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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 controlled 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.
On May 8, 2017 an affiliate of Zhonghong Zhuoye Group Co., Ltd. (“ZHG Group”), Sun Wise (UK) Co., LTD (“ZHG” or “Buyer”) acquired approximately 21% of the outstanding shares of common stock of the Company (the “Sale”) from certain affiliates of Blackstone (the “Seller”), pursuant to a Stock Purchase Agreement between ZHG and Seller (the “Stock Purchase Agreement”). As of December 31, 2017, Blackstone no longer owns any shares of the Company. See further discussion in Note 17–Related-Party Transactions and Note 20–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 each of the years ended December 31, 2017, 2016 and 2015 approximately 57% of the Company’s revenues were generated in the State of Florida.
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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.
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 $16,799 and $12,289 at December 31, 2017 and 2016, respectively. The cash balances in all accounts held at financial institutions are insured up to $250 by the Federal Deposit Insurance Corporation (“FDIC”) through December 31, 2017. 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.
From time to time, the Company may invest in certain highly liquid instruments with original maturities of three months or less. These instruments may include money market mutual funds, certificates of deposit or time deposits, among others, which may or may not qualify for FDIC insurance. The Company classifies any such instruments as cash and cash equivalents based on their short-term maturities.
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, including merchandise, culinary items and miscellaneous supplies. Obsolete or excess inventories are recorded at their estimated realizable value.
Restricted Cash
Restricted cash was $819 and $420 as of December 31, 2017 and 2016, respectively, and is recorded in other current assets in the accompanying consolidated balance sheets. Restricted cash consists primarily 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 using the straight-line method based on the following estimated useful lives:
Land improvements |
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10-40 years |
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Buildings |
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5-40 years |
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Rides, attractions and equipment |
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3-20 years |
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Animals |
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1-50 years |
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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, 2017, 2016 and 2015, was $2,690, $2,686 and $2,299, 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 $9,196 and $11,441 as of December 31, 2017 and 2016, respectively, and are recorded in other assets in the accompanying consolidated balance sheets. Accumulated amortization was $16,062 and $12,576 as of December 31, 2017 and 2016, respectively. Amortization expense of capitalized computer system development costs during the years ended December 31, 2017, 2016 and 2015 was $3,544, $3,399 and $3,022, 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.
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 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, assets are grouped and tested at the lowest level for which identifiable independent cash flows are available (generally a theme park).
During the third quarter of 2017, following a contractual dispute, the Company amended an existing agreement related to the use of certain animals. As a result of this amendment, which reduced the expected future cash flows related to the agreement, the Company recognized an impairment loss of approximately $7,800 which is included in operating expenses in the accompanying consolidated statement of comprehensive loss for the year ended December 31, 2017. See Note 8–Property and Equipment, Net, for further details. No impairment losses were recognized during the years ended December 31, 2016 and 2015.
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 overall financial performance and consideration of significant events or changes in the overall business environment or macroeconomic conditions. 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.
As of January 1, 2017, the Company elected to early adopt Accounting Standards Update (“ASU”) 2017-04, Intangible–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, for any interim or annual goodwill impairment tests. See further discussion in Note 3–Recent Accounting Pronouncements.
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 of recoverability of a significant asset group within a reporting unit. If the qualitative assessment is not conclusive, then a quantitative impairment analysis for goodwill is performed at the reporting unit level. The Company may also choose to perform this quantitative impairment analysis instead of the qualitative analysis. The quantitative impairment analysis compares the fair value of the reporting unit, determined using the income and/or market approach, to its recorded amount. If the recorded amount exceeds the fair value, then a goodwill impairment charge is recorded for the difference up to the recorded amount of goodwill.
The determination of fair value in the Company’s goodwill impairment analysis is based on an estimate of fair value for each reporting unit utilizing known and estimated inputs at the evaluation date. Some of those inputs include, but are not limited to, estimates of future revenue and expense growth, estimated market multiples, expected capital expenditures, income tax rates and cost of invested capital. See discussion relating to results from an interim and annual impairment test performed on goodwill in Note 9–Goodwill, Net.
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 valued annually using the relief from royalty method. Currently, trade names/trademarks are combined by brand as a unit of accounting when testing for impairment as the brand represents the highest and best use of the asset and drives the Company’s marketing strategy and international license agreements. Significant estimates required in this valuation method include estimated future revenues impacted by the trade names/trademarks, royalty rates, 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. See discussion relating to results from an interim and annual impairment test performed on trade names/trademarks in Note 10–Trade names/Trademarks and Other Intangible Assets, Net.
Given the current macroeconomic environment and the uncertainties regarding the related impact on financial performance, there can be no assurance that the estimates and assumptions made for purposes of impairment testing will prove to be accurate predictions of the future. If the Company’s assumptions, particularly concerning its SeaWorld brand trade name including its projections of future cash flows and financial performance, assumed royalty rates, as well as the economic outlook are not achieved, the Company may be required to record impairment charges on its indefinite-lived intangible assets in future periods. It is not possible at this time to determine if any such change in assumptions would result in a future impairment charge or, if it does, whether such charge would be material.
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 $30,603 at December 31, 2017, of which $2,603 is recorded in accrued salaries, wages and benefits, $7,084 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 $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. 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, 2017 and 2016 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, which is adjusted periodically. Deferred revenue includes a current and long-term portion as some of the Company’s admission products provide benefits for more than one year. At December 31, 2017 and 2016, long-term deferred revenue related to admission products of $883 and $509, respectively, is included in other liabilities in the accompanying consolidated balance sheets. As of December 31, 2017 and 2016, other liabilities also includes $10,000 in deferred revenue related to a 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 $3,100 and $2,800 of costs incurred related to the Middle East Project are recorded in other assets in the accompanying consolidated balance sheets as of December 31, 2017 and 2016, respectively. 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.
On March 24, 2017, the Company entered into a Park Exclusivity and Concept Design Agreement (the “ECDA”) and a Center Concept & Preliminary Design Support Agreement (the “CDSA”) (collectively, the “ZHG Agreements”) with Zhonghong Holding, Co. Ltd. (“Zhonghong Holding”), an affiliate of ZHG Group, to provide design, support and advisory services for various potential projects and granting exclusive rights in China, Taiwan, Hong Kong and Macau (the “ ZHG Territory”). Under the terms of the ECDA, the Company will work with Zhonghong Holding and a top theme park design company, to create and produce concept designs and development analysis for theme parks, water parks and interactive parks in the ZHG Territory. Under the terms of the CDSA, the Company will provide guidance, support, input, and expertise relating to the initial strategic planning, concept and preliminary design of Zhonghong Holding’s family entertainment and other similar centers. The Company recognizes revenue under the ZHG Agreements on a straight line basis over the contractual term of the agreement including approximately $3,900 during the year ended December 31, 2017 which is included in food, merchandise and other revenue in the accompanying consolidated statement of comprehensive loss. See further discussion in Note 17–Related-Party Transactions.
The Company has also 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 also 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, 2017, 2016 and 2015, approximately $21,000, $29,000 and $18,000, 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. Other advertising and media costs are expensed as incurred and for the years ended December 31, 2017, 2016 and 2015, totaled approximately $118,000, $124,600 and $106,000, respectively, and are included in selling, general and administrative expenses in the accompanying consolidated statements of comprehensive (loss) income.
Equity-Based Compensation
In accordance with Accounting Standards Codification (“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 is recognized over the requisite service period, which is generally the vesting period unless service or performance conditions require otherwise. Effective January 1, 2017, in accordance with its adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, the Company elected to recognize the impact of forfeitures as they occur (see further discussion in Note 3–Recent Accounting Pronouncements). 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. The Company used the closing stock price on the date of grant to value its time-vesting restricted share awards granted in 2013 and subsequent years and its performance-vesting restricted share awards granted in 2015 and subsequent years.
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 ASC 718 to determine the appropriate accounting. See further discussion in Note 19–Equity-Based Compensation.
Restructuring Costs
The Company accounts for exit or disposal of activities in accordance with ASC 420, Exit or Disposal Cost Obligations if the one-time benefit arrangements are not part of an ongoing benefit arrangement or an individual deferred compensation contract. Nonretirement postemployment benefits that are part of an ongoing benefit arrangement or an individual deferred compensation contract are accounted for in accordance with ASC 712, Compensation-Nonretirement Postemployment Benefits. 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.
If the one-time benefit arrangements are not part of an ongoing benefit arrangement or an individual deferred compensation contract, a liability is recognized and measured at its fair value for one-time termination benefits once the plan of termination is communicated to affected employees and it meets all of the following criteria: (i) management commits to a plan of termination, (ii) the plan 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. If the one-time benefit arrangements are part of an ongoing benefit arrangement or an individual deferred compensation contract, a liability is recognized and measured at its fair value for one-time termination benefits when the following conditions are met: (i) the obligation is attributable to services already rendered; (ii) rights to those benefits accumulate; (iii) payment of the benefits is probable; and (iv) amount can be reasonably estimated. If these four conditions are not met, a liability is recognized when it is probable that a liability has been incurred and the amount can be reasonably estimated in accordance with ASC 450-20, Loss Contingencies.
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.
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. Realization is 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 tax 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. See further discussion in Note 14–Income Taxes.
Fair Value Measurements
Fair value is a market-based measurement, not an entity-specific measurement and 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 approximate fair value, due to their short-term nature.
Fair Value Hierarchy—As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity. Fair value is determined for assets and liabilities, 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.
Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Determination of Fair Value—The Company generally uses quoted market prices (unadjusted) in active markets for identical assets or 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. See further discussion in Note 16–Fair Value Measurements.
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 since 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. See further discussion in Note 13–Derivative Instruments and Hedging Activities.
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3. RECENT ACCOUNTING PRONOUNCEMENTS
The Company reviews new accounting pronouncements as they are issued or proposed by the Financial Accounting Standards Board (“FASB”).
Recently Implemented Accounting Standards
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 carrying 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 elected to early adopt ASU 2017-04 as of January 1, 2017. See Note 2–Summary of Significant Accounting Policies and Note 9–Goodwill, Net for further discussion.
In March 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. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company adopted this ASU effective January 1, 2017. ASU 2016-09 requires a policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur. The Company elected to change its policy to recognize the impact of forfeitures as they occur and determined the cumulative impact of this change was not material as of January 1, 2017. ASU 2016-09 also requires cash paid by an employer when directly withholding shares for tax withholding purposes to be classified as a financing activity and excess tax benefits to be classified as an operating activity in the accompanying consolidated statements of cash flows, which does not differ from the Company’s historical treatment of these items. Additionally, ASU 2016-09 requires the tax effects of exercised or vested awards to be treated as discrete items in the reporting period in which they occur, which was applied prospectively, beginning January 1, 2017 by the Company.
Recently Issued Accounting Standards
In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU gives companies the option to reclassify to retained earnings any tax effects related to items in accumulated other comprehensive income or loss that are stranded due to the Tax Cuts and Jobs Act (the “Tax Act”). Companies are able to early adopt this ASU in any interim or annual period for which financial statements have not yet been issued and apply it either (1) in the period of adoption or (2) retrospectively to each period in which the income tax effects of the Tax Act related to items in accumulated other comprehensive income or loss are recognized. When adopted, the ASU requires all entities to make new disclosures, regardless of whether they elect to reclassify stranded amounts. Companies are required to disclose whether or not they elected to reclassify the tax effects related to the Tax Act as well as their policy for releasing income tax effects from accumulated other comprehensive income or loss. The guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual reporting periods with early adoption permitted. The Company is still evaluating this ASU and the transition method but expects to reclassify approximately $1,100 upon adoption of this ASU.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815)–Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 aims to improve reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and simplify the application of the hedge accounting guidance. This ASU is effective for fiscal years beginning after December 15, 2018 and interim periods within those annual reporting periods with early adoption permitted. For cash flow and net investment hedges existing as of the adoption date, the guidance requires a cumulative-effect adjustment as of the beginning of the fiscal year that an entity adopts the amendments; however, the presentation and disclosure guidance should be applied prospectively. The Company is currently assessing the impact of this ASU to its consolidated financial statements and does not expect a material impact. However, the new ASU may impact the Company’s presentation and disclosures.
In May 2017, the FASB issued ASU 2017-09, Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU was issued to provide clarity and reduce diversity in practice regarding the application of guidance on the modification of equity awards. The ASU states that an entity should account for the effects of a modification unless all of the following are met: the fair value, vesting conditions and the classification of the instrument as equity or liability of the modified award is the same as that of the original award immediately before such award is modified. 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 prospectively to an award modified on or after the adoption date. The Company plans to adopt this ASU prospectively but does not expect a material impact upon adoption to its consolidated financial statements as the Company historically has accounted for all modifications in accordance with Topic 718 and has not been subject to the exception described under this ASU.
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 plans to adopt this ASU using a retrospective transition method but does not expect a material impact upon adoption 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 with early adoption permitted and should be applied using a modified retrospective transition method. The Company plans to adopt this ASU using a modified retrospective transition method but does not expect a material impact upon adoption of this ASU to its consolidated financial statements.
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 plans to adopt this ASU using a retrospective method but does not expect a material impact upon adoption to its consolidated statements of cash flows.
In February 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 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 full retrospective or a modified retrospective transition method. During 2016 and 2017, the FASB issued several updates to the revenue recognition guidance (Topic 606) which further clarify specific revenue recognition issues and provide improvements and practical expedients. The Company will adopt this guidance in the first quarter of 2018 using a modified retrospective transition method and does not expect to record a cumulative effect adjustment as a result.
The Company has completed an assessment of its key revenue streams as they relate to the new standard. In particular, the Company analyzed the potential impact of the new standard on its accounting for annual and season pass products, multi-day pass products and other promotional ticket offerings which at times are sold with entitlements or other bundled products. Based on its analysis, the Company will not be required to make significant changes to its current accounting policies and practices to apply the requirements under the new standard. The Company does not anticipate a material impact on the timing of revenue recognition upon adoption nor on the classification of revenue. However, the Company will be required to update revenue recognition disclosures to include additional detail on the methods used to recognize revenue and how the methods are applied as well as significant assumptions used to allocate the transaction price and estimate the standalone selling price of promised goods or services.
|
4. RESTRUCTURING PROGRAMS AND SEPARATION COSTS
Restructuring Programs
In October 2017, the Company executed a restructuring program in an effort to reduce costs, increase efficiencies, reduce duplication of functions and improve the Company’s operations (the “2017 Restructuring Program”). The 2017 Restructuring Program involved the elimination of approximately 350 positions by the end of the fourth quarter of 2017 across certain of the Company’s theme parks and corporate headquarters. As a result, during the year ended December 31, 2017, the Company recorded $5,200 in pre-tax restructuring and other related costs associated primarily with severance and other termination benefits related to the 2017 Restructuring Program in the accompanying consolidated statement of comprehensive loss. The Company will not incur any additional costs associated with the 2017 Restructuring Program as all continuing service obligations were completed as of December 31, 2017.
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, during the year ended December 31, 2016, the Company recorded $8,904 in pre-tax restructuring and other related costs associated with the 2016 Restructuring Program in the accompanying consolidated statement of comprehensive loss. 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.
Liabilities related to the 2017 and 2016 Restructuring Program as of December 31, 2017 and 2016 are included in accrued salaries, wages and benefits in the accompanying consolidated balance sheets. The 2017 and 2016 Restructuring Program activity for the year ended December 31, 2017 was as follows:
Severance and Other Employment Expenses |
|
2016 Restructuring Program |
|
|
2017 Restructuring Program |
|
|
Total |
|
|||
Liability as of December 31, 2016 |
|
$ |
7,842 |
|
|
$ |
— |
|
|
$ |
7,842 |
|
Costs incurred |
|
|
— |
|
|
|
5,200 |
|
|
|
5,200 |
|
Reduction in estimated expenses |
|
|
(572 |
) |
|
|
— |
|
|
|
(572 |
) |
Payments made |
|
|
(7,270 |
) |
|
|
(3,966 |
) |
|
|
(11,236 |
) |
Liability as of December 31, 2017 |
|
$ |
— |
|
|
$ |
1,234 |
|
|
$ |
1,234 |
|
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 in the accompanying consolidated statement of comprehensive income.
Separation Costs
2015 Separation
Restructuring and other related costs for the year ended December 31, 2015 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”), who resigned from his role effective on such date. 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 remained in a consulting capacity to the Company for a three-year consulting term which ended on December 10, 2017.
Additionally, in connection with a separate restructuring program in 2014 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 were separating from the Company, including the Former CEO, to vest in their respective awards if the performance conditions were achieved after their employment ended with the Company. See Note 19–Equity-Based Compensation for further details.
2018 Separation
On February 27, 2018, the Company announced that its President and Chief Executive Officer (the “CEO”) had stepped down from his position and resigned as a member of the Board effective February 26, 2018. In connection with his departure, the CEO will receive a lump sum cash payment of approximately $6,600 in severance pay which the Company expects to record as separation costs in the first quarter of 2018. The CEO will also vest in certain equity awards in accordance with his employment agreement. As a result, the Company expects to record non-cash equity compensation expense of approximately $3,200 in the first quarter of 2018.
|
6. INVENTORIES
Inventories as of December 31, 2017 and 2016 consisted of the following:
|
|
2017 |
|
|
2016 |
|
||
Merchandise |
|
$ |
26,586 |
|
|
$ |
24,438 |
|
Food and beverage |
|
|
4,084 |
|
|
|
3,956 |
|
Other supplies |
|
|
217 |
|
|
|
290 |
|
Total inventories |
|
$ |
30,887 |
|
|
$ |
28,684 |
|
|
7. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets as of December 31, 2017 and 2016 consisted of the following:
|
|
2017 |
|
|
2016 |
|
||
Prepaid insurance |
|
$ |
6,711 |
|
|
$ |
8,646 |
|
Prepaid marketing and advertising costs |
|
|
2,800 |
|
|
|
3,202 |
|
Other |
|
|
6,799 |
|
|
|
7,476 |
|
Total prepaid expenses and other current assets |
|
$ |
16,310 |
|
|
$ |
19,324 |
|
|
8. PROPERTY AND EQUIPMENT, NET
The components of property and equipment, net as of December 31, 2017 and 2016, consisted of the following:
|
|
2017 |
|
|
2016 |
|
||
Land |
|
$ |
286,200 |
|
|
$ |
286,200 |
|
Land improvements |
|
|
354,544 |
|
|
|
316,774 |
|
Buildings |
|
|
670,121 |
|
|
|
645,013 |
|
Rides, attractions and equipment |
|
|
1,433,246 |
|
|
|
1,368,018 |
|
Animals |
|
|
142,147 |
|
|
|
158,199 |
|
Construction in process |
|
|
65,816 |
|
|
|
54,242 |
|
Less accumulated depreciation |
|
|
(1,276,833 |
) |
|
|
(1,161,631 |
) |
Total property and equipment, net |
|
$ |
1,675,241 |
|
|
$ |
1,666,815 |
|
Depreciation expense was approximately $155,200, $191,500 and $174,700 for the years ended December 31, 2017, 2016 and 2015, respectively.
During the third quarter of 2017, following a contractual dispute, the Company amended an existing agreement relating to the use of certain animals. As a result of this amendment, which reduced the expected future cash flows related to the agreement, the Company recognized an impairment loss of approximately $7,800 which is included in operating expenses in the accompanying consolidated statement of comprehensive loss for the year ended December 31, 2017.
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 year ended December 31, 2016, the Company recorded approximately $33,700 of accelerated depreciation related to the disposal of these lifting floors. Also during 2016, the Company recorded approximately $6,400 in asset write-offs associated with the canceled Blue World Project, which is included in operating expenses in the accompanying consolidated statement of comprehensive loss for the year ended December 31, 2016.
|
9. GOODWILL, NET
Interim Impairment Test— Due to financial performance particularly late in the second quarter of 2017 at the Company’s SeaWorld Orlando park, driven primarily by a decline in U.S. domestic and international attendance at the park, the Company determined a triggering event occurred that required an interim goodwill impairment test for its SeaWorld Orlando reporting unit as of June 30, 2017. Based on financial performance and the resulting impact on projections of future cash flows for this reporting unit, the Company concluded that the reporting unit’s goodwill was fully impaired and recorded a non-cash goodwill impairment charge of $269,332 in the accompanying consolidated statement of comprehensive loss during the year ended December 31, 2017. Fair value for the SeaWorld Orlando reporting unit was determined using the income approach and represents a Level 3 fair value measurement measured on a non-recurring basis in the fair value hierarchy due to the Company’s use of internal projections and unobservable measurement inputs.
The changes in the carrying amount of goodwill for the year ended December 31, 2017 are as follows:
|
|
SeaWorld Orlando |
|
|
Discovery Cove |
|
|
Total |
|
|||
Gross carrying amount at December 31, 2016 |
|
$ |
269,332 |
|
|
$ |
66,278 |
|
|
$ |
335,610 |
|
Accumulated impairment loss at December 31, 2016 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Gross carrying amount at December 31, 2016 |
|
$ |
269,332 |
|
|
$ |
66,278 |
|
|
$ |
335,610 |
|
Goodwill impairment charge |
|
|
(269,332 |
) |
|
|
— |
|
|
|
(269,332 |
) |
Net carrying amount at December 31, 2017 |
|
$ |
— |
|
|
$ |
66,278 |
|
|
$ |
66,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Impairment Test—The Company performed a qualitative assessment on its goodwill at December 1, 2017, which now relates only to its Discovery Cove reporting unit, and concluded that it was more-likely-than-not that goodwill was not impaired. The Company performed a quantitative assessment at December 1, 2016 and a qualitative assessment at December 1, 2015 on its Discovery Cove goodwill and based on these assessments, concluded that it was more-likely-than-not that goodwill for its Discovery Cove reporting unit was not impaired.
|
10. TRADE NAMES/TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET
Interim Impairment Test – Due to financial performance particularly late in the second quarter of 2017 at the Company’s SeaWorld San Diego and Orlando parks, driven primarily by a decline in U.S. domestic and international attendance at those parks, the Company determined a triggering event occurred that required an interim impairment test for certain trade names/trademarks with a combined balance of $93,000 related to the SeaWorld brand. Based on its assessment, the Company calculated that the estimated fair value of the trade names/trademarks exceeded their carrying values. Based on these assessments, the Company determined there was no impairment as the estimated fair values of these trade names/trademarks were in excess of their carrying values.
Annual Impairment Test – The Company conducted either a qualitative or quantitative assessment for its other indefinite-lived intangible assets at December 1, 2017, December 1, 2016 and December 1, 2015 and concluded that it was more-likely-than-not that the trade names/trademarks were not impaired in these annual assessments.
Trade names/trademarks, net at December 31, 2017, consisted of the following:
|
|
Weighted Average Amortization Period |
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
|||
Trade names/trademarks - indefinite lives |
|
|
|
$ |
157,000 |
|
|
$ |
— |
|
|
$ |
157,000 |
|
Trade names/trademarks- finite lives |
|
9.3 years |
|
|
12,900 |
|
|
|
10,098 |
|
|
|
2,802 |
|
Total trade names/trademarks, net |
|
|
|
$ |
169,900 |
|
|
$ |
10,098 |
|
|
$ |
159,802 |
|
Trade names/trademarks, net at December 31, 2016, consisted of the following:
|
|
Weighted Average Amortization Period |
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
|||
Trade names/trademarks - indefinite lives |
|
|
|
$ |
157,000 |
|
|
$ |
— |
|
|
$ |
157,000 |
|
Trade names/trademarks- finite lives |
|
9.3 years |
|
|
12,900 |
|
|
|
8,636 |
|
|
|
4,264 |
|
Total trade names/trademarks, net |
|
|
|
$ |
169,900 |
|
|
$ |
8,636 |
|
|
$ |
161,264 |
|
Other intangible assets, net at December 31, 2017, consisted of the following:
|
|
Weighted Average Amortization Period |
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
|||
Favorable lease asset |
|
39 years |
|
$ |
18,200 |
|
|
$ |
3,734 |
|
|
$ |
14,466 |
|
Reseller agreements |
|
8.1 years |
|
|
22,300 |
|
|
|
22,032 |
|
|
|
268 |
|
Non-compete agreement |
|
5 years |
|
|
500 |
|
|
|
458 |
|
|
|
42 |
|
Other intangible assets - indefinite lives |
|
|
|
|
120 |
|
|
|
— |
|
|
|
120 |
|
Total other intangible assets, net |
|
|
|
$ |
41,120 |
|
|
$ |
26,224 |
|
|
$ |
14,896 |
|
Other intangible assets, net at December 31, 2016, consisted of the following:
|
|
Weighted Average Amortization Period |
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
|||
Favorable lease asset |
|
39 years |
|
$ |
18,200 |
|
|
$ |
3,267 |
|
|
$ |
14,933 |
|
Reseller agreements |
|
8.1 years |
|
|
22,300 |
|
|
|
19,487 |
|
|
|
2,813 |
|
Non-compete agreement |
|
5 years |
|
|
500 |
|
|
|
358 |
|
|
|
142 |
|
Other intangible assets - indefinite lives |
|
|
|
|
120 |
|
|
|
— |
|
|
|
120 |
|
Total other intangible assets, net |
|
|
|
$ |
41,120 |
|
|
$ |
23,112 |
|
|
$ |
18,008 |
|
Total amortization was approximately $4,600, $4,800 and $4,800 for the years ended December 31, 2017, 2016 and 2015, 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 |
|
|
|
|
2018 |
|
$ |
2,235 |
|
2019 |
|
|
1,849 |
|
2020 |
|
|
467 |
|
2021 |
|
|
467 |
|
2022 |
|
467 |
|
|
Thereafter |
|
|
12,093 |
|
|
|
$ |
17,578 |
|
|
11. OTHER ACCRUED EXPENSES
Other accrued expenses at December 31, 2017 and 2016, consisted of the following:
|
|
2017 |
|
|
2016 |
|
||
Accrued property taxes |
|
$ |
1,280 |
|
|
$ |
2,193 |
|
Accrued interest |
|
|
6,078 |
|
|
|
13,631 |
|
Self-insurance reserve |
|
|
7,084 |
|
|
|
7,191 |
|
Other |
|
|
5,170 |
|
|
|
395 |
|
Total other accrued expenses |
|
$ |
19,612 |
|
|
$ |
23,410 |
|
As of December 31, 2017, accrued interest above includes $5,050 relating to the Company’s fourth quarter 2017 interest payable on its Term B-2 Loans, which was paid on January 5, 2018. 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 Loans, Term B-3 Loans and Terminated Revolving Credit Facility, which was paid on January 3, 2017. See further discussion in Note 12–Long-Term Debt.
|
12. LONG-TERM DEBT
Long-term debt as of December 31, 2017 and 2016 consisted of the following:
|
|
2017 |
|
|
2016 |
|
||
Term B-5 Loans (effective interest rate of 4.69% at December 31, 2017) |
|
$ |
990,819 |
|
|
$ |
— |
|
Term B-2 Loans (effective interest rate of 3.94% and 3.26% at December 31, 2017 and 2016, respectively) |
|
|
554,227 |
|
|
|
1,327,850 |
|
Term B-3 Loans (effective interest rate of 4.33% at December 31, 2016) |
|
|
— |
|
|
|
245,800 |
|
Revolving credit facility (effective interest rate of 4.24% and 3.46% at December 31, 2017 and 2016, respectively) |
|
|
15,000 |
|
|
|
24,351 |
|
Total long-term debt |
|
|
1,560,046 |
|
|
|
1,598,001 |
|
Less discounts |
|
|
(8,685 |
) |
|
|
(5,517 |
) |
Less debt issuance costs |
|
|
(9,045 |
) |
|
|
(9,702 |
) |
Less current maturities |
|
|
(38,707 |
) |
|
|
(51,713 |
) |
Total long-term debt, net |
|
$ |
1,503,609 |
|
|
$ |
1,531,069 |
|
SEA is the borrower under the senior secured credit facilities, (the “Senior Secured Credit Facilities”) under a credit agreement (the “Existing Credit Agreement”) dated as of December 1, 2009, as the same may be amended, restated, supplemented or modified from time to time. On March 31, 2017, SEA entered into a refinancing amendment, Amendment No. 8 (the “Amendment”), to its Existing Credit Agreement. In connection with the Amendment, SEA borrowed $998,306 of additional term loans (the “Term B-5 Loans”) of which the proceeds, along with cash on hand, were used to redeem all of the then outstanding principal of the Term B-3 loans (the “Term B-3 Loans”), with a principal amount equal to $244,713 and a portion of the outstanding principal of the Term B-2 loans (the “Term B-2 Loans”), with a principal amount equal to $753,593, and pay other fees, costs and expenses in connection with the Amendment and related transactions. Additionally, pursuant to the Amendment, SEA terminated the existing revolving credit commitments (the “Terminated Revolving Credit Facility”) and replaced them with a new tranche with an aggregate commitment amount of $210,000 (the “New Revolving Credit Facility”).
In connection with the issuance of the Term B-5 Loans, SEA recorded a discount of $4,992 and debt issuance costs of $44 during the year ended December 31, 2017. Additionally, SEA wrote-off debt issuance costs of $7,987, which is included in loss on early extinguishment of debt and write-off of discounts and debt issuances costs in the accompanying consolidated statement of comprehensive loss during the year ended December 31, 2017. Such loss on early extinguishment of debt and write-off of discounts and debt issuance costs also includes $33 related to a write-off of discounts and debt issuance costs resulting from a mandatory prepayment of debt on March 30, 2017 and $123 related to a write-off of discounts and debt issuance costs resulting from a voluntary prepayment of debt during the year ended December 31, 2017. See discussion in the Senior Secured Credit Facilities section which follows for further information.
In 2015, SEA entered into an incremental term loan amendment, Amendment No. 7 (the “Incremental Amendment”), to its Existing Credit Agreement and 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 in the accompanying consolidated statement of comprehensive income for 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-5 Loans, Term B-2 Loans and New Revolving Credit Facility were $11,904, $3,302 and $2,524 respectively, at December 31, 2017. Unamortized debt issuance costs and discounts for the Term B-2 Loans, Term B-3 Loans and Terminated Revolving Credit Facility were $11,257, $2,638 and $1,324, respectively, at December 31, 2016.
As of December 31, 2017, SEA was in compliance with all covenants contained in the documents governing the Senior Secured Credit Facilities.
Senior Secured Credit Facilities
As of December 31, 2017, the Senior Secured Credit Facilities consisted of $554,227 in Term B-2 Loans which will mature on May 14, 2020, $990,819 in Term B-5 Loans which will mature on March 31, 2024 and a $210,000 New Revolving Credit Facility, of which $15,000 was outstanding as of December 31, 2017. The New Revolving Credit Facility will mature on the earlier of (a) March 31, 2022 and (b) the 91st day prior to the earlier of (1) the maturity of the Term B-2 Loans with an aggregate principal amount greater than $50,000 and (2) the maturity date of any indebtedness incurred to refinance the Term B-2 Loans with an aggregate principal amount greater than $50,000. The outstanding balance on the revolving credit facility was included in current maturities of long-term debt in the accompanying consolidated balance sheets as of December 31, 2017 and 2016 due to the Company’s intent to repay the borrowings within the following twelve month period. Subsequent to December 31, 2017, SEA borrowed an additional $40,000 on the New Revolving Credit Facility for general working capital purposes and repaid $5,000.
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. Beginning with the fiscal quarter ended June 30, 2017, the Term B-5 Loans amortize in equal quarterly installments in an aggregate annual amount equal to 1.0% of the original principal amount of the Term B-5 Loans on March 31, 2017, with the balance due on the final maturity date of March 31, 2024. SEA may voluntarily repay amounts outstanding under the Senior Secured Credit Facilities without premium or penalty, other than customary “breakage” costs with respect to LIBOR loans.
SEA is required to prepay the outstanding Term B-2 Loans and Term B-5 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 secured 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. During the first quarter of 2017, the Company made a mandatory prepayment of approximately $6,300 based on its excess cash flow calculation as of December 31, 2016. Approximately $3,500 of the mandatory prepayment was accepted by the lenders and applied ratably to the Term B-2 and Term B-3 Loans prior to the Amendment on March 31, 2017, and the remainder of $2,800 was applied as a voluntary prepayment to the Term B-2 Loans in the second quarter of 2017. There were no mandatory prepayments made during the years ended December 31, 2016 and 2015.
SEA may go to market to increase and/or add one or more incremental term loan facilities to the Senior Secured Credit Facilities and/or increase commitments under the New 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 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.
Term B-5 Loans
The Term B-5 Loans were initially borrowed in an aggregate principal amount of $998,306 on March 31, 2017 in connection with the Amendment. Borrowings of Term B-5 Loans under the Senior Secured Credit Facilities bear interest, at SEA’s option, at a rate equal to an applicable 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 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 interest period relevant to such borrowing. The Term B-5 Loans applicable margin must be adjusted for any Incremental Term Loan (as defined in the Senior Secured Credit Facilities) margin that is more than 50 basis points per annum greater so that the Term B-5 Loans margin is not less than the Incremental Term Loan margin by more than 50 basis points. The applicable margin for the Term B-5 Loans is 2.00%, in the case of base rate loans, and 3.00%, in the case of LIBOR rate loans, subject to a base rate floor of 1.75% and a LIBOR floor of 0.75%.
Term B-2 Loans
The Term B-2 Loans were initially borrowed in an aggregate principal amount of $1,405,000. Borrowings of Term B-2 Loans 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 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-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.
New Revolving Credit Facility
Borrowings of loans in the New Revolving Credit Facility under the Senior Secured Credit Facilities bear interest at a rate equal to a margin over either, at SEA’s option, (a) a base rate determined by reference to the higher of 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 rate plus 1/2 of 1% or (b) a LIBOR rate based on 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 (provided in no event shall such LIBOR rate with respect to the borrowings be less than 0.0% per annum). The applicable margin for borrowings under the New Revolving Credit Facility is 1.75%, in the case of base rate loans, and 2.75%, in the case of LIBOR rate loans. The applicable margin for borrowings under the New Revolving Credit Facility are 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, 2017.
In addition to paying interest on outstanding principal under the Senior Secured Credit Facilities, SEA was required to pay a commitment fee to the lenders under the New Revolving Credit Facility in respect of the unutilized commitments thereunder at a rate of 0.50% per annum. SEA was also required to pay customary letter of credit fees.
As of December 31, 2017, SEA had approximately $19,050 of outstanding letters of credit leaving approximately $175,950 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 limit annual capital expenditures and maintain 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.
The Company is currently in compliance with its debt covenants, however, its declining performance has resulted in leverage ratios closer to the ratios established in its debt agreements. As a result, there is risk regarding future compliance should the Company’s operating performance further deteriorate. The breach of any of these covenants or non-compliance with any of the 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. The Senior Secured Credit Facilities permit restricted payments in an aggregate amount per annum equal to the sum of (A) $25,000 plus (B) an amount, if any, equal to (1) if the total net leverage ratio on a pro forma basis after giving effect to the payment of any such restricted payment, is no greater than 3.50 to 1.00, an unlimited amount, (2) if the total net leverage ratio on a pro forma basis after giving effect to the payment of any such restricted payment is no greater than 4.00 to 1.00 and greater than 3.50 to 1.00, the greater of (a) $95,000 and (b) 7.50% of Market Capitalization (as defined in the Senior Secured Credit Facilities), (3) if the total net leverage ratio on a pro forma basis after giving effect to the payment of any such restricted payment is no greater than 4.50 to 1.00 and greater than 4.00 to 1.00, $95,000 and (4) if the total net leverage ratio on a pro forma basis after giving effect to the payment of any such restricted payment is no greater than 5.00 to 1.00 and greater than 4.50 to 1.00, $65,000.
As of December 31, 2017, the total net leverage ratio as calculated under the Senior Secured Credit Facilities was 5.08 to 1.00, which absent a reduction in the total net leverage ratio to less than or equal to 5.00 to 1.00 would result in the Company having a $25,000 available capacity for restricted payments in 2018. However, the amount available for dividend declarations, 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 or upon a decrease in our total outstanding indebtedness. The total net leverage ratio as calculated under the Senior Secured Credit Facilities is not permitted to be greater than 5.75 to 1.00.
Long-term debt at December 31, 2017, is repayable as follows and does not include the impact of any future voluntary prepayments. The outstanding balance under the New Revolving Credit Facility is included in current maturities on long-term debt in the accompanying consolidated balance sheet as of December 31, 2017, due to the Company’s intent to repay the borrowings within the next twelve months:
Years Ending December 31, |
|
|
|
|
2018 |
|
$ |
38,707 |
|
2019 |
|
|
23,707 |
|
2020 |
|
|
536,763 |
|
2021 |
|
|
9,983 |
|
2022 |
|
|
9,983 |
|
Thereafter |
|
|
940,903 |
|
Total |
|
$ |
1,560,046 |
|
Interest Rate Swap Agreements
As of December 31, 2017, the Company has five interest rate swap agreements (“the Interest Rate Swap Agreements”) which 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 Interest Rate Swap Agreements 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; the Company receives 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.
On September 30, 2016, the Company had four interest rate swap agreements (the “Former Interest Rate Swap Agreements”) which 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 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.
SEA designated the Interest Rate Swap Agreements and the Former Interest Rate Swap Agreements above as qualifying cash flow hedge accounting relationships as further discussed in Note 13–Derivative Instruments and Hedging Activities which follows.
Cash paid for interest relating to the Senior Secured Credit Facilities, Senior Notes, Interest Rate Swap Agreements and Former Interest Rate Swap Agreements, net of amounts capitalized, as applicable, was $80,570, $46,919 and $63,726 during the years ended December 31, 2017, 2016 and 2015, respectively. Cash paid for interest during the year ended December 31, 2017 excludes $5,050 related to the fourth quarter interest payment on the Term B-2 Loans which was paid on January 5, 2018. Cash paid for interest during the year ended December 31, 2016 excludes $12,904 related to the fourth quarter interest payment on the Senior Secured Credit Facilities which was paid on January 3, 2017. See Note 11–Other Accrued Expenses for accrued interest included in the accompanying consolidated balance sheets as of December 31, 2017 and 2016.
|
13. 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.
As of December 31, 2017 and 2016, 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, 2017 and 2016, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.
As of December 31, 2017, the Company has five Interest Rate Swap Agreements which 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. On September 30, 2016, the Company had four Former Interest Rate Swap Agreements with a combined notional value of $1,250,000 which matured in accordance with their terms. The Interest Rate Swap Agreements and the Former Interest Rate Swap Agreements 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 recognized directly in earnings. There was no ineffectiveness during the year ended December 31, 2017. During the year ended December 31, 2016, an immaterial loss related to the ineffective portion was recognized in other (income) expense, net in the accompanying consolidated statement of comprehensive loss. 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 $5,802 will be reclassified as an increase to interest expense.
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 in the accompanying consolidated balance sheets as of December 31, 2017 and 2016:
|
|
Liability Derivatives |
|
|
Liability Derivatives |
|
||||||
|
|
As of December 31, 2017 |
|
|
As of December 31, 2016 |
|
||||||
|
|
Balance Sheet Location |
|
Fair Value |
|
|
Balance Sheet Location |
|
Fair Value |
|
||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
|
Other liabilities |
|
|
8,455 |
|
|
Other liabilities |
|
|
22,808 |
|
Total derivatives designated as hedging instruments |
|
|
|
$ |
8,455 |
|
|
|
|
$ |
22,808 |
|
Derivative instruments are valued according to the methodology outlined in Note 2-Summary of Significant Accounting Policies. The unrealized gain or loss on derivatives is recorded net of a tax (expense) benefit of $(5,735) and $2,713 for the years ended December 31, 2017 and 2016, respectively, and is included in the accompanying statements of changes in stockholders’ equity and the consolidated statements of comprehensive loss.
Tabular Disclosure of the Effect of Derivative Instruments on the Statements of Comprehensive Loss
The table below presents the pre-tax effect of the Company’s derivative financial instruments in the accompanying consolidated statements of comprehensive loss for the years ended December 31, 2017 and 2016:
|
|
2017 |
|
|
2016 |
|
||
Derivatives in Cash Flow Hedging Relationships: |
|
|
|
|
|
|
|
|
Gain (loss) related to effective portion of derivatives recognized in accumulated other comprehensive loss |
|
$ |
1,619 |
|
|
$ |
(9,938 |
) |
Gain related to effective portion of derivatives reclassified from accumulated other comprehensive loss to interest expense |
|
$ |
12,733 |
|
|
$ |
6,669 |
|
Loss related to ineffective portion of derivatives recognized in other (income) expense, net |
|
$ |
— |
|
|
$ |
(1 |
) |
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, 2017, 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 $8,815. As of December 31, 2017, the Company has posted no collateral related to these agreements. If the Company had breached any of these provisions at December 31, 2017, it could have been required to settle its obligations under the agreements at their termination value of $8,815.
Changes in Accumulated Other Comprehensive Loss
The following table reflects the changes in accumulated other comprehensive loss for the years ended December 31, 2017 and 2016, net of tax:
Accumulated other comprehensive loss: |
|
(Losses) Gains on Cash Flow Hedges |
|
|
Accumulated other comprehensive loss at December 31, 2015 |
|
$ |
(13,137 |
) |
Other comprehensive loss before reclassifications |
|
|
(1,690 |
) |
Amounts reclassified from accumulated other comprehensive loss to interest expense |
|
|
1,133 |
|
Unrealized loss on derivatives, net of tax |
|
|
(557 |
) |
Accumulated other comprehensive loss at December 31, 2016 |
|
|
(13,694 |
) |
Other comprehensive income before reclassifications |
|
|
972 |
|
Amounts reclassified from accumulated other comprehensive loss to interest expense |
|
|
7,646 |
|
Unrealized gain on derivatives, net of tax |
|
|
8,618 |
|
Accumulated other comprehensive loss at December 31, 2017 |
|
$ |
(5,076 |
) |
|
14. INCOME TAXES
For the years ended December 31, 2017, 2016 and 2015, the (benefit from) provision for income taxes is comprised of the following:
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
Current income tax (benefit) provision |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(66 |
) |
|
$ |
(72 |
) |
|
$ |
(78 |
) |
State |
|
|
1,525 |
|
|
|
442 |
|
|
|
494 |
|
Foreign |
|
|
12 |
|
|
|
23 |
|
|
|
36 |
|
Total current income tax provision |
|
|
1,471 |
|
|
|
393 |
|
|
|
452 |
|
Deferred income tax (benefit) provision: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(74,312 |
) |
|
|
5,169 |
|
|
|
25,210 |
|
State |
|
|
(12,165 |
) |
|
|
3,768 |
|
|
|
(1,964 |
) |
Total deferred income tax (benefit) provision |
|
|
(86,477 |
) |
|
|
8,937 |
|
|
|
23,246 |
|
Total income tax (benefit) provision |
|
$ |
(85,006 |
) |
|
$ |
9,330 |
|
|
$ |
23,698 |
|
The deferred income tax (benefit) 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 $515, $819 and $1,062, for the years ended December 31, 2017, 2016 and 2015, respectively.
The components of deferred income tax assets and liabilities as of December 31, 2017 and 2016 are as follows:
|
|
2017 |
|
|
2016 |
|
||
Deferred income tax assets: |
|
|
|
|
|
|
|
|
Acquisition and debt related costs |
|
$ |
5,557 |
|
|
$ |
15,899 |
|
Net operating losses |
|
|
201,604 |
|
|
|
294,986 |
|
Goodwill impairment |
|
|
54,207 |
|
|
|
— |
|
Self-insurance |
|
|
6,992 |
|
|
|
9,766 |
|
Deferred revenue |
|
|
2,627 |
|
|
|
4,696 |
|
Cash flow hedge |
|
|
2,282 |
|
|
|
9,114 |
|
Restricted stock |
|
|
4,097 |
|
|
|
3,374 |
|
Tax credits |
|
|
7,922 |
|
|
|
6,882 |
|
Other |
|
|
7,263 |
|
|
|
9,165 |
|
Total deferred income tax assets |
|
|
292,551 |
|
|
|
353,882 |
|
Valuation allowance |
|
|
(2,762 |
) |
|
|
(584 |
) |
Net deferred tax assets |
|
|
289,789 |
|
|
|
353,298 |
|
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
Property and equipment |
|
|
(201,019 |
) |
|
|
(326,320 |
) |
Amortization - Goodwill |
|
|
(37,291 |
) |
|
|
(49,493 |
) |
Amortization - Other Intangibles |
|
|
(15,193 |
) |
|
|
(20,877 |
) |
Other |
|
|
(3,466 |
) |
|
|
(4,527 |
) |
Total deferred income tax liabilities |
|
|
(256,969 |
) |
|
|
(401,217 |
) |
Net deferred income tax assets (liabilities) |
|
$ |
32,820 |
|
|
$ |
(47,919 |
) |
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 2013. 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.
The Company has federal tax net operating loss carryforwards of approximately $693,000 as of December 31, 2017 and state net operating loss carryforwards spread across various jurisdictions with a combined total of approximately $1,075,000 as of December 31, 2017. 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.
On October 18, 2017, the Pennsylvania Supreme Court held in Nextel Communications of Mid-Atlantic, Inc. v. Commonwealth that the net loss carryover deduction allowed for purposes of the Pennsylvania corporate net income tax violates the Uniformity Clause of the Pennsylvania Constitution. As a result, the current law in Pennsylvania that places a fixed dollar limitation on the net loss carryover deduction was struck down, while retaining a percentage limitation on the net loss carryover deduction. The Company has assessed the impact of this case on available positive and negative evidence, including tax planning strategies, to determine whether sufficient future taxable income in Pennsylvania will be generated to permit use of the existing deferred tax assets related to Pennsylvania net loss carryover.
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 $2,800 and $600, net of federal tax benefit, on the deferred tax assets related to those state net operating losses as of December 31, 2017 and 2016, respectively. As of December 31, 2017, the Company had approximately $400 of charitable contributions which expired unused.
During 2017, an ownership shift of more than 50 percent as defined by the Internal Revenue Code (“IRC”) Section 382 occurred. 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 any limitation under IRC Section 382 will not impair the realizability of the deferred income tax assets related to federal and state tax net operating loss carryforwards.
The reconciliation between the statutory income tax rate and the Company’s effective income tax (benefit) provision rate for the years ended December 31, 2017, 2016 and 2015, is as follows:
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|
|||
Income tax rate at federal statutory rates |
|
|
35.00 |
|
% |
|
35.00 |
|
% |
|
35.00 |
|
% |
Federal net operating loss and tax credit adjustments |
|
|
— |
|
|
|
24.40 |
|
|
|
(0.68 |
) |
|
State taxes, net of federal benefit |
|
|
2.02 |
|
|
|
(58.42 |
) |
|
|
0.56 |
|
|
State net operating loss revaluation |
|
|
(0.15 |
) |
|
|
(19.74 |
) |
|
|
(2.51 |
) |
|
Nondeductible equity-based compensation |
|
|
(1.01 |
) |
|
|
(275.10 |
) |
|
|
0.15 |
|
|
Tax credits |
|
|
0.25 |
|
|
|
21.17 |
|
|
|
(1.73 |
) |
|
Nondeductible expenses |
|
|
(0.15 |
) |
|
|
(17.15 |
) |
|
|
0.53 |
|
|
Charitable contribution carryforward valuation allowance |
|
|
— |
|
|
|
— |
|
|
|
2.01 |
|
|
Charitable contribution carryforward expiration |
|
|
(0.18 |
) |
|
|
— |
|
|
|
— |
|
|
State net operating loss carryforward valuation allowance |
|
|
(0.59 |
) |
|
|
— |
|
|
|
— |
|
|
Goodwill impairment |
|
|
(6.12 |
) |
|
|
— |
|
|
|
— |
|
|
Remeasurement of deferred income tax liabilities resulting from Tax Cuts and Jobs Act |
|
|
0.63 |
|
|
|
— |
|
|
|
— |
|
|
Other |
|
|
(0.12 |
) |
|
|
(1.63 |
) |
|
|
(0.79 |
) |
|
Income tax rate |
|
|
29.58 |
|
% |
|
(291.47 |
) |
% |
|
32.54 |
|
% |
The (benefit from) provision for income taxes for the years ended December 31, 2017, 2016 and 2015 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, and federal tax credits. In addition, for the year ended December 31, 2017, the rate differs from the amount computed due to the remeasurement of deferred tax assets and liabilities for enacted changes in tax laws.
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes significant modifications to the provisions of the Internal Revenue Code, including but not limited to a corporate tax rate decrease from 35% to 21% effective as of January 1, 2018. The Company’s net deferred tax assets and liabilities were revalued at the newly enacted U.S. corporate rate in the year of enactment. The adjustment related to the remeasurement of the deferred tax assets and liability balances, including the revaluation of amounts originally reported in other comprehensive income, is a tax benefit of $1,808 and is reported as part of the benefit from income taxes in the accompanying consolidated statement of comprehensive loss for the year ended December 31, 2017.
For the year ended December 31, 2017, the Company realized a tax expense of $2,901 related to certain nondeductible equity compensation awards and a tax expense of $17,584 related to goodwill impairment.
For the year ended December 31, 2016, the Company realized a tax expense of $8,806 related to certain nondeductible equity compensation awards and a tax 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.
For the year ended December 31, 2015, the Company realized a tax 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.
|
15. COMMITMENTS AND CONTINGENCIES
At December 31, 2017, the Company has commitments under long-term operating leases requiring annual minimum lease payments as follows:
Years Ending December 31, |
|
|
|
|
2018 |
|
$ |
15,393 |
|
2019 |
|
|
14,489 |
|
2020 |
|
|
12,268 |
|
2021 |
|
|
12,197 |
|
2022 |
|
|
11,312 |
|
Thereafter |
|
|
265,296 |
|
Total |
|
$ |
330,955 |
|
Rental expense was $20,513, $20,912 and $20,233 for the years ended December 31, 2017, 2016 and 2015, 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 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.
The Company has commenced construction of certain new theme park attractions and other projects under contracts with various third parties. At December 31, 2017, excluding certain amounts related to the License Agreement with Sesame Workshop as described below, additional capital payments of approximately $107,000 are necessary to complete these projects. The majority of these projects are expected to be completed in 2018 and 2019.
License Agreements
On May 16, 2017, SEA entered into a License Agreement (the “License Agreement”) with Sesame Workshop (“Sesame”), a New York not-for-profit corporation. The License Agreement supersedes the previous two license agreements and extends SEA’s status as Sesame’s exclusive theme park partner in the United States, Puerto Rico and the U.S. Virgin Islands (the “Sesame Territory”), and provides for the payment of certain royalty payments based on gross receipts for stand-alone theme parks (“Standalone Parks”) and license fees and merchandise royalties for Sesame themed areas within SEA theme parks (“Sesame Lands”). Sesame will retain the right to develop certain family entertainment centers subject to certain restrictions including size, number, types of attractions and geographic location. SEA’s principal commitments pursuant to the License Agreement include: (i) opening a new Sesame Place theme park no later than mid-2021 in a location to be determined within the Sesame Territory; (ii) building a new Sesame Land in SeaWorld Orlando by fall 2022; (iii) investing in minimum annual capital and marketing thresholds; and (iv) providing support for agreed upon sponsorship and charitable initiatives, including Sesame’s annual gala event. The Company estimates the combined obligations for these commitments could be up to approximately $156,000 over the term of the agreement. After the opening of the second Standalone Park (counting the existing Sesame Place Standalone Park in Langhorne, Pennsylvania), SEA will have the option to build additional Standalone Parks in the Sesame Territory within agreed upon timelines. The License Agreement has an initial term through December 31, 2031, with an automatic additional 15 year extension plus a five year option added to the term of the License Agreement from December 31st of the year of each new Standalone Park opening.
Pursuant to the License Agreement 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.
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. On May 19, 2017, Plaintiffs filed a motion for class certification which the Court granted on November 29, 2017.
On November 2017, the United States filed a motion to intervene and partially stay discovery. On December 7, 2017, the Court stayed depositions through April 2, 2018. On December 13, 2017, Defendants filed a petition with the Ninth Circuit for permission to appeal the Court’s class certification order. On January 19, 2018, the Court vacated the current schedule in light of the District Court’s order permitting intervention by the DOJ and the pending petition to appeal the class certification decision. The schedule will be reset at the end of the stay. 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). On March 15, 2017, plaintiff moved to lift the stay entered by the court on September 21, 2015. Defendants filed a brief in opposition to plaintiff’s motion on May 23, 2017. On September 12, 2017, following oral argument, the Court denied plaintiff’s motion.
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 Southern 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.
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. The Ninth Circuit has stated that it may hear the argument in February, March, or April 2018.
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.
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 court 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, 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 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.
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 remained were 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 case has proceeded into written and oral discovery. All three plaintiffs have been deposed. Other deposition discovery has been stayed until April 2, 2018 at the request of the Department of Justice. The Company filed a motion for summary judgment on October 30, 2017, and a motion for Rule 11 Sanctions on December 1, 2017. On February 20, 2018, the Court granted in part and denied in part the Company’s motion for summary judgment. All three named plaintiffs continue to have claims for individual restitution and injunctive relief. On February 27, 2018, the Court denied the motion for Rule 11 Sanctions. The next significant phase of motions practice in the case will be the plaintiffs’ motion for class certification, which currently is scheduled to be filed on June 1, 2018.
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.
EZPay Plan Class Action Lawsuit
On December 3, 2014, a purported class action lawsuit was filed in the United States District Court for the Middle District of Florida, Tampa Division against SeaWorld Parks & Entertainment, Inc., captioned Jason Herman, Joey Kratt, and Christina Lancaster, as individuals and on behalf of all others similarly situated, v. SeaWorld Parks & Entertainment, Inc. Case no: 8:14-cv-03028-MSS-JSS. The complaint alleges a single breach of contract claim involving the Company’s EZPay Plan which affords customers the ability to pay for annual passes through monthly installments. The plaintiff alleges the Company automatically renewed passes beyond the initial term in violation of the terms and conditions of the parties’ contract which provided in part: “Except for any passes paid in less than twelve months, THIS CONTRACT WILL RENEW AUTOMATICALLY ON A MONTH-TO-MONTH BASIS until I terminate it.” On January 21, 2015, plaintiffs amended their complaint to include claims for breach of contract, unjust enrichment and violation of federal Electronic Funds Transfer Act, 15 U.S.C. section 1693 et seq. on behalf of three individual plaintiffs as well as on behalf of a two classes: (i) individuals in the states of Florida, Texas, Virginia and California who paid for an annual pass in “less than twelve months,” had their passes automatically renewed and did not use the renewed passes after the first year or were not issued a full refund of payments made after the twelfth payment; and (ii) all of these same individuals who used debit cards.
The Company has always considered the plaintiffs’ argument to be without merit and believes it has defenses to the action. The parties engaged in significant discovery and a motion was filed by the plaintiffs for certification of the class. In addition, plaintiffs filed a motion for summary judgment and defendant in turn filed for motion for partial summary judgment. The Company anticipated the United States District Court for the Middle District of Florida would schedule a hearing on class certification first, determine whether a class should be certified, send notice to the certified class, and then entertain the respective motions for summary judgment.
However, on March 10, 2017, the United States District Court for the Middle District of Florida issued an order granting plaintiffs’ motion for certification of the class without a hearing and included in the order findings that the contract is unambiguous and that it means that the Company could not auto-renew the contract term if the customer paid in less than 365 days.
With regard to the order granting certification, on March 24, 2017, the Company filed a Rule 23(f) petition with the United States Court of Appeals for the Eleventh Circuit seeking interlocutory review of such order. While the Rule 23(f) petition was pending, on April 17, 2017, the United States District Court for the Middle District of Florida issued another order, this time granting plaintiff’s motion for summary judgment as to liability and denying the Company’s motion for partial summary judgment. The United States District Court for the Middle District of Florida decided that the Company breached the contract by failing to terminate the contract once the passes were paid in full. No determination of damages was made nor has the court entered any final judgment.
On May 15, 2017, a three-judge panel of the United States Court of Appeals for the Eleventh Circuit denied the Company’s Rule 23(f) petition on the grounds that the April 17, 2017 summary judgment order of the United States District Court for the Middle District of Florida constituted a “final judgment” and therefore the Company could appeal the final judgment. The United States Court of Appeals for the Eleventh Circuit did not address any of the arguments on the merits. The Company moved for reconsideration of the order of the United States Court of Appeals for the Eleventh Circuit and filed a notice of appeal of the “final judgment” determination that same day. The Company had two related proceedings pending with the United States Court of Appeals for the Eleventh Circuit – (i) the motion for reconsideration of the denial of the Company’s Rule 23(f) petition and (ii) the appeal of the “final judgment” determination with respect to the April 17, 2017 summary judgment order of the United States District Court for the Middle District of Florida. On August 28, 2017, the Eleventh Circuit issued an order dismissing the final appeal for lack of jurisdiction and remanded the case to the District Court. A trial on damages will most likely be held in May or June of 2018. The Company intends to continue to defend the lawsuit vigorously; however, there can be no assurance regarding the ultimate outcome of this lawsuit.
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). For example, in June 2017, the Company received a subpoena in connection with an investigation by the U.S. Department of Justice concerning disclosures and public statements made by the Company and certain executives and/or individuals on or before August 2014, including those regarding the impact of the “Blackfish” documentary, and trading in the Company’s securities. The Company also has received subpoenas from the staff of the U.S. Securities and Exchange Commission in connection with these matters. On June 16, 2017, the Company’s Board of Directors formed a Special Committee comprised of independent directors with respect to these inquiries. The Special Committee has engaged counsel to advise and assist the Committee. The Company has cooperated with these government inquiries and intends to continue to cooperate with any government requests or inquiries.
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.
|
16. FAIR VALUE MEASUREMENTS
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 consideration of credit risk in the 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 classified as Level 2. See Note 13-Derivative Instruments and Hedging Activities. Of the Company’s long-term obligations, the Term B-2 Loans and Term B-5 Loans are classified in Level 2 of the fair value hierarchy as of December 31, 2017 and the Term B-2 and Term B-3 Loans were classified in Level 2 of the fair value hierarchy as of December 31, 2016. The fair value of the term loans as of December 31, 2017 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 12–Long-Term Debt.
There were no transfers between Levels 1, 2 or 3 during the year ended December 31, 2017. The Company did not have any assets measured on a recurring basis at fair value at December 31, 2017. The following table presents the Company’s estimated fair value measurements and related classifications for liabilities measured on a recurring basis as of December 31, 2017:
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
Significant |
|
|
|
|
|
|
|
|
|
||
|
for Identical |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|||
|
Assets and |
|
|
Observable |
|
|
Unobservable |
|
|
Balance at |
|
||||
|
Liabilities |
|
|
Inputs |
|
|
Inputs |
|
|
December 31, |
|
||||
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
2017 |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments (a) |
$ |
— |
|
|
$ |
8,455 |
|
|
$ |
— |
|
|
$ |
8,455 |
|
Long-term obligations (b) |
$ |
— |
|
|
$ |
1,560,046 |
|
|
$ |
— |
|
|
$ |
1,560,046 |
|
(a) |
Reflected at fair value in the consolidated balance sheet as other liabilities of $8,455. |
(b) |
Reflected at carrying value, net of unamortized debt issuance costs and discounts, in the consolidated balance sheet as current maturities of long-term debt of $38,707 and long-term debt of $1,503,609 as of December 31, 2017. |
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 on a recurring basis at fair value at December 31, 2016. The following table presents the Company’s estimated fair value measurements and related classifications for liabilities measured on a recurring basis as of December 31, 2016:
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
Significant |
|
|
|
|
|
|
|
|
|
||
|
for Identical |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|||
|
Assets and |
|
|
Observable |
|
|
Unobservable |
|
|
Balance at |
|
||||
|
Liabilities |
|
|
Inputs |
|
|
Inputs |
|
|
December 31, |
|
||||
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
2016 |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments (a) |
$ |
— |
|
|
$ |
22,808 |
|
|
$ |
— |
|
|
$ |
22,808 |
|
Long-term obligations (b) |
$ |
— |
|
|
$ |
1,598,001 |
|
|
$ |
— |
|
|
$ |
1,598,001 |
|
(a) |
Reflected at fair value in the consolidated balance sheet as other liabilities of $22,808. |
(b) |
Reflected at carrying value, net of unamortized debt issuance costs and discounts, in the consolidated balance sheet as current maturities of long-term debt of $51,713 and long-term debt of $1,531,069 as of December 31, 2016. |
|
17. RELATED-PARTY TRANSACTIONS
ZHG Agreements
On March 24, 2017, the Company entered into the ZHG Agreements with Zhonghong Holding, an affiliate of ZHG Group. In exchange for providing services under the ZHG Agreements, the Company is expected to receive fees as well as a travel stipend per year through 2019. The Company recognizes revenue under the ZHG Agreements on a straight line basis over the contractual term of the agreements. Revenue recognized in the year ended December 31, 2017 was approximately $3,900 related to these agreements. See further discussion regarding the Sale in Note 1–Description of the Business and Note 20–Stockholders’ Equity.
In connection with the Sale discussed in Note 1–Description of the Business, which closed on May 8, 2017, Sellers reimbursed the Company for approximately $4,000 of related costs and expenses incurred by the Company during the year ended December 31, 2017.
Hill Path Capital LP Agreements
On November 5, 2017, the Company and Hill Path Capital LP (“Hill Path”) entered into a Cooperation Agreement (the “Cooperation Agreement”) and certain related agreements. Under the terms of the Cooperation Agreement, the Company paid Hill Path $500 during the fourth quarter of 2017 to reimburse for fees and expenses incurred in connection with the negotiation and execution of the Cooperation Agreement. Pursuant to the Cooperation Agreement, on November 5, 2017, the Board appointed a designee from Hill Path (the “Designee”) to the Board and the recently created Revenue Committee, immediately following the execution of the Cooperation Agreement.
On November 5, 2017, the Company also entered into an Undertaking Agreement (the “Undertaking Agreement”) which permits the Designee to provide information to certain personnel of Hill Path and certain of Hill Path’s advisors as described therein. The undertakings of Hill Path and the Designee pursuant to the Undertaking Agreement are effective for 12 months following the date on which there is no director serving on the Board who is designated by Hill Path. The Company also entered into a side letter with Hill Path that provides if it obtains any requisite Board approval or the consent of SunWise (UK) Co. LTD (“ZHG”), the Company will execute and deliver to Hill Path a form of registration rights agreement (the “Registration Rights Agreement”). The Registration Rights Agreement will provide that following the date that is one day after the expiration of the Company’s advance notice period for the nomination of directors at the 2018 Annual Meeting and provided that Hill Path has not submitted any nominations for the election of directors in accordance with the Company’s advance notice period as set forth in the Company’s Second Amended and Restated Bylaws, the Hill Path entities will have limited shelf registration rights with respect to their common stock (including certain demand underwritten offering rights and piggyback registration rights). The Registration Rights Agreement also will require the Company to pay certain expenses relating to such registration and indemnify the Hill Path entities against certain liabilities under the Securities Act of 1933, as amended.
Debt and Interest Payments
As of December 31, 2016, approximately $25,000 aggregate principal amount of Term B-2 Loans were owned by affiliates of Blackstone. The Company makes voluntary and mandatory principal repayments as well as periodic principal and interest payments on such debt in accordance with its terms from time to time. There were no debt amounts owned by affiliates of the Company as of December 31, 2017. See Note 12–Long-Term Debt for further discussion.
|
18. 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, 2017, 2016 and 2015, totaled $7,943, $8,495 and $7,696, respectively.
|
19. 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 is recognized over the requisite service period, which is generally the vesting period unless service or performance conditions require otherwise. Effective January 1, 2017, in accordance with its adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, the Company elected to recognize the impact of forfeitures as they occur (see further discussion in Note 3–Recent Accounting Pronouncements). 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 granted in 2013 and subsequent years and its performance-vesting restricted share awards granted in 2015 and subsequent years.
Total equity compensation expense was $23,203, $37,515 and $6,527 for the years ended December 31, 2017, 2016 and 2015, respectively. Equity compensation expense for the year ended December 31, 2017 includes approximately $8,400 related to certain of the Company’s performance-vesting restricted shares (the “2.75x Performance Restricted shares”) for which a portion vested on May 8, 2017 with the closing of the Sale. 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 and Equity Plan Modification” 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, 2017 was approximately $29,300 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, 2017, 2016 and 2015 was approximately $13,753, $32,164 and $2,450, respectively. Total fair value of shares which vested during the year ended December 31, 2017 includes $8,400 related to the 2.75x Performance Restricted shares which partially vested on May 8, 2017. 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, 2017, 2016 and 2015 were $17.71, $17.20 and $18.76 per share, respectively.
The activity related to the Company’s time-vesting and performance-vesting restricted share awards during the year ended December 31, 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
Performance-Vesting Restricted shares |
|||||||||||||||||||||||
|
|
Time-Vesting Restricted shares |
|
|
Bonus Performance Restricted shares |
|
|
Long-Term Incentive Performance Restricted shares |
|
|
2.75x Performance Restricted shares |
|
|
||||||||||||||||||||
|
|
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 |
|
|
||||||||
Outstanding at December 31, 2016 |
|
|
1,323,025 |
|
|
$ |
17.47 |
|
|
|
451,289 |
|
|
$ |
17.88 |
|
|
|
212,369 |
|
|
$ |
18.43 |
|
|
|
1,310,726 |
|
|
$ |
8.19 |
|
|
Granted |
|
|
1,290,057 |
|
|
$ |
16.91 |
|
|
|
923,678 |
|
|
$ |
18.10 |
|
|
|
791,108 |
|
|
$ |
18.57 |
|
|
|
— |
|
|
|
— |
|
|
Vested |
|
|
(449,904 |
) |
|
$ |
17.18 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(455,148 |
) |
|
$ |
13.24 |
|
|
Forfeited |
|
|
(310,666 |
) |
|
$ |
17.80 |
|
|
|
(569,722 |
) |
|
$ |
17.95 |
|
|
|
(138,905 |
) |
|
$ |
18.75 |
|
|
|
(238,785 |
) |
|
$ |
13.11 |
|
|
Outstanding at December 31, 2017 |
|
|
1,852,512 |
|
|
$ |
17.09 |
|
|
|
805,245 |
|
|
$ |
18.09 |
|
|
|
864,572 |
|
|
$ |
18.50 |
|
|
|
616,793 |
|
|
$ |
3.56 |
|
|
The activity related to the Company’s stock option awards during the year ended December 31, 2017:
|
|
Options |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Remaining Contractual Life (in years) |
|
|
Aggregate Intrinsic Value |
|
||||
Outstanding at December 31, 2016 |
|
|
3,441,900 |
|
|
$ |
18.67 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(415,400 |
) |
|
$ |
18.04 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(102,462 |
) |
|
$ |
18.16 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(590 |
) |
|
$ |
18.67 |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017 |
|
|
2,923,448 |
|
|
$ |
18.78 |
|
|
|
7.65 |
|
|
$ |
— |
|
Exercisable at December 31, 2017 |
|
|
1,205,227 |
|
|
$ |
19.01 |
|
|
|
7.52 |
|
|
$ |
— |
|
Omnibus Incentive Plans
Prior to June 14, 2017, the Company had reserved 15,000,000 shares of common stock for issuance under the Company’s 2013 Omnibus Incentive Plan (the “2013 Omnibus Incentive Plan”). On June 14, 2017 (the “Approval Date”), the stockholders of the Company approved the 2017 Omnibus Incentive Plan (the “2017 Omnibus Incentive Plan”) and all shares that were previously available for issuance under the 2013 Omnibus Incentive Plan transferred to the 2017 Omnibus Incentive Plan and were authorized for future issuance. No new awards may be granted under the 2013 Omnibus Incentive Plan (although awards made under the 2013 Omnibus Incentive Plan prior to the Approval Date will remain outstanding in accordance with their terms) and no new or additional shares of common stock were authorized under the 2017 Omnibus Incentive Plan.
The 2017 Omnibus Incentive Plan is administered by the Compensation Committee of 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. In the event any award expires or is canceled, forfeited, or terminated, without issuance to the participant, the unissued shares may be granted again under the 2017 Omnibus Incentive Plan. In no event will shares (i) tendered or withheld for the payment of the exercise price or withholding taxes, (ii) not issued upon the settlement of a stock appreciation right that settle (or could settle) in shares of common stock or (iii) shares purchased on the open market with cash proceeds from the exercise of options again become available for other awards under the 2017 Omnibus Incentive Plan.
For the year ended December 31, 2017, the Company withheld an aggregate of 129,293 shares of its common stock from employees to satisfy minimum tax withholding obligations related to the vesting of restricted stock awards of which 71,656 were added back to the number of shares of common stock available for future issuance under the Company’s 2013 Omnibus Incentive Plan prior to June 14, 2017. As of December 31, 2017, there were 7,466,524 shares of common stock available for future issuance under the Company’s 2017 Omnibus Incentive Plan.
Bonus Performance Restricted Shares
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 ended December 31, 2017 (“Fiscal 2017”). The 2017 Bonus Plan provides for bonus awards 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 Fiscal 2017 Adjusted EBITDA (weighted at 50%), Total Revenue (weighted at 30%) and Adjusted EBITDA Margin (weighted at 20%). The total number of shares eligible to vest is based on the level of achievement of the targets for Fiscal 2017 which ranges from 0% (if below threshold performance), to 30% (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 weighted payment will be adjusted on a linear basis. Pursuant to the Equity Grant Policy, on March 3, 2017, the Company granted 888,235 Bonus Performance Restricted shares under its 2017 Bonus Plan which represented the total shares that could be earned under the maximum performance level of achievement. Subsequent grants were made on July 11, 2017 and on October 10, 2017 to newly hired bonus-eligible employees based on their hire date and/or to certain newly promoted employees.
In accordance with ASC 718, Compensation-Stock Compensation, equity compensation expense is recorded on shares probable of vesting. Based on the Company’s actual Fiscal 2017 results with respect to specific performance goals, a portion of the outstanding Bonus Performance Restricted shares were considered probable of vesting as of December 31, 2017; therefore, equity compensation expense has been recorded related to these shares.
The Company had 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 were eligible to receive a bonus with respect to Fiscal 2016 and 2015, payable 50% in cash and 50% in Bonus 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. Based on the Company’s actual Fiscal 2016 and 2015 Adjusted EBITDA results, no equity compensation was recorded related to these shares. All of the outstanding shares related to the 2016 Bonus Plan and the 2015 Bonus Plan forfeited in the first quarter of 2017 and 2016, respectively.
Long-Term Incentive Awards
The 2017 Long-Term Incentive Grant is comprised of time-vesting restricted shares (the “Long-Term Incentive Time Restricted shares”) and performance-vesting restricted shares (the “Long-Term Incentive Performance Restricted shares”) (collectively, the “Long-Term Incentive Awards”). The 2017 Long-Term Incentive Grant did not include nonqualified stock options (the “Long-Term Incentive Options”). Additionally, in order to address the lack of retention value of outstanding equity awards held by certain of the Company’s executives, the Compensation Committee also approved an early grant of the time-vesting restricted shares portion of the 2018 annual equity award in the first quarter of Fiscal 2017 (the “Early 2018 Grant”). Pursuant to the Equity Grant Policy, the Long-Term Incentive Awards related to the 2017 Long-Term Incentive Grant and the time-vesting restricted shares related to the Early 2018 Grant were granted on March 3, 2017.
The Board had 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, respectively, comprised of Long-Term Incentive Options, Long-Term Incentive Time Restricted shares and Long-Term Incentive Performance Restricted shares to certain of the Company’s management and executive officers.
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
For certain executives, the Long-Term Incentive Time Restricted shares granted under the 2017 Long-Term Incentive Grant and the time-vesting restricted shares granted under the Early 2018 Grant vest over five years, with one-third vesting on each of the third, fourth and fifth anniversaries of the date of grant, subject to continued employment through the applicable vesting date. Equity compensation expense for these shares is recognized using the straight line method with one-third recognized over the initial three year vesting period and the remaining two-thirds recognized over the remaining vesting period.
For other employees, the Long-Term Incentive Time Restricted shares granted under the 2017 Long-Term Incentive Grant vest over three years, with all of the shares vesting on the third anniversary of the date of grant, subject to continued employment through the applicable vesting date. Equity compensation expense for these shares is recognized using the straight line method over the three year vesting period.
The Long-Term Incentive Time Restricted shares granted under the 2016 and 2015 Long-Term Incentive Grant 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 granted under the 2017 Long-Term Incentive Plan 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. The total number of Long-Term Incentive Performance Restricted shares eligible to vest will be based on the level of achievement of the performance goals and ranges from 0% (if below threshold performance), to 50% (for threshold performance), to 100% (for target performance), and up to 200% (for at or above maximum performance). For actual performance between the specified threshold, target and maximum levels, the resulting vesting percentage will be adjusted on a linear basis. Pursuant to the Equity Grant Policy, as of December 31, 2017, the Company had granted 575,132 Long-Term Incentive Performance Restricted shares, net of forfeitures, under its 2017 Long-Term Incentive Plan which represented the total shares that could be earned under the maximum performance level of achievement. Equity compensation expense is recognized ratably over the three year performance period, if the performance condition is probable of being achieved, beginning on the date of grant and through December 31, 2019. Based on the Company’s actual Fiscal 2017 results, none of the Long-Term Incentive Performance Restricted shares related to the Fiscal 2017 performance period are considered probable of vesting as of December 31, 2017; therefore, no equity compensation expense has been recorded related to these shares. If probability of vesting related to these shares changes in a subsequent period, all equity compensation expense related to those shares that would have been recorded over the requisite service period had the shares been considered probable at the new percentage from inception, will be recorded as a cumulative catch-up at such subsequent date.
The Long-Term Incentive Performance Restricted shares granted under the 2016 and 2015 Long-Term Incentive Grant 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 respective 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 Determination Date for the third fiscal year 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.
As of December 31, 2017, the Company had awarded 391,309 Long-Term Incentive Performance Restricted shares, net of forfeitures, under the 2016 and 2015 Long-Term Incentive Plans which represents the total shares that could be earned under the maximum performance level of achievement for all three performance periods combined. 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 2017 was established in the first quarter of 2017, for accounting purposes, 130,437, of the Long-Term Incentive Performance Restricted shares awarded under the 2016 and 2015 Long-Term Incentive Plans, net of forfeitures, have a grant date in 2017. As of December 31, 2017, 101,869 Long-Term Incentive Performance Restricted shares, net of forfeitures, which were awarded under the 2016 Long-Term Incentive Plan relate to the fiscal year ending December 31, 2018 (“Fiscal 2018”) performance period. The performance target for Fiscal 2018 was determined by the Compensation Committee during the first quarter of 2018, and for accounting purposes, the respective grant-date fair value will be based on the grant date of February 22, 2018.
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 actual results for Fiscal 2017, the target performance level for Fiscal 2017 is not considered probable; as such all 130,437 Long-Term Incentive Performance Restricted shares granted in Fiscal 2017, net of forfeitures, under both the 2015 and the 2016 Long-Term Incentive Plan are not considered probable of vesting as of December 31, 2017. Based on the Company’s actual Adjusted EBITDA for Fiscal 2016, the target performance level for Fiscal 2016 was not met; as such all 130,417 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, 2017.
Unrecognized equity compensation expense related to the maximum performance level for all performance shares not probable of vesting is approximately $29,100 as of December 31, 2017. Total unrecognized equity compensation expense related to 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.
Other 2017 Omnibus Incentive Plan Awards
In August 2017, the Company granted 214,580 time-vesting restricted shares (the “Retention Awards”) to certain officers and employees of the Company. For the Retention Awards, 170,601 time-vesting restricted shares will vest 50% on each of the two anniversaries of the date of grant, 15,000 time-vesting restricted shares will vest 100% on the first anniversary of the date of grant, 23,979 will vest 100% on October 11, 2018 and 5,000 time-vesting restricted shares will vest 100% on March 31, 2018, subject to continued employment through the vesting date.
In accordance with the Company’s Fourth Amended and Restated Outside Director Compensation Policy, on June 14, 2017, 56,232 time-vesting restricted shares were granted to the non-employee directors of the Company’s Board of which vest 100% on the day before the next Annual Stockholders Meeting, subject to the outside directors’ continued service on the Board through such vesting date. Additionally, with the initial appointment of three new outside directors to the Company’s Board in the second half of 2017, 17,542 and 10,723 time-vesting restricted shares were granted on October 11, 2017 and November 6, 2017, respectively, and vest in three equal installments, with one-third vesting on each of the first, second and third anniversaries of the date of grant, subject to the outside director’s continued service on the Board through each such vesting date.
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”) 2.75x Performance Restricted shares. 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.
2.25x and 2.75x Performance Restricted Shares and Equity Plan Modification
During the first quarter of 2017, the Company modified the 2.75x Performance Restricted shares to vest 60% upon the closing of the Sale, and eight of the Company’s senior executives and the Company’s Chairman of the Board, individually agreed to forfeit the remaining 40% of their outstanding 2.75x Performance Restricted shares at such time. In addition, in accordance with his Separation and Consulting Agreement which contractually obligates the Company to apply any modifications to his outstanding 2.75x Performance Restricted shares, the Company’s former President and Chief Executive Officer’s outstanding 2.75x Performance Restricted shares were also modified to vest in 60% of his 2.75x Performance Restricted shares upon closing of the sale and forfeit the other 40% at such time. Under the terms of the Stock Purchase Agreement, if in certain circumstances the Buyer acquires a majority of the Company’s then outstanding common shares prior to the one-year anniversary of the closing of the Sale, then the Buyer is required as a condition to the closing of the acquisition that results in such majority ownership, to pay to the Seller, in respect of each share of common stock sold to the Buyer at the closing of the Sale, the excess, if any, of the highest price per share paid by the Buyer for shares of the Company’s common stock over $23.00 (the “Additional Payment”). As such, for all other plan participants, any outstanding unvested 2.75x Performance Restricted shares will continue to be eligible to vest in accordance with their terms if Seller receives an Additional Payment from the Buyer sufficient to satisfy the 2.75x cumulative return multiple in the twelve month period following the closing of the Sale.
The Sale was considered a liquidity event and was subject to customary closing conditions (including expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act). As the modification discussed above was based on a liquidity event, for accounting purposes, the 2.75x Performance Restricted shares were not considered probable of vesting until such time the Sale was consummated. In accordance with the guidance in ASC 718, Compensation-Stock Compensation, as the 2.75x Performance Restricted shares were not considered probable of vesting before or after the date of modification, the Company used the respective modification date fair value to record equity compensation expenses related to the modified shares when the liquidity event occurred. As a result, the Company recognized non-cash equity compensation expense related to all of the 2.75x Performance Restricted shares of approximately $8,400 upon closing of the Sale on May 8, 2017 and paid cash accumulated dividends of approximately $1,300 in the second quarter of 2017.
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.
|
20. STOCKHOLDERS’ EQUITY
As of December 31, 2017, 92,637,403 shares of common stock were issued in the accompanying consolidated balance sheet, which excludes 4,240,991 unvested shares of common stock held by certain participants in the Company’s equity compensation plans (see Note 19–Equity-Based Compensation) and includes 6,519,773 shares of treasury stock held by the Company (see Share Repurchase Program discussion below).
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 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.
During the years ended December 31, 2016 and 2015, the Board declared or paid quarterly cash dividends to all common stockholders of record as follows:
Record Date |
|
Payment Date |
|
Cash Dividend per Common Share |
|
|
2016: |
|
|
|
|
|
|
January 15, 2016 |
|
January 22, 2016 |
|
$ |
0.21 |
|
March 14, 2016 (a) |
|
April 1, 2016 |
|
$ |
0.21 |
|
June 20, 2016 (a) |
|
July 1, 2016 |
|
$ |
0.21 |
|
September 29, 2016 |
|
October 7, 2016 |
|
$ |
0.10 |
|
2015: |
|
|
|
|
|
|
January 13, 2015 |
|
January 22, 2015 |
|
$ |
0.21 |
|
March 13, 2015(a) |
|
April 1, 2015 |
|
$ |
0.21 |
|
June 22, 2015(a) |
|
July 1, 2015 |
|
$ |
0.21 |
|
September 29, 2015 |
|
October 6, 2015 |
|
$ |
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 in the accompanying consolidated statements of changes in stockholders’ equity.
As of December 31, 2017, the Company had $470 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, which were granted prior to the dividend suspension, carry dividend rights and therefore the dividends accumulate and will be paid as the shares vest in accordance with the underlying equity compensation grants. These dividend rights will be forfeited if the shares do not vest.
Dividends paid to common stockholders primarily related to dividend declarations were $65,306 and $72,318 in the years ended December 31, 2016 and 2015, respectively. For tax purposes, all of the 2016 dividends as well as a portion of the 2015 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.
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. The Company does not record a dividend payable when the performance conditions on the related unvested shares are not considered probable of being achieved. During the year ended December 31, 2017, accumulated cash dividends of $1,544 related to previous dividend declarations were paid to certain equity plan participants upon vesting of restricted shares, including approximately $1,300 related to certain 2.75x Performance Restricted shares which vested upon closing of the Sale on May 8, 2017 (see Note 19–Equity-Based Compensation for further details). Additionally, 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 19–Equity-Based Compensation for further details).
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 years ended December 31, 2017 and 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, 2017.
All shares repurchased pursuant to the Share Repurchase Program, along with shares repurchased directly from selling stockholders concurrently with previous secondary offerings, were recorded as treasury stock at a total cost of $154,871 as of the years ended December 31, 2017, 2016 and 2015 and are reflected as a reduction to stockholders’ equity in the accompanying consolidated statements of changes in stockholders’ equity.
Other
On March 24, 2017, the Company announced that an affiliate of ZHG Group entered into an agreement to acquire approximately 21% of the outstanding shares of common stock of the Company from Seller, pursuant to a Stock Purchase Agreement. On May 8, 2017, upon closing of the Sale, ZHG paid Seller $23.00 per share for the Company’s common stock acquired by ZHG in accordance with the terms of the Stock Purchase Agreement. The Company is not a party to the Stock Purchase Agreement, has no obligations thereunder and did not independently verify any arrangements between Seller and ZHG, but is a party to certain other agreements, a Park Exclusivity and Concept Design Agreement and a Center Concept & Preliminary Design Support Agreement, entered into in connection with the Sale (see Note 1–Description of the Business and Note 17–Related-Party Transactions).
|
21. SUMMARY QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summary quarterly financial data for the years ended December 31, 2017 and 2016 was as follows:
|
|
2017 |
|
|||||||||||||
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
||||
|
|
Quarter (a) |
|
|
Quarter (b) |
|
|
Quarter (c) |
|
|
Quarter |
|
||||
|
|
(Unaudited) |
|
|||||||||||||
Total revenues |
|
$ |
186,357 |
|
|
$ |
373,750 |
|
|
$ |
437,712 |
|
|
$ |
265,505 |
|
Operating (loss) income |
|
$ |
(76,735 |
) |
|
$ |
(222,564 |
) |
|
$ |
108,822 |
|
|
$ |
(10,886 |
) |
Net (loss) income |
|
$ |
(61,129 |
) |
|
$ |
(175,850 |
) |
|
$ |
55,034 |
|
|
$ |
(20,441 |
) |
(Loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share, basic |
|
$ |
(0.72 |
) |
|
$ |
(2.05 |
) |
|
$ |
0.64 |
|
|
$ |
(0.24 |
) |
Net (loss) income per share, diluted |
|
$ |
(0.72 |
) |
|
$ |
(2.05 |
) |
|
$ |
0.64 |
|
|
$ |
(0.24 |
) |
|
|
2016 |
|
|||||||||||||
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
||||
|
|
Quarter(d) |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter(e) |
|
||||
|
|
(Unaudited) |
|
|||||||||||||
Total revenues |
|
$ |
220,241 |
|
|
$ |
371,136 |
|
|
$ |
485,318 |
|
|
$ |
267,597 |
|
Operating (loss) income |
|
$ |
(119,567 |
) |
|
$ |
38,050 |
|
|
$ |
152,641 |
|
|
$ |
(11,539 |
) |
Net (loss) income |
|
$ |
(84,049 |
) |
|
$ |
17,768 |
|
|
$ |
65,655 |
|
|
$ |
(11,905 |
) |
(Loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share, basic |
|
$ |
(1.00 |
) |
|
$ |
0.21 |
|
|
$ |
0.77 |
|
|
$ |
(0.14 |
) |
Net (loss) income per share, diluted |
|
$ |
(1.00 |
) |
|
$ |
0.21 |
|
|
$ |
0.77 |
|
|
$ |
(0.14 |
) |
(a) |
During the first quarter of 2017, the Company recorded a loss on early extinguishment of debt and write-off of discounts and debt issuance costs of $8,020 related to the Amendment to its Existing Credit Agreement. See Note 12–Long-Term Debt for further details. |
(b) |
During the second quarter of 2017, the Company recorded a non-cash goodwill impairment charge of $269,332 related to the full impairment of the Company’s SeaWorld Orlando reporting unit and equity compensation expense of approximately $8,400 related to certain of the Company’s performance-vesting restricted shares (the “2.75x Performance Restricted shares”) for which a portion vested on May 8, 2017 with the closing of the Sale. See Note 9–Goodwill, Net and Note 19–Equity-Based Compensation for further details. |
(c) |
During the third quarter of 2017, the Company recorded $5,100 in restructuring and other related costs primarily related to severance costs and other termination benefits. See Note 4–Restructuring Programs and Separation Costs for further details. |
(d) |
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 19–Equity-Based Compensation for further details. |
(e) |
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. |
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.
|
Schedule I-Registrant’s Condensed Financial Statements
SEAWORLD ENTERTAINMENT, INC. |
|
|||||||
PARENT COMPANY ONLY |
|
|||||||
CONDENSED BALANCE SHEETS |
|
|||||||
(In thousands, except share and per share amounts) |
|
|||||||
|
|
December 31, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Assets |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
470 |
|
|
$ |
908 |
|
Total current assets |
|
|
470 |
|
|
|
908 |
|
Investment in wholly owned subsidiary (1) |
|
|
287,466 |
|
|
|
461,215 |
|
Total assets |
|
$ |
287,936 |
|
|
$ |
462,123 |
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Dividends payable |
|
$ |
470 |
|
|
$ |
908 |
|
Total current liabilities |
|
|
470 |
|
|
|
908 |
|
Total liabilities |
|
|
470 |
|
|
|
908 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Stockholders' Equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value—authorized, 100,000,000 shares, no shares issued or outstanding at December 31, 2017 and 2016 |
|
|
— |
|
|
|
— |
|
Common stock, $0.01 par value—authorized, 1,000,000,000 shares; 92,637,403 and 91,861,054 shares issued at December 31, 2017 and 2016, respectively |
|
|
926 |
|
|
|
919 |
|
Additional paid-in capital |
|
|
641,324 |
|
|
|
621,343 |
|
Accumulated other comprehensive loss (1) |
|
|
(5,076 |
) |
|
|
(13,694 |
) |
(Accumulated deficit) retained earnings |
|
|
(194,837 |
) |
|
|
7,518 |
|
Treasury stock, at cost (6,519,773 shares at December 31, 2017 and 2016) |
|
|
(154,871 |
) |
|
|
(154,871 |
) |
Total stockholders' equity |
|
|
287,466 |
|
|
|
461,215 |
|
Total liabilities and stockholders' equity |
|
$ |
287,936 |
|
|
$ |
462,123 |
|
|
(1) |
The 2016 parent company only condensed balance sheet reflects a correction to record accumulated other comprehensive loss which had previously been omitted. The correction of this immaterial omission reduced the previously reported investment in wholly owned subsidiary and total stockholders’ equity at December 31, 2016 by $13,694. The correction did not impact the Company’s consolidated financial statements for any periods presented. |
SEAWORLD ENTERTAINMENT, INC. |
|
|||||||||||
PARENT COMPANY ONLY |
|
|||||||||||
CONDENSED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME |
|
|||||||||||
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015 |
|
|||||||||||
(In thousands) |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
Equity in net (loss) income of subsidiary |
|
$ |
(202,386 |
) |
|
$ |
(12,531 |
) |
|
$ |
49,133 |
|
Net (loss) income |
|
$ |
(202,386 |
) |
|
$ |
(12,531 |
) |
|
$ |
49,133 |
|
Equity in other comprehensive income (loss) of subsidiary (1) |
|
|
8,618 |
|
|
|
(557 |
) |
|
|
(12,654 |
) |
Comprehensive (loss) income (1) |
|
$ |
(193,768 |
) |
|
$ |
(13,088 |
) |
|
$ |
36,479 |
|
|
(1) |
The parent company only condensed statements of comprehensive (loss) income reflect a correction to record its wholly owned subsidiary’s other comprehensive income (loss), which had previously been omitted for 2016 and 2015. The correction of this immaterial omission did not impact the Company’s consolidated financial statements for any periods presented. |
SEAWORLD ENTERTAINMENT, INC. |
|
|||||||||||
PARENT COMPANY ONLY |
|
|||||||||||
CONDENSED STATEMENTS OF CASH FLOWS |
|
|||||||||||
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015 |
|
|||||||||||
(In thousands) |
|
|||||||||||
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
Cash Flows From Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(202,386 |
) |
|
$ |
(12,531 |
) |
|
$ |
49,133 |
|
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in net loss (income) of subsidiary |
|
|
202,386 |
|
|
|
12,531 |
|
|
|
(49,133 |
) |
(Adjustments to previous dividend declarations) dividends received, net of forfeitures, from subsidiary-return on capital |
|
|
(31 |
) |
|
|
26,412 |
|
|
|
36,196 |
|
Net cash (used in) provided by operating activities |
|
|
(31 |
) |
|
|
26,412 |
|
|
|
36,196 |
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted payment from subsidiary |
|
|
— |
|
|
|
— |
|
|
|
45,000 |
|
Dividends received from subsidiary-return of capital, net of forfeitures |
|
|
1,137 |
|
|
|
39,372 |
|
|
|
36,381 |
|
Net cash provided by investing activities |
|
|
1,137 |
|
|
|
39,372 |
|
|
|
81,381 |
|
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
— |
|
|
|
— |
|
|
|
(50,650 |
) |
Dividends paid to common stockholders |
|
|
(1,544 |
) |
|
|
(65,306 |
) |
|
|
(72,318 |
) |
Payment of cash for tax withholdings on equity-based compensation |
|
|
— |
|
|
|
— |
|
|
|
(37 |
) |
Net cash used in financing activities |
|
|
(1,544 |
) |
|
|
(65,306 |
) |
|
|
(123,005 |
) |
Change in Cash and Cash Equivalents |
|
|
(438 |
) |
|
|
478 |
|
|
|
(5,428 |
) |
Cash and Cash Equivalents - Beginning of year |
|
|
908 |
|
|
|
430 |
|
|
|
5,858 |
|
Cash and Cash Equivalents - End of year |
|
$ |
470 |
|
|
$ |
908 |
|
|
$ |
430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Noncash Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared, but unpaid |
|
$ |
470 |
|
|
$ |
908 |
|
|
$ |
430 |
|
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 “Seller”), ultimately owned by affiliates of The Blackstone Group L.P. (“Blackstone”) and certain co-investors. On May 8, 2017 an affiliate of Zhonghong Zhuoye Group Co., Ltd. (“ZHG Group”), Sun Wise (UK) Co., LTD (“ZHG” or the “Buyer”) acquired approximately 21% of the outstanding shares of common stock of the Parent (the “Sale”) from Seller.
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 senior notes (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. Additionally, on March 31, 2017, SEA entered into a refinancing amendment, Amendment No. 8 (the “Amendment”) to its existing credit agreement and borrowed additional term loans of which the proceeds, along with cash on hand, were used to redeem all of the Term B-3 loans and a portion of the outstanding principal of the Term B-2 loans. See further discussion in Note 12–Long-Term Debt of the accompanying consolidated financial statements.
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 SUBSIDIARY
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 regular quarterly cash dividends to its stockholders. Subsequent to the September 19, 2016 dividend declaration, both 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. SEA paid a cash dividend to the Parent during the years ended December 31, 2016 and 2015 related to dividend declarations as follows:
Payment Date |
|
Cash Dividends Paid |
|
|
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 |
|
(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 and 2015, the Parent’s Board declared or paid quarterly cash dividends to all common stockholders of record as follows:
Record Date |
|
Payment Date |
|
Cash Dividend Per Common Share |
|
|
2016: |
|
|
|
|
|
|
January 15, 2016 |
|
January 22, 2016 |
|
$ |
0.21 |
|
March 14, 2016 |
|
April 1, 2016 |
|
$ |
0.21 |
|
June 20, 2016 |
|
July 1, 2016 |
|
$ |
0.21 |
|
September 29, 2016 |
|
October 7, 2016 |
|
$ |
0.10 |
|
2015: |
|
|
|
|
|
|
January 13, 2015 |
|
January 22, 2015 |
|
$ |
0.21 |
|
March 13, 2015 |
|
April 1, 2015 |
|
$ |
0.21 |
|
June 22, 2015 |
|
July 1, 2015 |
|
$ |
0.21 |
|
September 29, 2015 |
|
October 6, 2015 |
|
$ |
0.21 |
|
As of December 31, 2017, the Parent had $470 of cash dividends payable included in dividends payable in the accompanying condensed balance sheet, which relates to unvested restricted shares in SEA’s equity compensation plan. These shares, which were granted prior to the dividend suspension, carry dividend rights and therefore dividends accumulate and will be paid as the shares vest in accordance with the underlying equity compensation grants. These dividend rights will be forfeited if the shares do not vest. See Note 20–Stockholders’ Equity of the accompanying consolidated financial statements for further discussion.
5. STOCKHOLDERS’ EQUITY
Omnibus Incentive Plan
Prior to June 14, 2017, the Parent reserved 15,000,000 shares of common stock for future issuance under the 2013 Omnibus Incentive Plan (the “2013 Omnibus Incentive Plan”). On June 14, 2017 (the “Approval Date”), the stockholders of the Parent approved the 2017 Omnibus Incentive Plan (the “2017 Omnibus Incentive Plan”) and all shares that were previously available for issuance under the 2013 Omnibus Incentive Plan transferred to the 2017 Omnibus Incentive Plan and were authorized for future issuance. No new awards may be granted under the 2013 Omnibus Incentive Plan (although awards made under the 2013 Omnibus Incentive Plan prior to the Approval Date will remain outstanding in accordance with their terms) and no new or additional shares of common stock were authorized under the 2017 Omnibus Incentive Plan.
The 2017 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 its 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 2017 Omnibus Incentive Plan expires or is canceled, forfeited, or terminated, without issuance to the participant, the unissued shares may be granted again under the 2017 Omnibus Incentive Plan. See further discussion in Note 19–Equity-Based Compensation of the accompanying consolidated financial statements.
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.
There were no share repurchases during the years ended December 31, 2017 and 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, 2017.
All shares repurchased pursuant to the Share Repurchase Program, along with shares repurchased directly from selling stockholders concurrently with previous secondary offerings, were recorded as treasury stock at a total cost of $154,871 as of the years ended December 31, 2017, 2016 and 2015 and are reflected as a reduction to stockholders’ equity in the accompanying consolidated statements of changes in stockholders’ equity. SEA transferred $45,000 during the year ended December 31, 2015 as restricted payments to the Parent for the payment of repurchased shares.
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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.
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 $16,799 and $12,289 at December 31, 2017 and 2016, respectively. The cash balances in all accounts held at financial institutions are insured up to $250 by the Federal Deposit Insurance Corporation (“FDIC”) through December 31, 2017. 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.
From time to time, the Company may invest in certain highly liquid instruments with original maturities of three months or less. These instruments may include money market mutual funds, certificates of deposit or time deposits, among others, which may or may not qualify for FDIC insurance. The Company classifies any such instruments as cash and cash equivalents based on their short-term maturities.
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, including merchandise, culinary items and miscellaneous supplies. Obsolete or excess inventories are recorded at their estimated realizable value.
Restricted Cash
Restricted cash was $819 and $420 as of December 31, 2017 and 2016, respectively, and is recorded in other current assets in the accompanying consolidated balance sheets. Restricted cash consists primarily 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 using the straight-line method based on the following estimated useful lives:
Land improvements |
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10-40 years |
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Buildings |
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5-40 years |
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Rides, attractions and equipment |
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3-20 years |
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Animals |
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1-50 years |
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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, 2017, 2016 and 2015, was $2,690, $2,686 and $2,299, 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 $9,196 and $11,441 as of December 31, 2017 and 2016, respectively, and are recorded in other assets in the accompanying consolidated balance sheets. Accumulated amortization was $16,062 and $12,576 as of December 31, 2017 and 2016, respectively. Amortization expense of capitalized computer system development costs during the years ended December 31, 2017, 2016 and 2015 was $3,544, $3,399 and $3,022, 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.
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 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, assets are grouped and tested at the lowest level for which identifiable independent cash flows are available (generally a theme park).
During the third quarter of 2017, following a contractual dispute, the Company amended an existing agreement related to the use of certain animals. As a result of this amendment, which reduced the expected future cash flows related to the agreement, the Company recognized an impairment loss of approximately $7,800 which is included in operating expenses in the accompanying consolidated statement of comprehensive loss for the year ended December 31, 2017. See Note 8–Property and Equipment, Net, for further details. No impairment losses were recognized during the years ended December 31, 2016 and 2015.
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 overall financial performance and consideration of significant events or changes in the overall business environment or macroeconomic conditions. 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.
As of January 1, 2017, the Company elected to early adopt Accounting Standards Update (“ASU”) 2017-04, Intangible–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, for any interim or annual goodwill impairment tests. See further discussion in Note 3–Recent Accounting Pronouncements.
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 of recoverability of a significant asset group within a reporting unit. If the qualitative assessment is not conclusive, then a quantitative impairment analysis for goodwill is performed at the reporting unit level. The Company may also choose to perform this quantitative impairment analysis instead of the qualitative analysis. The quantitative impairment analysis compares the fair value of the reporting unit, determined using the income and/or market approach, to its recorded amount. If the recorded amount exceeds the fair value, then a goodwill impairment charge is recorded for the difference up to the recorded amount of goodwill.
The determination of fair value in the Company’s goodwill impairment analysis is based on an estimate of fair value for each reporting unit utilizing known and estimated inputs at the evaluation date. Some of those inputs include, but are not limited to, estimates of future revenue and expense growth, estimated market multiples, expected capital expenditures, income tax rates and cost of invested capital. See discussion relating to results from an interim and annual impairment test performed on goodwill in Note 9–Goodwill, Net.
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 valued annually using the relief from royalty method. Currently, trade names/trademarks are combined by brand as a unit of accounting when testing for impairment as the brand represents the highest and best use of the asset and drives the Company’s marketing strategy and international license agreements. Significant estimates required in this valuation method include estimated future revenues impacted by the trade names/trademarks, royalty rates, 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. See discussion relating to results from an interim and annual impairment test performed on trade names/trademarks in Note 10–Trade names/Trademarks and Other Intangible Assets, Net.
Given the current macroeconomic environment and the uncertainties regarding the related impact on financial performance, there can be no assurance that the estimates and assumptions made for purposes of impairment testing will prove to be accurate predictions of the future. If the Company’s assumptions, particularly concerning its SeaWorld brand trade name including its projections of future cash flows and financial performance, assumed royalty rates, as well as the economic outlook are not achieved, the Company may be required to record impairment charges on its indefinite-lived intangible assets in future periods. It is not possible at this time to determine if any such change in assumptions would result in a future impairment charge or, if it does, whether such charge would be material.
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 $30,603 at December 31, 2017, of which $2,603 is recorded in accrued salaries, wages and benefits, $7,084 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 $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. 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, 2017 and 2016 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, which is adjusted periodically. Deferred revenue includes a current and long-term portion as some of the Company’s admission products provide benefits for more than one year. At December 31, 2017 and 2016, long-term deferred revenue related to admission products of $883 and $509, respectively, is included in other liabilities in the accompanying consolidated balance sheets. As of December 31, 2017 and 2016, other liabilities also includes $10,000 in deferred revenue related to a 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 $3,100 and $2,800 of costs incurred related to the Middle East Project are recorded in other assets in the accompanying consolidated balance sheets as of December 31, 2017 and 2016, respectively. 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.
On March 24, 2017, the Company entered into a Park Exclusivity and Concept Design Agreement (the “ECDA”) and a Center Concept & Preliminary Design Support Agreement (the “CDSA”) (collectively, the “ZHG Agreements”) with Zhonghong Holding, Co. Ltd. (“Zhonghong Holding”), an affiliate of ZHG Group, to provide design, support and advisory services for various potential projects and granting exclusive rights in China, Taiwan, Hong Kong and Macau (the “ ZHG Territory”). Under the terms of the ECDA, the Company will work with Zhonghong Holding and a top theme park design company, to create and produce concept designs and development analysis for theme parks, water parks and interactive parks in the ZHG Territory. Under the terms of the CDSA, the Company will provide guidance, support, input, and expertise relating to the initial strategic planning, concept and preliminary design of Zhonghong Holding’s family entertainment and other similar centers. The Company recognizes revenue under the ZHG Agreements on a straight line basis over the contractual term of the agreement including approximately $3,900 during the year ended December 31, 2017 which is included in food, merchandise and other revenue in the accompanying consolidated statement of comprehensive loss. See further discussion in Note 17–Related-Party Transactions.
The Company has also 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 also 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, 2017, 2016 and 2015, approximately $21,000, $29,000 and $18,000, 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. Other advertising and media costs are expensed as incurred and for the years ended December 31, 2017, 2016 and 2015, totaled approximately $118,000, $124,600 and $106,000, respectively, and are included in selling, general and administrative expenses in the accompanying consolidated statements of comprehensive (loss) income.
Equity-Based Compensation
In accordance with Accounting Standards Codification (“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 is recognized over the requisite service period, which is generally the vesting period unless service or performance conditions require otherwise. Effective January 1, 2017, in accordance with its adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, the Company elected to recognize the impact of forfeitures as they occur (see further discussion in Note 3–Recent Accounting Pronouncements). 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. The Company used the closing stock price on the date of grant to value its time-vesting restricted share awards granted in 2013 and subsequent years and its performance-vesting restricted share awards granted in 2015 and subsequent years.
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 ASC 718 to determine the appropriate accounting. See further discussion in Note 19–Equity-Based Compensation.
Restructuring Costs
The Company accounts for exit or disposal of activities in accordance with ASC 420, Exit or Disposal Cost Obligations if the one-time benefit arrangements are not part of an ongoing benefit arrangement or an individual deferred compensation contract. Nonretirement postemployment benefits that are part of an ongoing benefit arrangement or an individual deferred compensation contract are accounted for in accordance with ASC 712, Compensation-Nonretirement Postemployment Benefits. 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.
If the one-time benefit arrangements are not part of an ongoing benefit arrangement or an individual deferred compensation contract, a liability is recognized and measured at its fair value for one-time termination benefits once the plan of termination is communicated to affected employees and it meets all of the following criteria: (i) management commits to a plan of termination, (ii) the plan 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. If the one-time benefit arrangements are part of an ongoing benefit arrangement or an individual deferred compensation contract, a liability is recognized and measured at its fair value for one-time termination benefits when the following conditions are met: (i) the obligation is attributable to services already rendered; (ii) rights to those benefits accumulate; (iii) payment of the benefits is probable; and (iv) amount can be reasonably estimated. If these four conditions are not met, a liability is recognized when it is probable that a liability has been incurred and the amount can be reasonably estimated in accordance with ASC 450-20, Loss Contingencies.
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.
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. Realization is 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 tax 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. See further discussion in Note 14–Income Taxes.
Fair Value Measurements
Fair value is a market-based measurement, not an entity-specific measurement and 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 approximate fair value, due to their short-term nature.
Fair Value Hierarchy—As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity. Fair value is determined for assets and liabilities, 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.
Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Determination of Fair Value—The Company generally uses quoted market prices (unadjusted) in active markets for identical assets or 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. See further discussion in Note 16–Fair Value Measurements.
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 since 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. See further discussion in Note 13–Derivative Instruments and Hedging Activities.
The Company reviews new accounting pronouncements as they are issued or proposed by the Financial Accounting Standards Board (“FASB”).
Recently Implemented Accounting Standards
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 carrying 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 elected to early adopt ASU 2017-04 as of January 1, 2017. See Note 2–Summary of Significant Accounting Policies and Note 9–Goodwill, Net for further discussion.
In March 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. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company adopted this ASU effective January 1, 2017. ASU 2016-09 requires a policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur. The Company elected to change its policy to recognize the impact of forfeitures as they occur and determined the cumulative impact of this change was not material as of January 1, 2017. ASU 2016-09 also requires cash paid by an employer when directly withholding shares for tax withholding purposes to be classified as a financing activity and excess tax benefits to be classified as an operating activity in the accompanying consolidated statements of cash flows, which does not differ from the Company’s historical treatment of these items. Additionally, ASU 2016-09 requires the tax effects of exercised or vested awards to be treated as discrete items in the reporting period in which they occur, which was applied prospectively, beginning January 1, 2017 by the Company.
Recently Issued Accounting Standards
In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU gives companies the option to reclassify to retained earnings any tax effects related to items in accumulated other comprehensive income or loss that are stranded due to the Tax Cuts and Jobs Act (the “Tax Act”). Companies are able to early adopt this ASU in any interim or annual period for which financial statements have not yet been issued and apply it either (1) in the period of adoption or (2) retrospectively to each period in which the income tax effects of the Tax Act related to items in accumulated other comprehensive income or loss are recognized. When adopted, the ASU requires all entities to make new disclosures, regardless of whether they elect to reclassify stranded amounts. Companies are required to disclose whether or not they elected to reclassify the tax effects related to the Tax Act as well as their policy for releasing income tax effects from accumulated other comprehensive income or loss. The guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual reporting periods with early adoption permitted. The Company is still evaluating this ASU and the transition method but expects to reclassify approximately $1,100 upon adoption of this ASU.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815)–Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 aims to improve reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and simplify the application of the hedge accounting guidance. This ASU is effective for fiscal years beginning after December 15, 2018 and interim periods within those annual reporting periods with early adoption permitted. For cash flow and net investment hedges existing as of the adoption date, the guidance requires a cumulative-effect adjustment as of the beginning of the fiscal year that an entity adopts the amendments; however, the presentation and disclosure guidance should be applied prospectively. The Company is currently assessing the impact of this ASU to its consolidated financial statements and does not expect a material impact. However, the new ASU may impact the Company’s presentation and disclosures.
In May 2017, the FASB issued ASU 2017-09, Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU was issued to provide clarity and reduce diversity in practice regarding the application of guidance on the modification of equity awards. The ASU states that an entity should account for the effects of a modification unless all of the following are met: the fair value, vesting conditions and the classification of the instrument as equity or liability of the modified award is the same as that of the original award immediately before such award is modified. 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 prospectively to an award modified on or after the adoption date. The Company plans to adopt this ASU prospectively but does not expect a material impact upon adoption to its consolidated financial statements as the Company historically has accounted for all modifications in accordance with Topic 718 and has not been subject to the exception described under this ASU.
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 plans to adopt this ASU using a retrospective transition method but does not expect a material impact upon adoption 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 with early adoption permitted and should be applied using a modified retrospective transition method. The Company plans to adopt this ASU using a modified retrospective transition method but does not expect a material impact upon adoption of this ASU to its consolidated financial statements.
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 plans to adopt this ASU using a retrospective method but does not expect a material impact upon adoption to its consolidated statements of cash flows.
In February 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 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 full retrospective or a modified retrospective transition method. During 2016 and 2017, the FASB issued several updates to the revenue recognition guidance (Topic 606) which further clarify specific revenue recognition issues and provide improvements and practical expedients. The Company will adopt this guidance in the first quarter of 2018 using a modified retrospective transition method and does not expect to record a cumulative effect adjustment as a result.
The Company has completed an assessment of its key revenue streams as they relate to the new standard. In particular, the Company analyzed the potential impact of the new standard on its accounting for annual and season pass products, multi-day pass products and other promotional ticket offerings which at times are sold with entitlements or other bundled products. Based on its analysis, the Company will not be required to make significant changes to its current accounting policies and practices to apply the requirements under the new standard. The Company does not anticipate a material impact on the timing of revenue recognition upon adoption nor on the classification of revenue. However, the Company will be required to update revenue recognition disclosures to include additional detail on the methods used to recognize revenue and how the methods are applied as well as significant assumptions used to allocate the transaction price and estimate the standalone selling price of promised goods or services.
|
The cost of assets is depreciated using the straight-line method based on the following estimated useful lives:
Land improvements |
|
10-40 years |
|
Buildings |
|
5-40 years |
|
Rides, attractions and equipment |
|
3-20 years |
|
Animals |
|
1-50 years |
|
|
Liabilities related to the 2017 and 2016 Restructuring Program as of December 31, 2017 and 2016 are included in accrued salaries, wages and benefits in the accompanying consolidated balance sheets. The 2017 and 2016 Restructuring Program activity for the year ended December 31, 2017 was as follows:
Severance and Other Employment Expenses |
|
2016 Restructuring Program |
|
|
2017 Restructuring Program |
|
|
Total |
|
|||
Liability as of December 31, 2016 |
|
$ |
7,842 |
|
|
$ |
— |
|
|
$ |
7,842 |
|
Costs incurred |
|
|
— |
|
|
|
5,200 |
|
|
|
5,200 |
|
Reduction in estimated expenses |
|
|
(572 |
) |
|
|
— |
|
|
|
(572 |
) |
Payments made |
|
|
(7,270 |
) |
|
|
(3,966 |
) |
|
|
(11,236 |
) |
Liability as of December 31, 2017 |
|
$ |
— |
|
|
$ |
1,234 |
|
|
$ |
1,234 |
|
|
Inventories as of December 31, 2017 and 2016 consisted of the following:
|
|
2017 |
|
|
2016 |
|
||
Merchandise |
|
$ |
26,586 |
|
|
$ |
24,438 |
|
Food and beverage |
|
|
4,084 |
|
|
|
3,956 |
|
Other supplies |
|
|
217 |
|
|
|
290 |
|
Total inventories |
|
$ |
30,887 |
|
|
$ |
28,684 |
|
|
Prepaid expenses and other current assets as of December 31, 2017 and 2016 consisted of the following:
|
|
2017 |
|
|
2016 |
|
||
Prepaid insurance |
|
$ |
6,711 |
|
|
$ |
8,646 |
|
Prepaid marketing and advertising costs |
|
|
2,800 |
|
|
|
3,202 |
|
Other |
|
|
6,799 |
|
|
|
7,476 |
|
Total prepaid expenses and other current assets |
|
$ |
16,310 |
|
|
$ |
19,324 |
|
|
The components of property and equipment, net as of December 31, 2017 and 2016, consisted of the following:
|
|
2017 |
|
|
2016 |
|
||
Land |
|
$ |
286,200 |
|
|
$ |
286,200 |
|
Land improvements |
|
|
354,544 |
|
|
|
316,774 |
|
Buildings |
|
|
670,121 |
|
|
|
645,013 |
|
Rides, attractions and equipment |
|
|
1,433,246 |
|
|
|
1,368,018 |
|
Animals |
|
|
142,147 |
|
|
|
158,199 |
|
Construction in process |
|
|
65,816 |
|
|
|
54,242 |
|
Less accumulated depreciation |
|
|
(1,276,833 |
) |
|
|
(1,161,631 |
) |
Total property and equipment, net |
|
$ |
1,675,241 |
|
|
$ |
1,666,815 |
|
|
The changes in the carrying amount of goodwill for the year ended December 31, 2017 are as follows:
|
|
SeaWorld Orlando |
|
|
Discovery Cove |
|
|
Total |
|
|||
Gross carrying amount at December 31, 2016 |
|
$ |
269,332 |
|
|
$ |
66,278 |
|
|
$ |
335,610 |
|
Accumulated impairment loss at December 31, 2016 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Gross carrying amount at December 31, 2016 |
|
$ |
269,332 |
|
|
$ |
66,278 |
|
|
$ |
335,610 |
|
Goodwill impairment charge |
|
|
(269,332 |
) |
|
|
— |
|
|
|
(269,332 |
) |
Net carrying amount at December 31, 2017 |
|
$ |
— |
|
|
$ |
66,278 |
|
|
$ |
66,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names/trademarks, net at December 31, 2017, consisted of the following:
|
|
Weighted Average Amortization Period |
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
|||
Trade names/trademarks - indefinite lives |
|
|
|
$ |
157,000 |
|
|
$ |
— |
|
|
$ |
157,000 |
|
Trade names/trademarks- finite lives |
|
9.3 years |
|
|
12,900 |
|
|
|
10,098 |
|
|
|
2,802 |
|
Total trade names/trademarks, net |
|
|
|
$ |
169,900 |
|
|
$ |
10,098 |
|
|
$ |
159,802 |
|
Trade names/trademarks, net at December 31, 2016, consisted of the following:
|
|
Weighted Average Amortization Period |
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
|||
Trade names/trademarks - indefinite lives |
|
|
|
$ |
157,000 |
|
|
$ |
— |
|
|
$ |
157,000 |
|
Trade names/trademarks- finite lives |
|
9.3 years |
|
|
12,900 |
|
|
|
8,636 |
|
|
|
4,264 |
|
Total trade names/trademarks, net |
|
|
|
$ |
169,900 |
|
|
$ |
8,636 |
|
|
$ |
161,264 |
|
Other intangible assets, net at December 31, 2017, consisted of the following:
|
|
Weighted Average Amortization Period |
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
|||
Favorable lease asset |
|
39 years |
|
$ |
18,200 |
|
|
$ |
3,734 |
|
|
$ |
14,466 |
|
Reseller agreements |
|
8.1 years |
|
|
22,300 |
|
|
|
22,032 |
|
|
|
268 |
|
Non-compete agreement |
|
5 years |
|
|
500 |
|
|
|
458 |
|
|
|
42 |
|
Other intangible assets - indefinite lives |
|
|
|
|
120 |
|
|
|
— |
|
|
|
120 |
|
Total other intangible assets, net |
|
|
|
$ |
41,120 |
|
|
$ |
26,224 |
|
|
$ |
14,896 |
|
Other intangible assets, net at December 31, 2016, consisted of the following:
|
|
Weighted Average Amortization Period |
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
|||
Favorable lease asset |
|
39 years |
|
$ |
18,200 |
|
|
$ |
3,267 |
|
|
$ |
14,933 |
|
Reseller agreements |
|
8.1 years |
|
|
22,300 |
|
|
|
19,487 |
|
|
|
2,813 |
|
Non-compete agreement |
|
5 years |
|
|
500 |
|
|
|
358 |
|
|
|
142 |
|
Other intangible assets - indefinite lives |
|
|
|
|
120 |
|
|
|
— |
|
|
|
120 |
|
Total other intangible assets, net |
|
|
|
$ |
41,120 |
|
|
$ |
23,112 |
|
|
$ |
18,008 |
|
Total expected amortization of the finite-lived intangible assets for the succeeding five years and thereafter is as follows:
Years Ending December 31 |
|
|
|
|
2018 |
|
$ |
2,235 |
|
2019 |
|
|
1,849 |
|
2020 |
|
|
467 |
|
2021 |
|
|
467 |
|
2022 |
|
467 |
|
|
Thereafter |
|
|
12,093 |
|
|
|
$ |
17,578 |
|
|
Other accrued expenses at December 31, 2017 and 2016, consisted of the following:
|
|
2017 |
|
|
2016 |
|
||
Accrued property taxes |
|
$ |
1,280 |
|
|
$ |
2,193 |
|
Accrued interest |
|
|
6,078 |
|
|
|
13,631 |
|
Self-insurance reserve |
|
|
7,084 |
|
|
|
7,191 |
|
Other |
|
|
5,170 |
|
|
|
395 |
|
Total other accrued expenses |
|
$ |
19,612 |
|
|
$ |
23,410 |
|
|
Long-term debt as of December 31, 2017 and 2016 consisted of the following:
|
|
2017 |
|
|
2016 |
|
||
Term B-5 Loans (effective interest rate of 4.69% at December 31, 2017) |
|
$ |
990,819 |
|
|
$ |
— |
|
Term B-2 Loans (effective interest rate of 3.94% and 3.26% at December 31, 2017 and 2016, respectively) |
|
|
554,227 |
|
|
|
1,327,850 |
|
Term B-3 Loans (effective interest rate of 4.33% at December 31, 2016) |
|
|
— |
|
|
|
245,800 |
|
Revolving credit facility (effective interest rate of 4.24% and 3.46% at December 31, 2017 and 2016, respectively) |
|
|
15,000 |
|
|
|
24,351 |
|
Total long-term debt |
|
|
1,560,046 |
|
|
|
1,598,001 |
|
Less discounts |
|
|
(8,685 |
) |
|
|
(5,517 |
) |
Less debt issuance costs |
|
|
(9,045 |
) |
|
|
(9,702 |
) |
Less current maturities |
|
|
(38,707 |
) |
|
|
(51,713 |
) |
Total long-term debt, net |
|
$ |
1,503,609 |
|
|
$ |
1,531,069 |
|
Long-term debt at December 31, 2017, is repayable as follows and does not include the impact of any future voluntary prepayments. The outstanding balance under the New Revolving Credit Facility is included in current maturities on long-term debt in the accompanying consolidated balance sheet as of December 31, 2017, due to the Company’s intent to repay the borrowings within the next twelve months:
Years Ending December 31, |
|
|
|
|
2018 |
|
$ |
38,707 |
|
2019 |
|
|
23,707 |
|
2020 |
|
|
536,763 |
|
2021 |
|
|
9,983 |
|
2022 |
|
|
9,983 |
|
Thereafter |
|
|
940,903 |
|
Total |
|
$ |
1,560,046 |
|
|
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 in the accompanying consolidated balance sheets as of December 31, 2017 and 2016:
|
|
Liability Derivatives |
|
|
Liability Derivatives |
|
||||||
|
|
As of December 31, 2017 |
|
|
As of December 31, 2016 |
|
||||||
|
|
Balance Sheet Location |
|
Fair Value |
|
|
Balance Sheet Location |
|
Fair Value |
|
||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
|
Other liabilities |
|
|
8,455 |
|
|
Other liabilities |
|
|
22,808 |
|
Total derivatives designated as hedging instruments |
|
|
|
$ |
8,455 |
|
|
|
|
$ |
22,808 |
|
Tabular Disclosure of the Effect of Derivative Instruments on the Statements of Comprehensive Loss
The table below presents the pre-tax effect of the Company’s derivative financial instruments in the accompanying consolidated statements of comprehensive loss for the years ended December 31, 2017 and 2016:
|
|
2017 |
|
|
2016 |
|
||
Derivatives in Cash Flow Hedging Relationships: |
|
|
|
|
|
|
|
|
Gain (loss) related to effective portion of derivatives recognized in accumulated other comprehensive loss |
|
$ |
1,619 |
|
|
$ |
(9,938 |
) |
Gain related to effective portion of derivatives reclassified from accumulated other comprehensive loss to interest expense |
|
$ |
12,733 |
|
|
$ |
6,669 |
|
Loss related to ineffective portion of derivatives recognized in other (income) expense, net |
|
$ |
— |
|
|
$ |
(1 |
) |
Changes in Accumulated Other Comprehensive Loss
The following table reflects the changes in accumulated other comprehensive loss for the years ended December 31, 2017 and 2016, net of tax:
Accumulated other comprehensive loss: |
|
(Losses) Gains on Cash Flow Hedges |
|
|
Accumulated other comprehensive loss at December 31, 2015 |
|
$ |
(13,137 |
) |
Other comprehensive loss before reclassifications |
|
|
(1,690 |
) |
Amounts reclassified from accumulated other comprehensive loss to interest expense |
|
|
1,133 |
|
Unrealized loss on derivatives, net of tax |
|
|
(557 |
) |
Accumulated other comprehensive loss at December 31, 2016 |
|
|
(13,694 |
) |
Other comprehensive income before reclassifications |
|
|
972 |
|
Amounts reclassified from accumulated other comprehensive loss to interest expense |
|
|
7,646 |
|
Unrealized gain on derivatives, net of tax |
|
|
8,618 |
|
Accumulated other comprehensive loss at December 31, 2017 |
|
$ |
(5,076 |
) |
|
For the years ended December 31, 2017, 2016 and 2015, the (benefit from) provision for income taxes is comprised of the following:
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
Current income tax (benefit) provision |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(66 |
) |
|
$ |
(72 |
) |
|
$ |
(78 |
) |
State |
|
|
1,525 |
|
|
|
442 |
|
|
|
494 |
|
Foreign |
|
|
12 |
|
|
|
23 |
|
|
|
36 |
|
Total current income tax provision |
|
|
1,471 |
|
|
|
393 |
|
|
|
452 |
|
Deferred income tax (benefit) provision: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(74,312 |
) |
|
|
5,169 |
|
|
|
25,210 |
|
State |
|
|
(12,165 |
) |
|
|
3,768 |
|
|
|
(1,964 |
) |
Total deferred income tax (benefit) provision |
|
|
(86,477 |
) |
|
|
8,937 |
|
|
|
23,246 |
|
Total income tax (benefit) provision |
|
$ |
(85,006 |
) |
|
$ |
9,330 |
|
|
$ |
23,698 |
|
The components of deferred income tax assets and liabilities as of December 31, 2017 and 2016 are as follows:
|
|
2017 |
|
|
2016 |
|
||
Deferred income tax assets: |
|
|
|
|
|
|
|
|
Acquisition and debt related costs |
|
$ |
5,557 |
|
|
$ |
15,899 |
|
Net operating losses |
|
|
201,604 |
|
|
|
294,986 |
|
Goodwill impairment |
|
|
54,207 |
|
|
|
— |
|
Self-insurance |
|
|
6,992 |
|
|
|
9,766 |
|
Deferred revenue |
|
|
2,627 |
|
|
|
4,696 |
|
Cash flow hedge |
|
|
2,282 |
|
|
|
9,114 |
|
Restricted stock |
|
|
4,097 |
|
|
|
3,374 |
|
Tax credits |
|
|
7,922 |
|
|
|
6,882 |
|
Other |
|
|
7,263 |
|
|
|
9,165 |
|
Total deferred income tax assets |
|
|
292,551 |
|
|
|
353,882 |
|
Valuation allowance |
|
|
(2,762 |
) |
|
|
(584 |
) |
Net deferred tax assets |
|
|
289,789 |
|
|
|
353,298 |
|
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
Property and equipment |
|
|
(201,019 |
) |
|
|
(326,320 |
) |
Amortization - Goodwill |
|
|
(37,291 |
) |
|
|
(49,493 |
) |
Amortization - Other Intangibles |
|
|
(15,193 |
) |
|
|
(20,877 |
) |
Other |
|
|
(3,466 |
) |
|
|
(4,527 |
) |
Total deferred income tax liabilities |
|
|
(256,969 |
) |
|
|
(401,217 |
) |
Net deferred income tax assets (liabilities) |
|
$ |
32,820 |
|
|
$ |
(47,919 |
) |
The reconciliation between the statutory income tax rate and the Company’s effective income tax (benefit) provision rate for the years ended December 31, 2017, 2016 and 2015, is as follows:
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|
|||
Income tax rate at federal statutory rates |
|
|
35.00 |
|
% |
|
35.00 |
|
% |
|
35.00 |
|
% |
Federal net operating loss and tax credit adjustments |
|
|
— |
|
|
|
24.40 |
|
|
|
(0.68 |
) |
|
State taxes, net of federal benefit |
|
|
2.02 |
|
|
|
(58.42 |
) |
|
|
0.56 |
|
|
State net operating loss revaluation |
|
|
(0.15 |
) |
|
|
(19.74 |
) |
|
|
(2.51 |
) |
|
Nondeductible equity-based compensation |
|
|
(1.01 |
) |
|
|
(275.10 |
) |
|
|
0.15 |
|
|
Tax credits |
|
|
0.25 |
|
|
|
21.17 |
|
|
|
(1.73 |
) |
|
Nondeductible expenses |
|
|
(0.15 |
) |
|
|
(17.15 |
) |
|
|
0.53 |
|
|
Charitable contribution carryforward valuation allowance |
|
|
— |
|
|
|
— |
|
|
|
2.01 |
|
|
Charitable contribution carryforward expiration |
|
|
(0.18 |
) |
|
|
— |
|
|
|
— |
|
|
State net operating loss carryforward valuation allowance |
|
|
(0.59 |
) |
|
|
— |
|
|
|
— |
|
|
Goodwill impairment |
|
|
(6.12 |
) |
|
|
— |
|
|
|
— |
|
|
Remeasurement of deferred income tax liabilities resulting from Tax Cuts and Jobs Act |
|
|
0.63 |
|
|
|
— |
|
|
|
— |
|
|
Other |
|
|
(0.12 |
) |
|
|
(1.63 |
) |
|
|
(0.79 |
) |
|
Income tax rate |
|
|
29.58 |
|
% |
|
(291.47 |
) |
% |
|
32.54 |
|
% |
|
At December 31, 2017, the Company has commitments under long-term operating leases requiring annual minimum lease payments as follows:
Years Ending December 31, |
|
|
|
|
2018 |
|
$ |
15,393 |
|
2019 |
|
|
14,489 |
|
2020 |
|
|
12,268 |
|
2021 |
|
|
12,197 |
|
2022 |
|
|
11,312 |
|
Thereafter |
|
|
265,296 |
|
Total |
|
$ |
330,955 |
|
|
The following table presents the Company’s estimated fair value measurements and related classifications for liabilities measured on a recurring basis as of December 31, 2017:
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
Significant |
|
|
|
|
|
|
|
|
|
||
|
for Identical |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|||
|
Assets and |
|
|
Observable |
|
|
Unobservable |
|
|
Balance at |
|
||||
|
Liabilities |
|
|
Inputs |
|
|
Inputs |
|
|
December 31, |
|
||||
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
2017 |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments (a) |
$ |
— |
|
|
$ |
8,455 |
|
|
$ |
— |
|
|
$ |
8,455 |
|
Long-term obligations (b) |
$ |
— |
|
|
$ |
1,560,046 |
|
|
$ |
— |
|
|
$ |
1,560,046 |
|
(a) |
Reflected at fair value in the consolidated balance sheet as other liabilities of $8,455. |
(b) |
Reflected at carrying value, net of unamortized debt issuance costs and discounts, in the consolidated balance sheet as current maturities of long-term debt of $38,707 and long-term debt of $1,503,609 as of December 31, 2017. |
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 on a recurring basis at fair value at December 31, 2016. The following table presents the Company’s estimated fair value measurements and related classifications for liabilities measured on a recurring basis as of December 31, 2016:
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
Significant |
|
|
|
|
|
|
|
|
|
||
|
for Identical |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|||
|
Assets and |
|
|
Observable |
|
|
Unobservable |
|
|
Balance at |
|
||||
|
Liabilities |
|
|
Inputs |
|
|
Inputs |
|
|
December 31, |
|
||||
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
2016 |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments (a) |
$ |
— |
|
|
$ |
22,808 |
|
|
$ |
— |
|
|
$ |
22,808 |
|
Long-term obligations (b) |
$ |
— |
|
|
$ |
1,598,001 |
|
|
$ |
— |
|
|
$ |
1,598,001 |
|
(a) |
Reflected at fair value in the consolidated balance sheet as other liabilities of $22,808. |
(b) |
Reflected at carrying value, net of unamortized debt issuance costs and discounts, in the consolidated balance sheet as current maturities of long-term debt of $51,713 and long-term debt of $1,531,069 as of December 31, 2016. |
|
The activity related to the Company’s time-vesting and performance-vesting restricted share awards during the year ended December 31, 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
Performance-Vesting Restricted shares |
|||||||||||||||||||||||
|
|
Time-Vesting Restricted shares |
|
|
Bonus Performance Restricted shares |
|
|
Long-Term Incentive Performance Restricted shares |
|
|
2.75x Performance Restricted shares |
|
|
||||||||||||||||||||
|
|
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 |
|
|
||||||||
Outstanding at December 31, 2016 |
|
|
1,323,025 |
|
|
$ |
17.47 |
|
|
|
451,289 |
|
|
$ |
17.88 |
|
|
|
212,369 |
|
|
$ |
18.43 |
|
|
|
1,310,726 |
|
|
$ |
8.19 |
|
|
Granted |
|
|
1,290,057 |
|
|
$ |
16.91 |
|
|
|
923,678 |
|
|
$ |
18.10 |
|
|
|
791,108 |
|
|
$ |
18.57 |
|
|
|
— |
|
|
|
— |
|
|
Vested |
|
|
(449,904 |
) |
|
$ |
17.18 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(455,148 |
) |
|
$ |
13.24 |
|
|
Forfeited |
|
|
(310,666 |
) |
|
$ |
17.80 |
|
|
|
(569,722 |
) |
|
$ |
17.95 |
|
|
|
(138,905 |
) |
|
$ |
18.75 |
|
|
|
(238,785 |
) |
|
$ |
13.11 |
|
|
Outstanding at December 31, 2017 |
|
|
1,852,512 |
|
|
$ |
17.09 |
|
|
|
805,245 |
|
|
$ |
18.09 |
|
|
|
864,572 |
|
|
$ |
18.50 |
|
|
|
616,793 |
|
|
$ |
3.56 |
|
|
The activity related to the Company’s stock option awards during the year ended December 31, 2017:
|
|
Options |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Remaining Contractual Life (in years) |
|
|
Aggregate Intrinsic Value |
|
||||
Outstanding at December 31, 2016 |
|
|
3,441,900 |
|
|
$ |
18.67 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(415,400 |
) |
|
$ |
18.04 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(102,462 |
) |
|
$ |
18.16 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(590 |
) |
|
$ |
18.67 |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017 |
|
|
2,923,448 |
|
|
$ |
18.78 |
|
|
|
7.65 |
|
|
$ |
— |
|
Exercisable at December 31, 2017 |
|
|
1,205,227 |
|
|
$ |
19.01 |
|
|
|
7.52 |
|
|
$ |
— |
|
|
During the years ended December 31, 2016 and 2015, the Board declared or paid quarterly cash dividends to all common stockholders of record as follows:
Record Date |
|
Payment Date |
|
Cash Dividend per Common Share |
|
|
2016: |
|
|
|
|
|
|
January 15, 2016 |
|
January 22, 2016 |
|
$ |
0.21 |
|
March 14, 2016 (a) |
|
April 1, 2016 |
|
$ |
0.21 |
|
June 20, 2016 (a) |
|
July 1, 2016 |
|
$ |
0.21 |
|
September 29, 2016 |
|
October 7, 2016 |
|
$ |
0.10 |
|
2015: |
|
|
|
|
|
|
January 13, 2015 |
|
January 22, 2015 |
|
$ |
0.21 |
|
March 13, 2015(a) |
|
April 1, 2015 |
|
$ |
0.21 |
|
June 22, 2015(a) |
|
July 1, 2015 |
|
$ |
0.21 |
|
September 29, 2015 |
|
October 6, 2015 |
|
$ |
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 in the accompanying consolidated statements of changes in stockholders’ equity.
During the years ended December 31, 2016 and 2015, the Parent’s Board declared or paid quarterly cash dividends to all common stockholders of record as follows:
Record Date |
|
Payment Date |
|
Cash Dividend Per Common Share |
|
|
2016: |
|
|
|
|
|
|
January 15, 2016 |
|
January 22, 2016 |
|
$ |
0.21 |
|
March 14, 2016 |
|
April 1, 2016 |
|
$ |
0.21 |
|
June 20, 2016 |
|
July 1, 2016 |
|
$ |
0.21 |
|
September 29, 2016 |
|
October 7, 2016 |
|
$ |
0.10 |
|
2015: |
|
|
|
|
|
|
January 13, 2015 |
|
January 22, 2015 |
|
$ |
0.21 |
|
March 13, 2015 |
|
April 1, 2015 |
|
$ |
0.21 |
|
June 22, 2015 |
|
July 1, 2015 |
|
$ |
0.21 |
|
September 29, 2015 |
|
October 6, 2015 |
|
$ |
0.21 |
|
SEA paid a cash dividend to the Parent during the years ended December 31, 2016 and 2015 related to dividend declarations as follows:
Payment Date |
|
Cash Dividends Paid |
|
|
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 |
|
(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.
|
Unaudited summary quarterly financial data for the years ended December 31, 2017 and 2016 was as follows:
|
|
2017 |
|
|||||||||||||
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
||||
|
|
Quarter (a) |
|
|
Quarter (b) |
|
|
Quarter (c) |
|
|
Quarter |
|
||||
|
|
(Unaudited) |
|
|||||||||||||
Total revenues |
|
$ |
186,357 |
|
|
$ |
373,750 |
|
|
$ |
437,712 |
|
|
$ |
265,505 |
|
Operating (loss) income |
|
$ |
(76,735 |
) |
|
$ |
(222,564 |
) |
|
$ |
108,822 |
|
|
$ |
(10,886 |
) |
Net (loss) income |
|
$ |
(61,129 |
) |
|
$ |
(175,850 |
) |
|
$ |
55,034 |
|
|
$ |
(20,441 |
) |
(Loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share, basic |
|
$ |
(0.72 |
) |
|
$ |
(2.05 |
) |
|
$ |
0.64 |
|
|
$ |
(0.24 |
) |
Net (loss) income per share, diluted |
|
$ |
(0.72 |
) |
|
$ |
(2.05 |
) |
|
$ |
0.64 |
|
|
$ |
(0.24 |
) |
|
|
2016 |
|
|||||||||||||
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
||||
|
|
Quarter(d) |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter(e) |
|
||||
|
|
(Unaudited) |
|
|||||||||||||
Total revenues |
|
$ |
220,241 |
|
|
$ |
371,136 |
|
|
$ |
485,318 |
|
|
$ |
267,597 |
|
Operating (loss) income |
|
$ |
(119,567 |
) |
|
$ |
38,050 |
|
|
$ |
152,641 |
|
|
$ |
(11,539 |
) |
Net (loss) income |
|
$ |
(84,049 |
) |
|
$ |
17,768 |
|
|
$ |
65,655 |
|
|
$ |
(11,905 |
) |
(Loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share, basic |
|
$ |
(1.00 |
) |
|
$ |
0.21 |
|
|
$ |
0.77 |
|
|
$ |
(0.14 |
) |
Net (loss) income per share, diluted |
|
$ |
(1.00 |
) |
|
$ |
0.21 |
|
|
$ |
0.77 |
|
|
$ |
(0.14 |
) |
(a) |
During the first quarter of 2017, the Company recorded a loss on early extinguishment of debt and write-off of discounts and debt issuance costs of $8,020 related to the Amendment to its Existing Credit Agreement. See Note 12–Long-Term Debt for further details. |
(b) |
During the second quarter of 2017, the Company recorded a non-cash goodwill impairment charge of $269,332 related to the full impairment of the Company’s SeaWorld Orlando reporting unit and equity compensation expense of approximately $8,400 related to certain of the Company’s performance-vesting restricted shares (the “2.75x Performance Restricted shares”) for which a portion vested on May 8, 2017 with the closing of the Sale. See Note 9–Goodwill, Net and Note 19–Equity-Based Compensation for further details. |
(c) |
During the third quarter of 2017, the Company recorded $5,100 in restructuring and other related costs primarily related to severance costs and other termination benefits. See Note 4–Restructuring Programs and Separation Costs for further details. |
(d) |
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 19–Equity-Based Compensation for further details. |
(e) |
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. |
|
|
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