What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2020-11-06 · 164 added, 262 removed, 141 unchanged (75% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

This discussion should also be read in conjunction with our consolidated financial statements and related notes thereto, and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, 2019.

The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K, and under “Part II, Item 1A., Risk Factors” in this Quarterly Report on Form 10-Q, as such risk factors may be updated from time to time in our periodic filings with the SEC.

References to our “theme parks” or “parks” in the discussion that follows includes all of our separately gated parks.

The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.

Actual results may differ materially from those contained in any forward-looking statements.

You should carefully read “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.

The following discussion and analysis is intended to facilitate an understanding of our business and results of operations and should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

This discussion should also be read in conjunction with our consolidated financial statements and related notes thereto, and the “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” section of our Annual Report on Form 10-K for the year ended December 31, 2020.

Business Overview

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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 manage costs and expenditures, and to provide liquidity in response to COVID-19.

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

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

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

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

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

on June 19, our SeaWorld park in Texas reopened;

on July 24, our Sesame Place park in Pennsylvania reopened;

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

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

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

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

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

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

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

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

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

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 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 and modified/limited operations.

By August 2020, we had reopened 10 of our 12 parks on a limited basis.

See further discussion relating to the capacity limitations for some of our parks 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.

At the start of the first quarter of 2021, seven of our 12 parks were open, compared to eight of our 12 parks at the start of 2020.

At the end of the first quarter of 2021, 10 of our 12 parks were open, compared to all of our parks temporarily closed at the end of the first quarter of 2020.

We continue to operate all of our open parks with capacity limitations and modified/limited operations.

In response to the COVID-19 pandemic, we have implemented enhanced health and safety protocols for our parks including capacity limitations, increased cleaning measures, physical distancing practices, face covering requirements and temperature screening of both guests and employees.

Additionally, we have managed the number of operating days and operating hours by park to optimize cash flow.

We also continue our focus on reducing costs, improving operating margins and streamlining our labor structure to better align with our strategic business objectives.

Since the start of the COVID-19 pandemic, we have spent significant time reviewing our operations and have identified meaningful cost savings opportunities which we believe will further strengthen our business as we return to normalized operations.

With approved vaccines being distributed, we anticipate public health conditions, the operating environment and capacity limitations to improve;

however, there can be no certainty of the extent and effectiveness of the vaccines or how they will impact these factors and others, including domestic or international travel, public opinion concerning social gatherings, consumer behavior or federal, state and local regulations related to health protocols, capacity limitations and social gatherings .

We have also experienced recent challenges in meeting our seasonal staffing goals due in part to COVID-19 related and other factors.

For further discussion relating to strategic measures we have taken to operate in the current environment, see the “Results of Operations” section which follows.

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

Leadership Changes

On May 6, 2021, we announced our Board of Directors (the “Board”) appointed Marc G.

Swanson, who had been serving as the Company’s Interim Chief Executive Officer, to serve as Chief Executive Officer and Elizabeth C.

Gulacsy, who had been serving as the Company’s Interim Chief Financial Officer and Treasurer, to serve as our Chief Financial Officer and Treasurer.

Both roles are effective immediately.

Separately, on April 26, 2021, we announced the appointment of Christopher Yarris as Chief Accounting Officer of the Company effective on such date.

Principal Factors and Trends Affecting Our Results of Operations

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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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Admission per capita is primarily driven by ticket pricing, the admissions product mix and the park attendance mix, among other factors.

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

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

A higher mix of complimentary tickets will lower our admissions per capita.

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

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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.

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

In-park per capita spending is primarily driven by pricing changes, new product offerings, the mix of guests (such as local, domestic or international guests), penetration levels (percentage of guests purchasing) and the mix of in-park spending, among other factors.

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

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

For other factors affecting our revenues, see the “ Risk Factors ” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.

The level of attendance in our theme parks is generally a function of many factors, including affordability, the opening of new attractions and shows, competitive offerings, weather, marketing and sales efforts, awareness and type of ticket and park offerings, travel patterns of both our domestic and international guests, fluctuations in foreign exchange rates and global and regional economic conditions, consumer confidence, the external perceptions of our brands and reputation, industry best practices and perceptions as to safety.

The external perceptions of our brands and reputation have at times impacted relationships with some of our business partners, including certain ticket resellers that have terminated relationships with us and other zoological-themed attractions.

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

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

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

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

As a result of the COVID-19 pandemic, we believe the level of attendance in our theme parks, including the mix of attendance from certain markets, has been and will continue to be impacted by public concerns over the COVID-19 pandemic, the number of reported local cases of COVID-19, domestic and international travel restrictions, federal, state and local regulations related to public places, limits on social gatherings, the availability and/or effectiveness of vaccines for adults and children, and overall public safety sentiment.

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

Costs and Expenses

Historically, the principal costs of our operations are employee wages and benefits, advertising, maintenance, animal care, utilities and insurance.

Historically, the principal costs of our operations are employee wages and benefits, driven partly by staffing levels, advertising, maintenance, animal care, utilities and insurance.

Factors that affect our costs and expenses include fixed operating costs, competitive wage pressures including minimum wage legislation, commodity prices, costs for construction, repairs and maintenance, other inflationary pressures and attendance levels, among other factors.

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

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

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

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

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

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

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

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

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

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

The mix of products sold compared to the prior year period can also impact our costs as generally retail products have a higher cost of sales component than our culinary or other in-park offerings.

As a result of the impact of the COVID-19 pandemic on our business, costs and expenses as a percent of revenue for the three months ended March 31, 2021 and 2020, are not necessarily indicative of costs and expenses as a percent of revenue for any future period, due in part to the impact of fixed operating costs and certain other costs which are not dependent on attendance levels, as well as certain costs associated with the COVID-19 pandemic.

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

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

For other factors affecting our costs and expenses, see the “ Risk Factors ” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.

The theme park industry is seasonal in nature.

Historically, we generate the highest revenues in the second and third quarters of each year, in part because seven of our theme parks are only open for a portion of the year.

Approximately two-thirds of our attendance and revenues are typically generated in the second and third quarters of the year and we generally incur a net loss in the first and fourth quarters.

The percent mix of revenues by quarter has been relatively constant each year, but revenues can shift between the first and second quarters due to the timing of Easter and spring break holidays and between the first and fourth quarters due to the timing of holiday breaks around Christmas and New Year.

Historically, we generate the highest revenues in the second and third quarters of each year, in part because seven of our theme parks were historically only open for a portion of the year.

As a result, approximately two-thirds of our attendance and revenues were historically generated in the second and third quarters of the year and we generally incurred net losses in the first and fourth quarters.

The percent mix of revenues by quarter is relatively constant each year, but revenues can shift between the first and second quarters due to the timing of Easter and spring break holidays and between the first and fourth quarters due to the timing of holiday breaks around Christmas and New Year.

Even for our five theme parks which have historically been open year-round, attendance patterns have significant seasonality, driven by holidays, school vacations and weather conditions.

Changes in school calendars that impact traditional summer vacation months could also impact attendance patterns.

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

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

Changes in school calendars that impact traditional school vacation breaks could also impact attendance patterns.

Due in part to the temporary park closures, capacity limitations and modified/limited operations, the COVID-19 pandemic has impacted the seasonality of our business and it is difficult to estimate how the COVID-19 pandemic will impact seasonality in the future.

Furthermore, any changes to the operating schedule of a park such as increasing operating days for our seasonal parks, could impact seasonality in the future.

During the first quarter of 2021, we began year-round operations at our SeaWorld park in Texas and began to operate on select days at both our Busch Gardens park in Virginia and our Sesame Place park in Pennsylvania.

See ““ Risk Factors ” section of our Annual Report on Form 10-K, as such risk factors may be updated from time to time in our periodic filings with the SEC.

Results of Operations

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.

Our results for the three months ended March 31, 2021 are not directly comparable to the three months ended March 31, 2020 primarily due to temporary park closures, effective on March 16, 2020, capacity limitations, and modified/limited operations associated with the COVID-19 pandemic.

Our business continues to be impacted by the COVID-19 pandemic;

however, we have seen improvement in operating results during the three months ended March 31, 2021 due in part to strategic measures we have taken both before and during the COVID-19 pandemic.

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

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

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

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

Comparison of the Three Months Ended March 31, 2021 to the Three Months Ended March 31, 20 20

The following table presents key operating and financial information for the three months ended March 31, 2021 and 2020:

For the Three Months Ended

September 30,

Summary Financial Data:

(In thousands, except per capita data)

(In thousands, except per capita data and %)

Net revenues:

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Total costs and expenses

Operating (loss) income

Other income, net

Operating loss

Other (income) expense, net

Interest expense

(Loss) income before income taxes

(Benefit from) provision for income taxes

Net (loss) income

Loss before income taxes

Benefit from income taxes

Total revenue per capita

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In-park per capita spending

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Admissions revenue .

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

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

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

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

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

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

Admissions revenue for the three months ended March 31, 2021 increased $5.3 million, or 5.8%, to $95.8 million as compared to $90.5 million for the three months ended March 31, 2020.

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

Admission per capita increased by 10.8% to $43.25 for the first quarter of 2021 compared to $39.05 in the prior year quarter, primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts when compared to the prior year quarter.

Total attendance for the first quarter of 2021 decreased by approximately 0.1 million guests, or 4.5%, when compared to the prior year quarter.

Attendance declined due to COVID-19 related impacts including capacity limitations and modified/limited operations, partially offset by an increase of 34% more operating days in the first quarter of 2021 compared to the first quarter of 2020 due in part to the temporary park closures which fell during the spring break period in 2020 at most of our parks.

Food, merchandise and other revenue.

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

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

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

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

Food, merchandise and other revenue for the three months ended March 31, 2021 increased $13.1 million, or 20.8%, to $76.1 million as compared to $63.1 million for the three months ended March 31, 2020, primarily as a result of an increase in in-park per capita spending, partially offset by the decline in attendance as discussed above.

In-park per capita spending increased by 26.4% to $34.38 in the first quarter of 2021 compared to $27.20 in the first quarter of 2020, primarily due to increased guest spending, an improved product mix and higher realized prices and fees during the quarter.

Costs of food, merchandise and other revenues.

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

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

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

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

Costs of food, merchandise and other revenues for the three months ended March 31, 2021 increased $1.8 million, or 14.0%, to $14.9 million as compared to $13.1 million for the three months ended March 31, 2020, primarily due to the increase in related revenue.

These costs represent 19.6% and 20.8% of the related revenue earned for the three months ended March 31, 2021 and 2020, respectively.

The decrease as a percent of related revenue partly relates to the impact of higher realized prices on some of our in-park products.

Operating expenses.

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

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

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

Operating expenses for the three months ended March 31, 2021 decreased $25.2 million, or 19.0% , to $107.8 million as compared to $133.0 million for the three months ended March 31, 2020 .

The decrease primarily relates to a net reduction in labor-related costs and other operating costs resulting from structural cost savings initiatives and the impact of COVID-19 modified/limited operations , which more than offset the impact of additional operating days during the first quarter of 2021 and incremental operating expenses associated with our response to the COVID-19 pandemic .

Due in part to the impact of fixed operating costs and certain other costs which are not dependent on attendance levels, operating expenses as a percent of revenue are not comparable to the prior year period primarily due to the impact of the temporary park closures in 2020.

Selling, general and administrative expenses .

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

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

Severance and other separation costs.

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

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

Selling, general and administrative expenses for the three months ended March 31, 2021 increased $4.5 million, or 16.7%, to $31.5 million as compared to $27.0 million for the three months ended March 31, 2020.

Excluding the impact of certain legal settlement proceeds in the prior year period, selling, general and administrative expenses decreased by approximately $8.0 million primarily related to a reduction in marketing related costs due in part to cost savings initiatives and the impact of COVID-19 modified/limited operations and a decrease in legal costs.

The legal settlement proceeds in the prior year period related to approximately $12.5 million received related to a legal matter.

See Note 9–Commitments and Contingencies to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Depreciation and amortization.

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

Depreciation and amortization expense for the three months ended March 31, 2021 decreased $1.5 million, or 3.8%, to $36.6 million as compared to $38.0 million for the three months ended March 31, 2020.

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

Interest expense.

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

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

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

(Benefit from) provision for income taxes.

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

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

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

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

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

For the Nine Months Ended

September 30,

Summary Financial Data:

(In thousands, except per capita data)

Interest expense for the three months ended March 31, 2021 increased $11.8 million, or 61.6%, to $31.0 million as compared to $19.2 million for the three months ended March 31, 2020.

The increase primarily relates to interest related to the Senior Notes issued in April 2020 and the Second-Priority Senior Secured Notes issued in August 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.

Benefit from income taxes.

Benefit from income taxes in the three months ended March 31, 2021 was $5.1 million compared to $20.2 million for the three months ended March 31, 2020.

Our consolidated effective tax rate was 10.3% for the three months ended March 31, 2021 compared to 26.3% for the three months ended March 31, 2020.

The effective tax rate decreased primarily due to non-cash valuation allowance adjustments 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.

Supplemental Comparison of the Three Months Ended March 31, 2021 to the Three Months Ended March 31, 2019

We believe a comparison of selected financial results for the three months ended March 31, 2021 to the three months ended March 31, 2019 may provide additional insight regarding the current impact of the COVID-19 pandemic on our business.

As such, the following supplemental discussion provides an analysis of selected operating results for the three months ended March 31, 2021 compared to the three months ended March 31, 2019.

The selected summary financial data for the first quarter of 2019 was derived from the Company’s Quarterly Report on Form 10-Q for three months ended March 31, 2019.

The following table presents selected key operating and financial information for the three months ended March 31, 2021 and 2019:

For the Three Months Ended March 31,

Selected Summary Financial Data:

(In thousands, except per capita data and %)

Net revenues:

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Total revenues

Costs and expenses:

Selected costs and expenses:

Cost of food, merchandise and other revenues

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

Operating expenses (exclusive of depreciation and amortization)

Selling, general and administrative expenses

Severance and other separation costs

Depreciation and amortization

Total costs and expenses

Operating (loss) income

Other income, net

Interest expense

(Loss) income before income taxes

(Benefit from) provision for income taxes

Net (loss) income

Total revenue per capita

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In-park per capita spending

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Admissions revenue .

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

Admissions revenue for the three months ended March 31, 2021 decreased $33.1 million, or 25.7%, to $95.8 million as compared to $128.9 million for the three months ended March 31, 2019.

The decline in admissions revenue was primarily a result of a decrease in attendance of approximately 1.1 million guests, or 33.7%, partially offset by an increase in admission per capita.

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

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

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

Attendance declined when compared to 2019 due to COVID-19 related impacts including capacity limitations and modified/limited operations at all of our open parks.

Admission per capita increased by 12.0% to $43.25 in 2021 compared to $38.60 in 2019.

Admission per capita increased primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts when compared to the first quarter of 2019.

Food, merchandise and other revenue.

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

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

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

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

Food, merchandise and other revenue for the three months ended March 31, 2021 decreased $15.5 million, or 16.9%, to $76.1 million as compared to $91.7 million for the three months ended March 31, 2019, primarily as a result of a decrease in attendance as discussed above, partially offset by an increase in in-park per capita spending.

In-park per capita spending increased by 25.3% to $34.38 in the first quarter of 2021 compared to $27.44 in the first quarter of 2019.

In-park per capita spending improved primarily due to increased guest spending, an improved product mix and higher realized prices and fees during the quarter.

Costs of food, merchandise and other revenues.

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

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

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

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

Costs of food, merchandise and other revenues for the three months ended March 31, 2021 decreased $2.3 million, or 13.2%, to $14.9 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 19.6% and 18.8% of the related revenue earned for the three months ended March 31, 2021 and 2019, respectively.

The increase as a percent of related revenue partly relates to a higher mix of retail products sold, which generally have a higher cost of sales component than our culinary or other in park products.

Operating expenses.

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

The decrease largely results from the following:

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

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

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

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

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

Operating expenses for the three months ended March 31, 2021 decreased $42.1 million, or 28.1%, to $107.8 million as compared to $149.9 million for the three months ended March 31, 2019.

The decrease largely results from a reduction in labor-related costs and other operating costs primarily resulting from structural cost savings initiatives and the impact of COVID-19 modified/limited operations, partially offset by incremental operating expenses associated with our response to the COVID-19 pandemic.

Selling, general and administrative expenses .

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

The decrease primarily relates to the following:

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

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

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

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

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

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

Severance and other separation costs.

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

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

Depreciation and amortization.

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

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

Interest expense.

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

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

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

(Benefit from) provision for income taxes.

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

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

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

See Note 4–Income Taxes in our notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Selling, general and administrative expenses for the three months ended March 31, 2021 decreased $11.3 million, or 26.4%, to $31.5 million as compared to $42.8 million for the three months ended March 31, 2019.

The decrease primarily relates to a reduction in marketing related costs and the impact of cost savings and efficiency initiatives.

Liquidity and Capital Resources

Generally, our principal sources of liquidity are cash generated from operations, funds from borrowings and existing cash on hand.

Our principal uses of cash include the funding of working capital obligations, debt service, investments in theme parks (including capital projects), and share repurchases, when permitted.

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

Our principal uses of cash include the funding of working capital obligations, debt service, investments in theme parks (including capital projects), and could include share repurchases, when permitted.

As of March 31, 2021, we had a working capital ratio (defined as current assets divided by current liabilities) of 1.4, due in part to our outstanding cash balance at March 31, 2021.

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

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

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

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

For other factors concerning the global COVID-19 pandemic, see the “ Risk Factors ” section in this Quarterly Report on Form 10-Q.

As market conditions warrant and subject to our contractual restrictions and liquidity position, we, our affiliates and/or our stockholders, may from time to time purchase our outstanding equity and/or debt securities, including our outstanding bank loans in privately negotiated or open market transactions, by tender offer or otherwise.

As market conditions warrant and subject to our contractual restrictions and liquidity position, we or our affiliates, may from time to time purchase our outstanding equity and/or debt securities, including our outstanding bank loans in privately negotiated or open market transactions, by tender offer or otherwise.

Any such purchases may be funded by incurring new debt, including additional borrowings under the Senior Secured Credit Facilities.

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Share Repurchases

Our Board had previously authorized a share repurchase program of up to $250.0 million of our common stock (the “Share Repurchase Program”).

Under the Share Repurchase Program, we are authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act.

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

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

In connection with Amendment No.

12 to the Amended Credit Agreement, we are restricted from paying any dividends or making other restricted payments, including share repurchases, through the third quarter of 2022 unless certain conditions are met.

The number of shares to be purchased and the timing of purchases will be based on our trading windows and available liquidity, general business and market conditions and other factors, including legal requirements and alternative opportunities.

See Note 6–Long-Term Debt and Note 12–Stockholders’ Equity in our notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

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

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

For the Nine Months Ended September 30,

(Unaudited, in thousands)

Net cash (used in) provided by operating activities

See Note 11–Stockholders’ Deficit in our notes to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information on the Share Repurchase Program.

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)

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net increase in cash and cash equivalents, including restricted cash

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents, including restricted cash

Cash Flows from Operating Activities

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

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

Net cash provided by operating activities was $18.4 million during the three months ended March 31, 2021 as compared to net cash used in operating activities of $40.8 million during the three months ended March 31, 2020.

The change in net cash provided by (used in) operating activities was primarily impacted by improved operating performance including increased sales of admission products, partially offset by the impact of increased interest payments and deferred vendor payments in the first quarter of 2021 when compared to the first quarter of 2020, which was impacted by the temporary park closures.

The deferred vendor payments in the first quarter of 2021 relate to certain vendor payments during the period, which were previously deferred in order to manage liquidity in response to the temporary park closures and limited re-openings related to the COVID-19 pandemic.

Cash Flows from Investing Activities

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

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

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

Net cash used in investing activities during the three months ended March 31, 2021 consisted of capital expenditures of $15.3 million largely related to future attractions.

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

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

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Capital Expenditures:

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The amount of our capital expenditures may be affected by general economic and financial conditions, among other things, including restrictions imposed by our borrowing arrangements.

We generally expect to fund our capital expenditures through our operating cash flow.

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

Historically, we generally expect to fund our capital expenditures through our operating cash flow.

Cash Flows from Financing Activities

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

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

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

Net cash used in financing activities during the three months ended March 31, 2021 results primarily repayments on long-term debt of $3.9 million.

Net cash used in 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.

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

Our Indebtedness

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

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

As of March 31, 2021, 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”).

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

Senior Secured Credit Facilities

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

On March 10, 2020, SEA entered into an amendment, Amendment No.

10 (the “Amendment No.

10”) to its Amended Credit Agreement.

Pursuant to Amendment No.

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

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

11, (the “Amendment No.

11”) and Amendment No.

12, (the “Amendment No.

12”) to its Amended Credit Agreement to further amend certain provisions therein.

See “Covenant Compliance” discussion which follows.

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

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

As of March 31, 2021, our Senior Secured Credit Facilities consisted of $1.489 billion in Term B-5 Loans which will mature on March 31, 2024, along with a $332.5 million Revolving Credit Facility, which had no amounts outstanding as of March 31, 2021.

As of March 31, 2021, SEA had approximately $20.5 million of outstanding letters of credit, leaving approximately $312.0 million available for borrowing under the Revolving Credit Facility.

See “Covenant Compliance” discussion which follows for information regarding our required quarterly liquidity test which could impact amounts available for borrowing.

Senior Secured Notes

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

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

Second-Priority Senior Secured Notes

On August 5, 2020, SEA closed on a private offering of $500.0 million aggregate principal amount of 9.500% second-priority senior secured notes due 2025 (the “Second-Priority Senior Notes”).

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

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

On April 30, 2020, SEA closed on a private offering of $227.5 million aggregate principal amount of 8.750% Senior Notes and on August 5, 2020, SEA closed on a private offering of $500.0 million aggregate principal amount of 9.500% Second-Priority Senior Notes.

Covenant Compliance

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

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

As of March 31, 2021, we were in compliance with all covenants in the credit agreement governing the Senior Secured Credit Facilities.

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

Pursuant to Amendment No.

12, among other terms, SEA will be exempt from complying with its first lien secured leverage ratio covenant through the end of 2021, after which SEA will be required to comply with such covenants starting at the first quarter of 2022.

For purposes of calculating compliance with such covenant, unless a Triggering Event occurs (as defined in Amendment No.

12), beginning with the first quarter of 2022, to the extent trailing Adjusted EBITDA (as defined in Amendment No.

12) for the second, third or fourth quarters of 2021 would have otherwise been included in the calculation of such covenant, in lieu of using actual Adjusted EBITDA for such periods, Adjusted EBITDA for such applicable periods will be deemed to be Adjusted EBITDA (as defined in Amendment No.

12) for the corresponding quarter of 2019.

See Note 6–Long-Term Debt to the unaudited condensed consolidated financial statements for further details relating to the calculation beginning in the first quarter of 2022.

In addition, SEA will be required to comply with a quarterly minimum liquidity test (defined as unrestricted cash and cash equivalents and available commitments under the Revolving Credit Facility) of not less than $75.0 million until the earlier of September 30, 2022 or the date on which the Company elects to use actual Adjusted EBITDA for purposes of calculating its financial maintenance covenant.

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

12, among other terms, SEA is 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.

See Note 6–Long-Term Debt to our 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 we elect to use actual Adjusted EBITDA for purposes of calculating our financial maintenance covenant.

Adjusted EBITDA

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In addition, the presentation of Adjusted EBITDA for the last twelve months provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the Senior Secured Credit Facilities.

Adjusted EBITDA is a material component of these covenants.

See the “Our Indebtedness-Covenant Compliance” section for further details.

2 unchanged sentences

Adjusted EBITDA, as presented by us, may not be comparable to similarly titled measures of other companies due to varying methods of calculation.

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

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

SEAWORLD ENTERTAINMENT, INC.

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UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Last Twelve Months Ended

September 30,

For the Three Months Ended March 31,

Last Twelve Months Ended March 31,

(Unaudited, in thousands)

Net (loss) income

(Benefit from) provision for income taxes

Benefit from income taxes

Interest expense

10 unchanged sentences

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

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

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

For the three months ended March 31, 2020, includes a reversal of equity compensation for certain performance vesting restricted units which were no longer considered probable of vesting.

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

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

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

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 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.

The Senior Secured Credit Facilities permits the Company’s calculation of certain covenants to be based on Adjusted EBITDA, as defined above, for the last twelve month period further adjusted for net annualized estimated savings the Company expects to realize over the following 18 month period related to certain specified actions, including restructurings and cost savings initiatives.

For the twelve months ended March 31, 2021, reflects asset write-offs primarily related to 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 twelve months ended March 31, 2021, reflects business optimization, development and other strategic initiative costs primarily related to $2.8 million of severance and other employment costs and $1.4 million of third party consulting costs.

For the twelve months ended March 31, 2021, includes costs associated with a Registration Statement on Form S-3 filed in 2020.

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

For the three months ended March 31, 2021, primarily relates to incremental non-recurring costs associated with the COVID-19 pandemic, primarily associated with incremental labor-related costs to prepare, staff and operate the parks with enhanced safety measures.

For the three 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, 2021, includes approximately $11.0 million of incremental non-recurring costs associated with the COVID-19 pandemic, partially offset by approximately $4.4 million related to the return of funds previously paid for a legal settlement.

See Note 9–Commitments and Contingencies in our notes to the unaudited condensed consolidated financial statements for further details.

The costs associated with the COVID-19 pandemic primarily relate to incremental labor-related costs to prepare, staff and operate the parks with enhanced safety measures, incremental third-party consulting costs primarily related to our COVID-19 response and safety communication strategies, contract termination or modification costs related to impacts from the temporary COVID-19 park closures, legal costs related to COVID-19 related matters, and temporary or initial purchases of safety monitoring and personal protective equipment.

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

The Senior Secured Credit Facilities permits the calculation of certain covenants to be based on Adjusted EBITDA, as defined above, for the last twelve month period further adjusted for net annualized estimated savings we expect to realize over the following 18 month period related to certain specified actions, including restructurings and cost savings initiatives.

These estimated savings are calculated net of the amount of actual benefits realized during such period.

These estimated savings are a non-GAAP Adjusted EBITDA add-back item only as defined in the Amended Credit Agreement and does not impact the Company’s reported GAAP net (loss) income.

These estimated savings are a non-GAAP Adjusted EBITDA add-back item only as defined in the Amended Credit Agreement and does not impact our reported GAAP net (loss) income.

The Amended Credit Agreement limits the amount of such estimated savings which may be reflected to 25% of Adjusted EBITDA, calculated for the last twelve months before the impact of these estimated cost savings.

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

Contractual Obligations

There have been no material changes to our contractual obligations from those previously disclosed in our Annual Report on Form 10-K other than long-term debt and interest obligations pursuant to our Senior Notes offering, Second-Priority Senior Notes offering, and Amendment No.

10 to our Amended Credit Agreement.

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

and $727,500.

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

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.

Critical Accounting Policies

There have been no material changes to our contractual obligations as March 31, 2021 from those previously disclosed in our Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, revenues and expenses, and disclosure of contingencies during the reporting period.

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Actual results could differ from those estimates.

The critical accounting estimates associated with these policies are described in our Annual Report on Form 10-K under “ Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These critical accounting policies include impairment of long-lived assets, goodwill and other indefinite-lived intangible assets, accounting for income taxes, self-insurance reserves, and revenue recognition.

There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our Annual Report on Form 10-K, filed on February 27, 2020, except as noted below.

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

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

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

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

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

Given the current macroeconomic environment related to the global COVID-19 pandemic and the uncertainties regarding the related impact on financial performance, there can be no assurance that the estimates and assumptions made for purposes of the interim impairment assessments will prove to be accurate predictions of the future.

If our assumptions, as well as the economic outlook are not achieved, we may be required to record impairment charges in future periods, whether in connection with the our next annual impairment testing, or on an interim basis, if any such change constitutes a triggering event outside of the quarter when we regularly performs our annual impairment test.

It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.

The critical accounting estimates associated with these policies are described in our Annual Report on Form 10-K under “ Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our Annual Report on Form 10-K, filed on February 26, 2021 .

Off-Balance Sheet Arrangements

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

We had no material off-balance sheet arrangements as of March 31, 2021.

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