What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-10 compared with 2020-05-08 · 218 added, 122 removed, 184 unchanged (65% of the section changed)

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Impact of Global COVID-19 Pandemic

In response to the global COVID-19 pandemic, and in compliance with government restrictions, we have temporarily closed all of our theme parks, effective March 16, 2020.

We continue to monitor guidance from federal, state and local authorities to determine when we are able to re-open our parks.

Since the global COVID-19 pandemic has begun we have taken proactive measures for the safety of our guests, employees and animals, to appropriately manage costs and expenditures, and to provide liquidity in response to COVID-19.

Since the global COVID-19 pandemic began we have taken proactive measures for the safety of our guests, employees and animals, to appropriately 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.

Factoring in measures already taken in response to COVID-19, we estimate net cash outflows to be up to approximately $25 million per month, on average, while our parks remain closed, which reflects our current estimate of ongoing park and operating costs, average debt amortization and interest and capital expenditures.

We are actively evaluating additional cost reduction and cash saving measures.

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 capacity limitations, reduced hours of operation and/or reduced operating days.

In particular, on June 6, our Aquatica 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;

and on August 6, our Busch Gardens park in Virginia reopened.

We continue to monitor guidance from, and engage with, federal, state and local authorities to determine when we can reopen in California.

We do not currently plan to open our Aquatica water park in San Diego or our Water Country USA water park in Williamsburg this year.

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 have introduced an online reservation system to help manage capacity and we are managing the number of operating days by park to optimize cash flow.

We also continue our focus on cost reduction initiatives and have identified and executed on additional cost efficiencies during the closure period which we are implementing as the parks reopen including optimizing labor through more efficient staffing .

Attendance since the parks reopened has been impacted by capacity limitations, fewer operating days per week versus the prior year, limited marketing spend and a limited events line-up.

Despite the limitations, total attendance at reopened parks that have been opened for at least 30 days has increased 15% on a same park basis from the week ended June 28 (the first full week these parks were open) to the week ended August 2, 2020.

We believe attendance trends compared to the prior year will strengthen as we begin to re-introduce special events, interactive experiences and other in-park offerings which were temporarily suspended.

Additionally, we have significantly curtailed marketing spend during the initial reopening phase and we expect a measured ramp-up in marketing spend will also support further attendance growth.

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.

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Gulacsy, our Chief Accounting Officer, to serve as Interim Chief Financial Officer and Treasurer in addition to her role of Chief Accounting Officer.

Also on April 4, 2020, the Board appointed Walter Bogumil to serve as the Company’s Chief Operating Officer.

Also on April 4, 2020, the Board appointed Walter Bogumil to serve as Chief Operating Officer.

Rivera was not entitled to any severance benefits in connection with his departure and forfeited his outstanding equity awards.

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Attendance drives admissions revenue as well as total in-park spending.

Admissions revenue primarily consists of single-day tickets, annual or season passes (collectively referred to as season passes) or other multi-day or multi-park admission products.

D uring the period the parks are temporarily closed due to the COVID-19 pandemic, which started on March 16, 2020, we are not recognizing revenue from our parks.

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:

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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.

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.

The level of attendance in our theme parks is 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, federal, state and local regulations related to public places, industry best practices and perceptions as to safety.

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 could also 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 significant seasonality, driven by the timing of holidays, school vacations, calendar shifts in the number of weekend days in a quarter and weather conditions;

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, seven of our theme parks are seasonal and only open for part of the year.

Costs and Expenses

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 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 three months ended March 31, 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.

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 six months ended June 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.

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 months ended March 31, 2019, we recorded approximately $2.6 million 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 included elsewhere in this Quarterly Report on Form 10-Q.

We have also proactively taken measures to manage costs and expenditures in response to the COVID-19 pandemic and the related park closures.

As part of these ongoing efforts, during the six months ended June 30, 2019, we recorded approximately $2.6 million 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 included elsewhere in this Quarterly Report on Form 10-Q.

As a result of the park closures related to the COVID-19 pandemic, costs and expenses for the three and six months ended June 30, 2020, are not necessarily indicative of costs and expenses for the year ending December 31, 2020 or any future period.

See the “Impact of Global COVID-19 Pandemic” section for further details.

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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 generated in the second and third quarters of the year and we typically 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 open year-round, attendance patterns have significant seasonality, driven by holidays, school vacations and weather conditions.

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 half 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

Prior to the COVID-19 impacts, we had a strong start to 2020 with record attendance and revenue through the first two months of the year.

Year to date attendance for the first two months of 2020 was a record 1.9 million guests, an increase of 0.2 million guests, or 9% when compared to the first two months of 2019.

Total revenue for the first two months of 2020 was also a record of approximately $120.6 million, an increase of $13.0 million, or 12%, when compared to the first two months of 2019.

The COVID-19 pandemic has materially impacted our revenue and results of operations for the three months ended March 31, 2020 due primarily to the resulting park closures effective on March 16, 2020.

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

The following discussion provides an analysis of our operating results for the three months ended March 31, 2020 and 2019.

This 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 March 31, 2020 and 2019

The following table presents key operating and financial information for the three months ended March 31, 2020 and 2019:

The following discussion provides an analysis of our operating results for the three months ended June 30, 2020 and 2019.

The COVID-19 pandemic has materially impacted our revenue and results of operations for the three and six months ended June 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 June 30, 2020 and 2019

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

For the Three Months Ended

Summary Financial Data:

(In thousands, except per capita data and %)

(In thousands, except per capita data)

Net revenues:

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Total costs and expenses

Operating loss

Other (income) expense, net

Operating (loss) income

Other income, net

Interest expense

Loss before income taxes

Benefit from income taxes

(Loss) income before income taxes

Provision for income taxes

Net (loss) income

Total revenue per capita

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Admissions revenue .

Admissions revenue for the three months ended March 31, 2020 decreased $38.4 million, or 29.8% , to $90.5 m illion as compared to $128.9 million for the three months ended March 31, 2019 .

The decrease was a result of a decline in attendance partially offset by an increase in admission per capita.

Total attendance for the first quarter of 2020 decreased by approximately 1.0 million guests, or 30.6% , when compared to the prior year quarter.

Attendance declined primarily due to the temporary park closures resulting from the global COVID-19 pandemic, which closed all of our parks beginning on March 16, 2020.

The timing of the park closures fell during historically high volume spring break weeks for most of our parks, which adversely impacted the visitation mix for the quarter.

Admission per capita increased by 1.2% to $39.05 for the first quarter of 2020 compared to $38.60 in the prior year quarter primarily due to pricing strategies, partially offset by the unfavorable visitation mix.

Admissions revenue for the three months ended June 30, 2020 decreased $218.1 million, or 95.7%, to $9.8 million as compared to $227.8 million for the three months ended June 30, 2019.

The decline in admissions revenue was primarily a result of a decrease in attendance of approximately 6.2 million guests, or 95.8%, slightly offset by an increase in admission per capita.

Attendance declined largely due to fact that all of our parks were closed for the vast majority of the quarter.

Admission per capita increased by 2.0% to $35.94 for the three months ended June 30, 2020 compared to $35.25 in the comparable prior year quarter.

Admission per capita increased primarily due to the realization of higher prices across admission products, partially offset by the net 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 three months ended March 31, 2020 decreased $28.6 million, or 31.2%, to $63.1 million as compared to $91.7 million for the three months ended March 31, 2019, primarily as a result of the decrease in attendance, as discussed above, and a decrease in in-park per capita spending.

In-park per capita spending decreased by 0.9% to $27.20 in the first quarter of 2020 compared to $27.44 in the first quarter of 2019.

Excluding the impact of other revenue in the prior year quarter related to certain international agreements which we previously announced were terminated in early 2019, in-park per capita spending improved by 0.9% due to pricing initiatives, partially offset by the visitation mix during the quarter.

See Note 1–Description of the Business and Basis of Presentation in our notes to the unaudited condensed consolidated financial statements for further details regarding the international agreements.

Food, merchandise and other revenue for the three months ended June 30, 2020 decreased $169.9 million, or 95.4%, to $8.3 million as compared to $178.2 million for the three months ended June 30, 2019.

The decrease results primarily from the decline in attendance discussed above, slightly offset by an increase in in-park per capita spending.

In-park per capita spending increased by 10.0% to $30.33 in the second quarter of 2020 compared to $27.57 in the second quarter of 2019.

In-park per capita spending improved primarily due to increased sales of certain in-park products and higher realized prices and fees, partially offset by reduced 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 March 31, 2020 decreased $4.1 million, or 23.9%, to $13.1 million as compared to $17.2 million for the three months ended March 31, 2019, primarily due to the decrease in volume.

These costs represent 20.8% and 18.8% of the related revenue earned for the three months ended March 31, 2020 and 2019, respectively.

Excluding the impact of revenue related to international agreements in the prior year period, as discussed above, these costs were 19.1% of related revenue in the first quarter of 2019.

Costs of food, merchandise and other revenues for the three months ended June 30, 2020 decreased by $30.9 million, or 96.4%, to $1.2 million as compared to $32.0 million for the three months ended June 30, 2019.

These costs represent 14.0% and 18.0% of the related revenue earned for the three months ended June 30, 2020 and 2019, respectively, and were impacted by the decline in attendance and related park closures.

Operating expenses.

Operating expenses for the three months ended March 31, 2020 decreased $16.9 million, or 11.3%, to $133.0 million as compared to $149.9 million for the three months ended March 31, 2019.

The decrease primarily results from a reduction in labor and other direct operating costs due to the COVID-19 temporary park closures as well as the impact of cost savings initiatives.

Operating expenses were also impacted by a decrease of $3.1 million in non-cash equity compensation expense related primarily to the reversal of certain performance vesting restricted units which are no longer considered probable of vesting.

Operating expenses for the three months ended June 30, 2020 decreased by $111.3 million, or 65.3%, to $59.0 million as compared to $170.4 million for the three months ended June 30, 2019.

The decrease largely results from a reduction in labor-related costs due primarily to furloughs resulting from the COVID-19 temporary park closures.

Operating expenses also declined due to a reduction in nonessential operating costs which were deferred or eliminated due to the park closures as well as other cost savings initiatives.

Selling, general and administrative expenses .

Selling, general and administrative expenses for the three months ended June 30, 2020 decreased $46.1 million, or 68.6% , to $21.1 million as compared to $67.2 million for the three months ended June 30, 2019 .

The decrease primarily relates to the following:

(i) a reduction in marketing and media related costs due to the COVID-19 temporary park closures;

(ii) a decline in third-party consulting costs;

(iii) a decrease in legal costs and (iv) the impact of cost savings initiatives.

Depreciation and amortization.

Depreciation and amortization expense for the three months ended June 30, 2020 declined by $2.1 million, or 5.3%, to $37.9 million as compared to $40.1 million for the three months ended June 30, 2019.

The decrease relates to the impact of asset retirements and fully depreciated assets, partially offset by new asset additions.

Interest expense.

Interest expense for the three months ended June 30, 2020 increased $0.1 million, or 0.5%, to $21.9 million as compared to $21.8 million for the three months ended June 30, 2019.

The increase primarily relates to additional interest related to the Senior Secured Notes issued in April 2020, a higher outstanding balance on our Revolving Credit Facility during the three months ended June 30, 2020 and the impact of interest rate swap agreements, which expired in May 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.

Provision for income taxes.

The provision for income taxes in the three months ended June 30, 2020 was $7.9 million compared to $21.9 million for the three months ended June 30, 2019.

Our consolidated effective tax rate was -6.4% for the three months ended June 30, 2020 compared to 29.4% for the three months ended June 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.

Comparison of the Six Months Ended June 30, 2020 and 2019

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

For the Six Months Ended

Summary Financial Data:

(In thousands, except per capita data)

Net revenues:

Food, merchandise and other

Total revenues

Costs and expenses:

Cost of food, merchandise and other revenues

Operating expenses (exclusive of depreciation and amortization shown separately below)

Selling, general and administrative expenses

Severance and other separation costs

Depreciation and amortization

Total costs and expenses

Operating income

Other income, net

Interest expense

(Loss) income before income taxes

(Benefit from) provision for income taxes

Net (loss) income

Total revenue per capita

Admission per capita

In-park per capita spending

NM-Not Meaningful.

Admissions revenue .

Admissions revenue for the six months ended June 30, 2020 decreased $256.5 million, or 71.9% , to $100.3 million as compared to $356.7 million for the six months ended June 30, 2019 .

The decline in admissions revenue was primarily a result of a decrease in attendance of approximately 7.2 million guests, or 73.6% , partially offset by an increase in admission per capita.

Attendance declined due to the temporary park closures , beginning on March 16, 2020, resulting from the global COVID-19 pandemic .

Admission per capita increased by 6.3% to $38.70 for the six months ended June 30, 2020 compared to $36.39 for the six months ended June 30, 2019 .

Admission per capita increased primarily due to the realization of higher prices in admission products , partially offset by the net 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 six months ended June 30, 2020 decreased $198.5 million, or 73.6%, to $71.3 million as compared to $269.8 million for the six months ended June 30, 2019.

The decrease largely results from the decline in attendance discussed above.

In-park per capita spending was relatively flat at $27.52 for the six months ended June 30, 2020 compared to $27.53 for the six months ended June 30, 2019.

Costs of food, merchandise and other revenues.

Costs of food, merchandise and other revenues for the six months ended June 30, 2020 decreased $35.0 million, or 71.0%, to $14.3 million as compared to $49.2 million for the six months ended June 30, 2019.

These costs represent 20.0% and 18.2% of the related revenue earned for the six months ended June 30, 2020 and 2019, respectively, and were impacted by the decline in attendance and related park closures.

Operating expenses.

Operating expenses for the six months ended June 30, 2020 decreased by $128.2 million, or 40.0%, to $192.0 million as compared to $320.3 million for the six months ended June 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;

(ii) a reduction in other nonessential operating costs which were deferred or eliminated due to the park closures;

(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 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 three months ended March 31, 2020 decreased $15.8 million, or 37.0%, to $27.0 million as compared to $42.8 million for the three months ended March 31, 2019.

Selling, general and administrative expenses for the six months ended June 30, 2020 decreased $61.9 million, or 56.3%, to $48.1 million as compared to $110.0 million for the six months ended June 30, 2019.

The decrease primarily relates to the following:

(i) a decrease in legal costs primarily due to a previously disclosed legal settlement gain of $12.5 million related to insurance proceeds received in the first quarter of 2020;

(ii) a decrease of $3.7 million 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;

(iii) a decrease in marketing and media costs due to the COVID-19 temporary park closures;

and (iv) the impact of cost savings initiatives.

(i) a reduction in marketing and media related costs due to the COVID-19 temporary park closures;

(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 initiatives.

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 three months ended March 31, 2019 primarily relates to severance and other expenses for positions which were eliminated in 2019.

Severance and other separation costs for the six months ended June 30, 2019 primarily relates to severance and other expenses for positions which were eliminated in 2019.

Depreciation and amortization.

Depreciation and amortization expense for the three months ended March 31, 2020 decreased $1.4 million, or 3.6%, to $38.0 million as compared to $39.5 million for the three months ended March 31, 2019.

Depreciation and amortization expense for the six months ended June 30, 2020 decreased $3.5 million, or 4.5%, to $76.0 million as compared to $79.5 million for the six months ended June 30, 2019.

The decrease relates to the impact of asset retirements and fully depreciated assets, partially offset by new asset additions.

Interest expense.

Interest expense for the three months ended March 31, 2020 decreased $1.6 million, or 7.9%, to $19.2 million as compared to $20.8 million for the three months ended March 31, 2019.

The decrease primarily relates to decreased LIBOR rates, partially offset by the impact of interest swap agreements and a higher outstanding balance on our Revolving Credit Facility during the three months ended March 31, 2020.

Interest expense for the six months ended June 30, 2020 decreased $1.5 million, or 3.6%, to $41.1 million as compared to $42.6 million for the six months ended June 30, 2019.

The decrease primarily relates to decreased LIBOR rates, partially offset by a higher outstanding balance on our Revolving Credit Facility during the six months ended June 30, 2020, the impact of interest rate swap agreements, which expired in May 2020 and additional interest related to the Senior Secured Notes issued in April 2020.

See Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements and the “ Our Indebtedness ” section which follows for further details.

Benefit from income taxes.

Benefit from income taxes in the three months ended March 31, 2020 was $20.2 million compared to $15.1 million for the three months ended March 31, 2019.

Our consolidated effective tax rate was 26.3% for the three months ended March 31, 2020 compared to 29.0% for the three months ended March 31, 2019.

The effective tax rate decreased primarily due to a valuation allowance on state operating loss carryforwards, state income taxes and permanent items including equity-based compensation .

(Benefit from) provision for income taxes.

The benefit from income taxes for the six months ended June 30, 2020 was $12.3 million compared to a provision for income taxes of $6.8 million for the six months ended June 30, 2019.

Our consolidated effective tax rate was 6.2% for the six months ended June 30, 2020 compared to 30.3% for the six months ended June 30, 2019.

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

On August 5, 2020, we 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”).

We intend to use the proceeds from the issuance of the Second-Priority Senior Notes to repay outstanding borrowings under our Revolving Credit Facility and for working capital and other general corporate purposes.

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 March 31, 2020, we had a working capital ratio (defined as current assets divided by current liabilities) of 0.9, due in part to a significant deferred revenue balance from revenues paid in advance for our theme park admissions products and high turnover of in-park products that results in a limited inventory balance.

We typically operate with a working capital ratio less than 1 and we expect that we will continue to do so in the future.

Our cash flow from operations, along with our revolving credit facilities, have allowed us to meet our liquidity needs.

As previously mentioned, d uring the period the parks are temporarily closed due to the COVID-19 pandemic, which started on March 16, 2020, we are not recognizing revenue from our parks and therefore we expect minimal cash flow from operations while the parks are closed.

As of June 30, 2020, we had a working capital ratio (defined as current assets divided by current liabilities) of 1.3, due in part to our outstanding cash balance at June 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 capacity of our Florida and Texas parks in June, we generated negative cash flows from operating activities for the six months ended June 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.

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The Share Repurchase Program has no time limit and may be suspended or discontinued completely at any time.

During the three months ended March 31, 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 March 31, 2020.

During the six months ended June 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 June 30, 2020.

In connection with Amendment No.

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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 for further details.

As of March 31, 2020, we have five interest rate swap agreements (the “Interest Rate Swap Agreements”) which effectively fix the interest rate on LIBOR-indexed interest payments associated with $1.0 billion of SEA’s outstanding long-term debt.

The Interest Rate Swap Agreements have a total notional amount of $1.0 billion and mature on May 14, 2020.

See Note 6 – Long-Term Debt and Note 7 – Derivative Instruments and Hedging Activities to our unaudited condensed consolidated financial statements for further details.

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

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

For the Three Months Ended March 31,

(In thousands)

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.

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 Six Months Ended June 30,

(Unaudited, in thousands)

Net cash (used in) provided by operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net cash provided by (used in) financing activities

Net increase in cash and cash equivalents, including restricted cash

Cash Flows from Operating Activities

Net cash used in operating activities was $40.8 million during the three months ended March 31, 2020 as compared to $37.7 million during the three months ended March 31, 2019.

The change in net cash provided by operating activities was primarily impacted by the decline in revenue due to the temporary park closures.

Net cash used in operating activities was $68.3 million during the six months ended June 30, 2020 as compared to net cash provided by operating activities of $167.4 million during the six months ended June 30, 2019.

Net cash (used in) provided by operating activities was primarily impacted by the decline in revenue due to the temporary park closures.

Cash Flows from Investing Activities

Investing activities consist principally of capital investments we make in our theme parks for future attractions and infrastructure.

Net cash used in investing activities during the three months ended March 31, 2020 consisted of capital expenditures of $49.2 million largely related to 2020 attractions.

Net cash used in investing activities during the three months ended March 31, 2019 consisted of $47.9 million of capital expenditures largely related to attractions that opened in 2019.

Net cash used in investing activities during the six months ended June 30, 2020 consisted primarily of capital expenditures of $53.7 million largely related to future attractions.

Net cash used in investing activities during the six months ended June 30, 2019 consisted primarily of $112.7 million of capital expenditures largely related future attractions.

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

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Capital Expenditures:

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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.

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 three months ended March 31, 2020 results primarily from net draws of $262.5 million on our revolving credit facility, partially offset by share repurchases of $12.4 million and net repayments on long-term debt of $3.9 million.

Net cash used in financing activities during the three months ended March 31, 2019 results primarily from net draws of $35.0 million on our revolving credit facility, partially offset net repayments on long-term debt of $3.9 million.

See Note 6–Long-term Debt in our notes to the unaudited condensed consolidated financial statements for further details.

Net cash provided by financing activities during the six months ended June 30, 2020 results primarily from net draws on our revolving credit facility of $261.0 million and net proceeds from our Senior Notes offering of $222.3 million, partially offset by $12.4 million used to repurchase shares and repayments of $7.8 million on our long-term debt.

Net cash used in financing activities during the six months ended June 30, 2019 results primarily from $150.0 million used to repurchase shares and repayments of $7.8 million on our long-term debt, partially offset by a net draw on our revolving credit facility of $115.0 million which was primarily used for the share repurchase.

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

The Company is a holding company and conducts its operations through its subsidiaries, which have incurred or guaranteed indebtedness as described below.

We are a holding company and conduct our operations through our subsidiaries, which have incurred or guaranteed indebtedness as described below.

As of June 30, 2020, our indebtedness consisted of senior secured credit facilities and senior secured notes (“Senior Notes”).

Senior Secured Credit Facilities

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11”) to the credit agreement governing the Senior Secured Credit Facilities to amend certain covenant provisions therein.

On July 29, 2020, SEA entered into another amendment, 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 March 31, 2020 , our Senior Secured Credit Facilities consisted of $1.504 billion in Term B-5 Loans which will mature on March 31, 2024, along with a $332.5 million Revolving Credit Facility, of which $312.5 million was drawn upon as of March 31, 2020 .

Additionally, as of March 31, 2020 , SEA had approximately $19.9 million of outstanding letters of credit, leaving no remaining available amount for borrowing under the Revolving Credit Facility.

As of June 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, of which $311.0 million was drawn upon as of June 30, 2020.

Additionally, as of June 30, 2020, SEA had approximately $21.2 million of outstanding letters of credit, leaving no remaining amount available for borrowing under the Revolving Credit Facility.

Senior Secured Notes

On April 21, 2020, SEA commenced a private offering of $227.5 million aggregate principal amount of 8.750% first-priority senior secured notes due 2025 (the “Senior Notes”).

We expect to use the proceeds from the issuance of the Senior Notes for working capital and other general corporate purposes and to pay fees and expenses related to the offering of the Senior Notes and Amendment No.

11 to the Amended Credit Agreement.

The sale of the Senior Notes closed on April 30, 2020.

See Note 6–Long-Term Debt in our notes to the unaudited condensed consolidated financial statements for further details concerning our long-term debt.

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”).

Net of expenses related to the offering of the Senior Notes and Amendment No.

11 to the Amended Credit Agreement, we expect to use the proceeds from the issuance of the Senior Notes for working capital and other general corporate purposes.

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 intend to use the proceeds from the issuance of the Second-Priority Senior Notes to repay outstanding borrowings under the Revolving Credit Facility and for working capital and other general corporate purposes.

Covenant Compliance

As of March 31, 2020, we were in compliance with all covenants in the credit agreement governing the Senior Secured Credit Facilities.

As of June 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.

11, among other terms, SEA will be exempt from complying with its first lien secured leverage ratio covenant for each of the second, third and fourth quarters of 2020, after which SEA will be required to comply with such covenants starting at the first quarter of 2021.

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.

As of March 31, 2020, the total leverage ratio as calculated under our Senior Secured Credit Facilities was 3.89 to 1.00.

The Company’s total leverage ratio is calculated by dividing total net debt by the last twelve months Adjusted EBITDA plus $7.2 million in estimated cost savings which have been identified based on certain specified actions the Company has taken, including restructurings and cost savings initiatives.

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

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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 from operations as determined under GAAP.

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UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

For the Three Months Ended March 31,

Last Twelve Months Ended March 31,

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Last Twelve Months Ended

(Unaudited, in thousands)

Net (loss) income

(Benefit from) provision for income taxes

Provision for (benefit from) income taxes

Interest expense

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Reflects non-cash equity compensation expenses associated with the grants of equity compensation.

For the three and twelve months ended March 31, 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 for further details.

For the six and twelve months ended June 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.

Reflects primarily non-cash expenses related to miscellaneous fixed asset disposals.

For the twelve months ended March 31, 2020, includes approximately $3.0 million associated with certain rides and equipment which were removed from service.

For the three months ended March 31, 2020, reflects business optimization, development and other strategic initiative costs primarily related to $1.8 million of third party consulting costs.

For the three months ended March 31, 2019, reflects business optimization, development and other strategic initiative costs primarily related to $2.6 million of severance and other employment costs associated with positions eliminated and $2.3 million of third party consulting costs.

For the twelve months ended March 31, 2020, reflects business optimization, development and other strategic initiative costs primarily related to $21.4 million of third party consulting costs and $1.7 million of severance and other employment costs.

For the twelve months ended March 31, 2020, $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 for further details.

Reflects the impact of expenses, net of insurance recoveries and adjustments, incurred primarily related to certain legal matters, which we are permitted to exclude under the credit agreement governing our Senior Secured Credit Facilities due to the unusual nature of the items.

For the three months ended March 31, 2020 and the twelve months ended March 31, 2020, includes $12.5 million of insurance proceeds related to a legal settlement gain as previously disclosed .

For the twelve months ended March 31, 2020, also includes approximately $32.1 million related to a legal settlement charge, net of insurance recoveries, as previously disclosed.

See Note 10-Commitments and Contingencies in our notes to the unaudited condensed consolidated financial statements for further details.

For the twelve months ended June 30, 2020, primarily reflects asset write-offs related to certain rides and equipment which were removed from service.

For the six months ended June 30, 2020, reflects business optimization, development and other strategic initiative costs primarily related to $1.9 million of third party consulting costs.

For the three and six months ended June 30, 2019, reflects business optimization, development and other strategic initiative costs primarily related to:

(i) $3.6 million and $5.9 million, respectively, of third party consulting costs and (ii) $0.1 million and $2.6 million, respectively, of severance and other employment costs associated with positions eliminated.

For the twelve months ended June 30, 2020, reflects business optimization, development and other strategic initiative costs primarily related to $18.0 million of third party consulting costs and $1.6 million of severance and other employment costs.

For the three and six months ended June 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.

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, six and twelve months ended June 30, 2020, includes approximately $3.9 million in incremental nonrecurring costs directly associated with the COVID-19 global pandemic, primarily due to incremental labor-related costs to prepare the parks for reopening with enhanced safety measures, incremental third-party consulting costs related to our COVID-19 response and safety communication strategies and initial purchases of personal protective equipment.

For the six and twelve months ended June 30, 2020, includes $12.5 million of insurance proceeds related to a legal settlement gain as previously disclosed .

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

See Note 10-Commitments and Contingencies in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

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.

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Contractual Obligations

There have been no material changes to our contractual obligations as March 31, 2020 from those previously disclosed in our Annual Report on Form 10-K.

Subsequent to March 31, 2020, we entered into Amendment No.

11 to the Amended Credit Agreement and we issued $227.5 million in first-priority senior secured notes.

See Note 6-Long-Term Debt to our unaudited condensed consolidated financial statements therein for further discussion.

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 which closed on April 30, 2020 and Amendment No.

10 to our Amended Credit Agreement.

As a result, our total long-term debt obligations as of June 30, 2020, not including any possible prepayments, are as follows for the remainder of 2020, 2021-2022, 2023-2024 and 2025, respectively (in thousands):

and $227,500.

Our estimated future interest payments based on interest rates in effect at June 30, 2020 are as follows for the remainder of 2020, 2021-2022, 2023-2024 and 2025, respectively (in thousands):

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.

Subsequent to June 30, 2020, we entered into Amendment No.

12 to the Amended Credit Agreement and we issued $500.0 million in second-priority senior secured notes.

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

Critical Accounting Policies

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

As of March 31, 2020, we determined that due to the temporary park closures effective March 16, 2020 resulting from the global COVID-19 pandemic, a triggering event had occurred that required an interim impairment assessment for goodwill and other indefinite-lived intangible assets.

We performed a qualitative impairment analysis which included certain judgements and assumptions related to the impact of the park closures, potential 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 as of March 31, 2020 related to these assets.

Additionally, using similar assumptions, we evaluated certain other long-lived assets, including our right of use assets for impairment as of March 31, 2020.

As of June 30, 2020, we determined that due to the temporary park closures effective March 16, 2020 resulting from the global COVID-19 pandemic, a triggering event had occurred that required an interim impairment assessment for goodwill and other indefinite-lived intangible assets.

We performed a qualitative impairment analysis 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 as of June 30, 2020 related to these assets.

Additionally, using similar assumptions, we evaluated certain other long-lived assets, including our right of use assets for impairment as of June 30, 2020.

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 as of March 31, 2020.

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.

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Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of March 31, 2020.

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

Recently Issued Financial Accounting Standards

Refer to Note 2–Recent Accounting Pronouncements in our notes to the unaudited condensed consolidated financial statements for further details.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis