22K
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52: R40 Fair Value Measurements - Schedule of Estimated HTML 28K
Fair Value Measurements and Related
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Recurring Basis (Detail)
53: R41 Fair Value Measurements - Schedule of Estimated HTML 23K
Fair Value Measurements and Related
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54: R42 Commitments and Contingencies - Additional HTML 29K
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55: R43 Equity-Based Compensation - Schedule of Equity HTML 34K
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56: R44 Equity-Based Compensation - Additional Information HTML 71K
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57: R45 Stockholders' Deficit - Additional Information HTML 60K
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| 10-Q |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
(Mark One)
i ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended i September 30, i 2023 /
or
i ☐ 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: i 001-35883
i SeaWorld Entertainment, Inc.
(Exact name of registrant as specified in its charter)
i Delaware |
|
i 27-1220297 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
i 6240 Sea Harbor Drive i Orlando, i Florida |
|
i 32821 |
(Address of principal executive offices) |
|
(Zip Code) |
Registrant’s telephone number, including area code: ( i 407) i 226-5011
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
i Common Stock, par value $0.01 per share |
i SEAS |
i 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. i 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). i 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.
i Large accelerated filer |
☒ |
|
Accelerated filer |
☐ |
Non-accelerated filer |
☐ |
|
Smaller reporting company |
i ☐ |
|
|
|
Emerging growth company |
i ☐ |
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 i ☐ No ☒
The registrant had outstanding i 63,944,033 shares of Common Stock, par value $0.01 per share as of November 3, 2023.
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
FORM 10-Q
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PART I. |
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5 |
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Item 1. |
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Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficit |
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7 |
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9 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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10 |
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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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22 |
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Item 3. |
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31 |
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Item 4. |
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32 |
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PART II. |
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Item 1. |
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34 |
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Item 1A. |
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34 |
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Item 2. |
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34 |
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Item 3. |
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34 |
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Item 4. |
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34 |
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Item 5. |
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35 |
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Item 6. |
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35 |
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36 |
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1
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 “Part I, Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (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:
2
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.
3
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.
4
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)
|
|
September 30, |
|
|
|
|||
|
|
|
|
2022 |
|
|||
Assets |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
i 215,226 |
|
|
$ |
i 79,196 |
|
Accounts receivable, net |
|
|
i 80,098 |
|
|
|
i 71,050 |
|
Inventories |
|
|
i 54,623 |
|
|
|
i 55,190 |
|
Prepaid expenses and other current assets |
|
|
i 25,888 |
|
|
|
i 28,260 |
|
Total current assets |
|
|
i 375,835 |
|
|
|
i 233,696 |
|
Property and equipment, at cost |
|
|
i 3,766,620 |
|
|
|
i 3,576,092 |
|
Accumulated depreciation |
|
|
( i 1,958,429 |
) |
|
|
( i 1,869,413 |
) |
Property and equipment, net |
|
|
i 1,808,191 |
|
|
|
i 1,706,679 |
|
Goodwill |
|
|
i 66,278 |
|
|
|
i 66,278 |
|
Trade names/trademarks, net |
|
|
i 157,000 |
|
|
|
i 157,000 |
|
Right of use assets-operating leases |
|
|
i 127,814 |
|
|
|
i 130,479 |
|
Deferred tax assets, net |
|
|
i 11,274 |
|
|
|
i 12,332 |
|
Other assets, net |
|
|
i 29,150 |
|
|
|
i 19,323 |
|
Total assets |
|
$ |
i 2,575,542 |
|
|
$ |
i 2,325,787 |
|
Liabilities and Stockholders’ Deficit |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable and accrued expenses |
|
$ |
i 146,719 |
|
|
$ |
i 159,947 |
|
Current maturities of long-term debt |
|
|
i 12,000 |
|
|
|
i 12,000 |
|
Operating lease liabilities |
|
|
i 3,371 |
|
|
|
i 3,387 |
|
Accrued salaries, wages and benefits |
|
|
i 24,412 |
|
|
|
i 17,423 |
|
Deferred revenue |
|
|
i 161,082 |
|
|
|
i 169,535 |
|
Other accrued liabilities |
|
|
i 58,892 |
|
|
|
i 46,914 |
|
Total current liabilities |
|
|
i 406,476 |
|
|
|
i 409,206 |
|
Long-term debt, net |
|
|
i 2,094,667 |
|
|
|
i 2,099,059 |
|
Long-term operating lease liabilities |
|
|
i 113,057 |
|
|
|
i 115,396 |
|
Deferred tax liabilities, net |
|
|
i 157,708 |
|
|
|
i 96,627 |
|
Other liabilities |
|
|
i 56,030 |
|
|
|
i 43,163 |
|
Total liabilities |
|
|
i 2,827,938 |
|
|
|
i 2,763,451 |
|
Commitments and contingencies (Note 8) |
|
|
|
|
|
|
||
Stockholders’ Deficit: |
|
|
|
|
|
|
||
Preferred stock, $ i i 0.01 / par value—authorized, i i 100,000,000 / shares, i i i i no / / / shares issued or outstanding at September 30, 2023 and December 31, 2022 |
|
|
— |
|
|
|
— |
|
Common stock, $ i i 0.01 / par value—authorized, i i 1,000,000,000 / shares; i 96,634,322 and i 96,287,771 shares issued at September 30, 2023 and December 31, 2022, respectively |
|
|
i 966 |
|
|
|
i 963 |
|
Additional paid-in capital |
|
|
i 719,134 |
|
|
|
i 710,151 |
|
Retained earnings |
|
|
i 370,046 |
|
|
|
i 175,903 |
|
Treasury stock, at cost ( i 32,690,289 and i 32,376,539 shares
at September 30, 2023 |
|
|
( i 1,342,542 |
) |
|
|
( i 1,324,681 |
) |
Total stockholders’ deficit |
|
|
( i 252,396 |
) |
|
|
( i 437,664 |
) |
Total liabilities and stockholders’ deficit |
|
$ |
i 2,575,542 |
|
|
$ |
i 2,325,787 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
5
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(In thousands, except per share amounts)
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
|
|||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Admissions |
|
$ |
i 299,785 |
|
|
$ |
i 313,574 |
|
|
$ |
i 733,542 |
|
|
$ |
i 739,941 |
|
Food, merchandise and other |
|
|
i 248,462 |
|
|
|
i 251,633 |
|
|
|
i 604,080 |
|
|
|
i 600,776 |
|
Total revenues |
|
|
i 548,247 |
|
|
|
i 565,207 |
|
|
|
i 1,337,622 |
|
|
|
i 1,340,717 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of food, merchandise and other revenues |
|
|
i 40,431 |
|
|
|
i 41,385 |
|
|
|
i 101,862 |
|
|
|
i 105,943 |
|
Operating expenses (exclusive of depreciation and amortization shown separately below) |
|
|
i 205,808 |
|
|
|
i 215,899 |
|
|
|
i 574,210 |
|
|
|
i 559,320 |
|
Selling, general and administrative expenses |
|
|
i 59,705 |
|
|
|
i 53,082 |
|
|
|
i 176,152 |
|
|
|
i 155,299 |
|
Severance and other separation costs |
|
|
( i 139 |
) |
|
|
— |
|
|
|
i 521 |
|
|
|
i 113 |
|
Depreciation and amortization |
|
|
i 39,171 |
|
|
|
i 37,216 |
|
|
|
i 114,396 |
|
|
|
i 114,379 |
|
Total costs and expenses |
|
|
i 344,976 |
|
|
|
i 347,582 |
|
|
|
i 967,141 |
|
|
|
i 935,054 |
|
Operating income |
|
|
i 203,271 |
|
|
|
i 217,625 |
|
|
|
i 370,481 |
|
|
|
i 405,663 |
|
Other (income) expense, net |
|
|
( i 21 |
) |
|
|
( i 66 |
) |
|
|
i 20 |
|
|
|
( i 110 |
) |
Interest expense |
|
|
i 37,052 |
|
|
|
i 30,556 |
|
|
|
i 110,407 |
|
|
|
i 82,736 |
|
Income before income taxes |
|
|
i 166,240 |
|
|
|
i 187,135 |
|
|
|
i 260,054 |
|
|
|
i 323,037 |
|
Provision for income taxes |
|
|
i 42,685 |
|
|
|
i 52,578 |
|
|
|
i 65,911 |
|
|
|
i 80,857 |
|
Net income |
|
$ |
i 123,555 |
|
|
$ |
i 134,557 |
|
|
$ |
i 194,143 |
|
|
$ |
i 242,180 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share, basic |
|
$ |
i 1.93 |
|
|
$ |
i 2.00 |
|
|
$ |
i 3.04 |
|
|
$ |
i 3.39 |
|
Earnings per share, diluted |
|
$ |
i 1.92 |
|
|
$ |
i 1.99 |
|
|
$ |
i 3.01 |
|
|
$ |
i 3.36 |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
i 63,954 |
|
|
|
i 67,176 |
|
|
|
i 63,955 |
|
|
|
i 71,450 |
|
Diluted |
|
|
i 64,319 |
|
|
|
i 67,569 |
|
|
|
i 64,425 |
|
|
|
i 72,130 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
6
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' DEFICIT
(In thousands, except share amounts)
|
|
Shares of |
|
|
Common |
|
|
Additional |
|
|
Retained Earnings |
|
|
Treasury |
|
|
Total |
|
||||||
Balance at December 31, 2022 |
|
|
i 96,287,771 |
|
|
$ |
i 963 |
|
|
$ |
i 710,151 |
|
|
$ |
i 175,903 |
|
|
$ |
( i 1,324,681 |
) |
|
$ |
( i 437,664 |
) |
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 4,482 |
|
|
|
— |
|
|
|
— |
|
|
|
i 4,482 |
|
Vesting of restricted shares |
|
|
i 273,134 |
|
|
|
i 3 |
|
|
|
( i 3 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Shares withheld for tax withholdings |
|
|
( i 86,914 |
) |
|
|
( i 1 |
) |
|
|
( i 5,568 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 5,569 |
) |
Exercise of stock options |
|
|
i 22,793 |
|
|
|
— |
|
|
|
i 565 |
|
|
|
— |
|
|
|
— |
|
|
|
i 565 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 16,467 |
) |
|
|
— |
|
|
|
( i 16,467 |
) |
Balance at March 31, 2023 |
|
|
i 96,496,784 |
|
|
|
i 965 |
|
|
|
i 709,627 |
|
|
|
i 159,436 |
|
|
|
( i 1,324,681 |
) |
|
|
( i 454,653 |
) |
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 3,725 |
|
|
|
— |
|
|
|
— |
|
|
|
i 3,725 |
|
Vesting of restricted shares |
|
|
i 53,735 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Shares withheld for tax withholdings |
|
|
( i 13,118 |
) |
|
|
— |
|
|
|
( i 771 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 771 |
) |
Exercise of stock options |
|
|
i 45,248 |
|
|
|
i 1 |
|
|
|
i 1,078 |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,079 |
|
Repurchase of i 235,000 shares of treasury stock, at cost |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 13,947 |
) |
|
|
( i 13,947 |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 87,055 |
|
|
|
— |
|
|
|
i 87,055 |
|
Balance at June 30, 2023 |
|
|
i 96,582,649 |
|
|
|
i 966 |
|
|
|
i 713,659 |
|
|
|
i 246,491 |
|
|
|
( i 1,338,628 |
) |
|
|
( i 377,512 |
) |
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 4,602 |
|
|
|
— |
|
|
|
— |
|
|
|
i 4,602 |
|
Vesting of restricted shares |
|
|
i 20,986 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Shares withheld for tax withholdings |
|
|
( i 4,289 |
) |
|
|
— |
|
|
|
( i 221 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 221 |
) |
Exercise of stock options |
|
|
i 34,976 |
|
|
|
— |
|
|
|
i 1,094 |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,094 |
|
Repurchase of i 78,750 shares of treasury stock, at cost |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 3,914 |
) |
|
|
( i 3,914 |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 123,555 |
|
|
|
— |
|
|
|
i 123,555 |
|
Balance at September 30, 2023 |
|
|
i 96,634,322 |
|
|
$ |
i 966 |
|
|
$ |
i 719,134 |
|
|
$ |
i 370,046 |
|
|
$ |
( i 1,342,542 |
) |
|
$ |
( i 252,396 |
) |
7
|
|
Shares of |
|
|
Common |
|
|
Additional |
|
|
(Accumulated Deficit) Retained Earnings |
|
|
Treasury |
|
|
Total |
|
||||||
Balance at December 31, 2021 |
|
|
i 95,541,992 |
|
|
$ |
i 955 |
|
|
$ |
i 711,474 |
|
|
$ |
( i 115,287 |
) |
|
$ |
( i 631,058 |
) |
|
$ |
( i 33,916 |
) |
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 6,982 |
|
|
|
— |
|
|
|
— |
|
|
|
i 6,982 |
|
Vesting of restricted shares |
|
|
i 361,403 |
|
|
|
i 4 |
|
|
|
( i 4 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Shares withheld for tax withholdings |
|
|
( i 111,865 |
) |
|
|
( i 1 |
) |
|
|
( i 7,737 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 7,738 |
) |
Exercise of stock options |
|
|
i 46,503 |
|
|
|
— |
|
|
|
i 1,127 |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,127 |
|
Repurchase of i 1,535,427 shares of treasury stock, at cost |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 109,905 |
) |
|
|
( i 109,905 |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 8,987 |
) |
|
|
— |
|
|
|
( i 8,987 |
) |
Balance at March 31, 2022 |
|
|
i 95,838,033 |
|
|
|
i 958 |
|
|
|
i 711,842 |
|
|
|
( i 124,274 |
) |
|
|
( i 740,963 |
) |
|
|
( i 152,437 |
) |
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 2,549 |
|
|
|
— |
|
|
|
— |
|
|
|
i 2,549 |
|
Vesting of restricted shares |
|
|
i 545,819 |
|
|
|
i 6 |
|
|
|
( i 6 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Shares withheld for tax withholdings |
|
|
( i 201,442 |
) |
|
|
( i 2 |
) |
|
|
( i 14,327 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 14,329 |
) |
Exercise of stock options |
|
|
i 29,783 |
|
|
|
— |
|
|
|
i 808 |
|
|
|
— |
|
|
|
— |
|
|
|
i 808 |
|
Repurchase of i 6,341,755 shares of treasury stock, at cost |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 354,652 |
) |
|
|
( i 354,652 |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 116,610 |
|
|
|
— |
|
|
|
i 116,610 |
|
Balance at June 30, 2022 |
|
|
i 96,212,193 |
|
|
|
i 962 |
|
|
|
i 700,866 |
|
|
|
( i 7,664 |
) |
|
|
( i 1,095,615 |
) |
|
|
( i 401,451 |
) |
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 4,444 |
|
|
|
— |
|
|
|
— |
|
|
|
i 4,444 |
|
Vesting of restricted shares |
|
|
i 13,432 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Shares withheld for tax withholdings |
|
|
( i 2,183 |
) |
|
|
— |
|
|
|
( i 115 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 115 |
) |
Exercise of stock options |
|
|
i 32,401 |
|
|
|
i 1 |
|
|
|
i 759 |
|
|
|
— |
|
|
|
— |
|
|
|
i 760 |
|
Repurchase of i 3,163,547 shares of treasury stock, at cost |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 158,497 |
) |
|
|
( i 158,497 |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 134,557 |
|
|
|
— |
|
|
|
i 134,557 |
|
Balance at September 30, 2022 |
|
|
i 96,255,843 |
|
|
$ |
i 963 |
|
|
$ |
i 705,954 |
|
|
$ |
i 126,893 |
|
|
$ |
( i 1,254,112 |
) |
|
$ |
( i 420,302 |
) |
See accompanying notes to unaudited condensed consolidated financial statements.
8
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
For the Nine Months Ended September 30, |
|
|||||
|
|
|
|
2022 |
|
|||
Cash Flows From Operating Activities: |
|
|
|
|
|
|
||
Net income |
|
$ |
i 194,143 |
|
|
$ |
i 242,180 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
i 114,396 |
|
|
|
i 114,379 |
|
Amortization of debt issuance costs and discounts |
|
|
i 4,608 |
|
|
|
i 4,685 |
|
Deferred income tax provision |
|
|
i 62,139 |
|
|
|
i 78,056 |
|
Equity-based compensation |
|
|
i 12,809 |
|
|
|
i 13,975 |
|
Other, including loss on sale or disposal of assets, net |
|
|
i 22,236 |
|
|
|
i 11,906 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
( i 13,181 |
) |
|
|
i 1,160 |
|
Inventories |
|
|
i 413 |
|
|
|
( i 30,739 |
) |
Prepaid expenses and other current assets |
|
|
i 3,699 |
|
|
|
( i 4,401 |
) |
Accounts payable and accrued expenses |
|
|
( i 6,823 |
) |
|
|
i 11,176 |
|
Accrued salaries, wages and benefits |
|
|
i 6,989 |
|
|
|
( i 2,996 |
) |
Deferred revenue |
|
|
( i 4,383 |
) |
|
|
i 17,815 |
|
Other accrued liabilities |
|
|
i 9,095 |
|
|
|
i 7,779 |
|
Right-of-use assets and operating lease liabilities |
|
|
i 329 |
|
|
|
i 469 |
|
Other assets and liabilities |
|
|
( i 8,012 |
) |
|
|
i 3,430 |
|
Net cash provided by operating activities |
|
|
i 398,457 |
|
|
|
i 468,874 |
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
||
Capital expenditures |
|
|
( i 234,218 |
) |
|
|
( i 150,729 |
) |
Net cash used in investing activities |
|
|
( i 234,218 |
) |
|
|
( i 150,729 |
) |
Cash Flows From Financing Activities: |
|
|
|
|
|
|
||
Repayments of long-term debt |
|
|
( i 9,000 |
) |
|
|
( i 9,000 |
) |
Proceeds from draws on revolving credit facility |
|
|
i 20,000 |
|
|
|
— |
|
Repayments of revolving credit facility |
|
|
( i 20,000 |
) |
|
|
— |
|
Purchase of treasury stock |
|
|
( i 17,861 |
) |
|
|
( i 617,756 |
) |
Payment of tax withholdings on equity-based compensation through shares withheld |
|
|
( i 6,561 |
) |
|
|
( i 22,182 |
) |
Exercise of stock options |
|
|
i 2,738 |
|
|
|
i 2,695 |
|
Debt issuance costs |
|
|
— |
|
|
|
( i 469 |
) |
Other financing activities |
|
|
( i 649 |
) |
|
|
( i 427 |
) |
Net cash used in financing activities |
|
|
( i 31,333 |
) |
|
|
( i 647,139 |
) |
Change in Cash and Cash Equivalents, including Restricted Cash |
|
|
i 132,906 |
|
|
|
( i 328,994 |
) |
Cash and Cash Equivalents, including Restricted Cash—Beginning of period |
|
|
i 82,320 |
|
|
|
i 444,486 |
|
Cash and Cash Equivalents, including Restricted Cash—End of period |
|
$ |
i 215,226 |
|
|
$ |
i 115,492 |
|
Supplemental Disclosure of Noncash Investing and Financing Activities: |
|
|
|
|
|
|
||
Capital expenditures in accounts payable |
|
$ |
i 34,466 |
|
|
$ |
i 32,671 |
|
Right-of-use assets obtained in exchange for financing lease obligations |
|
$ |
i 2,900 |
|
|
$ |
i 5,298 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
9
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 i 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 Chula Vista, California.
/Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“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, 2022 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, 2022 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, 2023 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 quarter, in part because four of its theme parks were historically only open for a portion of the year. In the year ended December 31, 2022, we opened our Sesame Place San Diego park which has been, and is expected to continue to be, open more operating days than the Aquatica San Diego park it replaced, particularly in the first and fourth quarters of the year.
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including SEA. All intercompany accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions include, but are not limited to, the accounting for self-insurance reserves, income taxes, revenue recognition 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.
Segment Reporting
The Company maintains discrete financial information for each of its i 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 i 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 as of December 31, 2022 consists primarily of advanced funds for which costs had yet to be incurred related to the Company’s international services agreements, as discussed in the “International Agreements” section which follows.
10
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
September 30, |
|
|
|
|||
|
|
|
|
2022 |
|
|||
|
|
(In thousands) |
|
|||||
Cash and cash equivalents |
|
$ |
i 215,226 |
|
|
$ |
i 79,196 |
|
Restricted cash, included in prepaid expenses and other current assets |
|
|
— |
|
|
|
i 3,124 |
|
Total cash, cash equivalents and restricted cash |
|
$ |
i 215,226 |
|
|
$ |
i 82,320 |
|
Share Repurchase Programs 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 September 30, 2023 and December 31, 2022 is reflected within stockholders’ deficit. See further discussion of the Company’s share repurchase programs 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 certain 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.
Food, merchandise and other revenue primarily consists of food and beverage, retail, merchandise, parking, other in-park products and service fees, and other miscellaneous revenue, including online transaction fees and revenue from the Company’s international agreements, not necessarily generated in our parks, 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 September 30, 2023 and December 31, 2022, 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 agreements, as discussed in the following section.
The following table reflects the Company’s deferred revenue balance as of September 30, 2023 and December 31, 2022:
|
|
September 30, |
|
|
|
|||
|
|
|
|
2022 |
|
|||
|
|
(In thousands) |
|
|||||
Deferred revenue, including long-term portion |
|
$ |
i 177,025 |
|
|
$ |
i 183,772 |
|
Less: Deferred revenue, long-term portion, included in other liabilities |
|
|
i 15,943 |
|
|
|
i 14,237 |
|
Deferred revenue, short-term portion |
|
$ |
i 161,082 |
|
|
$ |
i 169,535 |
|
The Company estimates approximately $ i 164.2 million of the deferred revenue, short term portion, balance outstanding as of December 31, 2022 was recognized as revenue during the nine months ended September 30, 2023. For certain admission products, the Company estimated timing of redemption using average historical redemption rates.
11
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
International Agreements
The Company has previously received $ i 10.0 million in deferred revenue which is 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 which opened in May 2023 (the “Middle East Project”), with funding received expected to offset internal expenses. The Company also received additional funds, some of which were advanced, from its partner related to agreed-upon services and reimbursements of costs incurred by the Company on behalf of the Middle East Project (the “Middle East Services Agreements”).
Revenue and expenses associated with the Middle East Project began to be recognized when substantially all the services were complete which occurred when SeaWorld Abu Dhabi opened. Revenue and expenses associated with the Middle East Services Agreements will be recognized upon completion of the respective performance obligations.
As a result of the Middle East Project, approximately $ i 0.6 million and $ i 0.5 million of costs incurred by the Company are recorded in prepaid expenses and other current assets as of September 30, 2023 and December 31, 2022, respectively, and approximately $ i 12.1 million and $ i 11.2 million of other related costs incurred are recorded in other assets in the accompanying unaudited condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022, respectively. Separately, deferred revenue of approximately $ i 0.8 million and $ i 0.6 million is recorded in deferred revenue as of September 30, 2023 and December 31, 2022, respectively, and approximately $ i 14.4 million and $ i 14.2 million of long-term deferred revenue is recorded in other liabilities in the accompanying unaudited condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022, respectively, related to the Middle East Project, which includes the $ i i 10.0 / million nonrefundable payment previously discussed for each period.
As a result of the Middle East Services Agreements, approximately $ i 2.0 million of costs incurred by the Company are recorded in prepaid expenses and other current assets in the accompanying unaudited condensed consolidated balance sheets as of December 31, 2022. Separately, deferred revenue of approximately $ i 5.1 million is recorded in deferred revenue in the accompanying unaudited condensed consolidated balance sheets as of December 31, 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. EARNINGS PER SHARE
Earnings per share is computed as follows:
|
|
For the Three Months Ended September 30, |
|
|||||||||||||||||||||
|
|
|
|
2022 |
|
|||||||||||||||||||
|
|
Net |
|
|
Shares |
|
|
Per |
|
|
Net |
|
|
Shares |
|
|
Per |
|
||||||
|
|
(In thousands, except per share amounts) |
|
|||||||||||||||||||||
Basic earnings per share |
|
$ |
i 123,555 |
|
|
|
i 63,954 |
|
|
$ |
i 1.93 |
|
|
$ |
i 134,557 |
|
|
|
i 67,176 |
|
|
$ |
i 2.00 |
|
Effect of dilutive incentive-based awards |
|
|
|
|
|
i 365 |
|
|
|
|
|
|
|
|
|
i 393 |
|
|
|
|
||||
Diluted earnings per share |
|
$ |
i 123,555 |
|
|
|
i 64,319 |
|
|
$ |
i 1.92 |
|
|
$ |
i 134,557 |
|
|
|
i 67,569 |
|
|
$ |
i 1.99 |
|
|
|
For the Nine Months Ended September 30, |
|
|||||||||||||||||||||
|
|
|
|
2022 |
|
|||||||||||||||||||
|
|
Net |
|
|
Shares |
|
|
Per |
|
|
Net |
|
|
Shares |
|
|
Per |
|
||||||
|
|
(In thousands, except per share amounts) |
|
|||||||||||||||||||||
Basic earnings per share |
|
$ |
i 194,143 |
|
|
|
i 63,955 |
|
|
$ |
i 3.04 |
|
|
$ |
i 242,180 |
|
|
|
i 71,450 |
|
|
$ |
i 3.39 |
|
Effect of dilutive incentive-based awards |
|
|
|
|
|
i 470 |
|
|
|
|
|
|
|
|
|
i 680 |
|
|
|
|
||||
Diluted earnings per share |
|
$ |
i 194,143 |
|
|
|
i 64,425 |
|
|
$ |
i 3.01 |
|
|
$ |
i 242,180 |
|
|
|
i 72,130 |
|
|
$ |
i 3.36 |
|
12
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
/
In accordance with the Earnings Per Share Topic of the Accounting Standards Codification (“ASC"), basic earnings per share is computed by dividing net income 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 earnings 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 earnings per share is determined using the treasury stock method based on the dilutive effect of unvested restricted stock awards and certain shares of common stock that are issuable upon exercise of stock options. During the three and nine months ended September 30, 2023, there were approximately i 491,000 and i 424,000 anti-dilutive shares excluded from the computation of diluted earnings per share, respectively. During the three and nine months ended September 30, 2022, there were approximately i 328,000 and i 246,000 anti-dilutive shares excluded from the computation of diluted earnings per share, respectively. The Company’s outstanding performance-vesting restricted awards of approximately i 912,000 and i 1,015,000 as of September 30, 2023 and 2022, respectively, are considered contingently issuable shares and are excluded from the calculation of diluted earnings 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 and nine months ended September 30, 2023 was i 25.7% and i 25.3%, respectively, and for the three and nine months ended September 30, 2022 was i 28.1% and i 25.0%, respectively. The Company’s effective tax rates over these periods differ from the effective statutory federal income tax rate of i i i i 21.0 / / / % primarily due to state income taxes and other compensation related items, partially offset by a tax benefit related to equity-based compensation which vested during the period.
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 September 30, 2023 and December 31, 2022, the Company’s valuation allowance consisted of approximately $ i 4.8 million and $ i 4.6 million, respectively, 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 Inflation Reduction Act (“IRA”) of 2022 was signed into law on August 16, 2022. This legislation includes a i 15% corporate alternative minimum tax and a i 1% excise tax on stock repurchases among its key tax provisions effective for years beginning after December 31, 2022. The Company does not anticipate a material impact for either of these provisions.
/5. OTHER ACCRUED LIABILITIES
Other accrued liabilities at September 30, 2023 and December 31, 2022, consisted of the following:
|
|
September 30, |
|
|
|
|||
|
|
|
|
2022 |
|
|||
|
|
(In thousands) |
|
|||||
Accrued interest |
|
$ |
i 13,663 |
|
|
$ |
i 18,483 |
|
Accrued taxes |
|
|
i 12,893 |
|
|
|
i 3,284 |
|
Self-insurance reserve |
|
|
i 10,537 |
|
|
|
i 8,608 |
|
Other |
|
|
i 21,799 |
|
|
|
i 16,539 |
|
Total other accrued liabilities |
|
$ |
i 58,892 |
|
|
$ |
i 46,914 |
|
As of September 30, 2023 and December 31, 2022, other accrued liabilities above includes approximately $ i 15.1 million and $ i 10.9 million, respectively, related to certain legal matters, contractual liabilities and respective assessments arising from the previously disclosed temporary COVID-19 park closures.
13
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2023 and December 31, 2022, accrued interest above primarily relates to interest associated with the Company’s first-priority senior secured notes issued in April 2020, for which interest is paid bi-annually in November and May and the senior notes issued in August 2021, for which interest is paid bi-annually in February and August. See further discussion in Note 6–Long-Term Debt.
/6. LONG-TERM DEBT
Long-term debt, net, as of September 30, 2023 and December 31, 2022 consisted of the following:
|
|
September 30, |
|
|
|
|||
|
|
|
|
2022 |
|
|||
|
|
(In thousands) |
|
|||||
Term B Loans (effective interest rate of i 8.43% and i 7.44% at September 30, 2023 and December 31, 2022, respectively) |
|
$ |
i 1,176,000 |
|
|
$ |
i 1,185,000 |
|
Senior Notes due 2029 (interest rate of i i 5.25 / %) |
|
|
i 725,000 |
|
|
|
i 725,000 |
|
First-Priority Senior Secured Notes due 2025 (interest rate of i i 8.75 / %) |
|
|
i 227,500 |
|
|
|
i 227,500 |
|
Total long-term debt |
|
|
i 2,128,500 |
|
|
|
i 2,137,500 |
|
Less: unamortized discounts and debt issuance costs |
|
|
( i 21,833 |
) |
|
|
( i 26,441 |
) |
Less: current maturities |
|
|
( i 12,000 |
) |
|
|
( i 12,000 |
) |
Total long-term debt, net |
|
$ |
i 2,094,667 |
|
|
$ |
i 2,099,059 |
|
On August 25, 2021, 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”).
On June 12, 2023, the Company amended the Amended and Restated Credit Agreement to replace the LIBOR-based benchmark rates with Term SOFR-based benchmark rates plus credit spread adjustments of i 0.11448%, i 0.26161% and i 0.42826% for interest periods of one, three and six months, respectively, due to reference rate reform (“Adjusted Term SOFR”). The Term SOFR-based benchmark rate became effective as of July 1, 2023. There were no changes to any material terms of the Amended and Restated Credit Agreement that were unrelated to the replacement of the LIBOR-based benchmark rates.
The Amended and Restated Credit Agreement provides for senior secured financing of up to $ i 1,585.0 million, consisting of:
On August 1, 2023, the Company launched an opportunistic repricing amendment for the Term Loan Facility under that certain Amended and Restated Credit Agreement, dated as of August 25, 2021 (and as amended on June 9, 2022 and June 12, 2023), among the Company, SEA, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, to, among other things, reprice the existing Term Loan Facility thereunder. The Company subsequently canceled the opportunistic repricing due to unfavorable market conditions unrelated to the Company.
Senior Secured Credit Facilities
i 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 Term SOFR 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) an Adjusted Term SOFR rate for the applicable interest period (provided that in no event shall such Adjusted Term SOFR rate with respect to the Term B Loans be less than 0.50% per annum) plus an applicable margin of 3.00%.
14
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
i 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) Adjusted Term SOFR (provided that in no event shall such Adjusted Term SOFR 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 i 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 Adjusted Term SOFR 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 i 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 i 0.25% of the original principal amount of the Term B Loans, payable quarterly, with the balance to be paid at maturity.
i In addition, the Senior Secured Credit Facilities require the Company to prepay outstanding term loan borrowings, subject to certain exceptions, with:
The Company may voluntarily repay outstanding loans under the Senior Secured Credit Facilities at any time, without prepayment premium or penalty, subject to customary “breakage” costs with respect to Adjusted Term SOFR 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 September 30, 2023, SEA had approximately $ i 18.4 million of outstanding letters of credit, leaving approximately $ i 371.6 million available under the Revolving Credit Facility, which was not drawn upon as of September 30, 2023.
Senior Notes
On August 25, 2021, SEA completed a private offering of $ i 725.0 million aggregate principal amount of i 5.250% senior notes which mature on i August 15, 2029 (the “Senior Notes”). Interest on the Senior Notes accrues at i 5.250% per annum and is paid semi-annually, in arrears on February 15 and August 15 of each year.
i 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 i 102.625%; (ii) in 2025 at i 101.313%; and (iii) in 2026 and thereafter at i 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 i 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 i 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 i 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 i 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.
15
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
First-Priority Senior Secured Notes
The i 8.750% first-priority senior secured notes (the “First-Priority Senior Secured Notes”) mature on i May 1, 2025 and have interest payment dates of May 1 and November 1. i 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 i 104.375%; (ii) in 2023 at i 102.188%; and (iii) in 2024 and thereafter at i 100%. SEA may also redeem in the aggregate (at a redemption price expressed as a percentage of principal amount thereof): (i) i 100% of the First-Priority Senior Secured Notes after certain events constituting a change of control at a redemption price of i 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 i 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.
On August 1, 2023, SEA issued a conditional notice of redemption (the “Redemption Notice”) for all of the $ i 227.5 million aggregate principal amount of the First-Priority Senior Secured Notes. Due to unfavorable market conditions unrelated to SEA, the Redemption Notice was subsequently withdrawn.
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.
The Revolving Credit Facility requires that the Company, subject to a testing threshold, comply on a quarterly basis with a maximum net first lien leverage ratio of i 6.25 to i 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 $ i 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 i 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 i 4.25 to 1.00 after giving effect to the payment of any such restricted payment. As of September 30, 2023, the net total leverage ratio as calculated under the Debt Agreements was i 2.56 to 1.00.
Long-term debt at September 30, 2023 is repayable as follows and does not include the impact of any future voluntary prepayments:
Years Ending December 31: |
|
(In thousands) |
|
|
Remainder of 2023 |
|
$ |
i 3,000 |
|
2024 |
|
|
i 12,000 |
|
2025 |
|
|
i 239,500 |
|
2026 |
|
|
i 12,000 |
|
2027 |
|
|
i 12,000 |
|
Thereafter |
|
|
i 1,850,000 |
|
Total |
|
$ |
i 2,128,500 |
|
16
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
/
Cash paid for interest relating to the Senior Secured Credit Facilities, the Senior Notes, and the First-Priority Senior Secured Notes, net of amounts capitalized, as applicable, was $ i 113.7 million and $ i 82.4 million in the nine months ended September 30, 2023 and 2022, 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 September 30, 2023 and December 31, 2022, 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.
The Company did i i no / t have any assets measured on a recurring basis at fair value at September 30, 2023 and December 31, 2022. 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 September 30, 2023.
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
||||
|
Active Markets |
|
|
Significant |
|
|
|
|
|
|
|
||||
|
for Identical |
|
|
Other |
|
|
Significant |
|
|
|
|
||||
|
Assets and |
|
|
Observable |
|
|
Unobservable |
|
|
Balance at |
|
||||
|
Liabilities |
|
|
Inputs |
|
|
Inputs |
|
|
September 30, |
|
||||
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
2023 |
|
||||
|
(In thousands) |
|
|||||||||||||
Long-term obligations (a) |
$ |
i 867,184 |
|
|
$ |
i 1,176,000 |
|
|
$ |
— |
|
|
$ |
i 2,043,184 |
|
(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 $ i 12.0 million and long-term debt, net, of $ i 2.095 billion as of September 30, 2023.
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, 2022:
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
||||
|
Active Markets |
|
|
Significant |
|
|
|
|
|
|
|
||||
|
for Identical |
|
|
Other |
|
|
Significant |
|
|
|
|
||||
|
Assets and |
|
|
Observable |
|
|
Unobservable |
|
|
Balance at |
|
||||
|
Liabilities |
|
|
Inputs |
|
|
Inputs |
|
|
December 31, |
|
||||
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
2022 |
|
||||
|
(In thousands) |
|
|||||||||||||
Long-term obligations (a) |
$ |
i 873,675 |
|
|
$ |
i 1,185,000 |
|
|
$ |
— |
|
|
$ |
i 2,058,675 |
|
17
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 $ i 12.0 million and long-term debt, net, of $ i 2.099 billion as of December 31, 2022.
/8. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Sesame Workshop Arbitration
On February 4, 2022, Sesame Workshop delivered notice asserting that the Company failed to pay an additional royalty payment for 2021 under its licensing agreement with the Company (the “Licensing Agreement”). The Company had previously accrued for the additional amount claimed in other accrued liabilities in the accompanying unaudited condensed consolidated balance sheet as of December 31, 2022. On June 27, 2022, pursuant to the License Agreement, Sesame Workshop initiated arbitration seeking a finding that its calculation of the amount of the 2021 royalty payment was correct. Sesame Workshop did not seek any modification or termination of the Licensing Agreement in the arbitration. The arbitration panel made an award on May 22, 2023 to Sesame Workshop for royalties, interest on the award, arbitration fees and expenses, which amounts are accrued for in other accrued liabilities in the accompanying unaudited condensed consolidated balance sheet as of September 30, 2023, however, the Company is challenging the decision of the arbitration panel. On August 7, 2023, Sesame Workshop filed a Petition to Confirm Arbitration Award, and in response, the Company filed a Cross Motion to Vacate. At this time, the Company does not anticipate any exposure to loss in excess of amounts accrued to be material.
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. After an arbitration process agreed to by the parties determined that the claims were not subject to arbitration. On August 10, 2022, the defendant former employees filed answers, affirmative defenses and counterclaims. On October 10, 2022, the Company filed motions for judgment on the pleadings and to dismiss the counterclaims. The defendant former employees opposed the motions and oral arguments for the parties’ motions and counterclaims were held before the Court of Chancery, on March 29, 2023. On May 26, 2023, the Court of Chancery granted the Company’s motion for judgment on the pleadings and dismissed with prejudice the defendant former employees’ counterclaims. The defendant former employees filed a notice of appeal on June 21, 2023. 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 i 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.
18
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On July 27, 2022, a purported class action was filed in the United States District Court for the Eastern District of Pennsylvania against the Company captioned Quinton Burns individually and Next Friend of K.B., a minor v. SeaWorld Parks & Entertainment, Inc. and SeaWorld Parks & Entertainment LLC, Civil Case No. 2:22-cv-09941. The complaint states the putative class consists of Quinton Burns and K.B. Burns and similarly situated Black people. Plaintiffs then filed an amended complaint adding an additional seven adult and seven minor class representative plaintiffs in which they allege the class consists of themselves and similarly situated minority persons and also disclosed an additional 89 families and 125 children represented by Plaintiffs’ counsel who are allegedly members of the purported class (the "First Amended Complaint"). The First Amended Complaint alleges the Company engaged in disparate treatment of class members based on their race and in so doing violated the Civil Rights Act of 1866 and Pennsylvania common law. The First Amended Complaint seeks compensatory and punitive damages and attorneys’ fees and costs as well declarative and injunctive relief. The Company filed a motion to dismiss all counts and a motion to strike certification of the class. The Court granted the motion to dismiss with prejudice as to the negligent training and hiring claims, without prejudice as to the negligent supervising claim, and denied the motion as to the 42 USC 1981 and negligence per se claims. Regarding the motion to strike class certification, the Court denied the motion on the grounds it is premature. The Company intends to refile the motion to strike class certification if and when the Plaintiffs file a motion to certify the class. The Company believes that the lawsuit is without merit and intends to defend it vigorously. While there can be no assurance regarding the ultimate outcome of the litigation, the Company believes a potential loss, if any, 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”).
In addition to the 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
i Pursuant to the 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 September 30, 2023, the Company estimates the combined remaining liabilities and obligations for the License Agreement commitments could be up to approximately $ i 25.0 million over the remaining term of the agreement. See further discussion concerning royalty payments for the year 2021 in the "Sesame Workshop Arbitration" section above. /
Anheuser-Busch, Incorporated ("ABI") 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.
/19
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 September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
|
|
(In thousands) |
|
|||||||||||||
Equity compensation expense included in operating expenses |
|
$ |
i 671 |
|
|
$ |
i 961 |
|
|
$ |
i 1,215 |
|
|
$ |
i 3,615 |
|
Equity compensation expense included in selling, general and administrative expenses |
|
|
i 3,931 |
|
|
|
i 3,483 |
|
|
|
i 11,594 |
|
|
|
i 10,360 |
|
Total equity compensation expense |
|
$ |
i 4,602 |
|
|
$ |
i 4,444 |
|
|
$ |
i 12,809 |
|
|
$ |
i 13,975 |
|
Omnibus Incentive Plan
The Company has reserved i 15.0 million shares of common stock for issuance under its Omnibus Incentive Plan (the “Omnibus Incentive Plan”), of which approximately i 6.9 million shares are available for future issuance as of September 30, 2023.
Bonus Performance Restricted Units
During the nine months ended September 30, 2023, the Company granted approximately i 140,000 performance-vesting restricted units (the “Bonus Performance Restricted Units”) in accordance with its annual bonus plan for 2023 (the “2023 Bonus Plan”). The 2023 Bonus Plan provides for bonus awards payable i 50% in cash and i 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 2023 Bonus Plan, with respect to the year ended December 31, 2023 (“Fiscal 2023”). The total number of units eligible to vest into shares of stock is based on the level of achievement of the targets for Fiscal 2023 which ranges from i 0% (if below threshold performance), to i 100% (if at target performance) with opportunities to earn above 100% when achievement is above the target performance for certain metrics.
The Company had an annual bonus plan for the fiscal year ended December 31, 2022 (“Fiscal 2022”), 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 2022. Based on the Company’s actual Fiscal 2022 results, a portion of these Bonus Performance Restricted Units vested and were converted into approximately i 20,000 shares in the nine months ended September 30, 2023 and the remaining unvested units forfeited in accordance with their terms.
Long-term Incentive Performance Restricted Awards
During the nine months ended September 30, 2023, the Company granted long-term incentive plan awards for 2023 (the “2023 Long-Term Incentive Grant”) which were comprised of approximately i 65,000 nonqualified stock options (the “Long-Term Incentive Options”) and approximately i 260,000 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 i three years, with i 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 will be issued by the Company.
20
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, 2023 and ending on December 31, 2025 (or, extended through December 31, 2026, 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 i 0% (if below threshold performance) up to i 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 i 50% of the units can be earned.
Other
During the nine months ended September 30, 2023, 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 2022 results. The remainder of the 2019 Long-Term Incentive Plan awards are eligible to vest in 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 changes for performance-vesting restricted awards in a subsequent period, all equity compensation expense related to those awards that would have been recorded, if any, over the requisite service period had the new percentage been applied from inception, will be recorded as a cumulative catch-up or reduction at such subsequent date.
/10. STOCKHOLDERS’ DEFICIT
As of September 30, 2023, i 96,634,322 shares of common stock were issued in the accompanying unaudited condensed consolidated balance sheet, which includes i 32,690,289 shares of treasury stock held by the Company (see Share Repurchase Programs discussion which follows) but excludes i 1,503,544 unvested restricted stock awards held by certain participants in the Company’s equity compensation plans or members of the Board (see Note 9–Equity-Based Compensation).
Share Repurchase Programs
The Board had previously authorized a share repurchase program of up to $ i 250.0 million of the Company’s common stock (the “Former Share Repurchase Program”). In March 2022, the Board approved a replenishment to the Former Share Repurchase Program of $ i 228.2 million, bringing the total amount authorized for future share repurchases back up to $ i 250.0 million at that time. Under the Former Share Repurchase Program, during the nine months ended September 30, 2022, the Company repurchased i 3,563,086 shares for an aggregate total of approximately $ i 250.0 million, leaving i no amount remaining under the Former Share Repurchase Program.
In May 2022, the Board approved a $ i 250.0 million share repurchase program (the “May Share Repurchase Program”). Under the May Share Repurchase Program, during the nine months ended September 30, 2022, the Company repurchased i 5,085,752 shares for an aggregate total of approximately $ i 250.0 million, leaving i no amount remaining under the May Share Repurchase Program.
In August 2022, the Board approved a new $ i 250.0 million share repurchase program (the “Share Repurchase Program”). Under the Share Repurchase Program, during the year ended December 31, 2022, the Company repurchased i 3,774,659 shares for an aggregate total of approximately $ i 193.6 million. During the nine months ended September 30, 2023, the Company repurchased i 313,750 shares for an aggregate total of approximately $ i 17.9 million, leaving approximately $ i 38.5 million available as of September 30, 2023.
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. 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, share ownership thresholds, debt covenant restrictions, future tax implications and alternative investment opportunities.
/21
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, 2022.
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
Current Operating Environment
Our Board has formed a number of committees and held certain meetings and operational review sessions 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 and decisions.
We are seeing a return to more normalized staffing levels, but wage pressures and labor availability challenges remain for some positions which could impact operations and the guest experience. We remain committed to our efforts to recruit and retain strong talent as a key to our success. We have also been impacted by higher interest rates and supply chain disruptions (which has, at times, impacted ride and/or in-park facility availability). We have heightened our focus on cost reduction and efficiency opportunities, including optimized labor deployment, as well as incremental pricing and revenue opportunities.
For further discussion relating to strategic measures we have taken to operate in the current environment, see the “Results of Operations” section which follows.
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, some of 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, while others can renew for a full commitment period.
22
Total revenue per capita, defined as total revenue divided by total attendance, consists of admission per capita and in-park per capita spending:
Total revenue per capita, admissions per capita and in-park per capita spending are key performance metrics that we use to assess the operating performance of our parks on a per attendee basis and to make strategic operating decisions. We believe the presentation of these performance metrics is useful and relevant for investors as it provides investors the ability to review operating performance in the same manner as our management and provides investors with a consistent methodology to analyze revenue between periods on a per attendee basis. In addition, investors, lenders, financial analysts and rating agencies have historically used similar per-capita related performance metrics to evaluate companies in the industry.
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.
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, property taxes 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, park operating hours, new parks and/or incremental operating days, new and/or enhanced events, attendance levels, supply chain issues, and inflationary pressures, among other factors. The mix of products sold compared to the prior year period can also impact our costs as retail products generally have a higher cost of sales component than our food and beverage or other in-park offerings.
We have a dedicated team of employees and consultants focused on reducing costs and improving operating margins and streamlining our labor structure to better align with our strategic business objectives. 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 guest experiences.
See 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.
23
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 four 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 quarter. 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 eight 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.
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. In the year ended December 31, 2022, we opened our Sesame Place San Diego park which has been, and is expected to continue to be, open more operating days than the Aquatica San Diego park it replaced, particularly in the first and fourth quarters of the year. Incremental operating days generally are expected to drive incremental attendance and revenue.
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
The following discussion provides an analysis of our operating results for the three months ended September 30, 2023 and 2022. 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.
Comparison of the Three Months Ended September 30, 2023 to the Three Months Ended September 30, 2022
The following table presents key operating and financial information for the three months ended September 30, 2023 and 2022:
|
|
For the Three Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
September 30, |
|
|
Variance |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
# |
|
|
% |
|
||||
Summary Financial Data: |
|
(In thousands, except per capita data) |
|
|||||||||||||
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Admissions |
|
$ |
299,785 |
|
|
$ |
313,574 |
|
|
$ |
(13,789 |
) |
|
|
(4.4 |
%) |
Food, merchandise and other |
|
|
248,462 |
|
|
|
251,633 |
|
|
|
(3,171 |
) |
|
|
(1.3 |
%) |
Total revenues |
|
|
548,247 |
|
|
|
565,207 |
|
|
|
(16,960 |
) |
|
|
(3.0 |
%) |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of food, merchandise and other revenues |
|
|
40,431 |
|
|
|
41,385 |
|
|
|
(954 |
) |
|
|
(2.3 |
%) |
Operating expenses (exclusive of depreciation and amortization shown separately below) |
|
|
205,808 |
|
|
|
215,899 |
|
|
|
(10,091 |
) |
|
|
(4.7 |
%) |
Selling, general and administrative expenses |
|
|
59,705 |
|
|
|
53,082 |
|
|
|
6,623 |
|
|
|
12.5 |
% |
Severance and other separation costs |
|
|
(139 |
) |
|
|
— |
|
|
|
(139 |
) |
|
NM |
|
|
Depreciation and amortization |
|
|
39,171 |
|
|
|
37,216 |
|
|
|
1,955 |
|
|
|
5.3 |
% |
Total costs and expenses |
|
|
344,976 |
|
|
|
347,582 |
|
|
|
(2,606 |
) |
|
|
(0.7 |
%) |
Operating income |
|
|
203,271 |
|
|
|
217,625 |
|
|
|
(14,354 |
) |
|
|
(6.6 |
%) |
Other income, net |
|
|
(21 |
) |
|
|
(66 |
) |
|
|
45 |
|
|
|
68.2 |
% |
Interest expense |
|
|
37,052 |
|
|
|
30,556 |
|
|
|
6,496 |
|
|
|
21.3 |
% |
Income before income taxes |
|
|
166,240 |
|
|
|
187,135 |
|
|
|
(20,895 |
) |
|
|
(11.2 |
%) |
Provision for income taxes |
|
|
42,685 |
|
|
|
52,578 |
|
|
|
(9,893 |
) |
|
|
(18.8 |
%) |
Net income |
|
$ |
123,555 |
|
|
$ |
134,557 |
|
|
$ |
(11,002 |
) |
|
|
(8.2 |
%) |
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Attendance |
|
|
7,129 |
|
|
|
7,336 |
|
|
|
(207 |
) |
|
|
(2.8 |
%) |
Total revenue per capita |
|
$ |
76.90 |
|
|
$ |
77.05 |
|
|
$ |
(0.15 |
) |
|
|
(0.2 |
%) |
Admission per capita |
|
$ |
42.05 |
|
|
$ |
42.75 |
|
|
$ |
(0.70 |
) |
|
|
(1.6 |
%) |
In-park per capita spending |
|
$ |
34.85 |
|
|
$ |
34.30 |
|
|
$ |
0.55 |
|
|
|
1.6 |
% |
NM-Not Meaningful.
24
Admissions revenue. Admissions revenue for the three months ended September 30, 2023 decreased $13.8 million, or 4.4%, to $299.8 million as compared to $313.6 million for the three months ended September 30, 2022. The decline was a result of a decrease in attendance and a decrease in admission per capita. Total attendance for the third quarter of 2023 decreased by approximately 207 thousand guests, or 2.8%, when compared to the prior year quarter. The decrease in attendance was primarily due to significantly adverse weather, including some combination of unusual heat and/or rain, across most of our markets, including during peak visitation periods. Admission per capita decreased by $0.70 to $42.05 for the third quarter of 2023 compared to $42.75 in the prior year quarter, primarily due to the net impact of the admissions product mix, partially offset by the realization of higher prices in our admission products resulting from our strategic pricing efforts when compared to the prior year quarter.
Food, merchandise and other revenue. Food, merchandise and other revenue for the three months ended September 30, 2023 decreased $3.2 million, or 1.3%, to $248.5 million as compared to $251.6 million for the three months ended September 30, 2022, as a result of a decrease in attendance, as discussed above, partially offset by an increase in in-park per capita spending. In-park per capita spending increased by 1.6% to $34.85 in the third quarter of 2023 compared to $34.30 in the third quarter of 2022. In park per capita spending improved primarily due to pricing initiatives, partially offset by factors including weather, the admissions product mix, closures and disruption related to construction delays at certain in park locations when compared to the third quarter of 2022.
Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the three months ended September 30, 2023 decreased $1.0 million, or 2.3%, to $40.4 million as compared to $41.4 million for the three months ended September 30, 2022, primarily due to a decrease in related revenue along with the impact of implemented structural cost savings initiatives.
Operating expenses. Operating expenses for the three months ended September 30, 2023 decreased $10.1 million, or 4.7%, to $205.8 million as compared to $215.9 million for the three months ended September 30, 2022. The decrease in operating expenses is primarily due to decreased labor related costs and a decrease in nonrecurring legal costs and contractual liabilities resulting from the previously disclosed temporary COVID-19 park closures, along with the impact of implemented structural cost savings initiatives when compared to the third quarter of 2022.
Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended September 30, 2023 increased $6.6 million, or 12.5%, to $59.7 million as compared to $53.1 million for the three months ended September 30, 2022. The increase in selling, general and administrative expenses is primarily due to a $5.6 million increase in third-party consulting costs and legal fees, including approximately $2.7 million of nonrecurring costs primarily related to an opportunistic loan repricing and strategic initiatives, partially offset by the impact of implemented cost savings and efficiency initiatives when compared to the third quarter of 2022. 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 information on the opportunistic loan repricing.
Depreciation and amortization. Depreciation and amortization expense for the three months ended September 30, 2023 increased $2.0 million, or 5.3%, to $39.2 million as compared to $37.2 million for the three months ended September 30, 2022. 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 September 30, 2023 increased $6.5 million, or 21.3%, to $37.1 million as compared to $30.6 million for the three months ended September 30, 2022. The increase primarily relates to increased interest rates on variable rate debt.
Provision for income taxes. Provision for income taxes in the three months ended September 30, 2023 was $42.7 million compared to $52.6 million for the three months ended September 30, 2022. Our consolidated effective tax rate was 25.7% for the three months ended September 30, 2023 compared to 28.1% for the three months ended September 30, 2022. The effective tax rate for the three months ended September 30, 2023 and 2022 was primarily impacted due to state income taxes and other compensation related items, partially offset by a tax benefit related to equity-based compensation which vested during the period.
25
Comparison of the Nine Months Ended September 30, 2023 and 2022
The following table presents key operating and financial information for the nine months ended September 30, 2023 and 2022:
|
|
For the Nine Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
September 30, |
|
|
Variance |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
# |
|
|
% |
|
||||
Summary Financial Data: |
|
(In thousands, except per capita data) |
|
|||||||||||||
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Admissions |
|
$ |
733,542 |
|
|
$ |
739,941 |
|
|
$ |
(6,399 |
) |
|
|
(0.9 |
%) |
Food, merchandise and other |
|
|
604,080 |
|
|
|
600,776 |
|
|
|
3,304 |
|
|
|
0.5 |
% |
Total revenues |
|
|
1,337,622 |
|
|
|
1,340,717 |
|
|
|
(3,095 |
) |
|
|
(0.2 |
%) |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of food, merchandise and other revenues |
|
|
101,862 |
|
|
|
105,943 |
|
|
|
(4,081 |
) |
|
|
(3.9 |
%) |
Operating expenses (exclusive of depreciation and amortization shown separately below) |
|
|
574,210 |
|
|
|
559,320 |
|
|
|
14,890 |
|
|
|
2.7 |
% |
Selling, general and administrative expenses |
|
|
176,152 |
|
|
|
155,299 |
|
|
|
20,853 |
|
|
|
13.4 |
% |
Severance and other separation costs |
|
|
521 |
|
|
|
113 |
|
|
|
408 |
|
|
NM |
|
|
Depreciation and amortization |
|
|
114,396 |
|
|
|
114,379 |
|
|
|
17 |
|
|
|
0.0 |
% |
Total costs and expenses |
|
|
967,141 |
|
|
|
935,054 |
|
|
|
32,087 |
|
|
|
3.4 |
% |
Operating income |
|
|
370,481 |
|
|
|
405,663 |
|
|
|
(35,182 |
) |
|
|
(8.7 |
%) |
Other expense (income), net |
|
|
20 |
|
|
|
(110 |
) |
|
|
130 |
|
|
NM |
|
|
Interest expense |
|
|
110,407 |
|
|
|
82,736 |
|
|
|
27,671 |
|
|
|
33.4 |
% |
Income before income taxes |
|
|
260,054 |
|
|
|
323,037 |
|
|
|
(62,983 |
) |
|
|
(19.5 |
%) |
Provision for income taxes |
|
|
65,911 |
|
|
|
80,857 |
|
|
|
(14,946 |
) |
|
|
(18.5 |
%) |
Net income |
|
$ |
194,143 |
|
|
$ |
242,180 |
|
|
$ |
(48,037 |
) |
|
|
(19.8 |
%) |
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Attendance |
|
|
16,646 |
|
|
|
17,002 |
|
|
|
(356 |
) |
|
|
(2.1 |
%) |
Total revenue per capita |
|
$ |
80.36 |
|
|
$ |
78.86 |
|
|
$ |
1.50 |
|
|
|
1.9 |
% |
Admission per capita |
|
$ |
44.07 |
|
|
$ |
43.52 |
|
|
$ |
0.55 |
|
|
|
1.3 |
% |
In-park per capita spending |
|
$ |
36.29 |
|
|
$ |
35.34 |
|
|
$ |
0.95 |
|
|
|
2.7 |
% |
NM-Not Meaningful.
Admissions revenue. Admissions revenue for the nine months ended September 30, 2023 decreased $6.4 million, or 0.9%, to $733.5 million as compared to $739.9 million for the nine months ended September 30, 2022. The decline was a result of a decrease in attendance, partially offset by an increase in admissions per capita. Total attendance for the first nine months of 2023 decreased by approximately 356 thousand guests, or 2.1%, when compared to the first nine months of 2022. The decrease in attendance was primarily due to significantly adverse weather, including some combination of unusual heat, cold, rain and/or the fall-out from Canadian wildfires, across most of our markets, including during peak visitation periods. Admission per capita increased by 1.3% to $44.07 for the nine months ended September 30, 2023 compared to $43.52 for the nine months ended September 30, 2022, 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 prior year period.
Food, merchandise and other revenue. Food, merchandise and other revenue for the nine months ended September 30, 2023 increased $3.3 million, or 0.5%, to $604.1 million as compared to $600.8 million for the nine months ended September 30, 2022 as a result of an increase in revenue related to our international services agreements and an increase in in-park per capita spending, partially offset by a decrease in attendance, as discussed above. In-park per capita spending increased by 2.7% to $36.29 for the nine months ended September 30, 2023 compared to $35.34 for the nine months ended September 30, 2022. In park per capita spending improved primarily due to pricing initiatives and an increase in revenue related to our international services agreements when compared to the first nine months of 2022, partially offset by factors including weather, the admissions product mix, closures and disruption related to construction delays at certain in park locations. See Note 1–Description of the Business and Basis of Presentation in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information on our international agreements.
Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the nine months ended September 30, 2023 decreased $4.1 million, or 3.9%, to $101.9 million as compared to $105.9 million for the nine months ended September 30, 2022, primarily due to a decrease in related revenue along with decreased freight costs and the impact of implemented structural cost savings initiatives.
26
Operating expenses. Operating expenses for the nine months ended September 30, 2023 increased by $14.9 million, or 2.7%, to $574.2 million as compared to $559.3 million for the nine months ended September 30, 2022. The increase in operating expenses is primarily due to an increase in costs associated with our international services agreements, an increase in non-cash self-insurance reserve adjustments, and an increase in non-cash asset write-offs, partially offset by the impact of implemented structural cost savings initiatives when compared to the first nine months of 2022.
Selling, general and administrative expenses. Selling, general and administrative expenses for the nine months ended September 30, 2023 increased $20.9 million, or 13.4%, to $176.2 million as compared to $155.3 million for the nine months ended September 30, 2022. The increase in selling, general and administrative expenses is primarily due to a $15.7 million increase in third-party consulting costs and legal fees, including approximately $11.2 million of nonrecurring costs primarily related to strategic initiatives, partially offset by the impact of implemented cost savings and efficiency initiatives when compared to the first nine months of 2022.
Depreciation and amortization. Depreciation and amortization expense for the nine months ended September 30, 2023 was relatively flat at $114.4 million as compared to $114.4 million for the nine months ended September 30, 2022.
Interest expense. Interest expense for the nine months ended September 30, 2023 increased $27.7 million, or 33.4%, to $110.4 million as compared to $82.7 million for the nine months ended September 30, 2022. The increase primarily relates to increased interest rates on variable rate debt.
Provision for income taxes. Provision for income taxes for the nine months ended September 30, 2023 was $65.9 million compared to $80.9 million for the nine months ended September 30, 2022. Our consolidated effective tax rate was 25.3% for the nine months ended September 30, 2023 compared to 25.0% for the nine months ended September 30, 2022. The effective tax rate in the nine months ended September 30, 2023 and 2022 was primarily impacted by state income taxes and other compensation related items, partially offset by a tax benefit related to equity-based compensation which vested during the period. See Note 4–Income Taxes in our notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.
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 typically 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 September 30, 2023, we had a working capital ratio (defined as current assets divided by current liabilities) of 0.9. 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 our share repurchase programs.
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.
27
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 Nine Months Ended September 30, |
|
|||||
|
|
|
|
2022 |
|
|||
|
|
(Unaudited, in thousands) |
|
|||||
Net cash provided by operating activities |
|
$ |
398,457 |
|
|
$ |
468,874 |
|
Net cash used in investing activities |
|
|
(234,218 |
) |
|
|
(150,729 |
) |
Net cash used in financing activities |
|
|
(31,333 |
) |
|
|
(647,139 |
) |
Net increase (decrease) in cash and cash equivalents, including restricted cash |
|
$ |
132,906 |
|
|
$ |
(328,994 |
) |
Cash Flows from Operating Activities
Net cash provided by operating activities was $398.5 million during the nine months ended September 30, 2023 as compared to $468.9 million during the nine months ended September 30, 2022. The change in net cash provided by operating activities was significantly impacted by a decline in operating performance.
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 nine months ended September 30, 2023 consisted of capital expenditures of $234.2 million largely related to future attractions. Net cash used in investing activities during the nine months ended September 30, 2022 consisted of $150.7 million of capital expenditures.
The following table presents detail of our capital expenditures for the periods indicated:
|
|
For the Nine Months Ended September 30, |
|
|
|||||
|
|
|
|
2022 |
|
|
|||
Capital Expenditures: |
|
(Unaudited, in thousands) |
|
|
|||||
Core(a) |
|
$ |
156,060 |
|
|
$ |
100,197 |
|
|
Expansion/ROI projects(b) |
|
|
78,158 |
|
|
|
50,532 |
|
|
Capital expenditures, total |
|
$ |
234,218 |
|
|
$ |
150,729 |
|
|
(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 nine months ended September 30, 2023 results primarily from share repurchases of $17.9 million, repayments of $9.0 million on our long-term debt, and payment of tax withholdings on equity-based compensation through shares withheld of $6.6 million. Net cash used in financing activities during the nine months ended September 30, 2022 results primarily from share repurchases of $617.8 million and payment of tax withholdings on equity-based compensation through shares withheld of $22.2 million. See Note 10–Stockholders’ Deficit 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 September 30, 2023, 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 August 25, 2021 (the “Senior Secured Credit Facilities”).
28
As of September 30, 2023, our Senior Secured Credit Facilities consisted of $1.176 billion in Term B Loans which will mature in August 2028, along with a $390.0 million Revolving Credit Facility, which had no amounts outstanding as of September 30, 2023 and will mature in August 2026. As of September 30, 2023, SEA had approximately $18.4 million of outstanding letters of credit, leaving approximately $371.6 million available for borrowing under the Revolving Credit Facility.
Senior Notes and First-Priority Senior Secured Notes
As of September 30, 2023, 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 September 30, 2023, 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 income plus (i) income tax provision, (ii) loss on extinguishment of debt, (iii) interest expense, consent fees and similar financing costs, (iv) depreciation and amortization, (v) equity-based compensation expense, (vi) certain non-cash charges/credits including those related to asset disposals and self-insurance reserve adjustments, (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.
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 U.S. generally accepted accounting principles (“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.
29
The following table reconciles Adjusted EBITDA and Covenant Adjusted EBITDA to net income for the periods indicated:
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
|
Last Twelve Months Ended |
|
|
|||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
||||||
|
|
(Unaudited, in thousands) |
|
|
|
|
|
||||||||||||||
Net income |
|
$ |
123,555 |
|
|
$ |
134,557 |
|
|
$ |
194,143 |
|
|
$ |
242,180 |
|
|
$ |
243,153 |
|
|
Provision for income taxes |
|
|
42,685 |
|
|
|
52,578 |
|
|
|
65,911 |
|
|
|
80,857 |
|
|
|
83,937 |
|
|
Interest expense |
|
|
37,052 |
|
|
|
30,556 |
|
|
|
110,407 |
|
|
|
82,736 |
|
|
|
145,172 |
|
|
Depreciation and amortization |
|
|
39,171 |
|
|
|
37,216 |
|
|
|
114,396 |
|
|
|
114,379 |
|
|
|
152,637 |
|
|
Equity-based compensation expense (a) |
|
|
4,644 |
|
|
|
4,472 |
|
|
|
13,715 |
|
|
|
15,554 |
|
|
|
17,918 |
|
|
Loss on impairment or disposal of assets and certain non-cash expenses(b) |
|
|
8,723 |
|
|
|
3,540 |
|
|
|
22,985 |
|
|
|
12,555 |
|
|
|
24,648 |
|
|
Business optimization, development and strategic initiative costs (c) |
|
|
6,662 |
|
|
|
4,656 |
|
|
|
28,191 |
|
|
|
14,050 |
|
|
|
33,987 |
|
|
Certain investment costs and other taxes |
|
|
1,147 |
|
|
|
53 |
|
|
|
1,309 |
|
|
|
1,053 |
|
|
|
1,384 |
|
|
COVID-19 related incremental costs (d) |
|
|
1,092 |
|
|
|
4,957 |
|
|
|
8,760 |
|
|
|
5,930 |
|
|
|
9,519 |
|
|
Other adjusting items (e) |
|
|
1,666 |
|
|
|
1,598 |
|
|
|
3,239 |
|
|
|
5,275 |
|
|
|
4,377 |
|
|
Adjusted EBITDA (f) |
|
$ |
266,397 |
|
|
$ |
274,183 |
|
|
$ |
563,056 |
|
|
$ |
574,569 |
|
|
$ |
716,732 |
|
|
Items added back to Covenant Adjusted EBITDA as defined in the Debt Agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Estimated cost savings (g) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,200 |
|
|
||||
Other adjustments as defined in the Debt Agreements (h) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,522 |
|
|
||||
Covenant Adjusted EBITDA (i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
748,454 |
|
|
||||
(a) Reflects non-cash equity compensation expenses and related payroll taxes associated with the grants of equity-based compensation. 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.
(b) Reflects primarily non-cash self-insurance reserve adjustments of: (i) approximately $4.8 million for the three months ended September 30, 2023; (ii) approximately $11.8 million for the nine and twelve months ended September 30, 2023, respectively; and (iii) approximately $2.6 million and $6.5 million for the three and nine months ended September 30, 2022, respectively. Also includes non-cash expenses related to miscellaneous fixed asset disposals including asset write-offs and costs, including approximately $4.5 million for the three months ended September 30, 2023 and $6.5 million for the nine and twelve months ended September 30, 2023 in disposals associated with certain rides and equipment which were removed from service.
(c) For the three, nine, and twelve months ended September 30, 2023, reflects business optimization, development and other strategic initiative costs primarily related to: (i) $3.1 million, $17.1 million, and $19.3 million, respectively of third-party consulting costs and (ii) $3.6 million, $9.7 million, and $12.9 million, respectively of other business optimization costs and strategic initiative costs. For the three and nine months ended September 30, 2022, reflects business optimization, development and other strategic initiative costs primarily related to: (i) $2.5 million and $7.6 million, respectively, of third-party consulting costs and (ii) $1.8 million and $5.6 million, respectively, of other business optimization costs and strategic initiative costs.
(d) For the three, nine, and twelve months ended September 30, 2023, primarily reflects costs associated with certain legal matters, nonrecurring contractual liabilities and respective assessments related to the previously disclosed temporary COVID-19 park closures. For the three and nine months ended September 30, 2022, includes approximately $4.1 million of certain legal matters related to the temporary COVID-19 park closures.
(e) Reflects the impact of expenses, net of insurance recoveries and adjustments, incurred primarily related to certain matters, which we are permitted to exclude under the credit agreement governing our Senior Secured Credit Facilities due to the unusual nature of the items. For the nine months ended September 30, 2022, includes $3.6 million related to a legal settlement.
(f) Adjusted EBITDA is defined as net income (loss) before income tax expense, interest expense, depreciation and amortization, as further adjusted to exclude certain non-cash, and other items as described above.
30
(g) Our Debt Agreements 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 income.
(h) The Debt Agreements 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.
(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.
Contractual Obligations
There have been no material changes to our contractual obligations as September 30, 2023 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 March 1, 2023.
Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements as of September 30, 2023.
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, freight, 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 September 30, 2023. We presently manage interest rate risk primarily by managing the amount, sources and duration of our debt funding. At September 30, 2023, 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 $390.0 million, a hypothetical 100 bps increase in Adjusted Term SOFR would increase our annual interest expense by approximately $15.7 million. Assuming no revolving credit borrowings, a hypothetical 100 bps increase in Adjusted Term SOFR would increase our annual interest expense by approximately $11.8 million.
31
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 disclosure controls and procedures as of September 30, 2023. Based upon this evaluation, our management, including our principal executive officer and principal financial officer, have 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 due to a material weakness in our internal control over financial reporting which was initially disclosed as of September 30, 2021.
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 U.S. generally accepted accounting principles.
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 our internal control over financial reporting that occurred during the most recent quarter ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than those disclosed in the status update section.
Status Update
Management and our Board of Directors are committed to remediating the above noted material weakness to address the deficiency within the control environment which resulted from a lack of sufficient policies and procedures surrounding the frequency, manner and extent in which Board members engage with management, resulting, in part, from increased Board engagement with management, as disclosed in Part I, Item 2, “Current Operating Environment” included elsewhere in this Quarterly Report on Form 10-Q. As a result, management and the Board determined that it should establish and/or enhance additional policies and procedures relating to Board engagement and establish a process to evaluate adherence to these policies and procedures. Based upon a recommendation of the Audit Committee, the Board formed a committee (the “Committee”) and engaged independent consultants to advise the Committee and management as it relates to this deficiency to develop and execute on a remediation plan.
Management continues to perform ongoing risk assessments. As a result of these assessments, management and the Committee continue to identify actions to remediate the material weakness, including the following actions:
32
Management will continue to perform ongoing risk assessment procedures, including continued enhancement, design and implementation of relevant controls, and will assess and test the effectiveness of these remediation efforts. As we continue to evaluate the effectiveness of the above remediation efforts, management may determine to take additional measures or to modify the remediation plan described above, which may require additional implementation time. 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. We will continue to assess the effectiveness of our remediation efforts in connection with our evaluations of internal control over financial reporting.
33
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
See Note 8–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 March 1, 2023, 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 third quarter of 2023. 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 |
|
|
Average |
|
|
Total Number of |
|
|
Maximum Number |
|
||||
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
42,424,727 |
|
||
|
|
|
83,039 |
|
|
$ |
49.80 |
|
|
|
78,750 |
|
|
|
38,510,748 |
|
||
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
38,510,748 |
|
||
|
|
|
|
|
83,039 |
|
|
|
|
|
|
78,750 |
|
|
$ |
38,510,748 |
|
|
In August 2022, we announced that our Board approved a new $250.0 million share repurchase program (the “Share Repurchase Program”). Under the Share Repurchase Program, during the year ended December 31, 2022, we repurchased 3,774,659 shares for an aggregate total of approximately $193.6 million. During the quarter ended September 30, 2023, we repurchased 78,750 shares for an aggregate total of approximately $3.9 million, leaving approximately $38.5 million available as of September 30, 2023.
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. All of the common stock is held as treasury shares as of September 30, 2023. 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.
34
Item 5. Other Information
Rule 10b5-1 Trading Plans
Neither the Company nor any of its directors or officers i i adopted / , modified, or i i terminated / a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (within the meaning of Item 408 of Regulation S-K) during the Company’s fiscal quarter ended September 30, 2023.
/Item 6. Exhibits
The following is a list of all exhibits filed or furnished as part of this report:
Exhibit No. |
|
Description |
|
|
|
10.1*† |
|
|
|
|
|
10.2*† |
|
Amended and Restated Outside Director Compensation Policy, effective January 1, 2023 |
|
|
|
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 September 30, 2023, formatted in Inline XBRL |
† 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.
35
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: November 9, 2023 |
|
By: /s/ James W. Forrester, Jr. |
|
|
|
|
|
Interim Chief Financial Officer and Treasurer |
|
|
(Principal Financial Officer) |
|
|
|
Date: November 9, 2023 |
|
By: /s/ Shekufeh Shirazi Boyle |
|
|
|
|
|
Chief Accounting Officer |
|
|
(Principal Accounting Officer) |
36
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 12/31/31 | ||||
| 8/15/29 | ||||
| 8/25/28 | ||||
| 12/31/26 | ||||
| 8/25/26 | ||||
| 12/31/25 | ||||
| 5/1/25 | ||||
| 8/15/24 | ||||
| 12/31/23 | ||||
| Filed on: | 11/9/23 | |||
| 11/3/23 | ||||
| For Period end: | 9/30/23 | 4 | ||
| 9/1/23 | ||||
| 8/31/23 | 8-K | |||
| 8/7/23 | ||||
| 8/1/23 | 8-K | |||
| 7/31/23 | ||||
| 7/1/23 | ||||
| 6/30/23 | 10-Q, 4 | |||
| 6/21/23 | ||||
| 6/12/23 | ||||
| 5/26/23 | SD | |||
| 5/22/23 | ||||
| 3/31/23 | 10-Q, 4 | |||
| 3/29/23 | ||||
| 3/1/23 | 10-K, 4 | |||
| 1/1/23 | ||||
| 12/31/22 | 10-K, 4, ARS, SD | |||
| 10/10/22 | ||||
| 9/30/22 | 10-Q, 4 | |||
| 8/16/22 | 4 | |||
| 8/10/22 | 4 | |||
| 7/29/22 | ||||
| 7/27/22 | UPLOAD | |||
| 6/30/22 | 10-Q, 4 | |||
| 6/27/22 | ||||
| 6/9/22 | ||||
| 3/31/22 | 10-Q, 4 | |||
| 3/26/22 | ||||
| 2/4/22 | ||||
| 12/31/21 | 10-K, 4, SD | |||
| 9/30/21 | 10-Q, 4, NT 10-Q | |||
| 8/25/21 | 8-K | |||
| 12/1/09 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 2/29/24 United Parks & Resorts Inc. 10-K 12/31/23 105:14M Donnelley … Solutions/FA |