2016
ANNUAL REPORT
April 24, 2017
To Our Shareholders,
2016 was a pivotal year in SeaWorld Entertainment’s history as we executed and aligned our ambassadors towards
achievement of the Five-Point Plan I introduced in late 2015. As a reminder, the plan, which was approved by our Board,
consists of:
1. Address our challenges; 2. Reposition the SeaWorld brand from being known for animal entertainment to creating
“Experiences that Matter”; 3. Deliver distinct guest experiences that are fun and meaningful and deliver on our new
brand positioning; 4. Pursue organic and strategic revenue growth; and 5. Enhance financial discipline.
In March of 2016, we addressed our challenges and transitioned toward our new mission and brand positioning with
three major initiatives: ending orca breeding, transitioning to more natural and educational orca presentations, and
partnering with the Humane Society of the United States on animal welfare and rescue efforts.
This decision to fundamentally reposition the company enabled us to intensify our focus on the execution of our Five-
Point Plan, zeroing in on areas of the business that we believe will help us return to growth and increase value for our
shareholders. In fact, we were able to deliver results in every element of our plan.
Creating fun and meaningful guest experiences is the cornerstone of attracting guests to our parks, and we believe
the line-up of innovative new rides and attractions we’re introducing in 2017 is one of the most exciting in our history.
These are expected to complement the strong attractions we added in 2016, including our award-winning Mako roller
coaster at SeaWorld Orlando.
Another key component of our plan is pursuing both organic and strategic revenue growth. To drive organic growth,
we are working with leading consultants to enhance our pricing capabilities and ensure we are capitalizing on what we
believe are meaningful revenue opportunities. We are also developing a revenue management and pricing function
within our organization in an effort to increase our total revenue per-capita.
To advance our international growth strategy, in December of 2016 we announced a partnership with Miral to develop a
next generation marine life themed park experience in Abu Dhabi and the United Arab Emirate’s first dedicated marine
life research, rescue, rehabilitation, and return center. This capital-light initiative will be SeaWorld’s first international
expansion and the first park without orcas, which illustrates the strength and value of the SeaWorld brand worldwide.
We are also enhancing financial discipline across the organization. In the fourth quarter of 2016, we initiated a highly
focused comprehensive cost optimization program. The program is targeted to achieve $40 million in net savings by the
end of 2018.
In addition to our Five-Point Plan, we have taken proactive steps to ensure best-in-class corporate governance
practices. We added two new highly qualified independent directors to the Board last year, both with extensive theme
park and entertainment experience; have begun to phase out the classified board structure; adopted a majority voting
standard for uncontested director elections; and, for 2017, established compensation plans which emphasize longer
term performance-based compensation, including return on invested capital as a key metric, and provides a balanced
scorecard of performance metrics.
All of these changes are aimed at ensuring better alignment between the Board, management, and you, our
shareholders. Additionally, we expanded our shareholder outreach and engagement efforts over the past year,
including the involvement of our Board members, which has further opened the channels of communication and has
already given us a better understanding of our shareholders’ views.
At the end of “year one”, we are making solid progress on our three-year Five-Point Plan. We see significant opportunity
ahead, as we continue to build on the history of our iconic brands and aim to deliver attractive value for our shareholders
over the long-term. I personally want to thank all of our investors for their commitment and belief in our vision and our
plan. I also want to thank all of our ambassadors who come to work every day to create “experiences that matter” and to
inspire our guests to protect animals and the wild wonders of our world.
Thank you for your continued support.
Sincerely,
Joel K. Manby,
President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:95)(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
or
(cid:134)(cid:134) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-35883
SeaWorld Entertainment, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
27-1220297
(I.R.S. Employer
Identification No.)
9205 South Park Center Loop, Suite 400
Orlando, Florida 32819
(Address of principal executive offices)(Zip Code)
(407) 226-5011
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:59) No (cid:134)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:134) No (cid:59)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (cid:59) No (cid:134)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes (cid:59) No (cid:134)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. (cid:59)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exch
ange Act.
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ff
Large accelerated filer
(cid:59)
Accelerated filer
(cid:134)
(cid:134) (Do not check if a smaller reporting company)
Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:134) No (cid:59)
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2016, the last business
day of the registrant’s most recently completed second fiscal quarter, was $969,166,737 based upon the closing price of the registrant’s common
stock, par value $0.01 per share, reported for such date on the New York Stock Exchange. For purposes of this computation, shares of the
registrant’s common stock held by each executive officer and director and each person known to the registrant to own 10% or more of the
outstanding voting power of the registrant have been excluded since such persons may be deemed to be affiliates. This determination of affiliate
status is not a determination for other purposes.
The registrant had outstanding 88,835,076 shares of Common Stock, par value $0.01 per share as of February 21, 2017.
Smaller reporting company (cid:134)
aa
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission relating to the 2017 Annual Meeting
of Stockholders, which statement will be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this
Annual Report on Form 10-K, are incorporated by reference into Part III of this report.
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2016
TABLE OF CONTENTS
Page No.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS .........................................................................
PART I.
Item 1.
Business ......................................................................................................................................................................
Item 1A.
Risk Factors .................................................................................................................................................................
Item 1B.
Unresolved Staff Comments .......................................................................................................................................
Item 2.
Properties ....................................................................................................................................................................
Item 3.
Legal Proceedings .......................................................................................................................................................
Item 4.
Mine Safety Disclosures .....................................................................................................................
PART II.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ..
Item 6.
Selected Financial Data ...............................................................................................................................................
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ......................................
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk ....................................................................................
Item 8.
Financial Statements and Supplementary Data ...........................................................................................................
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure .....................................
Item 9A.
Controls and Procedures ..............................................................................................................................................
Item 9B.
Other Information ........................................................................................................................................................
PART III.
Item 10.
Directors, Executive Officers and Corporate Governance ..........................................................................................
Item 11.
Executive Compensation .............................................................................................................................................
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ....................
Item 13.
Certain Relationships and Related Transactions, and Director Independence ............................................................
Item 14.
Principal Accountant Fees and Services......................................................................................................................
PART IV.
Item 15.
Exhibits and Financial Statement Schedules ...............................................................................................................
Item 16.
Form 10-K Summary ..................................................................................................................................................
Signatures .....................................................................................................................................................................................
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Unless otherwise noted or the context otherwise requires, (i) references to the “Company,” “SeaWorld,” “we,” “our” or “us”
in this Annual Report on Form 10-K refer to SeaWorld Entertainment, Inc. and its consolidated subsidiaries, (ii) references to
“Blackstone” refer to certain investment funds affiliated with The Blackstone Group L.P., (iii) references to the “Partnerships
” refer,
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collectively, as applicable, to ten limited partnerships owned by affiliates of Blackstone and certain co-investors: SW Delaware L.P.,
SW Delaware A L.P., SW Delaware B L.P., SW Delaware C L.P., SW Delaware D L.P., SW Delaware E L.P., SW Delaware F L.P.
(f/k/a SW Cayman F L.P.), SW Delaware Co-Invest L.P. (f/k/a SW Cayman Co-Invest L.P.), SW Delaware (GS) L.P. and SW Delaware
(GSO) L.P. provided that, as of August 25, 2014, SW Delaware (GS) L.P. no longer owned shares of the Company’s common stock,
(iv) references to “ABI” refer to Anheuser-Busch, Incorporated, (v) references to “guests” refer to our theme park visitors, (vi)
references to “customers” refer to any consumer of our products and services, including guests of our theme parks, (vii) references to
the “TEA/AECOM Report” refer to the 2015 Theme Index: The Global Attractions Attendance Report, TEA/AECOM, 2016, (viii)
references to the “2016 Amusement Today Annual Survey” or the “Amusement Today 2016 Golden Ticket Awards” refer to the
Amusement Today 2016 Golden Ticket Awards, Vol. 20, issue 6.2 dated September 2016 and (ix) references to the “IBISWorld
Report” refer to the IBISWorld Industry Report 71311: Amusement Parks in the US dated April 2016. Unless otherwise noted,
attendance rankings included in this Annual Report on Form 10-K are based on the TEA/AECOM Report and theme park industry
statistics are based on the IBISWorld Report.
e
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report on Form 10-K may contain “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. All statements, other
than statements of historical facts, including statements concerning our plans, objectives, goals, beliefs, business strategies, future
events, business conditions, our results of operations, financial position and our business outlook, business trends and other
information, may be forward-looking statements. Words such as “might,” “will,” “may,” “should,” “estimates,” “expects,”
“continues,” “contemplates,” “anticipates,” “projects,” “plans,” “potential,” “predicts,” “intends,” “believes,” “forecasts,” “future,”
“targeted” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-
looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, a
nd various
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assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates and
projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that
management’s expectations, beliefs, estimates and projections will result or be achieved and actual results may vary materially from
what is expressed in or indicated by the forward-looking statements.
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There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause
our actual results to differ materially from the forward-looking statements contained in this Annual Report on Form 10-K. Such risks,
uncertainties and other important factors that could cause actual results to differ materially include, among others, the risks,
uncertainties and factors set forth under “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K, including the
following:
(cid:120) complex federal and state regulations governing the treatment of animals, which can change, and claims and lawsuits by activist
groups;
(cid:120) various factors beyond our control adversely affecting attendance and guest spending at our theme parks, including the potential
spread of travel-related health concerns including pandemics and epidemics such as Ebola, Zika, Influenza H1N1, avian bird flu,
SARS and MERS;
(cid:120) incidents or adverse publicity concerning our theme parks;
(cid:120) a decline in discretionary consumer spending or consumer confidence;
(cid:120) significant portion of revenues generated in the States of Florida, California and Virginia and the Orlando market, and any risks
affecting such markets, such as natural disasters, severe weather and travel-related disruptions or incidents;
(cid:120) seasonal fluctuations;
(cid:120) inability to compete effectively in the highly competitive theme park industry;
(cid:120) interactions between animals and our employees and our guests at attractions at our theme parks;
(cid:120) animal exposure to infectious disease;
(cid:120) high fixed cost structure of theme park operations;
(cid:120) changing consumer tastes and preferences;
(cid:120) cyber security risks and failure to maintain the integrity of internal or guest data;
1
(cid:120) increased labor costs and employee health and welfare benefits;
(cid:120) inability to grow our business or fund theme park capital expenditures;
(cid:120) adverse litigation judgments or settlements;
(cid:120) inability to protect our intellectual property or the infringement on intellectual property rights of others;
(cid:120) the loss of licenses and permits required to exhibit animals or the violation of laws and regulations;
(cid:120) loss of key personnel;
(cid:120) unionization activities or labor disputes;
(cid:120) inability to meet workforce needs;
(cid:120) inability to maintain certain commercial licenses;
(cid:120) restrictions in our debt agreements limiting flexibility in operating our business;
(cid:120) our substantial leverage;
(cid:120) inability to realize the benefits of acquisitions or other strategic initiatives;
(cid:120) inadequate insurance coverage;
(cid:120) inability to purchase or contract with third party manufacturers for rides and attractions;
(cid:120) environmental regulations, expenditures and liabilities;
(cid:120) suspension or termination of any of our business licenses;
(cid:120) delays or restrictions in obtaining permits;
(cid:120) policies of the recently elected U.S. president and his administration;
(cid:120) actions of activist stockholders;
(cid:120) the ability of affiliates of The Blackstone Group L.P to significantly influence our decisions;
(cid:120) changes or declines in our stock price, as well as the risk that securities analysts could downgrade our stock or our sector; andaa
(cid:120) risks associated with our capital allocation plans and share repurchases, including the risk that our share repurchase program
could increase volatility and fail to enhance stockholder value.
We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and
other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that
we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the
way expected. There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or
the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is
complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in part on this analysis, will be successful. All
forward-looking statements in this Annual Report on Form 10-K apply only as of the date of this Annual Report on Form 10-K or as
the date they were made and, except as required by applicable law, we undertake no obligation to update any forward-looking
statement, whether as a result of new information, future developments or otherwise.
Trademarks, Service Marks and Trade names
We own or have rights to use a number of registered and common law trademarks, service marks and trade names in connection
with our business in the United States and in certain foreign jurisdictions, including SeaWorld Entertainment, SeaWorld Parks &
Entertainment, SeaWorld®, Shamu®, Busch Gardens®, Aquatica®, Discovery Cove®, Sea Rescue® and other names and marks that
identify our theme parks, characters, rides, attractions and other businesses. In addition, we have certain rights to use Sesame Street®
marks, characters and related indicia through certain license agreements with Sesame Workshop (f/k/a Children’s Television
Workshop).
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Solely for convenience, the trademarks, service marks, and trade names referred to hereafter in this Annual Report on Form 10-
K are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest
extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks, and trade names.
This Annual Report on Form 10-K may contain additional trademarks, service marks and trade names of others, which are the
property of their respective owners. All trademarks, service marks and trade names appearing in this Annual Report on Form 10-K
are, to our knowledge, the property of their respective owners.
2
PART I.
Item 1. Business
Company Overview
We are a leading theme park and entertainment company providing experiences that matter and inspiring guests to protect
animals and the wild wonders of our world. We own or license a portfolio of recognized brands including SeaWorld, Busch Gardens
and Sea Rescue. Over our more than 50 year history, we have built a diversified portfolio of 12 destination and regional theme parks
heme
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that are grouped in key markets across the United States, many of which showcase our one-of-a-kind zoological collection. Our t
parks feature a diverse array of rides, shows and other attractions with broad demographic appeal which deliver memorable
experiences and a strong value proposition for our guests.
During the year ended December 31, 2016, we hosted approximately 22.0 million guests in our theme parks, including
approximately 2.9 million international guests. In the year ended December 31, 2016, we had total revenues of $1.34 billion and
generated a net loss of $12.5 million.
We generate revenue primarily from selling admission to our theme parks and from purchases of food, merchandise and other
spending. For the year ended December 31, 2016, theme park admissions accounted for approximately 61% of our total revenue, and
food, merchandise and other revenue accounted for approximately 39% of our total revenue. Over the same period of time, we
reported $37.17 in admission per capita (calculated as admissions revenue divided by total attendance) and $23.93 in-park per capita
spending (calculated as food, merchandise and other revenue divided by total attendance).
In November 2015, we communicated our roadmap to stabilize our business to drive sustainable growth. This strategic plan
encompasses five key points which include (i) providing experiences that matter; (ii) delivering distinct guest experiences that are fun
and meaningful; (iii) pursuing organic and strategic revenue growth; (iv) addressing the challenges we face; and (v) financial
discipline. The plan is intended to build on our strong business fundamentals by evolving the guest experience to align with consumer
preferences for experiences that matter. Through family entertainment and distinct experiences and attractions, we provide our guests
an opportunity to explore and learn more about the natural world and the plight of animals in the wild, to be inspired and to act to
make a better world. The plan includes a new approach to in-park activities as well as “turning parks inside out” by taking our guests
behind the scenes to provide a better understanding of our veterinary care and animal rescue operations. Other elements of the plan
include implementing a simplified pricing model, targeted capital investments in new attractions across our parks, and an ongoing
focus on cost control as part of a larger commitment to overall financial discipline. Additionally, we announced a new resort strategy
that will include evaluating opportunities which could include purchasing or developing resort properties in or near some of our parks.
We also recently announced our partnership with Miral Asset Management LLC to develop SeaWorld Abu Dhabi (see the
“
“International Development Strategy”
section which follows).
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On March 17, 2016, we announced that we have ended all orca breeding and the orcas currently in our care will be the last
generation of orcas at SeaWorld (the “Orca Announcement”). We also announced that we will introduce new, inspiring, natural orca
and
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encounters and phase out our current theatrical shows, as part of our ongoing commitment to education, marine science research,
rescue of marine animals. These programs will focus on orca enrichment, exercise, and overall health. This change will start in our
SeaWorld San Diego park in 2017, and will be at all three SeaWorld parks by 2019. In conjunction with the Orca Announcement, the
orca habitat expansion we previously disclosed (the “Blue World Project”), as originally designed and planned, will not move forward
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and we will spend significantly less capital than the originally proposed Blue World Project. The “new” SeaWorld will maintain our
unique value proposition of providing experiences that matter and inspiring guests to protect animals and the wild wonders of our
world. We have implemented an integrated marketing plan designed to attract new and repeat guests to the “new” SeaWorld with its
unique blend of compelling animal experiences and new rides and attractions for the whole family. See the “Capital Improvements”
section which follows for a discussion of new rides and attractions.
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As one of the world’s foremost zoological organizations and a global leader in animal welfare, training, husbandry, veterinary
care and marine animal rescue, we are committed to helping protect and preserve the environment and the natural world. For more
information, see the “—Our Animals” and “—Philanthropy and Community Relations” sections included elsewhere in this Annual
Report on Form 10-K.
Recent Developments
Potential Debt Refinancing Transaction
We are currently exploring a potential refinancing of our existing senior secured credit facilities in order to improve our capital
structure by extending maturities and improving certain other terms of our debt. The debt refinancing will be subject to
certain customary closing conditions and there can be no assurance that we will be successful in completing the refinancing on any
particular terms or at all.
3
Restructuring Program
On December 6, 2016, we committed to and implemented a restructuring program in an effort to reduce costs, increase
efficiencies, reduce duplication of functions and improve the Company’s operations (the “2016 Restructuring Program”). The 2016
Restructuring Program is part of our previously announced comprehensive cost optimization program that is expected to reduce costs
by approximately $65.0 million, with a targeted $40.0 million in net savings by the end of 2018. The 2016 Restructuring Program
involved the elimination of approximately 320 positions by the end of the fourth quarter of fiscal year 2016 across our twelve theme
parks and our headquarters. As a result, we recorded approximately $8.9 million in pre-tax restructuring charges in the fourth quarter
of 2016 related to severance and other related expenses incurred in connection with the 2016 Restructuring Program. See Note 4–
Restructuring Programs and Separation Costs to our consolidated financial statements included elsewhere in this Annual Report on
Form 10-K.
International Development Strategy
We believe that in addition to the growth potential that exists domestically, our brands can also have significant appeal in certain
international markets. We assess these opportunities while maintaining a conservative and disciplined approach towards the execution
of our international development strategy. We have identified certain international market priorities as well as identified certain
international partners within such markets for prioritization of our resources. The market priorities were developed based on a specific
set of criteria to ensure we expand our brands into the most attractive markets.
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On December 13, 2016, we announced our partnership with Miral Asset Management LLC to develop SeaWorld Abu Dhabi, a
first-of-its-kind marine life themed park on Yas Island (the “Middle East Project”). As part of this partnership, we are providing
certain services pertaining to the planning and design of the Middle East Project, with funding received from our partner in the Middle
East expected to offset our internal expenses. As of December 31, 2016, we have received a nonrefundable payment of $10.0 million
from our partner in consideration of the design and planning services described above which is recorded as deferred revenue in other
liabilities and have incurred approximately $2.8 million of deferred costs which is recorded in other assets on the accompanying
consolidated balance sheet as of December 31, 2016. On November 3, 2016, the definitive documents related to the Middle East
Project were finalized and executed by the parties.
This next generation SeaWorld Abu Dhabi will also introduce the United Arab Emirates’ (“UAE”) first dedicated marine life
research, rescue rehabilitation and return center with world-class facilities and resources for the care and conservation of local marine
life. Planned to open ahead of the marine life themed park, the facility will provide an important resource for UAE nationals and
residents looking to develop or enhance expertise in marine life sciences and will serve as a hub for collaboration with local and
international environmental organizations and projects.
SeaWorld Abu Dhabi will be the first new SeaWorld without orcas, and will integrate up-close animal experiences, mega
attractions and a world class aquarium, bringing the latest technology in visitor engagement. SeaWorld Abu Dhabi is expected to
open by 2022. The Middle East Project is subject to various conditions, including, but not limited to, the parties completing the design
development and there is no assurance that the Middle East Project will be completed or advance to the next stage.
For a discussion of certain risks associated with our international development strategy, including the Middle East Project, see
“Risk Factors” included elsewhere in this Annual Report on Form 10-K, including “Risks Related to Our Business and Our Industry—yy
We may not realize the benefits of acquisitions or other strategic initiatives.”
Dividend Policy
In September 2016, our Board of Directors (the “Board”) suspended the Company’s quarterly dividend to allow the Company
greater flexibility to deploy capital, when possible, to opportunities that offer the greatest long term returns to shareholders, such as,
but not limited to, investments in new attractions, debt repayments or share repurchases. Future dividends, if any, and the timing of
declaration of any such dividends, will be at the discretion of the Board and will depend upon, among other things, the Company’s
financial condition, capital needs, covenants, economic conditions and other factors that the Board may deem relevant.
Other Matters
In March 2016, we converted Aquatica San Antonio into a stand-alone, separate admission park that guests can access through
an independent gate without the need to purchase admission to SeaWorld San Antonio. Prior to 2016, Aquatica San Antonio was only
accessible to SeaWorld San Antonio guests for an additional fee. This separate gate has provided incremental attendance; however, we
have also seen a shift in guests from SeaWorld San Antonio to Aquatica San Antonio. Total combined attendance at our Texas park
locations increased by approximately 330,000 guests in 2016 when compared to 2015.
4
On February 22, 2016, the Board declared a cash dividend of $0.21 per share to all common stockholders of record at the close
of business on March 14, 2016, which was paid on April 1, 2016. Based on this dividend payment, certain performance-vesting
restricted shares originally granted on or before our initial public offering in 2013 (the “2.25x Performance Restricted shares”) held by
some of our equity plan participants vested on April 1, 2016. During the year ended December 31, 2016, we recognized $27.5 million
of total equity compensation expense (recorded in selling, general and administrative expenses and in operating expenses) and
recorded approximately $3.4 million of accumulated dividends related to these 2.25x Performance Restricted shares. See Note 18–
Equity-Based Compensation in our notes to the consolidated financial statements included elsewhere in this Annual Report on Form
10-K.
During the first quarter of 2016, we removed deep-water lifting floors from the orca habitats at each of our three SeaWorld-
branded theme parks. The deep-water lifting floors were intended as another safety tool for conducting in-water training in the deeper
pools. The lifting floors located in the medical pools, where our orca in-water training currently takes place, were not affected. That
training will continue as an essential part of our overall safety program. Having safely and successfully conducted in-water training in
the medical pools for almost 4 years, our safety and zoological professionals determined that the deep-water lifting floors in the deeper
pools were no longer needed. This change provides more space for the animals, and increases the time that the deep-water pool is
available by eliminating downtime for maintenance and cleaning. As a result, during the first quarter of 2016, we recorded $33.7
million of accelerated depreciation related to the disposal of these lifting floors, which is included in depreciation and amortization
expense in the accompanying consolidated statements of comprehensive (loss) income during the year ended December 31, 2016.
During the year ended December 31, 2016, we also recorded approximately $6.4 million in asset write-offs associated with the
canceled Blue World Project.
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Regulatory Developments
On July 16, 2015, Senator Dianne Feinstein (D-CA) offered an amendment to the Fiscal Year 2016 Agriculture, Rural
Development, Food and Drug Administration, and Related Agencies spending bill during consideration of the bill by the full
Committee on Appropriations. The amendment directed the U.S. Department of Agriculture’s Animal and Plant Health Inspection
Service (“APHIS”) to issue updated regulations for the display of marine mammals in domestic zoos and aquaria within six months of
enactment. While that amendment was not included in the final Fiscal Year 2016 Omnibus Appropriations Bill, APHIS released a
proposed rule on February 3, 2016 to amend the Animal Welfare Act regulations concerning the humane handling, care and treatment
of marine mammals in captivity (the “Proposed APHIS Regulations”). The Proposed APHIS Regulations were subject to public
comment which ended on May 4, 2016. We submitted a comment letter to APHIS on the final date for comments, expressing our
views on the Proposed APHIS Regulations. The full impact of the Proposed APHIS Regulations on our business will not be known
until the Proposed APHIS Regulations are finalized.
On October 8, 2015, the California Coastal Commission approved our plan to build a new killer whale habitat (the “Blue World
Project”) in San Diego. On October 8, 2015, the California Coastal Commission approved the Blue World Project in San Diego, but
attached certain conditions to its approval. Those conditions included, among other things, a prohibition against breeding orcas or
transporting orcas to or from the habitat. On December 29, 2015, we filed a lawsuit against the California Coastal Commission on the
grounds that the California Coastal Commission decision was outside the scope of its authority in imposing such conditions because it
does not have jurisdiction over orcas, which are regulated under federal law. As a result of the Orca Announcement, on April 18,
2016, we sent a letter to the California Coastal Commission requesting to formally withdraw our coastal development permit
application for the Blue World Project habitat and discuss dismissal of the pending litigation since our legal challenge to the proposed
conditions is no longer warranted. On July 27, 2016, we filed a request for dismissal to dismiss our lawsuit against the California
Coastal Commission. On October 17, 2016, we sent a letter to the California Coastal Commission objecting to the approval of the
proposed revised findings for the Blue World Project. We stated that the adoption of revised findings was not warranted or needed
because of the Orca Announcement and recent changes in California law. On November 4, 2016 the California Coastal Commission
voted in the affirmative to reverse findings on the Blue World Project.
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On November 16, 2015, Representative Adam Schiff (D-CA) introduced the Orca Responsibility and Care Advancement Act
(the “ORCA Act”). The bill has been referred to the Natural Resources and Agriculture Committees. It is unclear whether this bill will
be enacted into law, but if enacted, this bill would amend the Marine Mammal Protection Act of 1972 and the Animal Welfare Act to
prohibit the breeding, the taking (wild capture), and the import or export of orcas for the purposes of public display.
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On August 26, 2016, following the Orca Announcement, the California Orca Protection Act was enacted into law and (i)
codified the end of captive breeding programs and the export and import of genetic materials for orcas in California, (ii) prohibits the
import or export of new orcas into or out of California, (iii) permits the transfer of orcas currently in California among existing
SeaWorld facilities and (iv) requires educational presentations of orcas in California. As discussed above, the new orca programs we
are developing will be consistent with these standards and begin in our San Diego park in 2017 with our other SeaWorld parks
following by 2019. On November 4, 2016, the California Coastal Commission granted approval to permit the renovation of the
existing backdrop at the orca habitat at our San Diego park. This approval allows us to continue to develop our new orca program in
our San Diego park.
For a discussion of certain risks associated with federal and state regulations governing the treatment of animals, see “Risk
Factors” included elsewhere in this Annual Report on Form 10-K, including “Risks Related to Our Business and Our Industry—We
are subject to complex federal and state regulations governing the treatment of animals, which can change, and to claims and lawsuits
by activist groups before government regulators and in the courts.”
On February 8, 2016, the San Diego City Council decided to put a proposal on the June 7, 2016 primary ballot for voters to
decide whether the city of San Diego should have a higher minimum wage than the $10 per hour required by the State of California.
The proposal was approved by San Diego voters and, beginning on July 11, 2016, the city’s minimum wage was increased to $10.50
and, beginning on January 1, 2017, was increased again to $11.50. Two years later in January 2019, annual increases to the San Diego
minimum wage as well as the State of California minimum wage based on the consumer price index will start to be implemented. For
a discussion of certain risks associated with the San Diego minimum wage and State of California minimum wage increases, see “Risk
Factors” included elsewhere in this Annual Report on Form 10-K, including “Risks Related to Our Business and Our Industry—
Increased labor costs and employee health and welfare benefits may negatively impact our operations.”
Our Competitive Strengths
(cid:120) Brands That Consumers Know and Love. We believe our brands attract and appeal to guests from around the world. We use
our brands and intellectual property and the work we do to care for animals to increase awareness of our theme parks, drive
attendance to our theme parks and create “out-of-park” experiences for our guests as a way to connect with them before they
visit our theme parks and to stay connected with them after their visit. Such experiences include various media and consumer
product offerings, including websites, advertisements and media programming, toys, books, apparel and technology accessories.
For example, we have developed iPhone and Android smartphone applications for our SeaWorld, Busch Gardens and Sesame
Place theme parks, which offer GPS navigation through the theme parks and interactive theme park maps that show the nearest
dining locations, gift shops and ATMs and provide real-time updates on wait times for rides.
We have also leveraged our brands into media, entertainment and consumer products. We produce two educational and
entertaining television shows that highlight our rescue and rehabilitation and animal care efforts, Sea Rescue and The Wildlife
Docs. In 2016, both Sea Rescue and The Wildlife Docs were nominated for the Daytime Emmy® Award in the category of
Outstanding Children’s Series by the National Academy of Television Arts & Sciences. In 2016, Sea Rescue won the Daytime
Emmy Award for Outstanding Children’s Series. In 2015, both Sea Rescue and The Wildlife Docs were each presented with a
silver honor from the Parents' Choice Award®, a nonprofit program created to recognize quality children’s media. Sea Rescue is
a Saturday morning television show airing on the ABC Network featuring our ongoing work to rescue injured animals in
coordination with various government agencies and other rescue organizations. The Wildlife Docs, which also airs on the ABC
Network on Saturday mornings, centers on the day-to-day activities at our Animal Care Center at Busch Gardens Tampa.
(cid:120) Differentiated Theme Parks. We own and operate 12 theme parks, including four of the top 20 theme parks and three of the
top 10 water parks in North America as measured by attendance, according to the TEA/AECOM Report. Our theme parks are
beautifully themed and deliver high-quality entertainment, aesthetic appeal, shopping and dining and have won numerous
awards, including the Amusement Today Golden Ticket Award for Best Landscaping. Our theme parks feature six of the 50
highest rated steel roller coasters in the world, led by Apollo’s Chariot, the #6 rated steel roller coaster in the world according to
the 2016 Amusement Today Annual Survey, and have won the top three spots in the
Award for Best Marine Life Park since the award’s inception in 2006 through 2016. In fact, in 2016, we had four of our theme
parks in the top five spots for Best Marine Life Park and in 2015, we won the top four spots. We have over 600 attractions that
appeal to guests of all ages, including 91 animal habitats, 117 shows and 197 rides. In addition, we have over 400 restaurants,
photo and specialty retail shops. Our theme parks appeal to the entire family and offer a broad range of experiences, ranging
from emotional and educational animal encounters to thrilling rides and exciting shows. As a result of these distinctive
offerings, our guest surveys routinely report very high “Overall Satisfaction” scores, with 96% of respondents in 2016 ranking
their experience good or excellent.
Amusement Today annual Golden Ticket
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(cid:120) Diversified Business Portfolio. Our portfolio of theme parks is diversified in a number of important respects. Our theme parks
are located in geographic clusters across the United States, which helps protect us from the impact of localized events. Each
theme park showcases a different mix of zoological, thrill-oriented and family friendly attractions. This varied portfolio of
entertainment offerings attracts guests from a broad range of demographics and geographies. Our theme parks appeal to both
regional and destination guests, which provide us with a diversified attendance base while allowing us to benefit from
improvements in macroeconomic conditions, including increased consumer spending and international travel.
(cid:120) One of the World’s Largest Zoological Collections. We believe we are attractively positioned in the industry due to our
ability to present our animals in a differentiated and interactive manner. We believe we have one of the world’s largest
zoological collections. We have the largest group of killer whales, also known as orcas, in human care. We have not collected a
killer whale from the wild in almost 40 years. More than 80% of our marine mammals were born in human care.
(cid:120) Strong Competitive Position. Our competitive position is enhanced by the combination of our powerful brands, extensive
zoological collection and expertise and attractive in-park assets located on valuable real estate. Our zoological collection and
expertise, which have evolved over our more than five decades of caring for animals, would be very difficult and expensive to
replicate. We have made extensive investments in new attractions and infrastructure and we believe that our theme parks are
well capitalized (see the “Capital Improvements” section which follows for a discussion of new rides and attractions). The
limited supply of real estate suitable for theme park development coupled with high initial capital investment, long development nn
lead-times and zoning and other land use restrictions constrain the number of large theme parks that can be constructed.
(cid:120) Proven and Experienced Management Team and Employees with Specialized Animal Expertise. Our senior management
team, led by Joel Manby, our President and Chief Executive Officer, includes some of the most experienced theme park
executives in the world, with an average tenure of approximately 19 years in the industry, as of December 31, 2016. The
management team is comprised of highly skilled and dedicated professionals with wide ranging experience in theme park
operations, zoological operations, product development, business development, marketing and finance. In addition, we are one
of the world’s foremost zoological organizations with more than 1,500 employees dedicated to animal welfare, training,
husbandry, veterinary care and marine animal rescue.
(cid:120) Proximity of Complementary Theme Parks. Our theme parks are grouped in key locations near large population centers
across the United States, which allows us to realize revenue and operating expense efficiencies. Having complementary theme
parks located within close proximity to each other also enables us to cross market and offer bundled ticket and travel packages.
In addition, closely located theme parks provide operating efficiencies including sales, marketing, procurement and
administrative synergies as overhead expenses are shared among the theme parks within each region.
(cid:120) Strong Cash Flow Generation. Our disciplined approach to capital expenditures and working capital management enables us
to generate strong and recurring cash flow. Five of our 12 theme parks are open year-round, reducing our seasonal cash flow
volatility. In addition, we have substantial tax assets, and we expect such assets to be able to defer a significant portion of our
cash tax burden going forward.
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(cid:120) Care for Our Community and the Natural World. We are committed to the communities in which our theme parks are
located and focus our philanthropic efforts in three areas: animal preservation and stewardship; youth development and
education; and sustainable community initiatives that help address environmental sustainability concerns and local socio-
economic issues. Our theme parks inspire and educate children and guests of all ages through experiences that are fun and
meaningful. We also partner with charities across the country whose values and missions are aligned with our own by providing
financial support, in-kind resources, strategic guidance, and/or hands-on volunteer work. For example, we are the primary
supporter and corporate member of the SeaWorld & Busch Gardens Conservation Fund, a non-profit conservation foundation,
which makes grants to wildlife research and conservation projects that protect wildlife and wild places worldwide. In addition,
we operate one of the world’s most respected rescue programs for ill and injured marine animals, in collaboration with federal,
state and local governments, and other members of accredited stranding networks, among others, with the goal of rehabilitating
and returning them to the wild. For more than five decades, our animal experts have helped more than 29,000 ill, injured,
orphaned and abandoned animals. We are committed to rescue, research and education and invest millions annually in these
efforts. In 2014, the SeaWorld Animal Rescue Teams based in San Diego, Orlando and San Antonio were presented the
Amusement Today 2014 Persons of the Year Award for their tireless dedication to animal welfare.
Our Theme Parks
Our legacy started in 1959 with the opening of our first Busch Gardens theme park in Tampa, Florida. Since then, we have built
our portfolio of strong brands and have strategically expanded our portfolio of theme parks across five states on approximately 2,000
acres of owned land and 190 acres of leased land in San Diego. Our theme parks offer guests a variety of exhilarating experiences,
from animal encounters that invite exploration and appreciation of the natural world, to thrilling rides and spectacular shows. Our
theme parks are beautifully themed venues that are consistently recognized among the top theme parks in the world and rank amon
the most highly attended in the industry.
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In 2015, SeaWorld Orlando ranked among the top 25 theme parks worldwide based on attendance, and Aquatica Orlando ranked
among the top 10 water parks worldwide based on attendance, according to the TEA/AECOM Report. In the 2016 Trip Advisor
Travelers’ ChoiceTM Awards, 8 of our theme parks were ranked among the top 25 amusement parks or water parks in the United
States. In addition, Discovery Cove was ranked the #2 amusement park in the world in the 2016 and 2015 Trip Advisor Travelers’
Choice Awards and was ranked the #1 amusement park in the world in the 2014 and 2013 Trip Advisor Travelers’ Choice Awards.
We generally locate our theme parks in geographic clusters, which improve our ability to serve guests by providing them with a
varied, comprehensive vacation experience and valuable multi-park pricing packages, as well as improving our operating efficien
through shared overhead costs. Our portfolio of branded theme parks includes the following names:
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(cid:120) SeaWorld. SeaWorld is widely recognized as the leading marine-life theme park brand in the world. Our SeaWorld theme parks
rank among the most highly attended theme parks in the industry and offer up-close interactive experiences, special dining
experiences, thrilling attractions and a variety of live performances that immerse guests in the marine-life theme. We also offer our
guests numerous animal encounters, including the opportunity to work with trainers and feed marine animals, as well as themed
thrill rides and theatrical shows that creatively incorporate our one-of-kind zoological collection. Collectively, our SeaWorld
theme parks have won the top three spots in the Amusement Today annual Golden Ticket Award for Best Marine Life Park since
the award’s inception in 2006 through 2014 and in 2016, and among the top four spots in 2015, with our Discovery Cove park
ranking #3. We currently own and operate the following SeaWorld branded theme parks:
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(cid:120) SeaWorld San Diego is the original SeaWorld theme park spanning 190 acres of waterfront property on Mission Bay in San
Diego, California. SeaWorld San Diego is open year-round and is one of the most visited paid attractions in San Diego.
Through its attraction, Explorer’s Reef, guests enter the park under a massive wave sculpture and encounter an underwater-
themed realm of animal attractions, buildings and shade structures. SeaWorld San Diego is also home to Manta, modeled on
the successful Manta ride in SeaWorld Orlando, which includes animal habitats featuring bat rays and other marine-life as
well as a launch roller coaster shaped like a giant manta ray.
(cid:120) SeaWorld Orlando is a 279 acre theme park in Orlando, Florida and is open year-round. It is our largest theme park as
measured by attendance and revenue. SeaWorld Orlando is home to the new Mako roller coaster which opened in 2016 and
ranked among the top 35 steel rollercoasters in the world and among the top 3 best new rides for 2016 according to the 2016
Amusement Today Annual Survey. Mako is the tallest, longest and fastest roller coaster in Orlando within a newly themed
shark realm with a focus on conservation and our partnership with Guy Harvey, the well-known marine wildlife artist.
SeaWorld Orlando is also home to the Journey to Atlantis water coaster ride, Kraken, a floorless roller coaster, and Manta, a
flying roller coaster, which integrates animals and a beautiful aquarium into its theme. SeaWorld Orlando is also home to
Antarctica: Empire of the Penguin, a realm within the park that immerses guests into a penguin habitat and TurtleTrek,
which includes two extensive naturalistic habitats, home to manatees and sea turtles, and a 3-D, 360-degree dome theater.
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(cid:120) SeaWorld San Antonio is one of the world’s largest marine-life theme parks, encompassing 397 acres in San Antonio, Texas.
In 2016, SeaWorld San Antonio opened Discovery Point, a new dolphin habitat and underwater viewing area which allows
guests an opportunity to interact and swim with the dolphins. SeaWorld San Antonio features thrilling roller coasters,
including the Steel Eel and The Great White, along with a collection of marine-themed shows and experiences.
(cid:120) Busch Gardens. Our Busch Gardens theme parks are family oriented destinations designed to immerse guests in foreign
geographic settings. They are renowned for their beauty and cleanliness with award-winning landscaping and gardens. Our Busch
Gardens theme parks allow our guests to discover the natural side of fun by offering a family experience featuring a variety of
attractions and roller coasters, exotic animals and high-energy theatrical productions that appeal to all ages. We currently own and
operate the following Busch Gardens theme parks:
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(cid:120)
Busch Gardens Tampa is open year-round and features exotic animals, thrill rides and shows on 306 acres of lush natural
landscape. The zoological collection is a popular attraction for families, and the portfolio of rides, including three of the
world’s top 50 steel rollercoasters according to the 2016 Amusement Today Annual Survey, broaden the theme park’s appeal
to teens and thrill seekers of all ages. In 2016, Busch Gardens Tampa opened Cobra’s Curse, a family-friendly spin coaster
featuring an elevator-like vertical lift and an 80-foot cobra icon. Busch Gardens Tampa is also home to Falcon’s Fury, the
tallest freestanding drop tower in North America, standing at 335 feet. The attraction rises more than 300 feet in the air and
then pivots guests 90 degrees to a face-down dive position before dropping to the ground. In 2016, Busch Gardens Tampa
was awarded the prestigious Liseberg Applause Award (the “Applause Award”) from the International Association of
Amusement Parks and Attractions (IAAPA). Since 1980, the Applause Award is presented by an international committee of
theme park and amusement industry professionals, honoring an amusement park “whose management, operations and
creative accomplishments have inspired the industry with their foresight, originality and sound business development.”
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(cid:120) Busch Gardens Williamsburg is regularly recognized as one of the highest quality theme parks in the world, capturing dozens
of awards over its history for attraction and show quality, design, landscaping, culinary operations and theming. This 422
acre theme park has been named the Most Beautiful Park in the World by the National Amusement Park Historical
Association for 26 consecutive years and has earned the Amusement Today Golden Ticket for Best Landscaping each year
since the category’s inception in 1998. It features some of the industry’s top thrill rides with two steel roller coasters,
Apollo’s Chariot and Alpengeist, ranked in the top 30 in the 2016 Amusement Today Annual Survey. Its newest steel roller
coaster, which opened in 2015, Tempesto, features three launch experiences and races riders into tight turns at 63 miles per
hour and a complete inversion 154 feet in the air.
(cid:120) Aquatica. Our Aquatica-branded water parks are premium, family oriented destinations in a South Seas-themed tropical setting.
Aquatica water parks build on the aquatic theme of our SeaWorld brand and feature high-energy rides, water attractions, white-
sand beaches and an innovative and entertaining presentation of marine and terrestrial animals. We position our Aquatica water
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parks as companions to our SeaWorld theme parks and currently own and operate the following Aquatica branded theme parks:
(cid:120) Aquatica Orlando is an 81 acre South Seas-themed water park adjacent to SeaWorld Orlando that is open year-round. In
2015, it was the third most attended water park in North America and the sixth most attended water park worldwide,
according to the TEA/AECOM Report. The water park features state-of-the-art attractions for guests of all ages and
swimming abilities, including some that pass by or through animal habitats, such as the signature Dolphin Plunge that carries
guests through a Commerson’s dolphin habitat. Aquatica Orlando is also home to Ihu’s Breakaway Falls, a multi-drop tower
slide, which provides guests a dramatic vertical plunge followed by a maze of curving tubes before final splashdown.
(cid:120) Aquatica San Antonio is an 18 acre water park located adjacent to SeaWorld San Antonio. This water park was converted
into a stand-alone, separate admission park in 2016 that guests can access through an independent gate without the need to
purchase admission to SeaWorld San Antonio. Prior to 2016, the water park was only accessible to SeaWorld San Antonio
guests for an additional fee. The water park features a variety of waterslides, rivers, lagoons, a large beach area and private
cabanas. The water park’s signature attraction, Stingray Falls, takes four-seat rafts down twists and turns to an underwater
grotto, where guests view stingrays and tropical fish. In addition, Walhalla Wave, a family raft ride, sends guests to the top of
a zero-gravity wall, giving riders the sense of weightlessness. Its newest attraction, Roa’s Aviary, features a 13,500 square
foot aviary giving guests the chance to float, wade or walk among hundreds of tropical birds. The aviary also contains a
guest pool and waterfalls.
(cid:120) Aquatica San Diego, a 66 acre water park, is located near our SeaWorld San Diego theme park and is the latest water park
added to our portfolio. The water park features Taumata Racer, a high-speed racing water ride that sends riders down a 375-
foot slide, around a 180-degree swooping turn, and in and out of tunnels before racing them across the finish line.
(cid:120) Discovery Cove. Located next to SeaWorld Orlando, Discovery Cove is a 58 acre, reservations only, all-inclusive marine life
theme park that is open year-round to guests and features premium culinary offerings. The theme park restricts its attendance to
approximately 1,300 guests per day in order to assure a more intimate experience. Discovery Cove provides guests with a full day
of activities, including a 30-minute dolphin swim session and the opportunity to snorkel with thousands of tropical fish, wade in a
lush lagoon with stingrays and hand-feed birds in a free flight aviary. In 2016, Discovery Cove was rated the #5 Best Marine Life
Park in the Amusement Today annual Golden Ticket Awards and #3 in 2015. Discovery Cove was also ranked the #2 amusement
park in the world in the 2016 and 2015 Trip Advisor Travelers’ Choice Awards and the #1 amusement park in the world in the
2014 and 2013 Trip Advisor Travelers’ Choice Awards. Discovery Cove’s attractions include Freshwater Oasis, which offers
wading adventures and face-to-face encounters with otters and marmosets and The Grand Reef, which, for an additional fee,
includes SeaVenture, an underwater walking tour where guests can get up close to exotic fish and sharks.
(cid:120) Sesame Place. Located on 55 acres between Philadelphia and New York City, Sesame Place is the only theme park in America
entirely dedicated to the award-winning television show, Sesame Street, and its spirit of imagination. The theme park shares
SeaWorld’s “education and learning through entertainment” philosophy and allows parents and children to experience Sesame
Street together through whirling rides, water slides, colorful shows and furry friends. Sesame Place’s newest realm, Cookie’s
Monster Land, features five new family-friendly rides, a 3-story net climb, and a soft play area for the park’s youngest visitors. In
addition, we have introduced Sesame Street brands in our other theme parks through Sesame Street-themed rides, shows, children’s
play areas and merchandise. Our rights to the Sesame Street brand in the United States extend through 2021.
(cid:120) Water Country USA. Located on 222 acres, Virginia’s largest family water park, Water Country USA, features state-of-the-art
water rides and attractions, all set to a 1950s and 1960s surf theme. Water Country USA is the sixth most attended water park in
North America according to the TEA/AECOM Report and features a 23,000 square-foot wave pool, a science fiction themed
interactive children’s play area, kid-sized water slides, live shows and several other attractions. One of its newest attractions is
Colossal Curl, an action packed family thrill ride that sends riders down a nearly 550 foot water slide.
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(cid:120) Adventure Island. Located adjacent to Busch Gardens Tampa, Adventure Island is a 56 acre water park that is filled with water
rides, dining and other attractions that incorporate a Key West theme. The theme park is the seventh most attended water park in
North America according to the TEA/AECOM Report and features a family-friendly wave pool and children’s water playground
that appeal to its core constituency, local families with young children. Its newest water slide, Colossal Curl, opened in 2015 and is
modeled after the Colossal Curl ride at Water Country USA.
The following table summarizes our theme park portfolio for 2016:
Location
Theme Park
Orlando, FL
Tampa, FL
San Diego, CA
San Antonio,
TX
Williamsburg,
VA
Langhorne, PA
Total(g)
Year
Opened
1973
2000
2008
1959
1980
1964
1996(e)
1988
2016(f)
1975
1984
1980
Animal
Habitats(a)
Rides(b)
Shows(c)
Other(d)
16
5
4
14
0
30
2
10
4
6
0
0
14
3
14
29
12
10
9
10
12
39
18
27
13
0
0
19
0
22
0
31
0
19
0
13
28
5
6
46
7
20
4
40
5
38
9
25
91
197
117
233
Represents animal habitats without a ride or show element, often adjacent to a similarly themed attraction.
(a)
(b) Represents mechanical dry rides, water rides and water slides (including wave pools and lazy rivers).
(c) Represents annual and seasonal shows with live entertainment, animals, characters and/or 3-D or 4-D experiences.
(d) Represents our 2016 portfolio for events, distinctive experiences and play areas, which collectively may include special limited
time events; distinctive experiences often limited to small groups and individuals and/or requiring a supplemental fee (such as
educational tours, immersive dining experiences and swimming with animals); and pure play areas, typically designed for
children or seasonal special events, often without a queue (such as water splash areas or Halloween mazes).
In 2012, we acquired the Knott’s Soak City Chula Vista water park in California from a subsidiary of Cedar Fair, L.P. This
water park was renovated, rebranded and relaunched as Aquatica San Diego in June 2013.
(e)
(f) In 2016, Aquatica San Antonio was converted into a stand-alone, separate admission park that guests can access through an
independent gate without the need to purchase admission to SeaWorld San Antonio.
(g) The total number of animal habitats, rides, shows, events, distinctive experiences and play areas in our theme park portfolio
varies seasonally.
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Capital Improvements
We make annual targeted investments to support our existing theme park facilities and attractions, as well as enable the
development of new theme park attractions and infrastructure. Maintaining and improving our theme parks, as well as opening new
attractions, is critical to remain competitive, grow revenue and increase our guests’ length of stay. Our theme parks feature a variety
of attractions for our guests. Some of the new attractions in 2016 included:
(cid:120) Mako (SeaWorld Orlando): The tallest, longest and fastest roller coaster in Orlando with a new shark-themed realm with a
focus on conservation and our partnership with Guy Harvey, the well-known marine wildlife artist.
(cid:120) Cobra’s Curse (Busch Gardens Tampa): A family-friendly spin coaster featuring an elevator-like vertical lift and an 80-foot
cobra icon.
(cid:120) Discovery Point (SeaWorld San Antonio): A new dolphin habitat and underwater viewing area which also allows guests an
opportunity to interact and swim with the dolphins.
During 2017, we plan to introduce an extensive lineup of new rides and attractions, including a virtual reality experience in
Orlando, a new realm and a new orca presentation in San Diego and new shows and events at many other park locations. We expect
2017 to be one of the largest new attraction years in our over 50 year history. Some of the new attractions planned for 2017 include:
(cid:120) Ocean Explorer (SeaWorld San Diego): A new 3-acre realm combining multiple aquariums, exciting rides and digital
technologies. The area is designed to engage park guests in an experience centered on exploration and adventure, inspiring
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them to protect the wonders of our oceans. The signature attraction for the realm, called Submarine Quest, will provide guests
with the opportunity to travel aboard submarines to see Ocean Explorer's remarkable undersea animals, including the giant
Pacific octopus, elusive moray eels and Japanese spider crabs that measure nine feet from claw to claw. Ocean Explorer will
also feature a play area and a number of other family-friendly rides, including jellies-themed swings and a shot-and-drop ride.
(cid:120) New Orca Encounter (SeaWorld San Diego): A new Orca Encounter is expected to be introduced in San Diego which will
inspire and educate guests about the majesty of these complex animals and reinforces our commitment to compelling
educational experiences. The new Orca Encounter will be based on orca behavior in the wild: what they eat, how they hunt,
how they navigate and how they communicate and play, helping guests gain a deeper appreciation and respect for the orcas and
empowering them a sense of determination and purpose to help preserve the future of these majestic animals. This new
encounter will look at broader themes such as research, rescue, conservation, habitats and distribution, husbandry and care, and
social structures. The new behavioral-based orca experience, will inspire as well as educate guests about the majesty of these
complex animals, and reinforces the Company's commitment to provide educational experiences.
(cid:120) Kraken Virtual Reality (“VR”) Roller Coaster (SeaWorld Orlando): VR technology will be introduced to our already popular
Kraken roller coaster. Our Kraken VR Roller Coaster will be our first digitally enhanced ride experience and the only virtual
reality coaster in Florida. Guests will embark on a deep sea mission alongside sea creatures inspired by extinct and legendary
animals of the past, including the mighty Kraken. A custom digital overlay with uniquely designed headsets, fully integrated
both mechanically and electronically into the coaster train, delivers a new one-of-a-kind adventure. The addition of VR to this
fan-favorite brings a new level of excitement and interest in Kraken for both new and returning guests in a capital efficient way
and will give us a foundation for exploring and building out virtual reality capabilities elsewhere.
(cid:120) Wave Breaker, The Rescue Coaster (SeaWorld San Antonio): This new jet ski-inspired multi-launch roller coaster is based on
marine animal rescue missions and represents a new generation of coasters that reaffirms our mission and vision by thrilling
riders while bringing awareness to the brave efforts of the SeaWorld animal teams as they join forces with organizations around
the world to help ill, injured, orphaned and abandoned animals like dolphins and sea turtles. The coaster will reach heights of
up to 61 feet, with the majority of its 2,600-foot track directly over water, creating the sensation that riders are surging across
the park’s lake. With a minimum height requirement of 48 inches, Wave Breaker will be a dynamic coaster experience for the
whole family.
(cid:120) InvadR (Busch Gardens Williamsburg): The park's first wooden coaster and eighth roller coaster in total. A minimum height
requirement for riders of 46 inches make it an ideal ride for adults and children to share together, but the coaster will still
feature exciting ride elements, including a more than 70 foot drop and nine airtime hills. Guests will travel more than 2,100 feet
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through a wooded terrain and underground through a tunnel. The attraction's theme will invite riders to choose their ride, in a
battle between a band of invading Vikings and the villagers. In an unusual industry move, fans will help decide the ride
elements including opportunities to vote on attraction details and theming.
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Maintenance and Inspection
Safety is of utmost importance to us. Maintenance at our theme parks is a key component of safety and guest service and
includes two areas of focus: (i) facilities and infrastructure and (ii) rides and attractions. Facilities and infrastructure maintenance
consists of all functions associated with upkeep, repair, preventative maintenance, code compliance and improvement of theme park
infrastructure. This area is staffed with a combination of external contractors/suppliers and our employees.
Rides and attractions maintenance represents all functions dedicated to the inspection, upkeep, repair and testing of guest
experiences, particularly rides. Rides and attractions maintenance is also staffed with a combination of external suppliers, inspectors
and our employees, who work to assure that ride experiences are operating within the manufacturer’s criteria and that maintenance is
conducted according to internal standards, industry best practice and standards (such as ASTM International), state or jurisdictional
requirements, as well as the ride designer or manufacturer’s specifications. All ride maintenance personnel are trained to perform their
duties according to internal training processes, in addition to recognized industry certification programs for maintenance leadership.
Every ride at our theme parks is inspected regularly, according to daily, weekly, monthly and annual schedules, by both park
maintenance experts and external consultants. Additionally, all rides are inspected daily by maintenance personnel before use by
guests to ensure proper and safe operation.
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A networked enterprise software system is used to plan and track various maintenance activities, in order to schedule and
request work, track completion progress and manage costs of parts and materials.
Deep Blue Creative
In 2016, we created the Deep Blue Creative team, designed to drive the creative heartbeat of the Company. From the development
of new events and entertainment concepts, to breakthrough attractions and resorts, the Deep Blue Creative team is committed to
developing experiences that matter. There are six creative divisions under the umbrella of Deep Blue Creative:
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Theme Park Development | U.S.A.: Collaborates to inspire guests through innovative culinary experiences, retail environments,
and attractions, like the newly announced Kraken Virtual Reality coaster.
Theme Park Development | Global: Leads the development of all theme park growth initiatives beyond existing parks, including
international expansion, exploration of new business models, feasibility and site evaluation which includes the most recently
announced partnership with Miral Asset Management LLC to develop SeaWorld Abu Dhabi, a first-of-its-kind marine life themed
park on Yas Island.
Resort Development: Responsible for the business and creative development of resorts and hotels, unique hospitality experiences
and land planning.
Events & Entertainment: Supports theme park entertainment teams in staging live experiences for both theatrical settings, along
with culinary and retail environments. In 2016, we welcomed Rudolph the Red-Nosed Reindeer into five of our park holiday
programs under a license agreement with Character Arts, LLC.
(cid:120) Media Enterprises: Leads our television business. Our original television series, Sea Rescue and The Wildlife Docs, showcase
our rescue and rehabilitation efforts. These Emmy-nominated programs are broadcast nationally through the ABC network. In
2016, Sea Rescue won a Daytime Emmy for “Outstanding Children’s Series”.
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Expedition X: Focuses on prototype development for innovative project concepts and new technology exploration. This group
scans the horizon for emerging trends and inventive ways to bring guests experiences that explore both real and amazing worlds
on land and sea.
Through collaboration, each division of Deep Blue Creative brings its individual expertise forward to create bold new frontiers in
guest experiences, ultimately advancing the protection and preservation of our world’s wild wonders.
Our Animals
We are one of the world’s foremost zoological organizations with more than 1,500 employees dedicated to animal welfare,
training, husbandry, veterinary care and marine animal rescue. Our mission is to provide experiences that matter, inspire guests
through education and entertainment, and to care for and protect animals and the wild wonders of our world. We believe we have one
of the largest zoological collections in the world. Animals in our care include certain endangered or threatened species such as the
cheetah, Bengal tiger, West Indian manatee, black rhinoceros and polar bear.
The well-being of the animals in our care is a top priority. Our veterinarians and zoological staff have been caring for animals
for more than five decades, and our expertise is a resource for zoos, aquariums and conservation organizations worldwide. Our
expertise and innovation in animal husbandry have led to many advances in the care of species in zoological facilities and in the
conservation of wild populations. More than 80% of the marine mammals living in our zoological theme parks were born in human
care.
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We have made many pioneering contributions to the zoological community. Until the birth of our first orca calf in 1985, no
zoological institution had successfully bred orcas. We have not collected a killer whale from the wild in almost 40 years. We care for
the largest orca population in zoological facilities worldwide and today have the most genetically diverse orca and dolphin population
in our history. Six of our orcas are presently on loan to a third party pursuant to an agreement entered into in February 2004. Pursuant
to this agreement, we receive an annual fee, which is not material to our results of operations. In addition to generating incremental
revenue for our business, the agreement provides for additional housing capacity for our orcas. The agreement expires in 2031 and is
renewable at the option of the parties.
Our commitment to animals also extends beyond our theme parks and throughout the world. We actively participate in species
conservation and rescue efforts as discussed in “—Conservation Efforts” and “—Philanthropy and Community Relations” below.
Our Products and Services
Admission Tickets
We generate most of our revenue from selling admission to our theme parks. For the year ended December 31, 2016, theme park
admissions accounted for approximately 61% of our total revenue. We engage with travel agents, ticket resellers and travel agencies,
and directly with our guests through our websites and social media, to promote advanced ticket sales and provide guest convenience
and ease of entry. Approximately 44% of our admission revenues are from ticket purchases made online.
Guests who visit our theme parks have the option of purchasing multiple types of admission tickets, from single and multi-day
tickets to season and annual passes. We also offer a Fun Card at select theme parks that allows multiple visits throughout a ca
lendar
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year. In addition, visitors can purchase vacation packages with preferred hotels, behind-the-scenes tours, specialty dining packages
and front of the line “Quick Queue” access to enhance their experience.
We also participate in joint programs that are designed to provide visitors to certain markets with flexibility and value in
creating their vacation itineraries. We have partnered with several theme parks and attractions to create joint ticket products which
allow guests to purchase a ticket providing access to our theme parks as well as other local area attractions. We also partner with
independent third parties who sell tickets and/or packages to our theme parks.
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We actively run promotions and campaigns to maximize revenue and manage capacity. Recently, we introduced a simplified
pricing framework to reduce complexity in the number of ticket offerings, encourage advanced purchases and provide products that
are more flexible for our guests to use. In 2015, we also launched a new website portal to give guests a balanced look at our park
offerings with the ability to choose their experience, such as upgrades to include multiple parks, additional days, dining experiences,
tours or animal interactions.
Theme Park Operations
Our theme park operations strive to deliver a high level of safety, security, guest service and cleanliness at our theme parks. The
theme park operations team manages the planning and execution of the overall theme park experience on a daily basis, which is
comprised of rides, shows and attractions operations, safety, security, environmental, water park and guest arrival services (including
parking, tolls, admissions, guest relations, entry and exit). Our theme park operations team identifies and leverages internal best
practices across all of our theme parks in order to create a seamless and enjoyable guest experience throughout the entire visit.
Culinary Offerings
We strive to deliver a variety of high quality, creative and memorable culinary experiences to our guests. Our culinary
operations are strategically organized into five key guest-oriented disciplines designed to drive in-park per capita spending:
restaurants, catering, carts and kiosks, specialty snacks and vending. Our culinary team focuses on providing creative menu offerings
and ways to deliver those offerings that appeal to our diverse guest base.
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We offer a variety of dining programs that provide quality food and great value to our guests and drive incremental revenues.
While our menu offerings have broad appeal, they also cater to guests who desire healthy options and those with special allergy-
related needs. Our successful all-day-dining program delivers convenience and value to our guests with numerous restaurant choices
for one price. In addition, in late 2016, we introduced an all-season dining pass option at some of our park locations. We also offer
creative immersive dining experiences that allow guests to dine up-close with our animals and characters. Our commitment to care for
the natural world extends to the food that we serve. Some of our menus feature sustainable, organic, seasonal and locally grown
ingredients that aim to minimize environmental impacts to animals and their habitats. In addition, through culinary supply chain
management initiatives, we are well-positioned to take advantage of changing economic and market conditions.
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Merchandise
We offer guests the opportunity to capture memories through our products and services, including through traditional retail
shops, game venues and customized photos and videos. We make a focused effort to leverage the emotional connection of the theme
park experiences, capitalize on trends and optimize brand alignment with our merchandise product offerings.
We operate over 300 photo and specialty retail shops at our theme parks, and our retail business encompasses the entire value
chain, from product design to production and sourcing, importing and logistics and visual presentation up to the point of sale. Our
products encompass more than 60,000 unique SKUs annually. Whether a plush toy, a stylish apparel item showcasing an attraction, a
commemorative memento or a tote to carry it all, we carry items both big and small so that every guest has a chance to find that
perfect item that is a reminder of the memories made in our theme parks.
Guests can purchase visual memories to commemorate their experience with us through real time photo and video technologies.
Whether on a traditional ride or during one of our numerous animal experiences, we capture the moment through the use of state-of-
the-art processes and technologies. We continue to explore and develop our photo and retail business with advanced offerings to
extend beyond the visit with online opportunities to further create customized products. An example is PhotoKey through which
guests can instantly view and share all of their photos using the PhotoKey app available on their smartphone devices.
In-park games span from traditional theme park operations to arcade experiences, all with the goal of creating positive family
experiences for guests of every age. Our merchandise teams also focus on making a visit to our theme parks easy, convenient and
comfortable. This includes offering lockers or service vehicle rentals such as strollers, electric personal carts and wheelchairs.
Licensing, Consumer Products and Media Enterprises
To capitalize on our popular brands, we leverage content through media and licensing arrangements. Our original television
series, Sea Rescue and The Wildlife Docs, showcase our rescue and rehabilitation efforts. These Emmy-nominated programs are
broadcast nationally through the ABC network, and have been renewed through the summer of 2018. In 2016, Sea Rescue won the
Daytime Emmy Award for Outstanding Children’s Series. We also developed licensed consumer products to drive consumer sales
through retail channels beyond our theme parks and continue to look for this channel to grow.
In addition, we have expanded our brand appeal through strategic alliances with well-known external brands, including Sesame
Street. In 2016, we incorporated Rudolph the Red-Nosed Reindeer and other well-known characters into five of our park holiday
programs under a license agreement with Character Arts, LLC. While currently these products do not represent a material percentage
of our revenue, we believe by leveraging our brands and our intellectual property through media and consumer products, we will
create new revenue streams and enhance the value of our brands through greater brand visibility, consumer awareness and increased
consumer loyalty.
Group Events and Conventions
We host a variety of different group events, meetings and conventions at our theme parks both during the day and at night. Our
venues offer indoor and outdoor space for meetings, special events, entertainment shows, picnics, teambuilding events, group tours
and special group ticket packages. Park buy-outs allow groups to enjoy exclusive itineraries, including meetings and shows, up-close
encounters with animals and behind the scenes tours. Each of our theme parks offers attractive venues, such as SeaWorld Orlando’s
Ports of Call, a 70,000 square foot dedicated special events complex and banquet facility at the theme park, which is themed as a
nautical wharf-side warehouse district, complete with two miniature submarines. The facility offers more than 30,000 square feet of
dining space, with a ballroom that provides seating for more than 750 guests and a larger outdoor garden reception area that can
accommodate additional guests. For the year ended December 31, 2016, we hosted over 1,800 group events at our theme parks across
the country.
Corporate Sponsorships and Strategic Alliances
We seek to secure long-term corporate sponsorships and strategic alliances with leading companies and brands that share our
core values, deliver significant brand value and influence and drive mutual business gains. We identify prospective corporate sponsors
based on their industry and industry-leading position, and we select them based on their ability to deliver impactful value to our theme
parks and our brands, as well as to consumer products and various entertainment platforms. Our corporate sponsors contribute to us in
a multitude of ways, such as through direct marketing, advertising, media exposure and licensing opportunities, as well as through
contributions to the non-profit SeaWorld & Busch Gardens Conservation Fund.
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Our Corporate Culture
As a purpose-driven company, our corporate culture is built on our mission to provide experiences that matter for every guest,
inspiring them to protect animals and the wild wonders of our world. Our management team and our employees, often referred to as
ambassadors, are committed to connect people to nature and animals and to do so in a socially responsible manner. As guests explore
our parks, we train our ambassadors to create an environment where each guest can explore a diverse range of experiences meant to
inspire and motivate them to join us in protecting animals and our planet. Our purpose and focus on creating experiences that matter
for our guests are integral to our organization and the cornerstone of our success.
Conservation Efforts
To achieve our purpose, we partner with organizations around the world focused on species conservation, wildlife rescue, and
environmental stewardship. Through the SeaWorld & Busch Gardens Conservation Fund, a non-profit organization, we invite our
guests, ambassadors and vendor partners to help us support wildlife research, habitat protection, animal rescue and conservation
education. We also work directly with many other conservation organizations, including the National Fish and Wildlife Foundation
and the American Humane Association, to ensure the sustainability of animal species in the wild.
SeaWorld operates one of the world’s most respected rescue programs for ill and injured marine animals. For more than five
decades, our animal experts have helped more than 29,000 ill, injured, orphaned and abandoned animals. We do this in collaborat
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with federal, state and local governments, along with members of accredited animal stranding networks with the goal of rehabili
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and returning them to the wild.
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We believe it is important to inspire others to have a deeper connection with nature through amazing encounters with our
animals. Through our theme parks’ up-close animal encounters, educational exhibits and innovative entertainment, we strive to inspire
each guest who visits one of our parks to care for and conserve the natural world. Our animals, many who are rescued, serve as
ambassadors for their species through numerous national media and public appearances, to educate the public and raise awareness for
issues facing wildlife and wild places.
Finally, our commitment to research and conservation has also led to advances in the care of animals in zoological facilities andaa
in conserving wild populations. We have pioneered new ways to rehabilitate animals in need. For example, we helped to create
nutritional formulas and custom nursing bottles to hand-feed orphaned animals and developed techniques to help save sea turtles with
cracked shells, created prosthetic beaks for injured birds and outfitted injured manatees with an “animal wetsuit” allowing the
m to stay
afloat and warm.
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Philanthropy and Community Relations
We are committed to the communities in which our theme parks are located and focus our philanthropic efforts on three areas:
animal preservation and stewardship; youth development and education; and sustainable community initiatives that address
environmental sustainability concerns and local socio-economic issues. We also partner with charities across the country whose values
and missions are aligned with our own by providing financial support, in-kind resources, strategic guidance, and/or hands-on volunteer
work.
Our theme parks inspire and educate children and guests of all ages by providing experiences that matter. Our philanthropic
efforts reflect this commitment through educational outreach visits to inner-city schools and hosting “special wish” children to enjoy
our theme parks. Plus, through our SeaWorld Cares and Busch Gardens Cares initiatives, our employees are actively involved in
volunteer activities such as beach and river cleanup efforts.
Finally, a key component of our community outreach is our long-term commitment to honoring the service of members of the
U.S. military and acknowledging the sacrifices that their families have made. Currently, we offer a free admission program to thett
majority of our theme parks, which provides free single day passes to active military personnel and their families.
Our Guests and Customers
Our theme parks are located near a number of large metropolitan areas, with a total population of over 63 million people located
within 150 miles of our parks. Additionally, because our theme parks are divided between regional and destination theme parks, our
guests include local visitors, non-local domestic visitors and international tourists. Our theme parks are entertainment venues and have
broad demographic appeal. For the year ended December 31, 2016, families comprised 52% of our attendance with an average party
size of 3.8 people.
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Seasonality
The theme park industry is seasonal in nature. Historically, we generate the highest revenues in the second and third quarters of
each year, in part because seven of our theme parks are only open for a portion of the year. Approximately two-thirds of our
attendance and revenues are generated in the second and third quarters of the year and we typically incur a net loss in the first and
fourth quarters. The percent mix of revenues by quarter is relatively constant each year, but revenues can shift between the first and
second quarters due to the timing of Easter and spring break holidays and between the first and fourth quarters due to the timing of
Christmas and New Year. Even for our five theme parks open year-round, attendance patterns have significant seasonality, driven by
holidays, school vacations and weather conditions. One of our goals is to continue to generate cash flow throughout the year to
maximize profitability and minimize the effects of seasonality, in particular at our theme parks that are open year-round. In recent
years, we have begun to drive attendance during non-peak times by offering a variety of seasonal programs and events, such as shows
for kids, special food and concert series, and Halloween and Christmas events. In addition, during seasonally slow times, operating
costs are controlled by reducing operating hours and show schedules. Employment levels required for peak operations are met largely
through part-time and seasonal hiring.
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Marketing
Our marketing and sales efforts are focused on generating profitable attendance, growing in-park per capita spending and
building the value of our brands. Through advertising, including park specific messages, promotions, retail and corporate partners,
digital platforms, public relations and sales initiatives, we drive awareness of and intent to visit our theme parks, attendance and
higher in-park per capita spending on an international, national and regional level. Our attractive destination locations and strategy of
grouping parks together creates high appeal for multi-day visits. Our strategic priorities include: (i) increasing awareness and visit
intent, (ii) strengthening loyalty and retention, (iii) driving maximum revenue and (iv) using data-driven marketing to deepen our
understanding of guest interests and buying behaviors.
Intellectual Property
Our business is affected by our ability to protect against infringement of our intellectual property, including our trademarks,
service marks, domain names, copyrights and other proprietary rights. Important intellectual property includes rights in names, logos,
character likenesses, theme park attractions, content of television programs and systems related to the study and care of certain of our
animals. In addition, we are party to key license agreements as licensee, including our agreements with Sesame Workshop and ABI as
discussed below. To protect our intellectual property rights, we rely upon a combination of trademark, copyright, trade secret and
unfair competition laws of the United States and other countries, as well as contract provisions and third-party policies and procedures
governing internet/domain name registrations.
Busch Gardens License Agreement
Our subsidiary, SeaWorld Parks & Entertainment LLC, is a party to a trademark license agreement with ABI, which governs our
use of the Busch Gardens name and logo. Under the license agreement, ABI granted to us a perpetual, exclusive, worldwide, royalty-
free license to use the Busch Gardens trademark and certain related domain names in connection with the operation, marketing,
promotion and advertising of our theme parks, as well as in connection with the production, use, distribution and sale of merchandise
sold in connection with such theme parks.
The license extends to our Busch Gardens theme parks located in Williamsburg, Virginia and Tampa, Florida, and may also
include any amusement or theme park anywhere in the world that we acquire, build or rebrand with the Busch Gardens name in the
future, subject to certain conditions. ABI may not assign, transfer or sell the Busch Gardens mark without first granting us a
reasonable right of first refusal to purchase such mark.
We have agreed to indemnify ABI from and against third party claims and losses arising out of or in connection with the
operation of the theme parks and the related marketing or promotion thereof, any merchandise branded with the licensed marks and
the infringement of a third party’s intellectual property. We are required to carry certain insurance coverage throughout the term of the
license.
The license agreement can be terminated by ABI under certain limited circumstances, including in connection with certain types
of change of control of SeaWorld Parks & Entertainment LLC.
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Sesame Licenses
Sesame Place Theme Park License Agreements
Our subsidiary, SeaWorld Parks & Entertainment LLC (f/k/a SPI, Inc.), is a party to a license agreement with Sesame Workshop
(f/k/a Children’s Television Workshop). Under the license agreement, we were granted the right to use titles, marks, names, and
characters from the Sesame Street and The Electric Company television series, as well as certain characters and elements created by
Muppets Inc. for the Sesame Street series, related marketing materials, and the Sesame Place design trademark in connection with the
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children’s play parks in Langhorne, Pennsylvania. We pay specified royalties to Sesame Workshop based on receipts from business
conducted on the premises of the theme park. We are required to include Sesame Workshop and Muppets Inc. as insured parties under
any relevant insurance policies, and have agreed to indemnify Sesame Workshop from and against certain claims and expenses arising
out of any personal or property injury at our Sesame Place park or breach of the license agreement. The license agreement can be
terminated by Sesame Workshop under certain circumstances, including in connection with a specified change of control of SeaWorld
Parks & Entertainment LLC, specified uncured breaches of the license agreement or specified bankruptcy events.
Under a separate agreement, Sesame Workshop granted SeaWorld Parks & Entertainment LLC a license to develop,
manufacture, and produce in the United States (and, in some circumstances, elsewhere in the world) and to distribute and sell at
Sesame Place branded play parks, certain products bearing Sesame Place, Sesame Street, and Sesame Street Muppet characters,
likenesses, logos, marks and materials, including apparel, flags, bags, mugs, buttons, pens, wristbands and other miscellaneous
products. The parties have agreed to indemnify each other from and against claims and expenses in connection with our respective
performance under the license agreement and any breach thereof. Sesame Workshop may terminate the license under certain
circumstances, including our uncured breach or bankruptcy.
Both agreements are scheduled to remain in effect until December 31, 2021.
Multi-Park License
Under a separate agreement, Sesame Workshop granted SeaWorld Parks & Entertainment LLC rights to use the Sesame Place
and Sesame Workshop names and logos, certain Sesame Street characters (including Elmo, Big Bird and Cookie Monster), and
granted a limited term right of first negotiation to utilize characters from other Sesame Workshop television series at SeaWorld San
Diego, SeaWorld San Antonio, SeaWorld Orlando, and our two Busch Gardens theme parks. Within these theme parks we have rights
eet shows and character appearances,
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to use the marks and characters in connection with Sesame Street themed attractions, Sesame Str
and the marketing, advertising and promotion of the theme parks.
Sesame Workshop has also granted us the right to develop, manufacture, distribute and sell products within our SeaWorld and
Busch Gardens theme parks, at other parks in the United States that are owned or operated by SeaWorld Parks & Entertainment LLC,
its subsidiaries or affiliated entities, and through online stores on websites for our parks.
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Pursuant to this agreement we pay a specified annual license fee, as well as a specified royalty based on revenues earned in
connection with sales of licensed products, all food and beverage items utilizing the licensed elements and any events utilizing such
elements if a separate fee is paid for such event.
The parties have agreed to indemnify each other from and against third party claims and expenses arising from their respective
performance under the agreement or any breach thereof. Sesame Workshop has the right to terminate the agreement under certain
limited circumstances, including a change of control of SeaWorld Parks & Entertainment LLC, SeaWorld Parks & Entertainment
LLC’s bankruptcy or uncured breach of the agreement, or the termination of the license agreement regarding our Sesame Place theme
park.
The agreement is scheduled to remain in effect until December 31, 2021 unless earlier terminated or extended.
Our Industry
We believe that the theme park industry is an attractive sector characterized by a proven business model that generates
significant cash flow and has avenues for growth. Theme parks offer a strong consumer value proposition, particularly when compared
to other forms of out-of-home entertainment such as concerts, sporting events, cruises and movies. As a result, theme parks attract a
broad range of guests and generally exhibit strong operating margin across regions, operators, park types and macroeconomic
conditions.
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According to the IBISWorld Report, the U.S. amusement park industry is comprised of a large number of venues ranging from a
small group of high attendance, heavily themed destination theme parks to a large group of lower attendance local theme parks anda
family entertainment centers. According to the TEA/AECOM Report, the United States is the largest theme park market in the world
with five of the ten largest theme park groups worldwide and 10 of the 25 most-visited theme parks in the world. In 2016, the U.S.
amusement park industry was expected to generate approximately $16.0 billion in revenues, according to the IBISWorld Report.
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Competition
Our theme parks and other product and entertainment offerings compete directly for discretionary spending with other
destination and regional theme parks and water and amusement parks and indirectly with other types of recreational facilities and
forms of entertainment, including movies, home entertainment options, sports attractions, restaurants and vacation travel. Principal
direct competitors of our theme parks include theme parks operated by The Walt Disney Company, Universal Studios, Six Flags,
Cedar Fair, Merlin Entertainments and Hershey Entertainment and Resorts Company. Our highly differentiated products provide a
value proposition and a complementary experience to those offered by fantasy-themed Disney and Universal parks. In addition, we
benefit from the significant capital investments made in developing the tourism industry in the Orlando area. The Orlando theme park
market is extremely competitive, with a high concentration of theme parks operated by several companies.
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Competition is based on multiple factors including location, price, the originality and perceived quality of the rides and
attractions, the atmosphere and cleanliness of the theme park, the quality of food and entertainment, weather conditions, ease of travel
to the theme park (including direct flights by major airlines), and availability and cost of transportation to a theme park. We believe
we can compete effectively, due to our strong brand recognition, unique and extensive zoological collection, targeted capital
investments and valuable real estate. Additionally, we believe that our theme parks feature a sufficient quality and variety of rides and
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attractions, educational and interactive experiences, merchandise locations, restaurants and family orientation to make them highly
competitive with other destination and regional theme parks, as well as other forms of entertainment.
Employees
As of December 31, 2016, we employed approximately 5,000 full-time employees and approximately 8,300 part-time
employees. During our peak operating season in 2016, we employed approximately 13,000 seasonal employees, many of whom are
high school and college students. None of our employees are covered by a collective bargaining agreement, and we consider our
employee relations to be good.
Regulatory
Our operations are subject to a variety of federal, state and local laws, regulations and ordinances including, but not limited to,
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those regulating the environment, display, possession and care of our animals, amusement park rides, building and construction, health
and safety, labor and employment, workplace safety, zoning and land use and alcoholic beverage and food service. Key statutes a
treaties relating to the display, possession and care of our zoological collection include the Endangered Species Act, Marine Mammal
Protection Act, Animal Welfare Act, Convention on International Trade in Endangered Species and Fauna Protection Act and the
Lacey Act. We must also comply with the Migratory Bird Treaty Act, Bald and Golden Eagle Protection Act, Wild Bird Conservation
Act and National Environmental Policy Act, among other laws and regulations. We believe that we are in substantial compliance with
applicable laws, regulations and ordinances; however, such requirements may change over time, and there can be no assurance that
new requirements, changes in enforcement policies or newly discovered conditions relating to our properties or operations will not
require significant expenditures in the future. For information on recent regulatory developments, see the “—Recent Developments—
Regulatory Developments” section above.
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Insurance
We maintain insurance of the type and in the amounts that we believe to be commercially reasonable for businesses in our
industry. We maintain primary and excess casualty coverage of up to $125 million. As part of this coverage, we retain deductible/self-
insured retention exposures of $1 million per occurrence for general liability claims, $250,000 per accident for automobile liability
claims, and $750,000 per occurrence for workers compensation claims. We maintain employers’ liability and all coverage required by
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law in the states in which we operate. Defense costs are included in the insurance coverage we obtain against losses in these areas.
Based upon our historical experience of reported claims and an estimate for incurred-but-not-reported claims, we accrue a liability for
our deductible/self-insured retention contingencies regarding general liability, automobile liability and workers compensation
exposures. We maintain additional forms of special casualty coverage appropriate for businesses in our industry. We also maintain
commercial property coverage against fire, natural perils, so-called “extended coverage” perils such as civil commotion, business
interruption and terrorism exposures for protection of our real and personal properties (other than land). We generally renegotiate our
insurance policies on an annual basis. We cannot predict the amounts of premium cost that we may be required to pay for future
insurance coverage, the level of any deductibles/self-insured retentions we may retain applicable thereto, the level of aggregate excess
coverage available or the availability of coverage for special or specific risks.
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Corporate History
On December 1, 2009, investment funds affiliated with The Blackstone Group L.P. and certain co-investors, through SeaWorld
Entertainment, Inc. and its wholly owned subsidiary, SeaWorld Parks & Entertainment, Inc. (“SEA”), acquired 100% of the equity
interests of Sea World LLC (f/k/a Sea World, Inc.) and SeaWorld Parks & Entertainment LLC (f/k/a Busch Entertainment
Corporation) from certain subsidiaries of Anheuser-Busch Companies, Inc. We refer to this acquisition and related financing
transactions as the “2009 Transactions.”
SeaWorld Entertainment, Inc. was incorporated in Delaware on October 2, 2009 in connection with the 2009 Transactions and
changed its name from SW Holdco, Inc. to SeaWorld Entertainment, Inc. in December 2012. We completed our initial public offering
(the “IPO”) in April 2013 and our common stock is listed on the New York Stock Exchange under the symbol “SEAS”. As of
December 31, 2016, Blackstone and the other co-investors owned, through the Partnerships, approximately 21.9% of our total
outstanding common stock.
Available Information
Our website is http://www.seaworldentertainment.com. Information contained on our website is not incorporated by reference
herein and is not a part of this Annual Report on Form 10-K. We make available free of charge, on or through the “Investor Relations”
section of our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports, if any, or other filings filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon
as reasonably practicable after electronically filing or furnishing these reports with the Securities and Exchange Commission (“SEC”).
We have adopted a Code of Business Conduct and Ethics applicable to our employees including our principal executive, financial and
accounting officers, and it is available free of charge, on or through the “Investor Relations” section of our website along with our
Corporate Governance Guidelines, and the charters of our Audit Committee, Compensation Committee and Nominating and
Corporate Governance Committee. The Company will disclose within four business days any substantive changes in, or waivers of,
the Code of Business Conduct and Ethics granted to our principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, by posting such information on our website as set forth above rather than
by filing a Form 8-K.
The SEC maintains a website at http://www.sec.gov that contains our Annual Report on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and amendments to those reports, if any, or other filings filed or furnished pursuant to Section
13(a) or 15(d) of the Exchange Act, and our proxy and information statements. All reports that we file with the SEC may be read and
copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC, 20549. Information about the operation of the
Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.
Website and Social Media Disclosure
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We use our websites (www.seaworldentertainment.com and www.seaworldinvestors.com) and our corporate Twitter account
(@Seaworld) as channels of distribution of company information. The information we post through these channels may be deemed
material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public
conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about SeaWorld when w
you enroll your e-mail address by visiting the “E-mail Alerts” section of our website at www.seaworldinvestors.com. The contents of
our website and social media channels are not, however, a part of this Annual Report on Form 10-K.
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Item 1A. Risk Factors
The following risk factors should be read carefully in connection with evaluating us and this Annual Report on Form 10-K.
Certain statements in “Risk Factors” are forward-looking statements. See “Special Note Regarding Forward-Looking Statements”
elsewhere in this report:
Risks Related to Our Business and Our Industry
We are subject to complex federal and state regulations governing the treatment of animals, which can change, and to claims and
lawsuits by activist groups before government regulators and in the courts.
We operate in a complex and evolving regulatory environment and are subject to various federal and state statutes and
regulations and international treaties implemented by federal law. The states in which we operate also regulate zoological activity
involving the import and export of exotic and native wildlife, endangered and/or otherwise protected species, zoological display and
anti-cruelty statutes. We incur significant compliance costs in connection with these regulations and violation of such regulations
could subject us to fines and penalties and result in the loss of our licenses and permits, which, if occurred, could impact our ability to
display certain animals. Future amendments to existing statutes, regulations and treaties or new statutes, regulations and treaties may
potentially restrict our ability to maintain our animals, or to acquire new ones to supplement or sustain our breeding programs or
otherwise adversely affect our business.
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For instance, on July 16, 2015, Senator Dianne Feinstein (D-CA) offered an amendment to the Fiscal Year 2016 Agriculture,
Rural Development, Food and Drug Administration, and Related Agencies spending bill during consideration of the bill by the full
Committee on Appropriations. The amendment directed the U.S. Department of Agriculture’s Animal and Plant Health Inspection
Service (APHIS) to issue updated regulations for the display of marine mammals in domestic zoos and aquaria within six months of
enactment. While that amendment was not included in the final Fiscal Year 2016 Omnibus Appropriations Bill, APHIS released a
proposed rule on February 3, 2016 to amend the Animal Welfare Act regulations concerning the humane handling, care and treatment
of marine mammals in captivity (the “Proposed APHIS Regulations”). This proposed rule would affect sections in the regulations for
the protection of all marine mammals in the United States relating to human marine mammal interactive programs, space
requirements, water quality, indoor facilities, outdoor facilities, implementation dates, and variances. The Proposed APHIS
Regulations were subject to public comment which ended on May 4, 2016. We submitted a comment letter to APHIS on the final date
for comments, expressing our views on the Proposed APHIS Regulations. The full impact of the Proposed APHIS Regulations on our
business will not be known until the Proposed APHIS Regulations are finalized. Once effective, the Proposed APHIS Regulations
may increase our regulatory compliance burdens and costs, impact the way and manner the Company’s marine mammals are
displayed and require additional management attention and investments to come into compliance.
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On October 8, 2015, the California Coastal Commission approved the Blue World Project in San Diego, but attached certain
conditions to its approval. Those conditions included, among other things, a prohibition against breeding orcas or transporting orcas
to or from the habitat. On December 29, 2015, we filed a lawsuit against the California Coastal Commission on the grounds that the
California Coastal Commission decision was outside the scope of its authority in imposing such conditions because it does not have
jurisdiction over orcas, which are regulated under federal law. As a result of the Orca Announcement, on April 18, 2016, we sent a
letter to the California Coastal Commission requesting to formally withdraw our coastal development permit application for the Blue
World Project habitat and discuss dismissal of the pending litigation since our legal challenge to the proposed conditions was no
longer warranted. On July 27, 2016, we filed a request for dismissal to dismiss our lawsuit against the California Coastal Commission.
On October 17, 2016, we sent a letter to the California Coastal Commission objecting to the approval of the proposed revised findings
for the Blue World Project. We stated that the adoption of revised findings was not warranted or needed because of the Orca
Announcement and recent changes in California law. On November 4, 2016 the California Coastal Commission voted in the
affirmative to reverse findings on the Blue World Project.
On November 16, 2015, Representative Adam Schiff (D-CA) introduced the Orca Responsibility and Care Advancement Act
(the “ORCA Act”). The bill has been referred to the Natural Resources and Agriculture Committees. It is unclear whether this bill
will be enacted into law, but if enacted, this bill would amend the Marine Mammal Protection Act of 1972 and the Animal Welfare
Act to prohibit the breeding, the taking (wild capture), and the import or export of orcas for the purposes of public display.
On August 26, 2016, following the Orca Announcement, the California Orca Protection Act was enacted into law and (i)
codified the end of captive breeding programs and the export and import of genetic materials for orcas in California, (ii) prohibits the
import or export of new orcas into or out of California, (iii) permits the transfer of orcas currently in California among existing
SeaWorld facilities and (iv) requires educational presentations of orcas in California. The new orca programs we are developing will
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be consistent with these standards and begin in our San Diego park in 2017 with our other SeaWorld parks following by 2019. On
November 4, 2016, the California Coastal Commission granted approval to permit the renovation of the existing backdrop at the orca
habitat at our San Diego park. This approval allows us to continue to develop our new orca program in our San Diego park.
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In light of the uncertain legal, legislative and regulatory environment and evolving public sentiment, we continue to evaluate a
broad spectrum of enhancements, modifications and alternatives with respect to the display, husbandry and breeding practices,
handling and care, and study and research of our orcas and other marine animals. Any decisions regarding such matters are subject to
consideration and assessment of various factors including, but not limited to, the health and welfare of the animals, guest sentiment,
market conditions, anticipated impact on our business, regulatory environment, legal proceedings, input from our shareholders andaa
conservation partners, and other factors. If we were to pursue or be required to pursue any alternative approaches with respect
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display, husbandry and breeding practices, handling and care, or study and research of our orcas or other animals in our zoological
collection, the full impact of such alternatives on our business will not be known until such alternatives are finalized. In the
meantime, we continue to invest significant management attention and resources to evaluate the impact of and ensure compliance with
the applicable regulatory and other developments.
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From time to time, animal activist and other third-party groups may make claims before government agencies, bring lawsuits
against us, and/or attempt to generate negative publicity associated with our business. Such activities sometimes are based on
allegations that we do not properly care for some of our featured animals. On other occasions, such activities are specifically designed
to change existing law or enact new law in order to impede our ability to retain, exhibit, acquire or breed animals. While we seek to
structure our operations to comply with all applicable federal and state laws and vigorously defend ourselves when sued, there are no
assurances as to the outcome of future claims and lawsuits that could be brought against us. In addition, negative publicity associated
with such activities could adversely affect our reputation and results of operations. At times, activists and other third-party groups
have also attempted to generate negative publicity related to our relationships with our business partners, such as corporate sponsors,
promotional partners, vendors, ticket resellers and others. For example, since 2014, we have experienced demand pressures,
particularly in California, which we believe were partly due to media attention relating to the legislation proposed in that state. In
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addition, we have experienced increased media attention since 2014 extending to our relationships with some of our business partners.
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Various factors beyond our control could adversely affect attendance and guest spending patterns at our theme parks.
Various factors beyond our control could adversely affect attendance and guest spending patterns at our theme parks. These
factors could also affect our suppliers, vendors, insurance carriers and other contractual counterparties. Such factors include:
(cid:120) war, terrorist activities or threats and heightened travel security measures instituted in response to these events;
(cid:120) outbreaks of pandemic or contagious diseases or consumers’ concerns relating to potential exposure to travel-related health
concerns including pandemics and epidemics such as Ebola, Zika, Influenza H1N1, avian bird flu, SARS and MERS;
(cid:120) natural disasters, such as hurricanes, fires, earthquakes, tsunamis, tornados, floods and volcanic eruptions and man-made
disasters such as oil spills, which may deter travelers from scheduling vacations or cause them to cancel travel or vacation plans;
(cid:120) bad weather and even forecasts of bad weather, including abnormally hot, cold and/or wet weather, particularly during
weekends, holidays or other peak periods;
(cid:120) changes in the desirability of particular locations or travel patterns of both our domestic and international guests;
(cid:120) fluctuations in foreign exchange rates;
(cid:120) low consumer confidence;
(cid:120) oil prices and travel costs and the financial condition of the airline, automotive and other transportation-related industries, any
travel-related disruptions or incidents and their impact on travel;
(cid:120) actions or statements by U.S. and foreign governmental officials, including the U.S. President and his administration officials,
related to travel and corporate travel-related activities (including changes to the U.S. visa rules) and the resulting public
perception of such travel and activities; and
(cid:120) interruption of public or private utility services to our theme parks.
Any one or more of these factors could adversely affect attendance and total per capita spending at our theme parks, which
could materially adversely affect our business, financial condition and results of operations. For example, the June 2016
announcement of the Referendum of the United Kingdom’s Membership of the European Union (referred to as Brexit) has introduced
additional volatility and uncertainty in global stock markets and currency exchange rates which could have an impact on our future
international attendance and from the United Kingdom in particular. Historically, attendance from the United Kingdom represents
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approximately 5% of our total annual attendance. Furthermore, macroeconomic conditions, political instability and policies that result
in economic uncertainty or the strengthening of the U.S. dollar against foreign currencies could adversely affect our international
attendance and our business. For example, during 2016, the majority of our international attendance shortfall came from Brazil, which
has recently faced currency exchange rate pressures, political instability and an economic recession.
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Incidents or adverse publicity concerning our theme parks or the theme park industry generally could harm our brands or
reputation as well as negatively impact our revenues and profitability.
Our brands and our reputation are among our most important assets. Our ability to attract and retain guests depends, in part,
upon the external perceptions of the Company, the quality of our theme parks and services and our corporate and management
integrity. The operation of theme parks involves the risk of accidents, illnesses, environmental incidents and other incidents which
may negatively affect the perception of guest and employee safety, health, security and guest satisfaction and which could negatively
impact our brands or reputation and our business and results of operations. An accident or an injury at any of our theme parks or at
theme parks operated by competitors, particularly an accident or an injury involving the safety of guests and employees, that receives
media attention, is the topic of a book, film, documentary or is otherwise the subject of public discussions, may harm our brands or
reputation, cause a loss of consumer confidence in the Company, reduce attendance at our theme parks and negatively impact our
results of operations. Such incidents have occurred in the past and may occur in the future. In addition, other types of adverse publicity
concerning our business or the theme park industry generally could harm our brands, reputation and results of operations. The
considerable expansion in the use of social media over recent years has compounded the impact of negative publicity.
We could be adversely affected by a decline in discretionary consumer spending or consumer confidence.
Our success depends to a significant extent on discretionary consumer spending, which is heavily influenced by general
economic conditions and the availability of discretionary income. In the past, severe economic downturns, coupled with high volatility
and uncertainty as to the future global economic landscape, have had an adverse effect on consumers’ discretionary income and
consumer confidence.
Volatile, negative or uncertain economic conditions and recessionary periods may adversely impact attendance figures, the
frequency with which guests choose to visit our theme parks and guest spending patterns at our theme parks. The actual or perceived
weakness in the economy could also lead to decreased spending by our guests. For example, in 2009 and 2010, we experienced a
decline in attendance as a result of the global economic crisis, which in turn adversely affected our revenue and profitability. Both
attendance and total per capita spending at our theme parks are key drivers of our revenue and profitability, and reductions in either
can materially adversely affect our business, financial condition and results of operations.
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A significant portion of our revenues are generated in the States of Florida, California and Virginia and in the Orlando market.tt
Any risks affecting such markets, such as natural disasters and travel-related disruptions or incidents, may materially adversely
affect our business, financial condition and results of operations.
Approximately 57%, 18% and 13% of our revenues in 2016 were generated in the States of Florida, California and Virginia,
respectively. In addition, our revenues and results of operations depend significantly on the results of our Orlando theme parks. The
Orlando theme park market is extremely competitive, with a high concentration of theme parks operated by several companies.
Any risks described in this Annual Report on Form 10-K, such as the occurrence of natural disasters and travel-related
disruptions or incidents, affecting the States of Florida, California and Virginia generally or our Orlando theme parks in particular may
materially adversely affect our business, financial condition or results of operations, especially if they have the effect of decreasing
attendance at our theme parks or, in extreme cases, cause us to close any of our theme parks for any period of time. For example, in
2016, Florida was impacted by Tropical Storm Colin and both Florida and Virginia were impacted by Hurricanes Hermine and
Matthew, which caused physical damage and power outages in various parts of Florida and Virginia. Although we attempted to
manage our exposure to such events by implementing our hurricane preparedness plan, our theme parks located in Orlando and
Tampa, Florida and in Williamsburg, Virginia experienced closures as a result of these storms.
Our operating results are subject to seasonal fluctuations.
We have historically experienced and expect to continue to experience seasonal fluctuations in our annual theme park
attendance and revenue, which are typically higher in our second and third quarters, partly because seven of our theme parks are only
open for a portion of the year. Approximately two-thirds of our attendance and revenues are generated in the second and third quarters
of the year and we typically incur a net loss in the first and fourth quarters. In addition, school vacations and school start dates also
cause fluctuations in our quarterly theme park attendance and revenue.
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Furthermore, the operating season at some of our theme parks, including SeaWorld San Antonio, Aquatica San Antonio,
Adventure Island, Aquatica San Diego, Busch Gardens Williamsburg, Water Country USA and Sesame Place, is of limited duration.
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In addition, most of our expenses for maintenance and costs of adding new attractions at our seasonal theme parks are incurred
the operating season is over, which may increase the need for borrowing to fund such expenses during such periods.
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When conditions or events described in this section occur during the operating season, particularly during the second and third
quarters, there is only a limited period of time during which the impact of those conditions or events can be mitigated. Accordingly,
such conditions or events may have a disproportionately adverse effect on our revenues and cash flow.
Because we operate in a highly competitive industry, our revenues, profits or market share could be harmed if we are unable to
compete effectively.
The entertainment industry, and the theme park industry in particular, is highly competitive. Our theme parks compete with
other theme, water and amusement parks and with other types of recreational facilities and forms of entertainment, including movies,
home entertainment options, sports attractions, restaurants and vacation travel.
Principal direct competitors of our theme parks include theme parks operated by The Walt Disney Company, Universal Studios,
Six Flags, Cedar Fair, Merlin Entertainments and Hershey Entertainment and Resorts Company. The principal competitive factors of a
theme park include location, price, originality and perceived quality of the rides and attractions, the atmosphere and cleanliness of the
theme park, the quality of its food and entertainment, weather conditions, ease of travel to the theme park (including direct flights by
major airlines), and availability and cost of transportation to a theme park. Certain of our direct competitors have substantially greater
financial resources than we do, and they may be able to adapt more quickly to changes in guest preferences or devote greater resources
to promotion of their offerings and attractions than us. Our competitors may be able to attract guests to their theme parks in lieu of our
own through the development or acquisition of new rides, attractions or shows that are perceived by guests to be of a higher quality
and entertainment value. As a result, we may not be able to compete successfully against such competitors. For example, in 2014, we
experienced negative attendance trends, primarily at our destination parks in Florida, which we believe was due in part to significant
new attraction offerings at competitor destination parks, along with a delay in the scheduled opening of one of our new rides at our
Busch Gardens Tampa park.
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Featuring animals at our theme parks involves risks.
Our theme parks feature numerous displays and interactions that include animals. All animal enterprises involve some degree of
risk. All animal interaction by our employees and our guests in attractions in our theme parks, where offered, involves risk. While we
maintain strict safety procedures for the protection of our employees and guests, injuries or death, while rare, have occurred in the
past. For example, in February 2010, a trainer was killed while engaged in an interaction with an orca. Following this incident, we
were subject to an inspection by the U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”), which
resulted in three citations concerning alleged violations of the Occupational Safety and Health Act and certain regulations thereunder.
In 2012, we initiated an appeal of certain of these citations with the U.S. Court of Appeals for the District of Columbia Circu
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April 11, 2014, the Court of Appeals denied our appeal and we elected to not pursue further appeal. In connection with this incident,
we reviewed and revised our safety protocols and made certain safety-related facility enhancements such as revising training protocols
used in show performances. This incident has also been and continues to be the subject of significant media attention, including
extensive television and newspaper coverage, a documentary and a book, as well as discussions in social media. This incident and
similar events that may occur in the future may harm our reputation, reduce attendance and negatively impact our business, financial
condition and results of operations.
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In addition, six orcas are presently on loan to a third party. Although the occurrence of any accident or injury involving these
orcas would be outside of our control, any such occurrence could negatively affect our business and reputation.
We maintain insurance of the type and in amounts that we believe is commercially reasonable and that is available to animal
enterprise related businesses in the theme park industry. We cannot predict the level of the premiums that we may be required to pay
for subsequent insurance coverage, the level of any self-insurance retention applicable thereto, the level of aggregate coverage
available, or the availability of coverage for specific risks.
Animals in our care are important to our theme parks, and they could be exposed to infectious diseases.
Many of our theme parks are distinguished from those of our competitors in that we offer guest interactions with animals.
Individual animals, specific species of animals or groups of animals in our zoological collection could be exposed to infectious
diseases. While we have never had any such experiences, an outbreak of an infectious disease among any animals in our theme parks
or the public’s perception that a certain disease could be harmful to human health may materially adversely affect our zoological
collection, our business, financial condition and results of operations.
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The high fixed cost structure of theme park operations can result in significantly lower margins if revenues decline.
A large portion of our expenses is relatively fixed because the costs for full-time employees, maintenance, animal care, utilities,
advertising and insurance do not vary significantly with attendance. These fixed costs may increase at a greater rate than our revenues
and may not be able to be reduced at the same rate as declining revenues. If cost-cutting efforts are insufficient to offset declines in
revenues or are impracticable, we could experience a material decline in margins, revenues, profitability and reduced or negative cash
flows. Such effects can be especially pronounced during periods of economic contraction or slow economic growth.
Changes in consumer tastes and preferences for entertainment and consumer products could reduce demand for our
entertainment offerings and products and adversely affect the profitability of our business.
The success of our business depends on our ability to consistently provide, maintain and expand theme park attractions as well
as create and distribute media programming, online material and consumer products that meet changing consumer preferences. In
addition, consumers from outside the United States constitute an increasingly important portion of our theme park attendance, and our
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success depends in part on our ability to successfully predict and adapt to tastes and preferences of this consumer group. If our
entertainment offerings and products do not achieve sufficient consumer acceptance or if consumer preferences change, our business,
financial condition or results of operations could be materially adversely affected.
Cyber security risks and the failure to maintain the integrity of internal or guest data could result in damages to our reputat
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disruption of operations and/or subject us to costs, fines or lawsuits.
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We collect and retain large volumes of internal and guest data, including credit card numbers and other personally identifiable
information, for business purposes, including for transactional or target marketing and promotional purposes, and our various
information technology systems enter, process, summarize and report such data. We also maintain personally identifiable information
about our employees. The integrity and protection of our guest, employee and Company data is critical to our business and our guests
and employees have a high expectation that we will adequately protect their personal information. The regulatory environment, as well
as the requirements imposed on us by the credit card industry, governing information, security and privacy laws is increasingly
demanding and continues to evolve. Maintaining compliance with applicable security and privacy regulations may increase our
operating costs and/or adversely impact our ability to market our theme parks, products and services to our guests. We also rely on
accounting, financial and operational management information technology systems to conduct our operations. If these information
technology systems suffer severe damage, disruption or shutdown and our business continuity plans do not effectively resolve the
issues in a timely manner, our business, financial condition and results of operations could be materially adversely affected.
We face various security threats, including cyber security attacks on our data (including our vendors’ and guests’ data) and/or
information technology infrastructure. Although we utilize various procedures and controls to monitor and mitigate these threats, there
can be no assurance that these procedures and controls will be sufficient to prevent penetrations or disruptions to our systems.
Furthermore, a penetrated or compromised data system or the intentional, inadvertent or negligent release or disclosure of data could
result in theft, loss, fraudulent or unlawful use of guest, employee or Company data which could harm our reputation or result in
remedial and other costs, fines or lawsuits and require significant management attention and resources to be spent. In addition, our
insurance coverage and indemnification arrangements that we enter into, if any, may not be adequate to cover all the costs related to
cyber security attacks or disruptions resulting from such events. To date, cyber security attacks directed at us have not had a material
impact on our financial results. Due to the evolving nature of security threats, however, the impact of any future incident cannot be
predicted.
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Increased labor costs and employee health and welfare benefits may negatively impact our operations.
Labor is a primary component in the cost of operating our business. We devote significant resources to recruiting and training
our managers and employees. Increased labor costs due to competition, increased minimum wage or employee benefit costs or
otherwise, would adversely impact our operating expenses. The Patient Protection and Affordable Care Act of 2010 and the
amendments thereto contain provisions that have impacted our healthcare costs. It is possible that any future amendments could
significantly increase our compensation costs, which would reduce our net income and adversely affect our cash flows. More
recently, on February 8, 2016, the San Diego City Council decided to put a proposal on the June 7, 2016 primary ballot for voters to
decide whether the city of San Diego should have a higher minimum wage than the $10 per hour required by the State of California.
The proposal was approved by San Diego voters and, beginning on July 11, 2016, the city’s minimum wage was increased to $10.50
and, beginning on January 1, 2017, was increased again to $11.50. Two years later in January 2019, annual increases to the San
Diego minimum wage as well as the State of California minimum wage based on the consumer price index will start to be
implemented. Increases to the San Diego minimum wage and State of California minimum wage will impact our operating expenses,
particularly at the Company’s SeaWorld San Diego and Aquatica San Diego parks.
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Our growth strategy may not achieve the anticipated results.
Our future success will depend on our ability to grow our business, including through capital investments to improve existing
and develop new theme parks, rides, attractions and shows, as well as in-park product offerings and product offerings outside of our
theme parks. Our growth and innovation strategies require significant commitments of management resources and capital investments
and may not grow our revenues at the rate we expect or at all. As a result, we may not be able to recover the costs incurred in
developing our new projects and initiatives or to realize their intended or projected benefits, which could materially adversely affect
our business, financial condition or results of operations.
We may not be able to fund theme park capital expenditures and investment in future attractions and projects.
A principal competitive factor for a theme park is the originality and perceived quality of its rides and attractions. We need to
make continued capital investments through maintenance and the regular addition of new rides and attractions. Our ability to funduu
capital expenditures will depend on our ability to generate sufficient cash flow from operations and to raise capital from third parties.
We cannot assure you that our operations will be able to generate sufficient cash flow to fund such costs, or that we will be able to
obtain sufficient financing on adequate terms, or at all, which could cause us to delay or abandon certain projects or plans.
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Adverse litigation judgments or settlements resulting from legal proceedings in which we may be involved in the normal course of o
our business could reduce our profits or limit our ability to operate our business.
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We are subject to allegations, claims and legal actions arising in the ordinary course of our business, which may include claim
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by third parties, including guests who visit our theme parks, our employees or regulators. We are currently subject to securities
litigation. The Company is also subject to audits, inspections and investigations by, or receives requests for information from, various
federal and state regulatory agencies, including, but not limited to, the U.S. Department of Agriculture’s Animal and Plant Health
Inspection Service (APHIS), the U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA), the California
Occupational Safety and Health Administration (Cal-OSHA), the Florida Fish & Wildlife Commission (FWC), the Equal Employment
Opportunity Commission (EEOC), the Internal Revenue Service (IRS) and the Securities and Exchange Commission (SEC). From
time to time, various parties may also bring lawsuits against the Company.
We discuss the securities litigation and other litigation to which we are subject to in greater detail below under the caption “Item
3. Legal Proceedings” and Note 14–Commitments and Contingencies to our consolidated financial statements included elsewhere in
this Annual Report on Form 10-K. The outcome of many of these proceedings cannot be predicted. If any proceedings, audits,
inspections or investigations were to be determined adversely against us or resulted in legal actions, claims, regulatory proceedings,
enforcement actions, or judgments, fines, or settlements involving a payment of material sums of money, or if injunctive relief were
issued against us, our business, financial condition and results of operations could be materially adversely affected. Even the
successful defense of legal proceedings may cause us to incur substantial legal costs and may divert management’s attention and
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resources.
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Our intellectual property rights are valuable, and any inability to protect them could adversely affect our business.
Our intellectual property, including our trademarks, service marks, domain names, copyrights, patent and other proprietary
rights, constitutes a significant part of the value of the Company. To protect our intellectual property rights, we rely upon a
combination of trademark, copyright, patent, trade secret and unfair competition laws of the United States and other countries, as well
as contract provisions and third-party policies and procedures governing internet/domain name registrations. However, there can be no
assurance that these measures will be successful in any given case, particularly in those countries where the laws do not protect our
proprietary rights as fully as in the United States. We may be unable to prevent the misappropriation, infringement or violation of our
intellectual property rights, breaching any contractual obligations to us, or independently developing intellectual property that is
similar to ours, any of which could reduce or eliminate any competitive advantage we have developed, adversely affect our revenues
or otherwise harm our business.
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We have obtained and applied for numerous U.S. and foreign trademark and service mark registrations and will continue to
evaluate the registration of additional trademarks and service marks or other intellectual property, as appropriate. We cannot guarantee
that any of our pending applications will be approved by the applicable governmental authorities. Moreover, even if the applications
are approved, third parties may seek to oppose or otherwise challenge these registrations. A failure to obtain registrations for our
intellectual property in the United States and other countries could limit our ability to protect our intellectual property rights and
impede our marketing efforts in those jurisdictions.
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We are actively engaged in enforcement and other activities to protect our intellectual property rights. If it became necessary for
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us to resort to litigation to protect these rights, any proceedings could be burdensome, costly and divert the attention of our personnel,
and we may not prevail. In addition, any repeal or weakening of laws or enforcement in the United States or internationally intended
to protect intellectual property rights could make it more difficult for us to adequately protect our intellectual property rights,
negatively impacting their value and increasing the cost of enforcing our rights.
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We may be subject to claims for infringing the intellectual property rights of others, which could be costly and result in the loss of
significant intellectual property rights.
We cannot be certain that we do not and will not infringe the intellectual property rights of others. We have been in the past, and
may be in the future, subject to litigation and other claims in the ordinary course of our business based on allegations of infringement
or other violations of the intellectual property rights of others. Regardless of their merits, intellectual property claims can divert the
efforts of our personnel and are often time-consuming and expensive to litigate or settle. In addition, to the extent claims against us are
successful, we may have to pay substantial money damages or discontinue, modify or rename certain products or services that are
found to be in violation of another party’s rights. We may have to seek a license (if available on acceptable terms, or at all) to continue
offering products and services, which may significantly increase our operating expenses.
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If we lose licenses and permits required to exhibit animals and/or violate laws and regulations, our business will be adversely
affected.
We are required to hold government licenses and permits, some of which are subject to yearly or periodic renewal, for purposes
of possessing, exhibiting and maintaining animals. Although our theme parks’ licenses and permits have always been renewed in the
past, in the event that any of our licenses or permits are not renewed or any of our licenses or permits are revoked, portions of the
affected theme park might not be able to remain open for purpose of displaying or retaining the animals covered by such license or
permit. Such an outcome could materially adversely affect our business, financial condition and results of operations.
In addition, we are subject to periodic inspections by federal and state agencies and the subsequent issuance of inspection
reports. While we believe that we comply with, or exceed, requisite care and maintenance standards that apply to our animals,
government inspectors can cite us for alleged statutory or regulatory violations. In unusual instances when we are cited for an alleged
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deficiency, we are most often given the opportunity to correct any purported deficiencies without penalty. It is possible, however, that
in some cases a federal or state regulator could seek to impose monetary fines on us. In the past, when we have been subjected to
governmental claims for fines, the amounts involved were not material to our business, financial condition or results of operations.
However, while highly unlikely, we cannot predict whether any future fines that regulators might seek to impose would materially
adversely affect our business, financial condition or results of operations.
Moreover, many of the statutes under which we operate allow for the imposition of criminal sanctions. While neither of the
foregoing situations are likely to occur, either could negatively affect the business, financial condition or results of operations at our
theme parks.
If we lose key personnel, our business may be adversely affected.
Our success depends in part upon a number of key employees, including members of our senior management team who have
extensive experience in the industry. We may be unable to retain them or to attract other highly qualified employees, particularly if we
do not offer employment terms that are competitive with the rest of the market. Failure to attract, motivate and retain highly qualified
employees, or failure to develop and implement a viable succession plan, could adversely affect our business and our future success.
We have employment agreements with certain members of our senior management, but these employment agreements do not ensure
that they will not voluntarily terminate their employment with us.
Unionization activities or labor disputes may disrupt our operations and
ii
affect our profitability.
Although none of our employees are currently covered under collective bargaining agreements, we cannot guarantee that our
employees will not elect to be represented by labor unions in the future. If some or all of our employees were to become unionized and
collective bargaining agreement terms were significantly different from our current compensation arrangements, it could adversely
affect our business, financial condition or results of operations. In addition, a labor dispute involving some or all of our employees
may disrupt our operations and reduce our revenues, and resolution of disputes may increase our costs.
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26
Although we maintain binding policies that require employees to submit to a mandatory alternative dispute resolution procedure
in lieu of other remedies, as employers, we may be subject to various employment-related claims, such as individual or class actions or
government enforcement actions relating to alleged employment discrimination, employee classification and related withholding,
wage-hour, labor standards or healthcare and benefit issues. Such actions, if brought against us and successful in whole or in part, may
affect our ability to compete or materially adversely affect our business, financial condition or results of operations.
Our business depends on our ability to meet our workforce needs.
Our success depends on our ability to attract, train, motivate and retain qualified employees to keep pace with our needs,
including employees with certain specialized skills in the field of animal training and care. If we are unable to do so, our results of
operations and cash flows may be adversely affected.
In addition, we employ a significant seasonal workforce. We recruit year-round to fill thousands of seasonal staffing positions
each season and work to manage seasonal wages and the timing of the hiring process to ensure the appropriate workforce is in place.
There is no assurance that we will be able to recruit and hire adequate seasonal personnel as the business requires or that we will not
experience material increases in the cost of securing our seasonal workforce in the future. Increased seasonal wages or an inadequate
workforce could materially adversely affect our business, financial condition or results of operations.
If we are unable to maintain certain commercial licenses, our business, reputation and brand could be adversely affected.
We rely on licenses from Sesame Workshop to use the Sesame Place trade name and trademark and certain other intellectual
property rights, including titles, marks, characters, logos and designs from the Sesame Street television series within our Sesame Place
theme park and with respect to Sesame Street themed areas within certain areas of some of our other theme parks, as well as in
connection with the sales of certain Sesame Street themed products. Our use of these intellectual property rights is subject to the
approval of Sesame Workshop and the licenses may be terminated in certain limited circumstances or in the event of our bankruptcy.
Furthermore, the current term of both the Sesame Place theme park license and the multi-park license expire on December 31, 2021,
and there is no assurance that we will be able to renegotiate the use of such intellectual property on commercially acceptable terms or
at all. The new terms of the licenses may significantly increase our operating expenses, or otherwise adversely affect our business.
ABI is the owner of the Busch Gardens trademarks and domain names. ABI has granted us a perpetual, exclusive, worldwide,
royalty-free license to use the Busch Gardens trademark and certain related domain names in connection with the operation,
marketing, promotion and advertising of certain of our theme parks, as well as in connection with the production, use, distribution and
sale of merchandise sold in connection with such theme parks. Under the license, we are required to indemnify ABI against losses
related to our use of the marks. If we were to lose or have to renegotiate this license, our business may be adversely affected.
Our existing debt agreements contain, and future debt agreements may contain, restrictions that may limit our flexibility in
operating our business.
Our existing debt agreements contain, and documents governing our future indebtedness may contain, numerous financial and
operating covenants that limit the discretion of management with respect to certain business matters. These covenants place
restrictions on, among other things, our ability to incur additional indebtedness, pay dividends and other distributions, make capital
expenditures, make certain loans, investments and other restricted payments, enter into agreements restricting our subsidiaries’ ability
to pay dividends, engage in certain transactions with stockholders or affiliates, sell certain assets or engage in mergers, acquisitions
and other business combinations, amend or otherwise alter the terms of our indebtedness, alter the business that we conduct, guarantee
indebtedness or incur other contingent obligations and create liens. Our existing debt agreements also require, and documents
governing our future indebtedness may require, us to meet certain financial ratios and tests. Our ability to comply with these and other
provisions of the existing debt agreements is dependent on our future performance, which will be subject to many factors, some of
which are beyond our control. The breach of any of these covenants or non-compliance with any of these financial ratios and tests
could result in an event of default under the existing debt agreements, which, if not cured or waived, could result in acceleration of the
related debt and the acceleration of debt under other instruments evidencing indebtedness that may contain cross-acceleration or cross-
default provisions. Variable rate indebtedness subjects us to the risk of higher interest rates, which could cause our future debt service
obligations to increase significantly.
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Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to
react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent
us from meeting our obligations under our indebtedness.
We are highly leveraged. As of December 31, 2016, our total indebtedness was approximately $1,598.0 million. Our high
degree of leverage could have important consequences, including the following: (i) a substantial portion of our cash flow from
operations is dedicated to the payment of principal and interest on indebtedness, thereby reducing the funds available for operations,
future business opportunities, share repurchases pursuant to the Share Repurchase Program and capital expenditures; (ii) our ability to
obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate
purposes in the future may be limited; (iii) certain of the borrowings are at variable rates of interest, which will increase o
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vulnerability to increases in interest rates; (iv) we are at a competitive disadvantage to less leveraged competitors; (v) we may be
unable to adjust rapidly to changing market conditions; (vi) the debt service requirements of our other indebtedness could make it
more difficult for us to satisfy our financial obligations; and (vii) we may be vulnerable in a downturn in general economic conditions
or in our business and we may be unable to carry out activities that are important to our growth.
ur
Our ability to make scheduled payments of the principal of, or to pay interest on, or to refinance indebtedness depends on and is
subject to our financial and operating performance, which in turn is affected by general and regional economic, financial, competitive,
business and other factors beyond our control, including the availability of financing in the international banking and capital markets.
If unable to generate sufficient cash flow to service our debt or to fund our other liquidity needs, we will need to restructure or
refinance all or a portion of our debt, which could cause us to default on our obligations and impair our liquidity. There can be no
assurance that any refinancing of our indebtedness will be possible and any such refinancing could be at higher interest rates and may
require us to comply with more onerous covenants that could further restrict our business operations. We from time to time may
increase the amount of our indebtedness, modify the terms of our financing arrangements, issue dividends, make capital expenditures
and take other actions that may substantially increase our leverage.
Despite our significant leverage, we may incur significant additional amounts of debt, which could further exacerbate the risks
associated with our significant leverage.
We may not realize the benefits of acquisitions or other strategic initiatives.
Our business strategy may include selective expansion, both domestically and internationally, through acquisitions of assets or
other strategic initiatives, such as joint ventures, that allow us to profitably expand our business and leverage our brands. For example,
on December 13, 2016, we announced our partnership with Miral Asset Management LLC to develop SeaWorld Abu Dhabi, a first-of-
its-kind marine life themed park on Yas Island. There is no assurance that this partnership or
business will be successful. Any international transactions and partnerships are subject to additional risks, including foreign and U.S.
regulations on the import and export of animals, the impact of economic fluctuations in economies outside of the United States,
difficulties and costs of staffing and managing foreign operations due to distance, language and cultural differences, as well as
political instability and lesser degree of legal protection in certain jurisdictions, currency exchange fluctuations and potentially adverse
tax consequences of overseas operations. In addition, the success of any acquisitions depends on effective integration of acquired
businesses and assets into our operations, which is subject to risks and uncertainties, including realization of anticipated synergies and
cost savings, the ability to retain and attract personnel, the diversion of management’s attention from other business concerns, and
undisclosed or potential legal liabilities of acquired businesses or assets.
any other expansion effort for our
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In November 2015, we communicated our roadmap to stabilize our business to drive sustainable growth. This plan
encompasses five key points which include (i) providing experiences that matter; (ii) delivering distinct guest experiences that are fun
and meaningful; (iii) pursuing organic and strategic revenue growth; (iv) addressing the challenges we face; and (v) financial
discipline. As part of our five point plan, on December 6, 2016, we committed to and implemented a restructuring program to reduce
costs, increase efficiencies, reduce duplication of functions and improve the Company’s operations (the “2016 Restructuring
Program”). The 2016 Restructuring Program is part of our previously announced comprehensive cost optimization program that is
expected to reduce costs by approximately $65.0 million, with a targeted $40.0 million in net savings by the end of 2018. The 2016
Restructuring Program involved the elimination of approximately 320 positions by the end of the fourth quarter of fiscal year 2016
across our twelve theme parks and our headquarters. Any of these strategies to drive sustainable growth in our business may be
unsuccessful and we may not be able to achieve the targeted cost savings or grow our business.
28
Our insurance coverage may not be adequate to cover all possible losses that we could suffer and our insurance costs may
increase.
We seek to maintain comprehensive insurance coverage at commercially reasonable rates. Although we maintain various safety
and loss prevention programs and carry property and casualty insurance to cover certain risks, our insurance policies do not cover all
types of losses and liabilities. There can be no assurance that our insurance will be sufficient to cover the full extent of all losses or
liabilities for which we are insured, and we cannot guarantee that we will be able to renew our current insurance policies on favorable
terms, or at all. In addition, if we or other theme park operators sustain significant losses or make significant insurance claims, then
our ability to obtain future insurance coverage at commercially reasonable rates could be materially adversely affected.
ff
We may be unable to purchase or contract with third-party manufacturers for our theme park rides and attractions.
We may be unable to purchase or contract with third parties to build high quality rides and attractions and to continue to service
and maintain those rides and attractions at competitive or beneficial prices, or to provide the replacement parts needed to maintain the
operation of such rides. In addition, if our third-party suppliers’ financial condition deteriorates or they go out of business, we may not
be able to obtain the full benefit of manufacturer warranties or indemnities typically contained in our contracts or may need to incur
greater costs for the maintenance, repair, replacement or insurance of these assets.
Our operations and our ownership of property subject us to environmental requirements, and to environmental expenditures and
liabilities.
We incur costs to comply with environmental requirements, such as those relating to water use, wastewater and storm water
management and disposal, air emissions control, hazardous materials management, solid and hazardous waste disposal, and the clean-
up of properties affected by regulated materials.
We have been required and continue to investigate and clean-up hazardous or toxic substances or chemical releases, and other
releases, from current or formerly owned or operated facilities. In addition, in the ordinary course of our business, we generate, use
and dispose of large volumes of water, including saltwater, which requires us to comply with a number of federal, state and local
regulations and to incur significant expenses. Failure to comply with such regulations could subject us to fines and penalties and/or
require us to incur additional expenses. Although we are not now classified as a large quantity generator of hazardous waste, we do
store and handle hazardous materials to operate and maintain our equipment and facilities and have done so historically.
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We cannot assure you that we will not incur substantial costs to comply with new or expanded environmental requirements in
the future or to investigate or clean-up new or newly identified environmental conditions, which could also impair our ability to use or
transfer the affected properties and to obtain financing.
The suspension or termination of any of our business licenses may have a negative impact on our business.
We maintain a variety of business licenses issued by federal, state and local authorities that are renewable on a periodic basis.
We cannot guarantee that we will be successful in renewing all of our licenses on a periodic basis. The suspension, termination or
expiration of one or more of these licenses could materially adversely affect our revenues and profits. In addition, any changes to the
licensing requirements for any of our licenses could affect our ability to maintain the licenses.
n
Delays or restrictions in obtaining permits for capital investments could impair our business.
Our capital investments require regulatory permits from one or more governmental agencies in order to improve existing or
build new theme parks, rides, attractions and shows. Such permits are typically issued by state agencies, but federal and local
governmental permits may also be required. The requirements for such permits vary depending on the location of such capital
investments. As with all governmental permitting processes, there is a degree of uncertainty as to whether a permit will be granted, the
aa
time it will take for a permit to be issued, and the conditions that may be imposed in connection with the granting of the permit.mm
Therefore, our capital investments in certain areas may be delayed, interrupted or suspended for varying lengths of time, causing a loss
of revenue to us and adversely affecting our results of operations.
29
The policies of the recently elected U.S. President and his administration could adversely impact our business, financial condition
and results of operations.
While the new administration’s policies in many areas are uncertain at this time, certain types of policies regarding foreign
travel to the United States, foreign trade, manufacturing, development and investment could adversely affect our business. In addition,
according to publicly released statements, a top legislative priority of the new administration and the next Congress may be significant
reform of the Internal Revenue Code of 1986, as amended, including uncertain changes to taxation of business entities. Furthermore,
policies that strengthen the U.S. dollar against a variety of foreign currencies could impact international tourist spending, including at
our theme parks. Lastly, foreign tourists may opt to reduce their travel to the United States as a result of the new administration’s
policies regarding immigration, foreign trade or other matters. While there is currently a substantial lack of clarity and uncertainty
around the likelihood, timing and details of any such policies and reforms, such policies and reforms may materially and adversely
affect our business, financial condition and results of operations and the value of our securities.
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We could be adversely impacted by actions of activist stockholders, and such activism could impact the value of our securities.
We have recently seen certain investors increase their ownership positions in our common stock and their communications with
us regarding our business, and there can be no assurance that these stockholders’ interests align with our business or the interests of
our other stockholders. While we continually engage with stockholders and consider their views on business and strategy, stockholder
activism, including potential proxy contests, could be costly and time consuming, disrupt our operations and divert the attention of
management and our employees from our business. Such activities could also interfere with our ability to execute our strategic plan
and our long term growth. The perceived uncertainties as to our future direction caused by activist actions could affect the market
price of our securities, result in the loss of potential business opportunities and make it more difficult to attract and retain qualified
personnel and business partners. In addition, any interference with our annual meeting process, including but not limited to a proxy
contest for the election of directors at our annual meeting, could require us to incur significant legal fees and proxy solicitation
expenses and require significant time and attention by management and our board of directors.
Affiliates of Blackstone will continue to be able to significantly influence our decisions and their interests may conflict with ours
or yours in the future.
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Affiliates of Blackstone beneficially own approximately 21.9% of our common stock. As a result, investment funds associated
with or designated by affiliates of Blackstone will have the ability to elect members of our Board of Directors and thereby continue to
influence our policies and operations, including the appointment of management, future issuances of our common stock or other
securities, the payment of dividends, if any, on our common stock, the incurrence or modification of debt by us, amendments to our
amended and restated certificate of incorporation and amended and restated bylaws and the entering into of extraordinary transactions,
and their interests may not in all cases be aligned with your interests. In addition, Blackstone may have an interest in pursuing
acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment, even though such transactions
might involve risks to you. For example, Blackstone may be interested in making acquisitions that increase our indebtedness or in
selling revenue-generating assets. Additionally, in certain circumstances, acquisitions of debt at a discount by purchasers that are
aa
related to a debtor can give rise to cancellation of indebtedness income to such debtor for U.S. federal income tax purposes.
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Blackstone is in the business of making investments in companies and may from time to time acquire and hold interests in
businesses that compete directly or indirectly with us. For example, Blackstone has several investments in the leisure and hospitality
industries.
Our amended and restated certificate of incorporation provides that none of Blackstone, any of its affiliates or any director who ww
is not employed by us (including any non-employee director who serves as one of our officers in both his director and officer
capacities) or his or her affiliates will have any duty to refrain from engaging, directly or indirectly, in the same business activities or
similar business activities or lines of business in which we operate. Blackstone also may pursue acquisition opportunities that may be
complementary to our business, and, as a result, those acquisition opportunities may not be available to us. So long as affiliates of
Blackstone continue to own a significant amount of our combined voting power, even if such amount is less than 50%, Blackstone
will continue to be able to influence our decisions and, so long as Blackstone and its affiliates collectively own at least 5% of all
outstanding shares of our stock entitled to vote generally in the election of directors, it will be able to appoint individuals to our Board
of Directors under the stockholders agreement. In addition, Blackstone will be able to influence the outcome of all matters requiring
stockholder approval and prevent a change of control of the Company or a change in the composition of our Board of Directors and
could preclude any unsolicited acquisition of the Company. The concentration of ownership could deprive you of an opportunity to
receive a premium for your shares of common stock as part of a sale of the Company and ultimately might affect the market price of
our common stock.
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Risks Related to Ownership of Our Common Stock
Our stock price may change significantly, and you may not be able to sell shares of our common stock at or above the price you
paid or at all, and you could lose all or part of your investment as a result.
The trading price of our common stock has been, and is likely to continue to be, volatile. Since shares of our common stock
were sold in our IPO in April 2013 through December 31, 2016, our common stock price has ranged from $12.12 to $38.92. In
addition to the risk factors discussed in this Annual Report on Form 10-K, the trading price of our common stock may be adversely
affected due to a number of factors, many of which are beyond or control, including:
(cid:120) results of operations that vary from the expectations of securities analysts and investors;
(cid:120) results of operations that vary from those of our competitors;
(cid:120) changes in expectations as to our future financial performance, including financial estimates and investment recommendations
by securities analysts and investors;
(cid:120) declines in the market prices of stocks generally, or those of amusement and theme parks companies;
(cid:120) strategic actions by us or our competitors;
(cid:120) announcements by us or our competitors of significant contracts, new products, acquisitions, joint marketing relationships, joint
ventures, other strategic relationships or capital commitments;
(cid:120) changes in general economic or market conditions or trends in our industry or markets;
(cid:120) changes in business or regulatory conditions;
(cid:120) future sales of our common stock or other securities;
(cid:120) repurchases of our common stock pursuant to the Share Repurchase Program;
(cid:120) investor perceptions or the investment opportunity associated with our common stock relative to other investment alternatives;
(cid:120) the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC;
(cid:120) announcements relating to litigation;
(cid:120) guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance;
(cid:120) the development and sustainability of an active trading market for our stock;
(cid:120) actions by institutional or activist stockholders;
(cid:120) changes in accounting principles; and
(cid:120) other events or factors, including those resulting from natural disasters, war, acts of terrorism or responses to these events.
We have suspended the dividend on our common stock, and our indebtedness could limit our ability to pay dividends on our
common stock in the future.
In September 2016, our Board suspended the Company’s quarterly dividend to allow the Company greater flexibility to deploy
capital to opportunities that offer the greatest long term returns to shareholders, such as, but not limited to, share repurchases,
investments in new attractions or debt repayments. Future dividends, if any, and the timing of declaration of any such dividends, will
be at the discretion of the Board and will depend upon many factors, including, but not limited to, our results of operations, financial
condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in our debt agreements and in any preferred
stock, business prospects and other factors that the Board deems relevant. Our ability to declare dividends and make other restricted
payments is limited by covenants in our senior secured credit facilities pursuant to a 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”). The
fiscal amount available for dividend declarations, share repurchases and other restricted payments under the covenant restrictions in
the debt agreements adjusts at the beginning of each quarter. See Note 11–Long-Term Debt in the notes to the consolidated financial
statements included elsewhere in this Annual Report on Form 10-K.
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We cannot guarantee that our allocation of capital to various alternatives will enhance long-term stockholder value, and in some
cases, our Share Repurchase Program could increase the volatility of the price of our common stock.
Our goal is to invest capital to maximize our overall long-term returns. This includes spending on capital projects and expenses,
managing debt levels, and periodically returning capital to our shareholders through share repurchases and dividends. There can be no
assurance that our capital allocation decisions will enhance shareholder value. During 2015, we repurchased a total of 2,413,803
shares of common stock at an average price of $18.62 per share and a total cost of approximately $45.0 million. There were no share
repurchases during the year ended December 31, 2016, leaving $190.0 million available for future repurchases under the Share
Repurchase Program as of December 31, 2016. Repurchases of our common stock pursuant to the Share Repurchase Program could
affect our stock price and increase its volatility. The existence of the Share Repurchase Program could cause our stock price to be
higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our stock. There can be
no assurance that any share repurchases will enhance stockholder value because the market price of our common stock may decline
below the levels at which we repurchased shares of stock. Although the Share Repurchase Program is intended to enhance long-term
stockholder value, there is no assurance that it will do so and short-term stock price fluctuations could reduce such program’s
effectiveness.
If securities analysts do not publish research or reports about our business or if they downgrade our stock or our sector, our stock
price and trading volume could decline.
The trading market for our common stock relies in part on the research and reports that industry or financial analysts publish
about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrade
our stock or our industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business, the
price of our stock could decline. If one or more of these analysts ceases coverage of the Company or fails to publish reports on us
regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
Future sales, or the perception of future sales, by us or our existing stockholders in the public market could cause the market price
for our common stock to decline.
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The sale of a substantial number of shares of our common stock in the public market, or the perception that such sales could
occur, could harm the prevailing market price of shares of our common stock. These sales, or the possibility that these sales may
occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
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Shares held by the Partnerships and certain of our directors, officers and employees are eligible for resale, subject to volume,
manner of sale and other limitations under Rule 144. In addition, pursuant to a registration rights agreement entered into in connection
with the 2009 Transactions, we granted the Partnerships the right, subject to certain conditions, to require us to register the sale of
their shares of our common stock under the Securities Act.
As restrictions on resale end or if the Partnerships exercise their registration rights, the market price of our shares of common
stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them. These
factors could also make it more difficult for us to raise additional funds through future offerings of our shares of common stock or
other securities.
In addition, the shares of our common stock reserved for future issuance under the Omnibus Incentive Plan will become eligible
for sale in the public market once those shares are issued, subject to provisions relating to various vesting agreements, lock-up
agreements and Rule 144, as applicable. A total of 15,000,000 shares of common stock were reserved for issuance under the Omnibus
Incentive Plan, of which 8,642,630 shares of common stock remain available for future issuance as of December 31, 2016. In the
future, we may also issue our securities in connection with investments or acquisitions. The amount of shares of our common stock
issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our uu
common stock. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution
to you.
Anti-takeover provisions in our organizational documents co
r
uld delay or prevent a change of control.
Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have an anti-
takeover effect and may delay, defer or prevent a merger, acquisition, tender offer, takeover attempt or other change of control
transaction that a stockholder might consider in its best interest, including those attempts that might result in a premium over the
market price for the shares held by our stockholders.
These provisions provide for, among other things:
(cid:120) the ability of our Board of Directors to issue one or more series of preferred stock;
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(cid:120) advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at our
annual meetings;
(cid:120) certain limitations on convening special stockholder meetings;
(cid:120) the removal of directors with or without cause only by the affirmative vote of the holders of at least 66 2 / 3 % in voting power of
all the then-outstanding shares of stock of the Company entitled to vote thereon, voting together as a single class; and
(cid:120) that certain provisions may be amended only by the affirmative vote of the holders of at least 66 2 / 3 % in voting power of all
the then-outstanding shares of stock of the Company entitled to vote thereon, voting together as a single class.
These anti-takeover provisions could make it more difficult for a third party to acquire us, even if the third-party’s offer may be
considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium
for their shares.
Non-U.S. holders who own or owned more than a certain ownership threshold may be subject to United States federal income tax
on gains realized on the disposition of our common stock.
We believe that we are currently a U.S. real property holding corporation for U.S. federal income tax purposes. So long as our
common stock continues to be regularly traded on an established securities market, a non-U.S. stockholder who holds or held (at any
time during the shorter of the five year period preceding the date of disposition or the holder’s holding period) more than 5% of our
common stock will be subject to United States federal income tax on the disposition of our common stock. Non-U.S. holders should
consult their own tax advisors concerning the consequences of disposing of shares of our common stock.
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Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The following table summarizes our principal properties, which includes approximately 400 acres of land available for future
development.
Size
Location
Orlando, FL ....................... 76,360 sq ft
Orlando, FL ....................... 9,636 sq ft
San Diego, CA .................. 190 acres(a)
Chula Vista, CA ................ 66 acres
Orlando, FL ....................... 279 acres
Orlando, FL ....................... 58 acres
Orlando, FL ....................... 81 acres
Tampa, FL ......................... 56 acres
Tampa, FL ......................... 306 acres
Dade City, FL ................... 109 acres
Langhorne, PA .................. 55 acres
San Antonio, TX ............... 397 acres(b)
San Antonio, TX ............... 18 acres(b)
Williamsburg, VA ............. 222 acres
Williamsburg, VA ............. 422 acres
Williamsburg, VA ............. 5 acres
Williamsburg, VA ............. 5 acres
Use
Leased Office Space (corporate headquarters)
Leased Office Space (call center)
Leased Land
Owned Water Park
Owned Theme Park
Owned All-inclusive Interactive Park
Owned Water Park
Owned Water Park
Owned Theme Park
Owned Breeding and Holding Facility
Owned Theme Park
Owned Theme Park
Owned Water Park
Owned Water Park
Owned Theme Park
Owned Warehouse Space
Owned Seasonal Worker Lodging
(a)
Includes approximately 17 acres of water in Mission Bay Park, California.
(b) In 2016, the water park in San Antonio, Texas was converted into a stand-alone, separate admission park that guests can access
through an independent gate without the need to purchase admission to the theme park.
We believe that our properties are in good operating condition and adequately serve our current business operations.
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Lease Agreement with City of San Diego
Our subsidiary, Sea World LLC (f/k/a Sea World Inc.), leases approximately 190 acres from the City of San Diego, including
approximately 17 acres of water in Mission Bay Park, California (the “Premises”). The current lease term commenced on July 1, 1998
and extends for 50 years or the maximum period allowed by law. Under the lease, the Premises must be used as a marine park facility
and related uses. In addition, we may not operate another marine park facility within a radius of 560 miles from the City of San Diego.
a
The annual rent under the lease is calculated on the basis of a specified percentage of Sea World LLC’s gross income from the
Premises, or the minimum yearly rent, whichever is greater. The minimum yearly rent is adjusted every three years to an amount equal
to 80% of the average accounting year rent actually paid for the three previous years. The current minimum yearly rent is
approximately $10.4 million, which is subject to adjustment on January 1, 2020.
Item 3. Legal Proceedings
We are subject to various allegations, claims and legal actions arising in the ordinary course of business. While it is impossible
to determine with certainty the ultimate outcome of any of these proceedings, lawsuits and claims, management believes that adequate
provisions have been made and insurance secured for all currently pending proceedings so that the ultimate outcomes will not have a
material adverse effect on our financial position.
Securities Class Action Lawsuit
On September 9, 2014, a purported stockholder class action lawsuit consisting of purchasers of the Company’s common
stock during the periods between April 18, 2013 to August 13, 2014, captioned Baker v. SeaWorld Entertainment, Inc., et al., Case
No. 14-CV-02129-MMA (KSC), was filed in the U.S. District Court for the Southern District of California against the Company, the
Chairman of the Company’s Board, certain of its executive officers and Blackstone. On February 27, 2015, Court-appointed Lead
Plaintiffs, Pensionskassen For Børne- Og Ungdomspædagoger and Arkansas Public Employees Retirement System, together with
additional plaintiffs, Oklahoma City Employee Retirement System and Pembroke Pines Firefighters and Police Officers Pension Fund
(collectively, “Plaintiffs”), filed an amended complaint against the Company, the Chairman of the Company’s Board, certain of its
executive officers, Blackstone, and underwriters of the initial public offering and secondary public offerings. The amended complaint
alleges, among other things, that the prospectus and registration statements filed contained materially false and misleading information
in violation of the federal securities laws and seeks unspecified compensatory damages and other relief. Plaintiffs contend that
defendants knew or were reckless in not knowing that Blackfish was impacting SeaWorld’s business at the time of each public
statement. On May 29, 2015, the Company and the other defendants filed motions to dismiss the amended complaint. On March 31,
2016, the Court granted the motions to dismiss the amended complaint, in its entirety, without prejudice. On May 31, 2016, Plaintiffs
filed a second amended consolidated class action complaint (“Second Amended Complaint”), which, among other things, no longer
names the Company’s Board or underwriters as defendants. On June 29, 2016, the remaining defendants filed a motion to dismiss the
Second Amended Complaint. On September 30, 2016, the Court denied the motion to dismiss. On October 28, 2016, defendants filed
their Answer to the Second Amended Complaint. The Company believes that the class action lawsuit is without merit and intends to
defend the lawsuit vigorously; however, there can be no assurance regarding the ultimate outcome of this lawsuit.
Shareholder Derivative Lawsuit
On December 8, 2014, a putative derivative lawsuit captioned Kistenmacher v. Atchison, et al., Civil Action No. 10437, was
filed in the Court of Chancery of the State of Delaware against, among others, the Chairman of the Company’s Board, certain of the
Company’s executive officers, directors and shareholders, and Blackstone. The Company is a “Nominal Defendant” in the lawsuit.
On March 30, 2015, the plaintiff filed an amended complaint against the same set of defendants. The amended complaint alleges,
among other things, that the defendants breached their fiduciary duties, aided and abetted breaches of fiduciary duties, violated Florida
Blue Sky laws and were unjustly enriched by (i) including materially false and misleading information in the prospectus and
registration statements; and (ii) causing the Company to repurchase certain shares of its common stock from certain shareholders at an
alleged artificially inflated price. The Company does not maintain any direct exposure to loss in connection with this shareholder
derivative lawsuit as the lawsuit does not assert any claims against the Company. The Company’s status as a “Nominal Defendant” in
the action reflects the fact that the lawsuit is maintained by the named plaintiff on behalf of the Company and that the plaintiff seeks
damages on the Company’s behalf. On May 21, 2015, the defendants filed a motion to stay the lawsuit pending resolution of the
Company’s securities class action lawsuit. On September 21, 2015, the Court granted the motion and ordered that the derivative action
to be stayed in favor of the securities class action captioned Baker v. SeaWorld Entertainment, Inc., et al., Case No. 14-CV-02129-
MMA (KSC).
34
Consumer Class Action Lawsuits
On March 25, 2015, a purported class action was filed in the United States District Court for the Southern District of California
against the Company, captioned Holly Hall v. SeaWorld Entertainment, Inc., Case No. 3:15-cv-00600-CAB-RBB (the “Hall Matter”).
The complaint identifies three putative classes consisting of all consumers nationwide who at any time during the four-year period
preceding the filing of the original complaint, purchased an admission ticket, a membership or a SeaWorld “experience” that includes
an “orca experience” from the SeaWorld amusement park in San Diego, California, Orlando, Florida or San Antonio, Texas
respectively. The complaint alleges causes of action under California Unfair Competition Law, California Consumers Legal
Remedies Act (“CLRA”), California False Advertising Law, California Deceit statute, Florida Unfair and Deceptive Trade Practices
Act, Texas Deceptive Trade Practices Act, as well as claims for Unjust Enrichment. Plaintiffs’ claims are based on their allegations
that the Company misrepresented the physical living conditions and care and treatment of its orcas, resulting in confusion or
misunderstanding among ticket purchasers, and omitted material facts regarding its orcas with intent to deceive and mislead the
plaintiff and purported class members. The complaint further alleges that the specific misrepresentations heard and relied upon by
Holly Hall in purchasing her SeaWorld tickets concerned the circumstances surrounding the death of a SeaWorld trainer. The
complaint seeks actual damages, equitable relief, attorney’s fees and costs. Plaintiffs claim that the amount in controversy exceeds
$5.0 million, but the liability exposure is speculative until the size of the class is determined (if certification is granted at all).
In addition, four other purported class actions were filed against the Company and its affiliates. The first three actions were
filed on April 9, 2015, April 16, 2015 and April 17, 2015, respectively, in the following federal courts: (i) the United States District
Court for the Middle District of Florida, captioned Joyce Kuhl v. SeaWorld LLC et al., 6:15-cv-00574-ACC-GJK (the “Kuhl Matter”),
(ii) the United States District Court for the Southern District of California, captioned Jessica Gaab, et. al. v. SeaWorld Ente
rtainment,
Inc., Case No. 15:cv-842-CAB-RBB (the “Gaab Matter”), and (iii) the United States District Court for the Western District of Texas,
captioned Elaine Salazar Browne v. SeaWorld of Texas LLC et al., 5:15-cv-00301-XR (the “Browne Matter”). On May 1, 2015, the
Kuhl Matter and Browne Matter were voluntarily dismissed without prejudice by the respective plaintiffs. On May 7, 2015, plaintiffs
Kuhl and Browne re-filed their claims, along with a new plaintiff, Valerie Simo, in the United States District Court for the So
ff
District of California in an action captioned Valerie Simo et al. v. SeaWorld Entertainment, Inc., Case No. 15:cv-1022-CAB-RBB (the
“Simo Matter”). All four of these cases, in essence, reiterate the claims made and relief sought in the Hall Matter.
uthern
t
On August 7, 2015, the Gaab Matter and Simo Matter were consolidated with the Hall Matter, and the plaintiffs filed a First
Consolidated Amended Complaint (“FAC”) on August 21, 2015. The FAC pursued the same seven causes of action as the original
Hall complaint, and added a request for punitive damages pursuant to the California CLRA.
The Company moved to dismiss the FAC in its entirety, and its motion was granted on December 24, 2015. The United States
District Court for the Southern District of California granted dismissal with prejudice as to the California CLRA claim, the portion of
California Unfair Competition Law claim premised on the CLRA claim, all claims for injunctive relief, and on all California claims
premised solely on alleged omissions by the Company. The United States District Court for the Southern District of California
granted leave to amend as to the remainder of the complaint. On January 25, 2016, plaintiffs filed their Second Consolidated
Amended Complaint (“SAC”). The SAC pursues the same causes of action as the FAC, except for the California CLRA, which, as
noted above, was dismissed with prejudice. The Company filed a motion to dismiss the entirety of the SAC with prejudice on
February 25, 2016. The United States District Court for the Southern District of California granted the Company’s motion to dismiss
the entire SAC with prejudice and entered judgment for the Company on May 13, 2016. Plaintiffs filed their notice of appeal to the
United States Court of Appeals for the Ninth Circuit (the “Ninth Circuit”) on June 10, 2016. The appeal has been fully briefed and is
awaiting an oral argument date.
d
On April 13, 2015, a purported class action was filed in the Superior Court of the State of California for the City and County of
San Francisco against SeaWorld Parks & Entertainment, Inc., captioned Marc Anderson, et. al., v. SeaWorld Parks & Entertainment,
Inc., Case No. CGC-15-545292 (the “Anderson Matter”). The putative class consists of all consumers within California who, within
the past four years, purchased tickets to SeaWorld San Diego. On May 11, 2015, the plaintiffs filed a First Amended Class Action
Complaint (the “First Amended Complaint”). The First Amended Complaint alleges causes of action under the California False
Advertising Law, California Unfair Competition Law and California CLRA. Plaintiffs’ claims are based on their allegations that the
Company misrepresented the physical living conditions and care and treatment of its orcas, resulting in confusion or misunderstanding
among ticket purchasers, and omitted material facts regarding its orcas with intent to deceive and mislead the plaintiff and purported
class members. The First Amended Complaint seeks actual damages, equitable relief, attorneys’ fees and costs. Based on plaintiffs’
definition of the class, the amount in controversy exceeds $5.0 million, but the liability exposure is speculative until the size of the
class is determined (if certification is granted at all). On May 14, 2015, the Company removed the case to the United States District
Court for the Northern District of California, Case No. 15:cv-2172-SC.
uu
t
35
On May 19, 2015, the plaintiffs filed a motion to remand. On September 18, 2015, the Company filed a motion to dismiss the
First Amended Complaint in its entirety. The motion was fully briefed. On September 24, 2015, the United States District Court for
the Northern District of California denied plaintiffs’ motion to remand. On October 5, 2015, plaintiffs filed a motion for leave to file a
motion for reconsideration of this order, and contemporaneously filed a petition for permission to appeal to the Ninth Circuit, which
the Company opposed. On October 14, 2015, the United States District Court for the Northern District of California granted
plaintiffs’ motion for leave. Plaintiffs’ motion for reconsideration was fully briefed. On January 12, 2016, the United States District
Court for the Northern District of California granted in part and denied in part the motion for reconsideration, and refused to remand
the case. On January 22, 2016, plaintiffs filed a petition for permission to appeal the January 12, 2016 order to the Ninth Circuit,
which the Company opposed. On April 7, 2016, the Ninth Circuit denied both of plaintiffs’ petitions for permission to appeal and the
plaintiffs filed a motion for leave to file a Second Amended Class Action Complaint (“Second Amended Complaint”), seeking to add
two additional plaintiffs and make various pleading adjustments. The Company opposed the motion. On August 1, 2016, the United
States District Court for the Northern District of California issued an order granting in part the Company’s motion to dismiss and
granting plaintiffs leave to file an amended complaint by August 22, 2016, which they filed.
aa
The Second Amended Complaint likewise asserted causes of action based on the California False Advertising Law, California
Unfair Competition Law and California CLRA. Essentially plaintiffs allege there were fraudulent representations made by the
Company about the health of its orcas that ultimately induced consumers to purchase admission tickets to SeaWorld parks and in some
cases, plush toys while in the parks. The Company moved to dismiss this on various grounds.
On November 7, 2016, the United States District Court for the Northern District of California issued an order granting in part,
and denying in part, the Company’s motion to dismiss. The United States District Court for the Northern District of California found
that one named plaintiff failed to allege reliance on any specific statements so those claims, in their entirety, have been dismissed. In
addition, the United States District Court for the Northern District of California determined that plaintiffs did not allege any nn
misrepresentations made about the plush toy purchases, which disposes of the CLRA claims based on the toys. The United States
District Court for the Northern District of California also found that certain plaintiff’s conversation with SeaWorld’s trainers was not
“advertising,” and dismissed the false advertising claim and Unfair Competition Law claim premised on it.
t
Plaintiffs filed a Third Amended Class Action Complaint on November 22, 2016. The Company moved to dismiss portions of
that pleading, but the motion to dismiss was denied. What remains at this point are plaintiff’s claims under California’s Unfair
Competition Law, False Advertising Law and the CLRA based on the purchase of tickets; plaintiff’s California Unfair Competition
Law and False Advertising Law claims based on the purchase of plush toys; and plaintiff’s claims under California’s Unfair
Competition Law based on the purchase of plush toys.
The Company believes that these consumer class action lawsuits are without merit and intends to defend these lawsuits
vigorously; however, there can be no assurance regarding the ultimate outcome of these lawsuits.
Other Matters
The Company is a party to various other claims and legal proceedings arising in the normal course of business. In addition,
from time to time the Company is subject to audits, inspections and investigations by, or receives requests for information from,
various federal and state regulatory agencies, including, but not limited to, the U.S. Department of Agriculture’s Animal and Plant
Health Inspection Service (APHIS), the U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA), the
California Occupational Safety and Health Administration (Cal-OSHA), the Florida Fish & Wildlife Commission (FWC), the Equal
Employment Opportunity Commission (EEOC), the Internal Revenue Service (IRS) and the Securities and Exchange Commission
(SEC). From time to time, various parties may also bring lawsuits against the Company. Matters where an unfavorable outcome to the
Company is probable and which can be reasonably estimated are accrued. Such accruals, which are not material for any period
presented, are based on information known about the matters, the Company’s estimate of the outcomes of such matters, and the
Company’s experience in contesting, litigating and settling similar matters. Matters that are considered reasonably possible to result in
a material loss are not accrued for, but an estimate of the possible loss or range of loss is disclosed, if such amount or range can be
determined. At this time, management does not expect any known claims, legal proceedings or regulatory matters to have a material
adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
36
PART II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The Company’s common stock is listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “SEAS.” As of
February 20, 2017, there were approximately 906 holders of record of our outstanding common stock. This does not include persons
who hold our common stock in nominee or “street name” accounts through brokers or banks. The following table sets forth the high
and low closing sales prices per share of our common stock during the periods indicated and the amount of cash dividends declared
per share:
Calendar Period
2016
Quarter ended March 31, 2016 ................................................. $
Quarter ended June 30, 2016 .................................................... $
Quarter ended September 30, 2016........................................... $
Quarter ended December 31, 2016 ........................................... $
2015
Quarter ended March 31, 2015 ................................................. $
Quarter ended June 30, 2015 .................................................... $
Quarter ended September 30, 2015........................................... $
Quarter ended December 31, 2015 ........................................... $
High
Low
Cash Dividend
Declared
Per Share
21.45
21.65
15.85
19.62
20.77
21.82
19.47
20.18
$
$
$
$
$
$
$
$
17.05 $
13.80 $
12.12 $
13.60
16.45 $
18.44 $
17.10 $
16.96
0.42
0.21
0.10
(a)
0.42
0.21
0.21
(b)
(a)
In September 2016, our Board suspended the Company’s quarterly dividend policy to allow greater flexibility to deploy capital
to opportunities that offer the greatest long-term returns to shareholders such as, but not limited to, share repurchases,
investments in new attractions or debt repayments.
(b) Cash dividend of $0.21 per share, which was declared on January 5, 2016 to all common stockholders of record at the close of
business on January 15, 2016 and paid on January 22, 2016, is included in the table above for the quarter ended March 31, 2016.
Dividends
Prior to September 19, 2016, our Board had a policy to pay, subject to legally available funds, a regular quarterly dividend. The
payment and timing of cash dividends was within the discretion of our Board and depended on many factors, including, but not
limited to, our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions,
restrictions in our debt agreements and in any preferred stock, business prospects and other factors that our Board deemed
relevant. On September 19, 2016, our Board declared a cash dividend of $0.10 per share of common stock. Subsequent to this
dividend declaration, our Board also suspended the Company’s quarterly dividend policy to allow greater flexibility to deploy capital
to opportunities that offer the greatest long-term returns to shareholders such as, but not limited to, share repurchases, investments in
new attractions or debt repayments. Future dividends, if any, and the timing of declaration of any such dividends, will be at thett
discretion of the Board and will depend upon the many factors described above.
We declared cash dividends of $0.73 per share in 2016 and $0.84 per share in 2015. Our ability to declare dividends and make
other restricted payments is limited by covenants in our senior secured credit facilities pursuant to a 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”). The fiscal amount available for dividend declarations, share repurchases and other restricted payments under the covenant
restrictions in the debt agreements adjusts at the beginning of each quarter. See Note 11–Long-Term Debt in the notes to the
consolidated financial statements included elsewhere in this Annual Report on Form 10-K. For tax purposes, all of the dividends paid
in 2016 and a portion of the dividends paid in 2015 were treated as a return of capital to stockholders.
f
Our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries, which may further restrict
our ability to pay dividends as a result of the laws of their jurisdiction of organization, agreements of our subsidiaries or covenants
under any existing and future outstanding indebtedness we or our subsidiaries incur. In particular, the ability of our subsidiaries to
distribute cash to SeaWorld Entertainment, Inc. to pay dividends is limited by covenants in the Senior Secured Credit Facilities.
aa
37
Securities Authorized for Issuance Under Equity Compensation Plans
The information called for by this item is incorporated by reference from our definitive proxy statement relating to our 2017
Annual Meeting of Stockholders, which we will file with the SEC within 120 days after our December 31, 2016 fiscal year end.
Stock Price Performance
SS
This performance graph shall not be deemed “filed” for purposes of S
ection 18 of the Exchange Ac
d
t, or incorporated by
reference into any filing of SeaWorld under the Securities Act or the Exchange Act, except as shall be expressly set forth by s
s
pecific
reference in such filing.
e
The following graph shows a comparison from April 19, 2013 (the date our common stock commenced trading on the New
York Stock Exchange) through December 31, 2016 of the cumulative total return for our common stock, the Standard & Poor’s
(“S&P”) 500 Index, the S&P Midcap 400 Index and the S&P 400 Movies & Entertainment Index. The graph assumes that $100 was
invested in the Company’s common stock and in each index at the market close on April 19, 2013 and assumes that all dividends were
reinvested. The stock price performance of the following graph is not necessarily indicative of future stock price performance.
SeaWorld Entertainment, Inc.
S&P 500 Index - Total Returns
S&P Midcap 400 Index
S&P 400 Movies & Entertainment Index
Comparison of Cumulative Total Return
$180.00
$160.00
$140.00
$120.00
$100.00
$80.00
$60.00
$40.00
$20.00
3/31/2016
4/19/2013
SeaWorld Entertainment, Inc. ....................... $ 100.00 $ 108.53 $ 69.15 $ 79.63 $ 87.19
S&P 500 Index - Total Returns ..................... $ 100.00 $ 120.66 $ 137.17 $ 139.07 $ 140.95
S&P Midcap 400 Index ................................. $ 100.00 $ 121.01 $ 132.84 $ 129.95 $ 134.86
S&P 400 Movies & Entertainment Index ..... $ 100.00 $ 137.70 $ 127.70 $ 126.13 $ 124.65
12/31/2014
12/31/2013
12/31/2015
6/30/2016
12/31/2016
9/30/2016
$ 60.13 $ 56.97 $ 80.01
144.41 $ 149.97 $ 155.70
$
140.25 $ 146.06 $ 156.89
$
144.53 $ 156.53 $ 154.90
$
Note: Comparison of 45 months cumulative total return. Data complete through last fiscal year. Prepared by Zacks Investment
Research, Inc. Used with permission. All rights reserved. Copyright 1980-2017.
Index Data: Copyright Standard and Poor’s Inc. Used with permission. All rights reserved.
Unregistered Sales of Equity Securities
There were no unregistered sales of equity securities during the year ended December 31, 2016.
38
Purchases of Equity Securities by the Issuer
The following table sets forth information with respect to shares of our common stock purchased by the Company during the
periods indicated:
Period Ended
Period Beginning
October 1, 2016 ............. October 31, 2016
November 1, 2016 ......... November 30, 2016
December 1, 2016 ......... December 31, 2016
Total .............................
Total Number
of Shares
Purchased(1)
Average
Price Paid
per Share
1,820 $
—— $
—— $
1,820
14.21
——
——
Total Number of
Shares
Purchased as
Part of Publicly
Announced Plans
or Programs
Maximum Number
(or Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
Under the Plans
or Programs(2)
—— $
——
——
—— $
190,000,035
190,000,035
190,000,035
190,000,035
(1) All purchases were made pursuant to the Company’s Omnibus Incentive Plan, under which participants may satisfy tax
withholding obligations incurred upon the vesting of restricted stock by requesting the Company to withhold shares with a value
equal to the amount of the withholding obligation.
(2)
In 2014, the Board authorized the repurchase of up to $250.0 million of the Company’s common stock (the “Share Repurchase
Program”). Under the Share Repurchase Program, the Company is authorized to repurchase shares through open market
purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including
through Rule 10b5-1 trading plans and under Rule 10b-18 of the Exchange Act. The Share Repurchase Program has no time
limit and may be suspended or discontinued completely at any time. See Note 19 –Stockholders’ Equity in our notes to the
consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information on the Share
Repurchase Program.
Item 6. Selected Financial Data
The following tables set forth our selected historical consolidated financial and operating data as of the dates and for each of the
fiscal years ended December 31, 2016, 2015, 2014, 2013 and 2012.
The selected financial data as of December 31, 2016 and 2015 and for each of the fiscal years ended December 31, 2016, 2015
and 2014 has been derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-
K. The selected financial data as of December 31, 2014, 2013 and 2012 for the fiscal years ended December 31, 2013 and 2012 have
been derived from our audited consolidated financial statements not included in this Annual Report on Form 10-K.
The following tables should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and the consolidated financial statements and the notes thereto included in “Financial Statements and
Supplementary Data.”
39
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Selected Statements of Comprehensive (Loss) Income Data:
Net revenues:
2016
Year Ended December 31,
2014
(In thousands, except per share and per capita amounts)
2013
2015
2012
Admissions ...................................................................... $
Food, merchandise and other ...........................................
Total revenues ............................................................
817,793
526,499
1,344,292
$
846,922
524,082
1,371,004
$
859,426 $ 921,016
539,234
518,386
1,377,812 1,460,250
$
884,407
539,345
1,423,752
Costs and expenses:
Cost of food, merchandise and other revenues ................
Operating expenses (exclusive of depreciation and
amortization shown separately below) ...........................
Selling, general and administrative ..................................
Restructuring and other related costs ...............................
Separation costs ...............................................................
Secondary offering costs .................................................
Termination of advisory agreement .................................
Depreciation and amortization .........................................
Total costs and expenses ..................................................
Operating income ............................................................
Other expense (income), net ............................................
Interest expense ...............................................................
Loss on early extinguishment of debt and write-off
of discounts and debt issuance costs .............................
(Loss) income before income taxes .................................
Provision for income taxes ..............................................
Net (loss) income ............................................................ $
Per share data (a):
Net (loss) income per share, basic ................................... $
Net (loss) income per share, diluted ................................ $
Cash dividends declared per share ................................... $
Weighted average commons shares outstanding:
Basic ................................................................................
Diluted .............................................................................
Other financial and operating data:
Cash capital expenditures ................................................ $
Attendance .......................................................................
Total revenue per capita(b) ............................................... $
Consolidated balance sheet data:
100,643
103,980
109,024
114,192
118,559
736,842
238,557
9,016
——
——
——
199,649
1,284,707
59,585
125
62,661
708,745
214,072
2,268
——
——
——
182,503
1,211,568
159,436
129
65,571
727,659
189,369
11,567
2,574
747
——
176,275
743,322
187,298
——
——
1,407
50,072
166,086
1,217,215 1,262,377
197,873
(241)
90,622
160,597
(198)
81,543
730,582
184,920
—
—
—
—
166,975
1,201,036
222,716
(1,563)
110,565
——
(3,201)
9,330
(12,531) $
20,905
72,831
23,698
49,133
(0.15) $
(0.15) $
$
0.73
0.57
0.57
0.84
84,925
84,925
85,860
85,981
160,518
22,000
61.10
$
$
157,302
22,471
61.01
461
78,791
28,872
49,919 $
29,858
77,634
25,714
51,920
0.57 $
0.57 $
0.62 $
0.59
0.59
0.60
87,183
87,480
87,537
88,152
154,641 $ 166,258
23,391
62.43
22,399
61.51 $
$
$
$
$
$
$
2,053
111,661
37,440
74,221
0.90
0.89
6.07
82,480
83,552
191,745
24,391
58.37
$
$
$
$
$
$
2016
2015
As of December 31,
2014
(In thousands)
2013
2012
68,958
Cash and cash equivalents ............................................... $
Total assets(c), (d) ............................................................... $ 2,378,771
Total long-term debt, net(d) .............................................. $ 1,582,782
461,215
Total equity ...................................................................... $
18,971
$
$ 2,388,662
$ 1,580,743
504,120
$
43,906 $ 116,841
$
$ 2,415,203 $ 2,521,070
$ 1,583,450 $ 1,619,128
579,535 $ 648,027
$
45,675
$
$ 2,464,361
$ 1,792,234
442,302
$
(a) All share and per share amounts reflect an eight-for-one stock split of our common stock effected on April 8, 2013.
(b) Calculated as total revenue divided by total attendance.
40
(c)
(d)
In 2016, the Company elected to early adopt Accounting Standards Update (“ASU”) 2015-17, Balance Sheet Classification of
Deferred Taxes which simplifies the accounting for deferred taxes by requiring an entity to classify all deferred taxes as
noncurrent assets or noncurrent liabilities. This ASU has been applied retrospectively as a change in accounting principle for all
r
periods presented. As a result, the Company reclassified $2.5 million, $7.3 million, $28.9 million and $17.4 million of current
deferred tax assets, net, included in total assets in the selected historical consolidated financial data table above to noncurrent
deferred tax liabilities as of December 31, 2015, 2014, 2013 and 2012, respectively. The adoption of this ASU did not impact
the Company’s consolidated results of operations, stockholders’ equity or cash flows. See Note 3–Recently Issued Accounting
Pronouncements and Note 13–Income Taxes to our consolidated financial statements included elsewhere in this Annual Report
on Form 10-K for further details.
rr
In 2015, the Company elected to early adopt ASU 2015-03, Interest –Imputation of Interest (Topic 835): Simplifying the
Presentation of Debt Issuance Costs which simplifies the accounting for debt issuance costs by requiring such costs to be
ely
aa
presented as a direct deduction from the related debt liability rather than as an asset. This ASU has been applied retrospectiv
as a change in accounting principle for all periods presented. As a result, the Company reclassified $20.0 million, $27.5 million,
and $35.1 million of unamortized debt issuance costs at December 31, 2014, 2013 and 2012, respectively, from other assets to
long-term debt in the selected historical consolidated financial data table above. The adoption of this ASU did not impact the
Company’s consolidated results of operations, stockholders’ equity or cash flows.
Item 7. 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 “Selected Financial Data” and the historical consolidated financial statements and the notes thereto
included in “Financial Statements and Supplementary Data”. This discussion contains forward-looking statements that reflect our
plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the “Risk
Factors” section of this Annual Report on Form 10-K. Actual results may differ materially from those contained in any forward-
ee
looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”
Business Overview
We are a leading theme park and entertainment company providing experiences that matter and inspiring guests to protect
animals and the wild wonders of our world. We own or license a portfolio of recognized brands, including SeaWorld, Busch Gardens
and Sea Rescue. Over our more than 50 year history, we have built a diversified portfolio of 12 destination and regional theme parks
that are grouped in key markets across the United States, many of which showcase our one-of-a-kind zoological collection. Our t
heme
f
parks feature a diverse array of rides, shows and other attractions with broad demographic appeal which deliver memorable
experiences and a strong value proposition for our guests.
During the year ended December 31, 2016, we hosted approximately 22.0 million guests, including approximately 2.9 million
international guests. In the year ended December 31, 2016, we had total revenues of $1.34 billion and we generated a net loss of $12.5
million.
In November 2015, we communicated our roadmap to stabilize our business to drive sustainable growth. This strategic plan
encompasses five key points which include (i) providing experiences that matter; (ii) delivering distinct guest experiences that are fun
and meaningful; (iii) pursuing organic and strategic revenue growth; (iv) addressing the challenges we face; and (v) financial
discipline. The plan is intended to build on our strong business fundamentals by evolving the guest experience to align with consumer
preferences for experiences that matter. Through family entertainment and distinct experiences and attractions, we provide our guests
an opportunity to explore and learn more about the natural world and the plight of animals in the wild, to be inspired and to act to
make a better world. The plan includes a new approach to in-park activities as well as “turning parks inside out” by taking our guests
behind the scenes to provide a better understanding of our veterinary care and animal rescue operations. Other elements of the plan
include implementing a simplified pricing model, targeted capital investments in new attractions across our parks, and an ongoing
focus on cost control as part of a larger commitment to overall financial discipline. Additionally, we announced a new resort strategy
that will include evaluating opportunities which could include purchasing or developing resort properties in or near some of our parks.
We also recently announced our partnership with Miral Asset Management LLC to develop SeaWorld Abu Dhabi (see the
“International Development Strategy” section which follows).
r
r
In March 2016, we converted Aquatica San Antonio into a stand-alone, separate admission park that guests can access through
an independent gate without the need to purchase admission to SeaWorld San Antonio. Prior to 2016, Aquatica San Antonio was only
accessible to SeaWorld San Antonio guests for an additional fee. This separate gate has provided incremental attendance; however, we
have also seen a shift in guests from SeaWorld San Antonio to Aquatica San Antonio. Total combined attendance at our Texas park
locations increased by approximately 333,000 guests in the year ended December 31, 2016 when compared to 2015.
41
Key Business Metrics Evaluated by Management
Attendance
We define attendance as the number of guest visits to our theme parks. Attendance drives admissions revenue as well as total in-
park spending. The level of attendance at our theme parks is a function of many factors, including the opening of new attractions and
shows, competitive offerings, weather, fluctuations in foreign exchange rates and global and regional economic conditions, travel
patterns of both our domestic and international guests, consumer confidence and other factors beyond our control, including the
potential spread of contagious diseases.
Total Revenue Per Capita
Total revenue per capita, defined as total revenue divided by total attendance, consists of admission per capita and in-park per
capita spending:
(cid:120) Admission Per Capita. We calculate admission per capita for any period as total admissions revenue divided by total attendance.
Theme park admissions accounted for approximately 61% of our total revenue for the year ended December 31, 2016. Over the
same time period, we reported $37.17 in admission per capita, representing a decrease of 1.4% from $37.69 for the year ended
December 31, 2015. Admission per capita is driven by ticket pricing, the admissions product mix and the park attendance mix.
The admissions product mix is defined as the mix of tickets purchased such as single day, multi-day or annual passes and the
park attendance mix is defined as the mix of theme parks visited. The mix of theme parks visited 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.
(cid:120) In-Park Per Capita Spending. We calculate in-park per capita spending for any period as total food, merchandise and other
revenue divided by total attendance. For the year ended December 31, 2016, food, merchandise and other revenue accounted
for approximately 39% of our total revenue. Over the same time period, we reported $23.93 of in-park per capita spending,
representing an increase of 2.6% from $23.32 for the year ended December 31, 2015. In-park per capita spending is driven by
pricing changes, penetration levels (percentage of guests purchasing), new product offerings, the mix of guests (such as local,
passholders, domestic or international guests) and the mix of in-park spending. As an example, international guests tend to
drive higher in-park per capita spending when compared to other guests. See further discussion in the “Results of Operations”
section which follows.
Trends Affecting Our Results of Operations
Our ability to attract and retain customers depends, in part, upon the external perceptions of our brands and reputation. Adverse
publicity concerning our business generally could harm our brands, reputation and results of operations. The considerable expansion
in the use of social media over recent years has amplified the impact of negative publicity. Our SeaWorld-branded parks have been
the target of negative media attention concerning the orcas in our care, particularly in the state of California, and we believe we
experienced demand pressures in 2014 and 2015 in California due to such media attention. We introduced a number of initiatives,
including new marketing and reputation campaigns to address public perceptions, share facts and correct misinformation. We believe
that these efforts, among others, have had a positive impact on public perception and on our reputation as we have seen improvement
in our attendance and revenue trends in California in 2016.
On March 17, 2016, we announced that we have ended all orca breeding and the orcas currently in our care will be the last
generation of orcas at SeaWorld (the “Orca Announcement”). We also announced that we will introduce new, inspiring, natural orca
encounters and phase out our current theatrical shows, as part of our ongoing commitment to education, marine science research,
and
f
rescue of marine animals. These programs will focus on orca enrichment, exercise, and overall health. This change will start in our
SeaWorld San Diego park in 2017, and is expected to be at all three SeaWorld parks by 2019. In conjunction with the Orca
Announcement, the orca habitat expansion we previously disclosed (the “Blue World Project”), as originally designed and planned,
will not move forward and we will spend significantly less capital than the originally proposed Blue World Project. The “new”
SeaWorld will maintain our unique value proposition of providing experiences that matter, and inspiring guests to protect animals and
the wild wonders of our world. We have implemented an integrated marketing plan designed to attract new and repeat guests to thet
“new” SeaWorld with its unique blend of compelling animal experiences and new rides and attractions for the whole family.
n
42
Attendance declined in 2016 by approximately 471,000 guests, or 2.1%, primarily due to weakness at our Florida park locations,
and to a lesser extent, a decline in attendance at our Northeast park locations, partially offset by an increase of 333,000 in attendance
at our Texas park locations, which mainly benefited from the new gate at its water park in 2016. The weakness in Florida, a decline of
approximately 547,000 guests when compared to 2015, can be attributed to the following factors: (i) a decline in international
attendance, particularly from Latin America which decreased by approximately 383,000 guests, or 32%; (ii) an overall softness in the
Orlando market as evidenced by reduced hotel occupancy at Orlando-area hotels, along with competitive pressures in Orlando early in
2016; and, to a lesser extent, (iii) the adverse effects of Tropical Storm Colin, Hurricane Matthew and Hurricane Hermine at our
Florida park locations. Passholder attendance for SeaWorld Orlando in 2016 also declined, and we believe this decline resulted from
less discounting on season pass products early in 2016 when compared to the same period of 2015. To address this issue, we
introduced new strategic season pass promotions later in 2016. Passholder attendance for SeaWorld Orlando declined by 18% in the
first half of 2016 compared to the first half of 2015; however, passholder attendance improved later in the year and increased by 4% in
the second half of 2016 when compared to the second half of 2015. The decline in attendance at our Northeast park locations for 2016
was primarily due to the effects of Hurricane Matthew and Hurricane Hermine.
We believe the decline in international attendance results from the strengthening of the U.S. dollar against a variety of foreign
currencies. Our internal indicators show the majority of the international shortfall is coming from Brazil, which has recently faced
political instability and an economic recession. In 2016, the decline from Latin America that we experienced in the first quarter (down
32%) accelerated during the second quarter (down 47%) but abated in the third quarter (down 28%) and the fourth quarter (down
23%). Fluctuations in foreign currency exchange rates impact our business due to the effect a strong dollar has on international tourist
spending. To manage this impact going forward, we modified our international marketing to reflect more appropriate ticket offers in
light of the foreign currency exchange rate pressures and we shifted portions of our marketing spend from Latin America to domestic
markets. The June 2016 announcement of the Referendum of the United Kingdom's Membership of the European Union (referred to
as Brexit) has introduced additional volatility and uncertainty in global stock markets and currency exchange rates which could also
d
have an impact on our future international attendance from the United Kingdom in particular. Historically, attendance from the
United Kingdom represents approximately 5% of our total annual attendance.
y
Looking ahead to 2017, we have introduced strategic season pass promotions and other ticket offers, expanded on our special
events and announced an extensive 2017 new line-up of attractions, shows and events. We expect 2017 to be one of the largest new
attraction years in our more than 50 year history. We have also begun working with a leading consulting firm in an effort to enhance
our pricing capabilities and capitalize on what we believe are meaningful total revenue per capita opportunities. We plan to work
together on revenue enhancement and pricing with a goal of increasing our total revenue per capita.
Our success depends on our ability to grow our business, in part through targeted capital investments to improve our existing
theme parks, rides, attractions and shows. Our growth and innovation strategies require significant commitments of management
resources and capital investments designed to improve guest satisfaction and generate returns. As a result, we make annual
investments to support and improve our existing theme park facilities and attractions. Maintaining and improving our theme parks, as
well as opening new attractions, is critical to remain competitive, grow revenue, and increase our guests’ length of stay. As mentioned
above, we expect to invest in capital spending on new attractions for 2017, which will include a virtual reality experience in Orlando,
a new realm and orca presentation in San Diego and new roller coasters in both Williamsburg and San Antonio.
rr
Our success also depends to some extent on discretionary consumer spending, which is heavily influenced by general economic
conditions and the availability of discretionary income. High volatility and uncertainty as to the future global economic landscape
continues to have an adverse effect on consumers’ discretionary income and consumer confidence. Difficult economic conditions a
recessionary periods may adversely impact attendance figures, the frequency with which guests choose to visit our theme parks and
guest spending patterns at our theme parks. Generally, our revenue and attendance growth have been correlated with domestic
economic growth, as reflected in the gross domestic product (“GDP”) and the overall level of growth in domestic consumer spending.
nd
y
Both attendance and total revenue per capita at our theme parks are key drivers of our revenue and profitability, and reductions
in either can materially adversely affect our business, financial condition, results of operations and cash flows.
43
Regulatory Developments
On July 16, 2015, Senator Dianne Feinstein (D-CA) offered an amendment to the Fiscal Year 2016 Agriculture, Rural
Development, Food and Drug Administration, and Related Agencies spending bill during consideration of the bill by the full
Committee on Appropriations. The amendment directed the U.S. Department of Agriculture’s Animal and Plant Health Inspection
Service (“APHIS”) to issue updated regulations for the display of marine mammals in domestic zoos and aquaria within six months of
enactment. While that amendment was not included in the final Fiscal Year 2016 Omnibus Appropriations Bill, APHIS released a
proposed rule on February 3, 2016 to amend the Animal Welfare Act regulations concerning the humane handling, care and treatment
of marine mammals in captivity (the “Proposed APHIS Regulations”). The Proposed APHIS Regulations were subject to public
comment which ended on May 4, 2016. We submitted a comment letter to APHIS on the final date for comments, expressing our
views on the Proposed APHIS Regulations. The full impact of the Proposed APHIS Regulations on our business will not be known
until the Proposed APHIS Regulations are finalized.
On October 8, 2015, the California Coastal Commission approved the Blue World Project in San Diego, but attached certain
conditions to its approval. Those conditions included, among other things, a prohibition against breeding orcas or transporting orcas to
or from the habitat. On December 29, 2015, we filed a lawsuit against the California Coastal Commission on the grounds that the
California Coastal Commission decision was outside the scope of its authority in imposing such conditions because it does not have
jurisdiction over orcas, which are regulated under federal law. As a result of the Orca Announcement, on April 18, 2016, we sent a
letter to the California Coastal Commission requesting to formally withdraw our coastal development permit application for the Blue
World Project habitat and discuss dismissal of the pending litigation since our legal challenge to the proposed conditions is no longer
warranted. On July 27, 2016, we filed a request for dismissal to dismiss our lawsuit against the California Coastal Commission. On
October 17, 2016, we sent a letter to the California Coastal Commission objecting to the approval of the proposed revised findings for
the Blue World Project. We stated that the adoption of revised findings was not warranted or needed because of the Orca
Announcement and recent changes in California law. On November 4, 2016 the California Coastal Commission voted in the
affirmative to reverse findings on the Blue World Project.
On November 16, 2015, Representative Adam Schiff (D-CA) introduced the Orca Responsibility and Care Advancement Act
(the “ORCA Act”). The bill has been referred to the Natural Resources and Agriculture Committees. It is unclear whether this bill will
be enacted into law, but if enacted, this bill would amend the Marine Mammal Protection Act of 1972 and the Animal Welfare Act to
prohibit the breeding, the taking (wild capture), and the import or export of orcas for the purposes of public display.
On August 26, 2016, following the Orca Announcement, the California Orca Protection Act was enacted into law and (i)
codified the end of captive breeding programs and the export and import of genetic materials for orcas in California, (ii) prohibits the
import or export of new orcas into or out of California, (iii) permits the transfer of orcas currently in California among existing
aa
ms we
f
SeaWorld facilities and (iv) requires educational presentations of orcas in California. As discussed above, the new orca progra
are developing will be consistent with these standards and begin in our San Diego park in 2017 with our other SeaWorld parks
following by 2019. On November 4, 2016, the California Coastal Commission granted approval to permit the renovation of the
existing backdrop at the orca habitat at our San Diego park. This approval allows us to continue to develop our new orca program in
our San Diego park.
On February 8, 2016, the San Diego City Council decided to put a proposal on the June 7, 2016 primary ballot for voters to
decide whether the city of San Diego should have a higher minimum wage than the $10 per hour required by the State of California.
The proposal was approved by San Diego voters and, beginning on July 11, 2016, the city’s minimum wage was increased to $10.50
and, beginning on January 1, 2017, was increased again to $11.50. Two years later in January 2019, annual increases to the San Diego
minimum wage as well as the State of California minimum wage based on the consumer price index will start to be implemented. For
a discussion of certain risks associated with the San Diego minimum wage and State of California minimum wage increases, see “Risk
Factors” included elsewhere in this Annual Report on Form 10-K, including “Risks Related to Our Business and Our Industry—
Increased labor costs and employee health and welfare benefits may negatively impact our operations.”
For a discussion of certain risks associated with federal and state regulations governing the treatment of animals, see “Risk
Factors” included elsewhere in this Annual Report on Form 10-K, including “Risks Related to Our Business and Our Industry—We
are subject to complex federal and state regulations governing the treatment of animals, which can change, and to claims and lawsuits
by activist groups before government regulators and in the courts.”
44
International Development Strategy
We believe that in addition to the growth potential that exists domestically, our brands can also have significant appeal in certain
international markets. We assess these opportunities while maintaining a conservative and disciplined approach towards the execution
of our international development strategy. We have identified certain international market priorities as well as identified certain
international partners within such markets for prioritization of our resources. The market priorities were developed based on a specific
set of criteria to ensure we expand our brands into the most attractive markets.
a
On December 13, 2016, we announced our partnership with Miral Asset Management LLC to develop SeaWorld Abu Dhabi, a
first-of-its-kind marine life themed park on Yas Island (the “Middle East Project”). As part of this partnership, we are providing
certain services pertaining to the planning and design of the Middle East Project, with funding received from our partner in the Middle
East expected to offset our internal expenses.
As of December 31, 2016, we have received a nonrefundable payment of $10.0 million from our partner in consideration of the
design and planning services described above which is recorded as deferred revenue in other liabilities and have incurred
approximately $2.8 million of deferred costs which is recorded in other assets on the accompanying consolidated balance sheet as of
December 31, 2016. On November 3, 2016, the definitive documents related to the Middle East Project were finalized and executed
by the parties.
This next generation SeaWorld Abu Dhabi will also introduce the United Arab Emirates’ (“UAE”) first dedicated marine life
research, rescue, rehabilitation and return center with world-class facilities and resources for the care and conservation of local marine
life. Planned to open ahead of the marine life themed park, the facility will provide an important resource for UAE nationals and
residents looking to develop or enhance expertise in marine life sciences and will serve as a hub for collaboration with local and
international environmental organizations and projects.
SeaWorld Abu Dhabi will be the first new SeaWorld without orcas, and will integrate up-close animal experiences, mega
attractions and a world class aquarium, bringing the latest technology in visitor engagement. SeaWorld Abu Dhabi is expected to
open by 2022. The Middle East Project is subject to various conditions, including, but not limited to, the parties completing the design
development and there is no assurance that the Middle East Project will be completed or advance to the next stage.
For a discussion of certain risks associated with our international development strategy, including the Middle East Project, see
“Risk Factors—Risks Related to Our Business and Our Industry—We may not realize the benefits of acquisitions or other strategic
initiatives.”
Seasonality
The theme park industry is seasonal in nature. Historically, we generate the highest revenues in the second and third quarters of
each year, in part because seven of our theme parks are only open for a portion of the year. Approximately two-thirds of our
attendance and revenues are generated in the second and third quarters of the year and we typically incur a net loss in the first and
fourth quarters. The percent mix of revenues by quarter is relatively constant each year, but revenues can shift between the first and
second quarters due to the timing of Easter and spring break holidays and between the first and fourth quarters due to the timing of
Christmas and New Year. Even for our five theme parks open year-round, attendance patterns have significant seasonality, driven by
holidays, school vacations and weather conditions. One of our goals is to continue to generate cash flow throughout the year to
maximize profitability and minimize the effects of seasonality, in particular at our theme parks that are open year-round. In recent
years, we have begun to drive attendance during non-peak times by offering a variety of seasonal programs and events, such as shows
for kids, special food and concert series, and Halloween and Christmas events. In addition, during seasonally slow times, operating
costs are controlled by reducing operating hours and show schedules. Employment levels required for peak operations are met largely
through part-time and seasonal hiring.
n
Principal Factors Affecting Our Results of Operations
Revenues
Our revenues are driven primarily by attendance in our theme parks and the level of per capita spending for admission to the
theme parks and per capita spending inside the theme parks for culinary, merchandise and other in-park experiences. The level of
attendance in our theme parks is a function of many factors, including the opening of new attractions and shows, competitive
offerings, weather, fluctuations in foreign exchange rates and global and regional economic conditions, travel patterns of both our
h
domestic and international guests, consumer confidence and other factors beyond our control, including the potential spread of
contagious diseases. Admission per capita is driven by ticket pricing, the admissions product mix and the park attendance mix. In-park
per capita spending is driven by pricing changes, penetration levels (percentage of guests purchasing), new product offerings, the mix
of guests (such as local, domestic or international guests) and the mix of in-park spending. For other factors affecting our revenues,
see “Risk Factors—Risks Related to Our Business and Our Industry.”
45
In addition to the theme parks, we are also involved in entertainment, media and consumer product businesses that leverage our
intellectual property. While these businesses currently do not represent a material percentage of our revenue, they are important
strategic drivers in terms of consumer awareness and brand building.
Costs and Expenses
The principal costs of our operations are employee salaries and benefits, advertising, maintenance, animal care, utilities and
insurance. Factors that affect our operating costs and expenses include minimum wage legislation, competitive wage pressures,
commodity prices, costs for construction, repairs and maintenance, other inflationary pressures and attendance levels. A large portion
of our expenses is relatively fixed because the costs for full-time employees, advertising, maintenance, animal care, utilities and
insurance do not vary significantly with attendance. For factors affecting our costs and expenses, see “Risk Factors—Risks Related to
Our Business and Our Industry.”
Operating expenses in 2016 increased $28.1 million, or 4%, when compared to 2015. The increase primarily relates to an
increase in other direct labor and benefit costs and an increase in equity compensation expense. The increase in other direct labor and
benefit costs resulted primarily from wage and merit increases. The additional equity compensation expense relates to an increase of
$10.2 million primarily associated with certain performance-vesting restricted shares originally granted on or before our initial public
offering in 2013, (the “2.25x Performance Restricted shares”), which vested on April 1, 2016 (see Note 18–Equity-Based
Compensation to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K).
Selling, general and administrative expenses in 2016 increased $24.5 million, or 11%, when compared to 2015. The increase
relates to an increase of $20.8 million in equity compensation expense primarily related to the 2.25x Performance Restricted shares
which vested on April 1, 2016 (see Note 18–Equity-Based Compensation to our consolidated financial statements included elsewhere
in this Annual Report on Form 10-K). In addition to the increase in equity compensation expense, selling, general and administrative
expenses also increased by $10.6 million related to barter expense, which was partially offset by targeted costs savings initiatives and
a decrease in marketing and reputation costs.
tt
In 2016, we removed deep-water lifting floors from the orca habitats at each of our three SeaWorld-branded theme parks. The
deep-water lifting floors were intended as another safety tool for conducting in-water training in the deeper pools. The lifting floors
located in the medical pools, where our orca in-water training currently takes place, were not affected. That training will continue as
an essential part of our overall safety program. Having safely and successfully conducted in-water training in the medical pools for
almost 4 years, our safety and zoological professionals determined that the deep-water lifting floors in the deeper pools were no longer
needed. This change provides more space for the animals, and increases the time that the deep-water pool is available by eliminating
downtime for maintenance and cleaning. As a result, in 2016, we recorded $33.7 million of accelerated depreciation related to the
disposal of these lifting floors, which is included in depreciation and amortization expense in the accompanying consolidated
statements of comprehensive (loss) income for the year ended December 31, 2016. During the year ended December 31, 2016, we
also recorded approximately $6.4 million in asset write-offs associated with the canceled Blue World Project, which is included ind
operating expenses in the accompanying consolidated statements of comprehensive (loss) income for the year ended December 31,
2016.
t
Following a fundamental review of our cost structure, we are executing a comprehensive cost optimization program that is
expected to reduce costs by approximately $65.0 million, with a targeted $40.0 million in net savings by the end of 2018. As part of
this program, on December 6, 2016, we committed to and implemented a restructuring program in an effort to reduce costs, increase
efficiencies, reduce duplication of functions and improve the Company’s operations (the “2016 Restructuring Program”). The 2016
Restructuring Program involved the elimination of approximately 320 positions by the end of the fourth quarter of fiscal year 2016
across our theme parks and our headquarters. As a result, we recorded approximately $8.9 million in pre-tax restructuring charges in
the fourth quarter of 2016 related to severance and other related expenses incurred in connection with the 2016 Restructuring Program.
See Note 4–Restructuring Programs and Separation Costs to our consolidated financial statements included elsewhere in this Annual
Report on Form 10-K.
We barter theme park admission products for advertising and various other products and services. The fair value of the
admission products is recognized into admissions revenue and related expenses at the time of the exchange and approximates the
estimated fair value of the goods or services received or provided, whichever is more readily determinable. As mentioned above,
barter expense increased by $10.6 million in 2016 when compared to 2015.
Results of Operations
The following discussion provides an analysis of our consolidated financial data for the years ended December 31, 2016 and
2015. This data should be read in conjunction with our consolidated financial statements and the notes thereto included in “Financial
Statements and Supplementary Data.”
46
Comparison of the Years Ended December 31, 2016 and 2015
The following table presents key operating and financial information for the years ended December 31, 2016 and 2015:
Selected Statements of Comprehensive (Loss) Income Data:
Net revenues:
For the Year Ended
December 31,
2016
2015
Variance
$
%
(In thousands, except per capita data and %)
Admissions ....................................................................... $
Food, merchandise and other ............................................
Total revenues .............................................................
817,793 $
526,499
1,344,292
846,922 $
524,082
1,371,004
(29,129)
2,417
(26,712)
(3.4%)
0.5%
(1.9%)
Costs and expenses:
Cost of food, merchandise and other revenues .................
Operating expenses (exclusive of depreciation and
amortization shown separately below and includes
equity compensation of $11,033 and $863 for the years
ended December 31, 2016 and 2015, respectively) .........
Selling, general and administrative (includes equity
compensation of $26,482 and $5,664 for the years
ended December 31, 2016 and 2015, respectively) .........
Restructuring and other related costs ................................
Depreciation and amortization ..........................................
Total costs and expenses .............................................
Operating income ...................................................
Other expense, net .............................................................
Interest expense .................................................................
Loss on early extinguishment of debt and write-
off of discounts and debt issuance costs ........................
(Loss) income before income taxes .............................
Provision for income taxes ................................................
Net (loss) income ................................................................... $
Other data:
100,643
103,980
(3,337)
(3.2%)
736,842
708,745
28,097
4.0%
238,557
9,016
199,649
1,284,707
59,585
125
62,661
214,072
2,268
182,503
1,211,568
159,436
129
65,571
24,485
6,748
17,146
73,139
(99,851)
(4 )
(2,910)
11.4%
297.5%
9.4%
6.0%
(62.6%)
(3.1%)
(4.4%)
——
(3,201)
9,330
(12,531) $
20,905
72,831
23,698
49,133 $
(20,905)
(76,032)
(14,368)
(61,664)
(100.0%)
(104.4%)
(60.6%)
(125.5%)
Total revenue per capita .................................................... $
22,000
61.10 $
22,471
61.01 $
(471)
0.09
(2.1%)
0.2%
Admissions revenue. Admissions revenue for the year ended December 31, 2016 decreased $29.1 million, or 3.4%, to $817.8
million as compared to $846.9 million for the year ended December 31, 2015. The decrease in admissions revenue was a result of af
decline in attendance of 2.1%, along with a decrease of 1.4% in admission per capita to $37.17 in 2016 from $37.69 in 2015.
Attendance declined by approximately 471,000 guests, primarily due to weakness at our Florida park locations, and to a lesser extent,
a decline in attendance at our Northeast park locations, partially offset by an increase of 333,000 in attendance at our Texas park
locations, which mainly benefited from the new gate at its water park in 2016. The weakness in Florida, a decline of approximately
547,000 guests when compared to 2015, can be attributed to the following factors: (i) a decline in international attendance, particularly
from Latin America which decreased by approximately 383,000 guests, or 32%; (ii) an overall softness in the Orlando market as
evidenced by reduced hotel occupancy at Orlando-area hotels, along with competitive pressures in Orlando early in 2016; and, to a
lesser extent, (iii) the adverse effects of Tropical Storm Colin, Hurricane Matthew and Hurricane Hermine at our Florida park
locations. Passholder attendance for SeaWorld Orlando in 2016 also declined, and we believe this decline resulted from less
discounting on season pass products early in 2016 when compared to the same period of 2015. To address this issue, we introduced
new strategic season pass promotions later in 2016. Passholder attendance for SeaWorld Orlando declined by 18% in the first half of
2016 compared to the first half of 2015; however, passholder attendance improved later in the year and increased by 4% in the second
half of 2016 when compared to the second half of 2015. The decline in attendance at our Northeast park locations for 2016 was
primarily due to the effects of Hurricane Matthew and Hurricane Hermine. The decline in admission per capita results primarily from
y
an unfavorable park attendance mix, resulting from more guest concentration at our water parks in 2016 and the new gate for Aquatica
San Antonio, along with the impact of fewer international guests when compared to 2015. These factors were partially offset by an
increase in admissions per capita due to additional revenue from barter transactions, which are offset in expenses.
y
47
Food, merchandise and other revenue. Food, merchandise and other revenue for the year ended December 31, 2016 increased
$2.4 million, or 0.5% to $526.5 million as compared to $524.1 million for the year ended December 31, 2015. This increase was
primarily a result of a 2.6% increase in in-park per capita spending to $23.93 in 2016 from $23.32 in 2015, which was largely offset
by the decline in attendance. In-park per capita spending improved primarily due to increased sales of in-park products, such as front
of the line “Quick Queue” access.
ii
Costs of food, merchandise and other revenues.
Costs of food, merchandise and other revenues for the year ended December 31,
2016 decreased $3.3 million, or 3.2%, to $100.6 million as compared to $104.0 million for the year ended December 31, 2015. These
costs represent 19.1% and 19.8% of related revenue earned for the years ended December 31, 2016 and 2015, respectively. The
decrease as a percentage of revenue relates to our ongoing focus on cost savings initiatives.
Operating expenses. Operating expenses for the year ended December 31, 2016 increased by $28.1 million, or 4.0% to $736.8
million as compared to $708.7 million for the year ended December 31, 2015. The increase was largely related to an increase in other
direct labor and benefit costs and an increase in equity compensation expense. The increase in other direct labor and benefit costs
resulted primarily from wage and merit increases. The additional equity compensation expense relates to an increase of $10.2 million
primarily associated with the 2.25x Performance Restricted shares, which vested on April 1, 2016 (see Note 18–Equity-Based
Compensation in our notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further
details). Operating expenses were 54.8% of total revenues in 2016 compared to 51.7% in 2015.
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Selling, general and administrative. Selling, general and administrative expenses for the year ended December 31, 2016
increased by $24.5 million, or 11.4% to $238.6 million as compared to $214.1 million for the year ended December 31, 2015. The
increase largely relates to an increase of $20.8 million in equity compensation expense primarily related to the 2.25x Performance
Restricted shares which vested on April 1, 2016 (see Note 18–Equity-Based Compensation in our notes to the consolidated financial
statements included elsewhere in this Annual Report on Form 10-K for further details). In addition to the increase in equity
compensation expense, selling, general and administrative expenses also increased by $10.6 million related to barter expense which
was partially offset by targeted costs savings initiatives and a decrease in marketing and reputation costs. As a percentage of total
revenue, selling, general and administrative expenses were 17.7% in 2016 compared to 15.6% in 2015. Excluding non-cash equity
compensation expense and barter expense, selling, general and administrative expenses decreased by a net of $6.9 million in 2016
when compared to 2015.
Restructuring and other related costs. Restructuring and other related costs of $9.0 million for the year ended December 31,
2016 relates to severance and other related expenses primarily associated with certain positions eliminated in 2016 as a result of the
2016 Restructuring Program announced in December 2016. The 2016 Restructuring Program involved the elimination of
approximately 320 positions by the end of the fourth quarter of fiscal year 2016 across our theme parks and our headquarters.
Restructuring and other related costs of $2.3 million for the year ended December 31, 2015 represent salaries and severance for
individuals with continuing service obligations, which were impacted by the restructuring program announced in December 2014. See
Note 4–Restructuring Programs and Separation Costs to our consolidated financial statements included elsewhere in this Annual
Report on Form 10-K.
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Depreciation and amortization. Depreciation and amortization expense for the year ended December 31, 2016 increased by
$17.1 million, or 9.4% to $199.6 million as compared to $182.5 million for the year ended December 31, 2015. The increase in
depreciation and amortization expense is primarily a result of $33.7 million in accelerated depreciation incurred in the first
f
2016 due to the disposal of deep-water lifting floors from our orca habitats along with new asset additions, partially offset by fully
depreciated assets and asset retirements.
quarter of
Interest expense. Interest expense for the year ended December 31, 2016 decreased $2.9 million, or 4.4% to $62.7 million as
compared to $65.6 million for the year ended December 31, 2015, due to the $260.0 million redemption of the 11.0% unsecured senior
notes in April 2015 which were refinanced with additional term loans under our senior secured credit facilities at a lower interest rate
(effective rate of 4.33% as of December 31, 2016). See Note 11–Long-Term Debt to our consolidated financial statements included
elsewhere in this Annual Report on Form 10-K and the “Our Indebtedness” section which follows for further details.
Loss on early extinguishment of debt and write-off of discounts and debt issuance costs. Loss on early extinguishment of debt
and write-off of discounts and debt issuance costs of $20.9 million for the year ended December 31, 2015 relates to a $14.3 million
premium paid for the early redemption of $260.0 million of our Senior Notes, along with a write-off of approximately $6.0 million in
related discounts and debt issuance costs and a $0.6 million write-off in discounts and debt issuance costs related to the voluntary
prepayment of $30.0 million on our Senior Secured Credit Facilities during the fourth quarter of 2015. See Note 11–Long-Term Debt
to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K and the “Our Indebtedness” section
which follows for further details.
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48
Provision for income taxes. The provision for income taxes for the year ended December 31, 2016 was $9.3 million compared to
a provision of $23.7 million in the year ended December 31, 2015. The change primarily results from the impact of a decrease in
pretax income in 2016 compared to 2015, offset by a change in our effective tax rate. Our effective income tax rate in 2016 (-291.5%)
differs from the statutory federal income tax rate primarily due to permanent items, the majority of which relates to nondeductible
equity-based compensation that was recorded in the first quarter of 2016 due to the 2.25x Performance Restricted shares, which vested
on April 1, 2016, the revaluation of certain state net operating loss carryforwards as a result of a restructuring and state income taxes.
See Note 18–Equity-Based Compensation and Note 13–Income Taxes in our notes to the consolidated financial statements included
elsewhere in this Annual Report on Form 10-K for further details.
Comparison of the Years Ended December 31, 2015 and 2014
The following table presents key operating and financial information for the years ended December 31, 2015 and 2014:
Selected Statements of Comprehensive Income Data:
Net revenues:
For the Year Ended
December 31,
2015
2014
Variance
$
%
(In thousands, except per capita data and %)
Admissions ....................................................................... $
Food, merchandise and other ............................................
Total revenues .............................................................
846,922 $
524,082
1,371,004
859,426 $
518,386
1,377,812
(12,504)
5,696
(6,808)
(1.5%)
1.1%
(0.5%)
Costs and expenses:
Cost of food, merchandise and other revenues .................
Operating expenses (exclusive of depreciation and
amortization shown separately below) ..........................
Selling, general and administrative ...................................
Restructuring and other related costs ................................
Separation costs ................................................................
Secondary offering costs ...................................................
Depreciation and amortization ..........................................
Total costs and expenses ...................................................
Operating income ..............................................................
Other expense (income), net .............................................
Interest expense .................................................................
Loss on early extinguishment of debt and write-
off of discounts and debt issuance costs ........................
Income before income taxes ........................................
Provision for income taxes ................................................
Net income ............................................................................. $
Other data:
Total revenue per capita .................................................... $
NM-Not Meaningful
103,980
109,024
(5,044)
(4.6%)
708,745
214,072
2,268
——
——
182,503
1,211,568
159,436
129
65,571
727,659
189,369
11,567
2,574
747
176,275
1,217,215
160,597
(198)
81,543
(18,914)
24,703
(9,299)
(2,574)
(747)
6,228
(5,647)
(1,161)
327
(15,972)
20,905
72,831
23,698
49,133 $
461
78,791
28,872
49,919 $
20,444
(5,960)
(5,174)
(786)
(2.6%)
13.0%
(80.4%)
(100.0%)
(100.0%)
3.5%
(0.5%)
(0.7%)
(165.2%)
(19.6%)
NM
(7.6%)
(17.9%)
(1.6%)
22,471
61.01 $
22,399
61.51 $
72
(0.50)
0.3%
(0.8%)
Admissions revenue. Admissions revenue for the year ended December 31, 2015 decreased $12.5 million, or 1.5% to $846.9
million as compared to $859.4 million for the year ended December 31, 2014. The decrease in admissions revenue was a result of a
decrease of 1.8% in admission per capita to $37.69 in 2015 from $38.37 in 2014, offset slightly by an increase of 0.3% in attendance.
The change in admission per capita primarily related to an increase in promotional offerings and passholder visitation along with an
unfavorable shift in the park attendance mix compared to the prior year period. Attendance for 2015 primarily benefited from an
improvement at all but two of our park locations, due to increased promotional offerings, strong passholder visitation, additional
consumer event programs and a favorable operating schedule due to the later timing of Labor Day in 2015. The positive impact of
these factors was largely offset by reduced attendance in Texas and California in 2015. The decline in Texas primarily related to a
reduction in passholder visitation and promotional offerings, a lack of significant competitive offerings at this location and the impact
of record levels of rainfall during the second quarter of 2015. The decline in California in 2015 primarily related to continued
SeaWorld brand challenges.
Food, merchandise and other revenue. Food, merchandise and other revenue for the year ended December 31, 2015 increased
$5.7 million, or 1.1% to $524.1 million as compared to $518.4 million for the year ended December 31, 2014. This increase was
primarily a result of a 0.8% increase in in-park per capita spending to $23.32 in 2015 from $23.14 in 2014, along with an increase in
attendance.
49
Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the year ended December 31,
2015 decreased $5.0 million, or 4.6%, to $104.0 million as compared to $109.0 million for the year ended December 31, 2014. These
costs represent 19.8% and 21.0% of related revenue earned for the years ended December 31, 2015 and 2014, respectively. The
decrease as a percent of related revenue primarily resulted from the impact of cost reduction initiatives including improved leveraged
buying efforts.
Operating expenses. Operating expenses for the year ended December 31, 2015 decreased by $18.9 million, or 2.6% to $708.7
million as compared to $727.7 million for the year ended December 31, 2014. The decrease was primarily a result of cost savings
initiatives including a reduction in headcount resulting from the Restructuring Program implemented in December 2014 and a
decrease in entertainment-related costs due primarily to reduced show offerings in 2015 resulting from cost savings initiatives.
Operating expenses were 51.7% of total revenues in 2015 compared to 52.8% in 2014.
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Selling, general and administrative. Selling, general and administrative expenses for the year ended December 31, 2015
increased by $24.7 million, or 13.0% to $214.1 million as compared to $189.4 million for the year ended December 31, 2014. The
increase in 2015 was largely related to: (i) additional third party consulting costs, (ii) an increase in labor related costs primarily
associated with new equity grants awarded in 2015, (iii) an increase in marketing costs associated with our reputation campaign and
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(iv) an increase in legal fees when compared to the prior year period. As a percentage of total revenue, selling, general and
administrative expenses were 15.6% in 2015 compared to 13.7% in 2014.
Restructuring and other related costs. Restructuring and other related costs for 2015 include $2.0 million in severance
associated with certain positions eliminated in the fourth quarter of 2015, and $0.3 million related to severance for individuals with
continuing service obligations through the second quarter of 2015, which were impacted by the restructuring program announced in
December 2014 (the “2014 Restructuring Program”). Restructuring and other related costs of $11.6 million for the year ended
December 31, 2014 represent severance and other related expenses incurred in connection with the 2014 Restructuring Program. The
2014 Restructuring Program involved the elimination of approximately 300 positions across our theme parks and corporate
headquarters in an effort to centralize certain operations and reduce duplication of functions to increase efficiencies.
Separation costs. Separation costs for the year ended December 31, 2014 represented costs incurred in 2014 related to the
separation of our former Chief Executive Officer and President.
Secondary offering costs. On April 9, 2014, the selling stockholders completed an underwritten secondary offering of our
common stock. Pursuant to the Registration Rights Agreement, we paid all expenses related to the offering, other than underwriting
discounts and commissions. No shares were sold by us in the secondary offering and the selling stockholders received all of the net
proceeds from the offering. In connection with this secondary offering, we incurred fees and expenses of $0.7 million for the year
ended December 31, 2014.
Depreciation and amortization. Depreciation and amortization expense for the year ended December 31, 2015 increased by $6.2
million, or 3.5% to $182.5 million as compared to $176.3 million for the year ended December 31, 2014 due primarily to
approximately $5.0 million of accelerated depreciation related to the closure of the Gwazi wooden rollercoaster at our Busch Gardens
Tampa park along with additional depreciation due to the impact of new asset additions, offset by fully depreciated assets and asset
retirements.
Interest expense. Interest expense for the year ended December 31, 2015 decreased $16.0 million, or 19.6% to $65.6 million as
compared to $81.5 million for the year ended December 31, 2014, due to the $260.0 million redemption of the 11.0% unsecured senior
notes in April 2015 which were refinanced with additional term loans under our senior secured credit facilities at a lower interest rate
(effective rate of 4.33% as of December 31, 2015). See Note 11–Long-Term Debt to our consolidated financial statements included
elsewhere in this Annual Report on Form 10-K and the “Our Indebtedness” section which follows for further details.
Loss on early extinguishment of debt and write-off of discounts and debt issuance costs. Loss on early extinguishment of debt
and write-off of discounts and debt issuance costs of $20.9 million for the year ended December 31, 2015 related to a $14.3 million
premium paid for the early redemption of $260.0 million of our Senior Notes, along with a write-off of approximately $6.0 million in
related discounts and debt issuance costs and a $0.6 million write-off in discounts and debt issuance costs related to the voluntary
prepayment of $30.0 million on our Senior Secured Credit Facilities during the fourth quarter of 2015. See Note 11–Long-Term Debt
to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K and the “Our Indebtedness” section
which follows for further details. Loss on early extinguishment of debt and write-off of discounts and debt issuance costs of $0.5
million for the year ended December 31, 2014 related to a write-off in discounts and debt issuance costs related to the volunta
prepayment of $31.5 million on our Senior Secured Credit Facilities during the third quarter of 2014.
ry
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50
Provision for income taxes. The provision for income taxes for the year ended December 31, 2015 was $23.7 million compared
to $28.9 million in the year ended December 31, 2014. The change primarily results from the impact of a decline in the effective tax
rate (from 36.6% to 32.5%) along with a decrease in pretax income in 2015 compared to 2014. Our effective income tax rate
decreased primarily due to the benefit of prior year adjustments, federal tax credits, and an adjustment to certain state net operating
loss carryforwards as a result of restructuring. These benefits were offset in part by a valuation allowance recorded on charitable
contribution carryforwards expiring in 2016, a valuation allowance recorded on certain state net operating losses not expected to be
entirely utilized prior to expiration, as well as the impact of non-deductible costs, including
certain equity compensation awards.
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Liquidity and Capital Resources
Overview
Our principal sources of liquidity are cash generated from operations, funds from borrowings and existing cash on hand. Our
principal uses of cash may include the funding of working capital obligations, debt service, investments in theme parks (including
capital projects), common stock dividends and share repurchases. As of December 31, 2016, we had a working capital deficit of
approximately $109.9 million. Partially as a result of the seasonal nature of our business, we typically operate with a working capital
deficit and we expect that we will continue to have working capital deficits in the future. The working capital deficits are due in part to
a significant deferred revenue balance from revenues paid in advance for our theme park admissions products and high turnover of in-
park products that results in a limited inventory balance. Our cash flow from operations, along with our revolving credit facilities,
have allowed us to meet our liquidity needs while maintaining a working capital deficit.
As market conditions warrant and subject to our contractual restrictions and liquidity position, we, our affiliates and/or our
major stockholders, including Blackstone and its affiliates, may from time to time repurchase 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 repurchases may be funded by incurring new debt, including additional borrowings under the Senior Secured Credit Facilities.
Any new debt may also be secured debt. We may also use available cash on our balance sheet. The amounts involved in any such
transactions, individually or in the aggregate, may be material. Further, since some of our debt may trade at a discount to the face
amount among current or future syndicate members, any such purchases may result in our acquiring and retiring a substantial amount
of any particular series, with the attendant reduction in the trading liquidity of any such series. Depending on conditions in the credit
and capital markets and other factors, we will, from time to time, consider other financing transactions, the proceeds of which could be
used to refinance our indebtedness or for other purposes.
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h
Potential Debt Refinancing Transaction
We are currently exploring a potential refinancing of our existing senior secured credit facilities in order to improve our capital
structure by extending maturities and improving certain other terms of our debt. The debt refinancing will be subject to certain
customary closing conditions and there can be no assurance that we will be successful in completing the refinancing on any particular
terms or at all.
Dividends
Prior to September 19, 2016, our Board of Directors (the “Board”) had a policy to pay, subject to legally available funds, a
regular quarterly dividend. The payment and timing of cash dividends was within the discretion of our Board and depended on many
factors, including, but not limited to, our results of operations, financial condition, level of indebtedness, capital requirements,
contractual restrictions, restrictions in our debt agreements and in any preferred stock, business prospects and other factors that the
Board deemed relevant. On September 19, 2016, our Board declared a cash dividend of $0.10 per share of common
stock. Subsequent to this dividend declaration, our Board also suspended the Company’s quarterly dividend policy to allow greater
flexibility to deploy capital, when possible, to opportunities that offer the greatest long-term returns to shareholders such as, but not
limited to, investments in new attractions, debt repayments or share repurchases. Future dividends, if any, and the timing of
declaration of any such dividends, will be at the discretion of the Board and will depend upon the many factors described above.
Dividends paid to stockholders were $65.3 million, $72.3 million and $72.1 million in the years ended December 31, 2016,
2015 and 2014, respectively. For tax purposes, all of the dividends paid in 2016 and a portion of the dividends paid in 2015 and 2014
were treated as a return of capital to stockholders. See “Market for the Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities-Dividends.”
51
Certain performance-vesting restricted shares originally granted on or before our initial public offering in 2013 (the “2.25x
Performance Restricted shares”) held by some of our equity plan participants vested on April 1, 2016. As a result, we recognized
$27.5 million of equity compensation expense and recorded and paid approximately $3.4 million of accumulated dividends related to
these 2.25x Performance Restricted shares during the year ended December 31, 2016. See Note 18–Equity-Based Compensation to our
consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.
Approximately $0.9 million of dividends declared through December 31, 2016 relate to unvested time restricted shares and
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unvested performance restricted shares with a performance condition considered probable of being achieved and will be paid if the
awards vest in accordance with their terms. Accumulated dividends on certain performance-vesting restricted share awards that are not
considered probable of vesting as of December 31, 2016, were approximately $4.1 million and will be paid only if and to the extent
the shares vest in accordance with their terms.
See Note 18–Equity-Based Compensation and Note 19–Stockholders’ Equity to our consolidated financial statements included
elsewhere in this Annual Report on Form 10-K for further details on our dividend activity and the “Covenant Compliance” section
which follows for further details on covenants that could restrict our ability to make certain restricted payments, including dividend
payments and share repurchases.
Share Repurchases
In 2014, our Board 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. The number of shares to be purchased and the timing of purchases will be based on the level of
our cash balances, general business and market conditions, and other factors, including legal requirements, debt covenant restrictions
and alternative investment opportunities.
There were no share repurchases during the year ended December 31, 2016. During the year ended December 31, 2015, we
repurchased a total of 2,413,803 shares of common stock at an average price of $18.62 per share and a total cost of approximately
$45.0 million, leaving $190.0 million available for future repurchases under the Share Repurchase Program as of December 31, 2016.
See Note 19–Stockholders’ Equity to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K
for further details.
Other
In June 2015, we entered into five forward interest rate swap agreements (the “Forward Swaps”) to effectively fix the interest
rate on the three month LIBOR-indexed interest payments associated with $1.0 billion of our outstanding long-term debt. The Forward
Swaps became effective on September 30, 2016, have a total notional amount of $1.0 billion and mature on May 14, 2020.
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On September 30, 2016 our 4 traditional interest rate swap agreements (collectively, the “Interest Rate Swap Agreements”) with
a combined notional amount of $1.25 billion matured in accordance with their terms. See Note 11–Long-Term Debt and Note 12–
Derivative Instruments and Hedging Activities to our consolidated financial statements included elsewhere in this Annual Report on
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Form 10-K for further details.
We believe that existing cash and cash equivalents, cash flow from operations, and available borrowings under the Senior
Secured Credit Facilities will be adequate to meet the capital expenditures, dividends 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:
Net cash provided by operating activities ................................. $
Net cash used in investing activities .........................................
Net cash used in financing activities.........................................
Net increase (decrease) in cash and cash equivalents ............... $
52
2016
For the Year Ended December 31,
2015
(In thousands)
$
2014
280,412
(160,286)
(70,139)
49,987
$
286,274
$
(157,377)
(153,832)
$
(24,935)
261,532
(156,546)
(177,921)
(72,935)
Cash Flows from Operating Activities
Net cash provided by operating activities was $280.4 million during the year ended December 31, 2016 compared to $286.3
million during the year ended December 31, 2015. The change in net cash provided by operating activities was primarily impacted by
a decrease in revenue in 2016 primarily due to a decline in attendance when compared to the prior year offset by favorable changes in
working capital accounts.
Net cash provided by operating activities was $286.3 million during the year ended December 31, 2015 as compared to $261.5
million during the year ended December 31, 2014. The change in net cash provided by operating activities was primarily impacted by
a reduction in costs along with slightly favorable changes in working capital accounts, offset by a decrease in revenue in 2015
primarily due to a decline in admissions per capita when compared to the prior year.
Cash Flows from Investing Activities
Investing activities consist principally of capital investments we make in our theme parks for future attractions and
infrastructure. Net cash used in investing activities during the year ended December 31, 2016 consisted primarily of capital
expenditures of $160.5 million largely related to future attractions.
Net cash used in investing activities during the years ended December 31, 2015 and 2014 consisted primarily of capital
expenditures of $157.3 million and $154.6 million, respectively, largely related to attractions which opened in 2015 and 2016.
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 2017 capital expenditures through our
operating cash flow.
h
Cash Flows from Financing Activities
Net cash used in financing activities during the year ended December 31, 2016 was primarily attributable to $65.3 million in
cash dividends paid to common stockholders and $12.6 million paid on our Senior Secured Credit Facilities, as defined below, wh
was offset by a net draw on our Revolving Credit Facility of $9.4 million.
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ich
Net cash used in financing activities during the year ended December 31, 2015 was primarily attributable to the following: (i)
$306.2 million in repayment of long-term debt, which included the early redemption of $260.0 million of our Senior Notes and a
voluntary prepayment of $30.0 million in Term B-3 Loans, (ii) $72.3 million in cash dividends paid to common stockholders, (iii)
$50.7 million used for treasury stock purchases, of which $5.7 million relates to treasury stock purchases in December 2014 which
settled in January 2015, (iv) $14.3 million paid as a redemption premium related to the Senior Notes, and (v) $4.6 million paid in debt
issuance costs related to the new Term B-3 Loans, offset by $280.0 million in proceeds from the issuance of the Term B-3 Loans
under the Senior Secured Credit Facilities, as defined below, and a net draw on the Revolving Credit Facility of $15.0 million.
d
Net cash used in financing activities during the year ended December 31, 2014 was primarily attributable to $72.1 million in
cash dividends paid to common stockholders, $60.1 million used to repurchase 2.6 million shares of our common stock and $45.5
million paid on our Term B-2 Loan under the Senior Secured Credit Facilities, as defined below, which included a voluntary
prepayment of $31.5 million.
Our Indebtedness
The Company is a holding company and conducts its operations through its subsidiaries, which have incurred or guaranteed
indebtedness as described below.
Senior Secured Credit Facilities
SeaWorld Parks & Entertainment, Inc. (“SEA”) is the borrower under our senior secured credit facilities (the “Senior Secured
Credit Facilities”) pursuant to a credit agreement dated as of December 1, 2009, by and among SEA, as borrower, Bank of America,
N.A., as administrative agent, collateral agent, letter of credit issuer and swing line lender and the other agents and lenders party
thereto, as the same may be amended, restated, supplemented or modified from time to time.
53
As of December 31, 2016, our Senior Secured Credit Facilities consisted of a $1,327.9 million senior secured term loan facility
(the “Term B-2 Loans”), and a $245.8 million senior secured term loan facility (the “Term B-3 Loans”) which, in each case, will
mature on May 14, 2020 along with a $192.5 million senior secured revolving credit facility (the “Revolving Credit Facility”), of
which $24.4 million was outstanding as of December 31, 2016. The Revolving Credit Facility will mature on the earlier of (a) April AA
24, 2018 and (b) the 91st day prior to the maturity date of any indebtedness incurred to refinance any of the Term B-2 Loans or Term
B-3 Loans, and includes borrowing capacity available for letters of credit and for short-term borrowings referred to as the swing line
borrowings. As of December 31, 2016, SEA had approximately $17.2 million of outstanding letters of credit, leaving approximately
$150.9 million available for borrowing. The outstanding balance under the Revolving Credit Facility is included in current maturities
on long-term debt on the accompanying consolidated balance sheet as of December 31, 2016 included elsewhere in this Annual Report
on Form 10-K, due to the Company’s intent to repay the borrowings within the next twelve months. Subsequent to December 31,
2016, SEA borrowed an additional $45.6 million under the Revolving Credit Facility for general working capital purposes and repaid
$20.0 million.
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The obligations under our Senior Secured Credit Facilities are fully, unconditionally and irrevocably guaranteed by each of the
Company, any subsidiary of the Company that directly or indirectly owns 100% of the issued and outstanding equity interests of SEA,
and, subject to certain exceptions, each of SEA’s existing and future material domestic wholly-owned subsidiaries (collectively, the
ect to
“Guarantors”). Our Senior Secured Credit Facilities are collateralized by first priority or equivalent security interests, subj
certain exceptions, in (i) all the capital stock of, or other equity interests in, substantially all of SEA’s direct or indirect material
wholly-owned domestic subsidiaries (subject to certain exceptions and qualifications) and 65% of the capital stock of, or other equity
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interests in, any of SEA’s first tier foreign subsidiaries and (ii) certain tangible and intangible assets of SEA and those of the
Guarantors (subject to certain exceptions and qualifications).
d
Our Senior Secured Credit Facilities contain a number of customary negative covenants. Such covenants, among other things,
restrict, subject to certain exceptions, the ability of SEA and its restricted subsidiaries to incur additional indebtedness; make
guarantees; create liens on assets; enter into sale and leaseback transactions; engage in mergers or consolidations; sell assets; make
fundamental changes; pay dividends and distributions or repurchase SEA’s capital stock; make investments, loans and advances,
including acquisitions; engage in certain transactions with affiliates; make changes in the nature of the business; and make
prepayments of junior debt. Our Senior Secured Credit Facilities also contain covenants requiring SEA to maintain specified
maximum annual capital expenditures, a maximum total net leverage ratio and a minimum interest coverage ratio. SEA is required to
prepay the outstanding Term B-2 and Term B-3 Loans, subject to certain exceptions with 50% of SEA’s annual “excess cash flow”
(with step-downs to 25% and 0%, as applicable, based upon achievement by SEA of a certain total net leverage ratio). During the first
quarter of 2017, we expect to make a mandatory prepayment of $6.3 million on our Senior Secu
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red Credit Facilitie
excess cash flow calculation as of December 31, 2016.
s based on our
f
We are currently exploring a potential refinancing of our existing senior secured credit facilities in order to improve our capital
structure by extending maturities and improving certain other terms of our debt. The debt refinancing will be subject to
certain customary closing conditions and there can be no assurance that we will be successful in completing the refinancing on any
particular terms or at all.
See Note 11–Long-Term Debt to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K
for further details.
Covenant Compliance
As of December 31, 2016, we were in compliance with all covenants in the credit agreement governing the Senior Secured
Credit Facilities.
The credit agreement governing the Senior Secured Credit Facilities provide for certain events of default which, if any of them
were to occur, would permit or require the principal of and accrued interest, if any, on the loans under the Senior Secured Credit
Facilities to become or be declared due and payable (subject, in some cases, to specified grace periods).
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 covenant Adjusted EBITDA.
The Senior Secured Credit Facilities generally defines “Adjusted EBITDA” as net income (loss) before interest expense, income
tax expense (benefit), 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. Adjusted EBITDA as defined in the Senior
Secured Credit Facilities is consistent with our reported Adjusted EBITDA.
d
n
54
The Senior Secured Credit Facilities contain a number of covenants that, among other things, restrict our ability and the ability
of our restricted subsidiaries to, among other things, make certain restricted payments (as defined in the Senior Secured Credit
Facilities), including dividend payments and share repurchases. See Note 11–Long-Term Debt to our consolidated financial statements
included elsewhere in this Annual Report on Form 10-K for further details concerning the calculation of the Total Leverage Ratio (as
defined in the Senior Secured Credit Facilities). As of December 31, 2016, the Total Leverage Ratio as calculated under the Senior
Secured Credit Facilities was 4.61 to 1.00, which results in a $90.0 million capacity for restricted payments in the year ending
December 31, 2017. The amount available for dividend declarations, share repurchases and certain other restricted payments unde
covenant restrictions in the debt agreements adjusts at the be
consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
ginning of each quarter as set forth in N
Note 11–Long-Term Debt to
our
r the
Adjusted EBITDA
We believe that the presentation of Adjusted EBITDA is appropriate as it eliminates the effect of certain non-cash and other
items not necessarily indicative of a company’s underlying operating performance. We use Adjusted EBITDA in connection with
certain components of our executive compensation program. In addition, investors, lenders, financial analysts and rating agencies have
historically used EBITDA related measures in our industry, along with other measures, to estimate the value of a company, to make
informed investment decisions and to evaluate companies in the industry. In addition, the presentation of Adjusted EBITDA 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.
Adjusted EBITDA is not a recognized term under accounting principles generally accepted in the United States of America
u
(“GAAP”), and should not be considered in isolation or as a substitute for a measure of our financial performance prepared in
accordance with GAAP and is not indicative of income from operations as determined under GAAP. Adjusted EBITDA and other
non-GAAP financial measures have limitations which should be considered before using these measures to evaluate our financial
performance. Adjusted EBITDA, as presented by us, may not be comparable to similarly titled measures of other companies due to
varying methods of calculation. The Senior Secured Credit Facilities generally defines “Adjusted EBITDA” as net income (loss)
before interest expense, income tax expense (benefit), 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. Adjusted
EBITDA as defined in the Senior Secured Credit Facilities is consistent with our reported Adjusted EBITDA.
The following table reconciles Adjusted EBITDA to net (loss) income for the periods indicated:
2016
For the Year Ended December 31,
2015
(In thousands)
2014
Net (loss) income ...................................................................... $
Provision for income taxes .......................................................
Loss on early extinguishment of debt and write-off
of discounts and debt issuance costs ( )
(a) ..................................
Interest expense ........................................................................
Depreciation and amortization ..................................................
Equity-based compensation expense (b) ....................................
Other non-cash expenses (c) ......................................................
Other business optimization costs (d) ........................................
Other adjusting items (e) ............................................................
Other items (f) ............................................................................
Estimated cost savings (g) ..........................................................
Secondary offering costs (h) ......................................................
Adjusted EBITDA(i) .................................................................. $
(12,531) $
9,330
49,133 $
23,698
49,919
28,872
——
62,661
199,649
37,515
9,382
12,384
3,365
233
10,000
——
331,988
$
20,905
65,571
182,503
6,527
6,285
2,219
1,435
901
1,949
—
361,126 $
461
81,543
176,275
2,349
5,036
11,567
3,331
——
10,000
747
370,100
(a) Reflects a $14.3 million premium paid for the early redemption in April 2015 of $260.0 million of our then existing Senior
Notes, along with a write-off of approximately $6.0 million in related discounts and debt issuance costs and a $0.6 million
write-off of discounts and debt issuance costs related to the voluntary prepayment of $30.0 million to our Senior Secured Credit
Facilities in the year ended December 31, 2015. For the year ended December 31, 2014, reflects the write-off of discounts and
debt issuance costs related to the voluntary prepayment of $31.5 million on our Senior Secured Credit Facilities.
(b) Reflects non-cash compensation expenses associated with the grants of equity compensation and includes $27.5 million in the
year ended December 31, 2016 associated with the 2.25x Performance Restricted shares, which vested on April 1, 2016 (see
ff
Note 18–Equity-Based Compensation to our consolidated financial statements included elsewhere in this Annual Report on
Form 10-K for further details).
55
(c) Reflects non-cash expenses related to miscellaneous asset write-offs including $6.4 million in the year ended December 31,
2016 associated with the canceled Blue World Project, and non-cash losses on derivatives.
(d) For the year ended December 31, 2016, reflects business optimization and other strategic initiative costs primarily consisting of
$8.9 million of severance and other related employment expenses for positions eliminated in connection with the previously
announced 2016 Restructuring Program, $2.4 million of third party consulting and legal costs and $1.1 million of other
severance and employment expenses incurred in 2016. For the year ended December 31, 2015, reflects severance and other
employment expenses for certain positions eliminated in the fourth quarter of 2015 as a result of cost saving initiatives. Business
optimization costs for the year ended December 31, 2014 represent restructuring and other related costs and consist of $8.6
million related to severance and other employment expenses and $3.0 million related to third party consulting costs associated
with the development of the cost savings plan and the 2014 Restructuring Program. The Adjusted EBITDA calculations
presented in the table above do not reflect certain 2015 other business optimization costs incurred prior to the fourth quarter of
2015 due to limitations as described in footnote (i) below.
r
(e) Reflects primarily non-recurring product and intellectual property development costs incurred for the years ended December 31,
2016 and 2014 and for the fourth quarter of 2015. For the years ended December 31, 2016 and 2015, also includes state
franchise taxes paid of $0.2 million. State franchise taxes were not included in 2014 and were not material. The Adjusted
EBITDA calculations presented in the table above do not reflect certain 2015 other adjusting items incurred prior to the fourth
quarter of 2015 due to limitations as described in footnote (i) below.
(f) Reflects the impact of certain items during the years ended December 31, 2016 and 2015 which we are permitted to exclude
under the credit agreement governing our Senior Secured Credit Facilities due to the unusual nature of the items. The credit
agreement allows these items to be excluded on after-tax basis only, and accordingly, these items are presented net of the related
taxes of $0.1 million and $0.5 million in the years ended December 31, 2016 and 2015, respectively.
(g) For the years ended December 31, 2016 and 2014, reflects estimated cost savings related to the previously announced 2016 and
2014 Restructuring Programs, respectively. For the year ended December 31, 2015, reflects estimated 2015 cost savings related
to certain actions on cost savings initiatives. These estimated cost savings are a non-GAAP Adjusted EBITDA item only that
does not impact the Company’s reported GAAP net (loss) income. Pursuant to the credit agreement governing our Senior
Secured Credit Facilities, our calculation of Adjusted EBITDA reflects, subject to certain limitations, estimated cost savings
resulting from certain specified actions, including restructurings and cost savings initiatives. The credit agreement governing
our Senior Secured Credit Facilities limits the amount of estimated cost savings that do not result from acquisitions or
dispositions which may be reflected in the calculation of Adjusted EBITDA to $10.0 million for an
y applicable consecutive four
d
quarter period and $30.0 million in the aggregate, of which we have utilized approximately $22.0 million through December 31,
2016.
(h) Reflects fees and expenses incurred in connection with the secondary offering of our common stock in April 2014 for the year
ended December 31, 2014. Pursuant to the Registration Rights Agreement, we paid all expenses related to the offering, other
than underwriting discounts and commissions. No shares were sold by us in the secondary offering and the selling stockholders
received all of the net proceeds from the offering.
(i)
For covenant calculation purposes under our credit agreement, the amount which we are able to add back to Adjusted EBITDA
for other business optimization costs and certain other adjusting items, including restructuring costs and product and intellectual
property development costs, is limited to $10.0 million for any four consecutive quarters (with certain unused amounts carried
over from the prior fiscal year). Due to these limitations, the Adjusted EBITDA calculations presented in the table above do not
reflect $0.3 million of restructuring and other related costs and $2.5 million of product and intellectual property development
costs incurred in the first three quarters of 2015.
Contractual Obligations
The following table summarizes our principal contractual obligations as of December 31, 2016:
Total
Less than
1 Year
1-3 Years 3-5 Years
(In thousands)
More than
5 Years
Long-term debt (including current portion)(a) .................................... $1,598,001 $ 51,713 $
Operating leases(b) ..............................................................................
Purchase obligations(c) ........................................................................
Total contractual obligations .............................................................. $2,064,763 $173,101 $
15,223
106,165
343,839
122,923
33,700 $ 1,512,588 $
28,638
16,758
79,096 $ 1,536,258 $
23,670
——
——
276,308
——
276,308
56
(a) Represents principal payments of long-term debt and does not include estimated interest obligations of (in thousands) $76,643;
$110,036; and $17,287 payable in less than one year, 1-3 year, and 3-5 year periods, respectively, calculated using interest rates
at December 31, 2016. The outstanding balance under our Revolving Credit Facility is included in the less than one year
category in the table above due to our intent to repay the borrowings within the next twelve months. During the first quarter of
2017, we expect to make a mandatory prepayment of $6,300 based on our excess cash flow calculation as of December 31,
2016, which is included in the less than one year category in the table above. See Note 11–Long-Term Debt to our consolidated
financial statements included elsewhere in this Annual Report on Form 10-K for further details.
(b) Represents commitments under long-term operating leases, primarily consisting of the lease for the land of our SeaWorld theme
park in San Diego, California, requiring annual minimum lease payments.
(c) We have minimum purchase commitments with various vendors through 2018. Outstanding minimum purchase commitments
consist primarily of capital expenditures related to future attractions, infrastructure enhancements for existing facilities and
information technology products and services.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of December 31, 2016.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of certain assets and liabilities, revenues and expenses, and disclosure of contingencies during the
reporting period. Significant estimates and assumptions include the valuation and useful lives of long-lived tangible and intangible
assets, the valuation of goodwill and other indefinite-lived intangible assets, the accounting for income taxes, the accounting for self-
g
insurance and revenue recognition. Actual results could differ from those estimates. We believe that the following discussion
addresses our critical accounting policies which require management’s most difficult, subjective and complex judgments, often as a
result of the need to make estimates about the effect of matters that are inherently uncertain.
Property and Equipment
Development costs associated with new attractions, rides and products are generally capitalized after necessary feasibility
studies have been completed and final concept or contracts have been approved. Interest is capitalized on all active construction
projects.
Property and equipment additions are recorded at cost and are depreciated on a straight-line basis over the estimated useful lives.
It is possible that changes in circumstances such as technological advances, use of an asset, changes to our business model or changes
in capital strategy could result in the actual useful lives differing from the original estimate. In cases in which we determine that the
useful life of property and equipment should be shortened, we depreciate the remaining net book value in excess of the salvage value
over the revised remaining useful life, thereby increasing depreciation expense evenly through the remaining expected life.
Impairment of Long-Lived Assets
All long-lived assets, including property and equipment and finite-lived intangible assets, are reviewed for impairment upon the
occurrence of events or changes in circumstances that would indicate that the carrying value of the assets may not be recoverable.
Assets are grouped and tested at the lowest level for which identifiable, independent cash flows are available.
The impairment indicators considered important that may trigger an impairment review, if significant, include the following:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
underperformance relative to historical or projected future operating results;
changes in the manner of use, sale or disposal of assets;
decreases in the market value of assets;
adverse change in legal factors or business climate; and
other macroeconomic conditions.
57
An impairment loss may be recognized when estimated undiscounted future cash flows expected to result from the use of the
asset, including disposition, are less than the carrying value of the asset. The measurement of the impairment loss to be recognized is
based upon the difference between the fair value and the carrying amounts of the assets. Fair value is generally determined based upon
a discounted cash flow analysis. In order to determine if an asset has been impaired, the determination of both undiscounted and
discounted future cash flows requires management to make significant estimates and consider an anticipated course of action as
ff
balance sheet date. Subsequent changes in estimated undiscounted and discounted future cash flows arising from changes in
anticipated actions could impact the determination of whether impairment exists. There was no impairment of any long-lived asset
groups in 2016, 2015 or 2014.
of the
g
Goodwill and Other Indefinite-Lived Intangible Assets
Goodwill and other indefinite-lived intangible assets are reviewed for impairment annually, and as of an interim date should
factors or indicators become apparent that would require an interim test, for ongoing recoverability based on applicable reporting unit
performance and consideration of significant events or changes in the overall business environment.
In assessing goodwill for impairment, we may choose to initially evaluate qualitative factors to determine if it is more likely
than not that the fair value of a reporting unit is less than its carrying amount. We consider several factors, including macroeconomic
conditions, industry and market conditions, overall financial performance of the reporting unit, changes in management, strategy or
customers, and relevant reporting unit specific events such as a change in the carrying amount of net assets, a more-likely-than-not
expectation of selling or disposing all, or a portion, of a reporting unit, and the testing of recoverability of a significant asset group
within a reporting unit. If the qualitative assessment is not conclusive, then the impairment analysis for goodwill is performed at the
reporting unit level using a two-step approach. We may also choose to perform this two-step impairment analysis instead of the
qualitative analysis. The first step is a comparison of the fair value of the reporting unit, determined using the income and market
approach, to its recorded amount. If the recorded amount exceeds the fair value, the second step quantifies any impairment write-down
by comparing the current implied value of goodwill to the recorded goodwill balance.
Significant judgments required in this testing process may include projecting future cash flows, determining appropriate
discount rates and other assumptions. Projections are based on management’s best estimates given recent financial performance,
market trends, strategic plans and other available information which in recent years have been materially accurate. Although not
currently anticipated, changes in these estimates and assumptions could materially affect the determination of fair value or
impairment. It is possible that our assumptions about future performance, as well as the economic outlook and related conclusions
regarding the valuation of our assets, could change adversely, which may result in impairment that would have a material effect on our
financial position and results of operations in future periods.
t
Interim Impairment Test—During the third quarter of 2016, which is one of our largest quarters, due to year to date financial
tt
performance through the third quarter, driven primarily by a decline in international attendance along with competitive pressures and
an overall softness in the Orlando market, we determined a triggering event occurred that required an interim goodwill impairment test
for our SeaWorld Orlando reporting unit, which has goodwill recorded of approximately $269.0 million. The results of step one of the
interim goodwill impairment test as of September 30, 2016 indicated that the fair value for the reporting unit exceeded its carrying
value by 14%. A key assumption utilized in the goodwill analysis was a weighted average cost of capital of 9%.
rr
Annual Impairment Tests— At December 1, 2016, a quantitative assessment was performed and we determined that we had no
reporting units that were considered impaired as a result of this goodwill impairment test. During this quantitative assessment, we
calculated that the fair value of the reporting units exceeded their respective carrying values by 9% and 171%. A key assumption
utilized in the goodwill analysis was a weighted average cost of capital of 10% to 11%. At December 1, 2015, a qualitative
assessment was performed on one of our reporting units and a quantitative assessment was performed on the other. Based on the
assessments, we determined that neither reporting unit was considered impaired. For the quantitative assessment that was performed,
we calculated that the estimated fair value of the reporting unit exceeded its respective carrying value by 19%. A key assumption
utilized in the goodwill analysis was a weighted average cost of capital of 8.5%. At December 1, 2014, a quantitative assessment was
performed and we determined that we had no reporting units that were considered impaired as a result of this goodwill impairment
test. During this quantitative assessment, we calculated that the fair value of the reporting units exceeded their respective carrying
values by 12% and 106%. A key assumption utilized in the goodwill analysis was a weighted average cost of capital of 9%.
Accordingly, based upon the quantitative assessment tests that were performed in 2016, 2015 and 2014, and the qualitative
assessment that was performed as of December 1, 2015, we had no reporting units that were considered at risk of failing step one of
the goodwill impairment tests.
58
Our other indefinite-lived intangible assets consist of certain trade names/trademarks and other intangible assets which, after
y
considering legal, regulatory, contractual, and other competitive and economic factors, are determined to have indefinite lives and are
valued annually using the relief from royalty method. Significant estimates required in this valuation method include estimated future
d
revenues impacted by the trade names/trademarks, royalty rate by park, and appropriate discount rates. Projections are based on
management’s best estimates given recent financial performance, market trends, strategic plans, brand awareness, operating
characteristics by park, and other available information which in recent years have been materially accurate. Changes in these
estimates and assumptions could materially affect the fair value determination used in the assessment of impairment. At December 1,
2016 and 2014, quantitative assessments were performed. At December 1, 2015, we performed a qualitative assessment of certain
trade names/trademarks and a quantitative assessment on the remaining trade names/trademarks. Based on these assessments, there
was no impairment as the estimated fair value of trade names/trademarks were substantially in excess of their carrying values. For the
December 1, 2016 quantitative assessment, we calculated that the estimated fair value of the trade names/trademarks exceeded their
carrying values by 33% to 130%. Key assumptions utilized in the analysis were a discount rate of 12.5% and an estimated royalty rate
of 2% to 3%. For the December 1, 2015 quantitative assessment, we calculated that the estimated fair value of the trade
names/trademarks exceeded their carrying values by 63% to 77%. Key assumptions utilized in the analysis were a discount rate of
11.5% and an estimated royalty rate of 3%. For the December 1, 2014 quantitative assessment, we calculated that the estimated fair
value of the trade names/trademarks exceeded their carrying values by 68% to 85%. Key assumptions utilized in the analysis were a
discount rate of 12.0% and an estimated royalty rate ranging from 2% to 3%.
Accounting for Income Taxes
We are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating
actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as
depreciation periods for property and equipment and deferred revenue, for tax and financial accounting purposes. These differences
result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the
likelihood that deferred tax assets (primarily net operating loss and charitable contribution carryforwards) will be recovered from
future taxable income. To the extent that we believe that recovery is not more likely than not, a valuation allowance against those
amounts is recorded. To the extent that we record a valuation allowance or a change in the valuation allowance during a period, we
recognize these amounts as income tax expense or benefit in the consolidated statements of comprehensive (loss) income. Section 382
n
of the Internal Revenue Code of 1986, as amended (the “Code”) contains rules that limit the ability of a company that undergoes an
ownership change, which is generally any change in ownership of more than 50% of its stock over a rolling three-year period, to
utilize its net operating loss carryforwards in years after the ownership change. These rules generally operate by focusing on
ownership shifts among stockholders owning directly or indirectly 5% or more of the stock of a company and any change in
ownership arising from shares of stock sold by these same stockholders.
Significant management judgment is required in determining our provision or benefit for income taxes, deferred tax assets and
liabilities and any valuation allowance recorded against net deferred tax assets. Management has analyzed all available evidence,
both positive and negative, using a more likely than not standard in assessing the need for a valuation allowance against its deferred
income tax assets. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecast of
future profitability, the duration of the statutory carryback and carryforward periods and tax planning alternatives. The assumptions
about future taxable income require the use of significant judgment and are consistent with the plans and estimates we use to manage
the underlying business.
mm
For the year ended December 31, 2014, a valuation allowance of approximately $1.5 million was recorded on charitable
contribution carryforward deferred tax assets which expired on December 31, 2015. This valuation allowance reversed at such time
due to the expiration of those unused charitable contributions. However, an additional valuation allowance of $0.9 million was
recorded for the year ended December 31, 2015 for the charitable contributions which expired in 2016. This valuation allowance
reversed at such time due to the expiration of those unused charitable contributions.
Due to the uncertainty of realizing the benefit from the deferred tax asset recorded for certain state net operating loss
carryforwards, we have recorded a valuation allowance of $0.6 million, net of federal tax benefit, on the deferred tax assets related to
state net operating losses. We believe it is more likely than not that the benefit from these state net operating loss carryforwards will
not be realized.
rr
Although the secondary offerings that were completed in December 2013 and April 2014 gave rise to an ownership change
under Section 382, we believe that the resulting limitations imposed by Section 382 will not affect our ability to use our exis
ting net
mm
operating loss carryforwards. Any future ownership change may, however, result in further limitations imposed by Section 382. Any
such limitation may have the effect of reducing our after-tax cash flow in future years and may affect our need for a valuation
allowance on our deferred tax assets related to federal and state net operating loss carryforwards.
59
Self-Insurance Reserves
Reserves are recorded for the estimated amounts of guest and employee claims and expenses incurred each period that are not
covered by insurance. Reserves are established for both identified claims and incurred but not reported (“IBNR”) claims. Such
amounts are accrued for when claim amounts become probable and estimable. Reserves for identified claims are based upon our own
historical claims experience and third-party estimates of settlement costs. Reserves for IBNR claims are based upon our own claims
data history, as well as industry averages. All reserves are periodically reviewed for changes in facts and circumstances and
adjustments are made as necessary.
Revenue Recognition
We recognize revenue upon admission into a theme park for single day tickets and when products are received by customers for
merchandise, culinary or other in-park spending. For season passes and other multi-use admission products, revenue is deferred and
recognized based on the terms of the admission product and its estimated usage and is adjusted periodically.
We have entered into agreements with certain external theme park, zoo and other attraction operators, to jointly market and sell
single and multi-use admission products. These joint products allow admission to both a Company park and an external park, zoo or
other attraction. The agreements with the external partners specify the allocation of revenue to us from any jointly sold products.
Whether the Company or the external partner sells the product, our portion of revenue is deferred until the first time the product is
redeemed at one of our parks and recognized over its related use, in a manner consistent with the Company’s own admission products.
d
Recently Issued Financial Accounting Standards
Refer to Note 3–Recently Issued Accounting Pronouncements, in our notes to the consolidated financial statements included
elsewhere in this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Inflation
The impact of inflation has affected, and will continue to affect, our operations significantly. Our costs of food, merchandise and
other revenues are influenced by inflation and fluctuations in global commodity prices. In addition, costs for construction, repairs and
maintenance are all subject to inflationary pressures.
Interest Rate Risk
We are exposed to market risks from fluctuations in interest rates, and to a lesser extent on currency exchange rates, from time
to time, on imported rides and equipment. The objective of our financial risk management is to reduce the potential negative impact of
interest rate and foreign currency exchange rate fluctuations to acceptable levels. We do not acquire market risk sensitive instruments
for trading purposes.
mm
We manage interest rate risk through the use of a combination of fixed-rate long-term debt and interest rate swaps that fix a
portion of our variable-rate long-term debt.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in
accumulated other comprehensive loss and is subsequently reclassified into earnings in the period that the hedged forecasted
transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.
Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest
payments are made on our variable-rate debt. During the next 12 months, our estimate is that an additional $12.7 million will be
reclassified as an increase to interest expense.
After considering the impact of interest rate swap agreements, at December 31, 2016, approximately $1.0 billion of our
outstanding long-term debt represents fixed-rate debt and approximately $573.7 million represents variable-rate debt. Assuming
average balance on our revolving credit borrowings of approximately $40.0 million, a hypothetical 100 bps increase in 3 month
LIBOR on our variable-rate debt would lead to an increase of approximately $6.1 million in annual cash interest costs due to the
impact of our fixed-rate swap agreements.
a
an
60
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements and the notes thereto are provided in Part IV, Item 15 of this Annual Report on Form 10-
K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Regulations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), require public companies, including
us, to maintain “disclosure controls and procedures,” which are defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act to
mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports
that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in
the SEC’s rules and forms and that such information is accumulated and communicated to management, including our principal
executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions
regarding required or necessary disclosures. In designing and evaluating our disclosure controls and procedures, management
recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the disclosure controls and procedures are met. The design of any controls and procedures
also is based on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed
in achieving its stated goals under all potential future conditions. Additionally, in designing disclosure controls and procedures, our
management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls
and procedures. Our management, with the participation of our principal executive officer and principal financial officer, has
evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered
by this report. Based upon that evaluation and subject to the foregoing, our principal executive officer and principal financial officer
concluded that, as of the end of the period covered by this report, the design and operation of our disclosure controls and procedures
were effective to accomplish their objectives at a reasonable assurance level.
dd
Changes in Internal Control over Financial Reporting
Regulations under the Exchange Act require public companies, including our Company, to evaluate any change in our “internal
control over financial reporting” as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. There have been
no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2016 that have materially
y
affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
As required by the SEC’s rules and regulations for the implementation of Section 404 of the Sarbanes-Oxley Act, our
management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control
over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of our consolidated financial statements for external reporting purposes in accordance with accounting principles generally accepted in
the United States of America. Our internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
Company, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and
expenditures are being made only in accordance with authorizations of our management and directors, and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a
material effect on the consolidated financial statements.
nn
a
rr
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements in our
consolidated financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree
f
may deteriorate.
of compliance with the policies or procedures
61
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016. In
making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our assessments and those criteria, management
determined that the Company maintained effective internal control over financial reporting as of December 31, 2016.
Report of Independent Registered Public Accounting Firm
The Company’s independent registered public accounting firm has issued a report on the Company’s internal control over
financial reporting. This report appears on page F-2 in this Annual Report on Form 10-K.
Item 9B. Other Information
Rule 10b5-1 Plans
Our policy governing transactions in our securities by our directors, officers and employees permits such persons to adopt stock
trading plans pursuant to Rule 10b5-1 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended. Our directors, officers and employees have in the past and may from time to time establish such stock trading
plans. We do not undertake any obligation to disclose, or to update or revise any disclosure regarding, any such plans and specifically
do not undertake to disclose the adoption, amendment, termination or expiration of any such plans.
Iran Threat Reduction and Syria Human Rights Act of 2012
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) of the
Exchange Act, the Company hereby incorporates by reference herein Exhibit 99.1 of this report, which includes disclosures publicly
filed and/or provided to Blackstone, an affiliate of our major stockholders, by Travelport Worldwide Limited and NCR Corporation,
which may be considered to have been the Company’s affiliates during all or a portion of fiscal 2016.
62
PART III.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item will be included in our definitive proxy statement to be filed not later than 120 days after
ff
the end of the fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item will be included in our definitive proxy statement to be filed not later than 120 days after
ff
the end of the fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be included in our definitive proxy statement to be filed not later than 120 days after
ff
the end of the fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be included in our definitive proxy statement to be filed not later than 120 days after
ff
the end of the fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this item will be included in our definitive proxy statement to be filed not later than 120 days after
ff
the end of the fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference.
63
PART IV.
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm .........................................................................................
Consolidated Balance Sheets ........................................................................................................................................
Consolidated Statements of Comprehensive (Loss) Income .........................................................................................
Consolidated Statements of Changes in Stockholders’ Equity......................................................................................
Consolidated Statements of Cash Flows .......................................................................................................................
F-2
F-3
F-4
F-5
F-6
Notes to Consolidated Financial Statements ................................................................................................................. F-7 to F-39
2. Financial Statement Schedules
Schedule I—Registrant’s Condensed Financial Statements .......................................................................................... F-40 to F-45
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is
shown in the financial statements or notes herein.
3. Exhibits
See the Exhibit Index beginning on page 66.
Item 16. Form 10-K Summary
None.
64
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Signatures
Date: March 1, 2017
SeaWorld Entertainment, Inc.
By:
/s/ JOEL K. MANBY
Name: Joel K. Manby
Title: President and Chief Executive Officer, Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Date
Capacity
/S/ JOEL K. MANBY
Joel K. Manby
/S/ PETER J. CRAGE
Peter J. Crage
/S/ MARC G. SWANSON
Marc G. Swanson
/S/ DAVID F. D’ALESSANDRO
David F. D’Alessandro
/S/ RONALD BENSION
Ronald Bension
/S/ WILLIAM GRAY
William Gray
/S/ JUDITH A. MCHALE
Judith A. McHale
/S/ THOMAS E. MOLONEY
Thomas E. Moloney
/S/ DONALD C. ROBINSON
Donald C. Robinson
/S/ ELLEN O. TAUSCHER
Ellen O. Tauscher
/S/ DEBORAH M. THOMAS
Deborah M. Thomas
/S/PETER F. WALLACE
Peter F. Wallace
March 1, 2017
President and Chief Executive Officer, Director
(Principal Executive Officer)
March 1, 2017
Chief Financial Officer (Principal Financial Officer)
March 1, 2017
Chief Accounting Officer (Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
March 1, 2017
March 1, 2017
March 1, 2017
March 1, 2017
March 1, 2017
March 1, 2017
March 1, 2017
March 1, 2017
March 1, 2017
65
Exhibit Index
Exhibit No. Description
3.1
Amended and Restated Certificate of Incorporation of SeaWorld Entertainment, Inc. (incorporated by reference to Exhibit
3.1 to the Registrant’s Current Report on Form 8-K filed on April 24, 2013) (No. 001-35883)
3.2
Certificate of Amendment of Amended and Restated Certificate of Incorporation of SeaWorld Entertainment, Inc.,
effective June 15, 2016 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on
June 17, 2016)(No. 001-35883)
3.3
Second Amended and Restated Bylaws of SeaWorld Entertainment, Inc. (incorporated by reference to Exhibit 3.2 to the
Registrant’s Current Report on Form 8-K filed on December 11, 2014) (No. 001-35883)
3.4
Amendment No. 1 to the Second Amended and Restated Bylaws of SeaWorld Entertainment, Inc., effective June 15,
2016 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on June 17, 2016)
(No. 001-35883)
4.1
Stockholders Agreement, dated as of April 24, 2013, among SeaWorld Entertainment, Inc. and the other parties thereto
(incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on April 24, 2013)
10.1
Amendment No. 7, dated as of March 30, 2015, to the Credit Agreement, dated as of December 1, 2009, among
SeaWorld Parks & Entertainment, Inc. (f/k/a SW Acquisitions Co., Inc.), the guarantors party thereto from time to time,
Bank of America, N.A., as administrative agent, collateral agent, Letter of Credit issuer and swing line lender, Deutsche
Bank Securities Inc. and Barclays Bank plc, as co-syndication agents, Mizuho Corporate Banks, Ltd., as documentation
agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc., as joint lead arrangers,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Capital and Deutsche Bank Securities Inc. as joint
bookrunners, and the other agents and lenders from time to time party thereto (the Credit Agreement is included as
Exhibit A to Amendment No. 7) (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form
10-Q for the quarter ended March 31, 2015) (No. 001-35883)
10.2
Joinder Agreement, dated as of December 17, 2012, under the Credit Agreement, among SeaWorld of Texas Holdings,
LLC, SeaWorld of Texas Management, LLC, SeaWorld of Texas Beverage, LLC and Bank of America, N.A., as
administrative agent and collateral agent (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration
Statement on Form S-1 filed on December 27, 2012 (No. 333-185697))
10.3
Joinder Agreement, dated as of May 6, 2015, among SWBG Orlando Corporate Operations Group, LLC, SEA Holdings
I, LLC and Bank of America, N.A., as administrative agent and collateral agent, to the Credit Agreement, dated as of
December 1, 2009 (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2015) (No. 001-35883)
10.4
Security Agreement, dated as of December 1, 2009, among SW Acquisitions Co., Inc., the other grantors named therein
and Bank of America, N.A., as collateral agent (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration
Statement on Form S-1 filed on December 27, 2012 (No. 333-185697))
y
10.5
Supplement No. 1, dated as of December 17, 2012, to the Security Agreement among the grantors identified therein and
Bank of America, N.A., as collateral agent (incorporated by reference to Exhibit 10.8 to the Registrant’s Registration
Statement on Form S-1 filed on December 27, 2012 (No. 333-185697))
10.6
Supplement No. 2, dated as of May 6, 2015, among SWBG Orlando Corporate Operations Group, LLC, SEA Holdings I,
LLC and Bank of America, N.A., as collateral agent, to the Security Agreement, dated as of December 1, 2009
(incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2015) (No. 001-35883)
10.7
Pledge Agreement, dated as of December 1, 2009, between SeaWorld Entertainment, Inc. (f/k/a/SW Holdco, Inc.) and
Bank of America, N.A., as collateral agent (incorporated by reference to Exhibit 10.9 to the Registrant’s Registration
Statement on Form S-1 filed on December 27, 2012 (No. 333-185697))
10.8
Patent Security Agreement, dated as of December 1, 2009, by SeaWorld Parks & Entertainment (f/k/a Busch
Entertainment LLC) in favor of Bank of America, N.A., as collateral agent (incorporated by reference to Exhibit 10.10 to
the Registrant’s Registration Statement on Form S-1 filed on December 27, 2012 (No. 333-185697))
10.9
Trademark Security Agreement, dated as of December 1, 2009, by SeaWorld Parks & Entertainment (f/k/a Busch
Entertainment LLC) in favor of Bank of America, N.A., as collateral agent (incorporated by reference to Exhibit 10.11 to
the Registrant’s Registration Statement on Form S-1 filed on December 27, 2012 (No. 333-185697))
66
Exhibit No. Description
10.10
Trademark Security Agreement, dated as of December 1, 2009, by Sea World LLC in favor of Bank of America, N.A., as
collateral agent (incorporated by reference to Exhibit 10.12 to the Registrant’s Registration Statement on Form S-1 filed
on December 27, 2012 (No. 333-185697))
10.11
Copyright Security Agreement, dated as of December 1, 2009, by SeaWorld Parks & Entertainment (f/k/a Busch
Entertainment LLC) in favor of Bank of America, N.A., as collateral agent (incorporated by reference to Exhibit 10.13 to
the Registrant’s Registration Statement on Form S-1 filed on December 27, 2012 (No. 333-185697))
10.12
Copyright Security Agreement, dated as of December 1, 2009, by Sea World LLC in favor of Bank of America, N.A., as
collateral agent (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form S-1 filed
on December 27, 2012 (No. 333-185697))
10.13
y
Registration Rights Agreement, dated December 1, 2009, by and among SeaWorld Entertainment, Inc. (f/k/a SW Holdco,
Inc.), SW Cayman L.P. and the equityholders named therein (incorporated by reference to Exhibit 10.17 to the
Registrant’s Registration Statement on Form S-1 filed on February 12, 2013(No. 333-185697))
10.14
Lease Amendment, dated January 9, 1978, by and between the City of San Diego and Sea World Inc. (incorporated by
reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1 filed on December 27, 2012 (No. 333-
185697))
10.15
Lease Amendment, dated March 6, 1979, by and between the City of San Diego and Sea World Inc. (incorporated by
reference to Exhibit 10.19 to the Registrant’s Registration Statement on Form S-1 filed on December 27, 2012 (No. 333-
185697))
10.16
Lease Amendment, dated December 12, 1983, by and between the City of San Diego and Sea World Inc. (incorporated
by reference to Exhibit 10.20 to the Registrant’s Registration Statement on Form S-1 filed on December 27, 2012 (No.
333-185697))
10.17
Lease Amendment, dated June 24, 1985, by and between the City of San Diego and Sea World Inc. (incorporated by
reference to Exhibit 10.21 to the Registrant’s Registration Statement on Form S-1 filed on December 27, 2012 (No. 333-
185697))
10.18
Lease Amendment, dated September 22, 1986, by and between the City of San Diego and Sea World Inc. (incorporated
by reference to Exhibit 10.22 to the Registrant’s Registration Statement on Form S-1 filed on December 27, 2012 (No.
333-185697))
10.19
Lease Amendment, dated June 29, 1998, by and between the City of San Diego and Sea World Inc. (incorporated by
reference to Exhibit 10.23 to the Registrant’s Registration Statement on Form S-1 filed on December 27, 2012 (No. 333-
185697))
10.20
Lease Amendment, dated July 9, 2002, by and between the City of San Diego and Sea World Inc. (incorporated by
reference to Exhibit 10.24 to the Registrant’s Registration Statement on Form S-1 filed on December 27, 2012 (No. 333-
185697))
10.21
Trademark License Agreement, dated December 1, 2009, by and between Anheuser- Busch Incorporated and Busch
Entertainment LLC (incorporated by reference to Exhibit 10.25 to the Registrant’s Registration Statement on Form S-1
filed on December 27, 2012 (No. 333-185697))
10.22
Amended and Restated Agreement, dated April 1, 1983, by and between SeaWorld Parks & Entertainment LLC (f/k/a
SPI, Inc.) and Sesame Workshop (f/k/a Children’s Television Workshop) (Portions of this exhibit have been omitted
pursuant to a request for confidential treatment) (incorporated by reference to Exhibit 10.26 to the Registrant’s
Registration Statement on Form S-1 filed on February 12, 2013 (No. 333-185697))
10.23
Amendment, dated August 24, 2006, to the Amended and Restated Agreement, dated April 1, 1983, by and between
SeaWorld Parks & Entertainment LLC (f/k/a SPI, Inc.) and Sesame Workshop (f/k/a Children’s Television Workshop)
(incorporated by reference to Exhibit 10.27 to the Registrant’s Registration Statement on Form S-1 filed on February 12,
2013 (No. 333-185697))
10.24
License Agreement, dated August 24, 2006, by and between Sesame Workshop and SeaWorld Parks & Entertainment
LLC (f/k/a Busch Entertainment Corporation) (Portions of this exhibit have been omitted pursuant to a request for
confidential treatment) (incorporated by reference to Exhibit 10.28 to the Registrant’s Registration Statement on Form S-
1 filed on February 12, 2013 (No. 333-185697))
67
Exhibit No. Description
10.25
10.26
Change in Control Notification and Consent, dated October 6, 2009, pursuant to the license agreement, dated April 1,
1983, as amended on August 24, 2006, between SeaWorld Parks & Entertainment LLC (f/k/a Busch Entertainment
Corporation) and Sesame Workshop (incorporated by reference to Exhibit 10.29 to the Registrant’s Registration
Statement on Form S-1 filed on February 12, 2013 (No. 333-185697))
Change in Control Notification and Consent, dated October 6, 2009, pursuant to the license agreement, dated August 24,
2006, between SeaWorld Parks & Entertainment LLC (f/k/a Busch Entertainment Corporation) and Sesame Workshop
(incorporated by reference to Exhibit 10.30 to the Registrant’s Registration Statement on Form S-1 filed on February 12,
2013 (No. 333-185697))
10.27
Second Amended and Restated Equityholders Agreement, dated as of April 11, 2011 (incorporated by reference to
Exhibit 10.38 to the Registrant’s Registration Statement on Form S-1 filed on February 12, 2013 (No. 333-185697))
10.28†
2013 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.31 to the Registrant’s Registration Statement on
Form S-1 filed on February 12, 2013 (No. 333-185697))
10.29†
Form of Restricted Stock Grant and Acknowledgment (incorporated by reference to Exhibit 10.15 to the Registrant’s
Registration Statement on Form S-1 filed on March 25, 2013 (No. 333-185697))
10.30†
Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.40 to the Registrant’s Registration
Statement on Form S-1 filed on April 8, 2013 (No. 333-185697))
10.31†
Offer Letter to David D’Alessandro, dated September 1, 2010 (incorporated by reference to Exhibit 10.35 to the
Registrant’s Registration Statement on Form S-1 filed on February 12, 2013 (No. 333-185697))
10.32
Form of Share Repurchase Agreement between SeaWorld Entertainment, Inc. and the Partnerships (incorporated by
reference to Exhibit 10.45 to the Registrant’s Registration Statement on Form S-1 filed on November 20, 2013 (No. 333-
192420))
10.33†
Separation and Consulting Agreement, dated December 10, 2014, by and between SeaWorld Entertainment, Inc. and
James Atchison (incorporated by reference to Exhibit 10.45 to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2014) (No. 001-35883)
10.34†
Restricted Stock Award Agreement, dated January 15, 2015, by and between SeaWorld Entertainment, Inc. and David
D’Alessandro (incorporated by reference to Exhibit 10.46 to the Registrant’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2014) (No. 001-35883)
10.35†
10.36†
10.37†
10.38†
Form of Restricted Stock Grant Notice and Restricted Stock Agreement (Employees—Annual Incentive Plan Award)
(incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2015) (No. 001-35883)
Form of Restricted Stock Grant Notice and Restricted Stock Agreement (Employees—Time-Based Shares) (incorporated
by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015)
(No. 001-35883)
d
Form of Option Grant Notice and Option Agreement (Employees—Time-Based Options) (incorporated by reference to
Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015) (No. 001-35883)
Form of Restricted Stock Grant Notice and Restricted Stock Agreement (Employees—Performance-Based Shares)
(incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2015) (No. 001-35883)
10.39†
Employment Agreement, dated March 16, 2015, between SeaWorld Entertainment, Inc. and Joel Manby (incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 19, 2015) (No. 001-35883)
10.40†
10.41†
Restricted Stock Grant Notice and Restricted Stock Agreement (Employees—Time-Based Shares), dated April 7, 2015,
between SeaWorld Entertainment, Inc. and Joel Manby (incorporated by reference to Exhibit 10.12 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2015) (No. 001-35883)
rr
Option Grant Notice and Option Agreement (Employees—Time-Based Options), dated April 7, 2015, between SeaWorld
Entertainment, Inc. and Joel Manby (incorporated by reference to Exhibit 10.13 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2015) (No. 001-35883)
10.42†
Employment Agreement, dated August 17, 2015, between SeaWorld Entertainment, Inc. and Peter J. Crage (incorporated
by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 17, 2015) (No. 001-35883)
68
Exhibit No. Description
10.43†
Employment Agreement, dated August 16, 2015, by and between SeaWorld Entertainment, Inc. and Anthony Esparza
(incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2015) (No. 001-35883)
10.44†
Form of Restricted Stock Agreement (Outside Director Award) (incorporated by reference to Exhibit 10.49 to the
Registrant’s Annual Report on Form 10-K filed on February 26, 2016) (No. 001-35883)
10.45†
Separation Agreement, dated February 18, 2016, between SeaWorld Entertainment, Inc. and Daniel B. Brown
(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 19, 2016)
(No. 001-35883)
10.46†
10.47†
10.48†
10.49†
Amendment No.1 to the Separation and Consulting Agreement, dated as of April 13, 2016, by and between SeaWorld
Entertainment, Inc. and James Atchison (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K filed on April 15, 2016) (No. 001-35883)
Employment Agreement, dated June 14, 2016, between SeaWorld Entertainment, Inc. and Jack Roddy (incorporated by
reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016)(No.
001-35883)
Third Amended and Restated Outside Director Compensation Policy (incorporated by reference to Exhibit 10.2 to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016) (No. 001-35883)
Form of Restricted Stock Award Agreement (Outside Director Annual Award) (incorporated by reference to Exhibit 10.3
to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016) (No. 001-35883)
10.50†*
Amendment #1 to Employment Agreement, dated December 7, 2016, between SeaWorld Entertainment, Inc. and Joel
Manby
10.51†*
Amendment #1 to Employment Agreement, dated December 7, 2016, between SeaWorld Entertainment, Inc. and Peter J.
Crage
10.52†*
Amendment #1 to Employment Agreement, dated December 7, 2016, between SeaWorld Entertainment, Inc. and Anthony
Esparza
10.53†*
Amendment #2 to Employment Agreement, dated December 7, 2016, between SeaWorld Entertainment, Inc. and Jack
Roddy
10.54†*
Offer Letter, dated December 28, 2016, between SeaWorld Entertainment, Inc. and Denise L. Godreau
10.55†*
Amendment #1 to Offer Letter, dated February 21, 2017, between SeaWorld Entertainment, Inc. and Denise L. Godreau
10.56†*
Second Amended and Restated Stock Ownership Guidelines
10.57†*
Amended and Restated Key Employee Severance Plan, effective March 1, 2017
21.1
List of Subsidiaries (incorporated by reference to Exhibit 21.1 to the Registrant’s Annual Report on Form 10-K filed on
February 26, 2016) (No. 001-35883)
23.1*
Consent of Deloitte & Touche LLP
31.1*
Certification of Annual Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification of Annual Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
32.1*
32.2*
Certification of Chief Executive Officer Pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
69
Exhibit No. Description
99.1*
Section 13(r) Disclosure
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
†
*
Identifies exhibits that consist of a management contract or compensatory plan or arrangement.
t
Filed herewith.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other
disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for
that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely
within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they
were made or at any other time.
70
SEAWORLD ENTERTAINMENT, INC.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm ........................................................................................................
Consolidated Balance Sheets as of December 31, 2016 and 2015 ...............................................................................................
Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2016, 2015 and 2014 .............
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2016, 2015 and 2014 .........
.
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014 ...........................................
Notes to Consolidated Financial Statements ................................................................................................................................
Schedule I—Registrant’s Condensed Financial Statements ........................................................................................................
n
Page
Number
F-2
F-3
F-4
F-5
F-6
F-7
F-40
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
SeaWorld Entertainment, Inc.
Orlando, Florida
We have audited the accompanying consolidated balance sheets of SeaWorld Entertainment, Inc. and subsidiaries (the "Company") as
of December 31, 2016 and 2015, and the related consolidated statements of comprehensive (loss) income, stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement
schedule listed in the Index at Item 15. We also have audited the Company’s internal control over financial reporting as of
December 31, 2016, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for these financial statements
and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on these financial statements and financial statement schedule
and an opinion on the Company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
d
effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
f
t
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal
executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal co
ntrol
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
a
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance
f
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
that
h
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.
Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to
the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
SeaWorld Entertainment, Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also, in
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2016, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Tampa, Florida
February 28, 2017
F-2
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)(cid:3)(cid:3)
December 31,
(cid:3)(cid:3)
2016
2015
(cid:3)(cid:3)
Assets
Current assets:
Cash and cash equivalents .......................................................................................... $
Accounts receivable, net ............................................................................................
Inventories ..................................................................................................................
Prepaid expenses and other current assets ..................................................................
Total current assets ...............................................................................................
Property and equipment, at cost .......................................................................................
Accumulated depreciation ...............................................................................................
Property and equipment, net .......................................................................................
Goodwill ..........................................................................................................................
Trade names/trademarks, net ...........................................................................................
Other intangible assets, net ..............................................................................................
Deferred tax assets, net ....................................................................................................
Other assets ......................................................................................................................
Total assets ..................................................................................................................... $
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable ....................................................................................................... $
Current maturities on long-term debt .........................................................................
Accrued salaries, wages and benefits .........................................................................
Deferred revenue ........................................................................................................
Dividends payable ......................................................................................................
Other accrued expenses ..............................................................................................
Total current liab
t
ilities ..........................................................................................
Long-term debt, net of debt issuance costs of $9,702 and $13,333
as of December 31, 2016 and 2015, respectively .........................................................
a
Deferred tax liabilities,
net ..............................................................................................
a
s ................................................................................................................
Other liabilitie
Total liabilities ......................................................................................................
Commitments and contingencies (Note 14)
Stockholders’ Equity:
Preferred stock, $0.01 par value—authorized, 100,000,000 shares, no shares
issued or outstanding at December 31, 2016 and 2015 ...........................................
Common stock, $0.01 par value—authorized, 1,000,000,000 shares; 91,861,054
and 90,320,374 shares issued at December 31, 2016 and 2015, respectively .........
Additional paid-in capital ...........................................................................................
Accumulated other comprehensive loss .....................................................................
Retained earnings .......................................................................................................
Treasury stock, at cost (6,519,773 shares at December 31, 2016
and 2015) .................................................................................................................
Total stockholders’ equity ....................................................................................
68,958 $
36,726
28,684
19,324
153,692
2,828,446
(1,161,631 )
1,666,815
335,610
161,264
18,008
22,114
21,268
2,378,771 $
87,680 $
51,713
21,010
78,891
908
23,410
263,612
1,531,069
70,033
52,842
1,917,556
18,971
39,538
31,213
16,360
106,082
2,748,161
(1,029,165)
1,718,996
335,610
162,726
21,327
23,994
19,927
2,388,662
93,743
31,850
12,330
79,818
430
11,143
229,314
1,548,893
65,689
40,646
1,884,542
—
——
919
621,343
(13,694)
7,518
(154,871 )
461,215
903
624,765
(13,137)
46,460
(154,871)
504,120
2,388,662
Total liabilities and stockholders’ equity ..................................................................... $
2,378,771 $
See accompanying notes to consolidated financial statements.
F-3
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(In thousands, except per share amounts)
Net revenues:
Admissions .................................................................................................. $
Food, merchandise and other .......................................................................
Total revenues ........................................................................................
Costs and expenses: .........................................................................................
Cost of food, merchandise and other revenues ............................................
Operating expenses (exclusive of depreciation and amortization shown
separately below and includes equity compensation of $11,033 and $863
for the years ended December 31, 2016 and 2015, respectively) ..............
Selling, general and administrative (includes equity compensation of
$26,482, $5,664 and $2,349 for the years ended December 31, 2016,
2015 and 2014, respectively) .....................................................................
Restructuring and other related costs ...........................................................
Separation costs ...........................................................................................
Secondary offering costs .............................................................................
Depreciation and amortization .....................................................................
Total costs and expenses ........................................................................
Operating income ........................................................................................
Other expense (income), net ........................................................................
Interest expense ...........................................................................................
Loss on early extinguishment of debt and write-off
of discounts and debt issuance costs .........................................................
(Loss) income before income taxes ...................................................................
Provision for income taxes ..........................................................................
Net (loss) income.............................................................................................. $
Other comprehensive (loss) income:
Comprehensive (loss) income
p
......................................................................... $
Net (loss) income per share, basic ............................................................... $
Net (loss) income per share, diluted ............................................................ $
n shares outstanding:
Diluted .........................................................................................................
2016
Year Ended December 31,
2015
2014
$
817,793
526,499
1,344,292
$
846,922
524,082
1,371,004
859,426
518,386
1,377,812
100,643
103,980
109,024
736,842
708,745
727,659
238,557
9,016
——
——
199,649
1,284,707
59,585
125
62,661
——
$
$
$
$
(3,201)
9,330
(12,531)
(557)
(13,088)
(0.15)
(0.15)
84,925
84,925
214,072
2,268
——
——
182,503
1,211,568
159,436
129
65,571
20,905
72,831
23,698
49,133
(12,654)
36,479
0.57
0.57
85,860
85,981
$
$
$
$
189,369
11,567
2,574
747
176,275
1,217,215
160,597
(198)
81,543
461
78,791
28,872
49,919
(494)
49,425
0.57
0.57
87,183
87,480
See accompanying notes to consolidated financial statements.
F-4
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(In thousands, except per share and share amounts)
Shares of
Common
Stock
Issued
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
e
Income (Loss)
Treasury
Stock,
at Cost
Total
Stockholders'
Equity
.
.
——
——
——
299,583
(8,936)
Balance at December 31, 2013 ........................... 89,900,453 $
Equity-based compensation .................................
Unrealized loss on derivatives, net of
tax benefit of $286 ............................................
Vesting of restricted shares ..................................
Shares withheld for tax withholdings ...................
Cash dividends declared to stockholders
($0.62 per share), net of forfeitures ...................
Repurchase of 2,605,970 shares of treasury
——
stock, at cost ......................................................
——
Net income ...........................................................
Balance at December 31, 2014 ........................... 90,191,100
Equity-based compensation .................................
——
Unrealized loss on derivatives, net of
tax benefit of $6,115 .........................................
Vesting of restricted shares ..................................
Shares withheld for tax withholdings ...................
Cash dividends declared to stockholders
($0.84 per share), net of forfeitures ...................
Repurchase of 2,413,803 shares of treasury
——
stock, at cost ......................................................
Net income ...........................................................
——
Balance at December 31, 2015 ........................... 90,320,374
——
Equity-based compensation .................................
Unrealized loss on derivatives, net of tax
benefit of $2,713 ...............................................
——
Vesting of restricted shares .................................. 1,625,529
(89,180)
Shares withheld for tax withholdings ...................
Exercise of stock options .....................................
4,331
Accumulated cash dividends related to
performance shares which vested during the
period .................................................................
Cash dividends declared to stockholders ($0.73
per share), net of forfeitures ...............................
Net loss ................................................................
Balance at December 31, 2016 ........................... 91,861,054 $
——
171,495
(42,221)
——
——
——
——
.
.
.
.
.
899 $689,394 $ 1,886 $
——
——
3
——
2,349
——
(3)
(213)
——
——
——
——
11 $ (44,163) $ 648,027
2,349
——
——
(494)
——
——
——
——
——
——
—— (36,056)
(18,289)
——
——
——
902
——
——
——
—— 49,919
33,516
——
655,471
6,527
—— (65,708)
——
——
(483) (109,871)
——
——
——
2
(1)
——
(2)
(843)
——
——
——
(12,654)
——
——
—— (36,388)
(36,189)
——
——
——
——
——
——
——
903
——
——
—— 49,133
46,460
——
624,765
—— 37,515
——
——
16
(16)
—— (1,629)
82
——
—— (3,400)
——
——
——
——
——
—— (35,974)
——
(26,411)
—— (12,531)
919 $621,343 $ 7,518 $
—— (45,000)
——
——
(13,137) (154,871)
——
——
(557)
——
——
——
——
——
——
——
——
——
(3,400)
——
——
(62,385)
(12,531)
(13,694) $ (154,871) $ 461,215
——
——
(494)
——
(213)
(54,345)
(65,708)
49,919
579,535
6,527
(12,654)
——
(844)
(72,577)
(45,000)
49,133
504,120
37,515
(557)
——
(1,629)
82
See accompanying notes to consolidated financial statements.
F-5
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(In thousands)
(cid:3)
2016
Year Ended December 31,
2015
2014
Cash Flows From Operating Activities:
p
g
(cid:3)
Net (loss) income ..................................................................................................... $
Changes in assets and liabilities:
Cash Flows From Investing Activities:
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
(cid:3)
Depreciation and amortization .....................................................................
Amortization of debt issuance costs and discounts ......................................
Loss on sale or disposal of assets .................................................................
Loss on early extinguishment of debt and write-off
of discounts and debt issuance costs .........................................................
Loss on derivatives ......................................................................................
Deferred income tax provision .....................................................................
Equity-based compensation .........................................................................
(cid:3)
Accounts receivable .........................................................................
Inventories .......................................................................................
Prepaid expenses and other current assets .......................................
Accounts payable .............................................................................
Accrued salaries, wages and benefits ...............................................
Deferred revenue .............................................................................
Other accrued expenses ...................................................................
Other assets and liabilities ...............................................................
Net cash provided by operating activities ..................................
(cid:3)
Capital expenditures ...................................................................................................
Acquisition of intangible assets ..................................................................................
Change in restricted cash ............................................................................................
Net cash used in investing activities ..........................................
(cid:3)
Repayment of long-term debt ..................................................................................
Proceeds from draw on revolving credit facility ......................................................
Repayment of revolving credit facility ....................................................................
Dividends paid to stockholders ................................................................................
Payment of tax withholdings on equity-based compensation
through shares withheld ........................................................................................
Exercise of stock options .........................................................................................
Proceeds from the issuance of debt ..........................................................................
Debt issuance costs ..................................................................................................
Redemption premium payment ................................................................................
Purchase of treasury stock .......................................................................................
Net cash used in financing activities ..........................................
......................................................................
Change in Cash and Cash Equivalents
Cash and Cash Equivalents—Beginning of period ........................................................
Cash and Cash Equivalents—End of period
Supplemental Disclosures of Noncash Investing and
g
Financing Activities
Cash Flows From Financing Activities:
pp
q
q
p
g
g
g
g
(cid:3)
............................................................. $
, but unpaid ................................................................................ $
Capital expenditures in accounts payable ................................................................ $
$
(cid:3)
(12,531) $
(cid:3)
(cid:3)
(cid:3)
199,649
5,325
9,640
(cid:3)
——
1
8,937
37,515
(cid:3)
2,110
2,503
(3,196)
3,600
8,680
(1,536)
12,281
7,434
280,412
(cid:3)
(160,518)
——
232
(160,286)
(cid:3)
(12,637)
109,351
(100,000)
(65,306)
(cid:3)
(cid:3)
(1,629)
82
——
——
——
——
(70,139)
49,987
18,971
68,958 $
(cid:3)
(cid:3)
908 $
19,080 $
—— $
(cid:3)
49,133 $
49,919
(cid:3)
182,503
6,409
6,685
20,905
287
23,246
6,527
(cid:3)
(3,622)
1,234
835
2,523
(6,738)
943
(2,347)
(2,249)
286,274
(cid:3)
(157,302)
(120)
45
(157,377)
(cid:3)
(306,150)
60,000
(45,000)
(72,318)
(843)
——
280,000
(4,571)
(14,300)
(50,650)
(153,832)
(24,935)
43,906
18,971 $
(cid:3)
430 $
28,743 $
—— $
176,275
9,399
5,792
461
—
28,000
2,349
6,256
2,709
(1,276)
(8,791)
(4,928)
(6,089)
(763)
2,219
261,532
(154,641)
(1,900)
(5)
(156,546)
(45,537)
40,000
(40,000)
(72,113)
(213)
—
—
—
—
(60,058)
(177,921)
(72,935)
116,841
43,906
172
25,730
5,650
See accompanying notes to consolidated financial statements.
F-6
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. DESCRIPTION OF THE BUSINESS
SeaWorld Entertainment, Inc., through its wholly-owned subsidiary, SeaWorld Parks & Entertainment, Inc. (“SEA”) (collectively, the
“Company”), owns and operates twelve theme parks within the United States. Prior to December 1, 2009, the Company did not have
any operations. On December 1, 2009, the Company acquired all of the outstanding equity interest of Busch Entertainment LLC and
affiliates from Anheuser Busch Companies, Inc. and Anheuser-Busch InBev SA/NV (“ABI”). At that time, the Company was owned
by ten limited partnerships (the “Partnerships” or the “selling stockholders”), ultimately owned by affiliates of The Blackstone
Group L.P. (“Blackstone”) and certain co-investors. The Company completed an initial public offering in April 2013, and the selling
stockholders sold shares of common stock in April 2013, December 2013 and April 2014. As of December 31, 2016, the Partnerships
own approximately 21.9% of the Company’s total outstanding common stock. See further discussion in Note 19–Stockholders’
Equity.
The Company operates SeaWorld theme parks in Orlando, Florida; San Antonio, Texas; and San Diego, California, and Busch
Gardens theme parks in Tampa, Florida, and Williamsburg, Virginia. The Company operates water park attractions in Orlando,
Florida (Aquatica); San Antonio, Texas (Aquatica); San Diego, California (Aquatica); Tampa, Florida (Adventure Island); and
Williamsburg, Virginia (Water Country USA). The Company also operates a reservations-only theme park offering interaction with
marine animals in Orlando, Florida (Discovery Cove) and a seasonal park in Langhorne, Pennsylvania (Sesame Place). In March
2016, Aquatica San Antonio was converted into a stand-alone, separate admission park that guests can access through an independent
gate without the need to purchase admission to SeaWorld San Antonio.
During the years ended December 31, 2016, 2015 and 2014 approximately 57%, 57% and 56% of the Company’s revenues were
generated in the State of Florida, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries, including
SEA. All intercompany accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant
estimates and assumptions include, but are not limited to, the accounting for self-insurance, deferred tax assets, deferred revenue,
equity compensation and the valuation of goodwill and other indefinite-lived intangible assets. Actual results could differ from those
estimates.
tt
Reclassifications
Certain prior year amounts have been reclassified to conform to the 2016 presentation, in particular, $2,975 previously included in
current deferred tax assets, net, in the accompanying consolidated balance sheet as of December 31, 2015 was reclassified to
noncurrent deferred tax assets, net, and deferred tax liabilities, net, in the amounts of $503 and $2,472, respectively. This
reclassification is a result of the adoption of a new Accounting Standards Update (“ASU”). See Note 3–Recently Issued Accounting
Pronouncements for further details.
Cash and Cash Equivalents
Cash and cash equivalents include cash held at financial institutions as well as operating cash onsite at each theme park to fund daily
operations and amounts due from third-party credit card companies with settlement terms of less than four days. The amounts due
from third-party credit card companies totaled $12,289 and $9,597 at December 31, 2016 and 2015, respectively. The cash balances in
non-interest bearing accounts held at financial institutions are fully insured by the Federal Deposit Insurance Corporation (“FDIC”)
through December 31, 2016. Interest bearing accounts are insured up to $250. At times, cash balances may exceed federally insured
amounts and potentially subject the Company to a concentration of credit risk. Management believes that no significant concentration
of credit risk exists with respect to these cash balances because of its assessment of the creditworthiness and financial viability of the
respective financial institutions.
u
F-7
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Accounts Receivable—Net
Accounts receivable are reported at net realizable value and consist primarily of amounts due from customers for the sale of admission
products. The Company is not exposed to a significant concentration of credit risk. The Company records an allowance for estimated
uncollectible receivables, based on the amount and status of past-due accounts, contractual terms of the receivables and the
Company’s history of uncollectible accounts. For all periods presented, the allowance for uncollectible accounts and the related
provision were insignificant.
Inventories
Inventories are stated at the lower of cost or net realizable value. Inventories consist primarily of products for resale, incl
merchandise, culinary items and miscellaneous supplies. Obsolete or excess inventories are recorded at their estimated realizable
value.
uding
t
Restricted Cash
Restricted cash was $420 and $652 as of December 31, 2016 and 2015, respectively, and is recorded in other current assets in the
accompanying consolidated balance sheets. Restricted cash consists of funds received from strategic partners for use in approved
marketing and promotional activities.
Property and Equipment—Net
Property and equipment are recorded at cost. The cost of ordinary or routine maintenance, repairs, spare parts and minor renewals is
expensed as incurred. Development costs associated with new attractions and products are generally capitalized after necessary
feasibility studies have been completed and final concept or contracts have been approved. The cost of assets is depreciated us
tt
straight-line method based on the following estimated useful lives:
ing the
Land improvements............................................................ 10-40 years
Buildings ............................................................................ 5-40 years
Rides, attractions and equipment ....................................... 3-20 years
Animals .............................................................................. 1-50 years
Material costs to purchase animals exhibited in the theme parks are capitalized and amortized over their estimated lives (1-50 years).
All costs to maintain animals are expensed as incurred, including in-house animal breeding costs, as they are insignificant to the
consolidated financial statements. Construction in process assets consist primarily of new rides, attractions and infrastructure
improvements that have not yet been placed in service. These assets are stated at cost and are not depreciated. Once construction of the
assets is completed and placed into service, assets are reclassified to the appropriate asset class based on their nature and depreciated
in accordance with the useful lives above. Debt interest is capitalized on all active construction projects. Total interest capitalized for
the years ended December 31, 2016, 2015 and 2014, was $2,686, $2,299 and $2,629, respectively.
Computer System Development Costs
The Company capitalizes computer system development costs that meet established criteria and, once placed in service, amortizes
those costs to expense on a straight-line basis over five years. Total capitalized costs related to computer system development costs,
net of accumulated amortization, were $11,441 and $12,873, as of December 31, 2016 and 2015, respectively, and are recorded in
other assets in the accompanying consolidated balance sheets. Accumulated amortization was $12,576 and $9,250 as of December 31,
2016 and 2015, respectively. Amortization expense of capitalized computer system development costs during the years ended
December 31, 2016, 2015 and 2014 was $3,399, $3,022 and $2,703, respectively, and is recorded in depreciation and amortization in
the accompanying consolidated statements of comprehensive (loss) income. Systems reengineering costs do not meet the proper
criteria for capitalization and are expensed as incurred.
F-8
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Impairment of Long-Lived Assets
All long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances that would indicate that
the carrying value of the assets may not be recoverable. An impairment loss may be recognized when estimated undiscounted future
cash flows expected to result from the use of the asset, including disposition, are less than the carrying value of the asset. The
measurement of the impairment loss to be recognized is based upon the difference between the fair value and the carrying amount
uu
the assets. Fair value is generally determined based upon a discounted cash flow analysis. In order to determine if an asset has been
impaired, assets are grouped and tested at the lowest level for which identifiable independent cash flows are available (generally a
theme park). No impairment losses were recognized during the years ended December 31, 2016, 2015 and 2014.
s of
Goodwill and Other Indefinite-Lived Intangible Assets
Goodwill and other indefinite-lived intangible assets are not amortized, but instead reviewed for impairment at least annually on
December 1, and as of an interim date should factors or indicators become apparent that would require an interim test, with ongoing
recoverability based on applicable reporting unit performance and consideration of significant events or changes in the overall
business environment or macroeconomic changes. Such events or changes in the overall business environment could include, but are
not limited to, significant negative trends or unanticipated changes in the competitive or macroeconomic environment.
In assessing goodwill for impairment, the Company may choose to initially evaluate qualitative factors to determine if it is more likely
than not that the fair value of a reporting unit is less than its carrying amount. The Company considers several factors, including
macroeconomic conditions, industry and market conditions, overall financial performance of the reporting unit, changes in
management, strategy or customers, and relevant reporting unit specific events such as a change in the carrying amount of net assets, a
more-likely-than-not expectation of selling or disposing all, or a portion, of a reporting unit, and the testing for recoverability of a
significant asset group within a reporting unit. If this qualitative assessment results in a conclusion that it is more likely than not that
the fair value of a reporting unit exceeds the carrying value, then no further testing is performed for that reporting unit. If the
qualitative assessment is not conclusive and it is necessary to calculate the fair value of a reporting unit, then the impairment analysis
for goodwill is performed at the reporting unit level using a two-step approach. The Company may also choose to perform this two-
step impairment analysis instead of the qualitative analysis. The first step is a comparison of the fair value of the reporting unit,
determined using the income and market approach, to its recorded amount. If the recorded amount exceeds the fair value, the second
step quantifies any impairment write-down by comparing the current implied value of goodwill to the recorded goodwill balance. The
Company’s other indefinite-lived intangible assets consist of certain trade names/trademarks and other intangible assets which, after
considering legal, regulatory, contractual, and other competitive and economic factors, are determined to have indefinite lives and are
tested for impairment using the relief from royalty method.
f
tt
Interim Impairment Test—During the third quarter of 2016, which is one of the Company’s largest quarters, due to year to date
financial performance through the third quarter, driven primarily by a decline in international attendance along with competitive
pressures and an overall softness in the Orlando market, the Company determined a triggering event occurred that required an interim
goodwill impairment test for its SeaWorld Orlando reporting unit, which has goodwill recorded of approximately $269,000. The first
step in its interim goodwill impairment test was a comparison of the fair value of the reporting unit, determined using the income and
market approach, to its carrying value. If the carrying value exceeded the fair value, the second step quantifies any impairment write-
down by comparing the current implied value of goodwill to the recorded goodwill balance. The results of step one of the interim
goodwill impairment test as of September 30, 2016 indicated that the fair value for the reporting unit exceeded its carrying value and
as a result, step two of the goodwill impairment test was not required. At December 1, 2016, in accordance with the Company’s
annual impairment testing date, another quantitative assessment was performed for this reporting unit and the Company identified no
impairments. Given the current macroeconomic environment and the uncertainties regarding the related impact on the reporting unit’s
financial performance, there can be no assurance that the estimates and assumptions made for purposes of the goodwill impairment nn
testing will prove to be accurate predictions of the future. If the Company’s assumptions, including its projections of future cash flows
and financial performance, as well as the economic outlook for the reporting unit are not achieved, the Company may be required to
record goodwill impairment charges in future periods, whether in connection with the Company’s next annual impairment testing, or
on an interim basis, if any such change constitutes a triggering event outside of the quarter when the Company regularly performs its
annual goodwill 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.
u
ff
r
t
F-9
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Annual Impairment Tests—The Company has performed a quantitative assessment of goodwill and other indefinite-lived intangible
assets for all of its reporting units at December 1, 2016 and either a qualitative or quantitative assessment at December 1, 2015 and
identified no impairments.
Other Definite-Lived Intangible Assets
The Company’s other intangible assets consist primarily of certain trade names/trademarks, relationships with ticket resellers, a
favorable lease asset and a non-compete agreement. These intangible assets are amortized on the straight-line basis over their
estimated remaining lives.
Self-Insurance Reserves
Reserves are recorded for the estimated amounts of guest and employee claims and expenses incurred each period that are not covered
by insurance. Reserves are established for both identified claims and incurred but not reported (“IBNR”) claims. Such amounts are
accrued for when claim amounts become probable and estimable. Reserves for identified claims are based upon the Company’s
historical claims experience and third-party estimates of settlement costs. Reserves for IBNR claims are based upon the Company’s
claims data history, actuarially determined loss development factors and qualitative considerations such as claims management
activities. The Company maintains self-insurance reserves for healthcare, auto, general liability and workers compensation claims.
Total claims reserves were $28,335 at December 31, 2016, of which $2,685 is recorded in accrued salaries, wages and benefits, $7,191
is recorded in other accrued expenses and the remaining long-term portion is recorded in other liabilities in the accompanying
consolidated balance sheets. Total claims reserves were $27,819 at December 31, 2015, of which $2,769 is recorded in accrued
salaries, wages and benefits, $6,973 is recorded in other accrued expenses and the remaining long-term portion is recorded in other
liabilities in the accompanying consolidated balance sheets. All reserves are periodically reviewed for changes in facts and
circumstances and adjustments are made as necessary.
Debt Issuance Costs
Debt issuance costs are amortized to interest expense using the effective interest method over the term of the Senior Secured Credit
Facilities and are included in long term debt, net, in the accompanying consolidated balance sheets.
Share Repurchase Program and Treasury Stock
From time to time, the Company’s Board of Directors (the “Board”) may authorize share repurchases of common stock. Shares
repurchased under Board authorizations are held in treasury for general corporate purposes. The Company accounts for treasury stock
on the trade date under the cost method. Treasury stock at December 31, 2016 and 2015 is recorded as a reduction to stockholders’
equity as the Company does not currently intend to retire the treasury stock held. See further discussion of the Company’s Share
Repurchase Program in Note 19–Stockholders’ Equity.
Revenue Recognition
The Company recognizes revenue upon admission into a park for single day tickets and when products are received by customers for
merchandise, culinary or other in-park spending. For season passes and other multi-use admission products, deferred revenue is
recorded and the related revenue is recognized over the terms of the admission product and its estimated usage. Deferred revenue
includes a current and long-term portion. At December 31, 2016 and 2015, long-term deferred revenue of $509 and $1,820,
respectively, is included in other liabilities in the accompanying consolidated balance sheets. As of December 31, 2016, other
liabilities also includes $10,000 in deferred revenue related to nonrefundable payment received from a partner in connection with a
potential project in the Middle East (the “Middle East Project”) to provide certain services pertaining to the planning and design of the
Middle East Project, with funding received expected to offset internal expenses. Approximately $2,800 of costs incurred related to the
Middle East Project are recorded in other assets on the accompanying consolidated balance sheet as of December 31, 2016. On
November 3, 2016, the definitive documents related to the Middle East Project were finalized and executed by the parties. The
Middle East Project is subject to various conditions, including, but not limited to, the parties completing the design development and
there is no assurance that the Middle East Project will be completed or advance to the next stages.
F-10
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Company has entered into agreements with certain external theme park, zoo and other attraction operators to jointly market and
sell single and multi-use admission products. These joint products allow admission to both a Company park and an external park, zoo
or other attraction. The agreements with the external partners specify the allocation of revenue to the Company from any jointly sold
products. Whether the Company or the external partner sells the product, the Company’s portion of revenue is deferred until the first
time the product is redeemed at one of its parks and recognized over its related use in a manner consistent with the Company’s own
admission products. The Company barters theme park admission products and sponsorship opportunities for advertising, employee
recognition awards, and various other services. The fair value of the products or services is recognized into admissions revenue and
related expenses at the time of the exchange and approximates the estimated fair value of the goods or services received or provided,
whichever is more readily determinable. For the years ended December 31, 2016, 2015 and 2014, approximately $29,000, $18,000
and $17,700, respectively, were included within admissions revenue with an offset in either selling, general and administrative
expenses or operating expenses in the accompanying consolidated statements of comprehensive (loss) income related to bartered ticket
transactions.
Advertising and Promotional Costs
Advertising production costs are deferred and expensed the first time the advertisement is shown. Advertising and media costs are
expensed as incurred and for the years ended December 31, 2016, 2015 and 2014, totaled approximately $124,600, $106,000 and
$110,500, respectively, and are included in selling, general and administrative expenses in the accompanying consolidated statements
of comprehensive (loss) income.
Equity-Based Compensation
The Company measures the cost of employee services rendered in exchange for share-based compensation based upon the grant date
fair market value. The cost is recognized over the requisite service period, which is generally the vesting period, unless service or
performance conditions require otherwise. The Company uses the Black-Scholes Option Pricing Model to value its stock options andaa
the closing stock price on the date of grant to value both its time-vesting and performance-vesting restricted share awards granted in
2016 and 2015. On occasion, the Company may modify the terms or conditions of an equity award for its employees. If an award is
modified, the Company evaluates the type of modification in accordance with Accounting Standards Codification (“ASC 718”),
Compensation-Stock Compensation, to determine the appropriate accounting. See further discussion in Note 18–Equity-Based
Compensation.
Restructuring Costs
The Company accounts for exit or disposal of activities in accordance with ASC 420, Exit or Disposal Cost Obligations. The
Company defines a business restructuring as an exit or disposal activity that includes but is not limited to a program which is planned
and controlled by management and materially changes either the scope of a business or the manner in which that business is
conducted. Business restructuring charges may include (i) one-time termination benefits related to employee separations, (ii) contract
termination costs and (iii) other related costs associated with exit or disposal activities.
A liability is recognized and measured at its fair value for one-time termination benefits once the plan of termination is communicated
mm
to affected employees and it meets all of the following criteria: (i) management commits to a plan of termination, (ii) the plan aa
identifies the number of employees to be terminated and their job classifications or functions, locations and the expected completion
date, (iii) the plan establishes the terms of the benefit arrangement and (iv) it is unlikely that significant changes to the plan will be
made or the plan will be withdrawn. Contract termination costs include costs to terminate a contract or costs that will continue to be
incurred under the contract without benefit to the Company. A liability is recognized and measured at its fair value when the Company
either terminates the contract or ceases using the rights conveyed by the contract.
F-11
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is established for deferred
tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Realizatio
r
dependent on generating sufficient future taxable income or the reversal of deferred tax liabilities during the periods in which those
temporary differences become deductible. The Company evaluates its tax positions by determining if it is more likely than not a taxa
position is sustainable upon examination, based upon the technical merits of the position, before any of the benefit is recorded for
financial statement purposes. The benefit is measured as the largest dollar amount of position that is more likely than not to be
sustained upon settlement. Previously recorded benefits that no longer meet the more-likely-than-not threshold are charged to earnings
in the period that the determination is made. Interest and penalties accrued related to unrecognized tax benefits are charged to the
provision/benefit for income taxes.
n is
Fair Value Measurements
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants.
An entity is permitted to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in
earnings each period. The Company has not elected to use the fair value option for any of its financial assets and financial liabilities
that are not already recorded at fair value. Carrying values of financial instruments classified as current assets and current
liabilities
f
approximate fair value, due to their short-term nature.
A description of the Company’s policies regarding fair value measurement is summarized below.
Fair Value Hierarchy—Fair value is determined for assets and liabilities, which are grouped according to a hierarchy, based upon
significant levels of observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources,
while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when
available. These two types of inputs have created the following fair value hierarchy:
Level 1—Quoted prices for identical instruments in active markets.
Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that
are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in active
markets.
d
Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are
unobservable.
r
ee
Determination of Fair Value—The Company generally uses quoted market prices (u
liabilities that the Company has the ability to access to determine fair value, and classifies such items in Level 1. Fair values
determined by Level 2 inputs utilize inputs other than quoted market prices included in Level 1 that are observable for the asset or
liability, either directly or indirectly. Level 2 inputs include quoted market prices in active markets for similar assets or liabilities, and
inputs other than quoted market prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset
or liability, and include situations where there is little, if any, market activity for the asset or liability. If quoted market prices are not
available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or
independently sourced market parameters, such as interest and currency rates, and the like. Assets or liabilities valued using such
internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the
valuation. Thus, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.
nadjusted) in active markets for identical assets or
a
ff
F-12
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Segment Reporting
The Company maintains discrete financial information for each of its twelve theme parks, which is used by the Chief Operating
Decision Maker (“CODM”), identified as the Chief Executive Officer, as a basis for allocating resources. Each theme park has been
identified as an operating segment and meets the criteria for aggregation due to similar economic characteristics. In addition, all of the
theme parks provide similar products and services and share similar processes for delivering services. The theme parks have a high
degree of similarity in the workforces and target similar consumer groups. Accordingly, based on these economic and operational
similarities and the way the CODM monitors and makes decisions affecting the operations, the Company has concluded that its
operating segments may be aggregated and that it has one reportable segment.
Derivative Instruments and Hedging Activities
ASC 815, Derivatives and Hedging, provides the disclosure requirements for derivatives and hedging activities with the intent to
provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b)
how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged
items affect an entity’s financial position, results of operations and cash flows. Further, qualitative disclosures are required that
explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of, and
gains and losses on, derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair
value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a
hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply
hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability,
or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated
and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are
considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the
hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the
hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may
enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply
or the Company elects not to apply hedge accounting.
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company reviews new accounting pronouncements as they are issued or proposed by the Financial Accounting Standards Board
(“FASB”).
In January 2017, the FASB issued ASU 2017-04, Intangible–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment. This ASU removes step two from the goodwill impairment test, which requires a hypothetical purchase price allocation.
A goodwill impairment charge would now be determined based on the comparison of the fair value of a reporting unit to its carryingy
value, not to exceed the carrying amount of goodwill. This guidance is effective starting with a company’s interim or annual goodwill
impairment tests in fiscal years beginning after December 15, 2019 and must be applied on a prospective basis. Early adoption is
permitted for interim or annual impairment tests performed after January 1, 2017. The Company does not expect a material impact
upon adoption of this ASU to its consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Restricted Cash–a Consensus of the FASB Emerging Issues Task Force. This
ASU aims to reduce the diversity in practice of the presentation of changes or transfers in restricted cash flows on the statement of
cash flows. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash
equivalents when reconciling beginning and ending total amounts on the statement of cash flows for the period. The guidance is
effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual reporting periods
with early adoption permitted and should be applied using a retrospective transition method. The Company does not expect a material
impact upon adoption of this ASU to its consolidated statements of cash flows or consolidated balance sheets.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.
ASU 2016-16 simplifies the income tax accounting of intra-entity transfers of an asset other than inventory by requiring an entity to
recognize the income tax effect when the transfer occurs. The guidance is effective for annual reporting periods beginning after
December 15, 2017, including interim reporting periods within those annual reporting periods and early adoption is permitted. The
Company does not expect a material impact upon adoption of this ASU on its consolidated financial statements.
F-13
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. This ASU provides
guidance on the presentation and classification of eight specific cash flow issues that previously resulted in diversity in practice. The
ASU will be effective for annual periods beginning after December 15, 2017 and interim periods therein, with early adoption
permitted and should be applied using a retrospective transition method. The Company has not yet adopted this ASU but does not
expect a material impact to its consolidated statements of cash flows.
On March 30, 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. This ASU
simplifies several aspects of the accounting for share-based payment transactions (Topic 718) including the accounting for income
taxes, forfeitures and statutory tax withholding requirements, as well as the classification of related amounts within the statement of
cash flows and the classification of awards as either equity or liabilities. The ASU will be effective for annual periods beginning after
December 15, 2016, and interim periods therein, with early adoption permitted. The Company plans to adopt this ASU in the first
quarter of 2017 using the modified retrospective method to recognize certain excess tax benefits related to share-based compensation
and plans to elect to recognize forfeitures as they occur. The Company does not expect a material impact upon adoption to its
consolidated financial statements.
n
On February 25, 2016, the FASB issued ASU 2016-02, Leases. This ASU establishes a new lease accounting model that, for many
companies, eliminates the concept of operating leases and requires entities to record lease assets and lease liabilities on the balance
sheet for certain types of leases. Under this ASU, an entity is required to recognize right-of-use assets and lease liabilities on its
balance sheet and disclose key information about leasing arrangements. Lessees and lessors are required to disclose qualitative and
quantitative information about leasing arrangements to enable financial statement users to assess the amount, timing and uncertainty of
cash flows arising from leases. The ASU will be effective for annual periods beginning after December 15, 2018, and interim periods
therein. Early adoption will be permitted for all entities. The provisions of the ASU are to be applied using a modified retrospective
approach. The Company has not yet adopted this ASU and is currently evaluating the impact of this ASU on its consolidated financial
statements. Upon adoption of this ASU, the Company expects its San Diego land lease, among other operating leases, to be recorded
as a right-of-use asset with a corresponding lease liability.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. This ASU simplifies the
accounting for deferred taxes by requiring an entity to classify all deferred taxes as noncurrent assets or noncurrent liabilities. No other
changes were made to the current guidance on deferred taxes. The ASU is effective for annual periods beginning after December 15,
2016 with early adoption permitted and may be applied as a change in accounting principle either retrospectively or prospectively. The
Company elected to early adopt this ASU retrospectively as of March 31, 2016. As a result of adopting this ASU, the Company
reclassified $2,975 of current deferred tax assets, net, in the accompanying consolidated balance sheet as of December 31, 2015, to
noncurrent deferred tax assets, net, and noncurrent deferred tax liabilities, net, in the amounts of $503 and $2,472, respectively. The
adoption of this ASU did not impact the Company’s consolidated results of operations, stockholders’ equity or cash flows.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue
recognition requirements in Topic 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict
the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of
revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets
recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts
with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date to annual reporting periods beginning after
December 15, 2017 using one of two transition methods, either retrospective or a modified retrospective transition method which
calculates a cumulative-effect adjustment as of the date of adoption, with earlier adoption permitted for annual periods beginning after
December 15, 2016. During 2016, the FASB issued four updates to the revenue recognition guidance (Topic 606), ASU 2016-08,
Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net), ASU 2016-10, Identifying Performance Obligations
and Licensing, ASU 2016-12, Narrow-Scope Improvements and Practical Expedients and ASU 2016-20, Technical Corrections and
Improvements. The Company plans to adopt this guidance in the first quarter of 2018 using a modified retrospective transition method.
The Company has been closely monitoring developments related to this new standard but has not yet completed its evaluation of thett
accounting and disclosure requirements on its consolidated financial statements. The Company is reviewing current accounting
policies and practices to identify changes that would result from applying the requirements under the new standards. Based on the
Company’s analysis to date, it does not anticipate a material impact on the timing of revenue recognition upon adoption; however, the
Company expects an impact on the classification of revenue between admissions revenue and food, merchandise and other revenue.
The Company also expects revenue recognition disclosures will include additional detail in accordance with the new requirements.
F-14
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. RESTRUCTURING PROGRAMS AND SEPARATION COSTS
Restructuring Programs
In December 2016, the Company committed to and implemented a restructuring program in an effort to reduce costs, increase
efficiencies, reduce duplication of functions and improve the Company’s operations (the “2016 Restructuring Program”). The 2016
Restructuring Program involved the elimination of approximately 320 positions across all of the Company’s theme parks and
corporate headquarters. As a result, the Company recorded $8,904 in pre-tax restructuring and other related costs associated with the
2016 Restructuring Program on the accompanying consolidated statements of comprehensive (loss) income. The Company will not
incur any additional costs associated with the 2016 Restructuring Program as all continuing service obligations were completed as of
December 31, 2016.
The 2016 Restructuring Program activity for the year ended December 31, 2016 was as follows:
Liability as of December 31, 2015 ...............................................
Costs incurred ..............................................................................
Payments made ............................................................................
Liability as of December 31, 2016 ............................................... $
——
8,904
(1,062 )
7,842
Severance
and Other
Employment
Expenses
Separately, in the first quarter of 2016, the Company incurred approximately $112 in severance costs associated with certain positions
that were eliminated as a result of cost saving initiatives. These costs are included in restructuring and other related costs for the year
ended December 31, 2016 on the accompanying consolidated statements of comprehensive (loss) income. The liability as of
December 31, 2016 relates to restructuring and other related costs and is included in accrued salaries, wages and benefits on the
accompanying consolidated balance sheet.
In the fourth quarter of 2015, as part of a cost savings initiative and ongoing review of departmental structures, certain positions were
eliminated. The severance costs related to these positions of $2,001 is included in restructuring and other related costs for the year
ended December 31, 2015 on the accompanying consolidated statements of comprehensive (loss) income. Restructuring and other
related costs do not include any costs associated with the separation of the Company’s Chief Executive Officer and President effective
January 15, 2015 (the “Former CEO”) as discussed below.
ff
In December 2014, the Company implemented a restructuring program in an effort to centralize certain functions and reduce
duplication to increase efficiencies (the “2014 Restructuring Program”). The 2014 Restructuring Program involved the elimination of
approximately 300 positions across all of the Company’s theme parks and corporate headquarters. As a result, the Company recorded
$11,834 in pre-tax restructuring and other related costs associated with the 2014 Restructuring Program, of which $11,567 was
incurred in 2014 and $267 was incurred in 2015 on the accompanying consolidated statements of comprehensive (loss) income. The
Company will not incur any additional costs associated with the 2014 Restructuring Program as all continuing service obligations
were completed as of June 30, 2015.
Costs incurred in 2016, 2015 and 2014 related to the 2014 and 2016 Restructuring Programs primarily consist of severance and other
employment expenses. Other related restructuring expenses incurred in 2014 include third party consulting costs associated with the
development of the cost savings plan and the 2014 Restructuring Program.
Separation Costs
The Company’s former Chief Executive Officer resigned from his role effective on January 15, 2015. Pursuant to a separation and
consulting agreement entered into by the Company and the Former CEO on December 10, 2014, the Former CEO remained involved
with the Company as a member of the Board through April 15, 2016 and remains in a consulting capacity to the Company for a three-
year consulting term ending on January 15, 2018. The Company recorded $2,574 as separation costs on the accompanying
consolidated statements of comprehensive (loss) income for the year ended December 31, 2014 related to this separation, which was
paid in January 2015.
F-15
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Additionally, in connection with the 2014 Restructuring Program and the separation of the Former CEO, conditions for eligibility on
certain unvested performance restricted shares of common stock were modified to allow those participants who are separating from
the Company, including the Former CEO, to vest in their respective awards if the performance conditions are achieved after their
employment ends with the Company. See Note 18–Equity-Based Compensation for further details.
5. (LOSS) EARNINGS PER SHARE
(Loss) earnings per share is computed as follows (in thousands, except per share data):
(cid:3)
2016
Year Ended December 31,
2015
(cid:3)
Basic (loss) earnings per share .................
Net
Loss
Net
Income
$(12,531) 84,925 $ (0.15) $49,133
Shares
Per
Share
Amount
Per
Share
Amount (cid:3)
0.57 (cid:3)(cid:3)$
Net
Income
49,919
Shares
85,860 $
2014
Per
Share
Shares
Amount
87,183 $ 0.57
incentive-based awards ......................... (cid:3)(cid:3) (cid:3)(cid:3)
Diluted (loss) earnings per share ..............
—— (cid:3)(cid:3)(cid:3)
$(12,531) 84,925 $ (0.15) $49,133
(cid:3)(cid:3)
121
85,981 $
(cid:3)(cid:3)
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)(cid:3)
0.57 (cid:3)(cid:3)$
49,919
297
(cid:3)(cid:3)(cid:3)
87,480 $ 0.57
In accordance with the Earnings Per Share Topic of the ASC, basic (loss) earnings per share is computed by dividing net (loss)
income by the weighted average number of shares of common stock outstanding during the period (excluding treasury stock and
unvested restricted stock). The shares of unvested restricted stock are eligible to receive dividends; however, dividend rights will be
forfeited if the award does not vest. Accordingly, only vested shares of outstanding restricted stock are included in the calculation of
basic earnings per share. The weighted average number of repurchased shares during the period, if any, which are held as treasury
stock are excluded from common stock outstanding.
Diluted (loss) earnings per share is determined using the treasury stock method based on the dilutive effect of unvested restricted stock
and certain shares of common stock that are issuable upon exercise of stock options. During the year ended December 31, 2016, there
were approximately 4,807,000 potentially dilutive shares of common stock excluded from the computation of diluted loss per share as
their effect would have been anti-dilutive due to the Company’s net loss in the period. During the year ended December 31, 2015 and
2014, there were approximately 1,879,000 and 21,000 antidilutive shares of common stock excluded from the computation of diluted
earnings per share, respectively.
The Company’s outstanding performance-vesting restricted share awards are considered contingently issuable shares and are excluded
from the calculation of diluted earnings per share until the performance measure criteria is met as of the end of the reporting period.
For the years ended December 31, 2016 and 2015, approximately 13,000 and 19,000, respectively, performance-vesting restricted
share awards were included in the calculation of diluted (loss) earnings per share as their performance criteria was met as of
December 31, 2016 and 2015. There were no performance-vesting restricted share awards included in the calculation of diluted
earnings per share during the year ended December 31, 2014. See further discussion in Note 18–Equity-Based Compensation.
6. INVENTORIES
Inventories as of December 31, 2016 and 2015 consisted of the following:
Merchandise ............................................................................... $
Food and beverage .....................................................................
Other supplies ............................................................................
Total inventories ........................................................................ $
2016
(cid:3)
2015
24,438 $
3,956
290
28,684 $
26,183
4,740
290
31,213
F-16
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets as of December 31, 2016 and 2015 consisted of the following:
Prepaid insurance ....................................................................... $
Prepaid marketing and advertising costs ....................................
Other ..........................................................................................
Total prepaid expenses and other current assets ........................ $
2016
(cid:3)
2015
8,646 $
3,202
7,476
19,324 $
8,264
1,439
6,657
16,360
8. PROPERTY AND EQUIPMENT, NET
The components of property and equipment, net as of December 31, 2016 and 2015, consisted of the following:
2015
286,200
Land ........................................................................................... $
281,612
Land improvements ...................................................................
618,507
Buildings ....................................................................................
1,368,018 1,310,645
Rides, attractions and equipment ...............................................
158,191
Animals ......................................................................................
93,006
Construction in process ..............................................................
Less accumulated depreciation ..................................................
(1,161,631) (1,029,165 )
Total property and equipment, net ............................................. $ 1,666,815 $ 1,718,996
2016
286,200 $
316,774
645,013
158,199
54,242
(cid:3)
Depreciation expense was approximately $191,500, $174,700 and $169,000 for the years ended December 31, 2016, 2015 and 2014,
respectively.
In January 2016, the Company made a decision to remove deep-water lifting floors from the orca habitats at each of its three
SeaWorld theme parks. As a result, during the first quarter of 2016, the Company recorded approximately $33,700 of accelerated
depreciation related to the disposal of these lifting floors. These lifting floors are included in rides, attractions and equipment as of
December 31, 2015 in the table above.
9. TRADE NAMES/TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET
Trade names/trademarks, net at December 31, 2016, consisted of the following:
Trade names/trademarks - indefinite lives ..............................
Trade names/trademarks- definite lives ..................................
Total trade names/trademarks, net ..........................................
Weighted
Average
Amortization
Period
9.3 years
Trade names/trademarks, net at December 31, 2015, consisted of the following:
Trade names/trademarks - indefinite lives ..............................
Trade names/trademarks- definite lives ..................................
Total trade names/trademarks, net ..........................................
Weighted
Average
Amortization
Period
9.3 years
$
$
$
$
F-17
Gross
Carrying
Amount
Accumulated
Amortization
157,000 $
12,900
$
169,900
Net Carrying
Value
157,000
4,264
161,264
—— $
8,636
8,636 $
Gross
Carrying
Amount
Accumulated
Amortization
157,000 $
12,900
$
169,900
Net Carrying
Value
157,000
5,726
162,726
—— $
7,174
7,174 $
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Other intangible assets, net at December 31, 2016, consisted of the following:
Favorable lease asset ..............................................................
Reseller agreements ................................................................
Non-compete agreement .........................................................
Other intangible assets - indefinite lives.................................
Total other intangible assets, net ............................................
Weighted
Average
Amortization
Period
39 years
8.1 years
5 years
Other intangible assets, net at December 31, 2015, consisted of the following:
Favorable lease asset ..............................................................
Reseller agreements ................................................................
Non-compete agreement .........................................................
Other intangible assets - indefinite lives.................................
Total other intangible assets, net ............................................
Weighted
Average
Amortization
Period
39 years
8.1 years
5 years
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
18,200 $
22,300
500
120
41,120 $
3,267 $
19,487
358
——
23,112 $
14,933
2,813
142
120
18,008
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Value
18,200 $
22,300
500
120
41,120 $
2,800 $
16,735
258
——
19,793 $
15,400
5,565
242
120
21,327
$
$
$
$
Total amortization was approximately $4,800, $4,800 and $4,600 for the years ended December 31, 2016, 2015 and 2014,
respectively. The total weighted average amortization period of all finite-lived intangibles is 18.8 years.
Total expected amortization of the finite-lived intangible assets for the succeeding five years and thereafter is as follows:
Years Ending December 31
2017.............................................................................................. $
2018..............................................................................................
2019..............................................................................................
2020..............................................................................................
2021..............................................................................................
Thereafter .....................................................................................
$
4,574
2,235
1,849
467
467
12,560
22,152
10. OTHER ACCRUED EXPENSES
Other accrued expenses at December 31, 2016 and 2015, consisted of the following:
Accrued property taxes .............................................................. $
Accrued interest .........................................................................
Self-insurance reserve ................................................................
Other ..........................................................................................
Total other accrued expenses ..................................................... $
2016
2015
2,193 $
13,631
7,191
395
23,410 $
2,250
441
6,973
1,479
11,143
As of December 31, 2016, accrued interest above includes $12,904 relating to the Company’s fourth quarter 2016 interest payable on its
Term B-2, Term B-3 and Revolving Credit Facility, which was paid on January 3, 2017. See further discussion in Note 11–Long-Term Debt.
F-18
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. LONG-TERM DEBT
Long-term debt as of December 31, 2016 and 2015 consisted of the following:
2016
(cid:3)
2015
Term B-2 Loans (effective interest rate of 3.26% at
December 31, 2016 and 2015) ................................................ $ 1,327,850 $ 1,338,387
Term B-3 Loans (effective interest rate of 4.33% at
December 31, 2016 and 2015) ................................................
Revolving Credit Facility ...........................................................
Total long-term debt ..................................................................
Less discounts ........................................................................
Less debt issuance costs .........................................................
Less current maturities ...........................................................
247,900
15,000
1,598,001 1,601,287
(7,211)
(13,333)
(31,850)
Total long-term debt, net ............................................................ $ 1,531,069 $ 1,548,893
(5,517)
(9,702)
(51,713)
245,800
24,351
SEA is the borrower under the senior secured credit facilities, as amended pursuant to a 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”).
Also, on December 1, 2009, SEA issued $400,000 aggregate principal amount of unsecured senior notes which were due December 1,
2016 (the “Senior Notes”).
On March 30, 2015, SEA entered into an incremental term loan amendment, Amendment No. 7 (the “Incremental Amendment”), to its
existing Senior Secured Credit Facilities. On April 7, 2015, SEA borrowed $280,000 of additional term loans (the “Term B-3 Loans”)
pursuant to the Incremental Amendment. The proceeds, along with cash on hand, were used to redeem all of the $260,000 outstanding
principal amount of the then outstanding Senior Notes at a redemption price of 105.5% plus accrued and unpaid interest and pay fees,
costs and other expenses in connection with the Term B-3 Loans. The redemption premium of $14,300 along with a write-off of
approximately $6,048 in related discounts and debt issuance costs is included in the loss on early extinguishment of debt and write-off
of discounts and debt issuance costs on the accompanying consolidated statements of comprehensive (loss) income for the year ended
December 31, 2015.
ww
In connection with the issuance of the Term B-3 Loans, SEA recorded a discount of $1,400 and debt issuance costs of $3,171 during
the year ended December 31, 2015. Debt issuance costs and discounts are amortized to interest expense using the effective interest
method over the term of the related debt and are included in long-term debt, net, in the accompanying consolidated balance sheets.
Unamortized debt issuance costs and discounts for the Term B-2 Loans, Term B-3 Loans and senior secured revolving credit facility
(the “Revolving Credit Facility”) were $11,257, $2,638 and $1,324, respectively, at December 31, 2016. Unamortized debt issuance
costs and discounts for the Term B-2 Loans, Term B-3 Loans and Revolving Credit Facility were $14,713, $3,448 and $2,383,
respectively, at December 31, 2015.
As of December 31, 2016, SEA was in compliance with all covenants in the provisions contained in the documents governing the
Senior Secured Credit Facilities.
Subsequent to December 31, 2016, the Company began exploring a potential refinancing of its existing senior secured credit facilities
in order to improve the Company's capital structure by extending maturities and improving certain other terms of its debt. The debt
refinancing will be subject to certain customary closing conditions and there can be no assurance that the Company will be successful
in completing the refinancing on any particular terms or at all.
F-19
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Senior Secured Credit Facilities
As of December 31, 2016, the Senior Secured Credit Facilities consisted of $1,327,850 in Term B-2 Loans and $245,800 in Term B-3
Loans, which, in each case, will mature on May 14, 2020, along with a $192,500 Revolving Credit Facility, of which $24,351 was
outstanding as of December 31, 2016. The Term B-2 Loans and Term B-3 Loans balances as of December 31, 2016 include $3,513
and $700 of principal, respectively, which were paid on January 3, 2017. The Revolving Credit Facility will mature on the earlier of
(a) April 24, 2018 and (b) the 91st day prior to the maturity date of any indebtedness incurred to refinance any of the Term B-2 Loans
or Term B-3 Loans. The outstanding balance under the Revolving Credit Facility is included in current maturities on long-term debt
on the accompanying consolidated balance sheet as of December 31, 2016 and 2015, due to the Company’s intent to repay the
borrowings within the next twelve months. Subsequent to December 31, 2016, SEA borrowed an additional $45,600 under the
Revolving Credit Facility for general working capital purposes and repaid $20,000.
The Term B-2 Loans amortize in equal quarterly installments in an aggregate annual amount equal to 1.0% of the original principal
amount of the Term B-2 Loans on May 14, 2013, with the balance due on the final maturity date, of May 14, 2020. The Term B-3
Loans amortize in equal quarterly installments in an aggregate annual amount equal to 1.0% of the original principal amount of the
Term B-3 Loans on April 7, 2015, with the balance due on the final maturity date of May 14, 2020. SEA may voluntarily repay
amounts outstanding under the Senior Secured Credit Facilities at any time without premium or penalty, other than customary
“breakage” costs with respect to LIBOR loans.
SEA is required to prepay the outstanding Term B-2 and Term B-3 Loans, subject to certain exceptions, with
(i)
50% of SEA’s annual “excess cash flow” (with step-downs to 25% and 0%, as applicable, based upon achievement by SEA
of a certain total net leverage ratio), subject to certain exceptions;
(ii) 100% of the net cash proceeds of certain non-ordinary course asset sales or other dispositions subject to reinvestment rights
and certain exceptions; and
(iii) 100% of the net cash proceeds of any incurrence of debt by SEA or any of its restricted subsidiaries, other than debt
permitted to be incurred or issued under the Senior Secured Credit Facilities.
Notwithstanding any of the foregoing, each lender of term loans has the right to reject its pro rata share of mandatory prepayments
described above, in which case SEA may retain the amounts so rejected. The foregoing mandatory prepayments will be applied pro
rata to installments of term loans in direct order of maturity. There were no mandatory prepayments during the years ended
December 31, 2016, 2015 and 2014 since none of the events indicated above occurred. On October 30, 2015, the Company made a
voluntary principal repayment of approximately $30,000 on the Term B-3 Loans with available cash on hand. During the first quarter
of 2017, the Company expects to make a mandatory prepayment of $6,300 based on its excess cash flow calculation as of December
31, 2016, which is included in current maturities on long-term debt on the accompanying consolidated balance sheet as of December
31, 2016.
crease
m
SEA may also increase and/or add one or more incremental term loan facilities to the Senior Secured Credit Facilities and/or in
commitments under the Revolving Credit Facility in an aggregate principal amount of up to $350,000. SEA may also incur additional
incremental term loans provided that, among other things, on a pro forma basis after giving effect to the incurrence of such
incremental term loans, the First Lien Secured Leverage Ratio, as defined in the Senior Secured Credit Facilities, is no greater than
3.50 to 1.00.
The obligations under the Senior Secured Credit Facilities are fully, unconditionally and irrevocably guaranteed by the Company, any
subsidiary of the Company that directly or indirectly owns 100% of the issued and outstanding equity interests of SEA, and, subject to
b
certain exceptions, each of SEA’s existing and future material domestic wholly-owned subsidiaries. The Senior Secured Credit
Facilities are collateralized by first priority or equivalent security interests, subject to certain exceptions, in (i) all the capital stock of,
or other equity interests in, substantially all of SEA’s direct or indirect material domestic subsidiaries and 65% of the capital stock of,
or other equity interests in, any “first tier” foreign subsidiaries and (ii) certain tangible and intangible assets of SEA and the Company.
Certain financial, affirmative and negative covenants, including a maximum total net leverage ratio, minimum interest coverage ratio
and maximum capital expenditures are included in the Senior Secured Credit Facilities. If an event of default occurs, the lenders under
the Senior Secured Credit Facilities will be entitled to take various actions, including the acceleration of amounts due under the Senior
Secured Credit Facilities and all actions permitted to be taken by a secured creditor.
F-20
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Term B-2 Loans
The Term B-2 Loans were initially borrowed in an aggregate principal amount of $1,405,000. Borrowings under the Senior Secured
Credit Facilities bear interest, at SEA’s option, at a rate equal to a margin over either (a) a base rate determined by reference to the
higher of (1) the rate of interest in effect for such day as publicly announced from time to time by Bank of America, N.A. as its “prime
rate” and (2) the federal funds effective rate plus 1/2 of 1% or (b) a LIBOR rate determined by reference to the British Bankers
Association (“BBA”) LIBOR rate, or the successor thereto if the BBA is no longer making a LIBOR rate available, for the interes
period relevant to such borrowing. The applicable margin for the Term B-2 Loans is 1.25%, in the case of base rate loans, and 2.25%,
in the case of LIBOR rate loans, subject to a base rate floor of 1.75% and a LIBOR floor of 0.75%. The applicable margin for the
Term B-2 Loans (under either a base rate or LIBOR rate) is subject to one 25 basis point step-down upon achievement by SEA of a
total net leverage ratio equal to or less than 3.25 to 1.00. At December 31, 2016, SEA selected the LIBOR rate (interest rate of 3.25%
at December 31, 2016).
A
t
Term B-3 Loans
The Term B-3 Loans were initially borrowed in an aggregate principal amount of $280,000. Borrowings of Term B-3 Loans bear
interest at a fluctuating rate per annum equal to, at SEA’s option, (a) a base rate equal to the higher of (1) the federal funds rate plus
1/2 of 1% and (2) the rate of interest in effect for such day as publicly announced from time to time by Bank of America, N.A. as its
“prime rate” or (b) a LIBOR rate determined by reference to the BBA LIBOR rate, or the successor thereto if the BBA is no longer
making a LIBOR rate available, for the interest period relevant to such borrowing. The applicable margin for the Term B-3 Loans is
2.25%, in the case of base rate loans, and 3.25%, in the case of LIBOR rate loans, subject to a base rate floor of 1.75% and a LIBOR
floor of 0.75%. At December 31, 2016, SEA selected the LIBOR rate (interest rate of 4.25% at December 31, 2016).
Revolving Credit Facility
Borrowings of loans under the Revolving Credit Facility bear interest at a fluctuating rate per annum equal to, at SEA’s option, (a) a
base rate equal to the higher of (1) the federal funds rate plus 1/2 of 1%, and (2) the rate of interest in effect for such day as publicly
announced from time to time by Bank of America, N.A. as its “prime rate” or (b) a LIBOR rate determined by reference to the BBA
LIBOR rate, or the successor thereto if the BBA is no longer making a LIBOR rate available, for the interest period relevant to such
borrowing. The applicable margin for borrowings under the Revolving Credit Facility is 1.75%, in the case of base rate loans, andaa
2.75%, in the case of LIBOR rate loans. The applicable margin (under either a base rate or LIBOR rate) is subject to one 25 basis
point step-down upon achievement by SEA of certain corporate credit ratings, which the Company did not achieve as of December 31,
2016. At December 31, 2016, SEA selected the LIBOR rate (interest rate of 3.46% at December 31, 2016).
y
In addition to paying interest on outstanding principal under the Senior Secured Credit Facilities, SEA is required to pay a
commitment fee to the lenders under the Revolving Credit Facility in respect of the unutilized commitments thereunder at a rate of
0.50% per annum. SEA is also required to pay customary letter of credit fees.
As of December 31, 2016, SEA had approximately $17,200 of outstanding letters of credit and $24,351 outstanding under the
Revolving Credit Facility, leaving approximately $150,949 available for borrowing.
Restrictive Covenants
The Senior Secured Credit Facilities contain a number of customary negative covenants. Such covenants, among other things, restrict,
subject to certain exceptions, the ability of SEA and its restricted subsidiaries to incur additional indebtedness; make guarantees;
create liens on assets; enter into sale and leaseback transactions; engage in mergers or consolidations; sell assets; make fundamental
changes; pay dividends and distributions or repurchase SEA’s capital stock; make investments, loans and advances, including
acquisitions; engage in certain transactions with affiliates; make changes in the nature of the business; and make prepayments of
junior debt. The Senior Secured Credit Facilities also contain covenants requiring SEA to maintain specified maximum annual capital
expenditures, a maximum total net leverage ratio and a minimum interest coverage ratio. All of the net assets of SEA and its
consolidated subsidiaries are restricted and there are no unconsolidated subsidiaries of SEA.
nn
tt
F-21
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Senior Secured Credit Facilities permit restricted payments in an aggregate amount per annum not to exceed the greater of (1) 6%
of initial public offering net proceeds received by SEA or (2) (a) $90,000, so long as, on a Pro Forma Basis (as defined in the Senior
Secured Credit Facilities) after giving effect to the payment of any such restricted payment, the Total Leverage Ratio, (as defined in
the Senior Secured Credit Facilities), is no greater than 5.00 to 1.00 and greater than 4.50 to 1.00, (b) $120,000, so long as, on a Pro
Forma Basis after giving effect to the payment of any such restricted payment, the Total Leverage Ratio is no greater than 4.50 to 1.00
and greater than 4.00 to 1.00, (c) the greater of (A) $120,000 and (B) 7.5% of Market Capitalization (as defined in the Senior Secured
Credit Facilities), so long as, on a Pro Forma Basis after giving effect to the payment of any such restricted payment, the Total
Leverage Ratio is no greater than 4.00 to 1.00 and greater than 3.50 to 1.00 and (d) an unlimited amount, so long as, on a Pro Forma
Basis after giving effect to the payment of any such restricted payment, the Total Leverage Ratio is no greater than 3.50 to 1.00.
ff
For the year ended December 31, 2016, the Company had a $90,000 capacity for restricted payments, calculated as set forth above.
Through the fourth quarter of 2016, the Company used approximately $66,000 of its available restricted payments capacity for the
2016 fiscal year.
As of December 31, 2016, the Total Leverage Ratio as calculated under the Senior Secured Credit Facilities was 4.61 to 1.00, which
results in the Company having a $90,000 capacity for restricted payments in the year ending December 31, 2017. The amount
d
available for share repurchases and certain other restricted payments under the covenant restrictions in the debt agreements adjusts at
the beginning of each quarter as set forth above.
Long-term debt at December 31, 2016, is repayable as follows and does not include the impact of any future voluntary prepayments.
nn
The outstanding balance under the Revolving Credit Facility is included in current maturities on long-term debt on the accompanying
consolidated balance sheet as of December 31, 2016, due to the Company’s intent to repay the borrowings within the next twelve
months.
Years Ending December 31,
2017.............................................................................................. $
2018..............................................................................................
2019..............................................................................................
2020..............................................................................................
Total ............................................................................................. $
(cid:3)
51,713
16,850
16,850
1,512,588
1,598,001
Interest Rate Swap Agreements
On September 30, 2016, SEA’s four traditional interest rate swap agreements (collectively, the “Interest Rate Swap Agreements”)
matured in accordance with their terms. Three of the interest rate swap agreements had a combined notional amount of $1,000,000;
required the Company to pay a fixed rate of interest between 1.049% and 1.051% per annum; paid swap counterparties a variable rate
of interest based upon the greater of 0.75% or the three month BBA LIBOR; and had interest settlement dates occurring on the last
day of March, June, September and December through maturity. The fourth traditional interest rate swap was executed in April 2015
to effectively fix the interest rate on $250,000 of the Term B-3 Loans and had a notional amount of $250,000; required the Company
to pay a fixed rate of interest of 0.901% per annum; paid swap counterparties a variable rate of interest based upon the greater of
0.75% or the three month BBA LIBOR; and had interest settlement dates occurring on the last day of September, December, March
and June through maturity.
In June 2015, the Company entered into five forward interest rate swap agreements (“the Forward Swaps”) to effectively fix the
interest rate on the three month LIBOR-indexed interest payments associated with $1,000,000 of SEA’s outstanding long-term debt.
The Forward Swaps became effective on September 30, 2016; have a total notional amount of $1,000,000; mature on May 14, 2020;
require the Company to pay a weighted-average fixed rate of 2.45% per annum; pay swap counterparties a variable rate of interest
based upon the greater of 0.75% or the three month BBA LIBOR; and have interest settlement dates occurring on the last day of
September, December, March and June through maturity.
SEA designated the Interest Rate Swap Agreements and the Forward Swaps above as qualifying cash flow hedge accounting
relationships as further discussed in Note 12–Derivative Instruments and Hedging Activities which follows.
F-22
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Cash paid for interest relating to the Senior Secured Credit Facilities, Senior Notes, Interest Rate Swap Agreements and Forward
Swaps, as applicable, was $46,919, $63,726 and $74,933 during the years ended December 31, 2016, 2015 and 2014, respectively.
Cash paid for interest during the year ended December 31, 2016 excludes $12,904 related to the fourth quarter interest payments on
the Senior Secured Credit Facilities which was paid on January 3, 2017. See Note 10–Other Accrued Expenses for accrued interest
included in the accompanying consolidated balance sheet as of December 31, 2016.
12. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally
manages its exposures to a wide variety of business and operational risks through management of its core business activities. The
Company manages economic risks, including interest rate, liquidity and credit risk primarily by managing the amount, sources and
duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial
instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain
cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage
differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash
payments principally related to the Company’s borrowings. The Company does not speculate using derivative instruments.
uu
As of December 31, 2016 and 2015, the Company did not have any derivatives outstanding that were not designated in hedge
accounting relationships.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to
interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk
management strategy. During the years ended December 31, 2016 and 2015, such derivatives were used to hedge the variable cash
flows associated with existing variable-rate debt. On September 30, 2016, the Company’s four Interest Rate Swap Agreements with a
combined notional value of $1,250,000 matured in accordance with their terms and the five Forward Swaps with a combined notional
value of $1,000,000 became effective. The Interest Rate Swap Agreements and the Forward Swaps were designated as cash flow
hedges of interest rate risk. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow
hedges is recorded in accumulated other comprehensive loss and is subsequently reclassified into earnings in the period that the
hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recog
rr
directly in earnings. During the years ended December 31, 2016 and 2015, an immaterial loss and a loss of $287, respectively, related
to the ineffective portion was recognized in other expense (income), net on the accompanying consolidated statements of
comprehensive (loss) income. Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to
interest expense as interest payments are made on the Company’s variable-rate debt. During the next 12 months, the Company
estimates that an additional $12,730 will be reclassified as an increase to interest expense.
nized
Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the
accompanying consolidated balance sheet as of December 31, 2016 and 2015:
Liability Derivatives
As of December 31, 2016
Liability Derivatives
As of December 31, 2015
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
Derivatives designated as hedging instruments:
Interest rate swaps ................................................................. Other liabilities $
Forward interest rate swaps ................................................... Other liabilities
Total derivatives designated as hedging instruments ............
$
—— Other liabilities $
22,808 Other liabilities
22,808
$
1,673
17,927
19,600
F-23
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The unrealized loss on derivatives is recorded net of a tax benefit of $2,713 and $6,115 for the years ended December 31, 2016 and
2015, respectively, and is included in the accompanying statements of changes in stockholders’ equity and the consolidated statements
of comprehensive (loss) income.
Tabular Disclosure of the Effect of Derivative Instruments on the Statements of Comprehensive (Loss) Income
The table below presents the pre-tax effect of the Company’s derivative financial instruments on the accompanying consolidated
statements of comprehensive (loss) income for the years ended December 31, 2016 and 2015:
Derivatives in Cash Flow Hedging Relationships:
Loss related to effective portion of derivatives recognized
in accumulated other comprehensive loss ......................... $
(9,938) $
(21,924)
2016
2015
Gain related to effective portion of derivatives reclassified
from accumulated other comprehensive loss to interest
expense ............................................................................. $
Loss related to ineffective portion of derivatives
6,669 $
3,154
recognized in other expense (income), net ........................ $
(1) $
(287)
Credit Risk-Related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any
of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company
could also be declared in default on its derivative obligations. As of December 31, 2016, the termination value of derivatives in a net
liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements
was $24,001. As of December 31, 2016, the Company has posted no collateral related to these agreements. If the Company had
breached any of these provisions at December 31, 2016, it could have been required to settle its obligations under the agreements at
their termination value of $24,001.
mm
n
Changes in Accumulated Other Comprehensive Loss
The following table reflects the changes in accumulated other comprehensive loss for the years ended December 31, 2016 and 2015,
net of tax:
Accumulated other comprehensive loss:
Accumulated other comprehensive loss
at December 31, 2014 ............................................................... $
Other comprehensive loss before reclassifications .................
Amounts reclassified from accumulated other
comprehensive loss to interest expense ...............................
Unrealized loss on derivatives, net of tax .....................................
Accumulated other comprehensive loss
at December 31, 2015 ...............................................................
Other comprehensive loss before reclassifications .................
Amounts reclassified from accumulated other
comprehensive loss to interest expense ...............................
Unrealized loss on derivatives, net of tax .....................................
Accumulated other comprehensive loss
at December 31, 2016 ............................................................... $
F-24
(Losses) Gains
on
Cash Flow
Hedges
(483)
(14,781)
2,127
(12,654)
(13,137)
(1,690)
1,133
(557)
(13,694)
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. INCOME TAXES
For the years ended December 31, 2016, 2015 and 2014, the provision for income taxes is comprised of the following:
Current income tax (benefit) provision .....................................
Federal ................................................................................. $
State .....................................................................................
Foreign ................................................................................
Total current income tax provision ................................
Deferred income tax provision (benefit):
2016
2015
2014
(72) $
442
23
393
(78) $
494
36
452
(70)
937
5
872
Federal .................................................................................
State .....................................................................................
Total deferred income tax provision ..............................
Total income tax provision ....................................................... $
5,169
3,768
8,937
9,330
$
25,210
(1,964)
23,246
23,698 $
30,414
(2,414)
28,000
28,872
The deferred income tax provision represents the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. Cash paid for income taxes totaled $819,
$1,062 and $858, for the years ended December 31, 2016, 2015 and 2014, respectively.
The components of deferred income tax assets and liabilities as of December 31, 2016 and 2015 are as follows:
2016
2015
Deferred income tax assets:
Acquisition and debt related costs ........................................ $
Net operating loss .................................................................
Self-insurance .......................................................................
Deferred revenue ..................................................................
Cash flow hedge ...................................................................
Tax credits ............................................................................
Other .....................................................................................
Total deferred income tax assets .....................................
Valuation allowance .............................................................
Net deferred tax assets ....................................................
15,899 $
294,986
9,766
4,696
9,114
6,882
12,539
353,882
(584)
353,298
18,281
283,947
10,039
942
6,401
4,546
9,652
333,808
(1,466)
332,342
Deferred income tax liabilities:
Property and equipment ........................................................
Goodwill ...............................................................................
Amortization .........................................................................
Other .....................................................................................
a
Total deferred income tax liabilities................................
Net deferred income tax liabilities ............................................. $
(326,320)
(49,493)
(20,877)
(4,527)
(401,217)
(47,919) $
(309,054)
(42,458)
(17,564)
(4,961)
(374,037)
(41,695)
The Company files federal, state and provincial income tax returns in various jurisdictions with varying statute of limitation expiration
dates. Under the tax statute of limitations applicable to the Internal Revenue Code of 1986, as amended (the “Code”), the Company is
no longer subject to U.S. federal income tax examinations by the Internal Revenue Service for years before 2012. However, because
the Company is carrying forward income tax attributes, such as net operating losses and tax credits from 2009 and subsequent years,
these attributes can still be audited when utilized on returns filed in the future. The Company has determined that there are no
positions currently taken that would rise to a level requiring an amount to be recorded or disclosed as an unrecognized tax benefit. If
such positions do arise, it is the Company’s intent that any interest or penalty amount related to such positions will be recorded as a
component of the income tax provision in the applicable period.
F-25
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Company has federal tax net operating loss carryforwards of approximately $709,000 as of December 31, 2016 and state net
operating loss carryforwards spread across various jurisdictions with a combined total of approximately $1,105,000 as of
December 31, 2016. These net operating loss carryforwards, if not used to reduce taxable income in future periods, will begin to
expire in 2029, for both federal and state tax purposes.
Realization of the deferred income tax assets, primarily arising from these net operating loss carryforwards and charitable contribution
carryforwards, is dependent upon generating sufficient taxable income prior to expiration of the carryforwards, which may include the
reversal of deferred tax liability components. The Company believes it is more likely than not that the benefit from certain state net
operating loss carryforwards will not be realized. Due to the uncertainty of realizing the benefit from the deferred tax asset recorded
for state net operating loss carryforwards, the Company has recorded a valuation allowance of approximately $600, net of federal tax
benefit, on the deferred tax assets related to those state net operating losses.
t
As of December 31, 2015, an additional valuation allowance of approximately $900 was recorded for the charitable contributions
which expired in 2016. This valuation allowance reversed at such time due to the expiration of those unused charitable contributions.
Due to the secondary offerings in December 2013 and April 2014, there were ownership shifts of more than 50%, as defined by
Section 382 of the Code. The Company determined that, while an ownership shift occurred and limits were determined under Section
382 and the regulations and guidance thereunder, the applicable limits would not impair the value or anticipated use of the Company’s
federal and state net operating losses. Although realization is not assured, management believes it is more likely than not that all of
the deferred income tax assets related to federal and state tax net operating loss carryforwards will be realized.
mm
The provision for income taxes for the years ended December 31, 2016, 2015 and 2014 differs from the amount computed by applying
the U.S. federal statutory income tax rate to the Company’s income before income taxes primarily due to state income taxes,
nondeductible expenses, prior year adjustments, and federal tax credits.
For the year ended December 31, 2016, the Company realized a net expense of $8,806 related to certain nondeductible equity
compensation awards and a net expense of $632 related to the revaluation of certain state net operating loss carryforwards as a result
of a restructuring, both of which impacted the state effective rate. In addition, for the year ended December 31, 2016 federal net
operating loss and tax credit adjustments also impacted the provision for income taxes.
mm
For the year ended December 31, 2015, the Company realized a net benefit of $1,817 related to the revaluation of certain state net
operating loss carryforwards as a result of a restructuring, which also impacted the state effective rate. In addition, for the year ended
December 31, 2015, certain equity compensation awards and a valuation allowance related to certain state net operating losses and
charitable contribution carryforwards impacted the provision for income taxes. The state net operating loss revaluation for the year
ended December 31, 2014 relates to the revaluation of certain state net operating loss carryforwards resulting in a net benefit of
$2,977. In addition, for the year ended December 31, 2014, non-deductible offering costs, certain equity compensation awards and a
valuation allowance related to certain charitable contribution carryforwards also impacted the provision for income taxes.
t
t
The reconciliation between the statutory income tax rate and the Company’s effective income tax provision rate for the years ended
December 31, 2016, 2015 and 2014, is as follows:
2016
2015
2014
Income tax rate at federal statutory rates ................................
Federal net operating loss and tax credit adjustments.............
State taxes, net of federal benefit ............................................
State net operating loss revaluation ........................................
Nondeductible equity-based compensation ............................
Tax credits ..............................................................................
Nondeductible expenses .........................................................
Charitable contribution carryforward valuation allowance ....
Other .......................................................................................
Income tax rate .......................................................................
35.00 %
24.40
(58.42)
(19.74)
(275.10)
21.17
(17.15)
——
(1.63)
(291.47)%
35.00 %
(0.68)
0.56
(2.51)
0.15
(1.73)
0.53
2.01
(0.79)
32.54 %
35.00 %
0.72
1.32
(3.78)
0.63
(0.80)
1.17
1.91
0.47
36.64 %
F-26
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. COMMITMENTS AND CONTINGENCIES
At December 31, 2016, the Company has commitments under long-term operating leases requiring annual minimum lease payments
as follows:
Years Ending December 31,
2017.............................................................................................. $
2018..............................................................................................
2019..............................................................................................
2020..............................................................................................
2021..............................................................................................
Thereafter .....................................................................................
Total ............................................................................................. $
15,223
14,781
13,857
11,836
11,834
276,308
343,839
Rental expense was $20,912, $20,233 and $21,643 for the years ended December 31, 2016, 2015 and 2014, respectively.
The SeaWorld theme park in San Diego, California, leases the land for the theme park from the City of San Diego. The lease term is m
for 50 years ending on July 1, 2048. Lease payments are based upon gross revenue from the San Diego theme park subject to certain
minimums. On January 1, 2017, the minimum annual rent payment was recalculated in accordance with the lease agreement as
approximately $10,400 and is included in the table above for all periods presented. This annual rent will remain in effect until January
1, 2020, at which time the next recalculation will be completed in accordance with the lease agreement.
Pursuant to license agreements with Sesame Workshop, the Company pays a specified annual license fee, as well as a specified
royalty based on revenues earned in connection with sales of licensed products, all food and beverage items utilizing the licensed
elements and any events utilizing such elements if a separate fee is paid for such event.
ABI has granted the Company a perpetual, exclusive, worldwide, royalty-free license to use the Busch Gardens trademark and certain
related domain names in connection with the operation, marketing, promotion and advertising of certain of the Company’s theme
parks, as well as in connection with the production, use, distribution and sale of merchandise sold in connection with such theme
parks. Under the license, the Company is required to indemnify ABI against losses related to the use of the marks.
The Company has commenced construction of certain new theme park attractions and other projects under contracts with various th
parties. At December 31, 2016, additional capital payments of approximately $122,000 are necessary to complete these projects. The
majority of these projects are expected to be completed in 2017.
k
ird
Securities Class Action Lawsuit
On September 9, 2014, a purported stockholder class action lawsuit consisting of purchasers of the Company’s common stock during
the periods between April 18, 2013 to August 13, 2014, captioned Baker v. SeaWorld Entertainment, Inc., et al., Case No. 14-CV-
02129-MMA (KSC), was filed in the U.S. District Court for the Southern District of California against the Company, the Chairman of
n
the Company’s Board, certain of its executive officers and Blackstone. On February 27, 2015, Court-appointed Lead Plaintiffs,
Pensionskassen For Børne- Og Ungdomspædagoger and Arkansas Public Employees Retirement System, together with additional
plaintiffs, Oklahoma City Employee Retirement System and Pembroke Pines Firefighters and Police Officers Pension Fund
(collectively, “Plaintiffs”), filed an amended complaint against the Company, the Chairman of the Company’s Board, certain of its
executive officers, Blackstone, and underwriters of the initial public offering and secondary public offerings. The amended complaint
alleges, among other things, that the prospectus and registration statements filed contained materially false and misleading information
in violation of the federal securities laws and seeks unspecified compensatory damages and other relief. Plaintiffs contend that
defendants knew or were reckless in not knowing that Blackfish was impacting SeaWorld’s business at the time of each public
statement. On May 29, 2015, the Company and the other defendants filed motions to dismiss the amended complaint. On March 31,
2016, the Court granted the motions to dismiss the amended complaint, in its entirety, without prejudice. On May 31, 2016, Plaintiffs
filed a second amended consolidated class action complaint (“Second Amended Complaint”), which, among other things, no longer
names the Company’s Board or underwriters as defendants. On June 29, 2016, the remaining defendants filed a motion to dismiss the
Second Amended Complaint. On September 30, 2016, the Court denied the motion to dismiss. On October 28, 2016, defendants filed
their Answer to the Second Amended Complaint. The Company believes that the class action lawsuit is without merit and intends to
defend the lawsuit vigorously; however, there can be no assurance regarding the ultimate outcome of this lawsuit.
F-27
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Shareholder Derivative Lawsuit
On December 8, 2014, a putative derivative lawsuit captioned Kistenmacher v. Atchison, et al., Civil Action No. 10437, was filed in
the Court of Chancery of the State of Delaware against, among others, the Chairman of the Company’s Board, certain of the
Company’s executive officers, directors and shareholders, and Blackstone. The Company is a “Nominal Defendant” in the lawsuit.
On March 30, 2015, the plaintiff filed an amended complaint against the same set of defendants. The amended complaint alleges,
among other things, that the defendants breached their fiduciary duties, aided and abetted breaches of fiduciary duties, violated Florida
Blue Sky laws and were unjustly enriched by (i) including materially false and misleading information in the prospectus and
registration statements; and (ii) causing the Company to repurchase certain shares of its common stock from certain shareholders at an
alleged artificially inflated price. The Company does not maintain any direct exposure to loss in connection with this shareholder
derivative lawsuit as the lawsuit does not assert any claims against the Company. The Company’s status as a “Nominal Defendant” in
the action reflects the fact that the lawsuit is maintained by the named plaintiff on behalf of the Company and that the plaintiff seeks
damages on the Company’s behalf. On May 21, 2015, the defendants filed a motion to stay the lawsuit pending resolution of the
Company’s securities class action lawsuit. On September 21, 2015, the Court granted the motion and ordered that the derivative action
to be stayed in favor of the securities class action captioned Baker v. SeaWorld Entertainment, Inc., et al., Case No. 14-CV-02129-
MMA (KSC).
Consumer Class Action Lawsuits
On March 25, 2015, a purported class action was filed in the United States District Court for the Southern District of California
against the Company, captioned Holly Hall v. SeaWorld Entertainment, Inc., Case No. 3:15-cv-00600-CAB-RBB (the “Hall Matter”).
The complaint identifies three putative classes consisting of all consumers nationwide who at any time during the four-year period
preceding the filing of the original complaint, purchased an admission ticket, a membership or a SeaWorld “experience” that includes
an “orca experience” from the SeaWorld amusement park in San Diego, California, Orlando, Florida or San Antonio, Texas
respectively. The complaint alleges causes of action under California Unfair Competition Law, California Consumers Legal
Remedies Act (“CLRA”), California False Advertising Law, California Deceit statute, Florida Unfair and Deceptive Trade Practices
Act, Texas Deceptive Trade Practices Act, as well as claims for Unjust Enrichment. Plaintiffs’ claims are based on their allegations
that the Company misrepresented the physical living conditions and care and treatment of its orcas, resulting in confusion or
misunderstanding among ticket purchasers, and omitted material facts regarding its orcas with intent to deceive and mislead the
plaintiff and purported class members. The complaint further alleges that the specific misrepresentations heard and relied upon by
Holly Hall in purchasing her SeaWorld tickets concerned the circumstances surrounding the death of a SeaWorld trainer. The
complaint seeks actual damages, equitable relief, attorney’s fees and costs. Plaintiffs claim that the amount in controversy exceeds
$5,000, but the liability exposure is speculative until the size of the class is determined (if certification is granted at all).
In addition, four other purported class actions were filed against the Company and its affiliates. The first three actions were filed on
April 9, 2015, April 16, 2015 and April 17, 2015, respectively, in the following federal courts: (i) the United States District Court for
the Middle District of Florida, captioned Joyce Kuhl v. SeaWorld LLC et al., 6:15-cv-00574-ACC-GJK (the “Kuhl Matter”), (ii) the
United States District Court for the Southern District of California, captioned Jessica Gaab, et. al. v. SeaWorld Entertainment, Inc.,
Case No. 15:cv-842-CAB-RBB (the “Gaab Matter”), and (iii) the United States District Court for the Western District of Texas,
captioned Elaine Salazar Browne v. SeaWorld of Texas LLC et al., 5:15-cv-00301-XR (the “Browne Matter”). On May 1, 2015, the
Kuhl Matter and Browne Matter were voluntarily dismissed without prejudice by the respective plaintiffs. On May 7, 2015, plaintiffs
Kuhl and Browne re-filed their claims, along with a new plaintiff, Valerie Simo, in the United States District Court for the So
ff
District of California in an action captioned Valerie Simo et al. v. SeaWorld Entertainment, Inc., Case No. 15: cv-1022-CAB-RBB
(the “Simo Matter”). All four of these cases, in essence, reiterate the claims made and relief sought in the Hall Matter.
uthern
On August 7, 2015, the Gaab Matter and Simo Matter were consolidated with the Hall Matter, and the plaintiffs filed a First
Consolidated Amended Complaint (“FAC”) on August 21, 2015. The FAC pursued the same seven causes of action as the original
Hall complaint, and added a request for punitive damages pursuant to the California CLRA.
The Company moved to dismiss the FAC in its entirety, and its motion was granted on December 24, 2015. The United States District
Court for the Southern District of California granted dismissal with prejudice as to the California CLRA claim, the portion of
California Unfair Competition Law claim premised on the CLRA claim, all claims for injunctive relief, and on all California claims
premised solely on alleged omissions by the Company. The United States District Court for the Southern District of California
granted leave to amend as to the remainder of the complaint. On January 25, 2016, plaintiffs filed their Second Consolidated
Amended Complaint (“SAC”). The SAC pursues the same causes of action as the FAC, except for the California CLRA, which, as
noted above, was dismissed with prejudice.
F-28
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Company filed a motion to dismiss the entirety of the SAC with prejudice on February 25, 2016. The United States District
h
for the Southern District of California granted the Company’s motion to dismiss the entire SAC with prejudice and entered judgment
for the Company on May 13, 2016. Plaintiffs filed their notice of appeal to the United States Court of Appeals for the Ninth Circuit
(the “Ninth Circuit”) on June 10, 2016. The appeal has been fully briefed and is awaiting an oral argument date.
Court
On April 13, 2015, a purported class action was filed in the Superior Court of the State of California for the City and County of San
Francisco against SeaWorld Parks & Entertainment, Inc., captioned Marc Anderson, et. al., v. SeaWorld Parks & Entertainment, Inc.,
Case No. CGC-15-545292 (the “Anderson Matter”). The putative class consists of all consumers within California who, within the
past four years, purchased tickets to SeaWorld San Diego. On May 11, 2015, the plaintiffs filed a First Amended Class Action
Complaint (the “First Amended Complaint”). The First Amended Complaint alleges causes of action under the California False
Advertising Law, California Unfair Competition Law and California CLRA. Plaintiffs’ claims are based on their allegations that the
Company misrepresented the physical living conditions and care and treatment of its orcas, resulting in confusion or misunderstanding
among ticket purchasers, and omitted material facts regarding its orcas with intent to deceive and mislead the plaintiff and purported
class members. The First Amended Complaint seeks actual damages, equitable relief, attorneys’ fees and costs. Based on plaintiffs’
definition of the class, the amount in controversy exceeds $5,000, but the liability exposure is speculative until the size of the class is
determined (if certification is granted at all). On May 14, 2015, the Company removed the case to the United States District Court for
the Northern District of California, Case No. 15: cv-2172-SC.
uu
t
On May 19, 2015, the plaintiffs filed a motion to remand. On September 18, 2015, the Company filed a motion to dismiss the First
Amended Complaint in its entirety. The motion was fully briefed. On September 24, 2015, the United States District Court for the
Northern District of California denied plaintiffs’ motion to remand. On October 5, 2015, plaintiffs filed a motion for leave to file a
motion for reconsideration of this order, and contemporaneously filed a petition for permission to appeal to the Ninth Circuit, which
the Company opposed. On October 14, 2015, the United States District Court for the Northern District of California granted
plaintiffs’ motion for leave. Plaintiffs’ motion for reconsideration was fully briefed. On January 12, 2016, the United States District
Court for the Northern District of California granted in part and denied in part the motion for reconsideration, and refused to remand
the case. On January 22, 2016, plaintiffs filed a petition for permission to appeal the January 12, 2016 order to the Ninth Circuit,
which the Company opposed. On April 7, 2016, the Ninth Circuit denied both of plaintiffs’ petitions for permission to appeal and the
plaintiffs filed a motion for leave to file a Second Amended Class Action Complaint (“Second Amended Complaint”), seeking to add
two additional plaintiffs and make various pleading adjustments. The Company opposed the motion. On August 1, 2016, the United
States District Court for the Northern District of California issued an order granting in part the Company’s motion to dismiss and
granting plaintiffs leave to file an amended complaint by August 22, 2016, which they filed.
The Second Amended Complaint likewise asserted causes of action based on the California False Advertising Law, California Unfair
Competition Law and California CLRA. Essentially plaintiffs allege there were fraudulent representations made by the Company
about the health of its orcas that ultimately induced consumers to purchase admission tickets to SeaWorld parks and in some cases,
plush toys while in the parks. The Company moved to dismiss this on various grounds.
On November 7, 2016, the United States District Court for the Northern District of California issued an order granting in part,
denying in part, the Company’s motion to dismiss. The United States District Court for the Northern District of California foun
one named plaintiff failed to allege reliance on any specific statements so those claims, in their entirety, have been dismissed. In
addition, the United States District Court for the Northern District of California determined that plaintiffs did not allege any nn
misrepresentations made about the plush toy purchases, which disposes of the CLRA claims based on the toys. The United States
District Court for the Northern District of California also found that certain plaintiff’s conversation with SeaWorld’s trainers was not
“advertising,” and dismissed the false advertising claim and Unfair Competition Law claim premised on it.
d that
and
n
t
Plaintiffs filed a Third Amended Class Action Complaint on November 22, 2016. The Company moved to dismiss portions of that
t
pleading, but the motion to dismiss was denied. What remains at this point are plaintiff’s claims under California’s Unfair
Competition Law, False Advertising Law and the CLRA based on the purchase of tickets; plaintiff’s California Unfair Competition
Law and False Advertising Law claims based on the purchase of plush toys; and plaintiff’s claims under California’s Unfair
Competition Law based on the purchase of plush toys.
The Company believes that these consumer class action lawsuits are without merit and intends to defend these lawsuits vigorously;
however, there can be no assurance regarding the ultimate outcome of these lawsuits.
F-29
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Other Matters
The Company is a party to various other claims and legal proceedings arising in the normal course of business. In addition, from time
to time the Company is subject to audits, inspections and investigations by, or receives requests for information from, various federal
and state regulatory agencies, including, but not limited to, the U.S. Department of Agriculture’s Animal and Plant Health Inspection
Service (APHIS), the U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA), the California
Occupational Safety and Health Administration (Cal-OSHA), the Florida Fish & Wildlife Commission (FWC), the Equal Employment
Opportunity Commission (EEOC), the Internal Revenue Service (IRS) and the Securities and Exchange Commission (SEC). From
time to time, various parties may also bring lawsuits against the Company. Matters where an unfavorable outcome to the Company is
probable and which can be reasonably estimated are accrued. Such accruals, which are not material for any period presented, are based
on information known about the matters, the Company’s estimate of the outcomes of such matters, and the Company’s experience in
contesting, litigating and settling similar matters. Matters that are considered reasonably possible to result in a material loss are not
accrued for, but an estimate of the possible loss or range of loss is disclosed, if such amount or range can be determined. At this time,
management does not expect any known claims, legal proceedings or regulatory matters to have a material adverse effect on the
Company’s consolidated financial position, results of operations or cash flows.
r
15. FAIR VALUE MEASUREMENTS
Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement is required to be
determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering
market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy tha
r
distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market
participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
t
t
The Company has determined that the majority of the inputs used to value its derivative financial instruments using the income
approach fall within Level 2 of the fair value hierarchy. The Company uses readily available market data to value its derivatives, such
as interest rate curves and discount factors. ASC 820, Fair Value Measurement also requires considera
valuation. The Company uses a potential future exposure model to estimate this credit valuation adjustment (“CVA”). The inputs to
the CVA are largely based on observable market data, with the exception of certain assumptions regarding credit worthiness which
make the CVA a Level 3 input. Based on the magnitude of the CVA, it is not considered a significant input and the derivatives are aa
classified as Level 2. Of the Company’s long-term obligations, the Term B-2 Loans and Term B-3 Loans are classified in Level 2 of
the fair value hierarchy. The fair value of the term loans as of December 31, 2016 approximate their carrying value, excluding
unamortized debt issuance costs and discounts, due to the variable nature of the underlying interest rates and the frequent intervals at
which such interest rates are reset. See Note 11–Long-Term Debt.
tion of credit risk in the
t
There were no transfers between Levels 1, 2 or 3 during the year ended December 31, 2016. The Company did not have any assets
measured at fair value at December 31, 2016. The following table presents the Company’s estimated fair value measurements and
related classifications as of December 31, 2016:
Liabilities:
Derivative financial instruments (a) .................................... $
Long-term obligations (b) .................................................... $
22,808
—— $
—— $ 1,598,001
(cid:3)(cid:3)(cid:3)
$
$
Quoted Prices in
Active Markets
for Identical
Assets and
Liabilities
(Level 1)
(cid:3)
(cid:3)
Significant
Other
Observable
Inputs
(Level 2)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
Significant
(cid:3)
Unobservable (cid:3)
Inputs
(Level 3)
(cid:3)
(cid:3)
2016
Balance at
(cid:3) December 31,
(cid:3)
(cid:3)(cid:3)
22,808
— $
— $ 1,598,001
(a)
(b)
Reflected at fair value in the consolidated balance sheet as other liabilities of $22,808.
Reflected at carrying value, net of unamortized debt issuance costs and discounts, in the consolidated balance sheet as current
maturities on long-term debt of $51,713 and long-term debt of $1,531,069 as of December 31, 2016.
m
F-30
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
There were no transfers between Levels 1, 2 or 3 during the year ended December 31, 2015. The Company did not have any assets
measured at fair value at December 31, 2015. The following table presents the Company’s estimated fair value measurements and
related classifications as of December 31, 2015:
Liabilities:
Derivative financial instruments (a) .................................... $
Long-term obligations (b) .................................................... $
—— $
19,600
—— $ 1,601,287
(cid:3)(cid:3)(cid:3)
$
$
Quoted Prices in
Active Markets
for Identical
Assets and
Liabilities
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
Significant
(cid:3)
Unobservable (cid:3)
Inputs
(Level 3)
2015
Balance at
(cid:3) December 31,
(cid:3)
(cid:3)(cid:3)
— $
19,600
— $ 1,601,287
(a)
(b)
Reflected at fair value in the consolidated balance sheet as other liabilities of $19,600.
Reflected at carrying value, net of unamortized debt issuance costs and discounts, in the consolidated balance sheet as current
maturities on long-term debt of $31,850 and long-term debt of $1,548,893 as of December 31, 2015.
m
16. RELATED-PARTY TRANSACTIONS
As of December 31, 2016, approximately $25,000 aggregate principal amount of Term B-2 Loans were owned by affiliates of
Blackstone. As of December 31, 2015, approximately $77,000 aggregate principal amount of Term B-2 Loans and $9,000 aggregate
principal amount of Term B-3 Loans were owned by affiliates of Blackstone. The Company makes voluntary principal repayments as
well as periodic principal and interest payments on such debt in accordance with its terms. On April 7, 2015, the then outstanding
Senior Notes, of which a portion were owned by affiliates of Blackstone, were redeemed as discussed in Note 11–Long-Term Debt.
Dividend Payments
On January 5, February 22 and June 8, 2016, the Board of Directors of the Company (the “Board”) declared a cash dividend of $0.21
per share to all common stockholders of record at the close of business on January 15, March 14 and June 20, 2016, respectively. On
September 19, 2016 the Board declared a cash dividend of $0.10 per share to all common stockholders of record at the close of
business on September 29, 2016. In connection with these dividend declarations, certain affiliates of Blackstone were paid dividends
in the amount of $4,095 on January 22, April 1, and July 1, 2016 and dividends in the amount of $1,950 on October 7, 2016. On
September 19, 2016, the Board suspended the Company’s quarterly dividend policy. See further discussion at Note 19–Stockholders’
Equity.
On January 5, March 3, June 10, and September 16, 2015, the Board declared a cash dividend of $0.21 per share to all common
stockholders of record at the close of business on January 13, March 13, June 22, and September 29, 2015, respectively (see Note 19–
Stockholders’ Equity). In connection with these dividend declarations, certain affiliates of Blackstone were paid dividends in the
amount of $4,095 on January 22, April 1, July 1, and October 6, 2015.
n
In March 2014, the Board declared a cash dividend of $0.20 per share to all common stockholders of record at the close of business on
March 20, 2014. In May and September 2014, the Board declared a cash dividend of $0.21 per share to all common stockholders of
record at the close of business on June 20 and September 29, 2014, respectively (see Note 19–Stockholders’ Equity). In connection
with these dividend declarations, certain affiliates of Blackstone were paid dividends in the amount of $7,849, $4,252 and $4,095 on
April 1, July 1, and October 6, 2014, respectively.
Share Repurchases
The Company repurchased shares of its common stock from the selling stockholders concurrently with the closing of the respective
secondary offering in April 2014. See further discussion in Note 19–Stockholders’ Equity.
F-31
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
17. RETIREMENT PLAN
The Company sponsors a defined contribution plan, under Section 401(k) of the Internal Revenue Code. The plan is a qualified
automatic contributions arrangement, which automatically enrolls employees, once eligible, unless they opt out. The Company makes
matching cash contributions subject to certain restrictions, structured as a 100% match on the first 1% contributed by the employee
and a 50% match on the next 5% contributed by the employee. Employer matching contributions for the years ended December 31,
2016, 2015 and 2014, totaled $8,495, $7,696 and $7,790, respectively.
18. EQUITY-BASED COMPENSATION
In accordance with ASC 718, Compensation-Stock Compensation, the Company measures the cost of employee services rendered in
exchange for share-based compensation based upon the grant date fair market value. The cost, net of estimated forfeitures, is
recognized over the requisite service period, which is generally the vesting period unless service or performance conditions require
otherwise. The Company has granted stock options, time-vesting restricted share awards and performance-vesting restricted share
awards. The Company used the Black-Scholes Option Pricing Model to value its stock options and the closing stock price on the date
of grant to value its time-vesting restricted share awards and its performance-vesting restricted share awards granted in 2016 and 2015.
Total equity compensation expense was $37,515, $6,527 and $2,349 for the years ended December 31, 2016, 2015 and 2014,
respectively. Total equity compensation expense for the year ended December 31, 2016 includes $27,516 related to certain of the
Company’s performance-vesting restricted shares (the “2.25x Performance Restricted shares”) which vested on April 1, 2016. See the
“2.25x and 2.75x Performance Restricted Shares” section which follows for further details. Equity compensation is included in
selling, general and administrative expenses and in operating expenses in the accompanying consolidated statements of comprehensive
(loss) income. Total unrecognized equity compensation expense for all equity compensation awards probable of vesting as of
December 31, 2016 was approximately $27,960 which is expected to be recognized over the respective service periods.
The total fair value of shares which vested during the years ended December 31, 2016, 2015 and 2014 was approximately $32,164,
$2,450 and $2,410, respectively. Total fair value of shares which vested during the year ended December 31, 2016 includes $27,516
related to the 2.25x Performance Restricted shares which vested on April 1, 2016. The weighted average grant date fair value per
share of time-vesting and performance-vesting restricted share awards granted during the years ended December 31, 2016, 2015 and
2014 were $17.20, $18.76 and $24.59 per share, respectively.
The activity related to the Company’s time-vesting and performance-vesting restricted share awards during the year ended
December 31, 2016 is as follows:
(cid:3)
(cid:3)
(cid:3)
Time-Vesting
Restricted shares
Bonus Performance
Restricted shares
Performance-Vesting Restricted shares
Long-Term
Incentive
Performance
Restricted shares
2.25x Performance
Restricted shares
2.75x Performance
Restricted shares
Weighted
Average
Grant Date
Fair Value
per Share
Shares
Weighted
Average
Grant Date
Fair Value
per Share
Shares
Weighted
Average
Grant Date
Fair Value
per Share
Shares
Weighted
Average
Grant Date
Fair Value
per Share
Shares
Weighted
Average
Grant Date
Fair Value
per Share
Shares
Outstanding at
December 31, 2015 ...... 883,270 $ 18.66 415,995 $
Granted ............................ 769,906 $ 16.41 502,576 $
Vested ............................. (254,708) $ 18.25
Forfeited ..........................
Outstanding at
December 31, 2016 ...... 1,323,025 $ 17.47 451,289 $
(75,443) $ 18.02 (467,282) $
——
19.00 62,365 $
17.89 200,098 $
——
——
18.88 (50,094) $
18.88 1,370,821 $ 20.35 1,370,821 $
18.50
— —
—
— (1,370,821 ) $ 20.07
—
— — $
19.28
—
—
(60,095) $
10.93
——
——
15.42
17.88 212,369 $
18.43
— — $
— 1,310,726 $
8.19
F-32
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The activity related to the Company’s stock option awards during the year ended December 31, 2016 is as follows:
Outstanding at December 31, 2015 ........................................
Granted ...................................................................................
Forfeited .................................................................................
Expired ...................................................................................
Exercised ................................................................................
Outstanding at December 31, 2016 ........................................
Exercisable at December 31, 2016 .........................................
Weighted
Average
Exercise Price
Options
$
2,274,385
$
1,472,937
(266,307) $
(34,784) $
(4,331) $
$
$
19.21
17.83
18.60
18.96
18.96
18.67
19.23
3,441,900
523,125
Weighted
Average
Remaining
Contractual
Life (in years) (cid:3)
Aggregate
Intrinsic Value
8.67 $
8.32 $
2,091
140
The weighted average grant date fair value of stock options granted during the year ended December 31, 2016 was $3.69 per stock
t
option. Key weighted-average assumptions utilized in the Black-Scholes Option Pricing Model for stock options granted during the
year ended December 31, 2016 were:
Risk- free interest rate ..................................................................
Expected volatility(a).....................................................................
Expected dividend yield ...............................................................
Expected life (in years)(b) .............................................................
1.47%
35.46%
4.69%
6.25
(a)
(b)
Due to the Company’s limited history as a public company, the volatility for the Company’s stock at the date of each grant was
estimated using the average volatility calculated for a peer group, which is based upon daily price observations over the
estimated term of options granted.
The expected life was estimated using the simplified method, as the Company does not have sufficient historical exercise data
due to the limited period of time its common stock has been publicly traded.
Omnibus Incentive Plan
The Company has reserved 15,000,000 shares of common stock for issuance under the Company’s 2013 Omnibus Incentive Plan (the
“Omnibus Incentive Plan”). The Omnibus Incentive Plan is administered by the Compensation Committee of the Board of Directors
(the “Board”), and provides that the Company may grant equity incentive awards to eligible employees, directors, consultants or
advisors in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based and
performance compensation awards. If an award under the Omnibus Incentive Plan terminates, lapses, or is settled without the payment
yy
of the full number of shares subject to the award, the undelivered shares may be granted again under the Omnibus Incentive Plan.
For the year ended December 31, 2016, the Company withheld an aggregate of 89,180 shares of its common stock from employees to
satisfy minimum tax withholding obligations related to the vesting of restricted stock awards. As a result, these shares were added
back to the number of shares of common stock available for future issuance under the Company’s Omnibus Incentive Plan. As of
December 31, 2016, there were 8,642,630 shares of common stock available for future issuance under the Company’s Omnibus
Incentive Plan.
Bonus Performance Restricted Shares
The Company has annual bonus plans (the “2016 Bonus Plan” and the “2015 Bonus Plan”) for the fiscal years ended December 31,
2016 and 2015, respectively (the “Fiscal 2016” and “Fiscal 2015”), under which certain employees are eligible to receive a bonus with
respect to Fiscal 2016 and 2015, payable 50% in cash and 50% in performance-vesting restricted shares (the “Bonus Performance
Restricted shares”) based upon the Company’s achievement of specified performance goals with respect to Adjusted EBITDA for the
respective performance year. The Bonus Performance Restricted shares were granted in 2016 and 2015 pursuant to the Omnibus
Incentive Plan.
F-33
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In accordance with ASC 718, equity compensation expense is not recorded until the performance condition is probable of being
achieved. Based on the Company’s Fiscal 2016 and 2015 Adjusted EBITDA results, the Bonus Performance Restricted shares were
not considered probable of vesting as of December 31, 2016 and 2015; therefore, no equity compensation expense has been recorded
related to these shares. The shares related to the 2016 Bonus Plan will forfeit in the first quarter of 2017 and the shares related to the
2015 Bonus Plan forfeited in the first quarter of 2016.
As part of the Company’s annual compensation-setting process and in accordance with the Company’s Equity Award Grant Policy
(the “Equity Grant Policy”), on December 7, 2016, the Compensation Committee approved an annual bonus plan (the “2017 Bonus
Plan”) for the fiscal year ending December 31, 2017 (the “Fiscal 2017”). The 2017 Bonus Plan provides for bonus awards payable
50% in cash and 50% in Bonus Performance Restricted shares and is based upon the Company’s achievement of specified
performance goals with respect to Fiscal 2017 Adjusted EBITDA (weighted at 50%), Total Revenue (weighted at 30%) and Adjusted
EBITDA Margin (weighted at 20%). Pursuant to the Equity Grant Policy, the Bonus Performance Restricted shares related to the
2017 Bonus Plan will be granted effective as of March 3, 2017, which is the second business day following the filing of the Annual
Report on Form 10-K.
Long-Term Incentive Awards
The Board has also approved long-term incentive plan grants (the “2016 Long-Term Incentive Grant” and “the 2015 Long-Term
Incentive Grant”) for Fiscal 2016 and Fiscal 2015 comprised of nonqualified stock options (“Long-Term Incentive Options”), time-
vesting restricted shares (“Long-Term Incentive Time Restricted shares”) and performance-vesting restricted shares (“Long-Term
Incentive Performance Restricted shares”) (collectively, “Long-Term Incentive Awards”) to certain of the Company’s management
and executive officers. These awards were granted pursuant to the Omnibus Incentive Plan in 2016 and 2015.
Long-Term Incentive Options
The Long-Term Incentive Options vest ratably over four years from the date of grant (25% per year), subject to continued
employment through the applicable vesting date and will expire 10 years from the date of grant or earlier if the employee’s service
terminates. The Long-Term Incentive Options have an exercise price per share equal to the closing price of the Company’s common
stock on the date of grant. Equity compensation expense is recognized using the straight line method for each tranche over the four
year vesting period.
Long-Term Incentive Time Restricted Shares
The Long-Term Incentive Time Restricted shares vest ratably over four years from the date of grant (25% per year), subject to
continued employment through the applicable vesting date. Equity compensation expense is recognized using the straight line method
over the four year vesting period.
Long-Term Incentive Performance Restricted Shares
The Long-Term Incentive Performance Restricted shares vest following the end of a three-year performance period beginning on
January 1 of the fiscal year in which the award was granted and ending on December 31 of the third fiscal year based upon the
Company’s achievement of certain performance goals with respect to Adjusted EBITDA for each fiscal year performance period. The
total number of shares eligible to vest is based on the level of achievement of the Adjusted EBITDA target for each fiscal year in the
performance period which ranges from 0% (if below threshold performance), to 50% (for threshold performance), to 100% (for target
performance), and up to 200% (at or above maximum performance). For actual performance between the specified threshold, target,
and maximum levels, the resulting vesting percentage is adjusted on a linear basis. Total shares earned (approximately 33% are
eligible to be earned per year), based on the actual performance percentage for each performance year, will vest on the date the
Company’s Compensation Committee determines the actual performance percentage for the third fiscal year (“Determination Date”)
in the performance period if the employee has not terminated prior to the last day of such fiscal year. Additionally, all unearned shares
will forfeit immediately as of the Determination Date. The Adjusted EBITDA target for each fiscal year is set in the first quarter of
each respective year, at which time the grant date and the grant-date fair value for accounting purposes related to that performance
year is established based on the closing price of the Company’s stock on such date plus any accumulated dividends earned since the
date of the initial award. Equity compensation expense is recognized ratably for each fiscal year, if the performance condition is
probable of being achieved, beginning on the date of grant and through December 31 of the third fiscal year in the performance period.
aa
r
rr
F-34
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
As of December 31, 2016, the Company had awarded 385,153 Long-Term Incentive Performance Restricted shares, net of forfeitures,
under the 2016 Long-Term Incentive Plan which represents the total shares that could be earned under the maximum performance
level of achievement for all three performance periods combined, with approximately one-third related to each respective performance
period (Fiscal 2016, Fiscal 2017 and Fiscal 2018). For accounting purposes, the performance goals for the respective performance
periods must be established for a grant date to be determined. As such, since the performance goal for Fiscal 2016 was established as
of the award date, for accounting purposes, 128,369, net of forfeitures, of the Long-Term Incentive Performance Restricted shares
under the 2016 Long-Term Incentive Plan have a grant date in 2016 and grant-date fair value determined using the closing price of the
Company’s common stock on the date of grant. The performance targets for the subsequent performance periods, Fiscal 2017 and
Fiscal 2018, have not yet been set and will be determined by the Compensation Committee during the first quarter of each respective
fiscal year, at which time, for accounting purposes, the grant date and respective grant-date fair value will be determined for those
related shares.
r
r
As of December 31, 2016, the Company had awarded 126,024 Long-Term Incentive Performance Restricted shares, net of forfeitures,
under its 2015 Long-Term Incentive Plan which represented the total shares that could be earned under the maximum performance
level of achievement for all three performance periods combined under the 2015 Long-Term Incentive Plan (Fiscal 2015, Fiscal 2016
and Fiscal 2017). Of these Long-Term Incentive Performance Restricted Shares, 42,000, net of forfeitures, relate to the Fiscal 2015
performance period and were considered granted for accounting purposes in 2015. As the Fiscal 2016 performance target was
established during the first quarter of 2016, 42,000 Long-Term Incentive Performance Restricted shares, net of forfeitures, were
considered granted for accounting purposes during the year ended December 31, 2016 and the grant-date fair value was determined
using the close price on the date the performance target was established plus accumulated dividends earned since the date of the initial
award.
As the Long-Term Incentive Performance Restricted shares have both a service and a performance condition, the requisite service
period over which equity compensation expense is recognized once the performance condition is probable of achievement begins on
the date of grant and extends through December 31 of the third fiscal year in the respective performance period (Fiscal 2017 under the
2015 Long-Term Incentive Plan and Fiscal 2018 under the 2016 Long-Term Incentive Plan). Based on the Company’s progress
toward the Adjusted EBITDA performance goal for Fiscal 2016, the target performance level for Fiscal 2016 is not considered
probable; as such all 170,369 Long-Term Incentive Performance Restricted shares granted in Fiscal 2016, net of forfeitures, under
both the 2015 and the 2016 Long-Term Incentive Plan are not considered probable of vesting as of December 31, 2016. Total
unrecognized equity compensation expense related to the Fiscal 2015 performance period expected to be recognized over the
remaining vesting term was approximately $91 as of December 31, 2016. Unrecognized equity compensation expense related to the
maximum performance level for the Fiscal 2016 performance period on shares not probable of vesting is $3,081 as of December 31,
2016. Total unrecognized equity compensation expense related to the subsequent performance periods have not been determined as
the grant date and grant-date fair value for these awards have not yet occurred for accounting purposes, as such no expense has been
recorded related to the subsequent performance periods.
As part of the Company’s annual compensation-setting process and in accordance with the Equity Grant Policy, on December 7, 2016,
the Compensation Committee approved a long-term incentive plan grant (the “2017 Long-Term Incentive Grant”) for Fiscal 2017
comprised of Long-Term Incentive Time Restricted shares and Long-Term Incentive Performance Restricted shares to certain
employees. The 2017 Long-Term Incentive Grant will no longer include Long-Term Incentive Options. The Long-Term Incentive
Time Restricted shares are expected to vest over five years, with one-third vesting on each of the third, fourth and fifth anniversaries
of the date of grant. The Long-Term Incentive Performance Restricted shares are expected to vest following the end of the three-year
performance period beginning on January 1, 2017 and ending on December 31, 2019 based upon the Company’s achievement of pre-
established performance goals with respect to Adjusted EBITDA (weighted at 50%), Total Revenue (weighted at 30%) and Return on
Invested Capital (weighted at 20%) for the three year performance period, as defined by the 2017 Long Term Incentive Grant.
Pursuant to the Equity Grant Policy, the Long-Term Incentive Awards related to the 2017 Long-Term Incentive Grant will be granted
effective March 3, 2017, which is the second business day following the filing of the Annual Report on Form 10-K.
Other 2016 Omnibus Incentive Plan Awards
In accordance with the Company’s Second Amended and Restated Outside Director Compensation Policy, on June 15, 2016, 53,333
time-vesting restricted shares were granted to the non-employee directors of the Company’s Board of which 7,619 of these shares
represented the grant of an initial award, which vests ratably over three years from the date of grant, subject to the outside director’s
continued service on the Board through such vesting date and 45,714 of these shares vest 100% on the day before the 2017 Annual
Stockholders Meeting, subject to the outside directors’ continued service on the Board through such vesting date.
F-35
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Other
Other Fair Value Assumptions
The Company has outstanding under both its Omnibus Incentive Plan and its previous incentive plan (the “Pre-IPO Incentive Plan”)
certain time-vesting restricted shares (the “TVUs”) and performance-vesting restricted shares (the “2.75x Performance Restricted
shares”). The Pre-IPO Incentive Plan TVUs originally granted vested over five years (20% per year) and vesting was contingent upon
continued employment. The TVUs were originally valued at the fair market value at the date of grant and were being amortized to
r
compensation expense over the vesting period. The fair value of each Pre-IPO Incentive Plan 2.75x Performance Restricted shares
originally granted was estimated on the date of grant using a composite of the discounted cash flow model and the guideline public
company approach to determine the underlying enterprise value. The discounted cash flow model was based upon significant inputs
that are not observable in the market. After the IPO on April 8, 2013, the modification fair value was calculated using the asset-or-
nothing call approach. Significant assumptions used included a holding period of approximately 2 years from the initial public
offering date, a risk free rate of 0.24%, a volatility of approximately 37.6% based on re-levered historical and implied equity volatility
of comparable companies and a 0% dividend yield. The grant date fair value of the Omnibus Incentive Plan 2.75x Performance
Restricted shares was measured using the asset-or-nothing option pricing model. Significant assumptions included a holding period of
approximately 2 years from the initial public offering date, a risk free rate of 0.24%, a volatility of approximately 33.2% based on re-
levered historical and implied equity volatility of comparable companies and a 0% dividend yield.
y
Equity Plan Modifications
Through the year ended December 31, 2016, conditions for eligibility on a total of 702,735 2.75x Performance Restricted shares were
modified to allow those participants holding such shares who were separating from the Company to vest in their respective shares if
the performance conditions are achieved after their employment ends with the Company, subject to their continued compliance with
applicable post-termination restrictive covenants. As the 2.75x Performance Restricted shares were not considered probable of vesting
at the time of the modifications, the Company used the respective modification date fair value to calculate any related equity
compensation expense.
2.25x and 2.75x Performance Restricted Shares
Based on cash proceeds previously received by certain investment funds affiliated with Blackstone from the Company’s initial public
offering and subsequent secondary offerings of stock, the Company’s repurchases of shares and the cumulative dividends paid by the
Company through April 1, 2016, the vesting conditions on the Company’s previously outstanding 2.25x Performance Restricted
shares were satisfied with the Company’s dividend payment to such investment funds affiliated with Blackstone on April 1, 2016.
Accordingly, during the three months ended March 31, 2016, upon declaration of the dividend, the 2.25x Performance Restricted
shares were considered probable of vesting and all of the related equity compensation expense and accumulated dividends were
recognized in the accompanying consolidated financial statements. On April 1, 2016, upon payment of the dividend to such
investment funds affiliated with Blackstone, all previously outstanding 1,370,821 2.25x Performance Restricted shares vested and the
related accumulated dividends of $3,400 were paid.
u
The 2.75x Performance Restricted shares remain outstanding and will vest if the employee is employed by the Company when and if
such investment funds affiliated with Blackstone receive cash proceeds (not subject to any clawback, indemnity or similar contractual
obligation) in respect of their Partnerships units equal to (x) a 15% annualized effective compounded return rate on such funds’
investment and (y) a 2.75x multiple on such funds’ investment. As receipt of these future cash proceeds will be primarily related to a
liquidity event, such as secondary offerings of stock or additional dividends paid to such funds, the 2.75x Performance Restricted
shares are not considered probable of vesting until such events are consummated. The additional future cash proceeds necessary toy
trigger the vesting of the 2.75x Performance Restricted shares under the terms of the original award is approximately $421,000. Total
unrecognized equity compensation expense as of December 31, 2016, was approximately $11,000 for the 2.75x Performance
Restricted shares. No equity compensation expense has been recorded during the years ended December 31, 2016, 2015 and 2014
related to the 2.75x Performance Restricted shares as their vesting has not been considered probable. The Company will recognize
equity compensation expense related to any outstanding 2.75x Performance Restricted shares upon such funds’ receipt of final cash
proceeds in the event of a full liquidation by such funds regardless of whether or not the shares vest in accordance to their t
erms.
n
y
19. STOCKHOLDERS’ EQUITY
As of December 31, 2016, 91,861,054 shares of common stock were issued on the accompanying consolidated balance sheet, which
excludes 3,596,217 unvested shares of common stock held by certain participants in the Company’s equity compensation plan (see
Note 18–Equity-Based Compensation) and includes 6,519,773 shares of treasury stock held by the Company (see Secondary Offering
and Concurrent Share Repurchase and Share Repurchase Program discussions below).
F-36
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Dividends
Prior to September 19, 2016, the Board had a policy to pay, subject to legally available funds, regular quarterly dividends. The
payment and timing of cash dividends was within the discretion of the Board and depended on many factors, including, but not limited
to, the Company’s results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions,
restrictions in its debt agreements and in any preferred stock, business prospects and other factors that the Board deemed relevant. On
September 19, 2016, the Board declared a cash dividend of $0.10 per share of common stock, which was paid on October 7, 2016.
Subsequent to this dividend declaration, the Board also suspended the Company’s quarterly dividend policy to allow greater flexibility
to deploy capital, when possible, to opportunities that offer the greatest long term returns to shareholders, such as, but not limited to,
investments in new attractions, debt repayments or share repurchases.
During the years ended December 31, 2016, 2015 and 2014, the Board declared or paid quarterly cash dividends to all common
stockholders of record as follows:
Payment Date
Record Date
2016:
January 15, 2016 ....................................... January 22, 2016
March 14, 2016 (a) ..................................... April 1, 2016
June 20, 2016 ((a)) ........................................ July 1, 2016
September 29, 2016 .................................. October 7, 2016
2015:
January 13, 2015 ....................................... January 22, 2015
March 13, 2015(a) ...................................... April 1, 2015
June 22, 2015(a) ......................................... July 1, 2015
September 29, 2015 .................................. October 6, 2015
2014:
March 20, 2014(a) ...................................... April 1, 2014
June 20, 2014(a) ......................................... July 1, 2014
September 29, 2014 .................................. October 6, 2014
Cash Dividend
per Common
Share
$
$
$
$
$
$
$
$
$
$
$
0.21
0.21
0.21
0.10
0.21
0.21
0.21
0.21
0.20
0.21
0.21
(a) As the Company had an accumulated deficit at the time these dividends were declared, these dividends were accounted for as a
return of capital and recorded as a reduction to additional paid-in capital on the accompanying consolidated statements of changes in
stockholders’ equity.
As of December 31, 2016, the Company had $908 of cash dividends recorded as dividends payable in the accompanying consolidated
balance sheet, which relates to unvested time restricted shares and unvested performance restricted shares with a performance
condition considered probable of being achieved. These shares carry dividend rights and therefore the dividends will be paid as the
shares vest in accordance with the underlying stock compensation grants. These dividend rights will be forfeited if the shares do not
vest.
n
Dividends paid to common stockholders were $65,306, $72,318 and $72,113 in the years ended December 31, 2016, 2015 and 2014,
respectively. For tax purposes, all of the 2016 dividends and a portion of the 2015 and 2014 dividends were treated as a return of
capital to stockholders. Distributions that qualify as a return of capital are not considered
“dividends” for tax purposes only.
n
n
Dividends on all performance-vesting restricted share awards accumulate and are paid only if the performance conditions are met and
the respective shares vest in accordance with their terms. On April 1, 2016, the Company’s 2.25x Performance Restricted shares held
by certain participants in the Company’s Omnibus Incentive Plan and Pre-IPO Incentive Plan vested and accumulated dividends were
paid (see Note 18–Equity-Based Compensation for further details). Accumulated dividends on the 2.75x Performance Restricted
shares are approximately $3,690, and will be paid only if and to the extent these 2.75x Performance Restricted shares vest in
accordance with their terms. Accumulated dividends on the Long-Term Incentive Performance Restricted shares were approximately
$180, of which approximately $18 was recorded related to the portion of the shares considered probable of vesting. The Company
does not record a dividend payable when the performance conditions on the related unvested shares are not considered probable of
being achieved.
t
F-37
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Secondary Offering and Concurrent Share Repurchase
On April 9, 2014, the selling stockholders completed an underwritten secondary offering of 17,250,000 shares of common stock,
chase additional shares. The selling
including 2,250,000 shares pursuant to the exercise in full of the underwriters’ option to pur
stockholders received all of the net proceeds from the offering and no shares were sold by the Company. In the year ended December m
31, 2014, the Company incurred fees and expenses of $747 in connection with this secondary offering which is shown as secondary
offering expenses on the accompanying consolidated statements of comprehensive (loss) income.
f
Concurrently with the closing of the secondary offering in April 2014, the Company repurchased 1,750,000 shares of its common
stock directly from the selling stockholders in private, non-underwritten transactions at a price per share equal to the price per share
paid to the selling stockholders by the underwriters in the respective secondary offering.
Share Repurchase Program
In 2014, the Board authorized the repurchase of up to $250,000 of the Company’s common stock (the “Share Repurchase Program”).
Under the Share Repurchase Program, the Company is authorized to repurchase shares through open market purchases, privately-
negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading
plans and under Rule 10b-18 of the Exchange Act. The Share Repurchase Program has no time limit and may be suspended or
discontinued completely at any time. The number of shares to be purchased and the timing of purchases will be based on the level of
the Company’s cash balances, general business and market conditions, and other factors, including legal requirements, debt covenant
restrictions and alternative investment opportunities.
No shares were repurchased by the Company during the year ended December 31, 2016. During the year ended December 31, 2015,
the Company repurchased a total of 2,413,803 shares of common stock at an average price of $18.62 per share and a total cost of
approximately $45,000 leaving $190,000 available for future repurchases under the Share Repurchase Program as of December 31,
2016.
During the year ended December 31, 2014, the Company repurchased a total of 855,970 shares of common stock at an average price
of $17.50 per share and a total cost of approximately $15,000. The Company paid $5,650 in January 2015 for settlement of shares
repurchased in December 2014.
All shares repurchased pursuant to the Share Repurchase Program and all shares repurchased directly from the selling stockholders
concurrently with the secondary offerings were recorded as treasury stock at a total cost of $154,871 at December 31, 2016 and 2015
and $109,871 as of December 31, 2014, and are reflected as a reduction to stockholders’ equity on the accompanying consolidated
statements of changes in stockholders’ equity.
20. SUMMARY QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summary quarterly financial data for the years ended December 31, 2016 and 2015 was as follows:
2016
First
Quarter(a)
Second
Quarter
Third
Quarter
Fourth
Quarter (b)
(Unaudited)
Total revenues ........................................................................ $
$
Operating (loss) income ......................................................... $ (119,567) $
Net (loss) income ................................................................... $
(84,049) $
(Loss) earnings per share:
220,241
371,136
38,050
17,768
Net (loss) income per share, basic .................................... $
Net (loss) income per share, diluted .................................. $
(1.00) $
(1.00) $
0.21
0.21
$
$
$
$
$
485,318 $
152,641 $
267,597
(11,539)
65,655 $
(11,905)
0.77 $
0.77 $
(0.14)
(0.14)
F-38
SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2015
First
Quarter
Second
Third
Fourth
Quarter (c)
Quarter
Quarter(d)
(Unaudited)
Total revenues ........................................................................ $
Operating (loss) income ......................................................... $
Net (loss) income ................................................................... $
(Loss) earnings per share:
214,592
$
(50,199) $
391,616
45,750
(43,598) $
5,809
Net (loss) income per share, basic .................................... $
Net (loss) income per share, diluted .................................. $
(0.51) $
(0.51) $
0.07
0.07
$
$
$
$
$
496,939 $
170,860 $
267,857
(6,975)
97,950 $
(11,028)
1.14 $
1.14 $
(0.13)
(0.13)
(a) During the first quarter of 2016, the Company recorded $27,516 in equity compensation expense related to certain of the
Company’s performance-vesting restricted shares (the “2.25x Performance Restricted shares”) which became probable of
vesting during the first quarter and vested on April 1, 2016. See Note 18–Equity-Based Compensation for further details.
(b) During the fourth quarter of 2016, the Company recorded $8,904 in restructuring and other related costs primarily related to
severance costs and other employment expenses. See Note 4–Restructuring Programs and Separation Costs for further details.
(c) During the second quarter of 2015, the Company recorded $20,348 in loss on early extinguishment of debt and write-off of
discounts and debt issuance costs related to the early redemption of $260,000 of its then existing Senior Notes. See Note 11–
Long-Term Debt for further details.
(d) During the fourth quarter of 2015, the Company recorded $2,001 in restructuring and other related costs primarily related to
severance costs for certain positions which were eliminated as part of a cost savings initiative. See Note 4–Restructuring
Programs and Separation Costs for further details.
Based upon historical results, the Company typically generates its highest revenues in the second and third quarters of each year and
incurs a net loss in the first and fourth quarters, in part because seven of its theme parks are only open for a portion of the year.
F-39
Schedule I-Registrant’s Condensed Financial Statements
SEAWORLD ENTERTAINMENT, INC.
PARENT COMPANY ONLY
CONDENSED BALANCE SHEETS
(In thousands, except share and per share amounts)
Current Assets:
Assets
Cash ............................................................................................................................ $
Total current assets ...............................................................................................
Investment in wholly owned subsidiary .....................................................................
Total assets ........................................................................................................................... $
908 $
908
474,909
475,817 $
430
430
517,257
517,687
December 31,
2016
2015
$
908
908
908
— —
919
621,343
7,518
(154,871)
474,909
475,817
$
430
430
430
——
903
624,765
46,460
(154,871)
517,257
517,687
Current Liabilities:
Liabilities and Stockholders' Equity
Dividends payable ......................................................................................................
$
Total current liab
ilities ..........................................................................................
Total liabilities ...........................................................................................................
t
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $0.01 par value—authorized, 100,000,000 shares, no shares
issued or outstanding at December 31, 2016 and 2015 .................................................
Common stock, $0.01 par value—authorized, 1,000,000,000 shares; 91,861,054
and 90,320,374 shares issued at December 31, 2016 and 2015, respectively ..................
Additional paid-in capital ................................................................................................
Retained earnings ............................................................................................................
Treasury stock, at cost (6,519,773 shares at December 31, 2016 and 2015) ...................
Total stockholders' equity .....................................................................................
Total liabilities and stockholders' equity ..........................................................................
$
See accompanying notes to condensed financial statements.
F-40
SEAWORLD ENTERTAINMENT, INC.
PARENT COMPANY ONLY
CONDENSED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(In thousands)
2016
Year Ended December 31,
2015
2014
Equity in net (loss) income of subsidiary .......................................................... $
Net (loss) income .............................................................................................. $
Other comprehensive income ............................................................................
$
(12,531)
(12,531)
$
$
——
$
(12,531)
49,133
49,133
——
49,133
$
$
$
49,919
49,919
——
49,919
See accompanying notes to condensed financial statements.
F-41
SEAWORLD ENTERTAINMENT, INC.
PARENT COMPANY ONLY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(In thousands)
Cash Flows From Operating Activities:
Net (loss) income ......................................................................................... $
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Equity in net (loss) income of subsidiary ...............................................
Dividend received from subsidiary-return on capital
(net of forfeitures) ...............................................................................
Net cash provided by operating activities .........................................
Cash Flows From Investing Activities:
For the Year Ended December 31,
2015
2014
2016
(12,531)
$
49,133
$
49,919
(49,133)
(49,919)
12,531
26,412
26,412
36,196
36,196
Restricted payment from subsidiary ............................................................
Dividend received from subsidiary-return of capital
(net of forfeitures) .....................................................................................
Net cash provided by investing activities .........................................
——
45,000
39,372
39,372
36,381
81,381
Cash Flows From Financing Activities:
Purchase of treasury stock ...........................................................................
Dividend paid to common stockholders ......................................................
(Payment) receipt of cash for tax withholdings on
equity-based compensation .......................................................................
Net cash used in financing activities .................................................
Change in Cash and Cash Equivalents .........................................................
Cash and Cash Equivalents - Beginning of year ..........................................
Cash and Cash Equivalents - End of year ..................................................... $
Supplemental Disclosures of Noncash Financing Activities
$
Treasury stock purchases settled in January 2015 ............................................. $
——
(65,306)
(50,650)
(72,318)
——
(65,306)
478
430
908
$
(37)
(123,005)
(5,428)
5,858
430
$
908
$
—— $
430
$
—— $
172
5,650
36,056
36,056
65,708
36,056
101,764
(60,058)
(72,113)
37
(132,134)
5,686
172
5,858
See accompanying notes to condensed financial statements.
F-42
SEAWORLD ENTERTAINMENT, INC.
NOTES TO CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. DESCRIPTION OF SEAWORLD ENTERTAINMENT, INC.
SeaWorld Entertainment, Inc. (the “Parent”) was incorporated in Delaware on October 2, 2009. At that time, the Parent was owned
by ten limited partnerships (the “Partnerships” or the “selling stockholders”), ultimately owned by affiliates of The Blackstone
Group L.P. (“Blackstone”) and certain co-investors. The Parent has no operations or significant assets or liabilities other than its
investment in SeaWorld Parks & Entertainment, Inc. (“SEA”), which owns and operates twelve theme parks within the United States.
Accordingly, the Parent is dependent upon distributions from SEA to fund its obligations. However, under the terms of SEA’s various
debt agreements, SEA’s ability to pay dividends or lend to the Parent is restricted, except that SEA may pay specified amounts to the
Parent to fund the payment of the Parent’s tax obligations.
2. BASIS OF PRESENTATION
The accompanying condensed financial statements (the “parent company only financial statements”) include the accounts of the
Parent and its investment in SEA accounted for in accordance with the equity method and do not present the financial statements of
the Parent and its subsidiary on a consolidated basis. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed
or omitted since this information is included with the SeaWorld Entertainment, Inc. consolidated financial statements included
elsewhere in this Annual Report on Form 10-K (the “consolidated financial statements”). These parent company only financial
statements should be read in conjunction with the consolidated financial statements.
3. GUARANTEES
On December 1, 2009, SEA entered into senior secured credit facilities (the “Senior Secured Credit Facilities”) and issued seni
ff
(the “Senior Notes”). On March 30, 2015, SEA entered into an incremental term loan amendment (the “Incremental Amendment”) to
its existing Senior Secured Credit Facilities and on April 7, 2015, SEA borrowed additional term loans pursuant to the Incremental
Amendment. The proceeds, along with cash on hand, were used to redeem all of the outstanding Senior Notes. See further discussion
in Note 11–Long-Term Debt of the accompanying consolidated financial statements.
or notes
Under the terms of the Senior Secured Credit Facilities, the obligations of SEA are fully, unconditionally and irrevocably guaranteed
by Parent, any subsidiary of Parent that directly or indirectly owns 100% of the issued and outstanding equity interest of SEA, and
subject to certain exceptions, each of SEA’s existing and future material domestic wholly-owned subsidiaries (collectively, the
“Guarantors”).
4. DIVIDENDS FROM SUBSIDIARIES
Prior to September 19, 2016, SEA’s Board of Directors (the “Board”) had a policy to pay, subject to legally available funds, regular
quarterly cash dividends to the Parent (defined as a restricted payment in the Senior Secured Credit Facilities) and the Parent’s Board
had a policy to pay a regular quarterly cash dividends. Subsequent to the September 19, 2016 dividend declaration, both the SEA’s
Board and the Parent’s Board suspended the quarterly dividend policy to allow greater flexibility to deploy capital, when possible, to
opportunities that offer the greatest long term returns to shareholders, such as, but not limited to, investments in new attractions, debt
repayments or share repurchases. As a result, SEA paid a cash dividend to the Parent during the years ended December 31, 2016, 2015
and 2014 related to dividend declarations as follows:
F-43
SEAWORLD ENTERTAINMENT, INC.
NOTES TO CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Cash Dividends
Paid
Payment Date
2016:
January 22, 2016 .......................................................................... $17,808
April 1, 2016(a) ............................................................................. $21,269
July 1, 2016(a) ............................................................................... $18,176
October 7, 2016 ............................................................................ $8,647
2015:
January 22, 2015 .......................................................................... $18,112
April 1, 2015(a) ............................................................................. $18,204
July 1, 2015(a) ............................................................................... $18,238
October 6, 2015 ............................................................................ $18,117
2014
January 3, 2014 ............................................................................ $17,767
April 1, 2014(a) ............................................................................. $17,766
July 1, 2014(a) ............................................................................... $18,290
October 6, 2014 ............................................................................ $18,290
(a)As SEA had an accumulated deficit at the time these dividends were declared to the Parent, these dividends were accounted for as a
return of capital by the Parent. The remaining dividends from SEA have been reflected as a return on capital in the accompanying
parent company only financial statements.
During the years ended December 31, 2016, 2015 and 2014, the Parent’s Board declared or paid quarterly cash dividends to all
common stockholders of record as follows:
Payment Date
Record Date
2016:
January 15, 2016 .............................................. January 22, 2016
March 14, 2016 ................................................ April 1, 2016
June 20, 2016 ................................................... July 1, 2016
September 29, 2016 ......................................... October 7, 2016
2015:
January 13, 2015 .............................................. January 22, 2015
March 13, 2015 ................................................ April 1, 2015
June 22, 2015 ................................................... July 1, 2015
September 29, 2015 ......................................... October 6, 2015
2014:
March 20, 2014 ................................................ April 1, 2014
June 20, 2014 ................................................... July 1, 2014
September 29, 2014 ......................................... October 6, 2014
Cash
Dividend
per Common
Share
$
$
$
$
$
$
$
$
$
$
$
0.21
0.21
0.21
0.10
0.21
0.21
0.21
0.21
0.20
0.21
0.21
As of December 31, 2016, the Parent had $908 of cash dividends payable included in dividends payable in the accompanying
condensed balance sheet. See Note 19–Stockholders’ Equity of the accompanying consolidated financial statements for further
f
discussion.
F-44
SEAWORLD ENTERTAINMENT, INC.
NOTES TO CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. STOCKHOLDERS’ EQUITY
Omnibus Incentive Plan
The Parent reserved 15,000,000 shares of common stock for future issuance under the 2013 Omnibus Incentive Plan (“Omnibus
Incentive Plan”). The Omnibus Incentive Plan is administered by the compensation committee of the Parent’s Board, and provides
that the Parent may grant equity incentive awards to eligible employees, directors, consultants or advisors of the Parent or it
mm
subsidiary, SEA, in the form of stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based
and performance compensation awards. If an award under the Omnibus Incentive Plan terminates, lapses, or is settled without the
payment of the full number of shares subject to the award, the undelivered shares may be granted again under the Omnibus Incentive
Plan. See further discussion in Note 18–Equity-Based Compensation of the accompanying consolidated financial statements.
s
Secondary Offering and Concurrent Share Repurchase
On April 9, 2014, the selling stockholders completed an underwritten secondary offering of 17,250,000 shares of common stock,
chase additional shares. The selling
including 2,250,000 shares pursuant to the exercise in full of the underwriters’ option to pur
stockholders received all of the net proceeds from the offering and no shares were sold by the Parent.
f
Concurrently with the closing of the secondary offering in April 2014, the Parent repurchased 1,750,000 shares of its common stock
directly from the selling stockholders in private, non-underwritten transactions at a price per share equal to the price per share paid to
the selling stockholders by the underwriters in the respective secondary offering.
Share Repurchase Program
In 2014, the Parent’s Board authorized the repurchase of up to $250,000 of the Company’s common stock (the “Share Repurchase
Program”). Under the Share Repurchase Program, the Parent is authorized to repurchase shares through open market purchases,
privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1
trading plans and under Rule 10b-18 of the Exchange Act. The Share Repurchase Program has no time limit and may be suspended or
discontinued completely at any time. The number of shares to be purchased and the timing of purchases will be based on the level of
the Company’s cash balances, general business and market conditions, and other factors, including legal requirements, debt covenant
restrictions and alternative investment opportunities.
r
There were no share repurchases during the year ended December 31, 2016. During the year ended December 31, 2015, the Parent
repurchased a total of 2,413,803 shares of common stock at an average price of $18.62 per share and a total cost of approximately
$45,000 leaving $190,000 available for future repurchases under the Share Repurchase Program as of December 31, 2016.
During the year ended December 31, 2014, the Parent repurchased a total of 855,970 shares of common stock at an average price of
$17.50 per share and a total cost of approximately $15,000. The Company paid $5,650 in January 2015 for settlement of shares
repurchased in December 2014.
All shares repurchased pursuant to the Share Repurchase Program and all shares repurchased directly from the selling stockholders
concurrently with the secondary offerings were recorded as treasury stock at a total cost of $154,871 as of December 31, 2016 and
2015, and $109,871 as of December 31, 2014 and are reflected as a reduction to stockholders’ equity on the accompanying
consolidated statements of changes in stockholders’ equity. SEA transferred $45,000 and $65,708 during the years ended
December 31, 2015 and 2014, respectively, as restricted payments to the Parent for the payment of repurchased shares.
F-45
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.1
I, Joel K. Manby, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2016 of SeaWorld Entertainment, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
d
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 1, 2017
Signature:
/s/ Joel K. Manby
Joel K. Manby
President and Chief Executive Officer, Director
(Principal Executive Officer)
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.2
I, Peter J. Crage, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2016 of SeaWorld Entertainment, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
d
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 1, 2017
Signature:
/s/ Peter J. Crage
Peter J. Crage
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report of SeaWorld Entertainment, Inc. (the “Company”) on Form 10-K for the year ended December
31, 2016 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joel K. Manby, President and Chief
Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(cid:120)
(cid:120)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company for the periods presented therein.
Date: March 1, 2017
By: /s/ Joel K. Manby
Joel K. Manby
President and Chief Executive Officer, Director
(Principal Executive Officer)r
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the Annual Report of SeaWorld Entertainment, Inc. (the “Company”) on Form 10-K for the year ended December
31, 2016 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter J. Crage, Chief Financial
Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that:
(cid:120)
(cid:120)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company for the periods presented therein.
Date: March 1, 2017
By: /s/ Peter J. Crage
Peter J. Crage
Chief Financial Officer
(Principal Financial Officer)
Corporate Information
BOARD OF DIRECTORS:
COMPANY EXECUTIVES:
Joel K. Manby
President and Chief Executive Officer
Peter J. Crage
Chief Financial Officer
Dr. Christopher (Chris) Dold
Chief Zoological Officer
Anthony Esparza
Chief Creative Officer
Denise Godreau
Chief Marketing Officer
John T. Reilly
Chief Parks Operations Officer
Jack Roddy
Chief Human Resources
and Culture Officer
Marc G. Swanson
Chief Accounting Officer
G. Anthony (Tony) Taylor
Chief Legal Officer, General Counsel
and Corporate Secretary
David F. D’Alessandro, Chairman A
Former Chairman, President and Chief
Executive Officer,
John Hancock Financial Services
Joel K. Manby
President and Chief Executive Officer,
SeaWorld Entertainment, Inc.
Ronald Bension B
President, House of Blues
Entertainment, LLC
William Gray A,C,D
Co-Founder and Director,
Hulls Highway, Inc.
Judith A. McHale C
President and Chief Executive Officer,
Cane Investments, LLC
Thomas E. Moloney B,D
Former Senior Executive Vice President
and Chief Financial Officer,
John Hancock Financial Services, Inc.
Donald C. Robinson B
Founder, Potcake Holdings, LLC
Ellen O. Tauscher A,C,D
Strategic Advisor, Baker, Donelson,
Bearman, Caldwell & Berkowitz, PC
Deborah M. Thomas B
Chief Financial Officer, Hasbro, Inc.
Peter F. Wallace
Senior Managing Director of Private Equity
Group, The Blackstone Group
A Member of the Compensation Committee
B Member of the Audit Committee
C Member of the Nominating and Corporate
Governance Committee
D Member of the Regulatory &
Governmental Affairs Committee
TRANSFER AGENT &
REGISTRAR:
For information or assistance regarding
individual stock records or dividends,
contact your broker or the Company’s
transfer agent, Computershare.
Computershare may be reached
at: 1-800-851-9677.
STOCK EXCHANGE LISTING:
The Company’s common stock is listed on
the New York Stock Exchange under the
ticker symbol “SEAS.”
FORWARD-LOOKING
STATEMENTS:
This Annual Report contains certain
forward-looking statements that are based
largely on the Company’s current
expectations. Forward-looking statements
are subject to certain risks and
uncertainties that could cause actual
performance or results to differ materially
from those expressed in the forward-
looking statements. For more information
about these forward-looking statements
and related risks, please refer to the
“Special Note Regarding Forward-Looking
Statements” beginning on page 1 of the
Company’s Annual Report on Form 10-K
included herewith.
CORPORATE GOVERNANCE:
Information concerning our Corporate
Governance practices, including our Code
of Ethics, Code of Conduct, Committee
Charters and Corporate Governance
Guidelines, is available on our Investor
Relations website at
www.seaworldinvestors.com.
INVESTOR RELATIONS:
Anyone seeking information about
SeaWorld Entertainment, Inc. is
encouraged to visit us online at
www.seaworldinvestors.com. The
Company provides a variety of information
about the business on its websites.
Prospective and current investors may also
contact the investor relations team at:
Phone: 855-797-8625
Email: investors@seaworld.com
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM:
Deloitte & Touche LLP
201 N. Franklin Street, Suite 3600,
Tampa, FL 33602-5827
SeaWorld Entertainment, Inc. Global Headquarters
9205 SouthPark Center Loop, Suite 400
Orlando, Florida 32819
Phone 407.226.5011
www.seaworldentertainment.com