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1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Description of the Business
SeaWorld Entertainment, Inc., through its wholly-owned subsidiary, SeaWorld Parks & Entertainment, Inc. (“SEA”) and its subsidiaries (collectively, the “Company”), owns and operates eleven theme parks within the United States. Prior to December 1, 2009, the Company did not have any operations. Prior to its initial public offering on April 24, 2013, the Company was owned by ten limited partnerships (the “Partnerships” or the “selling stockholders”), ultimately owned by affiliates of The Blackstone Group L.P. (“Blackstone”) and certain co-investors.
The Company 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 Diego, California (Aquatica); Tampa, Florida (Adventure Island); and Williamsburg, Virginia (Water Country USA). The Company also operates a reservations-only attraction offering interaction with marine animals (Discovery Cove) and a seasonal park in Langhorne, Pennsylvania (Sesame Place).
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K filed with the SEC as well as the information contained under the heading “Revision of Previously Issued Financial Statements” which follows. The unaudited condensed consolidated balance sheet as of December 31, 2013 has been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K except as discussed under the heading “Revision of Previously Issued Financial Statements” which follows.
In the opinion of management, such unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations for the year ending December 31, 2014 or any future period due to the seasonal nature of the Company’s operations. 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 six of its theme parks are only open for a portion of the year.
The unaudited condensed consolidated financial statements 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 unaudited condensed 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.
Segment Reporting
The Company maintains discrete financial information for each of its eleven theme parks, which is used by the Chief Operating Decision Maker (“CODM”), identified as the Chief Executive Officer, as a basis for allocating resources. Each theme park has been identified as an operating segment and meets the criteria for aggregation due to similar economic characteristics. In addition, all of the theme parks provide similar products and services and share similar processes for delivering services. The theme parks have a high degree of similarity in the workforces and target similar consumer groups. Accordingly, based on these economic and operational similarities and the way the CODM monitors the operations, the Company has concluded that its operating segments may be aggregated and that it has one reportable segment.
Revision of Previously Issued Financial Statements
In the third quarter of 2014, the Company conducted an internal review of its application of the guidance in Accounting Standards Codification (“ASC”) 470-50, Debt-Modifications and Extinguishments, to its accounting for certain debt transactions in 2013, 2012 and 2011. As a result of this review and analysis, the Company determined that it had incorrectly applied the accounting guidance in ASC 470-50 and inappropriately accounted for certain fees as a result of modifications and prepayments in certain years. In accordance with ASC 250 (SEC Staff Accounting Bulletin 99,Assessing Materiality), the Company concluded that the correction of the errors was not material to any of its previously issued annual or interim financial statements. The Company has revised its previously issued financial statements contained in this Quarterly Report on Form 10-Q to correct the effect of these immaterial errors for the corresponding periods.
The following table presents the impact of these corrections on affected unaudited condensed consolidated statements of comprehensive income line items for the three and nine months ended September 30, 2013:
For the Three Months
Ended September 30, 2013 |
For the Nine Months
Ended September 30, 2013 |
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As Previously Reported |
Adjustments | As Revised |
As Previously Reported |
Adjustments | As Revised | |||||||||||||||||||
Selected Statements of Comprehensive Income Data: |
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Operating expenses |
$ | 202,625 | $ | — | $ | 202,625 | $ | 570,559 | $ | 3,333 | $ | 573,892 | ||||||||||||
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Interest expense |
$ | 21,018 | $ | (807 | ) | $ | 20,211 | $ | 72,550 | $ | (2,111 | ) | $ | 70,439 | ||||||||||
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Loss on early extinguishment of debt and write-off of discounts and deferred financing costs |
$ | — | $ | — | $ | — | $ | 32,429 | $ | (2,571 | ) | $ | 29,858 | |||||||||||
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Income before income taxes |
$ | 184,589 | $ | 807 | $ | 185,396 | $ | 95,915 | $ | 1,349 | $ | 97,264 | ||||||||||||
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Provision for income taxes |
$ | 64,390 | $ | 266 | $ | 64,656 | $ | 31,930 | $ | 445 | $ | 32,375 | ||||||||||||
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Net income |
$ | 120,199 | $ | 541 | $ | 120,740 | $ | 63,985 | $ | 904 | $ | 64,889 | ||||||||||||
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Earnings per share: |
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Net income per share, basic |
$ | 1.34 | $ | 0.01 | $ | 1.35 | $ | 0.74 | $ | 0.01 | $ | 0.75 | ||||||||||||
Net income per share, diluted |
$ | 1.33 | $ | 0.01 | $ | 1.34 | $ | 0.73 | $ | 0.01 | $ | 0.74 |
The following table presents the impact of these corrections on affected unaudited condensed consolidated statement of cash flows line items for the nine months ended September 30, 2013:
For the Nine Months
Ended September 30, 2013 |
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As Previously Reported |
Adjustments | As Revised | ||||||||||
Selected Statements of Cash Flows Data: |
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Net cash provided by operating activities |
$ | 276,317 | $ | (3,333 | ) | $ | 272,984 | |||||
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Net cash provided by financing activities |
$ | 14,327 | $ | 3,333 | $ | 17,660 | ||||||
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The following table presents the impact of these corrections on affected unaudited condensed consolidated balance sheet line items as of December 31, 2013:
As of December 31, 2013 | ||||||||||||
As Previously Reported |
Adjustments | As Revised | ||||||||||
Selected Balance Sheet Data: |
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Other assets |
$ | 40,753 | $ | (4,863 | ) | $ | 35,890 | |||||
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Total assets |
$ | 2,582,273 | $ | (4,863 | ) | $ | 2,577,410 | |||||
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Long-term debt |
$ | 1,627,183 | $ | 5,348 | $ | 1,632,531 | ||||||
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Deferred tax liabilities, net |
$ | 29,776 | $ | (4,106 | ) | $ | 25,670 | |||||
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Retained earnings |
$ | 7,991 | $ | (6,105 | ) | $ | 1,886 | |||||
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Total stockholders’ equity |
$ | 654,132 | $ | (6,105 | ) | $ | 648,027 | |||||
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Total liabilities and stockholders’ equity |
$ | 2,582,273 | $ | (4,863 | ) | $ | 2,577,410 | |||||
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The following tables present the impact of these corrections for other previously issued periods as indicated:
For the Year Ended December 31, 2013 | For the Year Ended December 31, 2012 | For the Year Ended December 31, 2011 | ||||||||||||||||||||||||||||||||||
As Previously Reported |
Adjustments | As Revised |
As Previously Reported |
Adjustments | As Revised |
As Previously Reported |
Adjustments | As Revised |
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Selected Statements of Comprehensive Income Data: |
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Operating expenses |
$ | 739,989 | $ | 3,333 | $ | 743,322 | $ | 726,509 | $ | 4,073 | $ | 730,582 | $ | 687,999 | $ | 4,326 | $ | 692,325 | ||||||||||||||||||
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Interest expense |
$ | 93,536 | $ | (2,914 | ) | $ | 90,622 | $ | 111,426 | $ | (861 | ) | $ | 110,565 | $ | 110,097 | $ | (12,356 | ) | $ | 97,741 | |||||||||||||||
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Loss on early extinguishment of debt and write-off of discounts and deferred financing costs |
$ | 32,429 | $ | (2,571 | ) | $ | 29,858 | $ | — | $ | 2,053 | $ | 2,053 | $ | — | $ | 15,129 | $ | 15,129 | |||||||||||||||||
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Income before income taxes |
$ | 75,482 | $ | 2,152 | $ | 77,634 | $ | 116,926 | $ | (5,265 | ) | $ | 111,661 | $ | 32,541 | $ | (7,099 | ) | $ | 25,442 | ||||||||||||||||
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Provision for income taxes |
$ | 25,004 | $ | 710 | $ | 25,714 | $ | 39,482 | $ | (2,042 | ) | $ | 37,440 | $ | 13,428 | $ | (2,775 | ) | $ | 10,653 | ||||||||||||||||
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Net income |
$ | 50,478 | $ | 1,442 | $ | 51,920 | $ | 77,444 | $ | (3,223 | ) | $ | 74,221 | $ | 19,113 | $ | (4,324 | ) | $ | 14,789 | ||||||||||||||||
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Earnings per share: |
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Net income per share, basic |
$ | 0.58 | $ | 0.01 | $ | 0.59 | $ | 0.94 | $ | (0.04 | ) | $ | 0.90 | $ | 0.23 | $ | (0.05 | ) | $ | 0.18 | ||||||||||||||||
Net income per share, diluted |
$ | 0.57 | $ | 0.02 | $ | 0.59 | $ | 0.93 | $ | (0.04 | ) | $ | 0.89 | $ | 0.23 | $ | (0.05 | ) | $ | 0.18 | ||||||||||||||||
Selected Statements of Cash Flows Data: |
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Net cash provided by operating activities |
$ | 289,794 | $ | (3,333 | ) | $ | 286,461 | $ | 303,513 | $ | (4,073 | ) | $ | 299,440 | $ | 268,249 | $ | (4,326 | ) | $ | 263,923 | |||||||||||||||
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Net cash used in financing activities |
$ | (52,252 | ) | $ | 3,333 | $ | (48,919 | ) | $ | (120,183 | ) | $ | 4,073 | $ | (116,110 | ) | $ | (99,967 | ) | $ | 4,326 | $ | (95,641 | ) | ||||||||||||
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For the Three Months
Ended June 30, 2014 |
For the Three Months
Ended June 30, 2013 |
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As Previously Reported |
Adjustments | As Revised |
As Previously Reported |
Adjustments | As Revised | |||||||||||||||||||
Selected Statements of Comprehensive Income (Loss) Data: |
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Operating expenses |
$ | 189,190 | $ | — | $ | 189,190 | $ | 194,674 | $ | 3,333 | $ | 198,007 | ||||||||||||
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Interest expense |
$ | 20,638 | $ | (112 | ) | $ | 20,526 | $ | 22,926 | $ | (694 | ) | $ | 22,232 | ||||||||||
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Loss on early extinguishment of debt and write-off of discounts and deferred financing costs |
$ | — | $ | — | $ | — | $ | 32,429 | $ | (2,571 | ) | $ | 29,858 | |||||||||||
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Income (loss) before income taxes |
$ | 59,994 | $ | 112 | $ | 60,106 | $ | (24,268 | ) | $ | (68 | ) | $ | (24,336 | ) | |||||||||
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Provision for (benefit from) income taxes |
$ | 22,658 | $ | 42 | $ | 22,700 | $ | (8,414 | ) | $ | (22 | ) | $ | (8,436 | ) | |||||||||
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Net income (loss) |
$ | 37,336 | $ | 70 | $ | 37,406 | $ | (15,854 | ) | $ | (46 | ) | $ | (15,900 | ) | |||||||||
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Earnings (loss) per share: |
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Net income (loss) per share, basic |
$ | 0.43 | $ | — | $ | 0.43 | $ | (0.18 | ) | $ | — | $ | (0.18 | ) | ||||||||||
Net income (loss) per share, diluted |
$ | 0.43 | $ | — | $ | 0.43 | $ | (0.18 | ) | $ | — | $ | (0.18 | ) |
For the Three Months
Ended March 31, 2014 |
For the Three Months
Ended March 31, 2013 |
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As Previously Reported |
Adjustments | As Revised |
As Previously Reported |
Adjustments | As Revised | |||||||||||||||||||
Selected Statements of Comprehensive Loss Data: |
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Interest expense |
$ | 20,046 | $ | (342 | ) | $ | 19,704 | $ | 28,606 | $ | (610 | ) | $ | 27,996 | ||||||||||
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Loss before income taxes |
$ | (79,471 | ) | $ | 342 | $ | (79,129 | ) | $ | (64,406 | ) | $ | 610 | $ | (63,796 | ) | ||||||||
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Benefit from income taxes |
$ | (30,040 | ) | $ | 128 | $ | (29,912 | ) | $ | (24,046 | ) | $ | 201 | $ | (23,845 | ) | ||||||||
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Net loss |
$ | (49,431 | ) | $ | 214 | $ | (49,217 | ) | $ | (40,360 | ) | $ | 409 | $ | (39,951 | ) | ||||||||
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Loss per share: |
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Net loss per share, basic |
$ | (0.56 | ) | $ | — | $ | (0.56 | ) | $ | (0.49 | ) | $ | 0.01 | $ | (0.48 | ) | ||||||||
Net loss per share, diluted |
$ | (0.56 | ) | $ | — | $ | (0.56 | ) | $ | (0.49 | ) | $ | 0.01 | $ | (0.48 | ) |
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2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company reviews new accounting pronouncements as they are issued or proposed by the Financial Accounting Standards Board (“FASB”). The Company is not aware of any new accounting pronouncements that will have a material impact on the Company’s financial position, results of operations or cash flows.
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 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. The effective date will be annual reporting periods beginning after December 15, 2016 using one of two retrospective application methods. The Company is evaluating the accounting and disclosure requirements on its consolidated financial statements but does not currently anticipate a material impact to the consolidated financial statements upon adoption.
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4. INCOME TAXES
Income tax expense is recognized based on the Company’s estimated annual effective tax rate which is based upon the tax rate expected for the full calendar year applied to the pre-tax income or loss of the interim period. The Company’s consolidated effective tax rate for both the three and nine months ended September 30, 2014 was 38.0%, and differs from the statutory federal income tax rate primarily due to state income taxes and other permanent items. The Company’s consolidated effective tax rate for the three and nine months ended September 30, 2013 was 34.9% and 33.3%, respectively, and differs from the statutory federal income tax rate primarily due to certain tax credits and state income taxes.
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 uncertain tax position. 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 tax expense to the applicable period.
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5. OTHER ACCRUED EXPENSES
Other accrued expenses at September 30, 2014 and December 31, 2013, consisted of the following:
September 30, 2014 |
December 31, 2013 |
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Accrued property taxes |
$ | 10,952 | $ | 2,113 | ||||
Accrued interest |
9,756 | 2,636 | ||||||
Self-insurance reserve |
7,800 | 7,800 | ||||||
Other |
2,177 | 2,715 | ||||||
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Total other accrued expenses |
$ | 30,685 | $ | 15,264 | ||||
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6. LONG-TERM DEBT
Long-term debt as of September 30, 2014 and December 31, 2013 consisted of the following:
September 30, 2014 |
December 31, 2013 |
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Term B-2 Loans |
$ | 1,355,950 | $ | 1,397,975 | ||||
Revolving credit agreement |
— | — | ||||||
Senior Notes |
260,000 | 260,000 | ||||||
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Total long-term debt |
1,615,950 | 1,657,975 | ||||||
Less discounts |
(9,531 | ) | (11,394 | ) | ||||
Less current maturities |
(14,050 | ) | (14,050 | ) | ||||
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Total long-term debt, net of current maturities |
$ | 1,592,369 | $ | 1,632,531 | ||||
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SEA is the borrower under the senior secured credit facilities, as amended pursuant to a credit agreement dated as of December 1, 2009 (“Senior Secured Credit Facilities”). Also on December 1, 2009, SEA issued $400,000 aggregate principal amount of unsecured senior notes due December 1, 2016 (the “Senior Notes”). In conjunction with the Company’s initial public offering completed on April 24, 2013, the Company used a portion of the net proceeds received from the offering to repay $37,000 of the outstanding indebtedness under the then existing Term B Loan and to redeem $140,000 aggregate principal amount of its Senior Notes at a redemption price of 111.0%, plus accrued and unpaid interest thereon. See further discussion in Note 12- Stockholders’ Equity.
Deferred financing costs, net of accumulated amortization and amounts written-off for early extinguishment of debt, were $21,788 and $27,453 as of September 30, 2014 and December 31, 2013, respectively. Deferred financing costs are being amortized to interest expense using the effective interest method over the term of the Senior Secured Credit Facilities or the Senior Notes and are included in other assets in the accompanying unaudited condensed consolidated balance sheets.
As of September 30, 2014, the Company was in compliance with all covenants in the provisions contained in the documents governing the Senior Secured Credit Facilities and in the indenture governing the Senior Notes.
Senior Secured Credit Facilities
As of September 30, 2014, the Senior Secured Credit Facilities consisted of a $1,355,950 senior secured term loan facility (the “Term B-2 Loans”), which will mature on May 14, 2020 and a $192,500 senior secured revolving credit facility (the “Revolving Credit Facility”), which was not drawn upon at September 30, 2014. The Revolving Credit Facility will mature on the earlier of (a) April 24, 2018 and (b) the 91st day prior to the earlier of (1) the maturity date of Senior Notes with an aggregate principal amount greater than $50,000 outstanding and (2) the maturity date of any indebtedness incurred to refinance any of the term loans or the Senior Notes.
The Term B-2 Loans were borrowed in an aggregate principal amount of $1,405,000. Borrowings under the 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 Bank of America’s prime lending rate and (2) the federal funds effective rate plus 1/2 of 1% or (b) a LIBOR rate determined by reference to the British Bankers Association (“BBA”) LIBOR rate, or the successor thereto if the BBA is no longer making a LIBOR rate available, for the 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 certain total leverage ratio. At September 30, 2014, the Company selected the LIBOR rate (interest rate of 3.00% at September 30, 2014).
The applicable margin for borrowings under the 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 (under either a base rate or LIBOR rate) is subject to one 25 basis point step-down upon achievement by SEA of certain corporate credit ratings. At September 30, 2014, SEA selected the LIBOR rate and achieved the corporate credit ratings for an applicable margin of 2.50%.
In addition to paying interest on outstanding principal under the Senior Secured Credit Facilities, SEA is required to pay a commitment fee to the lenders under the Revolving Credit Facility in respect of the unutilized commitments thereunder. SEA is also required to pay customary letter of credit fees.
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 first payment due and paid on September 30, 2013 and the balance due on the final maturity date, of May 14, 2020. SEA may voluntarily repay amounts outstanding under the Senior Secured Credit Facilities at any time without premium or penalty, other than customary “breakage” costs with respect to LIBOR loans. On September 30, 2014, the Company made a voluntary principal repayment of approximately $31,500 on the Term B-2 Loans with available cash on hand.
SEA may also increase and/or add one or more incremental term loan facilities to the Senior Secured Credit Facilities and/or increase commitments under the Revolving Credit Facility in an aggregate principal amount of up to $350,000. SEA may also incur additional incremental term loans provided that, among other things, on a pro forma basis after giving effect to the incurrence of such incremental term loans, the first lien secured leverage ratio, as defined in the Senior Secured Credit Facility, is no greater than 3.50 to 1.00.
As of September 30, 2014, the Company had approximately $16,100 of outstanding letters of credit, leaving approximately $176,400 available for borrowing.
On April 5 and May 14, 2013, the Company entered into Amendments No. 4 and 5 to its Senior Secured Credit Facilities. As a result of Amendment No. 5 and certain syndicate members ceasing their participation in the syndicate or having a substantial modification of their debt, approximately $8,100 of debt issuance costs were written off and included as loss on early extinguishment of debt and write-off of discounts and deferred financing costs on the Company’s unaudited condensed consolidated statement of comprehensive income for the nine months ended September 30, 2013, pursuant to the guidance outlined in ASC 470-50. In addition, approximately $3,900 of third party debt issuance costs were expensed on the Company’s unaudited condensed consolidated statement of comprehensive income for the nine months ended September 30, 2013, pursuant to the guidance outlined in ASC 470-50 as certain syndicate members had modifications that resulted in debt instruments that were not substantially different. As a result of Amendments No. 4 and 5, the Company capitalized fees totaling approximately $9,400 for the nine months ended September 30, 2013.
Senior Notes
The Senior Notes interest rate is 11.0% per annum. Interest is paid semi-annually in arrears. The obligations under the Senior Notes are guaranteed by the same entities as those that guarantee the Senior Secured Credit Facilities. Prior to December 1, 2014, SEA may redeem some or all of the Senior Notes at a price equal to 100% of the principal amount of the Senior Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest to the redemption date, subject to the right of the holders of record on the relevant record date to receive interest due on the relevant interest payment date. The “Applicable Premium” is defined as the greater of (1) 1.0% of the principal amount of the Senior Notes and (2) the excess, if any, of (a) the present value at such redemption date of (i) the redemption price of the Senior Notes at December 1, 2014 plus (ii) all required interest payments due on the Senior Notes through December 1, 2014 (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the Treasury Rate plus 50 basis points over (b) the principal amount of the Senior Notes. On or after December 1, 2014, the Senior Notes may be redeemed at 105.5% and 102.75% of the principal balance beginning on December 1, 2014 and 2015, respectively.
Restricted Covenants
The Senior Secured Credit Facilities and the indenture governing the Senior Notes contain a number of covenants that, among other things, restrict SEA’s ability and the ability of its restricted subsidiaries to, among other things, make certain restricted payments (as defined in the applicable agreement), including dividend payments and share repurchases. In particular, the Senior Secured Credit Facilities and the indenture permit restricted payments in an aggregate amount per annum not to exceed the greater of (1) 6% of initial public offering net proceeds received by SEA or (2) (a) $90,000, so long as, on a pro forma basis (as defined in the applicable agreement) after giving effect to the payment of any such restricted payment, the Total Leverage Ratio, (as defined in the applicable agreement), is no greater than 5.00 to 1.00 and greater than 4.50 to 1.00, (b) $120,000, so long as, on a pro forma basis after giving effect to the payment of any such restricted payment, the Total Leverage Ratio is no greater than 4.50 to 1.00 and greater than 4.00 to 1.00, (c) the greater of (A) $120,000 and (B) 7.5% of market capitalization, so long as, on a pro forma basis after giving effect to the payment of any such restricted payment, the Total Leverage Ratio is no greater than 4.00 to 1.00 and greater than 3.50 to 1.00 and (d) an unlimited amount, so long as, on a pro forma basis after giving effect to the payment of any such restricted payment, the Total Leverage Ratio is no greater than 3.50 to 1.00. As of September 30, 2014, the Total Leverage Ratio as calculated under the Senior Notes was 4.41 to 1.00 and as calculated under the Senior Secured Credit Facilities was 4.09 to 1.00, which results in the Company having a $120,000 capacity for restricted payments in fiscal 2014. During the nine months ended September 30, 2014, the Company has used approximately $104,900 of its available restricted payments capacity. As a result, the Company currently has the ability to declare dividends or make certain other restricted payments in an aggregate amount of up to approximately $15,100 for the remainder of calendar year 2014. The amount available for dividend declarations, share repurchases and certain other restricted payments under the covenant restrictions in the debt agreements will be reset on January 1, 2015 as set forth above.
Long-term debt at September 30, 2014, is repayable as follows:
Years Ending December 31, |
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2014 |
$ | 3,513 | ||
2015 |
14,050 | |||
2016 |
274,050 | |||
2017 |
14,050 | |||
2018 |
14,050 | |||
Thereafter |
1,296,237 | |||
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Total |
$ | 1,615,950 | ||
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Interest Rate Swap Agreements
On August 23, 2012, SEA executed two interest rate swap agreements (the “Interest Rate Swap Agreements”) to effectively fix the interest rate on $550,000 of the then existing Term B Loans. Each interest rate swap had a notional amount of $275,000; was scheduled to mature on September 30, 2016; required the Company to pay a fixed rate of interest of 1.247% per annum; paid swap counterparties a variable rate of interest based upon three month BBA LIBOR; and had interest settlement dates occurring on the last day of December, March, June and September through maturity. SEA had designated such interest rate swap agreements as qualifying cash flow hedge accounting relationships.
As a result of an amendment to the Senior Secured Credit Facilities in May 2013, the Interest Rate Swap Agreements were restructured into two interest rate swaps totaling $550,000 to match the refinanced debt. Each restructured interest rate swap has a notional amount of $275,000; matures on September 30, 2016; requires the Company to pay a fixed rate of interest between 1.049% and 1.051% per annum; pays swap counterparties a variable rate of interest based upon the greater of 0.75% or three month BBA LIBOR; and has interest settlement dates occurring on the last day of December, March, June and September through maturity.
In March 2014, the Company executed a new interest rate swap agreement to effectively fix the interest rate on $450,000 of the Term B-2 Loans. The new interest rate swap has an effective date of March 31, 2014; has a notional amount of $450,000; matures on September 30, 2016; requires the Company to pay a fixed rate of interest of 1.051% per annum; pays swap counterparties a variable rate of interest based upon the greater of 0.75% or three month BBA LIBOR; and has interest settlement dates occurring on the last day of December, March, June and September through maturity.
SEA designated the interest rate swap agreements above as qualifying cash flow hedge accounting relationships as further discussed in Note 7- Derivative Instruments and Hedging Activities which follows.
Cash paid for interest relating to the Senior Secured Credit Facilities, the Senior Notes and the interest rate swap agreements was $49,133 and $59,685 for the nine month periods ended September 30, 2014 and 2013, respectively.
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7. 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.
As of September 30, 2014 and December 31, 2013, 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 three and nine months ended September 30, 2014, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. As of September 30, 2014, the Company had three outstanding interest rate swaps with a combined notional value of $1,000,000 that were designated as cash flow hedges of interest rate risk. In connection with Amendment No. 5 to the Senior Secured Credit Facility on May 14, 2013, the Company restructured two of its then existing interest rate swaps to match the refinanced debt. The restructuring of the interest rate swaps required a re-designation of the hedge accounting relationship. The re-designation is expected to result in the recognition of a minimal amount of ineffectiveness throughout the remaining term of the interest rate swaps.
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 income 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. During the three and nine months ended September 30, 2014 and 2013, there was no ineffective portion recognized in earnings. Amounts reported in accumulated other comprehensive income 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 $2,901 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 on the unaudited condensed consolidated balance sheet as of September 30, 2014:
As of September 30, 2014 | ||||||||||||
Asset Derivatives | Liabilities Derivatives | |||||||||||
Balance Sheet Location |
Fair Value | Balance Sheet Location |
Fair Value | |||||||||
Derivatives designated as hedging instruments: |
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Interest rate swaps |
Other assets | $ | — | Other liabilities | $ | 148 | ||||||
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Total derivatives designated as hedging instruments |
$ | — | $ | 148 | ||||||||
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The unrealized gain on derivatives is recorded net of a tax expense of $664 and $4 for the three and nine months ended September 30, 2014, respectively, and is included within the unaudited condensed consolidated statements of comprehensive income.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the unaudited condensed consolidated balance sheet as of December 31, 2013:
As of December 31, 2013 | ||||||||||||||||
Asset Derivatives | Liabilities Derivatives | |||||||||||||||
Balance Sheet Location |
Fair Value |
Balance Sheet Location |
Fair Value | |||||||||||||
Derivatives designated as hedging instruments: |
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Interest rate swaps |
Other assets | $ | 71 | Other liabilities | $ | — | ||||||||||
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Total derivatives designated as hedging instruments |
$ | 71 | $ | — | ||||||||||||
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Tabular Disclosure of the Effect of Derivative Instruments on the Statements of Comprehensive Income
The table below presents the pre-tax effect of the Company’s derivative financial instruments on the unaudited condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2014 and 2013:
Three Months Ended September 30, |
Nine Months
Ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Derivatives in Cash Flow Hedging Relationships: |
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Gain (loss) related to effective portion of derivatives recognized in accumulated other comprehensive income |
$ | 1,005 | $ | (1,380 | ) | $ | (1,868 | ) | $ | 3,338 | ||||||
Gain (loss) related to effective portion of derivatives reclassified from accumulated other comprehensive income to interest expense |
$ | 746 | $ | (422 | ) | $ | 1,879 | $ | (1,144 | ) | ||||||
Gain (loss) related to ineffective portion of derivatives recognized in other income (expense) |
$ | — | $ | — | $ | — | $ | — |
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 September 30, 2014, 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 $121. As of September 30, 2014, the Company has posted no collateral related to these agreements. If the Company had breached any of these provisions at September 30, 2014, it could have been required to settle its obligations under the agreements at their termination value of $121.
Changes in Accumulated Other Comprehensive Income
The following table reflects the changes in accumulated other comprehensive income for the nine months ended September 30, 2014, net of tax:
Gains (Losses) on Cash Flow Hedges |
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Accumulated other comprehensive income: | ||||
Balance at December 31, 2013 |
$ | 11 | ||
Other comprehensive loss before reclassifications |
(1,189 | ) | ||
Amounts reclassified from accumulated other comprehensive income to interest expense |
1,196 | |||
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Unrealized gain on derivatives, net of tax |
7 | |||
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Balance at September 30, 2014 |
$ | 18 | ||
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8. FAIR VALUE MEASUREMENTS
Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement is required to be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
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. Of the Company’s long-term obligations, the Term B-2 Loans are classified in Level 2 of the fair value hierarchy. The fair value of the term loans as of September 30, 2014 approximates their carrying value due to the variable nature of the underlying interest rates and the frequent intervals at which such interest rates are reset. The Senior Notes are classified in Level 3 of the fair value hierarchy and have been valued using significant inputs that are not observable in the market including a discount rate of 10.48% and projected cash flows of the underlying Senior Notes.
There were no transfers between Levels 1, 2 or 3 during the three or nine months ended September 30, 2014 and 2013. The Company did not have any assets measured at fair value as of September 30, 2014. The following table presents the Company’s estimated fair value measurements and related classifications as of September 30, 2014:
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Balance at September 30, 2014 |
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Liabilities: |
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Derivative financial instruments (a) |
$ | — | $ | 148 | $ | — | $ | 148 | ||||||||
Long-term obligations (b) |
$ | — | $ | 1,355,950 | $ | 267,187 | $ | 1,623,137 |
(a) | Reflected at fair value in the unaudited condensed consolidated balance sheet as other liabilities of $148. |
(b) | Reflected at carrying value in the unaudited condensed consolidated balance sheet as current maturities on long-term debt of $14,050 and long-term debt of $1,592,369 as of September 30, 2014. |
There were no transfers between Levels 1, 2 or 3 during the year ended December 31, 2013. The following table presents the Company’s estimated fair value measurements and related classifications as of December 31, 2013:
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Balance at December 31, 2013 |
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Assets: |
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Derivative financial instruments (a) |
$ | — | $ | 71 | $ | — | $ | 71 | ||||||||
Liabilities: |
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Long-term obligations (b) |
$ | — | $ | 1,397,975 | $ | 264,781 | $ | 1,662,756 |
(a) | Reflected at fair value in the unaudited condensed consolidated balance sheet as other assets of $71. |
(b) | Reflected at carrying value in the unaudited condensed consolidated balance sheet as current maturities on long-term debt of $14,050 and long-term debt of $1,632,531 as of December 31, 2013. |
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9. RELATED-PARTY TRANSACTIONS
Prior to April 2013, certain affiliates of Blackstone provided monitoring, advisory, and consulting services to the Company under an advisory fee agreement (the “2009 Advisory Agreement”), which was terminated on April 24, 2013, in connection with the completion of the initial public offering (see Note 12 – Stockholders’ Equity). Fees related to these services, which were based upon a multiple of Adjusted EBITDA as defined in the 2009 Advisory Agreement, amounted to $2,799 for the nine months ended September 30, 2013. These amounts are included in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of comprehensive income. There were no fees related to these services in the three or nine months ended September 30, 2014 due to the termination of the 2009 Advisory Agreement in April 2013.
In connection with the completion of the initial public offering in April 2013 (see Note 12 – Stockholders’ Equity), the 2009 Advisory Agreement between the Company and affiliates of Blackstone was terminated (except for certain provisions relating to indemnification and certain other provisions, which survived termination). In connection with such termination, in April 2013, the Company paid a termination fee of $46,300 to Blackstone using a portion of the net proceeds from the offering and wrote off $3,772 of the 2013 prepaid advisory fee. The combined expense of $50,072 was recorded as termination of advisory agreement during the nine months ended September 30, 2013 in the accompanying unaudited condensed consolidated statements of comprehensive income.
In March 2014, the Board declared a cash dividend of $0.20 per share to all common stockholders of record at the close of business on March 20, 2014. In May and September 2014, the Board declared a cash dividend of $0.21 per share to all common stockholders of record at the close of business on June 20 and September 29, 2014, respectively (see Note 12 - Stockholders’ Equity). In connection with these dividend declarations, certain affiliates of Blackstone were paid dividends in the amount of $7,849, $4,252 and $4,095 on April 1, July 1, and October 6, 2014, respectively.
The Company repurchased shares of its common stock from the selling stockholders concurrently with the closing of the respective secondary offerings in December 2013 and April 2014. See further discussion in Note 12 - Stockholders’ Equity.
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10. COMMITMENTS AND CONTINGENCIES
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 (the “Court”) against the Company, the Chairman of our Board of Directors, certain of our executive officers and Blackstone (the “Defendants”). The complaint alleges 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. On October 10, 2014, the Court entered an Order Granting Joint Motion for Extension of Time to Respond to Complaint (the “Order”). The Order provides that (i) the Defendants need not respond to the complaint until a lead plaintiff is appointed, lead plaintiff’s counsel is approved, and the lead plaintiff files an amended complaint; (ii) within fifteen (15) days of the Court’s appointment of lead plaintiff and lead counsel, counsel for the Defendants and counsel for the lead plaintiff shall meet and confer regarding scheduling; and (iii) within five (5) days of the meet and confer, the parties shall submit a joint motion for the Court’s approval with the parties’ proposed schedule for the filing of an amended complaint, and the filing of a motion to dismiss or other response to the amended complaint. The Company believes that the class action lawsuit is without merit and intends to defend the lawsuit vigorously; however, there can be no assurance regarding the ultimate outcome of this lawsuit.
Other Matters
The Company is a party to other various claims and legal proceedings arising in the normal course of business. 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. Management does not expect any known claims or legal proceedings to have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.
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11. 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.
Employee Units Surrendered for Common Stock
Prior to April 18, 2013, the Company had an Employee Unit Incentive Plan (“Employee Unit Plan”). Under the Employee Unit Plan, the Partnerships granted employee units to certain key employees of SEA (“Employee Units”). The Employee Units that were granted were accounted for as equity awards and were divided into three tranches, Time Vesting Units (“TVUs”), 2.25x Performance Vesting Units (“PVUs”) and 2.75x PVUs. Separately, certain members of management in 2011 also purchased Class D Units of the Partnerships (“Class D Units”).
Prior to the consummation of the Company’s initial public offering, on April 18, 2013, the Employee Units and Class D Units held by certain of the Company’s directors, officers, employees, and consultants were surrendered to the Partnerships and such individuals received an aggregate of 4,165,861 shares of the Company’s issued and outstanding common stock from the Partnerships. The number of shares of the Company’s common stock received by such individuals from the Partnerships was determined in a manner intended to replicate the economic value to each equity holder immediately prior to the transaction. The Class D Units and vested Employee Units were surrendered for an aggregate of 949,142 shares of common stock. The unvested Employee Units were surrendered for an aggregate of 3,216,719 unvested restricted shares of the Company’s common stock, which are subject to vesting terms substantially similar to those applicable to the unvested Employee Units immediately prior to the transaction. These unvested restricted shares consisted of Time Restricted shares (the “Time Restricted shares”), and 2.25x and 2.75x Performance Restricted shares, (collectively, the “Performance Restricted shares”), which, for accounting purposes, were removed from the Company’s issued and outstanding shares until their restrictions are met.
TVUs and Time Restricted Shares
The shares of stock received upon surrender of the Employee Units contain substantially identical terms, conditions and vesting schedules as the previously outstanding Employee Units. Compensation expense related to the Time Restricted share awards was $248 and $774 for the three and nine months ended September 30, 2014, respectively. Total combined compensation expense relating to the TVU and Time Restricted share awards was $606 and $1,537 for the three and nine months ended September 30, 2013, respectively. Equity compensation expense is included in selling, general, and administrative expenses in the accompanying unaudited condensed consolidated statement of comprehensive income. Total unrecognized compensation expense related to the unvested Time Restricted shares, expected to be recognized over the remaining vesting term was $539 as of September 30, 2014.
2.25x and 2.75x PVUs and Performance Restricted Shares
The Performance Restricted shares received upon surrender of the Employee Unit PVUs contain substantially the same terms and conditions as the previously outstanding Employee Unit PVUs. The 2.25x Performance Restricted shares vest if the employee is employed by the Company when and if certain investment funds affiliated with Blackstone receive cash proceeds (not subject to any clawback, indemnity or similar contractual obligation) in respect of their Partnerships units equal to (x) a 20% annualized effective compounded return rate on such funds’ investment and (y) a 2.25x multiple on such funds’ investment. The 2.75x Performance Restricted shares vest if the employee is employed by the Company when and if such funds receive cash proceeds (not subject to any clawback, indemnity or similar contractual obligation) in respect of their Partnerships units equal to (x) a 15% annualized effective compounded return rate on such funds’ investment and (y) a 2.75x multiple on such funds’ investment. The Performance Restricted shares have no termination date other than termination of employment from the Company and there are no service or period vesting conditions associated with the Performance Restricted shares other than employment at the time the benchmark was reached. No compensation expense will be recorded related to the Performance Restricted shares until their vesting is probable, accordingly, no compensation expense has been recorded during the three or nine months ended September 30, 2014 or 2013 related to these PVUs or Performance Restricted share awards. Total unrecognized compensation expense as of September 30, 2014, was approximately $27,734 and $18,584 for these 2.25x and 2.75x Performance Restricted shares, respectively.
2013 Omnibus Incentive Plan
In 2013, the Company reserved 15,000,000 shares of common stock for future issuance under the Company’s new 2013 Omnibus Incentive Plan (“2013 Omnibus Incentive Plan”). The 2013 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. If an award under the 2013 Omnibus Incentive Plan terminates, lapses, or is settled without the payment of the full number of shares subject to the award, the undelivered shares may be granted again under the 2013 Omnibus Incentive Plan.
On April 19, 2013, 494,557 shares of restricted stock were granted to the Company’s directors, officers and employees under the 2013 Omnibus Incentive Plan. The shares granted were in the form of time vesting restricted shares (“Time Restricted Omnibus shares”), 2.25x performance restricted shares (“2.25x Performance Restricted Omnibus shares”) and 2.75x performance restricted shares (“2.75x Performance Restricted Omnibus shares”).
Equity compensation expense related to time restricted shares awarded under the 2013 Omnibus Incentive Plan was $321 and $1,131 for the three and nine months ended September 30, 2014, respectively, and $1,876 and $3,167 for the three and nine months ended September 30, 2013. As of September 30, 2014, unrecognized compensation expense related to the time restricted shares awarded under the 2013 Omnibus Incentive Plan was $1,083 to be recognized over the remaining requisite service period. There is no compensation expense recorded related to the Performance Restricted Omnibus shares until their issuance is probable. Total unrecognized compensation expense as of September 30, 2014 was approximately $4,902 and $3,709 for the 2.25x Performance Restricted Omnibus shares and 2.75x Performance Restricted Omnibus shares, respectively.
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 repurchase of shares and the cumulative dividends paid by the Company through November 1, 2014, if such funds receive additional future cash proceeds of approximately $17,000, and other vesting conditions are satisfied, the 2.25x Performance Restricted shares and 2.25x Performance Restricted Omnibus shares will vest. Similarly, if such funds receive additional future cash proceeds of approximately $444,000, and other vesting conditions are satisfied, the 2.75x Performance Restricted shares and the 2.75x Performance Restricted Omnibus shares will vest. As receipt of these future cash proceeds will be primarily related to liquidity events, such as secondary offerings of stock, the shares are not considered probable of vesting until such events are consummated.
As of September 30, 2014, there were 14,521,774 shares of common stock available for future issuance under the Company’s 2013 Omnibus Incentive Plan.
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12. STOCKHOLDERS’ EQUITY
As of September 30, 2014, 89,981,272 shares of common stock were issued on the accompanying unaudited condensed consolidated balance sheet, which excludes 3,266,721 unvested shares of common stock held by certain participants in the Company’s equity compensation plans (see Note 11 – Equity-Based Compensation).
Stock Split
On April 7, 2013, the Board authorized an eight-for-one split of the Company’s common stock which was effective on April 8, 2013. The Company retained the current par value of $0.01 per share for all shares of common stock after the stock split, and accordingly, stockholders’ equity on the accompanying unaudited condensed consolidated balance sheets and the unaudited condensed consolidated statements of changes in stockholders’ equity reflects the stock split. The Company’s historical share and per share information has been retroactively adjusted to give effect to this stock split.
Contemporaneously with the stock split, the Board approved an increase in the number of authorized shares of common stock to 1 billion shares. Additionally, upon the consummation of the initial public offering, the Board authorized 100,000,000 shares of preferred stock at a par value of $0.01 per share.
Initial Public Offering and Use of Proceeds
On April 24, 2013, the Company completed its initial public offering of its common stock in which it offered and sold 10,000,000 shares of common stock and the selling stockholders of the Company offered and sold 19,900,000 shares of common stock including, 3,900,000 shares of common stock pursuant to the exercise in full of the underwriters’ option to purchase additional shares. The common stock is listed on the New York Stock Exchange under the symbol “SEAS”.
The Company’s initial public offering generated net proceeds of approximately $245,400 to the Company after deducting underwriting discounts and commissions, expenses and transaction costs. The Company did not receive any proceeds from shares sold by the selling stockholders. The Company used a portion of the net proceeds received in the offering to redeem (1) $140,000 in aggregate principal amount of its Senior Notes at a redemption price of 111.0% plus accrued and unpaid interest thereon and (2) to repay $37,000 of the outstanding indebtedness under the then existing Term B Loan. In addition, the Company used approximately $46,300 of the net proceeds received from the offering to make a one-time payment to an affiliate of Blackstone in connection with the termination of the 2009 Advisory Agreement (see Note 9 – Related-Party Transactions).
Secondary Offerings and Concurrent Share Repurchases
On December 17, 2013, the selling stockholders completed an underwritten secondary offering of 18,000,000 shares of common stock. The selling stockholders received all of the net proceeds from the offering and no shares were sold by the Company. The Company incurred fees and expenses of $1,407 in connection with this secondary offering which was shown as secondary offering expenses on the consolidated statement of comprehensive income for the year ended December 31, 2013.
On April 9, 2014, the selling stockholders completed an underwritten secondary offering of 17,250,000 shares of common stock, including 2,250,000 shares pursuant to the exercise in full of the underwriters’ option to purchase additional shares. The selling stockholders received all of the net proceeds from the offering and no shares were sold by the Company. In the nine months ended September 30, 2014, the Company incurred fees and expenses of $747 in connection with this secondary offering which is shown as secondary offering expenses on the accompanying unaudited condensed consolidated statement of comprehensive income.
Concurrently with the closing of the secondary offering in December 2013 and April 2014, the Company repurchased 1,500,000 and 1,750,000 shares, respectively, of its common stock directly from the selling stockholders in private, non-underwritten transactions at a price per share equal to the price per share paid to the selling stockholders by the underwriters in the respective secondary offerings. All of the repurchased shares are recorded as treasury stock at a total cost of $44,163 and $94,871 as of December 31, 2013 and September 30, 2014, respectively, and are reflected as a reduction to stockholders’ equity on the accompanying unaudited condensed consolidated balance sheets and unaudited condensed consolidated statement of changes in stockholders’ equity.
Dividends
The Board has adopted a policy to pay, subject to legally available funds, a regular quarterly dividend. The payment of cash dividends is within the discretion of the Board and depends 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 may deem relevant. In the nine months ended September 30, 2014, 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 |
||||
December 20, 2013 |
January 3, 2014 | $ | 0.20 | |||
March 20, 2014 |
April 1, 2014 | $ | 0.20 | |||
June 20, 2014 |
July 1, 2014 | $ | 0.21 | |||
September 29, 2014 |
October 6, 2014 | $ | 0.21 |
As the Company had an accumulated deficit at the time the June 20 and March 20, 2014 dividends were declared, these dividends were accounted for as a return of capital and recorded as a reduction to additional paid-in capital on the accompanying unaudited condensed consolidated statement of changes in stockholders’ equity. Dividends paid to common stockholders were $53,639 in the nine months ended September 30, 2014. The Company expects that for tax purposes, a portion of these dividends will be treated as a return of capital to stockholders. Distributions that qualify as a return of capital are not considered “dividends” for tax purposes only.
As of September 30, 2014, the Company had $18,647 of cash dividends recorded as dividends payable in the accompanying unaudited condensed consolidated balance sheet. Approximately $18,200 was paid on October 6, 2014. The remainder of the dividends payable relates to unvested restricted shares which carry dividend rights and therefore the dividends are paid as the shares vest in accordance with the underlying stock compensation grants. These dividend rights will be forfeited if the shares do not vest.
Dividends on the 2.25x and 2.75x Performance Restricted shares, including the 2.25x and 2.75x Performance Restricted Omnibus shares (collectively the “Performance Restricted shares”), were approximately $1,770 for each tranche and will accumulate and be paid only if and to the extent the Performance Restricted shares vest in accordance with their terms. The Company has not recorded a payable related to these dividends as the vesting of the Performance Restricted shares is not probable.
Share Repurchase Program
On August 12, 2014, the Board authorized a share repurchase program of up to $250.0 million of the Company’s common stock beginning on January 1, 2015. Under the 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 Securities Exchange Act of 1934. The repurchase program has no time limit and may be suspended for periods or discontinued 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.
|
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K filed with the SEC as well as the information contained under the heading “Revision of Previously Issued Financial Statements” which follows. The unaudited condensed consolidated balance sheet as of December 31, 2013 has been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K except as discussed under the heading “Revision of Previously Issued Financial Statements” which follows.
In the opinion of management, such unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations for the year ending December 31, 2014 or any future period due to the seasonal nature of the Company’s operations. 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 six of its theme parks are only open for a portion of the year.
The unaudited condensed consolidated financial statements 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 unaudited condensed 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.
Segment Reporting
The Company maintains discrete financial information for each of its eleven theme parks, which is used by the Chief Operating Decision Maker (“CODM”), identified as the Chief Executive Officer, as a basis for allocating resources. Each theme park has been identified as an operating segment and meets the criteria for aggregation due to similar economic characteristics. In addition, all of the theme parks provide similar products and services and share similar processes for delivering services. The theme parks have a high degree of similarity in the workforces and target similar consumer groups. Accordingly, based on these economic and operational similarities and the way the CODM monitors the operations, the Company has concluded that its operating segments may be aggregated and that it has one reportable segment.
Revision of Previously Issued Financial Statements
In the third quarter of 2014, the Company conducted an internal review of its application of the guidance in Accounting Standards Codification (“ASC”) 470-50, Debt-Modifications and Extinguishments, to its accounting for certain debt transactions in 2013, 2012 and 2011. As a result of this review and analysis, the Company determined that it had incorrectly applied the accounting guidance in ASC 470-50 and inappropriately accounted for certain fees as a result of modifications and prepayments in certain years. In accordance with ASC 250 (SEC Staff Accounting Bulletin 99,Assessing Materiality), the Company concluded that the correction of the errors was not material to any of its previously issued annual or interim financial statements. The Company has revised its previously issued financial statements contained in this Quarterly Report on Form 10-Q to correct the effect of these immaterial errors for the corresponding periods.
The following table presents the impact of these corrections on affected unaudited condensed consolidated statements of comprehensive income line items for the three and nine months ended September 30, 2013:
For the Three Months
Ended September 30, 2013 |
For the Nine Months
Ended September 30, 2013 |
|||||||||||||||||||||||
As Previously Reported |
Adjustments | As Revised |
As Previously Reported |
Adjustments | As Revised | |||||||||||||||||||
Selected Statements of Comprehensive Income Data: |
||||||||||||||||||||||||
Operating expenses |
$ | 202,625 | $ | — | $ | 202,625 | $ | 570,559 | $ | 3,333 | $ | 573,892 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Interest expense |
$ | 21,018 | $ | (807 | ) | $ | 20,211 | $ | 72,550 | $ | (2,111 | ) | $ | 70,439 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss on early extinguishment of debt and write-off of discounts and deferred financing costs |
$ | — | $ | — | $ | — | $ | 32,429 | $ | (2,571 | ) | $ | 29,858 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income before income taxes |
$ | 184,589 | $ | 807 | $ | 185,396 | $ | 95,915 | $ | 1,349 | $ | 97,264 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Provision for income taxes |
$ | 64,390 | $ | 266 | $ | 64,656 | $ | 31,930 | $ | 445 | $ | 32,375 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
$ | 120,199 | $ | 541 | $ | 120,740 | $ | 63,985 | $ | 904 | $ | 64,889 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Earnings per share: |
||||||||||||||||||||||||
Net income per share, basic |
$ | 1.34 | $ | 0.01 | $ | 1.35 | $ | 0.74 | $ | 0.01 | $ | 0.75 | ||||||||||||
Net income per share, diluted |
$ | 1.33 | $ | 0.01 | $ | 1.34 | $ | 0.73 | $ | 0.01 | $ | 0.74 |
The following table presents the impact of these corrections on affected unaudited condensed consolidated statement of cash flows line items for the nine months ended September 30, 2013:
For the Nine Months
Ended September 30, 2013 |
||||||||||||
As Previously Reported |
Adjustments | As Revised | ||||||||||
Selected Statements of Cash Flows Data: |
||||||||||||
Net cash provided by operating activities |
$ | 276,317 | $ | (3,333 | ) | $ | 272,984 | |||||
|
|
|
|
|
|
|||||||
Net cash provided by financing activities |
$ | 14,327 | $ | 3,333 | $ | 17,660 | ||||||
|
|
|
|
|
|
The following table presents the impact of these corrections on affected unaudited condensed consolidated balance sheet line items as of December 31, 2013:
As of December 31, 2013 | ||||||||||||
As Previously Reported |
Adjustments | As Revised | ||||||||||
Selected Balance Sheet Data: |
||||||||||||
Other assets |
$ | 40,753 | $ | (4,863 | ) | $ | 35,890 | |||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 2,582,273 | $ | (4,863 | ) | $ | 2,577,410 | |||||
|
|
|
|
|
|
|||||||
Long-term debt |
$ | 1,627,183 | $ | 5,348 | $ | 1,632,531 | ||||||
|
|
|
|
|
|
|||||||
Deferred tax liabilities, net |
$ | 29,776 | $ | (4,106 | ) | $ | 25,670 | |||||
|
|
|
|
|
|
|||||||
Retained earnings |
$ | 7,991 | $ | (6,105 | ) | $ | 1,886 | |||||
|
|
|
|
|
|
|||||||
Total stockholders’ equity |
$ | 654,132 | $ | (6,105 | ) | $ | 648,027 | |||||
|
|
|
|
|
|
|||||||
Total liabilities and stockholders’ equity |
$ | 2,582,273 | $ | (4,863 | ) | $ | 2,577,410 | |||||
|
|
|
|
|
|
The following tables present the impact of these corrections for other previously issued periods as indicated:
For the Year Ended December 31, 2013 | For the Year Ended December 31, 2012 | For the Year Ended December 31, 2011 | ||||||||||||||||||||||||||||||||||
As Previously Reported |
Adjustments | As Revised |
As Previously Reported |
Adjustments | As Revised |
As Previously Reported |
Adjustments | As Revised |
||||||||||||||||||||||||||||
Selected Statements of Comprehensive Income Data: |
|
|||||||||||||||||||||||||||||||||||
Operating expenses |
$ | 739,989 | $ | 3,333 | $ | 743,322 | $ | 726,509 | $ | 4,073 | $ | 730,582 | $ | 687,999 | $ | 4,326 | $ | 692,325 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Interest expense |
$ | 93,536 | $ | (2,914 | ) | $ | 90,622 | $ | 111,426 | $ | (861 | ) | $ | 110,565 | $ | 110,097 | $ | (12,356 | ) | $ | 97,741 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Loss on early extinguishment of debt and write-off of discounts and deferred financing costs |
$ | 32,429 | $ | (2,571 | ) | $ | 29,858 | $ | — | $ | 2,053 | $ | 2,053 | $ | — | $ | 15,129 | $ | 15,129 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Income before income taxes |
$ | 75,482 | $ | 2,152 | $ | 77,634 | $ | 116,926 | $ | (5,265 | ) | $ | 111,661 | $ | 32,541 | $ | (7,099 | ) | $ | 25,442 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Provision for income taxes |
$ | 25,004 | $ | 710 | $ | 25,714 | $ | 39,482 | $ | (2,042 | ) | $ | 37,440 | $ | 13,428 | $ | (2,775 | ) | $ | 10,653 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net income |
$ | 50,478 | $ | 1,442 | $ | 51,920 | $ | 77,444 | $ | (3,223 | ) | $ | 74,221 | $ | 19,113 | $ | (4,324 | ) | $ | 14,789 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Earnings per share: |
|
|||||||||||||||||||||||||||||||||||
Net income per share, basic |
$ | 0.58 | $ | 0.01 | $ | 0.59 | $ | 0.94 | $ | (0.04 | ) | $ | 0.90 | $ | 0.23 | $ | (0.05 | ) | $ | 0.18 | ||||||||||||||||
Net income per share, diluted |
$ | 0.57 | $ | 0.02 | $ | 0.59 | $ | 0.93 | $ | (0.04 | ) | $ | 0.89 | $ | 0.23 | $ | (0.05 | ) | $ | 0.18 | ||||||||||||||||
Selected Statements of Cash Flows Data: |
|
|||||||||||||||||||||||||||||||||||
Net cash provided by operating activities |
$ | 289,794 | $ | (3,333 | ) | $ | 286,461 | $ | 303,513 | $ | (4,073 | ) | $ | 299,440 | $ | 268,249 | $ | (4,326 | ) | $ | 263,923 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net cash used in financing activities |
$ | (52,252 | ) | $ | 3,333 | $ | (48,919 | ) | $ | (120,183 | ) | $ | 4,073 | $ | (116,110 | ) | $ | (99,967 | ) | $ | 4,326 | $ | (95,641 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended June 30, 2014 |
For the Three Months
Ended June 30, 2013 |
|||||||||||||||||||||||
As Previously Reported |
Adjustments | As Revised |
As Previously Reported |
Adjustments | As Revised | |||||||||||||||||||
Selected Statements of Comprehensive Income (Loss) Data: |
||||||||||||||||||||||||
Operating expenses |
$ | 189,190 | $ | — | $ | 189,190 | $ | 194,674 | $ | 3,333 | $ | 198,007 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Interest expense |
$ | 20,638 | $ | (112 | ) | $ | 20,526 | $ | 22,926 | $ | (694 | ) | $ | 22,232 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss on early extinguishment of debt and write-off of discounts and deferred financing costs |
$ | — | $ | — | $ | — | $ | 32,429 | $ | (2,571 | ) | $ | 29,858 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes |
$ | 59,994 | $ | 112 | $ | 60,106 | $ | (24,268 | ) | $ | (68 | ) | $ | (24,336 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Provision for (benefit from) income taxes |
$ | 22,658 | $ | 42 | $ | 22,700 | $ | (8,414 | ) | $ | (22 | ) | $ | (8,436 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) |
$ | 37,336 | $ | 70 | $ | 37,406 | $ | (15,854 | ) | $ | (46 | ) | $ | (15,900 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Earnings (loss) per share: |
||||||||||||||||||||||||
Net income (loss) per share, basic |
$ | 0.43 | $ | — | $ | 0.43 | $ | (0.18 | ) | $ | — | $ | (0.18 | ) | ||||||||||
Net income (loss) per share, diluted |
$ | 0.43 | $ | — | $ | 0.43 | $ | (0.18 | ) | $ | — | $ | (0.18 | ) |
For the Three Months
Ended March 31, 2014 |
For the Three Months
Ended March 31, 2013 |
|||||||||||||||||||||||
As Previously Reported |
Adjustments | As Revised |
As Previously Reported |
Adjustments | As Revised | |||||||||||||||||||
Selected Statements of Comprehensive Loss Data: |
||||||||||||||||||||||||
Interest expense |
$ | 20,046 | $ | (342 | ) | $ | 19,704 | $ | 28,606 | $ | (610 | ) | $ | 27,996 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss before income taxes |
$ | (79,471 | ) | $ | 342 | $ | (79,129 | ) | $ | (64,406 | ) | $ | 610 | $ | (63,796 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Benefit from income taxes |
$ | (30,040 | ) | $ | 128 | $ | (29,912 | ) | $ | (24,046 | ) | $ | 201 | $ | (23,845 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
$ | (49,431 | ) | $ | 214 | $ | (49,217 | ) | $ | (40,360 | ) | $ | 409 | $ | (39,951 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss per share: |
||||||||||||||||||||||||
Net loss per share, basic |
$ | (0.56 | ) | $ | — | $ | (0.56 | ) | $ | (0.49 | ) | $ | 0.01 | $ | (0.48 | ) | ||||||||
Net loss per share, diluted |
$ | (0.56 | ) | $ | — | $ | (0.56 | ) | $ | (0.49 | ) | $ | 0.01 | $ | (0.48 | ) |
|
The following table presents the impact of these corrections on affected unaudited condensed consolidated statements of comprehensive income line items for the three and nine months ended September 30, 2013:
For the Three Months
Ended September 30, 2013 |
For the Nine Months
Ended September 30, 2013 |
|||||||||||||||||||||||
As Previously Reported |
Adjustments | As Revised |
As Previously Reported |
Adjustments | As Revised | |||||||||||||||||||
Selected Statements of Comprehensive Income Data: |
||||||||||||||||||||||||
Operating expenses |
$ | 202,625 | $ | — | $ | 202,625 | $ | 570,559 | $ | 3,333 | $ | 573,892 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Interest expense |
$ | 21,018 | $ | (807 | ) | $ | 20,211 | $ | 72,550 | $ | (2,111 | ) | $ | 70,439 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss on early extinguishment of debt and write-off of discounts and deferred financing costs |
$ | — | $ | — | $ | — | $ | 32,429 | $ | (2,571 | ) | $ | 29,858 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income before income taxes |
$ | 184,589 | $ | 807 | $ | 185,396 | $ | 95,915 | $ | 1,349 | $ | 97,264 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Provision for income taxes |
$ | 64,390 | $ | 266 | $ | 64,656 | $ | 31,930 | $ | 445 | $ | 32,375 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
$ | 120,199 | $ | 541 | $ | 120,740 | $ | 63,985 | $ | 904 | $ | 64,889 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Earnings per share: |
||||||||||||||||||||||||
Net income per share, basic |
$ | 1.34 | $ | 0.01 | $ | 1.35 | $ | 0.74 | $ | 0.01 | $ | 0.75 | ||||||||||||
Net income per share, diluted |
$ | 1.33 | $ | 0.01 | $ | 1.34 | $ | 0.73 | $ | 0.01 | $ | 0.74 |
The following tables present the impact of these corrections for other previously issued periods as indicated:
For the Year Ended December 31, 2013 | For the Year Ended December 31, 2012 | For the Year Ended December 31, 2011 | ||||||||||||||||||||||||||||||||||
As Previously Reported |
Adjustments | As Revised |
As Previously Reported |
Adjustments | As Revised |
As Previously Reported |
Adjustments | As Revised |
||||||||||||||||||||||||||||
Selected Statements of Comprehensive Income Data: |
||||||||||||||||||||||||||||||||||||
Operating expenses |
$ | 739,989 | $ | 3,333 | $ | 743,322 | $ | 726,509 | $ | 4,073 | $ | 730,582 | $ | 687,999 | $ | 4,326 | $ | 692,325 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Interest expense |
$ | 93,536 | $ | (2,914 | ) | $ | 90,622 | $ | 111,426 | $ | (861 | ) | $ | 110,565 | $ | 110,097 | $ | (12,356 | ) | $ | 97,741 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Loss on early extinguishment of debt and write-off of discounts and deferred financing costs |
$ | 32,429 | $ | (2,571 | ) | $ | 29,858 | $ | — | $ | 2,053 | $ | 2,053 | $ | — | $ | 15,129 | $ | 15,129 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Income before income taxes |
$ | 75,482 | $ | 2,152 | $ | 77,634 | $ | 116,926 | $ | (5,265 | ) | $ | 111,661 | $ | 32,541 | $ | (7,099 | ) | $ | 25,442 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Provision for income taxes |
$ | 25,004 | $ | 710 | $ | 25,714 | $ | 39,482 | $ | (2,042 | ) | $ | 37,440 | $ | 13,428 | $ | (2,775 | ) | $ | 10,653 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net income |
$ | 50,478 | $ | 1,442 | $ | 51,920 | $ | 77,444 | $ | (3,223 | ) | $ | 74,221 | $ | 19,113 | $ | (4,324 | ) | $ | 14,789 | ||||||||||||||||
|
|
|
|
|
|
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Earnings per share: |
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Net income per share, basic |
$ | 0.58 | $ | 0.01 | $ | 0.59 | $ | 0.94 | $ | (0.04 | ) | $ | 0.90 | $ | 0.23 | $ | (0.05 | ) | $ | 0.18 | ||||||||||||||||
Net income per share, diluted |
$ | 0.57 | $ | 0.02 | $ | 0.59 | $ | 0.93 | $ | (0.04 | ) | $ | 0.89 | $ | 0.23 | $ | (0.05 | ) | $ | 0.18 |
For the Three Months
Ended June 30, 2014 |
For the Three Months
Ended June 30, 2013 |
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As Previously Reported |
Adjustments | As Revised |
As Previously Reported |
Adjustments | As Revised | |||||||||||||||||||
Selected Statements of Comprehensive Income (Loss) Data: |
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Operating expenses |
$ | 189,190 | $ | — | $ | 189,190 | $ | 194,674 | $ | 3,333 | $ | 198,007 | ||||||||||||
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Interest expense |
$ | 20,638 | $ | (112 | ) | $ | 20,526 | $ | 22,926 | $ | (694 | ) | $ | 22,232 | ||||||||||
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Loss on early extinguishment of debt and write-off of discounts and deferred financing costs |
$ | — | $ | — | $ | — | $ | 32,429 | $ | (2,571 | ) | $ | 29,858 | |||||||||||
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Income (loss) before income taxes |
$ | 59,994 | $ | 112 | $ | 60,106 | $ | (24,268 | ) | $ | (68 | ) | $ | (24,336 | ) | |||||||||
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Provision for (benefit from) income taxes |
$ | 22,658 | $ | 42 | $ | 22,700 | $ | (8,414 | ) | $ | (22 | ) | $ | (8,436 | ) | |||||||||
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Net income (loss) |
$ | 37,336 | $ | 70 | $ | 37,406 | $ | (15,854 | ) | $ | (46 | ) | $ | (15,900 | ) | |||||||||
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Earnings (loss) per share: |
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Net income (loss) per share, basic |
$ | 0.43 | $ | — | $ | 0.43 | $ | (0.18 | ) | $ | — | $ | (0.18 | ) | ||||||||||
Net income (loss) per share, diluted |
$ | 0.43 | $ | — | $ | 0.43 | $ | (0.18 | ) | $ | — | $ | (0.18 | ) |
For the Three Months
Ended March 31, 2014 |
For the Three Months
Ended March 31, 2013 |
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As Previously Reported |
Adjustments | As Revised |
As Previously Reported |
Adjustments | As Revised | |||||||||||||||||||
Selected Statements of Comprehensive Loss Data: |
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Interest expense |
$ | 20,046 | $ | (342 | ) | $ | 19,704 | $ | 28,606 | $ | (610 | ) | $ | 27,996 | ||||||||||
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Loss before income taxes |
$ | (79,471 | ) | $ | 342 | $ | (79,129 | ) | $ | (64,406 | ) | $ | 610 | $ | (63,796 | ) | ||||||||
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Benefit from income taxes |
$ | (30,040 | ) | $ | 128 | $ | (29,912 | ) | $ | (24,046 | ) | $ | 201 | $ | (23,845 | ) | ||||||||
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Net loss |
$ | (49,431 | ) | $ | 214 | $ | (49,217 | ) | $ | (40,360 | ) | $ | 409 | $ | (39,951 | ) | ||||||||
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Loss per share: |
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Net loss per share, basic |
$ | (0.56 | ) | $ | — | $ | (0.56 | ) | $ | (0.49 | ) | $ | 0.01 | $ | (0.48 | ) | ||||||||
Net loss per share, diluted |
$ | (0.56 | ) | $ | — | $ | (0.56 | ) | $ | (0.49 | ) | $ | 0.01 | $ | (0.48 | ) |
The following table presents the impact of these corrections on affected unaudited condensed consolidated statement of cash flows line items for the nine months ended September 30, 2013:
For the Nine Months Ended | ||||||||||||
September 30, 2013 | ||||||||||||
As Previously Reported |
Adjustments | As Revised | ||||||||||
Selected Statements of Cash Flows Data: |
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Net cash provided by operating activities |
$ | 276,317 | $ | (3,333 | ) | $ | 272,984 | |||||
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Net cash provided by financing activities |
$ | 14,327 | $ | 3,333 | $ | 17,660 | ||||||
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For the Year Ended December 31, 2013 | For the Year Ended December 31, 2012 | For the Year Ended December 31, 2011 | ||||||||||||||||||||||||||||||||||
As Previously Reported |
Adjustments | As Revised |
As Previously Reported |
Adjustments | As Revised |
As Previously Reported |
Adjustments | As Revised |
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Selected Statements of Cash Flows Data: |
Net cash provided by operating activities |
$ | 289,794 | $ | (3,333 | ) | $ | 286,461 | $ | 303,513 | $ | (4,073 | ) | $ | 299,440 | $ | 268,249 | $ | (4,326 | ) | $ | 263,923 | |||||||||||||||
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Net cash used in financing activities |
$ | (52,252 | ) | $ | 3,333 | $ | (48,919 | ) | $ | (120,183 | ) | $ | 4,073 | $ | (116,110 | ) | $ | (99,967 | ) | $ | 4,326 | $ | (95,641 | ) | ||||||||||||
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The following table presents the impact of these corrections on affected unaudited condensed consolidated balance sheet line items as of December 31, 2013:
As of December 31, 2013 | ||||||||||||
As Previously Reported |
Adjustments | As Revised | ||||||||||
Selected Balance Sheet Data: |
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Other assets |
$ | 40,753 | $ | (4,863 | ) | $ | 35,890 | |||||
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Total assets |
$ | 2,582,273 | $ | (4,863 | ) | $ | 2,577,410 | |||||
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Long-term debt |
$ | 1,627,183 | $ | 5,348 | $ | 1,632,531 | ||||||
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Deferred tax liabilities, net |
$ | 29,776 | $ | (4,106 | ) | $ | 25,670 | |||||
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Retained earnings |
$ | 7,991 | $ | (6,105 | ) | $ | 1,886 | |||||
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Total stockholders’ equity |
$ | 654,132 | $ | (6,105 | ) | $ | 648,027 | |||||
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Total liabilities and stockholders’ equity |
$ | 2,582,273 | $ | (4,863 | ) | $ | 2,577,410 | |||||
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Other accrued expenses at September 30, 2014 and December 31, 2013, consisted of the following:
September 30, 2014 |
December 31, 2013 |
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Accrued property taxes |
$ | 10,952 | $ | 2,113 | ||||
Accrued interest |
9,756 | 2,636 | ||||||
Self-insurance reserve |
7,800 | 7,800 | ||||||
Other |
2,177 | 2,715 | ||||||
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Total other accrued expenses |
$ | 30,685 | $ | 15,264 | ||||
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Long-term debt as of September 30, 2014 and December 31, 2013 consisted of the following:
September 30, 2014 |
December 31, 2013 |
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Term B-2 Loans |
$ | 1,355,950 | $ | 1,397,975 | ||||
Revolving credit agreement |
— | — | ||||||
Senior Notes |
260,000 | 260,000 | ||||||
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Total long-term debt |
1,615,950 | 1,657,975 | ||||||
Less discounts |
(9,531 | ) | (11,394 | ) | ||||
Less current maturities |
(14,050 | ) | (14,050 | ) | ||||
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Total long-term debt, net of current maturities |
$ | 1,592,369 | $ | 1,632,531 | ||||
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Long-term debt at September 30, 2014, is repayable as follows:
Years Ending December 31, |
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2014 |
$ | 3,513 | ||
2015 |
14,050 | |||
2016 |
274,050 | |||
2017 |
14,050 | |||
2018 |
14,050 | |||
Thereafter |
1,296,237 | |||
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Total |
$ | 1,615,950 | ||
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Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the unaudited condensed consolidated balance sheet as of September 30, 2014:
As of September 30, 2014 | ||||||||||||
Asset Derivatives | Liabilities Derivatives | |||||||||||
Balance Sheet Location |
Fair Value | Balance Sheet Location |
Fair Value | |||||||||
Derivatives designated as hedging instruments: |
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Interest rate swaps |
Other assets | $ | — | Other liabilities | $ | 148 | ||||||
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Total derivatives designated as hedging instruments |
$ | — | $ | 148 | ||||||||
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The unrealized gain on derivatives is recorded net of a tax expense of $664 and $4 for the three and nine months ended September 30, 2014, respectively, and is included within the unaudited condensed consolidated statements of comprehensive income.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the unaudited condensed consolidated balance sheet as of December 31, 2013:
As of December 31, 2013 | ||||||||||||||||
Asset Derivatives | Liabilities Derivatives | |||||||||||||||
Balance Sheet Location |
Fair Value |
Balance Sheet Location |
Fair Value | |||||||||||||
Derivatives designated as hedging instruments: |
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Interest rate swaps |
Other assets | $ | 71 | Other liabilities | $ | — | ||||||||||
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Total derivatives designated as hedging instruments |
$ | 71 | $ | — | ||||||||||||
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Tabular Disclosure of the Effect of Derivative Instruments on the Statements of Comprehensive Income
The table below presents the pre-tax effect of the Company’s derivative financial instruments on the unaudited condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2014 and 2013:
Three Months Ended September 30, |
Nine Months
Ended September 30, |
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2014 | 2013 | 2014 | 2013 | |||||||||||||
Derivatives in Cash Flow Hedging Relationships: |
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Gain (loss) related to effective portion of derivatives recognized in accumulated other comprehensive income |
$ | 1,005 | $ | (1,380 | ) | $ | (1,868 | ) | $ | 3,338 | ||||||
Gain (loss) related to effective portion of derivatives reclassified from accumulated other comprehensive income to interest expense |
$ | 746 | $ | (422 | ) | $ | 1,879 | $ | (1,144 | ) | ||||||
Gain (loss) related to ineffective portion of derivatives recognized in other income (expense) |
$ | — | $ | — | $ | — | $ | — |
Changes in Accumulated Other Comprehensive Income
The following table reflects the changes in accumulated other comprehensive income for the nine months ended September 30, 2014, net of tax:
Gains (Losses) on Cash Flow Hedges |
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Accumulated other comprehensive income: | ||||
Balance at December 31, 2013 |
$ | 11 | ||
Other comprehensive loss before reclassifications |
(1,189 | ) | ||
Amounts reclassified from accumulated other comprehensive income to interest expense |
1,196 | |||
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Unrealized gain on derivatives, net of tax |
7 | |||
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Balance at September 30, 2014 |
$ | 18 | ||
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The following table presents the Company’s estimated fair value measurements and related classifications as of September 30, 2014:
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Balance at September 30, 2014 |
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Liabilities: |
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Derivative financial instruments (a) |
$ | — | $ | 148 | $ | — | $ | 148 | ||||||||
Long-term obligations (b) |
$ | — | $ | 1,355,950 | $ | 267,187 | $ | 1,623,137 |
(a) | Reflected at fair value in the unaudited condensed consolidated balance sheet as other liabilities of $148. |
(b) | Reflected at carrying value in the unaudited condensed consolidated balance sheet as current maturities on long-term debt of $14,050 and long-term debt of $1,592,369 as of September 30, 2014. |
There were no transfers between Levels 1, 2 or 3 during the year ended December 31, 2013. The following table presents the Company’s estimated fair value measurements and related classifications as of December 31, 2013:
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Balance at December 31, 2013 |
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Assets: |
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Derivative financial instruments (a) |
$ | — | $ | 71 | $ | — | $ | 71 | ||||||||
Liabilities: |
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Long-term obligations (b) |
$ | — | $ | 1,397,975 | $ | 264,781 | $ | 1,662,756 |
(a) | Reflected at fair value in the unaudited condensed consolidated balance sheet as other assets of $71. |
(b) | Reflected at carrying value in the unaudited condensed consolidated balance sheet as current maturities on long-term debt of $14,050 and long-term debt of $1,632,531 as of December 31, 2013. |
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In the nine months ended September 30, 2014, 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 |
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December 20, 2013 |
January 3, 2014 | $ | 0.20 | |||
March 20, 2014 |
April 1, 2014 | $ | 0.20 | |||
June 20, 2014 |
July 1, 2014 | $ | 0.21 | |||
September 29, 2014 |
October 6, 2014 | $ | 0.21 |
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