UNITED PARKS & RESORTS INC.
References to our "theme parks" or "parks" in the discussion that follows
includes all of our separately gated parks. The following discussion contains
forward-looking statements that reflect our plans, estimates and beliefs and
involve numerous risks and uncertainties, including but not limited to those
described in the "Risk Factors" section of this Annual Report on Form 10-K.
Actual results may differ materially from those contained in any forward-looking
statements. You should carefully read "Special Note Regarding Forward-Looking
Statements" and "Risk Factors" included elsewhere in this Annual Report on Form
10-K.
Introduction
The following discussion and analysis is intended to facilitate an understanding
of our business and results of operations and should be read in conjunction with
our historical consolidated financial statements and the notes thereto in the
"Financial Statements and Supplementary Data" section included elsewhere in this
Annual Report on Form 10-K. The discussion which follows consists of the
following sections:
• Business Overview: Provides an overview of the business.
• Recent Developments: Provides a discussion concerning recent
developments which have impacted the business.
• Principal Factors and Trends Affecting our Results of Operations:
Provides a discussion concerning the principal factors and trends
affecting our results of operations, including a discussion relating to
revenue, attendance, costs and expenses and seasonality.
• Results of Operations: Provides a discussion of our operating results
and applicable year-to-year comparisons.
• Liquidity, Capital Resources and Indebtedness: Provides a discussion of
our cash flows, sources and uses of cash, commitments, capital resources
and indebtedness as of
• Critical Accounting Policies and Estimates: Provides a discussion of our
critical accounting policies which require the exercise of judgement and
the use of estimates.
Management's discussion and analysis relating to 2018 and the applicable year-to-year comparisons are not included in this Annual Report on Form 10-K but can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 , which specific discussion is incorporated herein by reference.
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, includingSeaWorld ,Busch Gardens , Aquatica, Discovery Cove andSesame 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 acrossthe 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 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. See further discussion concerning the proactive measures we have taken in the "Business" section included elsewhere in this Annual Report on Form 10-K.
In response to the COVID-19 pandemic, and in compliance with government restrictions, we temporarily closed all of our theme parks effectiveMarch 16, 2020 . Beginning inJune 2020 , we began the phased reopening of some of our parks with capacity limitations and modified/limited operations. See further discussion relating to the parks we have reopened in the "Business" section included elsewhere in this Annual Report on Form 10-K. We have implemented enhanced health and safety protocols for our 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, including optimizing labor through more efficient staffing. Attendance since our parks reopened has been impacted by capacity limitations, modified/limited operations, reduced hours and/or reduced operating days, limited marketing spend and a limited events line-up. Despite these limitations, attendance on a 43
-------------------------------------------------------------------------------- consolidated basis, which includes all open and closed parks, improved throughout the second half of 2020 with quarterly attendance down 81% in the third quarter and down 53% in the fourth quarter, versus the comparable prior year period. Excluding ourVirginia andCalifornia 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 second half of 2020 with quarterly attendance down 70% in the third quarter and down 44% in the fourth quarter versus the comparable prior year period.
For other factors concerning the COVID-19 pandemic, see the "Business" and "Risk Factors" sections included elsewhere in this Annual Report on Form 10-K.
Regulatory Developments
See the discussion of relevant regulatory developments under "Recent Regulatory Developments" in the "Business" section included elsewhere in this Annual Report on Form 10-K. For a discussion of certain risks associated with federal and state regulations governing the treatment of animals, see the "Risk Factors" section included elsewhere in this Annual Report on Form 10-K, including "Risks Related to Our Business and Our Industry-We are subject to complex federal and state regulations governing the treatment of animals, which can change, and to claims and lawsuits by activist groups before government regulators and in the courts."
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 onMarch 16, 2020 , we did not recognize revenue from the closed park's admission products. Pass and certain pre-purchased revenue products were extended to future dates dependent on the respective park re-opening dates. Pass products purchased through monthly installment arrangements whose initial commitment period ended during the temporary park closures were extended for the respective number of months of closure.
Total revenue per capita, defined as total revenue divided by total attendance, consists of admission per capita and in-park per capita spending:
• Admission Per Capita. We calculate admission per capita as total admissions
revenue divided by total attendance. Admission per capita is primarily driven
by ticket pricing, the admissions product mix and the park attendance mix,
among other factors. The admissions product mix, also referred to as the
attendance or visitation mix, is defined as the mix of attendance by ticket
category such as single day, multi-day, annual/season passes or complimentary
tickets and can be impacted by the mix of guests as domestic and international
guests generally purchase higher admission per capita ticket products than our
local guests. A higher mix of complimentary tickets will generally lower our
admissions per capita. The park attendance mix is defined as the mix of theme
parks visited and can impact admission per capita based on the theme park's
respective pricing which, on average, is lower for our water parks compared to
our other theme parks.
• In-Park Per Capita Spending. We calculate in-park per capita spending as total
food, merchandise and other revenue divided by total attendance. Food,
merchandise and other revenue primarily consists of culinary, merchandise,
parking and other in-park products and also includes other miscellaneous
revenue, including online transaction fees, not necessarily generated in our
parks, which is not significant in the periods presented. In-park per capita
spending is primarily driven by pricing changes, new product offerings, the
mix of guests (such as local, domestic or international guests), penetration
levels (percentage of guests purchasing) and the mix of in-park spending,
among other factors.
See further discussion in the "Results of Operations" section which follows. For
other factors affecting our revenues, see the "Risk Factors" section of this
Annual Report on Form 10-K.
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
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safety. The external perceptions of our brands and reputation have at times impacted relationships with some of our business partners, including certain ticket resellers that have terminated relationships with us and other zoological-themed attractions.
As a result of the COVID-19 pandemic, we believe the level of attendance in our theme parks, including the mix of attendance from certain markets, has been and will continue to be impacted by public concerns over the COVID-19 pandemic, the number of reported local cases of COVID-19, domestic and international travel restrictions, federal, state and local regulations related to public places, limits on social gatherings and overall public safety sentiment. We continuously monitor factors impacting our attendance, making strategic marketing and sales adjustments as necessary.
See further discussion in the "Seasonality" section which follows.
Costs and Expenses
Historically, the principal costs of our operations are employee wages and benefits, driven partly by staffing levels, advertising, maintenance, animal care, utilities and insurance. Factors that affect our costs and expenses include fixed operating costs, competitive wage pressures including minimum wage legislation, commodity prices, costs for construction, repairs and maintenance, other inflationary pressures and attendance levels, among other factors. The mix of products sold compared to the prior year period can also impact our costs as generally retail products have a higher cost of sales component than our culinary or other in-park offerings. We continue our focus on reducing costs, improving operating margins and streamlining our labor structure to better align with our strategic business objectives. Since the start of the COVID-19 pandemic, we have spent significant time reviewing our operations and have identified meaningful cost savings opportunities which we believe will further strengthen our business once we return to normalized operations. During the year endedDecember 31, 2020 , in connection with two previously disclosed legal settlements, we received proceeds of$16.9 million which is included as a reduction to selling, general and administrative expenses in the accompanying consolidated statements of comprehensive (loss) income included elsewhere in this Annual Report on Form 10-K. During the year endedDecember 31, 2019 , we recorded$32.1 million related to a legal settlement charge, net of insurance recoveries, which is included in selling, general and administrative expenses in the accompanying consolidated statements of comprehensive (loss) income included elsewhere in this Annual Report on Form 10-K. See Note 15-Commitments and Contingencies to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details. During the year endedDecember 31, 2020 , we committed to a plan of termination (the "2020 Restructuring Program"), primarily impacting some of our furloughed employees. We recorded approximately$2.8 million of severance and other separation costs during the year endedDecember 31, 2020 , primarily related to the 2020 Restructuring Program. During the year endedDecember 31, 2019 , we recorded approximately$4.2 million in pre-tax charges primarily consisting of severance and other termination benefits for positions eliminated in 2019, which is included in severance and other separation costs in the accompanying consolidated statements of comprehensive (loss) income included elsewhere in this Annual Report on Form 10-K. See Note 21-Severance and Other Separation Costs to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details. As a result of the park closures related to the COVID-19 pandemic, costs and expenses for the year endedDecember 31, 2020 , are not necessarily indicative of costs and expenses for any future period. Due in part to the impact of fixed operating costs and certain other costs which are not dependent on attendance levels, operating expenses and selling, general and administrative expenses during the year endedDecember 31, 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 included elsewhere in this Annual Report on Form 10-K. We make annual investments to support and improve our existing theme park facilities and attractions. Maintaining and improving our theme parks, as well as opening new attractions, is critical to remain competitive, grow revenue, and increase our guests' length of stay. For further discussion of our new and planned attractions, see "Capital Improvements" in the "Business" section included elsewhere in this Annual Report on Form 10-K.
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 typically 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 is
relatively constant each year, but revenues can shift between the first and
second quarters due to the timing of Easter and spring break holidays and
between the first and fourth quarters due to the timing of holiday breaks around
Christmas and New Year. Even for our five theme parks which have historically
been open year-round, attendance patterns have significant seasonality, driven
by holidays, school vacations and weather conditions. Changes in school
calendars that impact traditional school vacation breaks could also impact
attendance patterns. Due in part to the temporary park closures, capacity
limitations and modified/limited operations, the COVID-19 pandemic has impacted
the seasonality of our business for 2020 and it is difficult to estimate how the
COVID-19 pandemic will impact seasonality in the future. Furthermore, any
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changes to the operating schedule of a park such as increasing operating days
for our seasonal parks, could change the impact of seasonality in the
future. See "Risk Factors" section included elsewhere in this Annual Report on
Form 10-K 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 years endedDecember 31, 2020 and 2019. The COVID-19 pandemic has materially impacted our revenue and results of operations for the year endedDecember 31, 2020 . See "Attendance" and "Risk Factors" for further discussion of the adverse impacts of the COVID-19 pandemic on our business.
Comparison of the Years Ended
The following data should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. The following table presents key operating and financial information for the years endedDecember 31, 2020 and 2019: For the Year Ended December 31, Variance 2020 2019 $ % Selected Statements of Comprehensive (Loss) Income Data: (In thousands, except per capita data and %) Net revenues: Admissions$ 255,376 $ 802,834 $ (547,458 ) (68.2 %) Food, merchandise and other 176,403 595,410 (419,007 ) (70.4 %) Total revenues 431,779 1,398,244 (966,465 ) (69.1 %) Costs and expenses: Cost of food, merchandise and other revenues 36,712 108,953 (72,241 ) (66.3 %) Operating expenses 388,473 649,657 (261,184 ) (40.2 %) Selling, general and administrative expenses 94,885 261,701 (166,816 ) (63.7 %) Severance and other separation costs 2,826 4,176 (1,350 ) (32.3 %) Depreciation and amortization 150,546 160,557 (10,011 ) (6.2 %) Total costs and expenses 673,442 1,185,044 (511,602 ) (43.2 %) Operating (loss) income (241,663 ) 213,200 (454,863 ) NM Other expense, net 276 18 258 NM Interest expense 100,907 84,178 16,729 19.9 % (Loss) income before income taxes (342,846 ) 129,004 (471,850 ) NM (Benefit from) provision for income taxes (30,525 ) 39,528 (70,053 ) NM Net (loss) income$ (312,321 ) $ 89,476 $ (401,797 ) NM Other data: Attendance 6,373 22,624 (16,251 ) (71.8 %) Total revenue per capita$ 67.75 $ 61.80 $ 5.95 9.6 % Admission per capita$ 40.07 $ 35.48 $ 4.59 12.9 % In-park per capita spending$ 27.68 $ 26.32 $ 1.36 5.2 % NM-Not meaningful Admissions revenue. Admissions revenue for the year endedDecember 31, 2020 decreased$547.5 million , or 68.2%, to$255.4 million as compared to$802.8 million for the year endedDecember 31, 2019 . The decline in admissions revenue was primarily a result of a decrease in attendance of approximately 16.3 million guests, or 71.8%, 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 year endedDecember 31, 2020 , we had 46% less operating days when compared to 2019. Admission per capita increased by 12.9% to$40.07 in 2020 compared to$35.48 in 2019. Admission per capita increased primarily due to the realization of higher prices in our admission products and a favorable park mix, partially offset by the net impact of the attendance mix when compared to the prior year period. 46 -------------------------------------------------------------------------------- Food, merchandise and other revenue. Food, merchandise and other revenue for the year endedDecember 31, 2020 decreased$419.0 million , or 70.4% to$176.4 million as compared to$595.4 million for the year endedDecember 31, 2019 . The decrease largely results 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 5.2%, to$27.68 in 2020 from$26.32 in 2019. In-park per capita spending improved primarily due to higher realized prices and fees, enhanced and expanded product offerings, the mix of certain merchandise and food and beverage items, and increased guest spending, partially offset by the impact of attendance mix, including higher pass mix when compared to the prior year period. Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the year endedDecember 31, 2020 decreased$72.2 million , or 66.3%, to$36.7 million as compared to$109.0 million for the year endedDecember 31, 2019 . The decrease primarily relates to the decline in attendance and related park closures and limited reopenings. These costs represent 20.8% and 18.3% of related revenue for the years endedDecember 31, 2020 and 2019, respectively. The increase as a percent of related revenue partly relates to a higher mix of retail products sold, which generally have a higher cost of sales component than our culinary or other in park products. Operating expenses. Operating expenses for the year endedDecember 31, 2020 decreased by$261.2 million , or 40.2% to$388.5 million as compared to$649.7 million for the year endedDecember 31, 2019 . The decrease largely results from a reduction in labor-related costs due primarily to the COVID-19 temporary park closures and limited reopenings and a reduction in other operating costs resulting from limited operating schedules and other cost savings and efficiency initiatives. Due in part to the impact of fixed operating costs and certain other costs which are not dependent on attendance levels, operating expenses as a percent of revenue increased when compared to the prior year period. Selling, general and administrative expenses. Selling, general and administrative expenses for the year endedDecember 31, 2020 decreased by$166.8 million , or 63.7% to$94.9 million as compared to$261.7 million for the year endedDecember 31, 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 primarily related to legal settlement proceeds of approximately$16.9 million recorded in 2020 compared to a legal settlement charge, net of insurance recoveries, of approximately$32.1 million recorded in the fourth quarter of 2019; (iii) a decline in third-party consulting costs; and (iv) the impact of cost savings and efficiency initiatives, including reduced labor related costs. See Note 15-Commitments in our notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details regarding our legal settlements. Severance and other separation costs. Severance and other separation costs for the year endedDecember 31, 2020 decreased by$1.4 million , or 32.3%, to$2.8 million as compared to$4.2 million for the year endedDecember 31, 2019 . Severance and other termination costs in 2020 primarily relates to the 2020 Restructuring Program. Severance and other termination costs in 2019 primarily relate to positions which were eliminated in 2019. See Note 21-Severance and Other Separation Costs in our notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Depreciation and amortization. Depreciation and amortization expense for the year endedDecember 31, 2020 decreased by$10.0 million , or 6.2% to$150.5 million as compared to$160.6 million for the year endedDecember 31, 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 year endedDecember 31, 2020 increased$16.7 million , or 19.9% to$100.9 million as compared to$84.2 million for the year endedDecember 31, 2019 . The increase primarily relates to approximately$32.7 million of additional interest related to the Senior Secured Notes issued inApril 2020 and the Second-Priority Senior Secured Notes issued inAugust 2020 , a higher average outstanding balance on our Revolving Credit Facility during the period and the impact of interest rate swap agreements, which expired inMay 2020 , partially offset by the impact of decreased LIBOR rates. See Note 11-Long-Term Debt to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K and the "Our Indebtedness" section which follows for further details. (Benefit from) provision for income taxes. Benefit from income taxes for the year endedDecember 31, 2020 was$30.5 million compared to a provision for income taxes of$39.5 million in the year endedDecember 31, 2019 . Our consolidated effective tax rate was 8.9% for 2020 compared to 30.6% for 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 14-Income Taxes in our notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details. 47
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Liquidity and Capital Resources
Overview
Generally, our principal sources of liquidity are cash generated from operations, funds from borrowings and existing cash on hand. Our principal uses of cash include the funding of working capital obligations, debt service, investments in theme parks (including capital projects), and could include share repurchases, when permitted. As ofDecember 31, 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 atDecember 31, 2020 . Historically, we typically operating 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 onMarch 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 year endedDecember 31, 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 COVID-19 pandemic, see the "Business" and "Risk Factors" sections in this Annual Report on Form 10-K. As market conditions warrant and subject to our contractual restrictions and liquidity position, we or our affiliates, may from time to time purchase our outstanding equity and/or debt securities, including our outstanding bank loans in privately negotiated or open market transactions, by tender offer or otherwise. Any such purchases may be funded by incurring new debt, including additional borrowings under the Senior Secured Credit Facilities. Any new debt may also be secured debt. We may also use available cash on our balance sheet. The amounts involved in any such transactions, individually or in the aggregate, may be material. Further, since some of our debt may trade at a discount to the face amount among current or future syndicate members, any such purchases may result in our acquiring and retiring a substantial amount of any particular series, with the attendant reduction in the trading liquidity of any such series. Depending on conditions in the credit and capital markets and other factors, we will, from time to time, consider other financing transactions, the proceeds of which could be used to refinance our indebtedness or for other purposes.
Share Repurchases
See Note 17-Related Party Transactions and Note 20-Stockholders' (Deficit) Equity in our notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information on the Share Repurchase Program.
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, debt service obligations, and working capital requirements of our operations for at least the next 12 months.
The following table presents a summary of our cash flows (used in) provided by operating, investing and financing activities for the periods indicated:
For the Year Ended December 31,
2020 2019 2018
(In thousands)
Net cash (used in) provided by operating
activities $ (120,729 ) $ 348,416 $ 293,935
Net cash used in investing activities (109,175 ) (195,193 ) (180,029 )
Net cash provided by (used in) financing
activities 624,204 (147,305 ) (112,896 )
Net increase in cash and cash equivalents,
including restricted cash $ 394,300 $ 5,918 Cash Flows from Operating Activities
Net cash used in operating activities was$120.7 million during the year endedDecember 31, 2020 as compared to net cash provided by operating activities of$348.4 million during the year endedDecember 31, 2019 . Net cash (used in) provided by operating activities in 2020 was primarily impacted by the decline in revenue due to the temporary park closures and limited park reopenings. Net cash provided by operating activities was$348.4 million during the year endedDecember 31, 2019 compared to$293.9 million during the year endedDecember 31, 2018 . The increase in net cash provided by operating activities was primarily impacted by improved operating performance in 2019 when compared to 2018. 48
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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 year endedDecember 31, 2020 consisted of capital expenditures of$109.2 million largely related to future attractions (see further breakdown of capital expenditures in the table below). Net cash used in investing activities during the year endedDecember 31, 2019 consisted primarily of capital expenditures of$195.2 million . The following table presents detail of our capital expenditures for the periods indicated: For the Year Ended December 31, 2020 2019 Capital Expenditures: (Unaudited, in thousands) Core(a) $ 94,671$ 171,789 Expansion/ROI projects(b) 14,504 23,428
Capital expenditures, total
(a) Reflects capital expenditures for park rides, attractions and maintenance
activities.
(b) Reflects capital expenditures for park expansion, new properties, or other
revenue and/or expense return on investment ("ROI") projects.
The amount of our capital expenditures may be affected by general economic and financial conditions, among other things, including restrictions imposed by our borrowing arrangements. Historically, we generally expect to fund our capital expenditures through our operating cash flow, which was materially impacted in 2020. See the "Impact of Global COVID-19 Pandemic" section for further details regarding proactive measures we have taken starting inMarch 2020 relating to our capital expenditures including delaying the opening of certain new rides. For 2021, depending on the pace of the recovery from the COVID-19 impacts, we plan on spending between approximately$100 million and$150 million on capital expenditures.
Cash Flows from Financing Activities
Net cash provided by financing activities during the year endedDecember 31, 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 , repayments of$15.5 million on our long-term debt,$12.4 million used to repurchase shares early in the first quarter of 2020 and$7.5 million of debt issuance costs paid in connection with the issuance of the Senior Notes and Second-Priority Senior Notes, and as a result of amendments to our Amended Credit Agreement. Net cash used in financing activities during the year endedDecember 31, 2019 results primarily from$150.0 million used to repurchase shares and repayments of$15.5 million on our long-term debt, partially offset by a net draw on our Revolving Credit Facility of$20.0 million .
See Note 11-Long-Term Debt to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K 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
See discussion which follows and Note 11-Long-Term Debt to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details related to our indebtedness.
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 ofDecember 1, 2009 , as the same may be amended, restated, supplemented or modified from time to time (the "Senior Secured Credit Facilities"). As ofDecember 31, 2020 , our Senior Secured Credit Facilities consisted of$1.492 billion in Term B-5 Loans which will mature onMarch 31, 2024 , along with a$332.5 million Revolving Credit Facility, which had no amounts outstanding as ofDecember 31, 2020 . As ofDecember 31, 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. See "Covenant Compliance" discussion which follows for information regarding our required quarterly liquidity test which could impact amounts available for borrowing.
First-Priority Senior Secured Notes
On
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Second-Priority Senior Secured Notes
OnAugust 5, 2020 , SEA closed on a private offering of$500.0 million aggregate principal amount of 9.500% 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 our Revolving Credit Facility of$311.0 million . See Note 11-Long-Term Debt to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details related to our Senior Notes and Second-Priority Senior Secured Notes.
Covenant Compliance
As of
The Revolving Credit Facility requires that the we comply with a springing maximum first lien secured leverage ratio of 6.25x to be tested as of the last day of any fiscal quarter, solely to the extent that on such date the aggregate amount of funded loans and letters of credit (excluding undrawn letters of credit in an amount not to exceed$30.0 million and cash collateralized letters of credit) under the Revolving Credit Facility exceeds an amount equal to 35% of the then outstanding commitments under the Revolving Credit Facility. Pursuant to Amendment No. 12, among other terms, SEA 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 11-Long-Term Debt to our 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 ofSeptember 30, 2022 or the date on which we elect to use actual Adjusted EBITDA for purposes of calculating its financial maintenance covenant. 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. The presentation of Adjusted EBITDA provides additional information to investors about the calculation of, and compliance with, certain financial covenants and other relevant metrics in the credit agreement governing the Senior Secured Credit Facilities. Adjusted EBITDA is a material component of these covenants. Adjusted EBITDA as defined in the Senior Secured Credit Facilities is consistent with our reported Adjusted EBITDA. See the "Our Indebtedness-Covenant Compliance" section for further details. 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. Adjusted EBITDA is not a recognized term under accounting principles generally accepted inthe 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 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. 50
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The following table reconciles Adjusted EBITDA, as defined in the Amended Credit Agreement, to net (loss) income for the periods indicated.
For the Year Ended December 31,
2020 2019 2018
(In thousands)
Net (loss) income $ (312,321 ) $ 89,476 $ 44,788
(Benefit from) provision for income taxes (30,525 ) 39,528 17,915
Loss on early extinguishment of debt and
write-off of discounts and debt issuance costs
(a) - - 8,150
Interest expense 100,907 84,178 80,914
Depreciation and amortization 150,546 160,557 160,955
Equity-based compensation expense (b) 7,467 11,106 22,152
Loss on impairment or disposal of assets and
certain non-cash expenses (c) 7,187 3,198 18,862
Business optimization, development and
strategic initiative costs (d) 7,268 27,869 29,460
Certain investment costs and other taxes (e) 1,044 5,056 3,353
Other adjusting items (f) (4,759 ) 35,954 14,730
Adjusted EBITDA (g) (73,186 ) 456,922 401,279
Items added back to Adjusted EBITDA, after
cost savings, as defined in the Amended Credit
Agreement:
Estimated cost savings (h) -
11,300 23,400
Adjusted EBITDA, after cost savings (i)
(a) Reflects a loss on early extinguishment of debt and write-off of discounts
and debt issuance costs associated with an amendment to our Senior Secured
Credit Facilities in 2018. See Note 11-Long-Term Debt to our consolidated
financial statements included elsewhere in this Annual Report on Form 10-K
for further details.
(b) Reflects non-cash equity compensation expenses associated with the grants of
equity compensation. For the year ended
reversal of equity compensation for certain performance vesting restricted
units which are no longer considered probable of vesting. For the year ended
awards which were accelerated in connection with the departure of certain
executives, as required by their respective employment agreements. See Note
19-Equity Based Compensation to our consolidated financial statements
included elsewhere in this Annual Report on Form 10-K for further details.
(c) Reflects primarily non-cash expenses related to miscellaneous fixed asset
disposals, including approximately
respectively, associated with fixed asset disposals for the years ended
asset write-offs primarily related to certain rides and equipment which were
removed from service. See Note 8-Property and Equipment, Net, to our
consolidated financial statements included elsewhere in this Annual Report on
Form 10-K for further details.
(d) For the year ended
other strategic initiative costs primarily related to: (i)
third party consulting costs and (ii)
separation costs primarily related to the 2020 Restructuring Program. See
Note 21 - Severance and Other Separation Costs in our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K for further
details.
For the year ended
other strategic initiative costs primarily related to: (i)
third-party consulting costs and (ii)
employment costs.
For the year ended
other strategic initiative costs primarily related to: (i)
severance and other employment costs which primarily includes costs
associated with the departure of certain executives during 2018 and costs
related to the 2018 Restructuring Program; (ii)
consulting costs; and (iii)
development costs.
(e) For the year ended
relating to expenses associated with the previously disclosed transfer of
shares and HP Agreements. See Note 17-Related Party Transactions in our
consolidated financial statements included elsewhere in this Annual Report on
Form 10-K for further details. For the year ended
primarily a loss of approximately
and fees associated with the termination of an agreement.
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(f) 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 year ended
million of legal settlement proceeds partially offset by approximately
million of incremental non-recurring costs associated with the COVID-19
pandemic and
received in 2020 relate to the following: (i)
proceeds related to a legal settlement gain as previously disclosed and (ii)
settlement. The costs associated with the COVID-19 pandemic primarily relate
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, legal costs related to COVID-19 related
matters, and temporary or initial purchases of safety monitoring and personal
protective equipment.
For the year ended
related to a legal settlement charge, net of insurance recoveries. For the
year ended
settlements and
offset by approximately
to these legal matters.
See Note 15-Commitments and Contingencies in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.
(g) 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 our Senior Secured Credit
Facilities.
(h) The Senior Secured Credit Facilities permits the calculation of certain
covenants to be based on Adjusted EBITDA, as defined above, for the last
twelve month period further adjusted for net annualized estimated savings we
expect to realize over the following 18 month period related to certain
specified actions, including restructurings and cost savings
initiatives. These estimated savings are calculated net of the amount of
actual benefits realized during such period. These estimated savings are a
non-GAAP Adjusted EBITDA add-back item only as defined in the Amended Credit
Agreement and does not impact our reported GAAP net (loss) income. The
Amended Credit Agreement limits the amount of such estimated savings which
may be reflected to 25% of Adjusted EBITDA, calculated for the last twelve
months before the impact of these estimated cost savings.
(i) The Senior Secured Credit Facilities permits our calculation of certain
covenants to be based on Adjusted EBITDA, as defined above, for the last
twelve-month period further adjusted for net annualized estimated savings as
described in footnote (h) above.
Contractual Obligations
The following table summarizes our principal contractual obligations as ofDecember 31, 2020 : Less than More than Total 1 Year 1-3 Years 3-5 Years 5 Years (In thousands) Long-term debt (including current portion)(a)$ 2,219,878 $ 15,505 $ 31,010 $ 2,173,363 $ - Interest on long-term debt(b) 514,427 125,622 250,240 138,565 - Operating and finance leases(c) 311,910 24,399 25,392 24,079 238,040 Purchase obligations, license commitments and other(d) 119,618 74,979 36,372 2,067 6,200 Total contractual obligations$ 3,165,833 $ 240,505 $ 343,014 $ 2,338,074 $ 244,240
(a) Represents principal payments. See Note 11-Long-Term Debt to our consolidated
financial statements included elsewhere in this Annual Report on Form 10-K
for further details.
(b) Includes amounts attributable to the Senior Secured Credit Facilities, Senior
Notes and Second-Priority Senior Notes calculated as of
See Note 11-Long-Term Debt to our consolidated financial statements included
elsewhere in this Annual Report on Form 10-K for further details.
(c) Represents commitments under long-term operating and finance leases requiring
annual minimum lease payments, primarily consisting of the lease for the land
of our
than 1 year column is approximately
related to the land lease as of
consolidated financial statements included elsewhere in this Annual Report on
Form 10-K for further details.
(d) We have minimum purchase commitments with various vendors through 2031.
Outstanding minimum purchase commitments consist primarily of capital
expenditures related to future attractions, infrastructure enhancements for
existing facilities and information technology products and services.
Amounts have been calculated using early termination fees or non-cancelable
minimum contractual obligations by period, as applicable, under contracts
that were in effect as of
the Sesame License Agreement, we have made certain commitments including
opening a new
this agreement are included in the table above. For further details,
52
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refer to Note 15-Commitments and Contingencies in our notes to our
consolidated financial statements included elsewhere in this Annual Report on
Form 10-K.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, revenues and expenses, and disclosure of contingencies during the reporting period. Significant estimates and assumptions include the valuation and useful lives of long-lived tangible and intangible assets, the valuation of goodwill and other indefinite-lived intangible assets, the accounting for income taxes, the accounting for self-insurance and revenue recognition. Actual results could differ from those estimates. We believe that the following discussion addresses our critical accounting policies which require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. For more discussion of these and other significant accounting policies, refer to Note 2-Summary of Significant Accounting Policies in our notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
AtDecember 1, 2020 , we performed a quantitative analysis on certain indefinite-lived intangible assets and determined fair value continued to exceed carrying value of the indefinite-lived intangible assets and therefore no impairment of the assets had occurred. During this quantitative assessment, we calculated that the fair value of the tested indefinite-lived intangible assets exceeded carrying value by 148%. Key assumptions utilized in the quantitative analysis was a weighted average cost of capital of 9.5% and an estimated royalty rate of 3%. During the year endedDecember 31, 2020 , due to the temporary park closures effectiveMarch 16, 2020 and the limited park reopenings resulting from the COVID-19 pandemic discussed previously, we identified triggering events and qualitatively evaluated our goodwill and other indefinite-lived intangible assets for further impairment analysis. Additionally, as ofDecember 1, 2020 , we also performed a qualitative impairment analysis of goodwill and the remaining other indefinite-lived intangible assets which included certain judgments 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 macroeconomic environment related to the 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 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 our next annual impairment testing, or on an interim basis, if any such change constitutes a triggering event outside of the period when we regularly perform 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. 53
-------------------------------------------------------------------------------- For further details, also refer to Note 9-Goodwill and Tradenames/Trademarks, Net, in our notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Accounting for Income Taxes
We are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciation periods for property and equipment and deferred revenue, for tax and financial accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must then assess the likelihood that deferred tax assets (primarily net operating loss and charitable contribution carryforwards) will be recovered from future taxable income. To the extent that we believe that recovery is not more likely than not, a valuation allowance against those amounts is recorded. To the extent that we record a valuation allowance or a change in the valuation allowance during a period, we recognize these amounts as income tax expense or benefit in the consolidated statements of comprehensive (loss) income. Section 382 of the Internal Revenue Code of 1986, as amended (the "Code") contains rules that limit the ability of a company that undergoes an ownership change, which is generally any change in ownership of more than 50% of its stock over a rolling three-year period, to utilize its net operating loss carryforwards in years after the ownership change. These rules generally operate by focusing on ownership shifts among stockholders owning directly or indirectly 5% or more of the stock of a company and any change in ownership arising from shares of stock sold by these same stockholders. Significant management judgment is required in determining our provision or benefit for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. Management has analyzed all available evidence, both positive and negative, using a more likely than not standard in assessing the need for a valuation allowance against its deferred income tax assets. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecast of future profitability, the duration of the statutory carryback and carryforward periods and tax planning alternatives. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates we use to manage the underlying business. We believe it is more likely than not that some of our deferred tax assets will not be realized. Therefore, we recorded a valuation allowance of approximately$39.5 million for federal net operating loss carryforwards, approximately$7.1 million for federal tax credits and approximately$4.0 million for federal and state charitable contributions as ofDecember 31, 2020 . Separately, we recorded a valuation allowance of approximately$15.0 million and$5.2 million , net of federal tax benefit, on the deferred tax assets related to state net operating losses as ofDecember 31, 2020 and 2019, respectively. Our valuation allowances, in part, rely on estimates and assumptions related to our future financial performance. Given the macroeconomic environment related to the COVID-19 pandemic and the uncertainties regarding the related impact on financial performance, our valuation allowances may need to be adjusted in the future. Self-Insurance Reserves Reserves are recorded for the estimated amounts of guest and employee claims and expenses incurred each period that are not covered by insurance. Reserves are established for both identified claims and incurred but not reported ("IBNR") claims. Such amounts are accrued for when claim amounts become probable and estimable. Reserves for identified claims are based upon our own historical claims experience and third-party estimates of settlement costs. Reserves for IBNR claims are based upon our own claims data history, as well as industry averages. All reserves are periodically reviewed for changes in facts and circumstances and adjustments are made as necessary. 54
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Revenue Recognition
Admissions revenue consists of single-day tickets, annual or season passes or other multi-day or multi-park admission products. 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. For single-day tickets, we recognize revenue at a point in time, upon admission to the park, and for food, merchandise and other in-park products we recognize revenue when the related products or services are received by our guests. For annual or season passes and multi-use admission 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. We estimate a redemption rate using historical and forecasted growth rates and attendance trends by park for similar products. Attendance trends factor in seasonality and are adjusted based on actual trends periodically. Revenue is recognized on a pro-rata basis based on the estimated allocated selling price of the admission product. For pass products purchased on an installment plan that have met their initial commitment period and have transitioned to a month to month basis, monthly charges are recognized as revenue when payments are received each month, with the exception of payments received during the temporary park closures. 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 Certain admission products may also include bundled products at the time of purchase, such as culinary or merchandise items. We conduct 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, we allocate 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. As a result of the temporary park closures due to the COVID-19 pandemic, we upgraded some of our pass products and extended pass expiration dates for at least the equivalent period the related parks were closed. As a result, we adjusted our estimated redemption and recognition patterns to reflect the fact that there was no attendance during the park closures and accordingly we 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 over the equivalent period the respective parks were temporarily closed, which may not necessarily reflect attendance patterns for these guests. Accordingly, for these passes, we temporarily paused monthly charges as the parks reopen for the equivalent period the parks were closed. We have estimated future redemption and recognition patterns for admission pass products, which impacts the timing of when revenue is recognized on these products. Actual results could materially differ from these estimates depending on the ultimate extent of the effects of the COVID-19 pandemic. For further details, also refer to Note 4-Revenues, in our notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
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