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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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☒ |
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Accelerated filer |
☐ |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The registrant had outstanding
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
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Page No. |
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1 |
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PART I. |
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Item 1. |
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5 |
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Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficit |
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7 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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34 |
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Item 4. |
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PART II. |
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36 |
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Item 1. |
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36 |
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Item 1A. |
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Item 2. |
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Item 3. |
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37 |
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Item 4. |
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Item 5. |
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Item 6. |
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39 |
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of the federal securities laws. All statements, other than statements of historical facts, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, our results of operations, financial position and our business outlook, business trends and other information, may be forward-looking statements. Words such as “might,” “will,” “may,” “should,” “estimates,” “expects,” “continues,” “contemplates,” “anticipates,” “projects,” “plans,” “potential,” “predicts,” “intends,” “believes,” “forecasts,” “future,” “targeted,” “goal” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.
There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Such risks, uncertainties and other important factors that could cause actual results to differ materially include, among others, the risks, uncertainties and factors set forth under “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report on Form 10-K”), filed with the Securities and Exchange Commission (the “SEC”), and under “Part II, Item 1A., Risk Factors” in this Quarterly Report on Form 10-Q, as such risk factors may be updated from time to time in our periodic filings with the SEC, including this report, and are accessible on the SEC’s website at www.sec.gov, including the following:
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the effects of the global Coronavirus (“COVID-19”) pandemic, or any related mutations of the virus on our business and the economy in general; |
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• |
failure to hire and/or retain employees; |
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• |
a decline in discretionary consumer spending or consumer confidence; |
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• |
various factors beyond our control adversely affecting attendance and guest spending at our theme parks, including, but not limited to, weather, natural disasters, labor shortages, inflationary pressures, supply chain delays or shortages, foreign exchange rates, consumer confidence, the potential spread of travel-related health concerns including pandemics and epidemics (such as the recent declaration by the World Health Organization of Monkeypox as a global health emergency), travel related concerns, adverse general economic related factors including increasing interest rates, economic uncertainty, and recent geopolitical events outside of the United States, and governmental actions; |
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complex federal and state regulations governing the treatment of animals, which can change, and claims and lawsuits by activist groups before government regulators and in the courts; |
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activist and other third-party groups and/or media can pressure governmental agencies, vendors, partners, and/or regulators, bring action in the courts or create negative publicity about us; |
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incidents or adverse publicity concerning our theme parks, the theme park industry and/or zoological facilities; |
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environmental, social and corporate governance (“ESG”) matters or related incidents, including inclusion and diversity matters, our reporting of such matters, or sustainability ratings could negatively impact our business and results of operations; |
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a significant portion of our revenues have historically been generated in the States of Florida, California and Virginia, and any risks affecting such markets, such as natural disasters, closures due to pandemics, severe weather and travel-related disruptions or incidents; |
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seasonal fluctuations in operating results; |
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inability to compete effectively in the highly competitive theme park industry; |
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interactions between animals and our employees and our guests at attractions at our theme parks; |
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animal exposure to infectious disease; |
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high fixed cost structure of theme park operations; |
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changing consumer tastes and preferences; |
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cyber security risks to us or our third-party service providers, failure to maintain or protect the integrity of internal, employee or guest data, and/or failure to abide by the evolving cyber security regulatory environment; |
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technology interruptions or failures that impair access to our websites and/or information technology systems; |
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increased labor costs, including minimum wage increases, and employee health and welfare benefits; |
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inability to grow our business or fund theme park capital expenditures; |
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inability to realize the benefits of developments, restructurings, acquisitions or other strategic initiatives, and the impact of the costs associated with such activities; |
1
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inability to remediate an identified material weakness on a timely basis; |
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adverse litigation judgments or settlements; |
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inability to protect our intellectual property or the infringement on intellectual property rights of others; |
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the loss of licenses and permits required to exhibit animals or the violation of laws and regulations; |
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unionization activities and/or labor disputes; |
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inability to maintain certain commercial licenses; |
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restrictions in our debt agreements limiting flexibility in operating our business; |
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inability to retain our current credit ratings; |
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our leverage and interest rate risk; |
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inadequate insurance coverage; |
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inability to purchase or contract with third party manufacturers for rides and attractions, construction delays or impacts of supply chain disruptions on existing or new rides and attractions; |
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environmental regulations, expenditures and liabilities; |
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suspension or termination of any of our business licenses, including by legislation at federal, state or local levels; |
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delays, restrictions or inability to obtain or maintain permits; |
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financial distress of strategic partners or other counterparties; |
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tariffs or other trade restrictions; |
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actions of activist stockholders; |
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the ability of Hill Path Capital LP and its affiliates to significantly influence our decisions; |
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the policies of the U.S. President and his administration or any changes to tax laws; |
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changes in the method for determining LIBOR and the potential replacement of LIBOR may affect our cost of capital; |
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mandates related to COVID-19 vaccinations for employees; |
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changes or declines in our stock price, as well as the risk that securities analysts could downgrade our stock or our sector; and |
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risks associated with our capital allocation plans and share repurchases, including the risk that our share repurchase program could increase volatility and fail to enhance stockholder value. |
We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that (i) we have correctly measured or identified all 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.
2
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.
3
PART I — FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
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June 30, |
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December 31, |
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2022 |
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2021 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, at cost |
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Accumulated depreciation |
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Property and equipment, net |
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Goodwill |
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Trade names/trademarks, net |
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Right of use assets-operating leases |
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Deferred tax assets, net |
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Other assets, net |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Deficit |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
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$ |
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Current maturities of long-term debt |
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Operating lease liabilities |
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Accrued salaries, wages and benefits |
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Deferred revenue |
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Other accrued liabilities |
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Total current liabilities |
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Long-term debt, net |
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Long-term operating lease liabilities |
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Deferred tax liabilities, net |
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Other liabilities |
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Total liabilities |
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Commitments and contingencies (Note 8) |
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Stockholders’ Deficit: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Treasury stock, at cost ( and December 31, 2021, respectively) |
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( |
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( |
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Total stockholders’ deficit |
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( |
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( |
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Total liabilities and stockholders’ deficit |
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$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
4
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(In thousands, except per share amounts)
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For the Three Months Ended |
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For the Six Months Ended |
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June 30, |
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June 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Net revenues: |
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Admissions |
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$ |
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$ |
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$ |
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$ |
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Food, merchandise and other |
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Total revenues |
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Costs and expenses: |
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Cost of food, merchandise and other revenues |
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Operating expenses (exclusive of depreciation and amortization shown separately below) |
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Selling, general and administrative expenses |
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Severance and other separation costs |
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Depreciation and amortization |
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Total costs and expenses |
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Operating income |
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Other (income) expense, net |
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( |
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( |
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Interest expense |
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Income before income taxes |
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Provision for income taxes |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Earnings per share: |
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Earnings per share, basic |
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$ |
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$ |
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$ |
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$ |
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Earnings per share, diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average common shares outstanding: |
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Basic |
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Diluted |
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See accompanying notes to unaudited condensed consolidated financial statements.
5
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS’ DEFICIT
(In thousands, except share amounts)
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Shares of Common Stock Issued |
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Common Stock |
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Additional Paid-In Capital |
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Accumulated Deficit |
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Treasury Stock, at Cost |
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Total Stockholders' Deficit |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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Equity-based compensation |
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— |
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— |
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— |
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— |
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Vesting of restricted shares |
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( |
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— |
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— |
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— |
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Shares withheld for tax withholdings |
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( |
) |
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( |
) |
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( |
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— |
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— |
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( |
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Exercise of stock options |
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— |
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— |
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— |
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Repurchase of |
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— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Balance at March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Vesting of restricted shares |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Shares withheld for tax withholdings |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Exercise of stock options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Repurchase of |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Balance at June 30, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
Shares of Common Stock Issued |
|
|
Common Stock |
|
|
Additional Paid-In Capital |
|
|
Accumulated Deficit |
|
|
Treasury Stock, at Cost |
|
|
Total Stockholders' Deficit |
|
||||||
|
Balance at December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Vesting of restricted shares |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Shares withheld for tax withholdings |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Balance at March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Vesting of restricted shares |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Shares withheld for tax withholdings |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Balance at June 30, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
See accompanying notes to unaudited condensed consolidated financial statements.
6
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
For the Six Months Ended June 30, |
|
|||||
|
|
|
|
2022 |
|
|
2021 |
|
|
|
Cash Flows From Operating Activities: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs and discounts |
|
|
|
|
|
|
|
|
|
Deferred income tax provision |
|
|
|
|
|
|
|
|
|
Equity-based compensation |
|
|
|
|
|
|
|
|
|
Other, including loss on sale or disposal of assets, net |
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
( |
) |
|
|
( |
) |
|
Inventories |
|
|
( |
) |
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
( |
) |
|
|
( |
) |
|
Accounts payable and accrued expenses |
|
|
|
|
|
|
|
|
|
Accrued salaries, wages and benefits |
|
|
( |
) |
|
|
|
|
|
Deferred revenue |
|
|
|
|
|
|
|
|
|
Other accrued liabilities |
|
|
|
|
|
|
|
|
|
Right-of-use assets and operating lease liabilities |
|
|
|
|
|
|
|
|
|
Other assets and liabilities |
|
|
( |
) |
|
|
( |
) |
|
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
|
( |
) |
|
|
( |
) |
|
Purchase of treasury stock |
|
|
( |
) |
|
|
— |
|
|
Payment of tax withholdings on equity-based compensation through shares withheld |
|
|
( |
) |
|
|
( |
) |
|
Exercise of stock options |
|
|
|
|
|
|
|
|
|
Debt issuance costs |
|
|
( |
) |
|
|
— |
|
|
Other financing activities |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
|
Change in Cash and Cash Equivalents, including Restricted Cash |
|
|
( |
) |
|
|
|
|
|
Cash and Cash Equivalents, including Restricted Cash—Beginning of period |
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, including Restricted Cash—End of period |
|
$ |
|
|
|
$ |
|
|
|
Supplemental Disclosure of Noncash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
|
Capital expenditures in accounts payable |
|
$ |
|
|
|
$ |
|
|
|
Treasury stock purchases not yet settled in other accrued liabilities |
|
$ |
|
|
|
$ |
— |
|
|
Other financing arrangements |
|
$ |
— |
|
|
$ |
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
7
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Description of the Business
SeaWorld Entertainment, Inc., through its wholly-owned subsidiary, SeaWorld Parks & Entertainment, Inc. (“SEA”) (collectively, the “Company”), owns and operates
Impact of Global COVID-19 Pandemic
The Company’s results of operations for the three and six months ended June 30, 2022 continue to be impacted by the global COVID-19 pandemic due in part to a decline in both international and group-related attendance from historical levels. Additionally, results of operations for the three and six months ended June 30, 2021 were also significantly impacted by the following factors: (i) capacity limitations, modified/limited operations and/or temporary park closures; (ii) decreased demand due to public concerns associated with the pandemic; and (iii) restrictions on international travel. In particular, the Company’s SeaWorld park in California was closed at the beginning of 2021 due to State of California guidance. The Company was able to reopen this park on February 6, 2021 on a limited basis, following California guidance for reopening zoos. Subsequently, on April 12, 2021, in accordance with California guidance, this park resumed operations as a theme park with restricted capacity and on June 15, 2021, capacity restrictions for this park were removed. Separately, during the first quarter of 2021, the Company’s Busch Gardens park in Virginia was also significantly impacted by state restrictions. At the beginning of 2021, the State of Virginia had a state mandated capacity restriction of approximately 4,000 guests at a time for this park. On February 1, 2021, in consultation with the State of Virginia, the Company further increased capacity to approximately 6,000 guests. The Company was able to further increase capacity for this park on April 1, 2021 to approximately 13,000 guests. On May 28, 2021, theme park capacity restrictions in the State of Virginia were removed. By the end of the second quarter of 2021, all of the Company’s
The Company continuously monitors guidance from federal, state and local authorities and engages with governmental authorities as well as medical/scientific consultants, when necessary. The Company may adjust its plans accordingly as laws change and new information and guidance becomes available. The COVID-19 pandemic has had, and may continue to have, a material impact on the Company’s financial results.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC. The unaudited condensed consolidated balance sheet as of December 31, 2021 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K.
In the opinion of management, such unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations for the year ending December 31, 2022 or any future period due in part to the seasonal nature of the Company’s operations. Based upon historical results, the Company typically generates its highest revenues in the second and third quarters of each year and incurs a net loss in the first and fourth quarters, in part because seven of its theme parks were historically only open for a portion of the year. However, starting in 2021, the Company added additional operating days for three of these parks. In particular, the Company began year-round operations at its SeaWorld park in Texas and began to operate on select days on a year round basis at its Busch Gardens park in Virginia and its Sesame Place park in Pennsylvania. Additionally, on March 26, 2022, the Company opened its Sesame Place San Diego park which, on an annual basis, is expected to be open more operating days, weather permitting, than the Aquatica San Diego park it replaced.
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.
8
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions include, but are not limited to, the accounting for self-insurance, deferred tax assets and liabilities, deferred revenue, equity compensation, the valuation of goodwill and other indefinite-lived intangible assets and reviews for potential impairment of long-lived assets. Estimates are based on various factors including current and historical trends, as well as other pertinent company and industry data. The Company regularly evaluates this information to determine if it is necessary to update the basis for its estimates and to adjust for known changes. Actual results could differ from those estimates. Based on the uncertainty relating to the COVID-19 pandemic, the emergence of new variants, and the current operating environment, including but not limited to the impact or timing of government restrictions, any future capacity limitations due to social distancing guidelines, public sentiment on social gatherings, travel and attendance patterns, possible travel restrictions, effectiveness and adoption of vaccines, boosters and/or medications, supply chain disruptions, inflationary pressures, foreign exchange rates, and/or additional actions which could be taken by government authorities to manage the pandemic or other macroeconomic issues, the Company is not certain of the ultimate impact these factors could have on its estimates, business or results of operations.
Segment Reporting
The Company maintains discrete financial information for each of its
Restricted Cash
Restricted cash is recorded in prepaid expenses and other current assets in the accompanying unaudited condensed consolidated balance sheets. Restricted cash consists primarily of funds received from strategic partners for use in approved marketing and promotional activities.
|
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
Restricted cash, included in prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and restricted cash |
|
$ |
|
|
|
$ |
|
|
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 June 30, 2022 and December 31, 2021 is reflected within stockholders’ deficit. See further discussion of the Company’s share repurchase programs in Note 10–Stockholders’ Deficit.
9
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
Admissions revenue primarily consists of single-day tickets, annual or season passes or other multi-day or multi-park admission products. For single-day tickets, the Company recognizes revenue at a point in time, upon admission to the park. Annual passes, season passes, or other multi-day or multi-park passes allow guests access to specific parks over a specified time period. For these pass and multi-use products, revenue is deferred and recognized over the terms of the admission product based on estimated redemption rates for similar products and is adjusted periodically. The Company estimates redemption rates using historical and forecasted attendance trends by park for similar products. Attendance trends factor in seasonality and are adjusted based on actual trends periodically. These estimated redemption rates impact the timing of when revenue is recognized on these products. Actual results could materially differ from these estimates based on actual attendance patterns. Revenue is recognized on a pro-rata basis based on the estimated allocated selling price of the admission product. For pass products purchased on an installment plan that have met their initial commitment period and have transitioned to a month-to-month basis, monthly charges are recognized as revenue as payments are received each month. For multi-day admission products, revenue is allocated based on the number of visits included in the pass and recognized ratably based on each admission into the theme park.
Food, merchandise and other revenue primarily consists of food and beverage, merchandise, parking and other in-park products and also includes other miscellaneous revenue which is not significant in the periods presented. The Company recognizes revenue for food and beverage, merchandise and other in-park products when the related products or services are received by the guests.
Deferred revenue primarily includes revenue associated with pass products, admission or in-park products or services with a future intended use date and contract liability balances related to licensing and international agreements collected in advance of the Company satisfying its performance obligations and is expected to be recognized in future periods. At June 30, 2022 and December 31, 2021, the long-term portion of deferred revenue included in other liabilities in the accompanying unaudited condensed consolidated balance sheets primarily relates to the Company’s international agreement, as discussed in the following section.
The following table reflects the Company’s deferred revenue balance as of June 30, 2022 and December 31, 2021:
|
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Deferred revenue, including long-term portion |
|
$ |
|
|
|
$ |
|
|
|
Less: Deferred revenue, long-term portion, included in other liabilities |
|
|
|
|
|
|
|
|
|
Deferred revenue, short-term portion |
|
$ |
|
|
|
$ |
|
|
Approximately $
International Agreements
The Company has previously received $
10
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 June 30, |
|
|||||||||||||||||||||
|
|
|
2022 |
|
|
2021 |
|
||||||||||||||||||
|
|
|
Net Income |
|
|
Shares |
|
|
Per Share Amount |
|
|
Net Income |
|
|
Shares |
|
|
Per Share Amount |
|
||||||
|
|
|
(In thousands, except per share amounts) |
|
|||||||||||||||||||||
|
Basic earnings per share |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Effect of dilutive incentive-based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
For the Six Months Ended June 30, |
|
|||||||||||||||||||||
|
|
|
2022 |
|
|
2021 |
|
||||||||||||||||||
|
|
|
Net Income |
|
|
Shares |
|
|
Per Share Amount |
|
|
Net Income |
|
|
Shares |
|
|
Per Share Amount |
|
||||||
|
|
|
(In thousands, except per share amounts) |
|
|||||||||||||||||||||
|
Basic earnings per share |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Effect of dilutive incentive-based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
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 and certain shares of common stock that are issuable upon exercise of stock options. During the three and six months ended June 30, 2022, there were approximately
11
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. INCOME TAXES
Income tax expense or benefit and the Company’s effective tax rate is based upon the tax rate expected for the full calendar year applied to the year-to-date pretax income or loss of the interim period, plus the tax effect of any year-to-date discrete tax items. The Company’s consolidated effective tax rate for the three months ended June 30, 2022 was
Due to the uncertainty of realizing the benefit from deferred tax assets, tax positions are reviewed at least quarterly by assessing future expected taxable income from all sources. Realization of deferred tax assets, primarily arising from net operating loss carryforwards and charitable contribution carryforwards, is dependent upon generating sufficient taxable income prior to expiration of the carryforwards. Based on its analysis, the Company believes that some of its deferred tax assets may not be realized. As of June 30, 2022 and December 31, 2021, the Company’s valuation allowance consisted of approximately $
The Company has determined that there are no positions currently taken that would rise to a level requiring an amount to be recorded or disclosed as an unrecognized tax benefit. If such positions do arise, it is the Company’s intent that any interest or penalty amount related to such positions will be recorded as a component of the income tax provision (benefit) in the applicable period.
The computation of the estimated annual effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the forecasted pre-tax income or loss for the year, projections of the proportion of income and/or loss earned and taxed in respective jurisdictions, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. The volatile global economic conditions resulting in part from the COVID-19 pandemic, the impacts of which are difficult to predict, may cause fluctuations in the Company’s forecasted pre-tax income or loss for the year, which could create volatility in its estimated annual effective tax rate. The estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or as the Company’s tax environment changes. To the extent that the estimated annual effective tax rate changes, the effect of the change on prior interim periods is included in the income tax provision in the period in which the change in estimate occurs. The Company’s valuation allowances, in part, also rely on estimates and assumptions related to future financial performance. Given the macroeconomic environment related in part to the COVID-19 pandemic and the uncertainties regarding the related impact on financial performance, the Company’s valuation allowances may need to be further adjusted in the future.
5. OTHER ACCRUED LIABILITIES
Other accrued liabilities at June 30, 2022 and December 31, 2021, consisted of the following:
|
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Accrued interest |
|
$ |
|
|
|
$ |
|
|
|
Accrued taxes |
|
|
|
|
|
|
|
|
|
Self-insurance reserve |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Total other accrued liabilities |
|
$ |
|
|
|
$ |
|
|
As of June 30, 2022 and December 31, 2021, other accrued liabilities above includes approximately $
12
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. LONG-TERM DEBT
Long-term debt, net, as of June 30, 2022 and December 31, 2021 consisted of the following:
|
|
|
June 30, |
|
|
December 31, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Term B Loans (effective interest rate of |
|
$ |
|
|
|
$ |
|
|
|
Senior Notes due 2029 (interest rate of |
|
|
|
|
|
|
|
|
|
First-Priority Senior Secured Notes due 2025 (interest rate of |
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
|
|
|
|
|
|
|
Less: unamortized discounts and debt issuance costs |
|
|
( |
) |
|
|
( |
) |
|
Less: current maturities |
|
|
( |
) |
|
|
( |
) |
|
Total long-term debt, net |
|
$ |
|
|
|
$ |
|
|
Refinancing Transactions
On August 25, 2021 (the “Closing Date”), SEA entered into a Restatement Agreement (the “Restatement Agreement”) pursuant to which SEA amended and restated its then existing senior secured credit agreement dated as of December 1, 2009 (as amended, restated, supplemented or otherwise modified from time to time, and the senior secured credit facilities thereunder (the “Existing Secured Credit Facilities”), and, as amended and restated by the Restatement Agreement (the “Amended and Restated Credit Agreement”).
The Amended and Restated Credit Agreement provides for senior secured financing of up to $
|
|
(i) |
a first lien term loan facility (the “Term Loan Facility” and the loans thereunder, the “Term B Loans”), in an aggregate principal amount of $ |
|
|
(ii) |
a first lien revolving credit facility (the “Revolving Credit Facility” (and the loans thereunder, the “Revolving Loans”) and, together with the Term Loan Facility, the “Senior Secured Credit Facilities”), in an aggregate committed principal amount of $ |
Also on the Closing Date, SEA completed a private offering of $
The Company used proceeds of the Term B Loans drawn on the Closing Date, together with the proceeds from the offering of the Senior Notes and cash on hand, to redeem SEA’s then outstanding
Senior Secured Credit Facilities
Borrowings under the Term B Loans bear interest at a fluctuating rate per annum equal to, at the Company’s option, (i) a base rate equal to the higher of (a) the federal funds rate plus 1/2 of 1%, (b) the rate of interest quoted in the print edition of the Wall Street Journal, Money Rates Section, as the prime rate as in effect from time to time and (c) one-month Adjusted LIBOR plus 1% per annum (provided that in no event shall such ABR rate with respect to the Term B Loans be less than 1.50% per annum) (“ABR”), in each case, plus an applicable margin of 2.00% or (ii) a LIBOR rate for the applicable interest period (provided that in no event shall such LIBOR rate with respect to the Term B Loans be less than 0.50% per annum) (“LIBOR”) plus an applicable margin of 3.00%.
13
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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
The Senior Secured Credit Facilities require scheduled amortization payments on the term loans in quarterly amounts equal to
In addition, the Senior Secured Credit Facilities require the Company to prepay outstanding term loan borrowings, subject to certain exceptions, with:
|
|
- |
beginning with the fiscal year ending on December 31, 2022, 50% (which percentage will be reduced to 25% and 0% if the Company satisfies certain net first lien senior secured leverage ratios) of annual excess cash flow, as defined under the Senior Secured Credit Facilities; |
|
|
- |
100% of the net cash proceeds of all non-ordinary course asset sales or other non-ordinary course dispositions of property, in each case subject to certain exceptions and reinvestment rights; |
|
|
- |
100% of the net cash proceeds of any issuance or incurrence of debt, other than proceeds from debt permitted under the Senior Secured Credit Facilities. |
The Company may voluntarily repay outstanding loans under the Senior Secured Credit Facilities at any time, without prepayment premium or penalty, except in connection with a repricing event in respect of the term loans as described below, subject to customary “breakage” costs with respect to LIBOR rate loans.
All borrowings under the Revolving Credit Facility are subject to the satisfaction of customary conditions, including the absence of a default or event of default and the accuracy of representations and warranties in all material respects.
All obligations under the Senior Secured Credit Facilities are unconditionally guaranteed by the Company on a limited-recourse basis and each of SEA’s existing and future direct and indirect wholly owned material domestic subsidiaries, subject to certain exceptions. The obligations are secured by a pledge of SEA’s capital stock directly held by the Company and substantially all of SEA’s assets and those of each guarantor (other than the Company), including a pledge of the capital stock of all entities directly held by SEA or the guarantors, in each case subject to exceptions. Such security interests consist of a first-priority lien with respect to the collateral.
As of June 30, 2022, SEA had approximately $
Senior Notes
The Senior Notes will mature on
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.
14
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
First-Priority Senior Secured Notes
The
The First-Priority Senior Secured Notes are fully and unconditionally guaranteed by the Company, any subsidiary of the Company that directly or indirectly owns 100% of the issued and outstanding equity interests of SEA, and subject to certain exceptions, each of SEA’s subsidiaries that guarantees SEA’s existing senior secured credit facilities.
Second-Priority Senior Secured Notes
The Second-Priority Senior Secured Notes were scheduled to mature on
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, as defined in the related Debt Agreements. Covenant Adjusted EBITDA includes 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, commencing as of the last day of the first full fiscal quarter after the Closing Date and subject to a testing threshold, comply on a quarterly basis with a maximum net first lien senior secured leverage ratio of
The Debt Agreements permit an unlimited capacity for restricted payments if the net total leverage ratio on a pro forma basis does not exceed
As of June 30, 2022, SEA was in compliance with all covenants contained in the documents governing the Debt Agreements.
15
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Long-term debt at June 30, 2022 is repayable as follows and does not include the impact of any future voluntary prepayments.
|
Years Ending December 31: |
|
(In thousands) |
|
|
|
Remainder of 2022 |
|
$ |
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total |
|
$ |
|
|
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 $
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 June 30, 2022 and December 31, 2021, the Term B Loans are classified in Level 2 of the fair value hierarchy and the First-Priority Senior Secured Notes and the Senior Notes are classified in Level 1 of the fair value hierarchy. The fair value of the Term B Loans approximates their carrying value, excluding unamortized debt issuance costs and discounts, due to the variable nature of the underlying interest rates and the frequent intervals at which such interest rates are reset. The fair value of the First-Priority Senior Secured Notes and Senior Notes was determined using quoted prices in active markets for identical instruments. See Note 6–Long-Term Debt for further details.
The Company did
The following table presents the Company’s estimated fair value measurements and related classifications for liabilities measured on a recurring basis as of June 30, 2022:
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
Significant |
|
|
|
|
|
|
|
|
|
||
|
|
for Identical |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|||
|
|
Assets and |
|
|
Observable |
|
|
Unobservable |
|
|
Balance at |
|
||||
|
|
Liabilities |
|
|
Inputs |
|
|
Inputs |
|
|
June 30, |
|
||||
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
2022 |
|
||||
|
|
(In thousands) |
|
|||||||||||||
|
Long-term obligations (a) |
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
(a) |
Reflected at carrying value, net of unamortized debt issuance costs and discounts, in the unaudited condensed consolidated balance sheet as current maturities of long-term debt of $ |
16
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
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) |
|
|
2021 |
|
||||
|
|
(In thousands) |
|
|||||||||||||
|
Long-term obligations (a) |
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
(a) |
Reflected at carrying value, net of unamortized debt issuance costs and discounts, in the unaudited condensed consolidated balance sheet as current maturities of long-term debt of $ |
8. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Securities Class Action Lawsuit
On June 14, 2018, a lawsuit captioned Highfields Capital I LP et al v. SeaWorld Entertainment, Inc. et al, was filed in the United States District Court in the Southern District of California against the Company and certain of the Company’s former and present executive officers. The plaintiffs allege, among other things, that the defendants made false and misleading statements in violation of the federal securities laws and Florida common law, regarding the impact of the film Blackfish on SeaWorld’s business. The complaint further alleges that such statements were made to induce plaintiffs to purchase common stock of the Company at artificially-inflated prices and that plaintiffs suffered investment losses as a result. In May 2022, the parties reached a resolution of the matter, and the case has now been dismissed with prejudice. The full settlement amount is not considered material and was paid as of June 30, 2022.
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 recorded the additional amount claimed but disputes the application and calculation of the additional payment. The amounts accrued are the Company’s best estimate and, at this time, the Company does not anticipate any exposure to loss in excess of amounts accrued to be material. On June 27, 2022, Sesame Workshop initiated arbitration pursuant to the License Agreement. The Company intends to vigorously defend its position.
Other Lawsuits
In October 2018, the Company received a demand letter from attorneys representing certain former employees who claim that the terms of their respective separation agreements entitle them to certain favorable modifications made to certain performance vesting restricted shares (the “Tranche 3 Shares”) issued under the Company’s 2013 Omnibus Incentive Plan (the “Plan”).
In November 2020, the Company filed in the Court of Chancery of the State of Delaware an action for declaratory judgment seeking a determination that the threatened claims of the former employees are time-barred and without merit. In response, the defendant former employees filed a motion to dismiss or in the alternative to stay and compel arbitration. The parties agreed to arbitrate whether the former employees’ claims are subject to arbitration. On October 21, 2021, the arbitrator determined that disputes related to the former employees’ claims for the vesting of the Tranche 3 Shares are governed by the forum selection clauses of the equity award amendments rather than the Company’s dispute resolution process. In terms of potential exposure, the value of the total shares at issue for these certain former employees depends largely upon the Company’s current share price, which fluctuates daily. Approximately
17
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 “Quinton Matter”). The Complaint states the putative class consists of Quinton Burns and K.B. Burns and similarly situated Black people. The 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 Complaint seeks compensatory and punitive damages and attorneys’ fees and costs as well declarative and injunctive relief. The Quinton matter is in the preliminary stages of litigation. The Company has not yet been served with the Complaint. The Company believes that the lawsuit is without merit and intends to defend the lawsuit vigorously. While there can be no assurance regarding the ultimate outcome of 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”).
Other than those matters discussed above, from time to time, various parties also bring other lawsuits against the Company. Matters where an unfavorable outcome to the Company is probable and which can be reasonably estimated are accrued. Such accruals, which are not material for any period presented, are based on information known about the matters, the Company’s estimate of the outcomes of such matters, and the Company’s experience in contesting, litigating and settling similar matters. Matters that are considered reasonably possible to result in a material loss are not accrued for, but an estimate of the possible loss or range of loss is disclosed, if such amount or range can be determined. At this time, management does not expect any such known claims, legal proceedings or regulatory matters to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
License Commitments
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.
18
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 June 30, |
|
|
For the Six Months Ended June 30, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
|
|
(In thousands) |
|
|||||||||||||
|
Equity compensation expense included in operating expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Equity compensation expense included in selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity compensation expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Omnibus Incentive Plan
The Company has reserved
Bonus Performance Restricted Units
During the six months ended June 30, 2022, the Company granted approximately
The Company also had an annual bonus plan for the fiscal year ended December 31, 2021 (“Fiscal 2021”), under which certain employees were eligible to vest in Bonus Performance Restricted Units based upon the Company’s achievement of certain performance goals with respect to Fiscal 2021. Based on the Company’s actual Fiscal 2021 results, a portion of these Bonus Performance Restricted Units vested and were converted into approximately
Long-term Incentive Performance Restricted Awards
During the six months ended June 30, 2022, the Company granted long-term incentive plan awards for 2022 (the “2022 Long-Term Incentive Grant”) which were comprised of approximately
Long-Term Incentive Options
The Long-Term Incentive Options vest over
19
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, 2022 and ending on December 31, 2024 (or, extended through December 31, 2025, as applicable) (the “Performance Period”) based upon the Company’s achievement of specified performance goals during the Performance Period. The total number of Long-Term Incentive Performance Restricted Units eligible to vest will be based on the level of achievement of the performance goals and ranges from
Other
During the six months ended June 30, 2022, a portion of the previously granted long-term incentive performance restricted units under the 2019 Long-Term Incentive Plan vested based on the Company’s actual Fiscal 2021 results. The remainder of the 2019 Long-Term Incentive Plan awards are eligible to vest in 2023 and/or 2024.
The Company recognizes equity compensation expense for its performance-vesting restricted awards ratably over the related performance period if the performance condition is probable of being achieved. If the probability of vesting 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 June 30, 2022,
Share Repurchase Programs
The Board had previously authorized a share repurchase program of up to $
On May 11, 2022, the Board approved a $
On August 4, 2022, the Company announced that its Board approved a new $
20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References to our “theme parks” or “parks” in the discussion that follows includes all of our separately gated parks. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q.
Introduction
The following discussion and analysis is intended to facilitate an understanding of our business and results of operations and should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion should also be read in conjunction with our consolidated financial statements and related notes thereto, and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, 2021.
Business Overview
We are a leading theme park and entertainment company providing experiences that matter and inspiring guests to protect animals and the wild wonders of our world. We own or license a portfolio of recognized brands, including SeaWorld, Busch Gardens, Aquatica, Discovery Cove and Sesame Place. Over our more than 60-year history, we have developed a diversified portfolio of 12 differentiated theme parks that are grouped in key markets across the United States. Many of our theme parks showcase our one-of-a-kind zoological collection and feature a diverse array of both thrill and family-friendly rides, educational presentations, shows and/or other attractions with broad demographic appeal which deliver memorable experiences and a strong value proposition for our guests.
Recent Developments
Impact of Global COVID-19 Pandemic
Our results of operations for the three and six months ended June 30, 2022 continue to be impacted by the global COVID-19 pandemic due in part to a decline in both international and group-related attendance from historical levels. Additionally, results of operations for the three and six months ended June 30, 2021 were also significantly impacted by the following factors: (i) capacity limitations, modified/limited operations and/or temporary park closures; (ii) decreased demand due to public concerns associated with the pandemic; and (iii) restrictions on international travel. See further discussion in Note 1–Description of the Business and Basis of Presentation to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
As approved vaccines continue to be distributed, the operating environment has improved and COVID-19 related capacity limitations have been eliminated; however, there can be no certainty relating to the impact of new variants and the extent and effectiveness of the vaccines, boosters and/or medications or how they will impact these factors and others, including domestic or international travel, group events and group-related attendance, public opinion concerning social gatherings, consumer behavior or federal, state and local regulations related to health protocols, capacity limitations and social gatherings. See the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.
Current Operating Environment
Our Board has formed a number of committees designed to provide further assistance from Board members with expertise in certain areas by providing enhanced oversight over the operations of the Company. As a result, in the current operating environment, certain members of our Board, including our Chairman of the Board, are actively involved in overseeing certain key operating activities.
The current condition of the overall labor market, the challenging current operating environment and COVID-19 related factors has led to increased turnover and challenges in meeting our staffing goals. These staffing challenges have also led to wage pressures and less than optimal staffing levels. Less than optimal staffing levels, particularly in the first quarter of 2022, has impacted our ability to open some of our food and beverage outlets, caused us to temporarily close some rides or attractions and/or caused longer wait times in certain areas of our parks, particularly food, beverage and/or retail outlets. We have also been impacted by significant inflationary pressures (particularly relating to the costs for labor, goods, freight, services and capital projects), supply chain disruptions and higher interest rates. We continue our efforts to recruit and retain talent and identify cost reduction and efficiency opportunities as well as incremental pricing and revenue opportunities to help offset cost pressures.
For further discussion relating to strategic measures we have taken to operate in the current environment, see the “Results of Operations” section. For other factors concerning the current operating environment or the global COVID-19 pandemic, see the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.
21
Principal Factors and Trends Affecting Our Results of Operations
Revenues
Our revenues are driven primarily by attendance in our theme parks and the level of per capita spending for admission and per capita spending for food and beverage, merchandise and other in-park products. We define attendance as the number of guest visits. Attendance drives admissions revenue as well as total in-park spending. Admissions revenue primarily consists of single-day tickets, annual passes (which generally expire after a 12-month term), season passes (including our Fun Card products and, collectively with annual passes, referred to as “passes” or “season passes”) or other multi-day or multi-park admission products. Revenue from these admissions products are generally recognized based on attendance. Certain pass products are purchased through monthly installment arrangements which allow guests to pay over the product’s initial commitment period. Once the initial commitment period is reached, these products transition to a month-to-month basis providing these guests access to specific parks on a monthly basis with related revenue recognized monthly.
Total revenue per capita, defined as total revenue divided by total attendance, consists of admission per capita and in-park per capita spending:
|
|
• |
Admission Per Capita. We calculate admission per capita as total admissions revenue divided by total attendance. Admission per capita is primarily driven by ticket pricing, the admissions product mix (including the impact of pass visitation rates), and the park attendance mix, among other factors. The admissions product mix, also referred to as the attendance or visitation mix, is defined as the mix of attendance by ticket category such as single day, multi-day, annual/season passes or complimentary tickets and can be impacted by the mix of guests as domestic and international guests generally purchase higher admission per capita ticket products than local guests. A higher mix of complimentary tickets will lower admissions per capita. Pass visitation rates are the number of visits per pass. A higher number of visits per pass would yield a lower admissions per capita as the related revenue is recognized over more visits. The park attendance mix is defined as the mix of theme parks visited and can impact admission per capita based on the theme park’s respective pricing which, on average, is lower for our water parks compared to our other theme parks. |
|
|
• |
In-Park Per Capita Spending. We calculate in-park per capita spending as total food, merchandise and other revenue divided by total attendance. Food, merchandise and other revenue primarily consists of food and beverage, retail merchandise, parking, other in-park products, and other miscellaneous revenue, including online transaction fees, not necessarily generated in our parks, which is not significant in the periods presented. In-park per capita spending is primarily driven by pricing, product offerings, the mix of guests (as domestic and international guests typically generate higher in-park per capita spending than local guests or pass holders), guest penetration levels (percentage of guests purchasing) and the mix of in-park spending, among other factors. |
See further discussion in the “Results of Operations” section which follows and in Note 1–Description of the Business and Basis of Presentation to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. For other factors affecting our revenues, see the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.
Attendance
The level of attendance in our theme parks is generally a function of many factors, including affordability, the opening of new attractions and shows, competitive offerings, weather, marketing and sales efforts, awareness and type of ticket and park offerings, travel patterns of both our domestic and international guests, fluctuations in foreign exchange rates and global and regional economic conditions, consumer confidence, the external perceptions of our brands and reputation, industry best practices and perceptions as to safety. The external perceptions of our brands and reputation have at times impacted relationships with some of our business partners, including certain ticket resellers that have terminated relationships with us and other zoological-themed attractions.
As a result of the COVID-19 pandemic, we believe the level of attendance in our theme parks, including the mix of attendance from certain markets and certain guests has been and/or could be impacted by public concerns over the COVID-19 pandemic, the number of reported cases of COVID-19, domestic and international travel restrictions, federal, state and local regulations related to public places, limits on social gatherings, the availability and/or effectiveness of vaccines, boosters and/or medications for adults and children, and overall public safety sentiment. We continuously monitor factors impacting our attendance, making strategic operations, marketing and sales adjustments as necessary.
22
Costs and Expenses
Historically, the principal costs of our operations are employee wages and benefits, driven partly by staffing levels, advertising, maintenance, animal care, utilities and insurance. Factors that affect our costs and expenses include fixed operating costs, competitive wage pressures including minimum wage legislation, commodity prices, costs for construction, repairs and maintenance, 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 continue our focus on reducing costs and improving operating margins and streamlining our labor structure to better align with our strategic business objectives. Since the start of the COVID-19 pandemic, we have spent significant time reviewing our operations and have identified meaningful cost savings opportunities, including technology initiatives, which we believe will further strengthen our business and, in some instances, improve our guest experiences.
See the “Impact of Global COVID-19 Pandemic” and the “Current Operating Environment” section for further details. For other factors affecting our costs and expenses, see the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.
Seasonality
The theme park industry is seasonal in nature. Historically, we generate the highest revenues in the second and third quarters of each year, in part because seven of our theme parks were only open for a portion of the year. As a result, approximately two-thirds of our attendance and revenues were historically generated in the second and third quarters of the year and we generally incurred a net loss in the first and fourth quarters. The percent mix of revenues by quarter is relatively constant each year, but revenues can shift between the first and second quarters due to the timing of Easter and spring break holidays and between the first and fourth quarters due to the timing of holiday breaks around Christmas and New Year. Even for our five theme parks which have historically been open year-round, attendance patterns have significant seasonality, driven by holidays, school vacations and weather conditions. Changes in school calendars that impact traditional school vacation breaks could also impact attendance patterns.
Due in part to the temporary park closures, along with capacity limitations and/or modified/limited operations and other COVID-19 related impacts on our attendance, the COVID-19 pandemic has impacted the seasonality of our business and it is difficult to estimate how the COVID-19 pandemic will impact seasonality in the future. Furthermore, any changes to the operating schedule of a park such as increasing operating days for our historically seasonal parks, could change the impact of seasonality in the future. During the first six months of 2021, we began year-round operations at our SeaWorld park in Texas and began to operate on select days on a year round basis at both our Busch Gardens park in Virginia and our Sesame Place park in Pennsylvania. Additionally, on March 26, 2022, we opened our Sesame Place San Diego park which is expected to be open more operating days than the Aquatica San Diego park it replaced.
See “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.
Results of Operations
Our results for the three and six months ended June 30, 2022 are not directly comparable to the three and six months ended June 30, 2021 primarily due to COVID-19 related impacts including a temporary park closure and capacity limitations at some of our parks in 2021.
See “Impact of Global COVID-19 Pandemic” and “Attendance” for further details. The following data should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
23
Comparison of the Three Months Ended June 30, 2022 and 2021
The following table presents key operating and financial information for the three months ended June 30, 2022 and 2021:
|
|
|
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
June 30, |
|
|
Variance |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
# |
|
|
% |
|
||||
|
Summary Financial Data: |
|
(In thousands, except per capita data) |
|
|||||||||||||
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
$ |
275,505 |
|
|
$ |
243,225 |
|
|
$ |
32,280 |
|
|
|
13.3 |
% |
|
Food, merchandise and other |
|
|
229,312 |
|
|
|
196,559 |
|
|
|
32,753 |
|
|
|
16.7 |
% |
|
Total revenues |
|
|
504,817 |
|
|
|
439,784 |
|
|
|
65,033 |
|
|
|
14.8 |
% |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of food, merchandise and other revenues |
|
|
41,518 |
|
|
|
34,173 |
|
|
|
7,345 |
|
|
|
21.5 |
% |
|
Operating expenses (exclusive of depreciation and amortization shown separately below) |
|
|
190,496 |
|
|
|
157,307 |
|
|
|
33,189 |
|
|
|
21.1 |
% |
|
Selling, general and administrative expenses |
|
|
56,158 |
|
|
|
43,190 |
|
|
|
12,968 |
|
|
|
30.0 |
% |
|
Severance and other separation costs |
|
|
83 |
|
|
|
1,496 |
|
|
|
(1,413 |
) |
|
|
(94.5 |
%) |
|
Depreciation and amortization |
|
|
38,551 |
|
|
|
36,247 |
|
|
|
2,304 |
|
|
|
6.4 |
% |
|
Total costs and expenses |
|
|
326,806 |
|
|
|
272,413 |
|
|
|
54,393 |
|
|
|
20.0 |
% |
|
Operating income |
|
|
178,011 |
|
|
|
167,371 |
|
|
|
10,640 |
|
|
|
6.4 |
% |
|
Other (income) expense, net |
|
|
(32 |
) |
|
|
21 |
|
|
|
(53 |
) |
|
NM |
|
|
|
Interest expense |
|
|
26,810 |
|
|
|
31,127 |
|
|
|
(4,317 |
) |
|
|
(13.9 |
%) |
|
Income before income taxes |
|
|
151,233 |
|
|
|
136,223 |
|
|
|
15,010 |
|
|
|
11.0 |
% |
|
Provision for income taxes |
|
|
34,623 |
|
|
|
8,461 |
|
|
|
26,162 |
|
|
NM |
|
|
|
Net income |
|
$ |
116,610 |
|
|
$ |
127,762 |
|
|
$ |
(11,152 |
) |
|
|
(8.7 |
%) |
|
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attendance |
|
|
6,264 |
|
|
|
5,809 |
|
|
|
455 |
|
|
|
7.8 |
% |
|
Total revenue per capita |
|
$ |
80.59 |
|
|
$ |
75.71 |
|
|
$ |
4.88 |
|
|
|
6.4 |
% |
|
Admission per capita |
|
$ |
43.98 |
|
|
$ |
41.87 |
|
|
$ |
2.11 |
|
|
|
5.0 |
% |
|
In-park per capita spending |
|
$ |
36.61 |
|
|
$ |
33.84 |
|
|
$ |
2.77 |
|
|
|
8.2 |
% |
NM – Not Meaningful.
Admissions revenue. Admissions revenue for the three months ended June 30, 2022 increased $32.3 million to $275.5 million as compared to $243.2 million for the three months ended June 30, 2021. The improvement was a result of an increase in attendance and an increase in admission per capita. Total attendance for the second quarter of 2022 increased approximately 0.5 million guests, or 7.8%, when compared to the prior year quarter. Attendance benefitted primarily from an increase in demand resulting from a return to more normalized operations when compared to the three months ended June 30, 2021, which included COVID-19 related impacts including restrictions on international travel, modified/limited operations and capacity limitations at some of our parks. Admission per capita increased by 5.0% to $43.98 for the three months ended June 30, 2022 compared to $41.87 in the three months ended June 30, 2021, primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts, which was partially offset the impact of the park mix when compared to the prior year quarter.
Food, merchandise and other revenue. Food, merchandise and other revenue for the three months ended June 30, 2022 increased $32.8 million to $229.3 million as compared to $196.6 million for the three months ended June 30, 2021. The increase results primarily from an increase in in-park per capita spending, along with the increase in attendance. In-park per capita spending increased by 8.2% to $36.61 in the three months ended June 30, 2022 compared to $33.84 in the three months ended June 30, 2021. In-park per capita spending improved due to a combination of factors including pricing initiatives, improved product quality and mix and the impact of new or enhanced and expanded venues and/or other in-park offerings. These factors were partially offset by the impact of a higher mix of pass attendance when compared to the prior year quarter.
Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the three months ended June 30, 2022 increased by $7.3 million to $41.5 million as compared to $34.2 million for the three months ended June 30, 2021. These costs represent 18.1% and 17.4% of the related revenue earned for the three months ended June 30, 2022 and 2021, respectively. The increase as a percent of related revenue partly relates to the impact of inflationary pressures which were partially offset by higher realized prices on some of our in-park products and the impact of sourcing cost savings initiatives.
24
Operating expenses. Operating expenses for the three months ended June 30, 2022 increased by $33.2 million, or 21.1%, to $190.5 million as compared to $157.3 million for the three months ended June 30, 2021. Operating expenses in the second quarter of 2021 were impacted by limited operating days and capacity limitations due to the COVID-19 pandemic. As a result, the increase in operating expenses in the second quarter of 2022 primarily results from an increase in labor-related costs and other operating costs due to a return to more normalized operations and an increase in attendance. Operating expenses were also unfavorably impacted by unusually high inflationary pressures. These factors were partially offset by structural cost savings initiatives when compared to the second quarter of 2021. Operating expenses as a percent of revenue were 37.7% and 35.8% for the three months ended June 30, 2022 and 2021, respectively.
Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended June 30, 2022 increased $13.0 million, or 30.0%, to $56.2 million as compared to $43.2 million for the three months ended June 30, 2021. The increase in selling, general and administrative expenses is primarily due to increased marketing-related costs, increased third-party vendor costs, and a legal settlement charge, partially offset by a decrease in non-cash equity compensation expense and the impact of cost savings and efficiency initiatives. . Selling, general and administrative expenses as a percent of revenue were 11.1% and 9.8% for the three months ended June 30, 2022 and 2021, respectively.
Depreciation and amortization. Depreciation and amortization expense for the three months ended June 30, 2022 increased by $2.3 million, or 6.4%, to $38.6 million as compared to $36.2 million for the three months ended June 30, 2021. The increase primarily relates to new asset additions partially offset by the impact of asset retirements and fully depreciated assets.
Interest expense. Interest expense for the three months ended June 30, 2022 decreased approximately $4.3 million, or 13.9%, to $26.8 million as compared to $31.1 million for the three months ended June 30, 2021. The decrease primarily relates to the net impact of lower interest as a result of the Refinancing Transactions. See Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements for further details.
Provision for income taxes. Provision for income taxes for the three months ended June 30, 2022 was $34.6 million compared to $8.5 million for the three months ended June 30, 2021. Our consolidated effective tax rate was 22.9% for the three months ended June 30, 2022 compared to 6.2% for the three months ended June 30, 2021. The effective tax rate in the three months ended June 30, 2022 was primarily impacted by state income taxes and other compensation items, partially offset by a tax benefit related to equity-based compensation which vested during the quarter. The effective tax rate in the three months ended June 30, 2021 was primarily impacted by non-cash valuation allowance adjustments on federal and state net operating loss, a valuation allowance adjustment on federal tax credits, changes in state tax rates and tax impacts of equity-based compensation. 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.
Supplemental comparison of the three months ended June 30, 2022 to the three months ended June 30, 2019
We believe a comparison of selected financial results for the three months ended June 30, 2022 to the three months ended June 30, 2019 may provide additional insight regarding the current impact of the COVID-19 pandemic on our business. As such, the following supplemental discussion provides an analysis of selected operating results for the three months ended June 30, 2022 compared to the three months ended June 30, 2019. The selected summary financial data for the three months ended June 30, 2019 was derived from the Company’s Quarterly Report on Form 10-Q for quarter ended June 30, 2019.
|
|
|
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
June 30, |
|
|
Variance |
|
||||||||||
|
|
|
2022 |
|
|
2019 |
|
|
# |
|
|
% |
|
||||
|
Summary Financial Data: |
|
(In thousands, except per capita data) |
|
|||||||||||||
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
$ |
275,505 |
|
|
$ |
227,828 |
|
|
$ |
47,677 |
|
|
|
20.9 |
% |
|
Food, merchandise and other |
|
|
229,312 |
|
|
|
178,164 |
|
|
|
51,148 |
|
|
|
28.7 |
% |
|
Total revenues |
|
|
504,817 |
|
|
|
405,992 |
|
|
|
98,825 |
|
|
|
24.3 |
% |
|
Selected costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of food, merchandise and other revenues |
|
|
41,518 |
|
|
|
32,006 |
|
|
|
9,512 |
|
|
|
29.7 |
% |
|
Operating expenses (exclusive of depreciation and amortization) |
|
|
190,496 |
|
|
|
170,398 |
|
|
|
20,098 |
|
|
|
11.8 |
% |
|
Selling, general and administrative expenses |
|
|
56,158 |
|
|
|
67,205 |
|
|
|
(11,047 |
) |
|
|
(16.4 |
%) |
|
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attendance |
|
|
6,264 |
|
|
|
6,463 |
|
|
|
(199 |
) |
|
|
(3.1 |
%) |
|
Total revenue per capita |
|
$ |
80.59 |
|
|
$ |
62.82 |
|
|
$ |
17.77 |
|
|
|
28.3 |
% |
|
Admission per capita |
|
$ |
43.98 |
|
|
$ |
35.25 |
|
|
$ |
8.73 |
|
|
|
24.8 |
% |
|
In-park per capita spending |
|
$ |
36.61 |
|
|
$ |
27.57 |
|
|
$ |
9.04 |
|
|
|
32.8 |
% |
25
Admissions revenue. Admissions revenue for the three months ended June 30, 2022 increased $47.7 million, or 20.9%, to $275.5 million as compared to $227.8 million for the three months ended June 30, 2019. The increase in admissions revenue was primarily a result of an increase in admissions per capita, partially offset by a decrease in attendance of approximately 0.2 million guests, or 3.1%. Admission per capita increased by 24.8% to $43.98 in 2022 compared to $35.25 in 2019. Admission per capita increased primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts, along with the net impact of the admissions product mix when compared to the second quarter of 2019. Attendance declined when compared to 2019 primarily due to a decline from international guest visitation and group-related attendance. Excluding international guest visitation and group-related attendance, attendance increased by approximately 3.3% when compared to the second quarter of 2019.
Food, merchandise and other revenue. Food, merchandise and other revenue for the three months ended June 30, 2022 increased $51.1 million, or 28.7%, to $229.3 million as compared to $178.2 million for the three months ended June 30, 2019, primarily as a result of an increase in in-park per capita spending, partially offset by a decrease in attendance. In-park per capita spending increased by 32.8% to $36.61 in the second quarter of 2022 compared to $27.57 in the second quarter of 2019. In-park per capita spending improved primarily due to pricing initiatives, improved product quality and mix and the impact of new or enhanced and expanded venues and/or events or other in-park offerings, partially offset by a higher mix of pass attendance during the quarter when compared to the second quarter of 2019.
Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the three months ended June 30, 2022 increased $9.5 million, or 29.7%, to $41.5 million as compared to $32.0 million for the three months ended June 30, 2019. These costs represent 18.1% and 18.0% of the related revenue earned for the three months ended June 30, 2022 and 2019, respectively. The increase as a percent of related revenue partly relates to the impact of unusually high inflationary pressures which were largely offset by higher realized prices on some of our in-park products and the impact of sourcing cost savings initiatives.
Operating expenses. Operating expenses for the three months ended June 30, 2022 increased $20.1 million, or 11.8%, to $190.5 million as compared to $170.4 million for the three months ended June 30, 2019. The increase primarily results from operating costs associated with incremental operating days, venues, events and attractions when compared to 2019, an increase in non-cash fixed asset write-offs, and inflationary pressures, partially offset by a net reduction in labor-related costs and other operating costs primarily resulting from structural cost savings initiatives. Operating expenses were 37.7% of total revenues for the three months ended June 30, 2022 compared to 42.0% for the three months ended June 30, 2019.
Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended June 30, 2022 decreased $11.0 million, or 16.4%, to $56.2 million as compared to $67.2 million for the three months ended June 30, 2019. The decrease primarily relates to a reduction in marketing related costs and the impact of cost savings and efficiency initiatives, partially offset by a legal settlement charge. As a percentage of total revenue, selling, general and administrative expenses were 11.1% for the three months ended June 30, 2022 compared to 16.6% for the three months ended June 30, 2019.
26
Comparison of the Six Months Ended June 30, 2022 and 2021
The following table presents key operating and financial information for the six months ended June 30, 2022 and 2021:
|
|
|
For the Six Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
June 30, |
|
|
Variance |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
# |
|
|
% |
|
||||
|
Summary Financial Data: |
|
(In thousands, except per capita data) |
|
|||||||||||||
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
$ |
426,367 |
|
|
$ |
339,005 |
|
|
$ |
87,362 |
|
|
|
25.8 |
% |
|
Food, merchandise and other |
|
|
349,143 |
|
|
|
272,699 |
|
|
|
76,444 |
|
|
|
28.0 |
% |
|
Total revenues |
|
|
775,510 |
|
|
|
611,704 |
|
|
|
163,806 |
|
|
|
26.8 |
% |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of food, merchandise and other revenues |
|
|
64,558 |
|
|
|
49,115 |
|
|
|
15,443 |
|
|
|
31.4 |
% |
|
Operating expenses (exclusive of depreciation and amortization shown separately below) |
|
|
343,421 |
|
|
|
265,079 |
|
|
|
78,342 |
|
|
|
29.6 |
% |
|
Selling, general and administrative expenses |
|
|
102,217 |
|
|
|
74,654 |
|
|
|
27,563 |
|
|
|
36.9 |
% |
|
Severance and other separation costs |
|
|
113 |
|
|
|
1,582 |
|
|
|
(1,469 |
) |
|
|
(92.9 |
%) |
|
Depreciation and amortization |
|
|
77,163 |
|
|
|
72,805 |
|
|
|
4,358 |
|
|
|
6.0 |
% |
|
Total costs and expenses |
|
|
587,472 |
|
|
|
463,235 |
|
|
|
124,237 |
|
|
|
26.8 |
% |
|
Operating income |
|
|
188,038 |
|
|
|
148,469 |
|
|
|
39,569 |
|
|
|
26.7 |
% |
|
Other (income) expense, net |
|
|
(44 |
) |
|
|
195 |
|
|
|
(239 |
) |
|
NM |
|
|
|
Interest expense |
|
|
52,180 |
|
|
|
62,083 |
|
|
|
(9,903 |
) |
|
|
(16.0 |
%) |
|
Income before income taxes |
|
|
135,902 |
|
|
|
86,191 |
|
|
|
49,711 |
|
|
|
57.7 |
% |
|
Provision for income taxes |
|
|
28,279 |
|
|
|
3,313 |
|
|
|
24,966 |
|
|
NM |
|
|
|
Net income |
|
$ |
107,623 |
|
|
$ |
82,878 |
|
|
$ |
24,745 |
|
|
|
29.9 |
% |
|
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attendance |
|
|
9,666 |
|
|
|
8,023 |
|
|
|
1,643 |
|
|
|
20.5 |
% |
|
Total revenue per capita |
|
$ |
80.23 |
|
|
$ |
76.24 |
|
|
$ |
3.99 |
|
|
|
5.2 |
% |
|
Admission per capita |
|
$ |
44.11 |
|
|
$ |
42.25 |
|
|
$ |
1.86 |
|
|
|
4.4 |
% |
|
In-park per capita spending |
|
$ |
36.12 |
|
|
$ |
33.99 |
|
|
$ |
2.13 |
|
|
|
6.3 |
% |
NM-Not Meaningful.
Admissions revenue. Admissions revenue for the six months ended June 30, 2022 increased $87.4 million to $426.4 million as compared to $339.0 million for the six months ended June 30, 2021. The improvement was largely a result of an increase in attendance along with an increase in admissions per capita. Total attendance for the first six months of 2022 increased by approximately 1.6 million guests when compared to the first six months of 2021. Attendance benefitted primarily from an increase in demand resulting from a return to more normalized operations when compared to the first six months of 2021, which included COVID-19 related impacts including limited operating days, a temporary park closure, capacity limitations at some of our parks and restrictions on international travel. Admission per capita increased by 4.4% to $44.11 for the six months ended June 30, 2022 compared to $42.25 for the six months ended June 30, 2021, 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 park mix when compared to the prior year period.
Food, merchandise and other revenue. Food, merchandise and other revenue for the six months ended June 30, 2022 increased $76.4 million to $349.1 million as compared to $272.7 million for the six months ended June 30, 2021. The increase largely results from the increase in attendance discussed above, along with an improvement in in-park per capita spending. In-park per capita spending increased by 6.3% to $36.12 for the six months ended June 30, 2022 compared to $33.99 for the six months ended June 30, 2021. In park per capita spending improved due to a combination of factors including, pricing initiatives, improved product quality and mix and the impact of new or enhanced and/or expanded venues and/or events or other in-park offerings, partially offset by a higher mix of pass attendance and the impact of park mix when compared to the prior year period. In-park per capita spending was also unfavorably impacted by less than optimal staffing, particularly during the first quarter of 2022, that impacted our ability to fully operate and/or open some of our food and beverage and retail outlets.
Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the six months ended June 30, 2022 increased $15.4 million to $64.6 million as compared to $49.1 million for the six months ended June 30, 2021. These costs represent 18.6% and 18.0% of the related revenue earned for the six months ended June 30, 2022 and 2021, respectively. The increase as a percent of related revenue partly relates to the impact of unusually high inflationary pressures which were partially offset by higher realized prices on some of our in-park products and the impact of sourcing cost savings initiatives.
27
Operating expenses. Operating expenses for the six months ended June 30, 2022 increased by $78.3 million, or 29.6%, to $343.4 million as compared to $265.1 million for the six months ended June 30, 2021. Operating expenses in the first six months of 2021 were significantly impacted by limited operating days, a temporary park closure and capacity limitations due to the COVID-19 pandemic. As a result, the increase in operating expenses in the first six months of 2022 primarily results from an increase in labor-related costs and other operating costs due to a return to more normalized operations and an increase in attendance. Operating expenses were also impacted by a non-cash increase in self-insurance reserve adjustments and inflationary pressures, partially offset by structural cost savings initiatives when compared to the first six months of 2021. Operating expenses as a percent of revenue were 44.3% for the six months ended June 30, 2022 and 43.3% for the six months ended June 30, 2021.
Selling, general and administrative expenses. Selling, general and administrative expenses for the six months ended June 30, 2022 increased $27.6 million, or 36.9%, to $102.2 million as compared to $74.7 million for the six months ended June 30, 2021. The increase is primarily due to increased marketing-related costs, increased third-party vendor costs and a legal settlement charge, partially offset by the impact of cost savings and efficiency initiatives. Selling, general and administrative expenses as a percent of revenue were 13.2% for the six months ended June 30, 2022 and 12.2% for the six months ended June 30, 2021.
Depreciation and amortization. Depreciation and amortization expense for the six months ended June 30, 2022 increased $4.4 million, or 6.0%, to $77.2 million as compared to $72.8 million for the six months ended June 30, 2021. The increase primarily relates to new asset additions partially offset by the impact of asset retirements and fully depreciated assets.
Interest expense. Interest expense for the six months ended June 30, 2022 decreased $9.9 million, or 16.0%, to $52.2 million as compared to $62.1 million for the six months ended June 30, 2021. The decrease primarily relates to the net impact of lower interest as a result of the Refinancing Transactions. See Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements for further details.
Provision for income taxes. Provision for income taxes for the six months ended June 30, 2022 was $28.3 million compared to $3.3 million for the six months ended June 30, 2021. Our consolidated effective tax rate was 20.8% for the six months ended June 30, 2022 compared to 3.8% for the six months ended June 30, 2021. The effective tax rate in the six months ended June 30, 2022 was primarily impacted by a tax benefit related to equity-based compensation which vested during the period, partially offset by state income taxes and other compensation related items. The effective tax rate in the six months ended June 30, 2021 was primarily impacted by non-cash valuation allowance adjustments on federal and state net operating loss carryforwards, a valuation allowance adjustment on federal tax credits, changes in state tax rates and tax impacts of equity-based compensation. 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.
Supplemental comparison of the six months ended June 30, 2022 to the six months ended June 30, 2019
We believe a comparison of selected financial results for the six months ended June 30, 2022 to the six months ended June 30, 2019 may provide additional insight regarding the current impact of the COVID-19 pandemic on our business. As such, the following supplemental discussion provides an analysis of selected operating results for the six months ended June 30, 2022 compared to the six months ended June 30, 2019. The selected summary financial data for the first six months of 2019 was derived from the Company’s Quarterly Report on Form 10-Q for quarter ended June 30, 2019.
|
|
|
For the Six Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
June 30, |
|
|
Variance |
|
||||||||||
|
|
|
2022 |
|
|
2019 |
|
|
# |
|
|
% |
|
||||
|
Selected Summary Financial Data: |
|
(In thousands, except per capita data) |
|
|||||||||||||
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Admissions |
|
$ |
426,367 |
|
|
$ |
356,741 |
|
|
$ |
69,626 |
|
|
|
19.5 |
% |
|
Food, merchandise and other |
|
|
349,143 |
|
|
|
269,826 |
|
|
|
79,317 |
|
|
|
29.4 |
% |
|
Total revenues |
|
|
775,510 |
|
|
|
626,567 |
|
|
|
148,943 |
|
|
|
23.8 |
% |
|
Selected costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of food, merchandise and other revenues |
|
|
64,558 |
|
|
|
49,219 |
|
|
|
15,339 |
|
|
|
31.2 |
% |
|
Operating expenses (exclusive of depreciation and amortization) |
|
|
343,421 |
|
|
|
320,283 |
|
|
|
23,138 |
|
|
|
7.2 |
% |
|
Selling, general and administrative expenses |
|
|
102,217 |
|
|
|
109,969 |
|
|
|
(7,752 |
) |
|
|
(7.0 |
%) |
|
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attendance |
|
|
9,666 |
|
|
|
9,802 |
|
|
|
(136 |
) |
|
|
(1.4 |
%) |
|
Total revenue per capita |
|
$ |
80.23 |
|
|
$ |
63.92 |
|
|
$ |
16.31 |
|
|
|
25.5 |
% |
|
Admission per capita |
|
$ |
44.11 |
|
|
$ |
36.39 |
|
|
$ |
7.72 |
|
|
|
21.2 |
% |
|
In-park per capita spending |
|
$ |
36.12 |
|
|
$ |
27.53 |
|
|
$ |
8.59 |
|
|
|
31.2 |
% |
28
Admissions revenue. Admissions revenue for the six months ended June 30, 2022 increased $69.6 million, or 19.5%, to $426.4 million as compared to $356.7 million for the six months ended June 30, 2019. The increase in admissions revenue was primarily a result of an increase in admissions per capita which offset a decrease in attendance of approximately 0.1 million guests, or 1.4%. Admission per capita increased by 21.2% to $44.11 in the 2022 period compared to $36.39 in the 2019 period. Admission per capita increased primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts, along with the net impact of the admissions product mix when compared to the first six months of 2019. Attendance declined primarily due to a decline from international guest visitation and group-related attendance when compared to 2019. Excluding international guest visitation and group-related attendance, attendance increased by approximately 7.7% when compared to the first six months of 2019.
Food, merchandise and other revenue. Food, merchandise and other revenue for the six months ended June 30, 2022 increased $79.3 million, or 29.4%, to $349.1 million as compared to $269.8 million for the six months ended June 30, 2019, primarily as a result of an increase in in-park per capita spending, offset by a decrease in attendance. In-park per capita spending increased by 31.2% to $36.12 in the first six months of 2022 compared to $27.53 in the first six months of 2019. In-park per capita spending improved primarily due to pricing initiatives, improved product quality and mix and the impact of new or enhanced and/or expanded venues and/or events or other in-park offerings, partially offset by a higher mix of pass attendance during the first six months of 2022 when compared to the first six months of 2019. In-park per capita spending was unfavorably impacted by less than optimal staffing, particularly during the first quarter of 2022, that impacted our ability to fully operate and/or open some of our food and beverage and retail outlets.
Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the six months ended June 30, 2022 increased $15.3 million, or 31.2%, to $64.6 million as compared to $49.2 for the six months ended June 30, 2019. These costs represent 18.6% and 18.2% of the related revenue earned for the six months ended June 30, 2022 and 2019, respectively. The increase as a percent of related revenue partly relates to unusually high inflationary pressures, partially offset by higher realized prices on some of our in-park products and the impact of sourcing cost savings initiatives.
Operating expenses. Operating expenses for the six months ended June 30, 2022 increased $23.1 million, or 7.2%, to $343.4 million as compared to $320.3 million for the six months ended June 30, 2019. The increase primarily results from operating costs associated with incremental operating days, venues, events and attractions added in 2022, an increase in self-insurance reserve adjustments, an increase in non-cash fixed asset write-offs, and inflationary pressures, partially offset by a net reduction in labor-related costs and other operating costs primarily resulting from structural cost savings initiatives. Operating expenses were 44.3% of total revenues for the six months ended June 30, 2022 compared to 51.1% for the six months ended June 30, 2019.
Selling, general and administrative expenses. Selling, general and administrative expenses for the six months ended June 30, 2022 decreased $7.8 million, or 7.0%, to $102.2 million as compared to $110.0 million for the six months ended June 30, 2019. The decrease primarily relates to a reduction in marketing related costs and the impact of cost savings and efficiency initiatives, partially offset by a legal settlement charge. As a percentage of total revenue, selling, general and administrative expenses were 13.2% for the six months ended June 30, 2022 compared to 17.6% for the six months ended June 30, 2019.
Liquidity and Capital Resources
Overview
Generally, our principal sources of liquidity are cash generated from operations, funds from borrowings and existing cash on hand. Our principal uses of cash include the funding of working capital obligations, debt service, investments in theme parks (including capital projects), share repurchases and/or other return of capital to stockholders, when permitted. As of June 30, 2022, we had a working capital ratio (defined as current assets divided by current liabilities) of 0.7. Historically, we typically have operated with a working capital ratio of less than 1.0 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.
29
Share Repurchases
See Note 10–Stockholders’ Deficit in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information on the Company’s share repurchase programs.
On August 4, 2022, we announced that our Board approved a new $250.0 million share repurchase program (the “Share Repurchase Program”). Under the Share Repurchase Program, the Company is authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. The Share Repurchase Program has no time limits and could 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 and alternative investment opportunities.
Other
We believe that existing cash and cash equivalents, cash flow from operations, and available borrowings under our revolving credit facility will be adequate to meet the capital expenditures, debt service obligations and working capital requirements of our operations for at least the next 12 months.
The following table presents a summary of our cash flows provided by (used in) operating, investing, and financing activities for the periods indicated:
|
|
|
For the Six Months Ended June 30, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(Unaudited, in thousands) |
|
|||||
|
Net cash provided by operating activities |
|
$ |
299,634 |
|
|
$ |
248,078 |
|
|
Net cash used in investing activities |
|
|
(101,048 |
) |
|
|
(44,981 |
) |
|
Net cash used in financing activities |
|
|
(481,773 |
) |
|
|
(20,605 |
) |
|
Net (decrease) increase in cash and cash equivalents, including restricted cash |
|
$ |
(283,187 |
) |
|
$ |
182,492 |
|
Cash Flows from Operating Activities
Net cash provided by operating activities was $299.6 million during the six months ended June 30, 2022 as compared to $248.1 million during the six months ended June 30, 2021. The change in net cash provided by operating activities was primarily impacted by improved operating performance, including increased sales of admission products and the impact of decreased interest payments in the six months ended June 30, 2022 when compared to the six months ended June 30, 2021.
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 six months ended June 30, 2022 consisted primarily of capital expenditures of $101.0 million largely related to future attractions. Net cash used in investing activities during the six months ended June 30, 2021 consisted primarily of $45.0 million of capital expenditures.
The following table presents detail of our capital expenditures for the periods indicated:
|
|
|
For the Six Months Ended June 30, |
|
|
|||||
|
|
|
2022 |
|
|
2021 |
|
|
||
|
Capital Expenditures: |
|
(Unaudited, in thousands) |
|
|
|||||
|
Core(a) |
|
$ |
67,606 |
|
|
$ |
31,668 |
|
|
|
Expansion/ROI projects(b) |
|
|
33,442 |
|
|
|
13,313 |
|
|
|
Capital expenditures, total |
|
$ |
101,048 |
|
|
$ |
44,981 |
|
|
|
(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 six months ended June 30, 2022 results primarily from share repurchases of $454.8 million and payment of tax withholdings on equity-based compensation through shares withheld of $22.1 million. Net cash used in financing activities during the six months ended June 30, 2021 results primarily from payment of tax withholdings on equity-based compensation through shares withheld of $12.5 million and repayments on long-term debt of $7.8 million. See Note 6–Long-term Debt in our notes to the unaudited condensed consolidated financial statements for further details.
30
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 June 30, 2022, our indebtedness consisted of senior secured credit facilities, 5.25% unsecured 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”).
As of June 30, 2022, our Senior Secured Credit Facilities consisted of $1.191 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 June 30, 2022 and will mature in August 2026. As of June 30, 2022, SEA had approximately $19.7 million of outstanding letters of credit, leaving approximately $370.3 million available for borrowing under the Revolving Credit Facility.
Senior Notes and First-Priority Senior Secured Notes
As of June 30, 2022, SEA had outstanding $725.0 million in aggregate principal amount of Senior Notes due on August 15, 2029 and $227.5 million in aggregate principal amount of First-Priority Senior Secured Notes, due on May 1, 2025.
Covenant Compliance
As of June 30, 2022, we were in compliance with all covenants in the credit agreement governing the Senior Secured Credit Facilities and the indentures governing our Senior Notes and First-Priority Senior Secured Notes. See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements for further details relating to our restrictive covenants.
Adjusted EBITDA
We define Adjusted EBITDA as net income plus, (i) income tax provision, (ii) interest expense, consent fees and similar financing costs, (iii) depreciation and amortization, (iv) equity-based compensation expense, (v) loss on extinguishment of debt, (vi) certain non-cash charges/credits including those related to asset disposals, (vii) certain business optimization, development and strategic initiative costs, (viii) merger, acquisition, integration and certain investment costs, and (ix) other nonrecurring costs including incremental costs associated with the COVID-19 pandemic or similar unusual events.
Under the credit agreement governing the Senior Secured Credit Facilities and the indentures governing our Senior Notes and First-Priority Senior Secured Notes (collectively, the “Debt Agreements”), our ability to engage in activities such as incurring additional indebtedness, making investments, refinancing certain indebtedness, paying dividends and entering into certain merger transactions is governed, in part, by our ability to satisfy tests based on Covenant Adjusted EBITDA as defined in the Debt Agreements (“Covenant Adjusted EBITDA”).
Covenant Adjusted EBITDA is defined as Adjusted EBITDA plus certain other items as defined in the Debt Agreements, including estimated cost savings among other adjustments. Cost savings represent annualized estimated savings expected to be realized over the following 24 month period related to certain specified actions including restructurings and cost savings initiatives, net of actual benefits realized during the last twelve months. Other adjustments include (i) recruiting and retention costs, (ii) public company compliance costs, (iii) litigation and arbitration costs, and (iv) other costs and adjustments as permitted by the Debt Agreements.
We believe that the presentation of Adjusted EBITDA is appropriate as it eliminates the effect of certain non-cash and other items not necessarily indicative of a company’s underlying operating performance. We use Adjusted EBITDA in connection with certain components of our executive compensation program. In addition, investors, lenders, financial analysts and rating agencies have historically used EBITDA related measures in our industry, along with other measures, to estimate the value of a company, to make informed investment decisions and to evaluate companies in the industry. In addition, we believe the presentation of Covenant Adjusted EBITDA for the last twelve months is appropriate as it provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the Debt Agreements. See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements for further details relating to our restrictive covenants.
Adjusted EBITDA and Covenant Adjusted EBITDA are not recognized terms under accounting principles generally accepted in the United States of America (“GAAP”), should not be considered in isolation or as a substitute for a measure of our financial performance prepared in accordance with GAAP and are not indicative of income or loss from operations as determined under GAAP. Adjusted EBITDA, Covenant Adjusted EBITDA and other non-GAAP financial measures have limitations which should be considered before using these measures to evaluate our financial performance. Adjusted EBITDA and Covenant Adjusted EBITDA as presented by us, may not be comparable to similarly titled measures of other companies due to varying methods of calculation.
31
The following table reconciles Adjusted EBITDA and Covenant Adjusted EBITDA to net income for the periods indicated:
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
|
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
|
Last Twelve Months Ended June 30, |
|
|
|||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
|||||
|
|
|
(Unaudited, in thousands) |
|
|
|
|
|
|
|||||||||||||
|
Net income |
|
$ |
116,610 |
|
|
$ |
127,762 |
|
|
$ |
107,623 |
|
|
$ |
82,878 |
|
|
$ |
281,258 |
|
|
|
Provision for income taxes |
|
|
34,623 |
|
|
|
8,461 |
|
|
|
28,279 |
|
|
|
3,313 |
|
|
|
24,802 |
|
|
|
Loss on early extinguishment of debt and write-off of discounts and debt issuance costs (a) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
58,827 |
|
|
|
Interest expense |
|
|
26,810 |
|
|
|
31,127 |
|
|
|
52,180 |
|
|
|
62,083 |
|
|
|
106,739 |
|
|
|
Depreciation and amortization |
|
|
38,551 |
|
|
|
36,247 |
|
|
|
77,163 |
|
|
|
72,805 |
|
|
|
153,018 |
|
|
|
Equity-based compensation expense (b) |
|
|
3,205 |
|
|
|
6,782 |
|
|
|
11,082 |
|
|
|
11,255 |
|
|
|
40,845 |
|
|
|
Loss on impairment or disposal of assets and certain non-cash expenses(c) |
|
|
4,411 |
|
|
|
3,079 |
|
|
|
9,015 |
|
|
|
3,687 |
|
|
|
12,427 |
|
|
|
Business optimization, development and strategic initiative costs (d) |
|
|
5,790 |
|
|
|
2,835 |
|
|
|
9,394 |
|
|
|
3,347 |
|
|
|
14,806 |
|
|
|
Certain investment costs and other taxes |
|
|
599 |
|
|
|
329 |
|
|
|
1,000 |
|
|
|
416 |
|
|
|
1,414 |
|
|
|
COVID-19 related incremental costs (e) |
|
|
623 |
|
|
|
2,192 |
|
|
|
973 |
|
|
|
4,368 |
|
|
|
19,167 |
|
|
|
Other adjusting items (f) |
|
|
3,224 |
|
|
|
2 |
|
|
|
3,677 |
|
|
|
(147 |
) |
|
|
5,126 |
|
|
|
Adjusted EBITDA (g) |
|
$ |
234,446 |
|
|
$ |
218,816 |
|
|
$ |
300,386 |
|
|
$ |
244,005 |
|
|
$ |
718,429 |
|
|
|
Items added back to Covenant Adjusted EBITDA as defined in the Debt Agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated cost savings (h) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,100 |
|
|
|
Other adjustments as defined in the Debt Agreements (i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,329 |
|
|
|
Covenant Adjusted EBITDA (j) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
741,858 |
|
|
|
(a) |
Reflects a loss on early extinguishment of debt and write-off of discounts and debt issuance costs associated with the Refinancing Transactions. See Note 6–Long-Term Debt to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details. |
|
(b) |
Reflects non-cash equity compensation expenses and related payroll taxes associated with grants of equity-based compensation. For the twelve months ended June 30, 2022, includes equity compensation expense related to certain performance vesting restricted awards which were previously not considered probable of vesting. See Note 9–Equity-Based Compensation in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details. |
|
(c) |
Reflects primarily non-cash expenses related to miscellaneous fixed asset disposals including asset write-offs and costs related to certain rides and equipment which were removed from service. For the six and twelve months ended June 30, 2022, includes approximately $3.9 million related to non-cash self-insurance reserve adjustments. |
|
(d) |
For the three and six months ended June 30, 2022, reflects business optimization, development and other strategic initiative costs primarily related to: (i) $2.9 million and $5.1 million, respectively of third-party consulting costs and (ii) $2.5 million and $3.9 million, respectively of other business optimization costs and strategic initiative costs. |
For the three and six months ended June 30, 2021, reflects business optimization, development and other strategic initiative costs primarily related to: (i) $1.5 million and $1.6 million, respectively, of severance and other separation costs associated with positions eliminated and (ii) $0.4 million and $0.5 million, respectively, of third-party consulting costs.
For the twelve months ended June 30, 2022, reflects business optimization, development and other strategic initiative costs primarily related to: (i) $8.9 million of third-party consulting costs and (ii) $5.8 million of other business optimization costs and strategic initiative costs.
32
|
(e) |
For the three and six months ended June 30, 2022 and 2021, primarily relates to incremental non-recurring costs associated with the COVID-19 pandemic, primarily associated with incremental labor-related costs to prepare, staff, and operate the parks with enhanced safety measures and costs associated with COVID-19 related legal matters. |
For the twelve months ended June 30, 2022, includes approximately $11.1 million of nonrecurring contractual liabilities and legal costs impacted by the temporary COVID-19 park closures and approximately $6.8 million of incremental temporary labor-related costs incurred to prepare and staff the parks and certain incremental, nonrecurring, temporary incentives paid to attract employees to return to or remain in the workforce during the COVID-19 related environment.
|
(f) |
Reflects the impact of expenses, net of insurance recoveries and adjustments, incurred primarily related to certain matters, which we are permitted to exclude under the credit agreement governing our Senior Secured Credit Facilities due to the unusual nature of the items. For the three, six and twelve months ended June 30, 2022, includes $3.6 million related to a legal settlement. |
|
(g) |
Adjusted EBITDA is defined as net income before income tax expense, interest expense, depreciation and amortization, as further adjusted to exclude certain non-cash, and other items as described above. |
|
(h) |
Our Debt Agreements, which were effective for the twelve months ended June 30, 2022, permit the calculation of certain covenants to be based on Covenant Adjusted EBITDA, as defined above, for the last twelve-month period further adjusted for net annualized estimated savings we expect to realize over the following 24-month period related to certain specified actions, including restructurings and cost savings initiatives. These estimated savings are calculated net of the amount of actual benefits realized during such period. These estimated savings are a non-GAAP Adjusted EBITDA add-back item only as defined in the Debt Agreements and does not impact our reported GAAP net income. |
|
(i) |
The Debt Agreements, which were effective for the twelve months ended June 30, 2022, permit our calculation of certain covenants to be based on Covenant Adjusted EBITDA as defined above, for the last twelve-month period further adjusted for certain costs as permitted by the Debt Agreements including recruiting and retention expenses, public company compliance costs and litigation and arbitration costs, if any. Prior to the Debt Agreements, these costs were not permitted adjustments in the calculation, as such, these adjustments are not applicable to the prior years. |
|
(j) |
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 (h) and (i) above. |
Contractual Obligations
There have been no material changes to our contractual obligations as June 30, 2022 from those previously disclosed in our Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, revenues and expenses, and disclosure of contingencies during the reporting period. Significant estimates and assumptions include the valuation and useful lives of long-lived assets, the accounting for income taxes, the accounting for self-insurance and revenue recognition. Actual results could differ from those estimates. The critical accounting estimates associated with these policies are described in our Annual Report on Form 10-K under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our Annual Report on Form 10-K, filed on February 28, 2022.
Off-Balance Sheet Arrangements
We had no material off-balance sheet arrangements as of June 30, 2022.
Recently Issued Financial Accounting Standards
Refer to Note 2–Recent Accounting Pronouncements in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.
33
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 cost 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 June 30, 2022. We presently manage interest rate risk primarily by managing the amount, sources and duration of our debt funding. At June 30, 2022, approximately $1.2 billion of our outstanding long-term debt represents variable-rate debt.
Interest rates have remained at relatively low levels on a historical basis; however, recently interest rates have been rising, which could increase our borrowing costs on variable debt. Assuming an average balance on our revolving credit borrowings of approximately $390.0 million, a hypothetical 100 bps increase in LIBOR would increase our annual interest expense by approximately $15.8 million. Assuming no revolving credit borrowings, a hypothetical 100 bps increase in LIBOR would increase our annual interest expense by approximately $11.9 million.
COVID-19 Risks and Uncertainties
For further discussion of the adverse impacts of the COVID-19 pandemic, or any related mutations of the virus, or the risks of other outbreaks of pandemic or contagious diseases (such as the recent declaration by the World Health Organization of Monkeypox as a global health emergency), on our business and financial performance, see the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Regulations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), require public companies, including us, to maintain “disclosure controls and procedures,” which are defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required or necessary disclosures.
In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. The design of any controls and procedures also is based on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our internal controls over financial reporting as of June 30, 2022, based on the criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). Based upon this evaluation, our management, including our principal executive officer and principal financial officer, have concluded that a material weakness in our internal control over financial reporting still exists as initially disclosed as of September 30, 2021. Specifically, the Company does not have sufficient policies and procedures related to Board oversight of certain Board engagement within the Company’s control environment. Accordingly, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
34
Notwithstanding the above, the control deficiency did not result in a material misstatement of any of the Company’s annual or interim consolidated financial statements. Further, management believes and has concluded that the consolidated financial statements for the prior periods and included in this report fairly present, in all material respects, the Company’s financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.
Changes in Internal Control over Financial Reporting
Regulations under the Exchange Act require public companies, including our Company, to evaluate any change in our “internal control over financial reporting” as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2022 that materially affected, or are reasonably likely to materially affect, the Company’s 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, particularly 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 has performed an initial risk assessment to address this deficiency. As a result of this assessment, management and the Committee identified actions to remediate the material weakness, including completing the following actions:
|
|
• |
Revised procedures for Board and management interactions and communications. |
|
|
• |
Initiated and conducted training and education for members of the Board and certain members of senior management. |
|
|
• |
Established an independent lead director role whose responsibilities, amongst others, include acting as a liaison and monitoring Board and management engagement. |
|
|
• |
Enhanced our evaluation of the control environment. |
|
|
• |
Designed and implementing certain new controls. |
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. 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.
35
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 included elsewhere in this Quarterly Report on Form 10-Q for further details concerning our other legal proceedings.
Item 1A. Risk Factors
Except for the item described below, there have been no material changes to the risk factors set forth in Item 1A. to Part I of our Annual Report on Form 10-K, as filed on February 28, 2022, except to the extent factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors, which is incorporated herein by reference.
Environmental, social and corporate governance (“ESG”) matters or related incidents, including inclusion and diversity matters, our reporting of such matters, or sustainability ratings could negatively impact our business and results of operations.
ESG related matters have received increased focus recently from investors, employees, ratings agencies, governmental agencies and other stakeholders. Government agencies and listing exchanges have mandated or proposed, and others may in the future further mandate certain ESG requirements and disclosures. For example, the Securities and Exchange Commission (“SEC”) has recently proposed additional disclosures regarding, among other items, the impact businesses have on the environment. The SEC proposed rule would require companies to make certain climate-related disclosures, including information about climate-related risks, greenhouse gas emissions and certain climate-related financial statement metrics. We may face increased scrutiny related to any third party sustainability ratings we receive and our ESG activities, our related disclosures and/or our failure to achieve progress in these areas on a timely basis, or at all, could adversely affect our reputation, business, and results of operations. To the extent the SEC proposal becomes effective, we will be required to establish additional internal controls, engage additional consultants, and incur additional costs related to measuring and evaluating our environmental impact and preparing such disclosures. If we fail to implement sufficient internal controls or accurately capture and disclose relevant data concerning our ESG activities, our reputation, business, financial condition and results of operations may be materially adversely affected.
Separately, incidents could occur in our parks which may negatively affect the perception and reaction to our practices concerning certain ESG related matters, including inclusion and diversity matters. An incident involving our employees or our park guests which receives media attention or is otherwise the subject of public and/or social media discussions, may harm our brands or reputation, cause a loss of consumer confidence in the Company, reduce attendance at our theme parks and negatively impact our results of operations. Such incidents have occurred in the past and may occur in the future. There has been and may continue to be perception issues and negative media attention that create a barrier to attendance at our parks which could materially adversely affect our business, financial condition, and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities during the second quarter of 2022. The following table sets forth information with respect to shares of our common stock purchased by the Company during the periods indicated:
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Period Beginning |
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Period Ended |
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Total Number of Shares Purchased(1)(2) |
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|
Average Price Paid per Share |
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|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) |
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|
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(2) |
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||||
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April 1, 2022 |
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April 30, 2022 |
|
|
2,220,389 |
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|
$ |
69.33 |
|
|
|
2,027,659 |
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|
$ |
— |
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|
May 1, 2022 |
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May 31, 2022 |
|
|
1,863,821 |
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|
$ |
53.64 |
|
|
|
1,855,169 |
|
|
|
150,507,911 |
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|
June 1, 2022 |
|
June 30, 2022 |
|
|
2,458,987 |
|
|
$ |
46.80 |
|
|
|
2,458,927 |
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|
|
35,442,792 |
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|
|
|
|
|
|
6,543,197 |
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|
|
|
|
|
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6,341,755 |
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|
$ |
35,442,792 |
|
36
|
|
(1) |
Except for the 6,341,755 shares of our common stock repurchased as described in footnote (2) all purchases were made pursuant to our Omnibus Incentive Plan, under which participants may satisfy tax withholding obligations incurred upon the vesting of restricted stock by requesting that we withhold shares with a value equal to the amount of the withholding obligation. |
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|
(2) |
Our Board had previously authorized a share repurchase program of up to $250.0 million of the Company’s common stock (the “Former Share Repurchase Program”). On March 10, 2022, the Board approved a replenishment to the Former Share Repurchase Program of $228.2 million, bringing the total amount authorized for future share repurchases back up to $250.0 million at that time. Pursuant to the Former Share Repurchase Program, during the quarter ended June 30, 2022, the Company repurchased 2,027,659 shares for an aggregate total of approximately $140.1 million, leaving no amount remaining under the Former Share Repurchase Program as of April 29, 2022. |
On May 11, 2022, we announced that our Board approved a $250.0 million share repurchase program (the “May Share Repurchase Program”). Pursuant to the May Share Repurchase Program, during the quarter ended June 30, 2022, we repurchased 4,314,096 shares for an aggregate total of approximately $214.6 million, leaving approximately $35.4 million available under the May Share Repurchase Program as of June 30, 2022. Subsequent to June 30, 2022, we repurchased 771,656 shares for an aggregate total of approximately $35.4 million, leaving no amount remaining under the May Share Repurchase Program as of July 29, 2022.
On August 4, 2022, we announced that our Board approved a new $250.0 million share repurchase program (the “Share Repurchase Program”). 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. The Share Repurchase Program has no time limits and could be suspended or discontinued completely at any time.
All of the common stock is held as treasury shares as of June 30, 2022. The number of shares to be purchased and the timing of purchases was based on our trading windows and available liquidity, general business and market conditions and other factors, including legal requirements, share ownership thresholds, debt covenant restrictions 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 for further details.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Rule 10b5-1 Plans
Our policy governing transactions in our securities by our directors, officers and employees permits such persons to adopt stock trading plans pursuant to Rule 10b5-1 promulgated by the SEC under the Exchange Act. Our directors, officers and employees have in the past, and may from time to time, establish such stock trading plans. We do not undertake any obligation to disclose, or to update or revise any disclosure regarding, any such plans and specifically do not undertake to disclose the adoption, amendment, termination or expiration of any such plans.
37
Item 6. Exhibits
The following is a list of all exhibits filed or furnished as part of this report:
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Exhibit No. |
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Description |
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10.1* |
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10.2*† |
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10.3*† |
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10.4*† |
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31.1* |
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31.2* |
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32.1* |
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32.2* |
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101.INS* |
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Inline 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. |
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101.SCH* |
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Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL* |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF* |
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Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB* |
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Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE* |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 |
|
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 has been formatted in Inline XBRL. |
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* †
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Filed herewith. Identifies exhibits that consist of a management contract or compensatory plan or arrangement
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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.
38
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.
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SEAWORLD ENTERTAINMENT, INC. |
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(Registrant) |
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Date: August 5, 2022 |
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By: /s/ Michelle F. Adams |
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Michelle F. Adams |
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Chief Financial Officer and Treasurer |
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(Principal Financial and Accounting Officer) |
39