What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-06 compared with 2020-08-10 · 138 added, 137 removed, 265 unchanged (51% of the section changed)

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Impact of Global COVID-19 Pandemic

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

See further discussion concerning the proactive measures we have taken in Note 1–Description of the Business and Basis of Presentation to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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

Beginning in June 2020, we began the phased reopening of some of our parks with capacity limitations, reduced hours of operation and/or reduced operating days.

In particular, on June 6, our Aquatica park in Texas reopened;

Beginning in June 2020, we began the phased reopening of some of our parks with enhanced health, safety and sanitizing measures, capacity limitations, modified/limited operations, reduced hours and/or reduced operating days.

In particular, on June 6, our Aquatica water park in Texas reopened;

on June 11, all five of our Florida parks reopened;

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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.

on August 5, our Busch Gardens park in Virginia reopened and on August 28, our SeaWorld park in California reopened on a limited basis, following California guidance for reopening zoos.

See further discussion in Note 1–Description of the Business and Basis of Presentation to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

We have implemented enhanced health and safety protocols for our open parks including capacity limitations, increased cleaning and sanitizing, physical distancing practices, face covering requirements and temperature screening of both guests and employees.

Additionally, we 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.

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

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

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

Despite these limitations, attendance on a consolidated basis improved throughout the quarter with monthly attendance down 89% in July, down 80% in August and down 61% in September versus the comparable prior year month.

Excluding our Virginia and California parks which were partially open and operating with modified and significantly limited operations due to state imposed restrictions, attendance trends for open parks also improved throughout the quarter with monthly attendance down 81% in July (excluding Sesame Place which opened in late July), down 68% in August and down 48% in September versus the comparable prior year period.

For other factors concerning the global COVID-19 pandemic, see the “ Risk Factors ” section of our Annual Report on Form 10-K, and under “ Part II, Item 1A., Risk Factors ” in this Quarterly Report on Form 10-Q, as such risk factors may be updated from time to time in our periodic filings with the SEC.

Leadership Changes

Effective April 4, 2020, Sergio D.

Rivera resigned from his position of Chief Executive Officer and as a member of our Board.

As a result, the Board appointed Marc G.

Swanson, our Chief Financial Officer and Treasurer, to serve as Interim Chief Executive Officer and Elizabeth C.

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 Chief Operating Officer.

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

Principal Factors and Trends Affecting Our Results of Operations

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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 visitation mix, is defined as the mix of attendance by ticket category such as single day, multi-day, annual passes or complimentary tickets and can be impacted by the mix of guests as domestic and international guests generally purchase higher admission per capita ticket products than our local guests.

The admissions product mix, also referred to as the attendance or visitation mix, is defined as the mix of attendance by ticket category such as single day, multi-day, annual passes or complimentary tickets and can be impacted by the mix of guests as domestic and international guests generally purchase higher admission per capita ticket products than our local guests.

The park attendance mix is defined as the mix of theme parks visited and can impact admission per capita based on the theme park’s respective pricing which, on average, is lower for our water parks compared to our other theme parks.

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We calculate in-park per capita spending as total food, merchandise and other revenue divided by total attendance.

Food, merchandise and other revenue primarily consists of culinary, merchandise, parking and other in-park products and also includes other miscellaneous revenue not necessarily generated in our parks, which is not significant in the periods presented, including revenue related to our international agreements.

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.

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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.

As a result of the COVID-19 pandemic, we believe the level of attendance in our theme parks has been and could continue to be impacted by public concerns over the COVID-19 pandemic, the number of reported local cases of COVID-19, travel restrictions, federal, state and local regulations related to public places, limits on social gatherings and overall public safety sentiment.

We continuously monitor factors impacting our attendance, making strategic marketing and sales adjustments as necessary.

Attendance patterns on a quarterly basis have historically had significant seasonality, driven by the timing of holidays, school vacations, calendar shifts in the number of weekend days in a quarter and weather conditions;

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

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

Costs and Expenses

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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.

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

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

During the three months ended September 30, 2020, we committed to a plan of termination (the “2020 Restructuring Program”), primarily impacting some of our furloughed employees.

We recorded approximately $2.6 million of severance and other separation costs during the three months ended September 30, 2020, primarily related to employee severance costs incurred with the 2020 Restructuring Program.

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

We remain committed to continuous improvement and regularly evaluate operations to evaluate that we are properly organized for performance and efficiency.

As part of these ongoing efforts, during the 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.

As part of these ongoing efforts, during the three and nine months ended September 30, 2019, we recorded approximately $1.2 million and $3.8 million, respectively, in severance and other separation costs related to positions eliminated in 2019.

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

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

Due, in part, to the impact of fixed operating costs and certain other costs which are not dependent on attendance levels, operating expenses and selling, general and administrative expenses during the three and nine months period ended September 30, 2020 increased as a percent of revenue when compared to the prior year period.

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

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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.

The COVID-19 pandemic has impacted the seasonality of our business for the first nine months of 2020 and it is difficult to estimate how the COVID-19 pandemic will impact seasonality for the rest of the year.

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

Results of Operations

The following discussion provides an analysis of our operating results for the three 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.

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

The COVID-19 pandemic has materially impacted our revenue and results of operations for the three and nine months ended September 30, 2020.

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

The following data should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

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

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

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

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

For the Three Months Ended

September 30,

Summary Financial Data:

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(Loss) income before income taxes

Provision for income taxes

(Benefit from) provision for income taxes

Net (loss) income

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Admissions revenue .

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.

Admissions revenue for the three months ended September 30, 2020 decreased $205.0 million, or 76.5%, to $63.1 million as compared to $268.0 million for the three months ended September 30, 2019.

The decline in admissions revenue was primarily a result of a decrease in attendance of approximately 6.6 million guests, or 80.8%, partially offset by an increase in admission per capita.

Attendance declined due to COVID-19 related impacts including fewer operating days and/or hours per week versus the prior year, capacity limitations, modified/limited park operations, temporary park closures, limited marketing spend and a limited events line-up.

During the third quarter of 2020, we were open for 562 operating days with limited capacity and reduced operating hours compared to a total of 957 operating days in the third quarter of 2019.

Admission per capita increased by 22.4% to $40.39 for the three months ended September 30, 2020 compared to $33.00 in the comparable prior year quarter.

Admission per capita increased primarily due to the realization of higher prices across admission products and the impact of out of commitment pass revenue, partially offset by the impact of attendance mix when compared to the prior year period.

Food, merchandise and other revenue.

Food, merchandise and other revenue for the three months ended 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.

Food, merchandise and other revenue for the three months ended September 30, 2020 decreased $162.6 million, or 79.1%, to $43.0 million as compared to $205.6 million for the three months ended September 30, 2019.

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

In-park per capita spending increased by 8.9% to $27.55 in the third quarter of 2020 compared to $25.31 in the third quarter of 2019.

In-park per capita spending improved primarily due to higher realized prices and mix of certain in-park offerings particularly for merchandise, culinary and other in-park services, partially offset by the impact of visitation mix and limited in-park offerings during the quarter.

Costs of food, merchandise and other revenues.

Costs of food, merchandise and other revenues for the three months ended 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.

Costs of food, merchandise and other revenues for the three months ended September 30, 2020 decreased by $28.5 million, or 75.4%, to $9.3 million as compared to $37.8 million for the three months ended September 30, 2019.

The decrease primarily relates to the decline in attendance and limited park reopenings.

These costs represent 21.6% and 18.4% of the related revenue earned for the three months ended September 30, 2020 and 2019, respectively.

The increase as a percent of related revenue partly relates to the product mix when compared to the prior year period.

Operating expenses.

Operating expenses for the three months ended 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.

Operating expenses for the three months ended September 30, 2020 decreased by $84.3 million, or 48.0% , to $91.3 million as compared to $175.6 million for the three months ended September 30, 2019 .

The decrease largely results from a reduction in labor -related costs due to limited operating days and hours , furloughs and workforce reductions resulting from the limited reopenings and temporary park closures due to the COVID-19 pandemic .

Operating expenses also declined due to limited operating schedules and the use of more efficient staffing models, along with other cost savings and efficiency initiatives .

Selling, general and administrative expenses .

Selling, general and administrative expenses for the three months ended 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.

Selling, general and administrative expenses for the three months ended September 30, 2020 decreased $40.3 million, or 62.3%, to $24.3 million as compared to $64.6 million for the three months ended September 30, 2019.

The decrease primarily relates to a reduction in marketing related costs resulting from the limited reopenings and temporary park closures due to the COVID-19 pandemic, a decline in third-party consulting costs, a decline in labor-related costs, and other cost savings and efficiency initiatives.

Severance and other separation costs.

Severance and other separation costs for the three months ended September 30, 2020 and 2019 primarily relates to severance and other expenses for positions which were eliminated.

See Note 13–Severance and Other Separation Costs in our notes to the unaudited condensed consolidated financial statements for further details.

Depreciation and amortization.

Depreciation and amortization expense for the three months ended 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.

Depreciation and amortization expense for the three months ended September 30, 2020 declined by $2.8 million, or 6.8%, to $38.1 million as compared to $40.8 million for the three months ended September 30, 2019.

The decrease primarily relates to a decline in new asset additions in 2020 along with the impact of asset retirements and fully depreciated assets.

Interest expense.

Interest expense for the three months ended 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.

Interest expense for the three months ended September 30, 2020 increased $6.7 million, or 31.1%, to $28.1 million as compared to $21.5 million for the three months ended September 30, 2019.

The increase primarily relates to additional interest related to the Second-Priority Senior Notes issued in August 2020 and the Senior Secured Notes issued in April 2020, partially offset by the impact of decreased LIBOR rates.

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

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

(Benefit from) provision for income taxes.

Income taxes in the three months ended September 30, 2020 was a benefit of $8.4 million compared to a provision for income taxes of $34.1 million for the three months ended September 30, 2019.

Our consolidated effective tax rate was 9.6% for the three months ended September 30, 2020 compared to 25.8% for the three months ended September 30, 2019.

The effective tax rate decreased primarily due to a non-cash valuation allowance on federal and state net operating loss carryforwards, a valuation allowance on federal tax credits and charitable contributions, changes in state tax rates, and other permanent items including equity-based compensation.

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

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

For the Nine Months Ended

September 30,

Summary Financial Data:

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Total costs and expenses

Operating income

Operating (loss) income

Other income, net

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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 .

Admissions revenue for the nine months ended September 30, 2020 decreased $461.4 million, or 73.9%, to $163.4 million as compared to $624.8 million for the nine months ended September 30, 2019.

The decline in admissions revenue was primarily a result of a decrease in attendance of approximately 13.8 million guests, or 76.8%, partially offset by an increase in admission per capita.

Attendance declined due to 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 .

Attendance declined due to COVID-19 related impacts including temporary park closures, fewer operating days and hours versus the prior year, capacity limitations, modified/limited operations, limited marketing spend and a limited events line-up.

During the nine months ended September 30, 2020, we were open for 1,029 operating days with reduced operating hours and limited capacity compared to a total of 2,292 operating days in nine months ended September 30, 2019.

Admission per capita increased by 12.9% to $39.34 for the nine months ended September 30, 2020 compared to $34.86 for the nine months ended September 30, 2019.

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.

Food, merchandise and other revenue for the nine months ended September 30, 2020 decreased $361.1 million, or 76.0%, to $114.3 million as compared to $475.4 million for the nine months ended September 30, 2019.

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

In-park per capita spending 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.

In-park per capita spending increased by 3.8% to $27.53 for the nine months ended September 30, 2020 compared to $26.52 for the nine months ended September 30, 2019.

In-park per capita spending improved primarily due to higher realized prices and fees and mix of certain in-park offerings particularly for merchandise and other in-park services, partially offset by the impact of visitation mix and limited in-park offerings when compared to the prior year period.

Costs of food, merchandise and other revenues.

Costs of food, merchandise and other revenues for the 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.

Costs of food, merchandise and other revenues for the nine months ended September 30, 2020 decreased $63.5 million, or 72.9%, to $23.6 million as compared to $87.1 million for the nine months ended September 30, 2019.

The decrease primarily relates to the decline in attendance and related park closures and limited reopenings.

These costs represent 20.6% and 18.3% of the related revenue earned for the nine months ended September 30, 2020 and 2019, respectively.

The increase as a percent of related revenue partly relates to the product mix when compared to the prior year period.

Operating expenses.

Operating expenses for the 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.

Operating expenses for the nine months ended September 30, 2020 decreased by $212.5 million, or 42.9% , to $283.4 million as compared to $495.9 million for the nine months ended September 30, 2019 .

The decrease largely results from the following:

(i) a reduction in labor-related costs due primarily to the COVID-19 temporary park closures;

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

(i) a reduction in labor-related costs due primarily to the COVID-19 temporary park closures and limited reopenings ;

(ii) a reduction in other operating costs resulting from limited operating schedules and cost savings initiatives ;

(iii) a decrease in non-cash equity compensation expense related primarily to the reversal of certain performance vesting restricted units which were no longer considered probable of vesting;

and (iv) the impact of other cost savings initiatives.

and (iv) the impact of other cost savings and efficiency initiatives.

See Note 11–Equity-Based Compensation in our notes to the unaudited condensed consolidated financial statements for further details.

Selling, general and administrative expenses .

Selling, general and administrative expenses for the 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.

Selling, general and administrative expenses for the nine months ended September 30, 2020 decreased $102.2 million, or 58.5%, to $72.4 million as compared to $174.6 million for the nine months ended September 30, 2019.

The decrease primarily relates to the following:

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

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

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

(iii) a decline in third-party consulting costs (iv) a decrease in non-cash equity compensation expense, primarily related to the reversal of equity compensation, as mentioned above, and also includes the reversal of equity compensation expense related to outstanding unvested equity awards previously held by the Company’s former chief executive officer;

and (v) the impact of cost savings initiatives.

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

(iv) a decrease in non-cash equity compensation expense, primarily related to the reversal of equity compensation, as mentioned above, and also includes the reversal of equity compensation expense related to outstanding unvested equity awards previously held by the Company’s former chief executive officer;

and (v) the impact of cost savings and efficiency initiatives, including reduced labor related costs.

See Note 10–Commitments and Contingencies and Note 11–Equity-Based Compensation in our notes to the unaudited condensed consolidated financial statements for further details.

Severance and other separation costs.

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

Severance and other separation costs for the nine months ended September 30, 2020 and 2019 primarily relates to severance and other expenses for positions which were eliminated.

See Note 13–Severance and Other Separation Costs in our notes to the unaudited condensed consolidated financial statements for further details.

Depreciation and amortization.

Depreciation and amortization expense for the 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.

Depreciation and amortization expense for the nine months ended September 30, 2020 decreased $6.3 million, or 5.3%, to $114.0 million as compared to $120.3 million for the nine months ended September 30, 2019.

The decrease primarily relates to a decline in new asset additions in 2020 along with the impact of asset retirements and fully depreciated assets.

Interest expense.

Interest expense for the 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.

Interest expense for the nine months ended September 30, 2020 increased $5.1 million, or 8.0%, to $69.2 million as compared to $64.1 million for the nine months ended September 30, 2019.

The increase primarily relates to additional interest related to the Senior Secured Notes issued in April 2020 and the Second-Priority Senior Notes issued in August 2020, the impact of interest rate swap agreements, which expired in May 2020, and a higher average outstanding balance on our Revolving Credit Facility during the period, partially offset by the impact of decreased LIBOR rates.

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

(Benefit from) provision for income taxes.

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.

Income taxes for the nine months ended September 30, 2020 was a benefit of $20.7 million compared to a provision for income taxes of $40.9 million for the nine months ended September 30, 2019.

Our consolidated effective tax rate was 7.2% for the nine months ended September 30, 2020 compared to 26.5% for the nine months ended September 30, 2019.

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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 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.

As of September 30, 2020, we had a working capital ratio (defined as current assets divided by current liabilities) of 1.6, due in part to our outstanding cash balance at September 30, 2020.

Historically, we typically operate with a working capital ratio less than 1 due to significant deferred revenue balance from revenues paid in advance for our theme park admissions products and high turnover of in-park products that result in limited inventory balances.

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

Due to the adverse impact of the COVID-19 temporary park closures, which started on March 16, 2020, and the limited reopening with reduced operating days and 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.

Due to the adverse impact of the COVID-19 temporary park closures, which started on March 16, 2020, and the limited reopening with reduced operating days and/or hours and capacity limitations, we generated negative cash flows from operating activities for the nine months ended September 30, 2020.

See the “ Impact of Global COVID-19 Pandemic ” section and the “ Our Indebtedness ” section for further details concerning the proactive measures we have taken to address liquidity in response to the COVID-19 pandemic.

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

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.

During the nine months ended September 30, 2020, prior to the COVID-19 temporary park closures, we completed a share repurchase of 469,785 shares for an aggregate total of approximately $12.4 million, leaving approximately $237.6 million available under the Share Repurchase Program as of September 30, 2020.

In connection with Amendment No.

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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,

For the Nine Months Ended September 30,

(Unaudited, in thousands)

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Cash Flows from Operating Activities

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.

Net cash used in operating activities was $107.6 million during the nine months ended September 30, 2020 as compared to net cash provided by operating activities of $313.7 million during the nine months ended September 30, 2019.

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

Cash Flows from Investing Activities

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

Net cash used in investing activities during the 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.

Net cash used in investing activities during the nine months ended September 30, 2020 consisted primarily of capital expenditures of $75.7 million largely related to future attractions.

Net cash used in investing activities during the nine months ended September 30, 2019 consisted primarily of $152.9 million of capital expenditures largely related future attractions.

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

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Capital Expenditures:

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Cash Flows from Financing Activities

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.

Net cash provided by financing activities during the nine months ended September 30, 2020 results primarily from net proceeds from our Senior Notes and our Second-Priority Senior Notes offering of $713.7 million, partially offset by net repayments on our revolving credit facility of $50.0 million, $12.4 million used to repurchase shares and repayments of $11.6 million on our long-term debt.

Net cash used in financing activities during the nine months ended September 30, 2019 results primarily from $150.0 million used to repurchase shares and repayments of $11.6 million on our long-term debt, partially offset by a net draw on our revolving credit facility of $20.0 million.

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

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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”).

As of September 30, 2020, our indebtedness consisted of senior secured credit facilities, first-priority senior secured notes (“Senior Notes”) and second-priority senior secured notes (“Second-Priority Senior Notes”).

Senior Secured Credit Facilities

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10, SEA increased the revolving credit commitments available under the Amended Credit Agreement from $210.0 million to an aggregate of $332.5 million.

On April 19, 2020, SEA entered into another amendment, Amendment No.

On April 19, 2020 and on July 29, 2020, respectively, SEA entered into Amendment No.

11, (the “Amendment No.

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.

11”) and Amendment No.

12, (the “Amendment No.

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See “Covenant Compliance” discussion which follows.

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.

As of September 30, 2020, our Senior Secured Credit Facilities consisted of $1.5 billion in Term B-5 Loans which will mature on March 31, 2024, along with a $332.5 million Revolving Credit Facility, which was not drawn upon as of September 30, 2020.

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

Senior Secured Notes

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

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.

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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.

12 to the Credit Agreement, we used a portion of the proceeds from the issuance of the Second-Priority Senior Notes to repay the then outstanding borrowings under the Revolving Credit Facility of $311.0 million.

Covenant Compliance

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

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

The Revolving Credit Facility requires that the Company comply with a springing maximum first lien secured leverage ratio of 6.25x to be tested as of the last day of any fiscal quarter, solely to the extent that on such date the aggregate amount of funded loans and letters of credit (excluding undrawn letters of credit in an amount not to exceed $30.0 million and cash collateralized letters of credit) under the Revolving Credit Facility exceeds an amount equal to 35% of the then outstanding commitments under the Revolving Credit Facility.

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Under the credit agreement governing the Senior Secured Credit Facilities, our ability to engage in activities such as incurring additional indebtedness, making investments, refinancing certain indebtedness, paying dividends and entering into certain merger transactions is governed, in part, by our ability to satisfy tests based on “Adjusted EBITDA”.

The Senior Secured Credit Facilities defines “Adjusted EBITDA” as net income before interest expense, income tax expense, depreciation and amortization, as further adjusted to exclude certain unusual, non-cash, and other items permitted in calculating covenant compliance under the Senior Secured Credit Facilities, subject to certain limitations.

The Senior Secured Credit Facilities defines “Adjusted EBITDA” as net income or loss before interest expense, income tax expense, depreciation and amortization, as further adjusted to exclude certain unusual, non-cash, and other items permitted in calculating covenant compliance under the Senior Secured Credit Facilities, subject to certain limitations.

Adjusted EBITDA as defined in the Senior Secured Credit Facilities is consistent with our reported Adjusted EBITDA.

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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.

Adjusted EBITDA and other non-GAAP financial measures have limitations which should be considered before using these measures to evaluate our financial performance.

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UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Last Twelve Months Ended

September 30,

(Unaudited, in thousands)

Net (loss) income

Provision for (benefit from) income taxes

(Benefit from) provision for income taxes

Interest expense

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

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.

For the nine and twelve months ended September 30, 2020, includes a reversal of equity compensation for certain performance vesting restricted units which are no longer considered probable of vesting.

See Note 11–Equity-Based Compensation in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

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

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.

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

For the three and nine months ended September 30, 2020, reflects business optimization, development and other strategic initiative costs primarily related to:

(i) $2.6 million and $2.7 million , respectively, of severance and other separation costs primarily related to the 2020 Restructuring Program and (ii) $0.5 million and $2.4 million, respectively, of third party consulting costs.

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

(i) $6.5 million and $12.5 million, respectively, of third party consulting costs and (ii) $1.2 million and $3.8 million, respectively, of severance and other separation costs primarily associated with positions eliminated.

For the twelve months ended September 30, 2020, reflects business optimization, development and other strategic initiative costs primarily related to:

(i) $11.1 million of third party consulting costs, and (ii) $3.0 million of severance and other separation costs primarily related to the 2020 Restructuring Program.

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

For the nine months ended September 30, 2019, $4.3 million relates to expenses associated with the previously disclosed transfer of shares and HP agreements.

See Note 9-Related Party Transactions in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

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.

For the three months ended September 30, 2020, includes approximately $2.0 million in incremental nonrecurring costs directly associated with the COVID-19 global pandemic, primarily due to incremental labor-related costs to operate the parks and operations with enhance d safety measures, contract termination or modification costs related to impacts from the temporary COVID -19 park closures, and initial purchases of safety monitoring and personal protective equipment.

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

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

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

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 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):

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

and $727,500.

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):

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

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.

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.

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

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.

During the nine month period ended September 30, 2020, due to the temporary park closures effective March 16, 2020 resulting from the global COVID-19 pandemic, we performed a qualitative impairment analysis of goodwill and other indefinite-lived intangible assets which included certain judgements and assumptions related to the impact of the park closures, reopening time frames and expected attendance levels upon reopening and determined that, based on the significant excess fair values over carrying values that previously existed, there was no impairment related to these assets.

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

We compared the estimated undiscounted net cash flows of our long-lived and right of use assets to their respective carrying values.

Based on the results of the analysis and our intent and ability to retain value and use for a period of time sufficient to allow for any anticipated recovery in market conditions, we concluded that the estimated undiscounted net cash flows for these assets exceeded its carrying value and therefore, no impairment of other long-lived assets had occurred as of June 30, 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 material off-balance sheet arrangements as of June 30, 2020.

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

Recently Issued Financial Accounting Standards

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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