SeaWorld Entertainment, Inc. - Quarter Report: 2020 September (Form 10-Q)

Liability Derivatives

As of December 31, 2019

Balance Sheet

Location

Fair Value

Derivatives designated as hedging instruments:

(In thousands)

Interest rate swap agreements

Other liabilities

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35883

SeaWorld Entertainment, Inc.

(Exact name of registrant as specified in its charter)

Delaware		27-1220297
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
6240 Sea Harbor Drive Orlando, Florida		32821
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (407) 226-5011

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	SEAS	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had outstanding 78,381,807 shares of Common Stock, par value $0.01 per share as of November 2, 2020.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

		Page No.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		1

PART I.	FINANCIAL INFORMATION

Item 1.	Unaudited Condensed Consolidated Financial Statements

	Unaudited Condensed Consolidated Balance Sheets	3

	Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income	4

	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity Deficit	5

	Unaudited Condensed Consolidated Statements of Cash Flows	7

	Notes to Unaudited Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	38

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 3.	Defaults Upon Senior Securities	41

Item 4.	Mine Safety Disclosures	41

Item 5.	Other Information	42

Item 6.	Exhibits	42

	Signatures	43

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, 2019 (the “Annual Report on Form 10-K”), filed with the Securities and Exchange Commission (the “SEC”), and under “Part II, Item 1A., Risk Factors” in this Quarterly Report on Form 10-Q, as such risk factors may be updated from time to time in our periodic filings with the SEC, including this report, and are accessible on the SEC’s website at www.sec.gov, including the following:

•

the effects of the global Coronavirus (“COVID-19”) pandemic on our business and the economy in general;

•

complex federal and state regulations governing the treatment of animals, which can change, and claims and lawsuits by activist groups before government regulators and in the courts;

•

activist and other third-party groups and/or media can pressure governmental agencies, vendors, partners, and/or regulators, bring action in the courts or create negative publicity about us;

•

various factors beyond our control adversely affecting attendance and guest spending at our theme parks, including, but not limited to, weather, natural disasters, foreign exchange rates, consumer confidence, the potential spread of travel-related health concerns including pandemics and epidemics, travel related concerns, and governmental actions;

•

incidents or adverse publicity concerning our theme parks, the theme park industry and/or zoological facilities;

•

a decline in discretionary consumer spending or consumer confidence;

•

a significant portion of revenues are generated in the States of Florida, California and Virginia and the Orlando market, and any risks affecting such markets, such as natural disasters, closures due to pandemics, severe weather and travel-related disruptions or incidents;

•

seasonal fluctuations in operating results;

•

inability to compete effectively in the highly competitive theme park industry;

•

interactions between animals and our employees and our guests at attractions at our theme parks;

•

animal exposure to infectious disease;

•

high fixed cost structure of theme park operations;

•

changing consumer tastes and preferences;

•

cyber security risks and failure to maintain the integrity of internal or guest data;

•

technology interruptions or failures that impair access to our websites and/or information technology systems;

•

increased labor costs, including minimum wage increases, and employee health and welfare benefits;

•

inability to grow our business or fund theme park capital expenditures;

•

adverse litigation judgments or settlements;

•

inability to protect our intellectual property or the infringement on intellectual property rights of others;

•

the loss of licenses and permits required to exhibit animals or the violation of laws and regulations;

•

loss of key personnel;

•

unionization activities and/or labor disputes;

•

inability to meet workforce needs;

•

inability to realize the benefits of developments, restructurings, acquisitions or other strategic initiatives, and the impact of the costs associated with such activities;

•

inability to maintain certain commercial licenses;

•

restrictions in our debt agreements limiting flexibility in operating our business;

•

changes in the method for determining LIBOR and the potential replacement of LIBOR may affect our cost of capital;

•

inability to retain our current credit ratings;

•

our substantial leverage;

•

inadequate insurance coverage;

•

inability to purchase or contract with third party manufacturers for rides and attractions or construction delays;

•

environmental regulations, expenditures and liabilities;

•

suspension or termination of any of our business licenses, including by legislation at federal, state or local levels;

•

delays, restrictions or inability to obtain or maintain permits;

•

financial distress of strategic partners or other counterparties;

•

changes to immigration, foreign trade, investments and/or other policies;

•

inability to realize the full value of our intangible assets;

•

changes in tax laws;

•

tariffs or other trade restrictions;

•

actions of activist stockholders;

•

the ability of Hill Path Capital LP to significantly influence our decisions;

•

changes or declines in our stock price, as well as the risk that securities analysts could downgrade our stock or our sector; and

•

risks associated with our capital allocation plans and share repurchases, including the risk that our share repurchase program could increase volatility and fail to enhance stockholder value.

We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this Quarterly Report on Form 10-Q apply only as of the date of this Quarterly Report on Form 10-Q or as of the date they were made or as otherwise specified herein and, except as required by applicable law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise.

All references to “we,” “us,” “our,” “Company” or “SeaWorld” in this Quarterly Report on Form 10-Q mean SeaWorld Entertainment, Inc., its subsidiaries and affiliates.

Website and Social Media Disclosure

We use our websites (www.seaworldentertainment.com and www.seaworldinvestors.com) and our corporate Twitter account (@SeaWorld) as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about SeaWorld when you enroll your e-mail address by visiting the “E-mail Alerts” section of our website at www.seaworldinvestors.com. The contents of our website and social media channels are not, however, a part of this Quarterly Report on Form 10-Q.

Trademarks, Service Marks and Trade Names

We own or have rights to use a number of registered and common law trademarks, service marks and trade names in connection with our business in the United States and in certain foreign jurisdictions, including SeaWorld Entertainment, SeaWorld Parks & Entertainment, SeaWorld^®, Shamu^®, Busch Gardens^®, Aquatica^®, Discovery Cove^®, Sea Rescue^® and other names and marks that identify our theme parks, characters, rides, attractions and other businesses. In addition, we have certain rights to use Sesame Street^® marks, characters and related indicia through our license agreement with Sesame Workshop.

Solely for convenience, the trademarks, service marks, and trade names referred to hereafter in this Quarterly Report on Form 10-Q are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks, and trade names. This Quarterly Report on Form 10-Q may contain additional trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service marks and trade names appearing in this Quarterly Report on Form 10-Q are, to our knowledge, the property of their respective owners.

PART I — FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	September 30,			December 31,
	2020			2019
Assets
Current assets:
Cash and cash equivalents	$	488,416		$	39,946
Accounts receivable, net		25,553			49,728
Inventories		34,180			33,163
Prepaid expenses and other current assets		14,619			46,312
Total current assets		562,768			169,149
Property and equipment, at cost		3,274,442			3,209,521
Accumulated depreciation		(1,584,140	)		(1,476,059	)
Property and equipment, net		1,690,302			1,733,462
Goodwill, net		66,278			66,278
Trade names/trademarks, net		157,000			157,000
Right of use assets-operating leases		137,708			141,438
Deferred tax assets, net		21,181			19,013
Other assets, net		14,944			14,178
Total assets	$	2,650,181		$	2,300,518
Liabilities and Stockholders’ (Deficit) Equity
Current liabilities:
Accounts payable and accrued expenses	$	143,153		$	131,503
Current maturities of long-term debt, including revolving credit facility of $50,000 as of December 31, 2019		15,505			65,505
Operating lease obligations		3,805			3,896
Accrued salaries, wages and benefits		12,124			15,499
Deferred revenue		129,164			104,416
Other accrued liabilities		47,530			81,841
Total current liabilities		351,281			402,660
Long-term debt, net		2,179,549			1,482,619
Long-term operating lease obligations		121,089			124,339
Deferred tax liabilities, net		24,232			42,773
Other liabilities		40,551			37,235
Total liabilities		2,716,702			2,089,626
Commitments and contingencies (Note 10)
Stockholders’ (Deficit) Equity:
Preferred stock, $0.01 par value—authorized, 100,000,000 shares, no shares issued or outstanding at September 30, 2020 and December 31, 2019		—			—
Common stock, $0.01 par value—authorized, 1,000,000,000 shares; 94,433,197 and 94,044,203 shares issued at September 30, 2020 and December 31, 2019, respectively		944			940
Additional paid-in capital		674,108			673,893
Accumulated other comprehensive loss		—			(1,559	)
Accumulated deficit		(326,264	)		(59,479	)
Treasury stock, at cost (16,260,248 and 15,790,463 shares at September 30, 2020 and December 31, 2019, respectively)		(415,309	)		(402,903	)
Total stockholders’ (deficit) equity		(66,521	)		210,892
Total liabilities and stockholders’ equity	$	2,650,181		$	2,300,518

See accompanying notes to unaudited condensed consolidated financial statements.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE (LOSS) INCOME

(In thousands, except per share amounts)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Net revenues:
Admissions	$	63,087		$	268,048		$	163,368		$	624,789
Food, merchandise and other		43,030			205,618			114,336			475,444
Total revenues		106,117			473,666			277,704			1,100,233
Costs and expenses:
Cost of food, merchandise and other revenues		9,298			37,843			23,555			87,062
Operating expenses (exclusive of depreciation and amortization shown separately below)		91,337			175,634			283,385			495,917
Selling, general and administrative expenses		24,335			64,632			72,393			174,601
Severance and other separation costs		2,581			1,207			2,655			3,839
Depreciation and amortization		38,052			40,822			114,006			120,325
Total costs and expenses		165,603			320,138			495,994			881,744
Operating (loss) income		(59,486	)		153,528			(218,290	)		218,489
Other income, net		(2	)		(86	)		(15	)		(138	)
Interest expense		28,145			21,463			69,206			64,063
(Loss) income before income taxes		(87,629	)		132,151			(287,481	)		154,564
(Benefit from) provision for income taxes		(8,392	)		34,123			(20,696	)		40,905
Net (loss) income	$	(79,237	)	$	98,028		$	(266,785	)	$	113,659
Other comprehensive (loss) income:
Unrealized gain (loss) on derivatives, net of tax		-			374			1,559			(4,556	)
Comprehensive (loss) income	$	(79,237	)	$	98,402		$	(265,226	)	$	109,103
(Loss) earnings per share:
(Loss) earnings per share, basic	$	(1.01	)	$	1.25		$	(3.41	)	$	1.40
(Loss) earnings per share, diluted	$	(1.01	)	$	1.24		$	(3.41	)	$	1.39
Weighted average common shares outstanding:
Basic		78,154			78,164			78,153			81,003
Diluted		78,154			78,804			78,153			81,738

See accompanying notes to unaudited condensed consolidated financial statements.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF

CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share amounts)

	Shares of Common Stock Issued			Common Stock			Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Treasury Stock, at Cost			Total Stockholders' Equity (Deficit)
Balance at December 31, 2019		94,044,203		$	940		$	673,893		$	(59,479	)	$	(1,559	)	$	(402,903	)	$	210,892
Equity-based compensation		—			—			(3,601	)		—			—			—			(3,601	)
Unrealized gain on derivatives, net of tax expense of $254		—			—			—			—			704			—			704
Vesting of restricted shares		410,807			4			(4	)		—			—			—			—
Shares withheld for tax withholdings		(121,089	)		(1	)		(3,159	)		—			—			—			(3,160	)
Exercise of stock options		11,096			—			203			—			—			—			203
Adjustments to previous dividend declarations		—			—			1			—			—			—			1
Repurchase of 469,785 shares of treasury stock, at cost		—			—			—			—			—			(12,406	)		(12,406	)
Net loss		—			—			—			(56,519	)		—			—			(56,519	)
Balance at March 31, 2020		94,345,017		$	943		$	667,333		$	(115,998	)	$	(855	)	$	(415,309	)	$	136,114
Equity-based compensation		—			—			3,320			—			—			—			3,320
Unrealized gain on derivatives, net of tax expense of $318		—			—			—			—			855			—			855
Vesting of restricted shares		71,530			1			(1	)		—			—			—			—
Shares withheld for tax withholdings		(8,987	)		—			(154	)		—			—			—			(154	)
Exercise of stock options		818			—			15			—			—			—			15
Net loss		—			—			—			(131,029	)		—			—			(131,029	)
Balance at June 30, 2020		94,408,378		$	944		$	670,513		$	(247,027	)	$	-		$	(415,309	)	$	9,121
Equity-based compensation		—			—			3,484			—			—			—			3,484
Vesting of restricted shares		18,818			—			—			—			—			—			—
Shares withheld for tax withholdings		(1,999	)		—			(36	)		—			—			—			(36	)
Exercise of stock options		8,000			—			147			—			—			—			147
Net loss		—			—			—			(79,237	)		—			—			(79,237	)
Balance at September 30, 2020		94,433,197		$	944		$	674,108		$	(326,264	)	$	—		$	(415,309	)	$	(66,521	)

See accompanying notes to unaudited condensed consolidated financial statements.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF

CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share amounts)

	Shares of Common Stock Issued			Common Stock			Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Treasury Stock, at Cost			Total Stockholders' Equity (Deficit)
Balance at December 31, 2018		93,400,929		$	934		$	663,834		$	(148,955	)	$	2,284		$	(252,903	)	$	265,194
Equity-based compensation		—			—			3,198			—			—			—			3,198
Unrealized loss on derivatives, net of tax benefit of $744		—			—			—			—			(2,064	)		—			(2,064	)
Vesting of restricted shares		440,646			4			(4	)		—			—			—			—
Shares withheld for tax withholdings		(132,886	)		(1	)		(3,605	)		—			—			—			(3,606	)
Exercise of stock options		39,928			—			715			—			—			—			715
Adjustments to previous dividend declarations		—			—			3			—			—			—			3
Net loss		—			—			—			(37,020	)		—			—			(37,020	)
Balance at March 31, 2019		93,748,617		$	937		$	664,141		$	(185,975	)	$	220		$	(252,903	)	$	226,420
Equity-based compensation		—			—			4,084			—			—			—			4,084
Unrealized loss on derivatives, net of tax benefit of $1,055		—			—			—			—			(2,866	)		—			(2,866	)
Vesting of restricted shares		57,642			1			(1	)		—			—			—			—
Shares withheld for tax withholdings		(12,536	)		—			(362	)		—			—			—			(362	)
Exercise of stock options		91,248			1			1,619			—			—			—			1,620
Adjustments to previous dividend declarations		—			—			1			—			—			—			1
Repurchase of 5,615,874 shares of treasury stock, at cost		—			—			—			—			—			(150,000	)		(150,000	)
Net income		—			—			—			52,651			—			—			52,651
Balance at June 30, 2019		93,884,971		$	939		$	669,482		$	(133,324	)	$	(2,646	)	$	(402,903	)	$	131,548
Equity-based compensation		—			—			1,162			—			—			—			1,162
Unrealized gain on derivatives, net of tax expense of $137		—			—			—			—			374			—			374
Vesting of restricted shares		83,697			1			(1	)		—			—			—			—
Shares withheld for tax withholdings		(23,186	)		(1	)		(652	)		—			—			—			(653	)
Exercise of stock options		67,261			1			1,242			—			—			—			1,243
Adjustments to previous dividend declarations		—			—			1			—			—			—			1
Net income		—			—			—			98,028			—			—			98,028
Balance at September 30, 2019		94,012,743		$	940		$	671,234		$	(35,296	)	$	(2,272	)	$	(402,903	)	$	231,703

See accompanying notes to unaudited condensed consolidated financial statements.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	For the Nine Months Ended September 30,
		2020		2019
Cash Flows From Operating Activities:
Net (loss) income	$	(266,785	)	$	113,659
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		114,006			120,325
Amortization of debt issuance costs and discounts		3,279			2,622
Deferred income tax (benefit) provision		(21,305	)		39,705
Equity-based compensation		3,203			8,444
Other, including loss on sale or disposal of assets, net		326			3,770
Changes in assets and liabilities:
Accounts receivable		30,391			5,817
Inventories		(1,001	)		(919	)
Prepaid expenses and other current assets		(742	)		5,058
Accounts payable and accrued expenses		6,856			3,775
Accrued salaries, wages and benefits		(3,375	)		(4,505	)
Deferred revenue		24,973			15,483
Other accrued liabilities		3,659			109
Right-of-use assets and operating lease obligations		418			370
Other assets and liabilities		(1,552	)		(30	)
Net cash (used in) provided by operating activities		(107,649	)		313,683
Cash Flows From Investing Activities:
Capital expenditures		(75,715	)		(152,880	)
Other investing activities, net		—			24
Net cash used in investing activities		(75,715	)		(152,856	)
Cash Flows From Financing Activities:
Proceeds from issuance of senior secured notes, net		713,658			—
Repayments of long-term debt		(11,629	)		(11,629	)
Proceeds from draws on revolving credit facility		272,500			269,000
Repayments of revolving credit facility		(322,500	)		(249,000	)
Purchase of treasury stock		(12,406	)		(150,000	)
Payment of tax withholdings on equity-based compensation through shares withheld		(3,350	)		(4,621	)
Exercise of stock options		365			3,578
Debt issuance costs		(2,467	)		—
Other financing activities		(1,861	)		(572	)
Net cash provided by (used in) financing activities		632,310			(143,244	)
Change in Cash and Cash Equivalents, including Restricted Cash		448,946			17,583
Cash and Cash Equivalents, including Restricted Cash—Beginning of period		40,925			35,007
Cash and Cash Equivalents, including Restricted Cash—End of period	$	489,871		$	52,590
Supplemental Disclosure of Noncash Investing and Financing Activities:
Capital expenditures in accounts payable	$	33,925		$	26,260
Right-of-use assets obtained in exchange for financing lease obligations	$	208		$	1,230
Other financing arrangements	$	2,837		$	—

See accompanying notes to unaudited condensed consolidated financial statements.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Description of the Business

SeaWorld Entertainment, Inc., through its wholly-owned subsidiary, SeaWorld Parks & Entertainment, Inc. (“SEA”) (collectively, the “Company”), owns and operates twelve theme parks within the United States. The Company operates SeaWorld theme parks in Orlando, Florida; San Antonio, Texas; and San Diego, California; and Busch Gardens theme parks in Tampa, Florida; and Williamsburg, Virginia. The Company operates water park attractions in Orlando, Florida (Aquatica); San Antonio, Texas (Aquatica); San Diego, California (Aquatica); Tampa, Florida (Adventure Island); and Williamsburg, Virginia (Water Country USA). The Company also operates a reservations-only theme park in Orlando, Florida (Discovery Cove) and a seasonal park in Langhorne, Pennsylvania (Sesame Place).

Impact of Global COVID-19 Pandemic

In response to the global COVID-19 pandemic, and in compliance with government restrictions, the Company temporarily closed all of its theme parks effective March 16, 2020. Beginning in June 2020, the Company began the phased reopening of some of its parks with enhanced health, safety and sanitizing measures, capacity limitations, modified/limited operations, reduced hours and/or reduced operating days. In particular, on June 6, the Company’s Aquatica park in Texas reopened; on June 11, all five of the Company’s Florida parks reopened; on June 19, its SeaWorld park in Texas reopened; on July 24, its Sesame Place park in Pennsylvania reopened; on August 5, its Busch Gardens park in Virginia reopened, and on August 28, its SeaWorld park in California reopened on a limited basis, following California guidance for reopening zoos. The Company continues to monitor guidance from state authorities to determine when it can open certain rides and attractions in California; until then, and the Company expects to continue to operate the park on a limited basis. Additionally, during the third quarter, the state of Virginia had a state mandated capacity restriction of 1,000 guests at a time which significantly restricted attendance for the Company’s Busch Gardens park in that state. On October 29, 2020, the state of Virginia revised its theme park guidance and modified the methodology for calculating capacity at theme parks. The Company estimates that this will allow capacity at this park to increase from 1,000 guests to approximately 4,000 guests at a time. The Company was unable to open its Aquatica water park in California or its Water Country USA water park in Virginia for the 2020 operating season. The Company continues to operate all of its reopened parks with enhanced health, safety and sanitizing measures, capacity limitations, modified/limited operations and reduced operating days and/or operating hours. The Company also continues to monitor guidance from, and engage with, federal, state and local authorities and may adjust its plans accordingly.

Since the global COVID-19 pandemic began, the Company has taken proactive measures for the safety of its guests, employees and animals, to manage costs and expenditures, and to maximize liquidity in response to the temporary park closures and limited reopenings related to COVID-19. Some of these measures included, but are not limited to, (i) increased its revolving credit commitments on March 10th; (ii) issued first-priority senior secured notes and second-priority senior secured notes to raise additional capital and further enhance available liquidity; (iii) entered into amendments to its existing senior secured credit facilities to amend its financial covenants (see Note 6–Long-Term Debt for details); (iv) furloughed approximately 95% of its employees upon closing all of its parks; (v) obtained payroll tax credits and deferred certain social security payroll taxes under the CARES act; (vi) reduced executive officers’ base salary by 20%; (vii) eliminated and/or deferred all non-essential operating expenses at all of its parks and corporate headquarters while the parks were closed and actively managing operating expenses as the parks reopen; (viii) eliminated substantially all advertising and marketing spend while the parks were closed and strategically managing marketing spend as parks reopen; (ix) substantially reduced or deferred all capital expenditures starting in March 2020 (other than minimal essential capital expenditures) while the parks were closed and postponed to 2021 the opening of rides that were still under construction and scheduled to open in 2020; (x) worked with certain of its vendors and other business partners to manage, defer, and/or abate certain costs and payments and; (xi) added additional levels of review and approval for payments and cash disbursements which remains in place. Concurrent with the reopening of some of its parks, the Company began to prudently bring some employees back from furlough. Some of the Company’s employees remain on furlough while others have been transitioned from a furloughed status to a permanent layoff. See Note 13–Severance and Other Separation Costs for additional disclosure. The Company will continue to monitor the impact of the COVID-19 pandemic and may adjust its plans accordingly.

The COVID-19 pandemic, resulting park closures and limited park reopenings have had, and are likely to continue to have, a material impact on the Company’s financial results. Federal, state and local governments have taken unprecedented measures to prevent the spread of COVID-19 in the population, including at times placing severe restrictions on social gatherings.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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, 2019 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, 2019 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, 2020 or any future period due to the seasonal nature of the Company’s operations. Prior to the COVID-19 pandemic, the Company historically generated its highest revenues in the second and third quarters of each year and typically incurred a net loss in the first and fourth quarters, in part because seven of its theme parks are typically only open for a portion of the year. The results of operations for the three and nine months ended September 30, 2020 were materially impacted by the global COVID-19 pandemic which ultimately led to the temporary park closures effective on March 16, 2020. The timing of these park closures fell during historically high volume spring break and summer weeks. For the vast majority of the second quarter, all of the Company’s parks were closed with phased, reduced capacity reopenings beginning in June as discussed previously. Attendance since the parks have reopened has been impacted by, among other factors, capacity limitations, modified/limited operations, fewer operating days and/or reduced hours per week versus the prior year, limited marketing spend and a limited events line-up.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including SEA. All intercompany accounts have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions include, but are not limited to, the accounting for self-insurance, deferred tax assets and liabilities, deferred revenue, equity compensation, the valuation of goodwill and other indefinite-lived intangible assets as well as reviews for potential impairment of assets, including other long-lived assets. Estimates are based on various factors including current and historical trends, as well as other pertinent industry data. The Company regularly evaluates this information to determine if it is necessary to update the basis for its estimates and to adjust for known changes. Actual results could differ from those estimates. Based on the uncertainty relating to the COVID-19 pandemic, including but not limited to the extent, duration and impact of park closures, limited park reopenings, capacity limitations due to social distancing guidelines, public sentiment on social gatherings, travel and attendance patterns, potential supply chain disruptions and additional actions which could be taken by government authorities to manage the pandemic, the Company is not certain of the ultimate impact the COVID-19 pandemic could have on its estimates, business or results of operations for the year ending December 31, 2020.

Segment Reporting

The Company maintains discrete financial information for each of its twelve theme parks, which is used by the Chief Operating Decision Maker (“CODM”), identified as the Chief Executive Officer, or equivalent role, as a basis for allocating resources and assessing performance. Each theme park has been identified as an operating segment and meets the criteria for aggregation due to similar economic characteristics. In addition, all of the theme parks provide similar products and services and share similar processes for delivering services. The theme parks have a high degree of similarity in the workforces and target similar consumer groups. Accordingly, based on these economic and operational similarities and the way the CODM monitors and makes decisions affecting the operations, the Company has concluded that its operating segments may be aggregated and that it has one reportable segment.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Restricted Cash

Restricted cash is recorded in 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.

	September 30,		December 31,
	2020		2019
	(In thousands)
Cash and cash equivalents	$	488,416	$	39,946
Restricted cash, included in other current assets		1,455		979
Total cash, cash equivalents and restricted cash	$	489,871	$	40,925

Revenue Recognition

Admissions revenue primarily consists of single-day tickets, annual or season passes or other multi-day or multi-park admission products. For single-day tickets, the Company recognizes revenue at a point in time, upon admission to the park. Annual passes, season passes, or other multi-day or multi-park passes allow guests access to specific parks over a specified time period. For these pass and multi-use products, revenue is deferred and recognized over the terms of the admission product based on estimated redemption rates for similar products and is adjusted periodically. For pass products purchased on an installment plan that have met their initial commitment period and have transitioned to a month to month basis, monthly charges are recognized as revenue as payments are received each month, with the exception of payments received during the temporary park closures (see further discussion which follows).

As a result of the temporary park closures due to the global COVID-19 pandemic, the Company upgraded some of its pass products and extended pass expiration dates for at least the equivalent period the related parks were closed. As a result, the Company adjusted its estimated redemption and recognition patterns to reflect the fact that there was no attendance during the park closures and accordingly the Company did not recognize revenue from these admission products while the parks were closed. For passes under installment plans that have transitioned to a month to month basis, payments received during the closure period were recorded as deferred revenue and are recognized as revenue once the parks reopen, which may not necessarily reflect attendance patterns for these guests. Accordingly, for these passes, the Company temporarily pauses monthly charges as the parks reopen for the equivalent period the parks were closed.

The Company estimates a redemption rate using historical and forecasted growth rates and attendance trends by park for similar products. Due to the temporary park closures, the Company evaluated the estimates and assumptions used in its future estimated redemption rates for these products based on forecasted and actual attendance patterns as parks reopen. Attendance trends factor in seasonality and are adjusted based on actual trends periodically, including to reflect recent trends. Revenue is recognized on a pro-rata basis based on the estimated allocated selling price of the admission product. 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 culinary, merchandise and other in-park products and also includes other miscellaneous revenue which is not significant in the periods presented, including revenue related to the Company’s international agreements in the prior year period as discussed below. The Company recognizes revenue for food, merchandise and other in-park products when the related products or services are received by the guests. Certain admission products may also include bundled products at the time of purchase, such as culinary or merchandise items. The Company conducts an analysis of bundled products to identify separate distinct performance obligations that are material in the context of the contract. For those products that are determined to be distinct performance obligations and material in the context of the contract, the Company allocates a portion of the transaction price to each distinct performance obligation using each performance obligation’s standalone price. If the bundled product is related to a pass product and offered over time, revenue will be recognized over time accordingly.

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’s performance and expected to be recognized in future periods. As a result of the temporary park closures, the Company extended some product expiration dates and estimated a long-term portion of deferred revenue related to these products of approximately $1.1 million, which is reflected in the table which follows. The Company’s estimate of the long-term portion of deferred revenue related to such products factors in certain judgements and assumptions by park and product type, including, but not limited to, the reopening schedules and expected timing of attendance by mix of guests.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

At September 30, 2020 and December 31, 2019, $10.5 million and $10.0 million, respectively, related to the long-term portion of deferred revenue included in other liabilities in the accompanying unaudited condensed consolidated balance sheets relates to the Company’s international agreement, as discussed in the following section. The Company expects to recognize revenue related to its international agreement over the term of the respective license agreement beginning when substantially all of the services have been performed, which is expected to be upon opening.

The following table reflects the Company’s deferred revenue balance as of September 30, 2020 and December 31, 2019:

	September 30,		December 31,
	2020		2019
	(In thousands)
Deferred revenue, including long-term portion	$	140,741	$	114,416
Less: Deferred revenue, long-term portion, included in other liabilities		11,577		10,000
Deferred revenue, short-term portion	$	129,164	$	104,416

International Agreements

The Company has received $10.0 million in deferred revenue recorded in other liabilities related to a nonrefundable payment received from a partner in connection with a project in the Middle East (the “Middle East Project”) to provide certain services pertaining to the planning and design of the Middle East Project, with funding received expected to offset internal expenses. Approximately $5.7 million and $5.0 million of costs incurred related to the Middle East Project are recorded in other assets in the accompanying unaudited condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, respectively. The Company has recognized an asset for the costs incurred to fulfill the contract as the costs are specifically identifiable, enhance resources that will be used to satisfy performance obligations in the future and are expected to be recovered. The related deferred revenue and expense will begin to be recognized when substantially all of the services have been performed. The Company continually monitors performance on the contract and will make adjustments, if necessary. Construction for the Middle East Project is on track and scheduled to be completed by the end of 2022. There is no assurance that the Middle East Project will be completed or open to the public.

In March 2017, the Company entered into certain agreements with an affiliate of ZHG Group, to provide design, support and advisory services for various potential projects and grant certain exclusive rights (collectively, the “ZHG Agreements”). In April 2019, the Company terminated the ZHG Agreements for non-payment of undisputed amounts owed. For the nine months ended September 30, 2019, the Company recorded approximately $1.7 million which is included in food, merchandise and other revenue in the accompanying unaudited condensed consolidated statements of comprehensive (loss) income related to the ZHG Agreements. There were no amounts recorded as revenue related to the ZHG Agreements in the three or nine months ended September 30, 2020 or in the three months ended September 30, 2019. See Note 9–Related-Party Transactions for additional disclosures.

Goodwill, Other Indefinite-Lived Intangible Assets and Other Long-Lived Assets

During the nine month period ended September 30, 2020, due to the temporary park closures effective March 16, 2020 and the limited park reopenings resulting from the global COVID-19 pandemic discussed above, the Company identified triggering events and qualitatively evaluated its goodwill and other indefinite-lived intangible assets for further impairment analysis. These qualitative evaluations included certain judgements and assumptions related to the impact of the temporary park closures, the extent and duration of capacity limitations, the expected attendance levels and number of operating days/hours and the significant excess of historical fair values over carrying values and determined that, no further impairment analysis was warranted. As such, the Company did not record an impairment of goodwill and other indefinite-lived intangible assets during the nine month period ended September 30, 2020. Additionally, using similar assumptions, the Company evaluated certain other long-lived assets, including its right of use assets for impairment and determined that, based on the significant excess estimated undiscounted cash flows over carrying values, there was no impairment of other long-lived assets.

If the Company’s current assumptions, including those around the impact of the global COVID-19 pandemic and its projections of future cash flows and financial performance, as well as the economic outlook are not achieved, the Company may be required to record impairment charges in future periods, whether in connection with the Company’s next annual impairment testing, or on an interim basis, if any such change constitutes a triggering event outside of the quarter when the Company regularly performs its annual impairment test. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.

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”).

Recently Implemented Accounting Standards

On January 1, 2020, the Company adopted the following Accounting Standards Updates (“ASUs”) which had no material impact on its unaudited condensed consolidated financial statements or disclosures:

•

ASU 2016-02, Leases (Topic 842): On April 10, 2020, the FASB staff issued guidance stating that entities may elect to account for lease concessions related to the effects of the COVID-19 pandemic as though the rights and obligations for those concessions existed as of the commencement of the contract rather than as a lease modification. Lessees may make the election for any lessor-provided lease concession related to the impact of the COVID-19 pandemic as long as the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee. The Company has made such election. The Company has received immaterial rent concessions and has not entered into any lease modifications as of September 30, 2020. As such, this election did not have a material impact on the Company’s consolidated financial statements nor the related disclosures.

•

ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), requires the immediate recognition of estimated credit losses expected to occur over the life of financial assets rather than the current incurred loss impairment model that recognizes losses when a probability threshold is met. ASU 2016-13 is effective for annual periods beginning after December 15, 2019 and interim periods within those fiscal years. The adoption of this ASU did not have a material impact on the Company’s unaudited condensed consolidated financial statements or disclosures.

During 2019, the Company adopted the following ASU:

•

ASU 2016-02, Leases (Topic 842): This ASU is intended to provide enhanced transparency and comparability by requiring lessees to record right of use assets and corresponding lease liabilities on the balance sheet. The new guidance required the Company to continue to classify leases as either operating or financing, with classification affecting the pattern of expense recognition in the income statement. The Company was also required to disclose qualitative and quantitative information about leasing arrangements to enable financial statement users to assess the amount, timing and uncertainty of cash flows arising from leases. The Company adopted the ASU using a modified retrospective method that did not require the prior period information to be restated. The ASU also provided a number of optional provisions, known as practical expedients, which companies may elect to adopt to facilitate implementation. The Company elected a package of practical expedients which, among other items, precluded the Company from needing to reassess 1) whether any expired or existing contracts are or contain leases, 2) the lease classification of any expired or existing leases, and 3) initial direct costs for any existing leases. The Company elected not to implement the practical expedient related to hindsight to determine lease terms. Due to the implementation of selected practical expedients, there was no cumulative effect adjustment to beginning retained earnings as of January 1, 2019.

During 2019, the Company also adopted the following ASUs which had no material impact on its unaudited condensed consolidated financial statements or disclosures:

•

ASU 2018-09, Codification Improvements

•

ASU 2018-13, Fair Value Measurement (Topic 820)

•

ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract

•

ASU 2018-16, Derivatives and Hedging—Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes

Recently Issued Accounting Standards

The Company is currently evaluating the impact of the following recently issued ASUs:

•

ASU 2020-04, Reference Rate Reform (Topic 848), provides optional transition guidance to ease the potential accounting burden associated with transitioning away from the London Interbank Offered Rate (“LIBOR”), with optional expedients related to the application of GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. The provisions of this ASU are effective upon issuance and can be applied prospectively through December 31, 2022. Companies can apply this ASU immediately, but application is through December 31, 2020. The Company is evaluating the impact of LIBOR on its existing contracts, but does not expect that this ASU will have a material impact on its consolidated financial statements or related disclosures.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

•

ASU 2019-12, Simplifying the Accounting for Income Taxes, simplifies various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for the Company beginning January 1, 2021. Early adoption requires adoption of all amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company is currently evaluating ASU 2019-12 but does not expect that this ASU will have a material impact on its consolidated financial statements or related disclosures.

3. (LOSS) EARNINGS PER SHARE

(Loss) earnings per share is computed as follows:

	For the Three Months Ended September 30,
	2020								2019
	Net Loss			Shares		Per Share Amount			Net Income		Shares		Per Share Amount
	(In thousands, except per share amounts)
Basic (loss) earnings per share	$	(79,237	)		78,154	$	(1.01	)	$	98,028		78,164	$	1.25
Effect of dilutive incentive-based awards					—							640
Diluted (loss) earnings per share	$	(79,237	)		78,154	$	(1.01	)	$	98,028		78,804	$	1.24

	For the Nine Months Ended September 30,
	2020								2019
	Net Loss			Shares		Per Share Amount			Net Income		Shares		Per Share Amount
	(In thousands, except per share amounts)
Basic (loss) earnings per share	$	(266,785	)		78,153	$	(3.41	)	$	113,659		81,003	$	1.40
Effect of dilutive incentive-based awards					—							735
Diluted (loss) earnings per share	$	(266,785	)		78,153	$	(3.41	)	$	113,659		81,738	$	1.39

In accordance with the Earnings Per Share Topic of the ASC, basic (loss) earnings per share is computed by dividing net (loss) 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 (loss) 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 (loss) 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. There were approximately 2,533,000 and 2,195,000 potentially dilutive shares excluded from the computation of diluted loss per share during the three and nine months ended September 30, 2020, respectively, as their effect would have been anti-dilutive due to the Company’s net loss in those periods. During the three and nine months ended September 30, 2019, there were approximately 394,000 and 300,000 anti-dilutive shares of common stock excluded from the computation of diluted earnings per share, respectively. The Company’s outstanding performance-vesting restricted awards of approximately 1,452,000 and 2,085,000 as of September 30, 2020 and 2019, respectively, are considered contingently issuable shares and are excluded from the calculation of diluted (loss) earnings per share until the performance measure criteria is met as of the end of the reporting period.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. INCOME TAXES

Income tax expense or benefit is recognized based on the Company’s estimated annual effective tax rate which is based upon the tax rate expected for the full calendar year applied to the pretax income or loss of the interim period. The Company’s consolidated effective tax rate for the three and nine months ended September 30, 2020 was 9.6% and 7.2%, respectively, and differs from the statutory federal income tax rate of 21% primarily due to valuation allowance adjustments on federal and state net operating loss carryforwards, a valuation adjustment on certain federal tax credits and charitable contributions, changes in state tax rates, and other permanent items including equity-based compensation. The Company’s consolidated effective tax rate for the three and nine months ended September 30, 2019 was 25.8% and 26.5%, respectively, and differs from the statutory federal income tax rate of 21% primarily due to state income taxes, a valuation allowance adjustment on state net operating loss carryforwards and other permanent items including equity-based compensation.

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. The Company has recorded a valuation allowance of approximately $7.0 million for federal tax credits and approximately $1.0 million for charitable contributions as of September 30, 2020. Separately, the Company has recorded a valuation allowance for certain state net operating loss carryforwards of approximately $7.8 million and $5.2 million, net of federal tax benefit, on the deferred tax assets related to those state net operating losses as of September 30, 2020 and December 31, 2019, respectively.

The Company has determined that there are no positions currently taken that would rise to a level requiring an amount to be recorded or disclosed as an unrecognized tax benefit. If such positions do arise, it is the Company’s intent that any interest or penalty amount related to such positions will be recorded as a component of the income tax provision (benefit) in the applicable period.

The computation of the estimated annual effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the forecasted pre-tax income or loss for the year, projections of the proportion of income and/or loss earned and taxed in respective jurisdictions, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. The volatile global economic conditions resulting from the COVID-19 pandemic, the impacts of which are difficult to predict, may cause fluctuations in the Company’s forecasted pre-tax income or loss for the year, which could create volatility in its estimated annual effective tax rate. The estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or as the Company’s tax environment changes. To the extent that the estimated annual effective tax rate changes, the effect of the change on prior interim periods is included in the income tax provision in the period in which the change in estimate occurs.

5. OTHER ACCRUED LIABILITIES

Other accrued liabilities at September 30, 2020 and December 31, 2019, consisted of the following:

	September 30,		December 31,
	2020		2019
	(In thousands)
Accrued interest	$	16,305	$	573
Accrued property taxes		10,783		1,189
Self-insurance reserve		7,673		7,488
Accrued legal settlement		—		65,000
Other		12,769		7,591
Total other accrued liabilities	$	47,530	$	81,841

As of September 30, 2020, accrued interest above primarily relates to interest associated with the first-priority senior secured notes issued in April 2020, for which interest is paid bi-annually in November and May, and the second-priority senior secured notes issued in August 2020, for which interest is paid in February and August. See further discussion in Note 6–Long-Term Debt.

As of December 31, 2019, accrued legal settlement above is related to a previously disclosed legal settlement which was paid, net of insurance proceeds, during the nine months ended September 30, 2020. See further discussion in Note 10–Commitments and Contingencies.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. LONG-TERM DEBT

Long-term debt as of September 30, 2020 and December 31, 2019 consisted of the following:

	September 30,			December 31,
	2020			2019
	(In thousands)
Term B-5 Loans (effective interest rate of 3.75% and 4.80% at September 30, 2020 and December 31, 2019, respectively)	$	1,496,254		$	1,507,883
Revolving Credit Facility (effective interest rate of 4.35% at December 31, 2019)		—			50,000
Second-Priority Senior Notes (interest rate of 9.50% at September 30, 2020)		500,000			—
Senior Notes (interest rate of 8.75% at September 30, 2020)		227,500			—
Total long-term debt		2,223,754			1,557,883
Less: discounts and debt issuance costs		(28,700	)		(9,759	)
Less: current maturities		(15,505	)		(65,505	)
Total long-term debt, net	$	2,179,549		$	1,482,619

SEA is the borrower under the senior secured credit facilities, as amended pursuant to a credit agreement (the “Amended Credit Agreement”) dated as of December 1, 2009, as the same may be amended, restated, supplemented or modified from time to time (the “Senior Secured Credit Facilities”).

On March 10, 2020, SEA entered into an amendment, Amendment No. 10 (the “Amendment No. 10”) to its Amended Credit Agreement. Pursuant to Amendment No. 10, SEA increased the revolving credit commitments available under the Amended Credit Agreement from $210.0 million to an aggregate of $332.5 million. On April 19, 2020 and on July 29, 2020, respectively, SEA entered into Amendment No. 11, (the “Amendment No. 11”) and Amendment No. 12, (the “Amendment No. 12”) to its Amended Credit Agreement to amend certain provisions therein. See further discussion in the Restrictive Covenants section which follows.

Senior Secured Credit Facilities

As of September 30, 2020, the Senior Secured Credit Facilities consisted of $1.5 billion in Term B-5 Loans which will mature on March 31, 2024 and a $332.5 million revolving credit facility (the “Revolving Credit Facility”), which was not drawn upon as of September 30, 2020, and will mature on October 31, 2023. The outstanding balance on the Revolving Credit Facility as of December 31, 2019 was included in current maturities of long-term debt in the accompanying unaudited condensed consolidated balance sheets due to the Company’s intent at that time to repay the borrowings.

The Term B-5 Loans amortize in equal quarterly installments in an aggregate annual amount equal to 1.015% of the original principal amount of the Term B-5 Loans outstanding on the effective date of October 31, 2018, with the balance payable on the final maturity date. SEA may voluntarily repay amounts outstanding under the Senior Secured Credit Facilities at any time without premium or penalty, other than customary “breakage” costs with respect to LIBOR loans. SEA is also required to prepay the outstanding Term B-5 Loans, subject to certain exceptions, under certain circumstances, as defined in the Senior Secured Credit Facilities.

As of September 30, 2020, SEA had approximately $21.2 million of outstanding letters of credit, leaving approximately $311.3 million available for borrowing under the Revolving Credit Facility.

First-Priority Senior Secured Notes

On April 30, 2020, SEA closed on a private offering of $227.5 million aggregate principal amount of 8.750% first-priority senior secured notes due 2025 (the “Senior Notes”).

The Senior Notes mature on May 1, 2025 and have interest payment dates of May 1 and November 1 with the first interest payment due on November 1, 2020. On or after May 1, 2022, SEA may redeem the Senior Notes at its option, in whole at any time or in part from time to time, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, if redeemed during the 12-month period commencing on May 1 of the years as follows: (i) in 2022 at 104.375%; (ii) in 2023 at 102.188%; and (iii) in 2024 and thereafter at 100%. SEA may also redeem in the aggregate (at a redemption price expressed as a percentage of principal amount thereof): (i) 100% of the Senior Notes after certain events constituting a change of control at a redemption price of 101%, plus accrued and unpaid interest, if any, to, but excluding, the redemption date and (ii) up to 40% of the original aggregate principal amount of the Senior Notes with amounts equal to the net cash proceeds of certain equity offerings at a redemption price of 108.375%, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

The Senior Notes are fully and unconditionally guaranteed by the Company, any subsidiary of the Company that directly or indirectly owns 100% of the issued and outstanding equity interests of SEA, and subject to certain exceptions, each of SEA’s subsidiaries that guarantees SEA’s existing senior secured credit facilities.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Second-Priority Senior Secured Notes

On August 5, 2020, SEA closed on a private offering of $500.0 million aggregate principal amount of 9.500% second-priority senior secured notes due 2025 (the “Second-Priority Senior Notes”). Net of expenses related to the offering of the Second-Priority Senior Notes and Amendment No. 12 to the Credit Agreement, the Company used a portion of the proceeds from the issuance of the Second-Priority Senior Notes to repay the then outstanding borrowings of $311.0 million under the Revolving Credit Facility.

The Second-Priority Senior Notes mature on August 1, 2025 and have interest payment dates of February 1 and August 1 with the first interest payment due on February 1, 2021. On or after February 1, 2022, SEA may redeem the Second-Priority Senior Notes at its option, in whole at any time or in part from time to time, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, if redeemed during the 12-month period commencing on February 1 of the years as follows: (i) in 2022 at 104.75%; (ii) in 2023 at 102.375%; and (iii) in 2024 and thereafter at 100%. SEA may also redeem in the aggregate (at a redemption price expressed as a percentage of principal amount thereof): (i) 100% of the Second-Priority Senior Notes after certain events constituting a change of control at a redemption price of 101%, plus accrued and unpaid interest, if any, to, but excluding, the redemption date and (ii) up to 40% of the original aggregate principal amount of the Second-Priority Senior Notes with amounts equal to the net cash proceeds of certain equity offerings at a redemption price of 109.50%, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

At any time prior to February 1, 2022, SEA may, (i) during the twelve month period commencing on the issue date and (ii) during the period subsequent to such twelve month period and prior to February 1, 2022, redeem in each period up to 10.0% of the initial aggregate principal amount of the Second-Priority Senior Notes at a redemption price equal to 103% of the aggregate principal amount of the Second-Priority Senior Notes to be redeemed plus accrued and unpaid interest, if any, to but excluding the redemption date; provided, that if SEA does not redeem 10.0% of the initial aggregate principal amount of Second-Priority Senior Notes during the twelve month period commencing on the issue date, SEA may, in the subsequent period prior to February 1, 2022, redeem the Second-Priority Senior Notes in an amount that does not exceed 10.0% of the initial aggregate principal amount plus the difference between (x) 10.0% of the initial aggregate principal amount and (y) the aggregate principal amount of Second-Priority Senior Notes that were redeemed in such twelve month period.

The Second-Priority Senior Notes are fully and unconditionally guaranteed by the Company, any subsidiary of the Company that directly or indirectly owns 100% of the issued and outstanding equity interests of SEA, and subject to certain exceptions, each of SEA’s subsidiaries that guarantees SEA’s existing senior secured credit facilities.

In connection with the issuance of the Senior Notes and Second-Priority Senior Notes, and as a result of Amendment No. 10, Amendment No. 11 and Amendment No. 12, SEA recorded discounts and fees of approximately $13.6 million and $21.4 million during the three and nine months ended September 30, 2020, respectively.

Restrictive Covenants

The Senior Secured Credit Facilities contain a number of customary negative covenants. Such covenants, among other things, restrict, subject to certain exceptions, the ability of SEA and its restricted subsidiaries to incur additional indebtedness; make guarantees; create liens on assets; enter into sale and leaseback transactions; engage in mergers or consolidations; sell assets; make fundamental changes; pay dividends and distributions or repurchase SEA’s capital stock; make investments, loans and advances, including acquisitions; engage in certain transactions with affiliates; make changes in the nature of the business; and make prepayments of junior debt. All of the net assets of SEA and its consolidated subsidiaries are restricted and there are no unconsolidated subsidiaries of SEA.

The Revolving Credit Facility requires that the Company comply with a springing maximum first lien secured leverage ratio of 6.25x to be tested as of the last day of any fiscal quarter, solely to the extent that on such date the aggregate amount of funded loans and letters of credit (excluding undrawn letters of credit in an amount not to exceed $30.0 million and cash collateralized letters of credit) under the Revolving Credit Facility exceeds an amount equal to 35% of the then outstanding commitments under the Revolving Credit Facility. Pursuant to Amendment No. 12, among other terms, SEA will be exempt from complying with its first lien secured leverage ratio covenant through the end of 2021, after which SEA will be required to comply with such covenant starting in the first quarter of 2022. For purposes of calculating compliance with such covenant, unless a Triggering Event occurs (as defined in Amendment No. 12), beginning with the first quarter of 2022, to the extent trailing Adjusted EBITDA (as defined in Amendment No. 12) for the second, third or fourth quarters of 2021 would have otherwise been included in the calculation of such covenant, in lieu of using actual Adjusted EBITDA for such periods, Adjusted EBITDA for such applicable periods will be deemed to be actual Adjusted EBITDA (as defined in Amendment No. 12) for the corresponding quarter of 2019. In addition, SEA will be required to comply with a quarterly minimum liquidity test (defined as unrestricted cash and cash equivalents and available commitments under the Revolving Credit Facility) of not less than $75.0 million until the earlier of September 30, 2022 or the date on which the Company elects to use the actual Adjusted EBITDA for purposes of calculating its financial maintenance covenant. SEA will also be restricted from paying certain dividends or making other restricted payments through the third quarter of 2022 unless certain conditions are met.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Long-term debt at September 30, 2020 is repayable as follows and does not include the impact of any future voluntary prepayments:

Years Ending December 31:	(In thousands)
Remainder of 2020	$	3,876
2021		15,505
2022		15,505
2023		15,505
2024		1,445,863
Thereafter		727,500
Total	$	2,223,754

Interest Rate Swap Agreements

The Company previously had five interest rate swap agreements (the “Interest Rate Swap Agreements”) which effectively fixed the interest rate on the LIBOR-indexed interest payments associated with $1.0 billion of SEA’s outstanding long-term debt. The Interest Rate Swap Agreements expired on May 14, 2020.

SEA designated the Interest Rate Swap Agreements above as qualifying cash flow hedge accounting relationships as further discussed in Note 7–Derivative Instruments and Hedging Activities which follows.

Cash paid for interest relating to the Senior Secured Credit Facilities and the Interest Rate Swap Agreements, net of amounts capitalized, as applicable, was $51.0 million and $61.2 million in the nine months ended September 30, 2020 and 2019, respectively.

7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk primarily by managing the amount, sources and duration of its debt funding and at times through the use of derivative financial instruments. Specifically, the Company has previously entered into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments were used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings. The Company does not speculate using derivative instruments.

In May 2020, the Company’s Interest Rate Swap Agreements expired, as such, the Company did not have any derivative instruments outstanding as of September 30, 2020. As of December 31, 2019, the Company did not have any derivatives outstanding that were not designated in hedge accounting relationships.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives were to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily used interest rate swaps at times as part of its interest rate risk management strategy. During the nine months ended September 30, 2020 and 2019, and the three months ended September 30, 2019, such derivatives were used to hedge a portion of the variable cash flows associated with existing variable-rate debt.

The Interest Rate Swap Agreements were designated as cash flow hedges of interest rate risk. The changes in the fair value of derivatives designated and that qualify as cash flow hedges were recorded in accumulated other comprehensive (loss) income and were subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in accumulated other comprehensive (loss) income related to derivatives were reclassified to interest expense as interest payments were made on the Company’s variable-rate debt.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet

The Company did not have any derivative financial instruments outstanding as of September 30, 2020. The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the unaudited condensed consolidated balance sheet as of December 31, 2019:

Tabular Disclosure of the Effect of Derivative Instruments on the Statements of Comprehensive (Loss) Income

The table below presents the pretax effect of the Company’s derivative financial instruments on the unaudited condensed consolidated statements of comprehensive (loss) income for the three and nine months ended September 30, 2020 and 2019:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020			2019
Derivatives in Cash Flow Hedging Relationships:	(In thousands)
Income (loss) recognized in accumulated other comprehensive (loss) income	$	—	$	187	$	(370	)	$	(5,338	)
Amounts reclassified from accumulated other comprehensive (loss) income to interest expense	$	—	$	324	$	2,501		$	(880	)

Changes in Accumulated Other Comprehensive (Loss) Income

The following table reflects the changes in accumulated other comprehensive (loss) income, net of tax for the nine months ended September 30, 2020:

	(Losses) Gains on Cash Flow Hedges
Accumulated other comprehensive (loss) income:	(In thousands)
Accumulated other comprehensive loss at December 31, 2019				$	(1,559	)
Other comprehensive loss before reclassifications		(271	)
Amounts reclassified from accumulated other comprehensive loss to interest expense		1,830
Change in other comprehensive (loss) income, net of tax					1,559
Accumulated other comprehensive (loss) income at September 30, 2020				$	—

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. FAIR VALUE MEASUREMENTS

Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement is required to be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 – Quoted prices for identical instruments in active markets.

Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Of the Company’s long-term obligations, the Term B-5 Loans are classified in Level 2 of the fair value hierarchy as of September 30, 2020 and December 31, 2019 and the Senior Notes and the Second-Priority Senior Notes are classified in Level 1 of the fair value hierarchy as of September 30, 2020. The fair value of the Term B-5 Loans approximate 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 Senior Notes and Second-Priority Senior Notes was determined using quoted prices in active markets for identical instruments.

As of December 31, 2019, the Company determined that the majority of the inputs used to value its derivative financial instruments using the income approach fell within Level 2 of the fair value hierarchy. The Company used readily available market data to value its derivatives, such as interest rate curves and discount factors. ASC 820, Fair Value Measurement, also requires consideration of credit risk in the valuation. The Company used a potential future exposure model to estimate this credit valuation adjustment (“CVA”). The inputs to the CVA are largely based on observable market data, with the exception of certain assumptions regarding credit worthiness which make the CVA a Level 3 input. Based on the magnitude of the CVA, it was not considered a significant input and the derivatives were classified as Level 2. The Company did not have any derivative financial instruments outstanding as of September 30, 2020.

The Company did not have any assets measured on a recurring basis at fair value as of September 30, 2020. The following table presents the Company’s estimated fair value measurements and related classifications for liabilities measured on a recurring basis as of September 30, 2020:

Quoted Prices in

Active Markets

Significant

for Identical

Other

Significant

Assets and

Observable

Unobservable

Balance at

Liabilities

Inputs

September 30,

(Level 1)

(Level 2)

(Level 3)

2020

Liabilities:

(In thousands)

Long-term obligations ^(a)

758,762

1,496,255

—

2,255,017

(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 $15.5 million and long-term debt of $2.180 billion as of September 30, 2020.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company did not have any assets measured on a recurring basis at fair value as of December 31, 2019. The following table presents the Company’s estimated fair value measurements and related classifications for liabilities measured on a recurring basis as of December 31, 2019:

	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)		2019
Liabilities:	(In thousands)
Derivative financial instruments ^(a)	$	—	$	2,156	$	—	$	2,156
Long-term obligations ^(b)	$	—	$	1,557,883	$	—	$	1,557,883

(a)	Reflected at fair value in the unaudited condensed consolidated balance sheet as other liabilities of $2.2 million as of December 31, 2019.

(b)	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 $65.5 million and long-term debt of $1.483 billion as of December 31, 2019.

9. RELATED-PARTY TRANSACTIONS

In March 2017, the Company entered into the ZHG Agreements with Zhonghong Holding, an affiliate of Zhonghong Zhuoye Group Co., Ltd., who at the time owned approximately 21% of the outstanding shares of the Company. In April 2019, the Company terminated the ZHG Agreements for non-payment of undisputed amounts owed. See Note 1–Description of Business and Basis of Presentation for further details including amounts recorded as revenue in the nine months ended September 30, 2019 related to the ZHG Agreements.

As previously disclosed, Sun Wise (UK), Co., Ltd, an affiliate to the ZHG Group (“Sun Wise”), previously held beneficial ownership of 19,452,063 shares (the “Pledged Shares”) of the Company’s common stock, which Sun Wise had pledged in connection with certain loan obligations of Sun Wise. Sun Wise subsequently defaulted on such loan obligations and, as a result, certain of its lenders (together, the “Lenders”) foreclosed on the Pledged Shares. The Pledged Shares were transferred to a security agent for the Lenders (the “Security Agent”), on May 3, 2019.

On May 27, 2019, the Security Agent entered into a share repurchase agreement with the Company pursuant to which the Security Agent agreed to sell and the Company agreed to purchase 5,615,874 of the Pledged Shares held by the Security Agent at a price per share equal to $26.71 (the “SEAS Repurchase”) for a total cost of approximately $150.0 million. The SEAS Repurchase closed on May 30, 2019. Also on May 27, 2019, the Security Agent entered into a stock purchase agreement with Hill Path Capital LP (“Hill Path”) and certain of its affiliates pursuant to which the Security Agent agreed to sell and certain affiliates of Hill Path agreed to purchase, in the aggregate, 13,214,000 of the Pledged Shares held by the Security Agent at a price per share equal to $26.71 (the “HP Purchase”). The HP Purchase closed on May 30, 2019, at which time, Hill Path’s ownership percentage increased to 34.6%.

Also on May 27, 2019, in connection with the HP Purchase, the Company concurrently entered into a stockholders agreement, a registration rights agreement and an undertaking agreement with Hill Path (the “HP Agreements”). Under the HP Agreements, the Company agreed to appoint up to three Hill Path director designees to its Board of Directors and Hill Path agreed to certain customary standstill obligations, restrictions regarding the manner of sale of shares, and equal treatment for any change in control transaction. In addition, Hill Path agreed that shares held in excess of 24.9% generally would be voted consistent with the Board’s recommendations or consistent with the shares voted by the Company’s other stockholders. The Company also agreed to reimburse Hill Path for up to $250,000 of their expenses in connection with the HP Agreements. During the nine months ended September 30, 2019, the Company reimbursed Hill Path for $250,000 in expenses incurred.

See Note 12–Stockholder’s Equity for further details.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Securities Class Action Lawsuits

The Company has received final court approval of settlement of a purported stockholder class action lawsuit consisting of purchasers of the Company’s common stock during the periods between April 18, 2013 to August 13, 2014, captioned Baker v. SeaWorld Entertainment, Inc., et al., Case No. 14-CV-02129-MMA (KSC). The settlement required the Company to pay $65.0 million for claims alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as the costs of administration and legal fees and expenses. The settlement does not include or constitute an admission, concession, or finding of any fault, liability, or wrongdoing by the Company or any defendant. During the year ended December 31, 2019, the Company recorded $32.1 million of legal settlement charges, net of insurance recoveries, related to this case. The full settlement amount was funded during the nine months ended September 30, 2020.

On June 14, 2018, a lawsuit captioned Highfields Capital I LP et al v. SeaWorld Entertainment, Inc. et al, Case No. 3:18-cv-01276-L-BLM, 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 (collectively, the “Defendants”). The plaintiffs, which are investment funds managed by a common adviser (collectively, the “Plaintiffs”) allege, among other things, that the Defendants made false and misleading statements in violation of the federal securities laws and Florida common law, regarding the impact of the film Blackfish on SeaWorld’s business. The complaint further alleges that such statements were made to induce Plaintiffs to purchase common stock of the Company at artificially-inflated prices and that Plaintiffs suffered investment losses as a result. The Plaintiffs are seeking unspecified compensatory damages and other relief. On October 19, 2018, Defendants moved for partial dismissal of the complaint. On February 7, 2019, the Court granted Defendants’ motion and dismissed Plaintiffs’ Florida state law claims as well as federal securities law claims based on the Company’s second quarter 2013 earnings statements. On May 1, 2019, Defendants filed their answer to Plaintiffs’ complaint. On July 1, 2019, the parties filed a joint motion for a stay of all proceedings in the case pending the resolution of the motion for summary judgment filed by Defendants in the related securities class action captioned Baker v. SeaWorld Entertainment, Inc., et al. described above. The stay has since then been lifted and the parties are currently in the process of completing discovery. The Company believes that the lawsuit is without merit and intends to defend the lawsuit vigorously; however, there can be no assurance regarding the ultimate outcome of this lawsuit. While there can be no assurance regarding the ultimate outcome of this lawsuit, the Company believes that any potential loss would not be material.

Shareholder Derivative Lawsuit

The Company received final court approval of a settlement of a putative derivative lawsuit captioned Kistenmacher v. Atchison, et al., Civil Action No. 10437 that was filed in the Court of Chancery of the State of Delaware against, among others, the then Chairman of the Company’s Board, certain of the Company’s executive officers, directors and shareholders, and Blackstone. The Company was a “Nominal Defendant” in the lawsuit. Pursuant to the settlement, the Company received $12.5 million of insurance proceeds from its insurers and adopted certain corporate governance modifications. During the nine months ended September 30, 2020, the Company recorded a legal settlement gain of $12.5 million related to insurance proceeds received in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of comprehensive loss.

Consumer Lawsuit

On April 13, 2015, a purported class action was filed in the Superior Court of the State of California for the City and County of San Francisco against SeaWorld Parks & Entertainment, Inc., captioned Marc Anderson, et. al., v. SeaWorld Parks & Entertainment, Inc. Civil Case No. 15-cv-02172-JSW, (the “Anderson Matter”). The putative class consisted of all consumers within California who, within the past four years, purchased tickets to SeaWorld San Diego. The complaint (as amended) alleged causes of action under the California False Advertising Law, California Unfair Competition Law and California CLRA. The complaint sought restitution, equitable relief, attorneys’ fees and costs.

The plaintiffs did not file a motion for class certification. The case was prosecuted by certain plaintiffs for individual restitution in a nominal amount and injunctive relief.

The Court bifurcated the trial of the case into two phases: the plaintiffs’ standing to sue and the merits of their claims. Before the first phase of the trial, plaintiff Anderson dismissed all claims against the Company. The standing trial with regard to the remaining plaintiffs took place in March of 2020. On October 13, 2020, the Court ruled that the remaining plaintiffs have no standing to sue and judgment was entered in favor of the Company. Plaintiffs have until November 13, 2020 to appeal the Court’s order.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Other Matters

The Company is a party to various other claims and legal proceedings arising in the normal course of business. In addition, from time to time the Company is subject to audits, inspections and investigations by, or receives requests for information from, various federal and state regulatory agencies, including, but not limited to, the U.S. Department of Agriculture’s Animal and Plant Health Inspection Service (“APHIS”), the U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”), the California Occupational Safety and Health Administration (“Cal-OSHA”), the Florida Fish & Wildlife Commission (“FWC”), the Equal Employment Opportunity Commission (“EEOC”), the Internal Revenue Service (“IRS”) the U.S. Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”).

Other than those matters discussed above, from time to time, various parties also bring other lawsuits against the Company. Matters where an unfavorable outcome to the Company is probable and which can be reasonably estimated are accrued. Such accruals, which are not material for any period presented, are based on information known about the matters, the Company’s estimate of the outcomes of such matters, and the Company’s experience in contesting, litigating and settling similar matters. Matters that are considered reasonably possible to result in a material loss are not accrued for, but an estimate of the possible loss or range of loss is disclosed, if such amount or range can be determined. At this time, management does not expect any such known claims, legal proceedings or regulatory matters to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

License Commitments

Pursuant to a license agreement (“License Agreement”) with Sesame Workshop, the Company pays a specified annual license fee, as well as a specified royalty based on revenues earned in connection with sales of licensed products, all food and beverage items utilizing the licensed elements and any events utilizing such elements if a separate fee is paid for such event. The Company’s principal commitments pursuant to the License Agreement include, among other items, the opening of a second standalone park (“Standalone Park”) no later than mid-2021 and minimum annual capital and marketing thresholds. After the opening of the second Standalone Park (counting the existing Sesame Place Standalone Park in Langhorne, Pennsylvania), SEA will have the option to build additional Standalone Parks in the Sesame Territory within agreed upon timelines. The License Agreement has an initial term through December 31, 2031, with an automatic additional 15 year extension plus a five year option added to the term of the License Agreement from December 31st of the year of each new Standalone Park opening. As of September 30, 2020, the Company estimates the combined remaining obligations for these commitments could be up to approximately $45.0 million over the remaining term of the agreement. In October 2019, the Company announced that it planned to convert Aquatica San Diego into its second Sesame Place Standalone Park in the spring of 2021. While construction began in the fall of 2019, it was temporarily paused due to the COVID-19 pandemic. The Company currently expects to open this park in 2022. As a result, depending on governmental restrictions in the state of California, the Company expects to reopen its Aquatica San Diego park in 2021 for its operating season.

Anheuser-Busch, Incorporated has granted the Company a perpetual, exclusive, worldwide, royalty-free license to use the Busch Gardens trademark and certain related domain names in connection with the operation, marketing, promotion and advertising of certain of the Company’s theme parks, as well as in connection with the production, use, distribution and sale of merchandise sold in connection with such theme parks. Under the license, the Company is required to indemnify ABI against losses related to the use of the marks.

11. EQUITY-BASED COMPENSATION

In accordance with ASC 718, Compensation-Stock Compensation, the Company measures the cost of employee services rendered in exchange for share-based compensation based upon the grant date fair market value. The cost is recognized over the requisite service period, which is generally the vesting period unless service or performance conditions require otherwise. The Company recognizes the impact of forfeitures as they occur.

Equity compensation expense is included in operating expenses and in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of comprehensive (loss) income as follows:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020			2019
	(In thousands)
Equity compensation expense included in operating expenses	$	711	$	654	$	(366	)	$	2,687
Equity compensation expense included in selling, general and administrative expenses		2,773		508		3,569			5,757
Total equity compensation expense	$	3,484	$	1,162	$	3,203		$	8,444

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Equity compensation expense for the nine months ended September 30, 2020, includes the reversal of expense related to certain performance vesting restricted units which were no longer considered probable of vesting and also includes the reversal of expense related to outstanding unvested equity awards previously held by the Company’s former chief executive officer which were forfeited in connection with his departure. See Long-term Incentive Performance Restricted Awards section which follows for further details.

Omnibus Incentive Plan

The Company has reserved 15.0 million shares of common stock for issuance under its Omnibus Incentive Plan (the “Omnibus Incentive Plan”), of which approximately 7.8 million shares are available for future issuance as of September 30, 2020. The Company has outstanding time restricted awards, performance restricted awards and incentive stock options.

During the nine months ended September 30, 2020, in connection with a review of compensation matters, the Compensation Committee of the Board of Directors (the “Board”), approved grants of approximately 1.2 million restricted stock units designed to recognize certain employees for their contributions and continued expected contributions to the Company and its long term goals during the global COVID-19 pandemic. The weighted-average grant date fair value of the restricted stock units was $11.07 per share. The restricted stock units will vest 50% on each of the first two anniversaries of the grant date, subject to the recipient’s continued employment on each such vesting date.

Bonus Performance Restricted Units

The Company had an annual bonus plan for the fiscal year ended December 31, 2019 (“Fiscal 2019”), under which certain employees were eligible to vest in performance vesting restricted units (the “Bonus Performance Restricted Units”) based upon the Company’s achievement of certain performance goals with respect to Fiscal 2019. Separately, certain equity awards granted in October 2019 (the “Supplemental Grant”) were also eligible to vest based on achievement of specific performance goals with respect to Fiscal 2019. Based on the Company’s actual Fiscal 2019 results, a portion of these Bonus Performance Restricted Units and the Supplemental Grant vested in the nine months ended September 30, 2020 in accordance with their terms.

Long-term Incentive Performance Restricted Awards

During the nine months ended September 30, 2020, a portion of previously granted long-term incentive performance restricted awards related to completed performance periods vested. The remaining outstanding long-term incentive performance restricted awards related to future performance periods are eligible to vest based upon the Company’s achievement of pre-established performance goals for the respective performance period, as defined.

On February 25, 2020, the Board approved a modification (the “Modification”) to certain long-term incentive plan awards granted in 2019 (the “2019 LTIP Performance Awards”) in order to better align its terms with certain awards granted by the Company to its then CEO in November 2019 (the “CEO Performance Awards”). The Compensation Committee of the Board determined that it was preferable to align the 2019 LTIP Performance Awards with the CEO Performance Awards to put everyone on the same performance cycle with the same performance goals. Pursuant to the Modification, the threshold and target performance goals were revised to align with the CEO Performance Awards threshold and target performance goals and the performance period was extended through calendar year 2022 (or, the end of the 2023 calendar year, as applicable) consistent with the CEO Performance Awards. Equity compensation expense has not yet been recorded related to these awards. The Company will use the respective modification date fair value to record equity compensation expense related to the Modification awards when and if they become probable of vesting in a future period, in accordance with the guidance in ASC 718, Compensation-Stock Compensation.

The Company recognizes equity compensation expense for its performance-vesting restricted awards ratably over the related performance period, if the performance condition is probable of being achieved. Based on the Company’s progress towards its respective performance goals, a portion of its performance-vesting restricted awards were no longer considered probable of vesting; therefore, equity compensation expense was adjusted accordingly during the nine months ended September 30, 2020. If the probability of vesting related to these awards changes in a subsequent period, all equity compensation expense related to those awards that would have been recorded over the requisite service period had the awards been considered probable at the new percentage from inception, will be recorded as a cumulative catch-up at such subsequent date.

12. STOCKHOLDERS’ EQUITY

As of September 30, 2020, 94,433,197 shares of common stock were issued in the accompanying unaudited condensed consolidated balance sheet, which excludes 115,100 unvested shares of common stock and 3,072,615 unvested restricted stock units held by certain participants in the Company’s equity compensation plans (see Note 11–Equity-Based Compensation) and includes 16,260,248 shares of treasury stock held by the Company.

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Share Repurchase Program

The Board had previously authorized a share repurchase program of up to $250.0 million of the Company’s common stock (the “Share Repurchase Program”). Under the Share Repurchase Program, the Company is authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act.

During the nine months ended September 30, 2019, the Company completed a share repurchase of 5,615,874 shares (see discussion relating to the SEAS Repurchase in Note 9–Related Party Transactions for further details). On August 2, 2019, the Board approved a replenishment to the Share Repurchase Program of $150.0 million, which brought the total amount authorized for future share repurchases back up to $250.0 million.

During the nine months ended September 30, 2020, prior to the COVID-19 temporary park closures, the Company completed a share repurchase of 469,785 shares for an aggregate total of approximately $12.4 million, leaving approximately $237.6 million available under the Share Repurchase Program as of September 30, 2020. In connection with Amendment No. 12 to the Company’s Amended Credit Agreement, the Company is restricted from paying any dividends or making restricted payments, including share repurchases, through the third quarter of 2022 unless certain conditions are met (see Note 6–Long-Term Debt).

The Share Repurchase Program has no time limit and may be suspended or discontinued completely at any time. The number of shares to be purchased and the timing of purchases will be based on the Company’s trading windows and available liquidity, general business and market conditions, and other factors, including legal requirements, debt covenant restrictions and alternative investment opportunities.

13. SEVERANCE AND OTHER SEPARATION COSTS

In September 2020, the Company committed to a plan of termination (the “2020 Restructuring Program”) primarily impacting some of the Company’s previously furloughed salaried, full-time and part-time employees. Substantially all of the impacted employees were furloughed as part of the Company’s efforts to reduce operating expenses and adjust cash flows in light of business circumstances associated with the COVID-19 pandemic. Due to the sudden and unforeseeable economic impacts of the pandemic on the Company’s business operations, that were not reasonably foreseeable at the time of the temporary furloughs, the Company transitioned certain park and corporate personnel from a furloughed status to a permanent layoff. As a result, during the three months ended September 30, 2020, the Company recorded approximately $2.5 million in pre-tax restructuring charges primarily related to severance and other termination benefits related to the 2020 Restructuring Program, which is included in severance and other separation costs in the accompanying unaudited condensed consolidated statements of comprehensive (loss) income. Currently, some of the Company’s employees at certain parks remain on furlough. The Company continues to monitor the impact of the COVID-19 pandemic and may adjust its plans accordingly.

Related activity for the three months ended September 30, 2020 related to the 2020 Restructuring Program was as follows:

	2020 Restructuring Program
	(In thousands)
Liability as of June 30, 2020	$	—
Costs incurred		2,468
Payments made		(1,115	)
Liability as of September 30, 2020	$	1,353

The remaining liability as of September 30, 2020 relates to severance and other related costs to be paid as contractually obligated by December 31, 2020 and is included in accrued salaries, wages and benefits in the accompanying unaudited condensed consolidated balance sheet.

The Company continues to be committed to continuous improvement and regularly evaluates operations to ensure it is properly organized for performance and efficiency. As a result, during the three and nine months ended September 30, 2019, the Company recorded approximately $1.2 million and $3.8 million, respectively, in pre-tax charges primarily consisting of severance and other termination benefits related to positions eliminated in 2019, which is included in severance and other separation costs in the accompanying unaudited condensed consolidated statements of comprehensive (loss) income.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with the 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, 2019. 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, 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. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.

Business Overview

We are a leading theme park and entertainment company providing experiences that matter and inspiring guests to protect animals and the wild wonders of our world. We own or license a portfolio of recognized brands, including SeaWorld, Busch Gardens, Aquatica, Discovery Cove and Sesame Place. Over our more than 60-year history, we have developed a diversified portfolio of 12 differentiated theme parks that are grouped in key markets across the United States. Many of our theme parks showcase our one-of-a-kind zoological collection and feature a diverse array of both thrill and family-friendly rides, educational presentations, shows and/or other attractions with broad demographic appeal which deliver memorable experiences and a strong value proposition for our guests.

Recent Developments

Impact of Global COVID-19 Pandemic

Since the global COVID-19 pandemic began we have taken proactive measures for the safety of our guests, employees and animals, to manage costs and expenditures, and to provide liquidity in response to COVID-19. See further discussion concerning the proactive measures we have taken 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.

In response to the global COVID-19 pandemic, and in compliance with government restrictions, we temporarily closed all of our theme parks effective March 16, 2020. Beginning in June 2020, we began the phased reopening of some of our parks with enhanced health, safety and sanitizing measures, capacity limitations, modified/limited operations, reduced hours and/or reduced operating days. In particular, on June 6, our Aquatica water park in Texas reopened; on June 11, all five of our Florida parks reopened; on June 19, our SeaWorld park in Texas reopened; on July 24, our Sesame Place park in Pennsylvania reopened; on August 5, our Busch Gardens park in Virginia reopened and on August 28, our SeaWorld park in California reopened on a limited basis, following California guidance for reopening zoos. 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.

We have implemented enhanced health and safety protocols for our open parks including capacity limitations, increased cleaning and sanitizing, physical distancing practices, face covering requirements and temperature screening of both guests and employees. Additionally, we introduced an online reservation system to help manage capacity and we are managing the number of operating days and operating hours by park to optimize cash flow. We also continue our focus on cost reduction initiatives and have identified and executed on additional cost efficiencies which we have implemented as the parks reopen including optimizing labor through more efficient staffing.

Attendance since the parks reopened has been impacted by capacity limitations, modified/limited operations, fewer operating days and/or operating hours per week versus the prior year, limited marketing spend and a limited events line-up. Despite these limitations, attendance on a consolidated basis improved throughout the quarter with monthly attendance down 89% in July, down 80% in August and down 61% in September versus the comparable prior year month. Excluding our Virginia and California parks which were partially open and operating with modified and significantly limited operations due to state imposed restrictions, attendance trends for open parks also improved throughout the quarter with monthly attendance down 81% in July (excluding Sesame Place which opened in late July), down 68% in August and down 48% in September versus the comparable prior year period.

For other factors concerning the global COVID-19 pandemic, see the “Risk Factors” section of our Annual Report on Form 10-K, 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.

Principal Factors and Trends Affecting Our Results of Operations

Revenues

Our revenues are driven primarily by attendance in our theme parks and the level of per capita spending for admission and per capita spending for culinary, merchandise and other in-park products. We define attendance as the number of guest visits. Attendance drives admissions revenue as well as total in-park spending. Admissions revenue primarily consists of single-day tickets, annual passes (which generally expire after a 12 month term), season passes (including our fun card products and, collectively with annual passes, referred to as “passes” or “season passes”) or other multi-day or multi-park admission products. 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 when the parks are open. During the period each park was temporarily closed due to the COVID-19 pandemic, which started on March 16, 2020, we did not recognize revenue from the closed park's admission products.

Total revenue per capita, defined as total revenue divided by total attendance, consists of admission per capita and in-park per capita spending:

•

Admission Per Capita. We calculate admission per capita as total admissions revenue divided by total attendance. Admission per capita is primarily driven by ticket pricing, the admissions product mix and the park attendance mix, among other factors. The admissions product mix, also referred to as the attendance or visitation mix, is defined as the mix of attendance by ticket category such as single day, multi-day, annual passes or complimentary tickets and can be impacted by the mix of guests as domestic and international guests generally purchase higher admission per capita ticket products than our local guests. The park attendance mix is defined as the mix of theme parks visited and can impact admission per capita based on the theme park’s respective pricing which, on average, is lower for our water parks compared to our other theme parks.

•

In-Park Per Capita Spending. We calculate in-park per capita spending as total food, merchandise and other revenue divided by total attendance. Food, merchandise and other revenue primarily consists of culinary, merchandise, parking and other in-park products and also includes other miscellaneous revenue not necessarily generated in our parks, which is not significant in the periods presented. In-park per capita spending is primarily driven by pricing changes, new product offerings, the mix of guests (such as local, domestic or international guests), penetration levels (percentage of guests purchasing) and the mix of in-park spending, among other factors.

See further discussion in the “Results of Operations” section which follows or 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 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.

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 has been and could continue to be impacted by public concerns over the COVID-19 pandemic, the number of reported local cases of COVID-19, travel restrictions, federal, state and local regulations related to public places, limits on social gatherings and overall public safety sentiment. We continuously monitor factors impacting our attendance, making strategic marketing and sales adjustments as necessary.

Attendance patterns on a quarterly basis have historically had significant seasonality, driven by the timing of holidays, school vacations, calendar shifts in the number of weekend days in a quarter and weather conditions; in addition, typically seven of our theme parks are seasonal and only open for part of the year.

Costs and Expenses

Historically, the principal costs of our operations are employee wages and benefits, advertising, maintenance, animal care, utilities and insurance. Factors that affect our costs and expenses include fixed operating costs, competitive wage pressures including minimum wage legislation, commodity prices, costs for construction, repairs and maintenance, other inflationary pressures and attendance levels, among other factors.

During the nine months ended September 30, 2020, in connection with a previously disclosed legal settlement, we recorded a gain of $12.5 million which is included as a reduction to selling, general and administrative expenses in the accompanying consolidated statements of comprehensive loss included elsewhere in this Quarterly Report on Form 10-Q. See Note 10–Commitments and Contingencies to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

During the three months ended September 30, 2020, we committed to a plan of termination (the “2020 Restructuring Program”), primarily impacting some of our furloughed employees. We recorded approximately $2.6 million of severance and other separation costs during the three months ended September 30, 2020, primarily related to employee severance costs incurred with the 2020 Restructuring Program. See Note 13–Severance and Other Separation Costs to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

We remain committed to continuous improvement and regularly evaluate operations to evaluate that we are properly organized for performance and efficiency. As part of these ongoing efforts, during the three and nine months ended September 30, 2019, we recorded approximately $1.2 million and $3.8 million, respectively, in severance and other separation costs related to positions eliminated in 2019. See Note 13–Severance and Other Separation Costs to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

As a result of the park closures related to the COVID-19 pandemic, costs and expenses for the three and nine months ended September 30, 2020, are not necessarily indicative of costs and expenses for the year ending December 31, 2020 or any future period. Due, in part, to the impact of fixed operating costs and certain other costs which are not dependent on attendance levels, operating expenses and selling, general and administrative expenses during the three and nine months period ended September 30, 2020 increased as a percent of revenue when compared to the prior year period. See the “Impact of Global COVID-19 Pandemic” section for further details. For other factors affecting our costs and expenses, see the “Risk Factors” section of our Annual Report on Form 10-K, 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.

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 are only open for a portion of the year. Approximately two-thirds of our attendance and revenues are typically generated in the second and third quarters of the year and we generally incur a net loss in the first and fourth quarters. The percent mix of revenues by quarter has been 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 summer vacation months could also impact attendance patterns. The COVID-19 pandemic has impacted the seasonality of our business for the first nine months of 2020 and it is difficult to estimate how the COVID-19 pandemic will impact seasonality for the rest of the year. See “Risk Factors” for further discussion of the adverse impacts of the COVID-19 pandemic on our business and financial performance.

Results of Operations

The following discussion provides an analysis of our operating results for the three and nine months ended September 30, 2020 and 2019. The COVID-19 pandemic has materially impacted our revenue and results of operations for the three and nine months ended September 30, 2020. See “Attendance” and “Risk Factors” for further discussion of the adverse impacts of the COVID-19 pandemic on our business. The following data should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Comparison of the Three Months Ended September 30, 2020 and 2019

The following table presents key operating and financial information for the three months ended September 30, 2020 and 2019:

	For the Three Months Ended
	September 30,						Variance
	2020			2019			$			%
Summary Financial Data:	(In thousands, except per capita data)
Net revenues:
Admissions	$	63,087		$	268,048		$	(204,961	)		(76.5	%)
Food, merchandise and other		43,030			205,618			(162,588	)		(79.1	%)
Total revenues		106,117			473,666			(367,549	)		(77.6	%)
Costs and expenses:
Cost of food, merchandise and other revenues		9,298			37,843			(28,545	)		(75.4	%)
Operating expenses (exclusive of depreciation and amortization shown separately below)		91,337			175,634			(84,297	)		(48.0	%)
Selling, general and administrative expenses		24,335			64,632			(40,297	)		(62.3	%)
Severance and other separation costs		2,581			1,207			1,374			113.8	%
Depreciation and amortization		38,052			40,822			(2,770	)		(6.8	%)
Total costs and expenses		165,603			320,138			(154,535	)		(48.3	%)
Operating (loss) income		(59,486	)		153,528			(213,014	)	NM
Other income, net		(2	)		(86	)		84			97.7	%
Interest expense		28,145			21,463			6,682			31.1	%
(Loss) income before income taxes		(87,629	)		132,151			(219,780	)	NM
(Benefit from) provision for income taxes		(8,392	)		34,123			(42,515	)	NM
Net (loss) income	$	(79,237	)	$	98,028		$	(177,265	)	NM
Other data:
Attendance		1,562			8,123			(6,561	)		(80.8	%)
Total revenue per capita	$	67.94		$	58.31		$	9.63			16.5	%
Admission per capita	$	40.39		$	33.00		$	7.39			22.4	%
In-park per capita spending	$	27.55		$	25.31		$	2.24			8.9	%

Admissions revenue. Admissions revenue for the three months ended September 30, 2020 decreased $205.0 million, or 76.5%, to $63.1 million as compared to $268.0 million for the three months ended September 30, 2019. The decline in admissions revenue was primarily a result of a decrease in attendance of approximately 6.6 million guests, or 80.8%, partially offset by an increase in admission per capita. Attendance declined due to COVID-19 related impacts including fewer operating days and/or hours per week versus the prior year, capacity limitations, modified/limited park operations, temporary park closures, limited marketing spend and a limited events line-up. During the third quarter of 2020, we were open for 562 operating days with limited capacity and reduced operating hours compared to a total of 957 operating days in the third quarter of 2019. Admission per capita increased by 22.4% to $40.39 for the three months ended September 30, 2020 compared to $33.00 in the comparable prior year quarter. Admission per capita increased primarily due to the realization of higher prices across admission products and the impact of out of commitment pass revenue, partially offset by the impact of attendance mix when compared to the prior year period.

Food, merchandise and other revenue. Food, merchandise and other revenue for the three months ended September 30, 2020 decreased $162.6 million, or 79.1%, to $43.0 million as compared to $205.6 million for the three months ended September 30, 2019. The decrease results primarily from the decline in attendance discussed above, partially offset by an increase in in-park per capita spending. In-park per capita spending increased by 8.9% to $27.55 in the third quarter of 2020 compared to $25.31 in the third quarter of 2019. In-park per capita spending improved primarily due to higher realized prices and mix of certain in-park offerings particularly for merchandise, culinary and other in-park services, partially offset by the impact of visitation mix and limited in-park offerings during the quarter.

Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the three months ended September 30, 2020 decreased by $28.5 million, or 75.4%, to $9.3 million as compared to $37.8 million for the three months ended September 30, 2019. The decrease primarily relates to the decline in attendance and limited park reopenings. These costs represent 21.6% and 18.4% of the related revenue earned for the three months ended September 30, 2020 and 2019, respectively. The increase as a percent of related revenue partly relates to the product mix when compared to the prior year period.

Operating expenses. Operating expenses for the three months ended September 30, 2020 decreased by $84.3 million, or 48.0%, to $91.3 million as compared to $175.6 million for the three months ended September 30, 2019. The decrease largely results from a reduction in labor-related costs due to limited operating days and hours, furloughs and workforce reductions resulting from the limited reopenings and temporary park closures due to the COVID-19 pandemic. Operating expenses also declined due to limited operating schedules and the use of more efficient staffing models, along with other cost savings and efficiency initiatives.

Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended September 30, 2020 decreased $40.3 million, or 62.3%, to $24.3 million as compared to $64.6 million for the three months ended September 30, 2019. The decrease primarily relates to a reduction in marketing related costs resulting from the limited reopenings and temporary park closures due to the COVID-19 pandemic, a decline in third-party consulting costs, a decline in labor-related costs, and other cost savings and efficiency initiatives.

Severance and other separation costs. Severance and other separation costs for the three months ended September 30, 2020 and 2019 primarily relates to severance and other expenses for positions which were eliminated. See Note 13–Severance and Other Separation Costs in our notes to the unaudited condensed consolidated financial statements for further details.

Depreciation and amortization. Depreciation and amortization expense for the three months ended September 30, 2020 declined by $2.8 million, or 6.8%, to $38.1 million as compared to $40.8 million for the three months ended September 30, 2019. The decrease primarily relates to a decline in new asset additions in 2020 along with the impact of asset retirements and fully depreciated assets.

Interest expense. Interest expense for the three months ended September 30, 2020 increased $6.7 million, or 31.1%, to $28.1 million as compared to $21.5 million for the three months ended September 30, 2019. The increase primarily relates to additional interest related to the Second-Priority Senior Notes issued in August 2020 and the Senior Secured Notes issued in April 2020, partially offset by the impact of decreased LIBOR rates. See Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements and the “Our Indebtedness” section which follows for further details on our long-term debt.

(Benefit from) provision for income taxes. Income taxes in the three months ended September 30, 2020 was a benefit of $8.4 million compared to a provision for income taxes of $34.1 million for the three months ended September 30, 2019. Our consolidated effective tax rate was 9.6% for the three months ended September 30, 2020 compared to 25.8% for the three months ended September 30, 2019. The effective tax rate decreased primarily due to a non-cash valuation allowance on federal and state net operating loss carryforwards, a valuation allowance on federal tax credits and charitable contributions, changes in state tax rates, and other permanent items including equity-based compensation.

Comparison of the Nine Months Ended September 30, 2020 and 2019

The following table presents key operating and financial information for the nine months ended September 30, 2020 and 2019:

	For the Nine Months Ended
	September 30,						Variance
	2020			2019			$			%
Summary Financial Data:	(In thousands, except per capita data)
Net revenues:
Admissions	$	163,368		$	624,789		$	(461,421	)		(73.9	%)
Food, merchandise and other		114,336			475,444			(361,108	)		(76.0	%)
Total revenues		277,704			1,100,233			(822,529	)		(74.8	%)
Costs and expenses:
Cost of food, merchandise and other revenues		23,555			87,062			(63,507	)		(72.9	%)
Operating expenses (exclusive of depreciation and amortization shown separately below)		283,385			495,917			(212,532	)		(42.9	%)
Selling, general and administrative expenses		72,393			174,601			(102,208	)		(58.5	%)
Severance and other separation costs		2,655			3,839			(1,184	)		(30.8	%)
Depreciation and amortization		114,006			120,325			(6,319	)		(5.3	%)
Total costs and expenses		495,994			881,744			(385,750	)		(43.7	%)
Operating (loss) income		(218,290	)		218,489			(436,779	)	NM
Other income, net		(15	)		(138	)		123			89.1	%
Interest expense		69,206			64,063			5,143			8.0	%
(Loss) income before income taxes		(287,481	)		154,564			(442,045	)	NM
(Benefit from) provision for income taxes		(20,696	)		40,905			(61,601	)	NM
Net (loss) income	$	(266,785	)	$	113,659		$	(380,444	)	NM
Other data:
Attendance		4,153			17,925			(13,772	)		(76.8	%)
Total revenue per capita	$	66.87		$	61.38		$	5.49			8.9	%
Admission per capita	$	39.34		$	34.86		$	4.48			12.9	%
In-park per capita spending	$	27.53		$	26.52		$	1.01			3.8	%

NM-Not Meaningful.

Admissions revenue. Admissions revenue for the nine months ended September 30, 2020 decreased $461.4 million, or 73.9%, to $163.4 million as compared to $624.8 million for the nine months ended September 30, 2019. The decline in admissions revenue was primarily a result of a decrease in attendance of approximately 13.8 million guests, or 76.8%, partially offset by an increase in admission per capita. Attendance declined due to COVID-19 related impacts including temporary park closures, fewer operating days and hours versus the prior year, capacity limitations, modified/limited operations, limited marketing spend and a limited events line-up. During the nine months ended September 30, 2020, we were open for 1,029 operating days with reduced operating hours and limited capacity compared to a total of 2,292 operating days in nine months ended September 30, 2019. Admission per capita increased by 12.9% to $39.34 for the nine months ended September 30, 2020 compared to $34.86 for the nine months ended September 30, 2019. Admission per capita increased primarily due to the realization of higher prices across admission products and the impact of out of commitment pass revenue, partially offset by the impact of attendance mix related to higher pass attendance when compared to the prior year period.

Food, merchandise and other revenue. Food, merchandise and other revenue for the nine months ended September 30, 2020 decreased $361.1 million, or 76.0%, to $114.3 million as compared to $475.4 million for the nine months ended September 30, 2019. The decrease largely results from the decline in attendance discussed above. In-park per capita spending increased by 3.8% to $27.53 for the nine months ended September 30, 2020 compared to $26.52 for the nine months ended September 30, 2019. In-park per capita spending improved primarily due to higher realized prices and fees and mix of certain in-park offerings particularly for merchandise and other in-park services, partially offset by the impact of visitation mix and limited in-park offerings when compared to the prior year period.

Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the nine months ended September 30, 2020 decreased $63.5 million, or 72.9%, to $23.6 million as compared to $87.1 million for the nine months ended September 30, 2019. The decrease primarily relates to the decline in attendance and related park closures and limited reopenings. These costs represent 20.6% and 18.3% of the related revenue earned for the nine months ended September 30, 2020 and 2019, respectively. The increase as a percent of related revenue partly relates to the product mix when compared to the prior year period.

Operating expenses. Operating expenses for the nine months ended September 30, 2020 decreased by $212.5 million, or 42.9%, to $283.4 million as compared to $495.9 million for the nine months ended September 30, 2019. The decrease largely results from the following: (i) a reduction in labor-related costs due primarily to the COVID-19 temporary park closures and limited reopenings; (ii) a reduction in other operating costs resulting from limited operating schedules and cost savings initiatives; (iii) a decrease in non-cash equity compensation expense related primarily to the reversal of certain performance vesting restricted units which were no longer considered probable of vesting; and (iv) the impact of other cost savings and efficiency initiatives. See Note 11–Equity-Based Compensation in our notes to the unaudited condensed consolidated financial statements for further details.

Selling, general and administrative expenses. Selling, general and administrative expenses for the nine months ended September 30, 2020 decreased $102.2 million, or 58.5%, to $72.4 million as compared to $174.6 million for the nine months ended September 30, 2019. The decrease primarily relates to the following: (i) a reduction in marketing related costs due to the COVID-19 temporary park closures and limited reopenings; (ii) a decrease in legal costs due to a previously disclosed legal settlement gain of $12.5 million related to insurance proceeds received in the first quarter of 2020; (iii) a decline in third-party consulting costs; (iv) a decrease in non-cash equity compensation expense, primarily related to the reversal of equity compensation, as mentioned above, and also includes the reversal of equity compensation expense related to outstanding unvested equity awards previously held by the Company’s former chief executive officer; and (v) the impact of cost savings and efficiency initiatives, including reduced labor related costs. See Note 10–Commitments and Contingencies and Note 11–Equity-Based Compensation in our notes to the unaudited condensed consolidated financial statements for further details.

Severance and other separation costs. Severance and other separation costs for the nine months ended September 30, 2020 and 2019 primarily relates to severance and other expenses for positions which were eliminated. See Note 13–Severance and Other Separation Costs in our notes to the unaudited condensed consolidated financial statements for further details.

Depreciation and amortization. Depreciation and amortization expense for the nine months ended September 30, 2020 decreased $6.3 million, or 5.3%, to $114.0 million as compared to $120.3 million for the nine months ended September 30, 2019. The decrease primarily relates to a decline in new asset additions in 2020 along with the impact of asset retirements and fully depreciated assets.

Interest expense. Interest expense for the nine months ended September 30, 2020 increased $5.1 million, or 8.0%, to $69.2 million as compared to $64.1 million for the nine months ended September 30, 2019. The increase primarily relates to additional interest related to the Senior Secured Notes issued in April 2020 and the Second-Priority Senior Notes issued in August 2020, the impact of interest rate swap agreements, which expired in May 2020, and a higher average outstanding balance on our Revolving Credit Facility during the period, partially offset by the impact of decreased LIBOR rates. See Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements and the “Our Indebtedness” section which follows for further details.

(Benefit from) provision for income taxes. Income taxes for the nine months ended September 30, 2020 was a benefit of $20.7 million compared to a provision for income taxes of $40.9 million for the nine months ended September 30, 2019. Our consolidated effective tax rate was 7.2% for the nine months ended September 30, 2020 compared to 26.5% for the nine months ended September 30, 2019. The effective tax rate decreased primarily due to a non-cash valuation allowance adjustment on federal and state net operating loss carryforwards, a valuation allowance adjustment on federal tax credits and charitable contributions, changes in state tax rates, and other permanent items including equity-based compensation. See Note 4–Income Taxes in our notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Liquidity and Capital Resources

Overview

Generally, our principal sources of liquidity are cash generated from operations, funds from borrowings and existing cash on hand. Our principal uses of cash include the funding of working capital obligations, debt service, investments in theme parks (including capital projects), and share repurchases, when permitted. As of September 30, 2020, we had a working capital ratio (defined as current assets divided by current liabilities) of 1.6, due in part to our outstanding cash balance at September 30, 2020. Historically, we typically operate with a working capital ratio less than 1 due to significant deferred revenue balance from revenues paid in advance for our theme park admissions products and high turnover of in-park products that result in limited inventory balances. Our cash flow from operations, along with our revolving credit facilities, have historically allowed us to meet our liquidity needs.

Due to the adverse impact of the COVID-19 temporary park closures, which started on March 16, 2020, and the limited reopening with reduced operating days and/or hours and capacity limitations, we generated negative cash flows from operating activities for the nine months ended September 30, 2020. See the “Impact of Global COVID-19 Pandemic” section and the “Our Indebtedness” section for further details concerning the proactive measures we have taken to address liquidity in response to the COVID-19 pandemic. For other factors concerning the global COVID-19 pandemic, see the “Risk Factors” section in this Quarterly Report on Form 10-Q.

As market conditions warrant and subject to our contractual restrictions and liquidity position, we, our affiliates and/or our stockholders, may from time to time purchase our outstanding equity and/or debt securities, including our outstanding bank loans in privately negotiated or open market transactions, by tender offer or otherwise. Any such purchases may be funded by incurring new debt, including additional borrowings under the Senior Secured Credit Facilities. Any new debt may also be secured debt. We may also use available cash on our balance sheet. The amounts involved in any such transactions, individually or in the aggregate, may be material. Further, since some of our debt may trade at a discount to the face amount among current or future syndicate members, any such purchases may result in our acquiring and retiring a substantial amount of any particular series, with the attendant reduction in the trading liquidity of any such series. Depending on conditions in the credit and capital markets and other factors, we will, from time to time, consider other financing transactions, the proceeds of which could be used to refinance our indebtedness or for other purposes.

Share Repurchases

Our Board had previously authorized a share repurchase program of up to $250.0 million of our common stock (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 limit and may be suspended or discontinued completely at any time.

During the nine months ended September 30, 2020, prior to the COVID-19 temporary park closures, we completed a share repurchase of 469,785 shares for an aggregate total of approximately $12.4 million, leaving approximately $237.6 million available under the Share Repurchase Program as of September 30, 2020. In connection with Amendment No. 12 to the Amended Credit Agreement, we are restricted from paying any dividends or making other restricted payments, including share repurchases, through the third quarter of 2022 unless certain conditions are met. The number of shares to be purchased and the timing of purchases will be based on our trading windows and available liquidity, general business and market conditions and other factors, including legal requirements and alternative opportunities. See Note 6–Long-Term Debt and Note 12–Stockholders’ Equity in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Other

We believe that existing cash and cash equivalents and available borrowings under our revolving credit facility will be adequate to meet the capital expenditures and working capital requirements of our operations for at least the next 12 months.

The following table presents a summary of our cash flows (used in) provided by operating, investing, and financing activities for the periods indicated:

	For the Nine Months Ended September 30,
	2020			2019
	(Unaudited, in thousands)
Net cash (used in) provided by operating activities	$	(107,649	)	$	313,683
Net cash used in investing activities		(75,715	)		(152,856	)
Net cash provided by (used in) financing activities		632,310			(143,244	)
Net increase in cash and cash equivalents, including restricted cash	$	448,946		$	17,583

Cash Flows from Operating Activities

Net cash used in operating activities was $107.6 million during the nine months ended September 30, 2020 as compared to net cash provided by operating activities of $313.7 million during the nine months ended September 30, 2019. Net cash (used in) provided by operating activities was primarily impacted by the decline in revenue due to the temporary park closures and limited park reopenings.

Cash Flows from Investing Activities

Investing activities consist principally of capital investments we make in our theme parks for future attractions and infrastructure. Net cash used in investing activities during the nine months ended September 30, 2020 consisted primarily of capital expenditures of $75.7 million largely related to future attractions. Net cash used in investing activities during the nine months ended September 30, 2019 consisted primarily of $152.9 million of capital expenditures largely related future attractions.

The following table presents detail of our capital expenditures for the periods indicated:

	For the Nine Months Ended September 30,
	2020		2019
Capital Expenditures:	(Unaudited, in thousands)
Core^(a)	$	65,914	$	137,053
Expansion/ROI projects^(b)		9,801		15,827
Capital expenditures, total	$	75,715	$	152,880

^(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. We generally expect to fund our capital expenditures through our operating cash flow. See the “Impact of Global COVID-19 Pandemic” section for further details regarding proactive measures we have taken starting in March 2020 relating to our capital expenditures including delaying the opening of certain new rides to 2021.

Cash Flows from Financing Activities

Net cash provided by financing activities during the nine months ended September 30, 2020 results primarily from net proceeds from our Senior Notes and our Second-Priority Senior Notes offering of $713.7 million, partially offset by net repayments on our revolving credit facility of $50.0 million, $12.4 million used to repurchase shares and repayments of $11.6 million on our long-term debt. Net cash used in financing activities during the nine months ended September 30, 2019 results primarily from $150.0 million used to repurchase shares and repayments of $11.6 million on our long-term debt, partially offset by a net draw on our revolving credit facility of $20.0 million. See Note 6–Long-term Debt in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Our Indebtedness

We are a holding company and conduct our operations through our subsidiaries, which have incurred or guaranteed indebtedness as described below. As of September 30, 2020, our indebtedness consisted of senior secured credit facilities, first-priority senior secured notes (“Senior Notes”) and second-priority senior secured notes (“Second-Priority Senior Notes”).

Senior Secured Credit Facilities

SeaWorld Parks & Entertainment, Inc. (“SEA”) is the borrower under the senior secured credit facilities, as amended pursuant to a credit agreement (the “Amended Credit Agreement”) dated as of December 1, 2009, as the same may be amended, restated, supplemented or modified from time to time (the “Senior Secured Credit Facilities”). On March 10, 2020, SEA entered into an amendment, Amendment No. 10 (the “Amendment No. 10”) to its Amended Credit Agreement. Pursuant to Amendment No. 10, SEA increased the revolving credit commitments available under the Amended Credit Agreement from $210.0 million to an aggregate of $332.5 million. On April 19, 2020 and on July 29, 2020, respectively, SEA entered into Amendment No. 11, (the “Amendment No. 11”) and Amendment No. 12, (the “Amendment No. 12”) to its Amended Credit Agreement to further amend certain provisions therein. See “Covenant Compliance” discussion which follows.

As of September 30, 2020, our Senior Secured Credit Facilities consisted of $1.5 billion in Term B-5 Loans which will mature on March 31, 2024, along with a $332.5 million Revolving Credit Facility, which was not drawn upon as of September 30, 2020. As of September 30, 2020, SEA had approximately $21.2 million of outstanding letters of credit, leaving $311.3 million available for borrowing under the Revolving Credit Facility.

Senior Secured Notes

On April 30, 2020, SEA closed on a private offering of $227.5 million aggregate principal amount of 8.750% first-priority senior secured notes due 2025 (the “Senior Notes”).

See Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details concerning our long-term debt.

Second-Priority Senior Secured Notes

On August 5, 2020, SEA closed on a private offering of $500.0 million aggregate principal amount of 9.500% second-priority senior secured notes due 2025 (the “Second-Priority Senior Notes”). Net of expenses related to the offering of the Second-Priority Senior Notes and Amendment No. 12 to the Credit Agreement, we used a portion of the proceeds from the issuance of the Second-Priority Senior Notes to repay the then outstanding borrowings under the Revolving Credit Facility of $311.0 million.

Covenant Compliance

As of September 30, 2020, we were in compliance with all covenants in the credit agreement governing the Senior Secured Credit Facilities.

The Revolving Credit Facility requires that the Company comply with a springing maximum first lien secured leverage ratio of 6.25x to be tested as of the last day of any fiscal quarter, solely to the extent that on such date the aggregate amount of funded loans and letters of credit (excluding undrawn letters of credit in an amount not to exceed $30.0 million and cash collateralized letters of credit) under the Revolving Credit Facility exceeds an amount equal to 35% of the then outstanding commitments under the Revolving Credit Facility. Pursuant to Amendment No. 12, among other terms, SEA will be exempt from complying with its first lien secured leverage ratio covenant through the end of 2021, after which SEA will be required to comply with such covenants starting at the first quarter of 2022. For purposes of calculating compliance with such covenant, unless a Triggering Event occurs (as defined in Amendment No. 12), beginning with the first quarter of 2022, to the extent trailing Adjusted EBITDA (as defined in Amendment No. 12) for the second, third or fourth quarters of 2021 would have otherwise been included in the calculation of such covenant, in lieu of using actual Adjusted EBITDA for such periods, Adjusted EBITDA for such applicable periods will be deemed to be Adjusted EBITDA (as defined in Amendment No. 12) for the corresponding quarter of 2019.

See Note 6–Long-Term Debt to the unaudited condensed consolidated financial statements for further details relating to the calculation beginning in the first quarter of 2022. In addition, SEA will be required to comply with a quarterly minimum liquidity test (defined as unrestricted cash and cash equivalents and available commitments under the Revolving Credit Facility) of not less than $75.0 million until the earlier of September 30, 2022 or the date on which the Company elects to use actual Adjusted EBITDA for purposes of calculating its financial maintenance covenant.

See Note 6–Long-Term Debt to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Adjusted EBITDA

Under the credit agreement governing the Senior Secured Credit Facilities, our ability to engage in activities such as incurring additional indebtedness, making investments, refinancing certain indebtedness, paying dividends and entering into certain merger transactions is governed, in part, by our ability to satisfy tests based on “Adjusted EBITDA”. The Senior Secured Credit Facilities defines “Adjusted EBITDA” as net income or loss before interest expense, income tax expense, depreciation and amortization, as further adjusted to exclude certain unusual, non-cash, and other items permitted in calculating covenant compliance under the Senior Secured Credit Facilities, subject to certain limitations. Adjusted EBITDA as defined in the Senior Secured Credit Facilities is consistent with our reported Adjusted EBITDA. We believe that the presentation of Adjusted EBITDA is appropriate as it eliminates the effect of certain non-cash and other items not necessarily indicative of a company’s underlying operating performance. We use Adjusted EBITDA in connection with certain components of our executive compensation program. In addition, investors, lenders, financial analysts and rating agencies have historically used EBITDA related measures in our industry, along with other measures, to estimate the value of a company, to make informed investment decisions and to evaluate companies in the industry. In addition, the presentation of Adjusted EBITDA for the last twelve months provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the Senior Secured Credit Facilities. Adjusted EBITDA is a material component of these covenants. See the “Our Indebtedness-Covenant Compliance” section for further details.

Adjusted EBITDA is not a recognized term under accounting principles generally accepted in the United States of America (“GAAP”), should not be considered in isolation or as a substitute for a measure of our financial performance prepared in accordance with GAAP and is not indicative of income or loss from operations as determined under GAAP. Adjusted EBITDA and other non-GAAP financial measures have limitations which should be considered before using these measures to evaluate our financial performance. Adjusted EBITDA, as presented by us, may not be comparable to similarly titled measures of other companies due to varying methods of calculation.

The following table reconciles Adjusted EBITDA, as defined in the Amended Credit Agreement, to net (loss) income for the periods indicated:

SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,					Last Twelve Months Ended September 30,
	2020			2019		2020			2019		2020
	(Unaudited, in thousands)
Net (loss) income	$	(79,237	)	$	98,028	$	(266,785	)	$	113,659	$	(290,968	)
(Benefit from) provision for income taxes		(8,392	)		34,123		(20,696	)		40,905		(22,073	)
Interest expense		28,145			21,463		69,206			64,063		89,321
Depreciation and amortization		38,052			40,822		114,006			120,325		154,238
Equity-based compensation expense ^(a)		3,484			1,162		3,203			8,444		5,865
Loss on impairment or disposal of assets and certain non-cash expenses^(b)		131			1,425		1,551			2,217		2,532
Business optimization, development and strategic initiative costs ^(c)		3,698			9,270		5,997			18,262		15,604
Certain investment costs and other taxes ^(d)		433			468		1,095			4,930		1,221
Other adjusting items^(e)		2,462			136		(3,492	)		182		32,280
Adjusted EBITDA ^(f)	$	(11,224	)	$	206,897	$	(95,915	)	$	372,987	$	(11,980	)
Items added back to Adjusted EBITDA, after cost savings, as defined in the Amended Credit Agreement:
Estimated cost savings^(g)												1,900
Adjusted EBITDA, after cost savings ^(h)											$	(10,080	)

(a)

Reflects non-cash equity compensation expenses associated with the grants of equity compensation. For the nine and twelve months ended September 30, 2020, includes a reversal of equity compensation for certain performance vesting restricted units which are no longer considered probable of vesting. See Note 11–Equity-Based Compensation in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

(b)	Reflects primarily non-cash expenses related to miscellaneous fixed asset disposals. For the twelve months ended September 30, 2020, primarily reflects asset write-offs related to certain rides and equipment which were removed from service.

(c)

For the three and nine months ended September 30, 2020, reflects business optimization, development and other strategic initiative costs primarily related to: (i) $2.6 million and $2.7 million , respectively, of severance and other separation costs primarily related to the 2020 Restructuring Program and (ii) $0.5 million and $2.4 million, respectively, of third party consulting costs.

For the three and nine months ended September 30, 2019, reflects business optimization, development and other strategic initiative costs primarily related to: (i) $6.5 million and $12.5 million, respectively, of third party consulting costs and (ii) $1.2 million and $3.8 million, respectively, of severance and other separation costs primarily associated with positions eliminated.

For the twelve months ended September 30, 2020, reflects business optimization, development and other strategic initiative costs primarily related to: (i) $11.1 million of third party consulting costs, and (ii) $3.0 million of severance and other separation costs primarily related to the 2020 Restructuring Program.

See Note 13–Severance and Other Separation Costs in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

(d)

For the nine months ended September 30, 2019, $4.3 million relates to expenses associated with the previously disclosed transfer of shares and HP agreements. See Note 9-Related Party Transactions in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

(e)

Reflects the impact of certain expenses, net of insurance recoveries and adjustments, which we are permitted to exclude under the credit agreement governing our Senior Secured Credit Facilities due to the unusual nature of the items. For the three months ended September 30, 2020, includes approximately $2.0 million in incremental nonrecurring costs directly associated with the COVID-19 global pandemic, primarily due to incremental labor-related costs to operate the parks and operations with enhanced safety measures, contract termination or modification costs related to impacts from the temporary COVID-19 park closures, and initial purchases of safety monitoring and personal protective equipment.

For the nine and twelve months ended September 30, 2020, includes approximately $6.0 million in incremental nonrecurring costs associated with the COVID-19 global pandemic primarily due to incremental labor-related costs to prepare and operate the parks with enhanced safety measures, incremental third-party consulting costs primarily related to our COVID-19 response and safety communication strategies, contract termination or modification costs related to impacts from the temporary COVID-19 park closures, and initial purchases of safety monitoring and personal protective equipment.

For the nine and twelve months ended September 30, 2020, includes $12.5 million of insurance proceeds related to a legal settlement gain as previously disclosed. For the twelve months ended September 30, 2020, also includes approximately $32.1 million related to a legal settlement charge, net of insurance recoveries, as previously disclosed.

(f)

Adjusted EBITDA is defined as net (loss) income before income tax expense, interest expense, depreciation and amortization, as further adjusted to exclude certain non-cash, and other items permitted in calculating covenant compliance under the credit agreement governing the Company’s Senior Secured Credit Facilities.

(g)

The Senior Secured Credit Facilities permits the Company’s calculation of certain covenants to be based on Adjusted EBITDA, as defined above, for the last twelve month period further adjusted for net annualized estimated savings the Company expects to realize over the following 18 month period related to certain specified actions, including restructurings and cost savings initiatives. These estimated savings are calculated net of the amount of actual benefits realized during such period. These estimated savings are a non-GAAP Adjusted EBITDA add-back item only as defined in the Amended Credit Agreement and does not impact the Company’s reported GAAP net (loss) income. The Amended Credit Agreement limits the amount of such estimated savings which may be reflected to 25% of Adjusted EBITDA, calculated for the last twelve months before the impact of these estimated cost savings.

(h)	The Senior Secured Credit Facilities permits the Company’s calculation of certain covenants to be based on Adjusted EBITDA, as defined above, for the last twelve month period further adjusted for net annualized estimated savings as described in footnote (g) above.

Contractual Obligations

There have been no material changes to our contractual obligations from those previously disclosed in our Annual Report on Form 10-K other than long-term debt and interest obligations pursuant to our Senior Notes offering, Second-Priority Senior Notes offering, and Amendment No. 10 to our Amended Credit Agreement. As a result, our total long-term debt obligations as of September 30, 2020, not including any possible prepayments, are as follows for the remainder of 2020, 2021-2022, 2023-2024 and 2025, respectively (in thousands): $3,876; $31,010; $1,461,368; and $727,500. Our estimated future interest payments based on interest rates in effect at September 30, 2020 are as follows for the remainder of 2020, 2021-2022, 2023-2024 and 2025, respectively (in thousands): $24,891; $250,354; $205,370; and $57,085. Interest obligations also include letter of credit and commitment fees for the used and unused portions of our Revolving Credit Facility assuming payoff at maturity and excluding any possible principal prepayments.

See the “Impact of Global COVID-19 Pandemic” section for further details regarding proactive measures we have taken starting in March 2020 relating to our capital expenditures including delaying the opening of certain new rides to 2021.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, revenues and expenses, and disclosure of contingencies during the reporting period. Significant estimates and assumptions include the valuation and useful lives of long-lived tangible and intangible assets, the valuation of goodwill and other indefinite-lived intangible assets, the accounting for income taxes, the accounting for self-insurance and revenue recognition. Actual results could differ from those estimates. The critical accounting estimates associated with these policies are described in our Annual Report on Form 10-K under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These critical accounting policies include impairment of long-lived assets, goodwill and other indefinite-lived intangible assets, accounting for income taxes, self-insurance reserves, and revenue recognition. 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 27, 2020, except as noted below.

Goodwill, Other Indefinite-Lived Intangible Assets and Other Long-Lived Assets

During the nine month period ended September 30, 2020, due to the temporary park closures effective March 16, 2020 resulting from the global COVID-19 pandemic, we performed a qualitative impairment analysis of goodwill and other indefinite-lived intangible assets which included certain judgements and assumptions related to the impact of the park closures, reopening time frames and expected attendance levels upon reopening and determined that, based on the significant excess fair values over carrying values that previously existed, there was no impairment related to these assets. Additionally, using similar assumptions, we evaluated certain other long-lived assets, including our right of use assets for impairment. We compared the estimated undiscounted net cash flows of our long-lived and right of use assets to their respective carrying values. Based on the results of the analysis and our intent and ability to retain value and use for a period of time sufficient to allow for any anticipated recovery in market conditions, we concluded that the estimated undiscounted net cash flows for these assets exceeded its carrying value and therefore, no impairment of other long-lived assets had occurred.

Given the current macroeconomic environment related to the global COVID-19 pandemic and the uncertainties regarding the related impact on financial performance, there can be no assurance that the estimates and assumptions made for purposes of the interim impairment assessments will prove to be accurate predictions of the future. If our assumptions, as well as the economic outlook are not achieved, we may be required to record impairment charges in future periods, whether in connection with the our next annual impairment testing, or on an interim basis, if any such change constitutes a triggering event outside of the quarter when we regularly performs our annual impairment test. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.

Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements as of September 30, 2020.

Recently Issued Financial Accounting Standards

Refer to Note 2–Recent Accounting Pronouncements in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Inflation

The impact of inflation has affected, and will continue to affect, our operations significantly. Our costs of food, merchandise and other revenues are influenced by inflation and fluctuations in global commodity prices. In addition, costs for construction, repairs and maintenance are all subject to inflationary pressures.

Interest Rate Risk

We are exposed to market risks from fluctuations in interest rates, and to a lesser extent on currency exchange rates, from time to time, on imported rides and equipment. The objective of our financial risk management is to reduce the potential negative impact of interest rate and foreign currency exchange rate fluctuations to acceptable levels. We do not acquire market risk sensitive instruments for trading purposes.

We previously managed interest rate risk through the use of a combination of fixed-rate long-term debt and interest rate swaps that fixed a portion of our variable-rate long-term debt. In May 2020, our interest rate swap agreements expired, as such, we did not have any derivative instruments outstanding as of September 30, 2020. We presently manage interest rate risk primarily by managing the amount, sources and duration of our debt funding. At September 30, 2020, approximately $1.5 billion of our outstanding long-term debt represents variable-rate debt. Assuming an average balance on our revolving credit borrowings of approximately $311.0 million, a hypothetical 100 bps increase in LIBOR would increase our annual interest expense by approximately $9.1 million. Assuming no revolving credit borrowings, a hypothetical 100 bps increase in LIBOR would increase our annual interest expense by approximately $6.0 million.

COVID-19 Risks and Uncertainties

See “Risk Factors” for further discussion of the adverse impacts of the COVID-19 pandemic on our business and financial performance.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Regulations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), require public companies, including us, to maintain “disclosure controls and procedures,” which are defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required or necessary disclosures. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. Our principal executive officer and principal financial officer have concluded, based on the evaluation of the effectiveness of the disclosure controls and procedures by our management as of the end of the fiscal quarter covered by this Quarterly Report, that our disclosure controls and procedures were effective to accomplish their objectives at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

Regulations under the Exchange Act require public companies, including our Company, to evaluate any change in our “internal control over financial reporting” as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. We have not experienced any material impact to our internal controls over financial reporting despite the fact that certain employees worked remotely due to the COVID-19 related park closures and some continue to work on a remote basis. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness. There have been no changes in our internal control over financial reporting during the fiscal quarter covered by this Quarterly Report that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

In August 2019, the San Diego County Department of Environmental Health’s Hazardous Material Division (the “Division”) notified us that one of SeaWorld’s underground storage tanks was allegedly operating in violation of various California laws and regulations regarding leak detection and secondary containment systems. We hired environmental consultants, engineers and attorneys to assist in investigating the allegations and addressing our obligations. The subject tank has been removed and soil samples revealed no evidence of contamination. We continue to work with the Division in resolving and closing the matter and do not expect the resolution including any penalties or offsetting projects to have a material impact on the business or operations.

See Note 10–Commitments and Contingencies under the caption “Legal Proceedings” in our notes to the unaudited condensed consolidated financial statements for further details concerning our other legal proceedings.

Item 1A. Risk Factors

There have been no material changes to the risk factors set forth in Item 1A.to Part I of our Annual Report on Form 10-K, as filed on February 27, 2020, except as noted below or to the extent factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors.

The global COVID-19 pandemic has disrupted our business and will adversely affect our results of operations and various other factors beyond our control could materially adversely affect our financial condition and results of operations.

In response to the global COVID-19 pandemic, quarantines, significant travel warnings and restrictions, social distancing rules, curfews and shelter-in-place have been implemented and may be re-implemented pursuant to federal, state and local orders and mandates. From March 16, 2020 to June 5, 2020, we temporarily closed all of our theme parks and therefore, did not generate revenue from our parks during the closure period. Beginning on June 6, 2020, we began the phased reopening of some of our parks. Although some of our parks have been permitted to re-open with limited capacity, the extent and duration of any negative impacts over the longer term remain uncertain and dependent on future developments that cannot be accurately predicted at this time. It is also impossible to predict the severity and transmission rate of COVID-19, the extent and effectiveness of containment actions taken, including mobility restrictions, and the impact of these and other factors on travel and consumer behavior. It is possible that the spread of the COVID-19, the resulting economic and societal impact, social distancing or other safety requirements existing today or that may be implemented will reduce our guests’ interest or ability to visit our theme parks. The COVID-19 pandemic and the actions taken in response, pose the risk that we or our employees, contractors, suppliers, and other business partners may be prevented from conducting business activities for an unknown period of time. Restrictions on travel, quarantines and other measures imposed in response to the COVID-19 pandemic, as well as ongoing concern regarding the virus’ potential impact, have had and will likely continue to have a negative effect on economies and financial markets, including supply chain shortages and additional business disruptions. Any such impacts could have a material adverse effect on our business.

In response to our park closures, we took steps to minimize our cash outflows, manage costs and expenditures and maximize liquidity. Some of these measures included, but are not limited to (i) deferring all capital projects while our parks were closed other than a minimal amount of essential projects and maintenance and postponing to 2021 the opening of rides that were still under construction and scheduled to open in 2020; (ii) eliminating or deferring non-essential operating expenses while the parks were closed and actively managing operating expenses as the parks reopen; (iii) eliminating substantially all advertising and marketing spend while the parks were closed and strategically managing marketing spend as parks reopen; (iv) temporarily reducing Executive Officer base pay by 20%; (v) working with certain vendors and other business partners to manage, defer, and/or abate certain costs and payments; and (vi) initially furloughing approximately 95% of our employees upon closing all of our parks. It is unclear if any of these actions could have a lasting negative impact on our relationships with vendors, current and/or future business partners or ambassadors or, if the parks are forced to close again, whether we will be able to achieve similar cost savings. We have been sued and may face additional lawsuits or damage to our reputation related to actions taken or not taken as a result of COVID-19 from current and/or future vendors, customers and/or ambassadors. The lawsuits could negatively impact our cash flows and results of operations. Also, another prolonged closure of our parks could materially impact our results, operations and financial condition. Additionally, due to the uncertainties created by the COVID-19 pandemic and the related impact on our business, we have made or may make future employment or restructuring decisions which may subject us to increased risks related to employment matters, including increased union organizing activity, litigation and/or claims for severance or other benefits.

In March 2020, we increased borrowings under our revolving credit facility as a precautionary measure to increase our cash position and in April 2020 we issued $227.5 million aggregate principal amount of 8.750% first-priority senior secured notes due 2025 to raise capital and provide additional liquidity for a sustained period and to preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 pandemic. Additionally on April 19, 2020, we entered into an amendment to our Amended Credit Agreement to amend certain provisions therein (“Amendment No. 11”). On July 29, 2020, we entered into another amendment

to our Amended Credit Agreement to further amend certain provisions therein (“Amendment No. 12”). Pursuant to Amendment No. 12, we will be exempt from complying with our first lien secured leverage ratio covenant through the end of 2021 and will be required to comply with a quarterly minimum liquidity coverage test (defined as unrestricted cash and cash equivalents and available commitments under the Revolving Credit Facility) of not less than $75.0 million until the earlier of September 30, 2022 or the date we elect to use actual Adjusted EBITDA for purposes of calculating our financial maintenance covenant. There is no certainty we will be able to meet this test and failure to meet this test could result in events of default under our debt agreements, acceleration of our outstanding debt and materially affect our financial condition and results of operations. On August 5, 2020, we closed on an offering of $500.0 million of 9.500% second-priority senior secured notes offering due 2025 which provided us with net proceeds of approximately $489.9 million. As of September 30, 2020, total unrestricted cash and cash equivalents was approximately $488.4 million and $311.3 million was available under our revolving credit facility.

We cannot be certain that we will continue to have access to sufficient liquidity to meet our obligations for the time required to allow our cash generating operations to normalize. The effect of COVID-19 on the capital markets could significantly impact our cost of borrowing and the availability of capital to us. COVID-19 also makes it more challenging for management to estimate the future performance of our business and/or our liquidity needs, particularly over the near to medium term. We may not be able to obtain additional liquidity and any relief provided by lenders, governmental agencies, and business partners may not be adequate and may include onerous terms.

We had never previously experienced a complete cessation of our operations, and as a consequence, our ability to be predictive regarding the impact of such a cessation on our operations and future prospects is uncertain. In addition, the magnitude, duration and speed of the global pandemic is uncertain. As a consequence, we cannot estimate the impact on our business, financial condition or near or longer-term financial or operational results with certainty. As we continue to make progress in the reopening of our theme parks, we may face additional costs and obstacles in complying with any new federal, state or local regulations or industry best practices established in response to the COVID-19 pandemic, re-integrating our furloughed employees and attracting guests who may not wish to travel or visit our theme parks for a prolonged period. In addition, any measures we take or may be required to take such as limiting capacity in our theme parks, enforcing social distancing requirements and / or requiring masks, may negatively impact attendance at our theme parks. It is not possible to predict what steps, if any, we may be required to take if the COVID-19 pandemic worsens. It is possible we could be forced to close some or all of our parks again. Any of these factors could have a material adverse effect on our revenue and results of operations. A single case of COVID-19 in a theme park could result in additional costs and further closures. If we do not respond appropriately to the pandemic, or if customers do not perceive our response to be adequate, we could suffer damage to our reputation, which could significantly adversely affect our business. Furthermore, the effects of the pandemic on our business could be long-lasting and could continue to have adverse effects, some of which may be significant, and which may indefinitely impact our ability to operate our business in the traditional, pre-pandemic manner.

Our business also could be significantly affected should the disruptions caused by COVID-19 lead to systemic changes in consumer behavior. The outbreak of COVID-19 has significantly increased economic uncertainty. It is possible that the current outbreak or continued spread of COVID-19 could cause a global recession, which could further adversely affect our business, and such adverse effects may be material. Further, our results of operations and financial condition would be negatively impacted if we experience another prolonged period of closure, experience significant declines in business volumes, are unable to return to normalized performance levels or attendance at our parks is limited due to capacity restrictions.

Our properties are subject to the risk that operations could be halted for a temporary or extended period of time. If there is a prolonged disruption at any of our properties, our business, financial condition, results of operations and prospects will likely be materially adversely affected. Additionally, if a prolonged downturn of general economic or other conditions in the areas in which our properties are located or from which we draw our guests or prevents guests from easily coming to our properties, our business, financial condition, results of operations and prospects will be materially adversely affected.

Various other factors beyond our control could adversely affect attendance and guest spending patterns at our theme parks. These factors could also affect our suppliers, vendors, insurance carriers and other contractual counterparties. Such factors include but are not limited to:

•

bad weather and even forecasts of bad weather, including abnormally hot, cold and/or wet weather, particularly during weekends, holidays or other peak periods;

•

natural disasters, such as hurricanes, fires, earthquakes, tsunamis, tornados, floods and volcanic eruptions and man-made disasters such as oil spills, which may deter travelers from scheduling vacations or cause them to cancel travel or vacation plans;

•

fluctuations in foreign exchange rates;

•

low consumer confidence;

•

outbreaks of pandemic or contagious diseases or consumers’ concerns relating to potential exposure to travel-related health concerns such as pandemics and epidemics such as COVID-19, Ebola, Zika, Influenza H1N1, avian bird flu, SARS and MERS;

•

changes in the desirability of particular locations or travel patterns of both our domestic and international guests;

•

oil prices and travel costs and the financial condition of the airline, automotive and other transportation-related industries, any travel-related disruptions or incidents and their impact on travel or decrease transportation options to cities where we have parks;

•

war, terrorist activities or threats and heightened travel security measures instituted in response to these events;

•

actions or statements by U.S. and foreign governmental officials, including the U.S. President and administration officials, related to travel and corporate travel-related activities (including changes to the U.S. visa rules) and the resulting public perception of such travel and activities; and

•

interruption of public or private utility services to our theme parks.

Any one or more of these factors could adversely affect attendance, revenue and per capita spending at our theme parks, which could materially adversely affect our business, financial condition and results of operations. Fluctuations in foreign currency exchange rates impact our business. A strong dollar increases the cost for international tourists and could impact their spending. In addition, demand for our parks is highly dependent on the general environment for travel and tourism, which can be significantly adversely affected by quarantine requirements, availability of flights, closures of borders and/or extreme weather events. Any of these such events could have a material adverse effect on our business, financial condition, or results of operations. Additionally, because many of the attractions at our parks are outdoors, attendance at our parks is adversely affected by bad or extreme weather conditions and forecasts of bad or mixed weather conditions, which negatively affects our revenues and results of operations. For example, attendance at our parks in 2019 was negatively impacted by Hurricane Dorian over Labor Day weekend. Separately, in 2017 we also experienced negative impacts from weather events, particularly hurricanes, which caused park closures in Tampa and Orlando and park closures and other weather impacts in Texas and Virginia.

The COVID-19 pandemic (including governmental responses, broad economic impacts and market disruptions) has heightened the risks related to the other risk factors described in our 2019 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company had no unregistered sales of equity securities during the third quarter of 2020. The following table sets forth information with respect to shares of our common stock purchased by the Company during the periods indicated:

Period Beginning	Period Ended	Total Number of Shares Purchased⁽¹⁾		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾
July 1, 2020	July 31, 2020		788	$	15.95		—	$	237,594,184
August 1, 2020	August 31, 2020		1,054	$	19.18		—		237,594,184
September 1, 2020	September 30, 2020		157	$	21.46		—		237,594,184
			1,999				—	$	237,594,184

(1)

All purchases were made pursuant to the Company’s Omnibus Incentive Plan, under which participants may satisfy tax withholding obligations incurred upon the vesting of restricted stock by requesting the Company to withhold shares with a value equal to the amount of the withholding obligation.

(2)

The Company’s Board of Directors had previously authorized a share repurchase program of up to $250.0 million of the Company’s common stock (the “Share Repurchase Program”). Under the Share Repurchase Program, the Company is authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. Through September 30, 2020, the Company had repurchased an aggregate total of approximately $12.4 million, leaving approximately $237.6 million available under the Share Repurchase Program as of September 30, 2020. All of the common stock is held as treasury shares as of September 30, 2020. In connection with Amendment No. 12 to the Company’s Amended Credit Agreement, the Company is restricted from making restricted payments, including share repurchases, through the third quarter of 2022 unless certain conditions are met. See Note 6–Long-Term Debt and Note 12–Stockholders’ Equity in the notes to the 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

Executive Officers’ Annual Base Pay

On April 6, 2020, the Company announced that the executive officers of the Company agreed to have their annual base salary temporarily reduced by 20%. On November 4, 2020, the Compensation Committee reinstated the executive officer’s annual base salary to the levels immediately prior to the reduction effective on the first day of the current pay period.

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.

Item 6. Exhibits

The following is a list of all exhibits filed or furnished as part of this report:

Exhibit No.		Description

31.1*		Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*		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.

101.SCH*		Inline XBRL Taxonomy Extension Schema Document.

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 has been formatted in Inline XBRL.

*		Filed herewith.

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.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		SEAWORLD ENTERTAINMENT, INC.
		(Registrant)


Date: November 6, 2020		By: /s/ Elizabeth C. Gulacsy
		Elizabeth C. Gulacsy
		Chief Accounting Officer and Interim Chief Financial Officer and Treasurer
		(Principal Accounting Officer and Principal Financial Officer)