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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
x 	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the quarterly period ended September 30, 2013
or
 
¨ 	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the transition period from              to             
Commission File Number: 001-35883

SeaWorld Entertainment, Inc.
(Exact name of registrant as specified in its charter)

Delaware	 	27-1220297	
(State or other jurisdiction of
incorporation or organization)	 	(I.R.S. Employer
Identification No.)	
9205 South Park Center Loop, Suite 400
Orlando, Florida 32819
(Address of principal executive offices)(Zip Code)
(407) 226-5011
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	 	¨	  	Accelerated filer	 	¨	
				
Non-accelerated filer	 	x   (Do not check if a smaller reporting company)	  	Smaller reporting company	 	¨	
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
The registrant had outstanding 93,285,743 shares of Common Stock, par value $0.01 per share as of November 12, 2013.

 

Table of Contents
 SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS

 	  	Page No.	 	
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	  	 	1	  	
			
PART I.	 	FINANCIAL INFORMATION	  				
Item 1.	 	Financial Statements	  				
	 	Unaudited Condensed Consolidated Balance Sheets	  	 	3	  	
	 	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)	  	 	4	  	
	 	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity	  	 	5	  	
	 	Unaudited Condensed Consolidated Statements of Cash Flows	  	 	6	  	
	 	Notes to Unaudited Condensed Consolidated Financial Statements	  	 	7	  	
Item 2.	 	Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	 	22	  	
Item 3.	 	Quantitative and Qualitative Disclosures About Market Risk	  	 	35	  	
Item 4.	 	Controls and Procedures	  	 	36	  	
			
PART II.	 	OTHER INFORMATION	  				
Item 1.	 	Legal Proceedings	  	 	36	  	
Item 1A.	 	Risk Factors	  	 	36	  	
Item 2.	 	Unregistered Sales of Equity Securities and Use of Proceeds	  	 	36	  	
Item 3.	 	Defaults Upon Senior Securities	  	 	36	  	
Item 4.	 	Mine Safety Disclosures	  	 	36	  	
Item 5.	 	Other Information	  	 	37	  	
Item 6.	 	Exhibits	  	 	37	  	

Table of Contents
 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts included in this Quarterly Report on Form 10-Q, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, our results of operations, financial position and our business outlook, business trends and other information, may be forward-looking statements. Words such as “estimates,” “expects,” “contemplates,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “may,” “should” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.
There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Such risks, uncertainties and other important factors that could cause actual results to differ include, among others, the risks, uncertainties and factors set forth under “Risk Factors” in the Company’s prospectus, filed with the Securities and Exchange Commission (the “SEC”) on April 18, 2013 pursuant to Rule 424(b)(4) under the Securities Act, and in this report, as such risk factors may be updated from time to time in our periodic filings with the SEC, and are accessible on the SEC’s website at www.sec.gov , including the following:
 
 	•	 	a decline in discretionary consumer spending or consumer confidence;	
 
 	•	 	various factors beyond our control adversely affecting attendance and guest spending at our theme parks;	
 
 	•	 	inability to protect our intellectual property or the infringement on intellectual property rights of others;	
 
 	•	 	incidents or adverse publicity concerning our theme parks;	
 
 	•	 	featuring animals at our theme parks;	
 
 	•	 	the loss of licenses and permits required to exhibit animals;	
 
 	•	 	significant portion of revenues generated in the States of Florida, California and Virginia and the Orlando market;	
 
 	•	 	inability to compete effectively;	
 
 	•	 	loss of key personnel;	
 
 	•	 	increased labor costs;	
 
 	•	 	unionization activities or labor disputes;	
 
 	•	 	inability to meet workforce needs;	
 
 	•	 	inability to fund theme park capital expenditures;	
 
 	•	 	high fixed cost structure of theme park operations;	
 
 	•	 	inability to maintain certain commercial licenses;	
 
 	•	 	changing consumer tastes and preferences;	
 
 	•	 	restrictions in our debt agreements limiting flexibility in operating our business;	
 
 	•	 	our substantial leverage;	
 
 	•	 	seasonal fluctuations;	
 
 	•	 	inability to realize the benefits of acquisitions or other strategic initiatives;	
 
 	•	 	adverse litigation judgments or settlements;	
 
 	•	 	inadequate insurance coverage;	
 
 	•	 	inability to purchase or contract with third party manufacturers for rides and attractions;	
 
 	•	 	environmental regulations, expenditures and liabilities;	
 
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 	•	 	cyber security risks;	
 
 	•	 	suspension or termination of any of our business licenses;	
 
 	•	 	our limited operating history as a standalone company; and	
 
 	•	 	The Blackstone Group L.P. and its affiliates’ control of us.	
We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this report apply only as of the date of this report or as of the date they were made and, except as required by applicable law, we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
All references to “we,” “us,” “our,” “Company” or “SeaWorld” in this Quarterly Report on Form 10-Q mean SeaWorld Entertainment, Inc., its subsidiaries and affiliates.
 
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 PART I — FINANCIAL INFORMATION
 
 Item 1.	Financial Statements	
 SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)

 	  	September 30,
2013	 	 	December 31,
2012	 	
Assets	  				 				
Current assets:	  				 				
Cash and cash equivalents	  	$	210,516	  	 	$	45,675	  	
Accounts receivable, net	  	 	52,505	  	 	 	41,149	  	
Inventories	  	 	37,886	  	 	 	36,587	  	
Prepaid expenses and other current assets	  	 	14,170	  	 	 	17,817	  	
Deferred tax assets, net	  	 	1,315	  	 	 	17,405	  	
	  	 	 	 	 	 	 	 	
Total current assets	  	 	316,392	  	 	 	158,633	  	
Property and equipment, at cost	  	 	2,452,229	  	 	 	2,343,561	  	
Accumulated depreciation	  	 	(680,922	) 	 	 	(568,918	) 	
	  	 	 	 	 	 	 	 	
Property and equipment, net	  	 	1,771,307	  	 	 	1,774,643	  	
Goodwill	  	 	335,610	  	 	 	335,610	  	
Trade names, net	  	 	163,783	  	 	 	164,608	  	
Other intangible assets, net	  	 	28,673	  	 	 	31,120	  	
Deferred tax assets, net	  	 	—  	  	 	 	6,356	  	
Other assets	  	 	42,371	  	 	 	50,082	  	
	  	 	 	 	 	 	 	 	
Total assets	  	$	2,658,136	  	 	$	2,521,052	  	
	  	 	 	 	 	 	 	 	
Liabilities and Stockholders’ Equity	  				 				
Current liabilities:	  				 				
Accounts payable	  	$	105,871	  	 	$	89,946	  	
Current maturities on long-term debt	  	 	14,050	  	 	 	21,330	  	
Accrued salaries, wages and benefits	  	 	21,300	  	 	 	33,088	  	
Deferred revenue	  	 	99,527	  	 	 	82,567	  	
Other accrued expenses	  	 	31,048	  	 	 	19,350	  	
	  	 	 	 	 	 	 	 	
Total current liabilities	  	 	271,796	  	 	 	246,281	  	
Long-term debt	  	 	1,629,489	  	 	 	1,802,644	  	
Deferred tax liabilities, net	  	 	8,936	  	 	 	—  	  	
Other liabilities	  	 	18,628	  	 	 	22,279	  	
	  	 	 	 	 	 	 	 	
Total liabilities	  	 	1,928,849	  	 	 	2,071,204	  	
	  	 	 	 	 	 	 	 	
Commitments and contingencies (Note 10)	  				 				
Stockholders’ Equity:	  				 				
Preferred stock, $0.01 par value—authorized, 100,000,000 shares, no shares issued or outstanding at September 30, 2013 and December 31, 2012	  	 	—  	  	 	 	—  	  	
Common stock, $0.01 par value—authorized, 1,000,000,000 shares; issued and outstanding, 89,626,525 and 82,737,008 shares at September 30, 2013 and December 31, 2012, respectively	  	 	896	  	 	 	827	  	
Additional paid-in capital	  	 	688,927	  	 	 	456,923	  	
Accumulated other comprehensive gain (loss)	  	 	199	  	 	 	(1,254	) 	
Retained earnings (accumulated deficit)	  	 	39,265	  	 	 	(6,648	) 	
	  	 	 	 	 	 	 	 	
Total stockholders’ equity	  	 	729,287	  	 	 	449,848	  	
	  	 	 	 	 	 	 	 	
Total liabilities and stockholders’ equity	  	$	2,658,136	  	 	$	2,521,052	  	
	  	 	 	 	 	 	 	 	
See accompanying notes to unaudited condensed consolidated financial statements.
 
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 SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)

 	  	For the Three Months Ended
September 30,	 	 	For the Nine Months Ended
September 30,	 	
 	  	2013	 	 	2012	 	 	2013	 	  	2012	 	
Net revenues:	  				 				 				  				
Admissions	  	$	340,183	  	 	$	323,529	  	 	$	747,610	  	  	$	715,842	  	
Food, merchandise and other	  	 	198,206	  	 	 	198,726	  	 	 	440,681	  	  	 	444,737	  	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Total revenues	  	 	538,389	  	 	 	522,255	  	 	 	1,188,291	  	  	 	1,160,579	  	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Costs and expenses:	  				 				 				  				
Cost of food, merchandise and other revenues	  	 	40,422	  	 	 	43,450	  	 	 	93,224	  	  	 	99,109	  	
Operating expenses	  	 	202,625	  	 	 	191,399	  	 	 	570,559	  	  	 	560,145	  	
Selling, general and administrative	  	 	47,426	  	 	 	58,807	  	 	 	149,581	  	  	 	150,571	  	
Termination of advisory agreement	  	 	—  	  	 	 	—  	  	 	 	50,072	  	  	 	—  	  	
Depreciation and amortization	  	 	42,322	  	 	 	44,737	  	 	 	124,154	  	  	 	122,085	  	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Total costs and expenses	  	 	332,795	  	 	 	338,393	  	 	 	987,590	  	  	 	931,910	  	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Operating income	  	 	205,594	  	 	 	183,862	  	 	 	200,701	  	  	 	228,669	  	
Other income, net	  	 	13	  	 	 	237	  	 	 	193	  	  	 	2,110	  	
Interest expense	  	 	21,018	  	 	 	29,545	  	 	 	72,550	  	  	 	86,263	  	
Loss on early extinguishment of debt and write-off of discounts and deferred financing costs	  	 	—  	  	 	 	—  	  	 	 	32,429	  	  	 	—  	  	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Income before income taxes	  	 	184,589	  	 	 	154,554	  	 	 	95,915	  	  	 	144,516	  	
Provision for income taxes	  	 	64,390	  	 	 	62,297	  	 	 	31,930	  	  	 	58,273	  	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net income	  	$	120,199	  	 	$	92,257	  	 	$	63,985	  	  	$	86,243	  	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Other comprehensive income:	  				 				 				  				
Unrealized (loss) gain on derivatives, net of tax	  	 	(1,127	) 	 	 	(1,172	) 	 	 	1,453	  	  	 	(1,172	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Comprehensive income	  	$	119,072	  	 	$	91,085	  	 	$	65,438	  	  	$	85,071	  	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Earnings per share:	  				 				 				  				
Net income per share, basic	  	$	1.34	  	 	$	1.12	  	 	$	0.74	  	  	$	1.05	  	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net income per share, diluted	  	$	1.33	  	 	$	1.11	  	 	$	0.73	  	  	$	1.04	  	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Weighted average commons shares outstanding:	  				 				 				  				
Basic	  	 	89,610	  	 	 	82,461	  	 	 	86,867	  	  	 	82,480	  	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Diluted	  	 	90,206	  	 	 	83,374	  	 	 	87,531	  	  	 	83,301	  	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Cash dividends declared per share:	  				 				 				  				
Cash dividends declared per share	  	$	0.20	  	 	$	—  	  	 	$	0.40	  	  	$	6.07	  	
	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
See accompanying notes to unaudited condensed consolidated financial statements.
 
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 SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013
(In thousands, except share amounts)

 	  	Shares of
Common Stock	 	 	Common
Stock	 	 	Additional
Paid-In
Capital	 	 	(Accumulated
Deficit)
Retained
Earnings	 	 	Accumulated
Other
Comprehensive
(Loss) Gain	 	 	Total
Stockholders’
Equity	 	
Balance at December 31, 2012	  	 	82,737,008	  	 	$	827	  	 	$	456,923	  	 	$	(6,648	) 	 	$	(1,254	) 	 	$	449,848	  	
Equity-based compensation	  	 	74,561	  	 	 	1	  	 	 	4,703	  	 	 	—  	  	 	 	—  	  	 	 	4,704	  	
Unrealized gain on derivatives, net of tax	  	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	1,453	  	 	 	1,453	  	
Issuance of common stock in initial public offering, net of underwriter commissions and offering costs	  	 	10,000,000	  	 	 	100	  	 	 	245,341	  	 	 	—  	  	 	 	—  	  	 	 	245,441	  	
Conversion of common stock into unvested restricted shares	  	 	(3,216,719	) 	 	 	(32	) 	 	 	32	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	
Vesting of restricted shares	  	 	31,675	  	 	 	0	  	 	 	0	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	
Dividends declared to stockholders	  	 	—  	  	 	 	—  	  	 	 	(18,072	) 	 	 	(18,072	) 	 	 	—  	  	 	 	(36,144	) 	
Net income	  	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	63,985	  	 	 	—  	  	 	 	63,985	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at September 30, 2013	  	 	89,626,525	  	 	$	896	  	 	$	688,927	  	 	$	39,265	  	 	$	199	  	 	$	729,287	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See accompanying notes to unaudited condensed consolidated financial statements.
 
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 SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

 	  	For the Nine Months Ended
September 30,	 	
 	  	2013	 	 	2012	 	
Cash Flows From Operating Activities:	  				 				
Net income	  	$	63,985	  	 	$	86,243	  	
Adjustments to reconcile net income to net cash provided by operating activities:	  				 				
Depreciation and amortization	  	 	124,154	  	 	 	122,085	  	
Amortization of debt issuance costs and discounts	  	 	10,619	  	 	 	14,757	  	
Loss on sale or disposal of property and equipment	  	 	8,129	  	 	 	6,139	  	
Loss on early extinguishment of debt and write-off of discounts and deferred financing costs	  	 	32,429	  	 	 	—  	  	
Deferred income tax provision	  	 	31,930	  	 	 	58,273	  	
Equity-based compensation	  	 	4,704	  	 	 	887	  	
Changes in assets and liabilities:	  				 				
Accounts receivable	  	 	(13,432	) 	 	 	(8,053	) 	
Inventories	  	 	(1,299	) 	 	 	(4,215	) 	
Prepaid expenses and other current assets	  	 	(67	) 	 	 	3,491	  	
Accounts payable	  	 	(4,029	) 	 	 	(8,238	) 	
Accrued salaries, wages and benefits	  	 	(11,788	) 	 	 	(8,014	) 	
Deferred revenue	  	 	16,259	  	 	 	16,131	  	
Other accrued expenses	  	 	15,168	  	 	 	20,161	  	
Other assets and liabilities	  	 	(445	) 	 	 	3,001	  	
	  	 	 	 	 	 	 	 	
Net cash provided by operating activities	  	 	276,317	  	 	 	302,648	  	
	  	 	 	 	 	 	 	 	
Cash Flows From Investing Activities:	  				 				
Capital expenditures	  	 	(125,852	) 	 	 	(154,976	) 	
Change in restricted cash	  	 	49	  	 	 	—  	  	
	  	 	 	 	 	 	 	 	
Net cash used in investing activities	  	 	(125,803	) 	 	 	(154,976	) 	
	  	 	 	 	 	 	 	 	
Cash Flows From Financing Activities:	  				 				
Repayment of long-term debt	  	 	(185,742	) 	 	 	(52,451	) 	
Repayment of note payable	  	 	(3,000	) 	 	 	—  	  	
Redemption premium payment	  	 	(15,400	) 	 	 	—  	  	
Proceeds from the issuance of debt	  	 	1,455	  	 	 	487,163	  	
Proceeds from issuance of common stock, net of underwriter commissions	  	 	253,800	  	 	 	—  	  	
Repayment of revolving credit facility, net	  	 	—  	  	 	 	(36,000	) 	
Dividends paid to stockholders	  	 	(18,124	) 	 	 	(463,180	) 	
Debt issuance costs	  	 	(13,968	) 	 	 	(7,024	) 	
Offering costs	  	 	(4,694	) 	 	 	—  	  	
	  	 	 	 	 	 	 	 	
Net cash provided by (used in) financing activities	  	 	14,327	  	 	 	(71,492	) 	
	  	 	 	 	 	 	 	 	
Change in Cash and Cash Equivalents	  	 	164,841	  	 	 	76,180	  	
Cash and Cash Equivalents—Beginning of period	  	 	45,675	  	 	 	66,663	  	
	  	 	 	 	 	 	 	 	
Cash and Cash Equivalents—End of period	  	$	210,516	  	 	$	142,843	  	
	  	 	 	 	 	 	 	 	
Supplemental Disclosures of Noncash Investing and Financing Activities	  				 				
Dividends declared, but unpaid	  	$	18,223	  	 	$	40,000	  	
	  	 	 	 	 	 	 	 	
Capital expenditures in accounts payable	  	$	24,449	  	 	$	28,496	  	
	  	 	 	 	 	 	 	 	
See accompanying notes to unaudited condensed consolidated financial statements.
 
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 SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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”) (collectively, the “Company”), owns and operates eleven theme parks within the United States. The Company is majority owned by ten limited partnerships (the “Partnerships”), ultimately owned by affiliates of The Blackstone Group L.P. (“Blackstone”) and certain co-investors. On April 24, 2013, the Company completed an initial public offering in which it sold 10,000,000 shares of common stock and the selling stockholders of the Company sold 19,900,000 shares of common stock, including 3,900,000 shares pursuant to the exercise in full of the underwriters’ over-allotment option. The 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. See further discussion in Note 12-Stockholders’ Equity.
The Company operates SeaWorld theme parks in Orlando, Florida; San Antonio, Texas; and San Diego, California, and Busch Gardens theme parks in Tampa, Florida, and Williamsburg, Virginia. The Company operates water park attractions in Orlando, Florida (Aquatica); San 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, 2012 included in the Company’s prospectus as filed with the SEC on April 18, 2013, pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”). The unaudited condensed consolidated balance sheet as of December 31, 2012 has been derived from the audited consolidated financial statements at that date.
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, 2013 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 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.
 
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SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, “Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income,” which amends Accounting Standards Codification (“ASC”) 220, Comprehensive Income . The amended guidance requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. Additionally, entities are required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. The amended guidance does not change the current requirements for reporting net income or other comprehensive income. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. The adoption of ASU No. 2013-02 did not have a significant impact on the Company’s condensed consolidated financial statements. 
3. EARNINGS PER SHARE
Earnings per share is computed as follows (in thousands, except per share data):

 	 	Three Months Ended September 30,	 	 	Nine Months Ended September 30,	 	
 	 	2013	 	 	2012	 	 	2013	 	 	2012	 	
 	 	Net
Income	 	 	Shares	 	 	Per
Share
Amount	 	 	Net
Income	 	 	Shares	 	 	Per
Share
Amount	 	 	Net
Income	 	 	Shares	 	 	Per
Share
Amount	 	 	Net
Income	 	 	Shares	 	 	Per
Share
Amount	 	
Basic earnings per share	 	$	120,199	  	 	 	89,610	  	 	$	1.34	  	 	$	92,257	  	 	 	82,461	  	 	$	1.12	  	 	$	63,985	  	 	 	86,867	  	 	$	0.74	  	 	$	86,243	  	 	 	82,480	  	 	$	1.05	  	
Effect of dilutive incentive-based awards	 				 	 	596	  	 				 				 	 	913	  	 				 				 	 	664	  	 				 				 	 	821	  	 				
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings per share	 	$	120,199	  	 	 	90,206	  	 	$	1.33	  	 	$	92,257	  	 	 	83,374	  	 	$	1.11	  	 	$	63,985	  	 	 	87,531	  	 	$	0.73	  	 	$	86,243	  	 	 	83,301	  	 	$	1.04	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is determined based on the dilutive effect of unvested restricted stock probable of vesting using the treasury stock method. During the three and nine months ended September 30, 2013 and 2012, there were no anti-dilutive shares of common stock excluded from the computation of diluted earnings per share.
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 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’s consolidated effective tax rate for both the three and nine months ended September 30, 2012 was 40.3% 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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SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
5. OTHER ACCRUED EXPENSES
Other accrued expenses at September 30, 2013 and December 31, 2012, consisted of the following:

 	  	September 30,
2013	 	  	December 31,
2012	 	
Accrued property taxes	  	$	11,108	  	  	$	1,974	  	
Accrued interest	  	 	9,791	  	  	 	3,877	  	
Note payable	  	 	—  	  	  	 	3,000	  	
Self-insurance reserve	  	 	7,800	  	  	 	7,800	  	
Other	  	 	2,349	  	  	 	2,699	  	
	  	 	 	 	  	 	 	 	
Total other accrued expenses	  	$	31,048	  	  	$	19,350	  	
	  	 	 	 	  	 	 	 	
In the three months ended September 30, 2013, the Company paid $3,000 related to a note payable due on September 1, 2013 for the Company’s November 2012 acquisition of Knott’s Soak City, a standalone Southern California water park, from an affiliate of Cedar Fair L.P.
6. LONG-TERM DEBT
Long-term debt as of September 30, 2013 and December 31, 2012 consisted of the following:

 	  	September 30,
2013	 	 	December 31,
2012	 	
Term A Loan	  	$	—  	  	 	$	152,000	  	
Term B Loan	  	 	—  	  	 	 	1,293,774	  	
Term B-2 Loans	  	 	1,401,487	  	 	 	—  	  	
Revolving credit agreement	  	 	—  	  	 	 	—  	  	
Senior Notes	  	 	260,000	  	 	 	400,000	  	
	  	 	 	 	 	 	 	 	
Total long-term debt	  	 	1,661,487	  	 	 	1,845,774	  	
Less discounts	  	 	(17,948	) 	 	 	(21,800	) 	
Less current maturities	  	 	(14,050	) 	 	 	(21,330	) 	
	  	 	 	 	 	 	 	 	
Total long-term debt, net of current maturities	  	$	1,629,489	  	 	$	1,802,644	  	
	  	 	 	 	 	 	 	 	
In conjunction with the Company’s initial public offering completed on April 24, 2013, the Company used $37,000 of the net proceeds received from the offering to repay a portion of the outstanding indebtedness under the then existing Term B Loan and $140,000 to redeem a portion of its Senior Notes at a redemption price of 111.0%, plus accrued and unpaid interest thereon, pursuant to a provision in the indenture governing the Senior Notes that permitted the Company to redeem up to 35% of the aggregate principal amount of the Senior Notes with the net cash proceeds of certain equity offerings and pay estimated premiums and accrued interest thereon. The redemption premium of $15,400 along with a write-off of approximately $5,500 in related discounts and deferred financing costs is included in loss on early extinguishment of debt and write-off of discounts and deferred financing costs on the Company’s unaudited condensed consolidated statements of operations and comprehensive income (loss) for the nine months ended September 30, 2013. See further discussion in Note 12-Stockholders’ Equity.
Senior Secured Credit Facilities
On March 30, 2012, April 5, 2013 and May 14, 2013, SEA entered into Amendments No. 3, 4 and 5, respectively, of the senior secured credit facilities (the “Senior Secured Credit Facilities”).
Amendment No. 3 increased the amount of Term B Loans (“Additional Term B Loans”) by $500,000 for the purposes of financing a dividend payment to the stockholders in the same amount during the three months ended March 31, 2012. The Additional Term B Loans were issued at a discount which was being amortized to interest expense using the weighted average interest method.
 
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SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
Amendment No. 4 amended the terms of the existing Senior Secured Credit Facilities to, among other things, permit SEA to pay certain distributions following an initial public offering and replace the then existing $172,500 senior secured revolving credit facility with a new $192,500 senior secured revolving credit facility. The new senior secured revolving credit facility will mature on the earlier of (a) April 24, 2018 or (b) the 91st day prior to the earlier of (1) the maturity date with respect to Term A Loans with an aggregate principal amount greater than $50,000 outstanding, (2) the maturity date with respect to the Term B Loans with an aggregate principal amount greater than $150,000 outstanding, (3) the maturity date of Senior Notes with an aggregate principal amount greater than $50,000 outstanding and (4) the maturity date of any indebtedness incurred to refinance any of the Term A or Term B Loans or the Senior Notes.
Amendment No. 5 amended the terms of the existing Senior Secured Credit Facilities to, among other things, refinance Term A Loan and Term B Loan into new Term B-2 Loans, extend the final maturity date of the term loan facilities, reduce future principal and interest payments, and provide for additional future borrowings.
The Term B-2 Loans were borrowed in an aggregate principal amount of $1,405,000. Borrowings under the Term B-2 Loans 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 for the interest period relevant to such borrowing. The 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 leverage ratio. At September 30, 2013, the Company selected the LIBOR rate (interest rate of 3.00% at September 30, 2013).
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 the Amendment No. 5 effective date, with the first payment due and paid on September 30, 2013 and the balance due on the final maturity date. The Term B-2 Loans have a final maturity date of May 14, 2020. Amendment No. 5 also permits SEA to 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 net leverage ratio, as defined in the Senior Secured Credit Facility, is no greater than 3.50 to 1.00.
As a result of Amendment No. 5, approximately $11,500 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 statements of operations and comprehensive income (loss) for the nine months ended September 30, 2013. As a result of Amendments No. 4 and 5, the Company capitalized fees totaling approximately $14,000. Deferred financing costs, net of accumulated amortization, were $34,275 and $44,103 as of September 30, 2013 and December 31, 2012, respectively, are being amortized to interest expense using the weighted average interest method and are included in other assets in the accompanying unaudited condensed consolidated balance sheets.
SEA had no amounts outstanding at September 30, 2013 and December 31, 2012, relating to the Revolving Credit Facility. As of September 30, 2013, the Company had approximately $18,500 of outstanding letters of credit, leaving approximately $174,000 available for borrowing.
On August 9, 2013, SEA entered into Amendment No. 6 of the Senior Secured Credit Facilities. Amendment No. 6 amends the calculation of the Company’s covenant Adjusted EBITDA to allow the add back of the termination fee paid in connection with the termination of the 2009 Advisory Agreement between the Company and affiliates of Blackstone. See Note 9-Related-Party Transactions for further discussion.
Senior Notes
In conjunction with the execution of Amendment No. 3 to the Senior Secured Credit Facilities, SEA also entered into the Second Supplemental Indenture (the “Second Supplemental Indenture”) dated March 30, 2012 relating to the Senior Notes. Among other matters, the Second Supplemental Indenture granted waivers to allow SEA to issue the additional $500,000 of Term B Loans to fund the dividend payment discussed above and decreased the interest rate on the Senior Notes from 13.5% per annum to 11% per annum. SEA can redeem the Senior Notes at any time and the Senior Notes are unsecured. Interest is paid semi-annually in arrears. Prior to
 
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SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
December 1, 2014, the Company 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. The Second Supplemental Indenture also increased the minimum covenant leverage ratio from 2.75 to 1.00 to 3.00 to 1.00.
In conjunction with the execution of Amendment No. 4 to the Senior Secured Credit Facilities, SEA also entered into the Fourth Supplemental Indenture, dated April 5, 2013 (the “Fourth Supplemental Indenture”). The Fourth Supplemental Indenture increased by $20,000 the amount of debt that the Company can incur and have outstanding at one time under the Senior Secured Credit Facilities and amended the transactions with affiliates covenant to allow for the payment of a termination fee, not to exceed $50,000, in connection with the termination of the advisory agreement between the Company and affiliates of Blackstone (see Note 9-Related-Party Transactions).
As of September 30, 2013, the Company was in compliance in all material respects with all covenants in the provisions contained in the documents governing the Senior Secured Credit Facilities and in the indenture governing the Senior Notes.
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 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 Amendment No. 5, 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 three month BBA LIBOR; and has interest settlement dates occurring on the last day of December, March, June and September through maturity. SEA designated such interest rate swap agreements 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 $11,804 and $59,685 for the three and nine month periods ending September 30, 2013, respectively, and $15,026 and $66,201 for the three and nine month periods ending September 30, 2012, respectively.
Long-term debt at September 30, 2013, is repayable as follows, not including any possible prepayments:

Years Ending December 31,	  	 	 	
2013	  	$	3,512	  	
2014	  	 	14,050	  	
2015	  	 	14,050	  	
2016	  	 	274,050	  	
2017	  	 	14,050	  	
Thereafter	  	 	1,341,775	  	
	  	 	 	 	
Total	  	$	1,661,487	  	

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SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
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, 2013 and December 31, 2012, 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, 2013, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. As of September 30, 2013, the Company had two outstanding interest rate swaps with a combined notional value of $550,000 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 the interest rate swaps to match the refinanced debt. The restructuring of the interest rate swap 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 loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three and nine months ended September 30, 2013, there was no ineffective portion recognized in earnings. Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next 12 months, the Company estimates that an additional $1,567 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, 2013:

 	  	Asset Derivatives
As of September 30, 2013	 	  	Liability Derivatives
As of September 30, 2013	 	
 	  	Balance Sheet
Location	  	Fair Value	 	  	Balance Sheet
Location	  	Fair Value	 	
Derivatives designated as hedging instruments:	  		  				  		  				
Interest rate swaps	  	Other assets	  	$	347	  	  	Other liabilities	  	$	—  	  	
	  		  	 	 	 	  		  	 	 	 	
Total derivatives designated as hedging instruments	  		  	$	347	  	  		  	$	—  	  	
	  		  	 	 	 	  		  	 	 	 	
The unrealized gain on derivatives is recorded net of a tax benefit of $675 and a tax expense of $741 for the three and nine months ended September 30, 2013, respectively, and is included within the unaudited condensed consolidated statements of operations and comprehensive income (loss).
 
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SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
Tabular Disclosure of the Effect of Derivative Instruments on the Statements of Operations and Comprehensive Income (Loss)
The table below presents the pre-tax effect of the Company’s derivative financial instruments on the unaudited condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2013:

 	  	Three Months
Ended
September 30, 2013	 	 	Nine Months
Ended
September 30, 2013	 	
Derivatives in Cash Flow Hedging Relationships:	  				 				
(Loss) gain related to effective portion of derivatives recognized in accumulated other comprehensive income	  	$	(1,380	) 	 	$	3,338	  	
Loss related to effective portion of derivatives reclassified from accumulated other comprehensive income to interest expense	  	$	(422	) 	 	$	(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, 2013, the termination value of derivatives in a net asset position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $348. As of September 30, 2013, the Company has posted no collateral related to these agreements. If the Company had breached any of these provisions at September 30, 2013, it could have been required to settle its obligations under the agreements at their termination value of $348.
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 Measurements and Disclosures, 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, 2013 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 10.41% and projected cash flows of the underlying Senior Notes.
 
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SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
The following table presents the Company’s estimated fair value measurements and related classifications as of September 30, 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
September 30,
2013	 	
Assets:	  				  				  				  				
Derivative financial instruments (a)	  	$	—  	  	  	$	347	  	  	$	—  	  	  	$	347	  	
Liabilities:	  				  				  				  				
Long-term obligations (b)	  	$	—  	  	  	$	1,401,487	  	  	$	269,627	  	  	$	1,671,114	  	
 
(a)	Reflected at fair value in the unaudited condensed consolidated balance sheet as other assets of $347. There were no transfers between Levels 1, 2 or 3 during the three or nine months ended September 30, 2013.	
(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 $1,629,489 as of September 30, 2013.	
The Company did not have any assets measured at fair value at December 31, 2012. The following table presents the Company’s estimated fair value measurements and related classifications as of December 31, 2012:

 	  	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,
2012	 	
Liabilities:	  				  				  				  				
Long-term obligations (a)	  	$	—  	  	  	$	1,445,774	  	  	$	416,317	  	  	$	1,862,091	  	
Derivative financial instruments (b)	  	$	—  	  	  	$	1,880	  	  	$	—  	  	  	$	1,880	  	
 
(a)	Reflected at carrying value in the unaudited condensed consolidated balance sheet as current maturities on long-term debt of $21,330 and long-term debt of $1,802,644 as of December 31, 2012.	
(b)	Reflected at fair value in the unaudited condensed consolidated balance sheet as other liabilities of $1,880 at December 31, 2012.	
9. RELATED-PARTY TRANSACTIONS
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, and $2,264 and $5,075 for the three and nine months ended September 30, 2012, respectively. These amounts are included in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss). There were no fees related to these services in the three months ended September 30, 2013 due to the termination of the 2009 Advisory Agreement in April 2013 (see discussion which follows).
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, 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 is recorded as termination of advisory agreement in the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss).
 
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SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
On March 30, 2012, the Company declared and paid a $500,000 cash dividend to its stockholders. In June 2013, the Company’s Board of Directors declared a cash dividend of $0.20 per share to all common stockholders of record at the close of business on June 20, 2013, which was paid on July 1, 2013. In September 2013, the Company’s Board of Directors declared a cash dividend of $0.20 per share to all common stockholders of record at the close of business on September 20, 2013, which was paid on October 1, 2013. In connection with the dividend declarations described above, certain affiliates of Blackstone were paid dividends in the amount of $500,000, $11,749 and $11,749 on March 30, 2012, July 1, 2013 and October 1, 2013, respectively.
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to 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.
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 which 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. Upon vesting of the Employee Units, the Company issued the corresponding number of shares of common stock of the Company to the Partnerships. There was no related cost to the employee upon vesting of the units. As of April 18, 2013, 669,293 Employee Units had been granted under the Employee Unit Plan, net of forfeitures. Separately, certain members of management in 2011 also purchased an aggregate of 29,240 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 consist of Time Restricted shares, and 2.25x and 2.75x Performance Restricted shares (collectively the “Performance Restricted shares”), which, for accounting purposes, were removed from issued and outstanding shares until their restrictions are met, as shown on the accompanying unaudited condensed consolidated statement of changes in stockholders’ equity. The following table sets forth the number of Class D Units and Employee Units surrendered for shares of common stock prior to the consummation of the Company’s initial public offering:
 
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SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 	  	Units	 	  	Shares of
Common Stock	 	
 	  	(not in thousands)	 	
Vested TVUs surrendered for shares of stock	  	 	121,206	  	  	 	727,852	  	
Class D Units surrendered for shares of stock	  	 	29,240	  	  	 	221,290	  	
	  	 	 	 	  	 	 	 	
Total Class D Units and vested TVUs surrendered for shares of stock	  	 	150,446	  	  	 	949,142	  	
	  	 	 	 	  	 	 	 	
Unvested TVUs surrendered for unvested Time Restricted shares of stock	  	 	103,913	  	  	 	599,215	  	
2.25x PVUs surrendered for 2.25x Performance Restricted shares of stock	  	 	222,087	  	  	 	1,308,752	  	
2.75x PVUs surrendered for 2.75x Performance Restricted shares of stock	  	 	222,087	  	  	 	1,308,752	  	
	  	 	 	 	  	 	 	 	
Total unvested TVUs and PVUs surrendered for shares of unvested restricted stock	  	 	548,087	  	  	 	3,216,719	  	
	  	 	 	 	  	 	 	 	
Total units surrendered for shares of stock and unvested restricted stock	  	 	698,533	  	  	 	4,165,861	  	
	  	 	 	 	  	 	 	 	
Time-Vesting Units (TVUs) and Time Restricted Shares
One-third of the Employee Units originally granted vested over five years (20% per year). Generally, the vesting began on the earlier of December 1, 2009, or the grant date. Vesting was contingent upon continued employment. In the event of a change of control (defined as a sale or disposition of the assets of the limited partnership to other than a Blackstone affiliated group or, if any group other than a Blackstone-affiliated entity, becomes the general partner or the beneficial owner of more than 50% interest), the TVUs immediately 100% vested. The TVUs were originally recorded at the fair market value at the date of grant and were being amortized to compensation expense over the vesting period.
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. In accordance with the guidance in ASC 718-20, Compensation-Stock Compensation, the surrender of the Employee Units for shares of common stock and Time Restricted shares qualifies as a modification of an equity compensation plan. As such, the Company calculated the incremental fair value of the TVU awards immediately prior to and after their modification and determined that $282 of incremental equity compensation cost would be recorded upon surrender of the vested TVUs for vested shares of stock in the nine months ended September 30, 2013. The remaining incremental compensation cost of $220 which represents the incremental cost on the unvested TVUs which were surrendered for unvested Time Restricted shares of restricted stock, will be added to the original grant date fair value of the TVU awards and amortized to compensation expense over the remaining vesting period.
Total combined compensation expense related to these TVU and Time Restricted share awards was $606 and $1,537 for the three and nine months ended September 30, 2013 and $305 and $872 for the three and nine months ended September 30, 2012 and is included in selling, general, and administrative expenses in the accompanying unaudited condensed consolidated statement of operations and comprehensive income (loss) and as contributed capital in the accompanying unaudited condensed consolidated statements of stockholders’ equity. Total unrecognized compensation cost related to the unvested Time Restricted shares, expected to be recognized over the remaining vesting term was approximately $1,706 as of September 30, 2013.
 
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SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
The activity related to the TVU and Time Restricted share awards for the nine months ended September 30, 2013, is as follows:

 	  	Employee
Units	 	 	Shares	 	 	Weighted
Average Grant
Date Fair Value
per Unit/Share	 	  	Weighted
Average
Remaining
Contractual
Term	
 	  	(not in thousands)	 	 	 	 	  	 	
Outstanding unvested TVUs at December 31, 2012	  	 	112,701	  	 				 	$	21.70	  	  		
Vested units	  	 	(8,788	) 	 				 	$	22.71	  	  		
TVUs surrendered for unvested Time Restricted shares of stock	  	 	(103,913	) 	 	 	599,215	  	 	$	4.06	  	  		
Vested shares	  				 	 	(31,675	) 	 	$	3.82	  	  		
Forfeited	  				 	 	(2,025	) 	 	$	3.82	  	  		
	  	 	 	 	 	 	 	 	 				  		
Outstanding unvested Time Restricted shares of stock at September 30, 2013	  	 	—  	  	 	 	565,515	  	 	$	4.07	  	  	17 months	
	  	 	 	 	 	 	 	 	 				  		
2.25x and 2.75x Performance Vesting Units (PVUs) and Performance Restricted Shares
Two tranches of the Employee Units vested only if certain events occur. The 2.25x PVUs under the Employee Unit Plan vested if the employee is employed by the Company when and if Blackstone receives cash proceeds (not subject to any clawback, indemnity or similar contractual obligation) in respect of its Partnerships units equal to (x) a 20% annualized effective compounded return rate on Blackstone’s investment and (y) a 2.25x on Blackstone’s investment. The 2.75x PVUs under the Employee Unit Plan vested if the employee is employed by the Company when and if Blackstone received cash proceeds (not subject to any clawback, indemnity or similar contractual obligation) in respect of its Partnerships units equal to (x) a 15% annualized effective compounded return rate on Blackstone’s investment and (y) a 2.75x multiple on Blackstone’s investment. The PVUs had no termination date other than termination of employment from the Company and there were no service or period vesting conditions associated with the PVUs other than employment at the time the benchmark was reached; no compensation was recorded related to these PVUs prior to the modification since their exercise was not considered probable. The unvested Performance Restricted shares received upon surrender of the Employee Unit PVUs contain substantially the same terms and conditions as the previously outstanding PVUs. 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 nine months ended September 30, 2013 or 2012 related to these PVUs or Performance Restricted share awards. In accordance with the guidance in ASC 718-20, Compensation-Stock Compensation, the surrender of the Employee Units for shares of common stock qualifies as a modification of an equity compensation plan. As the Performance Restricted shares were not considered probable of vesting before or after the modification, the Company will use the modification date fair value to record compensation expense related to these awards if the performance conditions become probable within a future reporting period. Total unrecognized compensation expense as of September 30, 2013, was approximately $28,125 and $18,846 for the 2.25x and 2.75x Performance Restricted shares, respectively.
 
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SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
The activity related to the 2.25x Performance Restricted shares for the nine months ended September 30, 2013, is as follows:

 	  	Employee
Units	 	 	Shares	 	
 	  	(not in thousands)	 	
Outstanding 2.25x PVUs at December 31, 2012	  	 	225,051	  	 				
Forfeited	  	 	(2,964	) 	 				
2.25x PVUs surrendered for unvested 2.25x Performance Restricted shares of stock	  	 	(222,087	) 	 	 	1,308,752	  	
Vested	  				 	 	—  	  	
	  	 	 	 	 	 	 	 	
Outstanding unvested 2.25x Performance Restricted shares of stock at September 30, 2013	  	 	—  	  	 	 	1,308,752	  	
	  	 	 	 	 	 	 	 	
The activity related to the 2.75x Performance Restricted shares for the nine months ended September 30, 2013, is as follows:

 	  	Employee
Units	 	 	Shares	 	
 	  	(not in thousands)	 	
Outstanding 2.75x PVUs at December 31, 2012	  	 	225,051	  	 				
Forfeited	  	 	(2,964	) 	 				
2.75x PVUs surrendered for unvested 2.75x Performance Restricted shares of stock	  	 	(222,087	) 	 	 	1,308,752	  	
Vested	  				 	 	—  	  	
	  	 	 	 	 	 	 	 	
Outstanding unvested 2.75x Performance Restricted shares of stock at September 30, 2013	  	 	—  	  	 	 	1,308,752	  	
	  	 	 	 	 	 	 	 	
The fair value of each Employee Unit originally granted was estimated on the date of grant using a composite of the discounted cash flow model and the guideline public company approach to determine the underlying enterprise value. The discounted cash flow model was based upon significant inputs that are not observable in the market. Key assumptions included projected cash flows, a discount rate of 10.5%, and a terminal value. The guideline public company approach uses relevant public company valuation multiples to determine fair value. The value of the individual equity tranches was allocated based upon the Option-Pricing Method model. Significant assumptions included a holding period of 2.6 to 3.6 years, a risk free rate of 0.33% to 1.22%, volatility of approximately 49% to 57%, a discount for lack of marketability, depending upon the units, from 31% to 53% and a 0 dividend yield. Volatility for SEA’s stock at the date of grant was estimated using the average volatility calculated for a peer group, which is based upon daily price observations over the estimated term of units granted.
In order to calculate the incremental fair value at the modification date, the Option-Pricing Method model was used to estimate the fair value prior to the modification. For the fair value after the modification, the initial public offering price of $27.00 per share was used to calculate the fair value of the TVUs while the fair value of the PVUs was estimated using an asset-or-nothing call option approach. Significant assumptions used in both the Option-Pricing Method model and the asset-or-nothing call option approach included a holding period of approximately 2 years from the initial public offering date, a risk free rate of 0.24%, a volatility of approximately 37.6% based on re-levered historical and implied equity volatility of comparable companies and a 0 dividend yield.
2013 Omnibus Incentive Plan
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 of Directors, 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.
 
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SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
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 “2013 Grant”). The shares granted were in the form of time vesting restricted shares (“Time Restricted 2013 shares”), 2.25x performance restricted shares (“2.25x Performance Restricted 2013 shares”) and 2.75x performance restricted shares (“2.75x Performance Restricted 2013 shares”). The activity related to the 2013 Grant for the nine months ended September 30, 2013, is as follows:

 	  	Shares	 	 	Weighted
Average Grant
Date Fair Value
per Share	 	  	Weighted
Average
Remaining
Contractual
Term	
	  	 	(not in thousands	) 	 				  		
2013 Grant	  				 				  		
Granted:	  				 				  		
Time Restricted 2013 shares vesting after initial public offering 180 day lock up period	  	 	85,647	  	 	$	33.52	  	  		
Time Restricted 2013 shares vesting over remaining service period	  	 	82,290	  	 	$	33.52	  	  		
2.25x Performance Restricted 2013 shares	  	 	163,310	  	 	$	30.46	  	  		
2.75x Performance Restricted 2013 shares	  	 	163,310	  	 	$	23.05	  	  		
Vested	  	 	—  	  	 	 	—  	  	  		
Forfeited	  	 	(267	) 	 	$	33.52	  	  		
	  	 	 	 	 				  		
Outstanding 2013 Grant unvested restricted shares at September 30, 2013	  	 	494,290	  	 	$	29.05	  	  	16 months	
	  	 	 	 	 				  		
The vesting terms and conditions of the Time Restricted 2013 shares, the 2.25x Performance Restricted 2013 shares, and the 2.75x Performance Restricted 2013 shares included in the 2013 Grant are substantially the same as those of the previous Employee Unit Plan TVUs, 2.25x PVUs, and 2.75x PVUs, respectively, (see 2.25x and 2.75x Performance Vesting Units (PVUs) and Performance Restricted Shares section). For the Time Restricted 2013 shares, after an initial 180 day post initial public offering lock up period, the vesting schedule from the Employee Unit Plan carries over so that each recipient will vest in the 2013 Grant in the same proportion as they were vested in the previous Employee Unit Plan. The remaining unvested shares will vest over the remaining service period, subject to substantially the same vesting conditions which carried over from the previous Employee Unit Plan.
The grant date fair value for the Time Restricted 2013 shares awarded was determined based on the closing market price of the Company’s stock at the date of grant applied to the total number of shares that are anticipated to fully vest. The fair value of the restricted shares will be recognized as equity compensation on a straight-line basis over the requisite service period as if the award was, in substance, multiple awards consisting of the Time Restricted 2013 shares which vest at the end of the initial public offering 180 day lock up period, and the remaining Time Restricted 2013 shares which vest over the requisite service period. As a result, approximately $1,876 and $3,167 of equity compensation expense was recognized in the three and nine months ended September 30, 2013, respectively, related to the 2013 Grant. As of September 30, 2013, unrecognized equity compensation expense related to the Time Restricted 2013 shares was $491 to be recognized by the end of the initial public offering 180 day lock up period and $1,961 to be recognized over the remaining requisite service period.
The grant date fair value of the 2.25x and 2.75x Performance Restricted 2013 shares was measured using the asset-or-nothing option pricing model. Significant assumptions included a holding period of approximately 2 years from the initial public offering date, a risk free rate of 0.24%, a volatility of approximately 33.2% based on re-levered historical and implied equity volatility of comparable companies and a 0 dividend yield. There is no compensation expense recorded related to the Performance Restricted 2013 shares until their issuance is probable. Total unrecognized compensation expense as of September 30, 2013 for the 2013 Grant was approximately $4,974 and $3,764 for the 2.25x Performance Restricted 2013 shares and 2.75x Performance Restricted 2013 shares, respectively.
 
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SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
As of September 30, 2013, there were 14,505,710 shares of common stock available for future issuance under the Company’s 2013 Omnibus Incentive Plan. Subsequent to September 30, 2013, the Company withheld an aggregate of 21,937 shares of its common stock from employees to satisfy minimum tax withholding obligations relating to the vesting of restricted stock awards. As a result, these shares will be added back to the number of shares of common stock available for future issuance under the Company’s 2013 Omnibus Incentive Plan.
12. STOCKHOLDERS’ EQUITY
As of September 30, 2013, 89,626,525 shares of common stock were issued and outstanding on the accompanying unaudited condensed consolidated balance sheet, which excludes 3,677,309 unvested shares of common stock held by certain participants in the Company’s equity compensation plan (see Note 11 – Equity Compensation).
Stock Split
On April 7, 2013, the Company’s Board of Directors 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 Company’s Board of Directors 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 of Directors 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’ over-allotment option. The shares offered and sold in the offering were registered under the Securities Act pursuant to the Company’s Registration Statement on Form S-1, which was declared effective by the SEC on April 18, 2013. The common stock is listed on the New York Stock Exchange under the symbol “SEAS”.
The Company’s shares of common stock were sold at an initial public offering price of $27.00 per share, which 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 $140,000 in aggregate principal amount of its Senior Notes at a redemption price of 111.0% plus accrued and unpaid interest thereon, pursuant to a provision in the indenture governing the Senior Notes that permits the Company to redeem up to 35% of the aggregate principal amount of the Senior Notes with the net cash proceeds of certain equity offerings. 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). Of the net proceeds received from the offering, $37,000 was used to repay a portion of the outstanding indebtedness under Term B Loan.
Dividends
In March 2012, the Company declared a $500,000 cash dividend to its common stockholders, which at that time consisted of entities controlled by certain affiliates of Blackstone. This dividend was considered a return of capital for both accounting and tax purposes.
In June 2013, the Company’s Board of Directors adopted a policy to pay a regular quarterly dividend. As a result, an initial quarterly cash dividend of $0.20 per share was declared to all common stockholders of record at the close of business on June 20, 2013, which was paid on July 1, 2013. As the Company had an accumulated deficit at the time the dividend was declared, this dividend was 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. In September 2013, the Company’s Board of Directors declared a cash dividend of $0.20 per share to all common stockholders of record at the close of business on September 20, 2013, which was paid on October 1, 2013.
 
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SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
Unvested restricted shares carry dividend rights and therefore the dividends are payable as the shares vest in accordance with the underlying stock compensation grants. As of September 30, 2013, the Company had $18,219 of cash dividends payable included in other current liabilities in the accompanying unaudited condensed consolidated balance sheet. Dividends on the 2.25x and 2.75x Performance Restricted shares, including the 2.25x and 2.75x Performance Restricted 2013 shares (collectively the “Performance Restricted shares”), were approximately $589 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.
13. SUBSEQUENT EVENTS
In connection with the preparation of the unaudited condensed consolidated financial statements, the Company evaluated subsequent events after the condensed consolidated balance sheet date through the date the unaudited condensed consolidated financial statements were issued, to determine whether any events occurred that required recognition or disclosure in the accompanying unaudited condensed consolidated financial statements.
 
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 Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	
The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the “Risk Factors” section of our prospectus. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.
Business Overview
We are a leading theme park and entertainment company delivering personal, interactive and educational experiences that blend imagination with nature and enable our customers to celebrate, connect with and care for the natural world we share. We own or license a portfolio of globally recognized brands, including SeaWorld, Shamu and Busch Gardens. Over our more than 50-year history, we have built a diversified portfolio of 11 destination and regional theme parks that are grouped in key markets across the United States, many of which showcase our one-of-a-kind collection of approximately 67,000 marine and terrestrial animals. Our theme parks feature a diverse array of rides, shows and other attractions with broad demographic appeal which deliver memorable experiences and a strong value proposition for our guests. In addition to our theme parks, we have recently begun to leverage our brands into media, entertainment and consumer products. During the three months ended September 30, 2013, we hosted approximately 8.9 million guests in our theme parks, including approximately 1.3 million international guests. In the three months ended September 30, 2013, we generated total revenues of $538.4 million and net income of $120.2 million. During the nine months ended September 30, 2013, we hosted approximately 18.9 million guests in our theme parks, including approximately 2.9 million international guests. In the nine months ended September 30, 2013, we generated total revenues of $1,188.3 million and net income of $64.0 million.
Key Business Metrics Evaluated by Management
Attendance
We define attendance as the number of guest visits to our theme parks. Increased attendance drives increased admission revenue to our theme parks as well as total in-park spending. The level of attendance at our theme parks is a function of many factors, including the opening of new attractions and shows, weather, global and regional economic conditions, competitive offerings and overall consumer confidence in the economy.
Total Revenue Per Capita
Total revenue per capita, defined as total revenue divided by total attendance, consists of admission per capita and in-park per capita spending:
 
 	•	 	Admission Per Capita.  We calculate admission per capita for any period as total admission revenue divided by total attendance. Theme park admissions accounted for approximately 63% of our revenue for both the three and nine months ended September 30, 2013. For the third quarter of 2013, we reported $38.38 in admission per capita, representing an increase of 9.1% from the third quarter of 2012. For the nine months ended September 30, 2013, we reported $39.50 in admission per capita, representing an increase of 9.6% from the same period in 2012. Admission per capita is driven by ticket pricing, the mix of tickets purchased (such as single day, multi-day and annual pass) and the mix of attendance by theme parks visited.	
 
 	•	 	In-Park Per Capita Spending.  We calculate in-park per capita spending for any period as total food, merchandise and other revenue divided by total attendance. For both the three and nine months ended September 30, 2013, food, merchandise and other revenue accounted for approximately 37% of our total revenue. For the third quarter of 2013, we reported $22.36 of in-park per capita spending, representing an increase of 3.5% from the third quarter of 2012. For the nine months ended September 30, 2013, we reported $23.28 of in-park per capita spending, representing an increase of 4.0% from the same period in 2012. In-park per capita spending is driven by pricing changes, penetration levels (percentage of guests purchasing), new product offerings, the mix of guests and the mix of in-park spending.	
 
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Trends Affecting Our Results of Operations
Our success depends to a significant extent on discretionary consumer spending, which is heavily influenced by general economic conditions and the availability of discretionary income. The recent severe economic downturn, coupled with high volatility and uncertainty as to the future global economic landscape, has had and continues to have an adverse effect on consumers’ discretionary income and consumer confidence. Difficult economic conditions and recessionary periods may adversely impact attendance figures, the frequency with which guests choose to visit our theme parks and guest spending patterns at our theme parks. Historically, our revenue and attendance growth have been highly correlated with domestic economic growth, as reflected in the gross domestic product (“GDP”) and the overall level of growth in domestic consumer spending. For example, in 2009 and 2010, we experienced a decline in attendance as a result of the global economic crisis, which, in turn, adversely affected our revenue and profitability. We expect that forecasted moderate improvements in GDP and growth in domestic consumer spending will have a positive impact on our future performance. Both attendance and total per capita spending at our theme parks are key drivers of our revenue and profitability, and reductions in either can materially adversely affect our business, financial condition, results of operations and cash flows.
Seasonality
The theme park industry is seasonal in nature. Based upon historical results, we generate the highest revenues in the second and third quarters of each year, in part because six of our theme parks are only open for a portion of the year. Approximately two-thirds of our attendance and revenues are generated in the second and third quarters of the year and we typically incur a net loss in the first and fourth quarters. The mix of revenues by quarter is relatively constant, but revenues can shift between the first and second quarters due to the timing of Easter or between the first and fourth quarters due to the timing of Christmas and New Year’s. Even for our five theme parks open year-round, attendance patterns have significant seasonality, driven by holidays, school vacations and weather conditions. One of our goals in managing our business is to continue to generate cash flow throughout the year and minimize the effects of seasonality. In recent years, we have begun to encourage attendance during non-peak times by offering a variety of seasonal programs and events, such as a winter kids festival, spring concert series, and Halloween and Christmas events. In addition, during seasonally slow times, operating costs are controlled by reducing operating hours and show schedules. Employment levels required for peak operations are met largely through part-time and seasonal hiring.
Principal Factors Affecting Our Results of Operations
Revenues
Our revenues are driven primarily by attendance in our theme parks and the level of per capita spending for admission to the theme parks and per capita spending inside the theme parks for culinary, merchandise and other in-park experiences. The level of attendance in our theme parks is a function of many factors, including the opening of new attractions and shows, weather, global and regional economic conditions, competitive offerings and consumer confidence. The per capita spending for admission to the theme parks is driven by ticket pricing, the mix of ticket type purchased (such as single day, multi-day, and annual pass) and the mix of attendance by theme parks visited. In-park per capita spending is driven by pricing changes, penetration levels (percentage of guests purchasing), new product offerings, the mix of guests and the mix of in-park spending. For other factors affecting our revenues, see the “Risk Factors” section of our prospectus.
In addition to the theme parks, we are also involved in entertainment, media, and consumer product businesses that leverage our intellectual property. While these businesses currently do not represent a material percentage of our revenue, they are important strategic drivers in terms of consumer awareness and brand building. We aim to expand these businesses into a greater source of revenue in the future.
Costs and Expenses
The principal costs of our operations are employee salaries, employee benefits, advertising, maintenance, animal care, utilities and insurance. Factors that affect our costs and expenses include commodity prices, costs for construction, repairs and maintenance, other inflationary pressures and attendance levels. A large portion of our expenses is relatively fixed because the costs for full-time employees, maintenance, animal care, utilities, advertising and insurance do not vary significantly with attendance. For factors affecting our costs and expenses, see the “Risk Factors” section of our prospectus.
We barter theme park admission products for advertising and various other products and services. The fair value of the admission products is recognized into revenue and related expenses at the time of the exchange and approximates the fair value of the goods or services received.
 
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Results of Operations
The following discussion provides an analysis of our operating results for the three and nine months ended September 30, 2013 and 2012. This data should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
Comparison of the Three Months Ended September 30, 2013 and 2012
The following table presents key operating and financial information for the three months ended September 30, 2013 and 2012:

 	  	For the Three Months Ended
September 30,	 	
 	  	2013	 	  	2012	 	
 	  	(Unaudited, in thousands,
except per capita data)	 	
Net revenues:	  				  				
Admissions	  	$	340,183	  	  	$	323,529	  	
Food, merchandise and other	  	 	198,206	  	  	 	198,726	  	
	  	 	 	 	  	 	 	 	
Total revenues	  	 	538,389	  	  	 	522,255	  	
	  	 	 	 	  	 	 	 	
Costs and expenses:	  				  				
Cost of food, merchandise and other revenues	  	 	40,422	  	  	 	43,450	  	
Operating expenses	  	 	202,625	  	  	 	191,399	  	
Selling, general and administrative	  	 	47,426	  	  	 	58,807	  	
Depreciation and amortization	  	 	42,322	  	  	 	44,737	  	
	  	 	 	 	  	 	 	 	
Total costs and expenses	  	 	332,795	  	  	 	338,393	  	
	  	 	 	 	  	 	 	 	
Operating income	  	 	205,594	  	  	 	183,862	  	
Other income, net	  	 	13	  	  	 	237	  	
Interest expense	  	 	21,018	  	  	 	29,545	  	
	  	 	 	 	  	 	 	 	
Income before income taxes	  	 	184,589	  	  	 	154,554	  	
Provision for income taxes	  	 	64,390	  	  	 	62,297	  	
	  	 	 	 	  	 	 	 	
Net income	  	$	120,199	  	  	$	92,257	  	
	  	 	 	 	  	 	 	 	
Other data:	  				  				
Attendance	  	 	8,864	  	  	 	9,195	  	
	  	 	 	 	  	 	 	 	
Total revenue per capita	  	$	60.74	  	  	$	56.80	  	
	  	 	 	 	  	 	 	 	
Admissions revenue.  Admissions revenue for the three months ended September 30, 2013 increased $16.7 million (5.1%) to $340.2 million as compared to $323.5 million for the three months ended September 30, 2012. The increase in admissions revenue was a result of a 9.1% increase in admission per capita from $35.19 in the third quarter of 2012 to $38.38 in the third quarter of 2013, offset by a 3.6% decrease in attendance. The improvement in admission per capita was primarily a result of higher ticket pricing and yield management strategies including a reduction in ticket price promotional offerings. Attendance in the quarter decreased partially due to the anticipated impact of these new pricing and yield management strategies, implemented at the beginning of 2013, which increased revenue but reduced low yielding and free attendance. Attendance in the third quarter was also impacted by adverse weather conditions due to above normal precipitation in July in all of the regions that we operate including record precipitation in Florida. Weather conditions improved significantly in August and September.
Food, merchandise and other revenue.  Food, merchandise and other revenue for the three months ended September 30, 2013 decreased by $0.5 million (0.3%) to $198.2 million as compared to $198.7 million for the three months ended September 30, 2012. This decrease was a result of a 3.6% decrease in total attendance, which was largely offset by a 3.5% increase in in-park per capita spending from $21.61 in the third quarter of 2012 to $22.36 in the third quarter of 2013. The increase in in-park per capita spending was primarily due to targeted price increases and increased in-park offerings reflecting our continued efforts to provide incremental and enhanced service offerings.
 
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Costs of food, merchandise and other revenues.  Costs of food, merchandise and other revenues for the three months ended September 30, 2013 decreased $3.0 million (7.0%) to $40.4 million as compared to $43.5 million for the three months ended September 30, 2012. These costs represent 20.4% of related revenue earned for the three months ended September 30, 2013 and 21.9% of related revenue earned for the three months ended September 30, 2012.
Operating expenses.  Operating expenses for the three months ended September 30, 2013 increased $11.2 million (5.9%) to $202.6 million as compared to $191.4 million for the three months ended September 30, 2012. The increase was primarily a result of timing of certain operating expenses, miscellaneous asset write-offs and additional operating costs to support new attractions and our new Aquatica San Diego park which opened in 2013, offset by successful expense reductions implemented during the year. Operating expenses reflected 37.6% of total revenues for the three months ended September 30, 2013 compared to 36.6% for the three months ended September 30, 2012.
Selling, general and administrative.  Selling, general and administrative expenses for the three months ended September 30, 2013 decreased $11.4 million (19.4%) to $47.4 million as compared to $58.8 million for the three months ended September 30, 2012. The decrease was primarily a result of the timing of advertising and media expenses along with the elimination of 2009 Advisory Agreement fees in the third quarter of 2013 due to the termination of this agreement earlier in the year. These decreases were partially offset by additional equity compensation expense primarily related to a new restricted stock grant in April 2013 as well as an increase in corporate salaries due to planned additions to our corporate structure as a result of our initial public offering and the related increased public company requirements. As a percentage of total revenue, selling, general and administrative expenses were 8.8% in the three months ended September 30, 2013 compared to 11.3% in the third quarter of 2012.
Depreciation and amortization.  Depreciation and amortization expense for the three months ended September 30, 2013 decreased $2.4 million (5.4%) to $42.3 million as compared to $44.7 million for the three months ended September 30, 2012 due to the impact of fully depreciated assets offset by new asset additions.
Interest expense.  Interest expense for the three months ended September 30, 2013 decreased $8.5 million (28.9%) to $21.0 million as compared to $29.5 million for the three months ended September 30, 2012, primarily reflecting the effects of the redemption of $140.0 million of our Senior Notes and the repayment of $37.0 million in term loan under our Senior Secured Credit Facilities in April 2013 with a portion of the net proceeds from our initial public offering as well as the impact of Amendment No. 5 to our Senior Secured Credit Facilities, which reduced our interest rate.
Provision for income taxes.  The provision for income taxes for the three months ended September 30, 2013 increased $2.1 million (3.4%) to $64.4 million as compared to $62.3 million for the three months ended September 30, 2012. The increase results from the impact of higher pretax income in the third quarter of 2013 offset by a decrease in our effective income tax rate (from 40.3% to 34.9%). Our effective income tax rate decreased due to certain tax credits along with changes in our state tax compliance structure.
 
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Comparison of the Nine Months Ended September 30, 2013 and 2012
The following table presents key operating and financial information for the nine months ended September 30, 2013 and 2012:

 	  	For the Nine Months Ended
September 30,	 	
 	  	2013	 	  	2012	 	
 	  	(Unaudited, in thousands,
except per capita data)	 	
Net revenues:	  				  				
Admissions	  	$	747,610	  	  	$	715,842	  	
Food, merchandise and other	  	 	440,681	  	  	 	444,737	  	
	  	 	 	 	  	 	 	 	
Total revenues	  	 	1,188,291	  	  	 	1,160,579	  	
	  	 	 	 	  	 	 	 	
Costs and expenses:	  				  				
Cost of food, merchandise and other revenues	  	 	93,224	  	  	 	99,109	  	
Operating expenses	  	 	570,559	  	  	 	560,145	  	
Selling, general and administrative	  	 	149,581	  	  	 	150,571	  	
Termination of advisory agreement	  	 	50,072	  	  	 	—  	  	
Depreciation and amortization	  	 	124,154	  	  	 	122,085	  	
	  	 	 	 	  	 	 	 	
Total costs and expenses	  	 	987,590	  	  	 	931,910	  	
	  	 	 	 	  	 	 	 	
Operating income	  	 	200,701	  	  	 	228,669	  	
Other income, net	  	 	193	  	  	 	2,110	  	
Interest expense	  	 	72,550	  	  	 	86,263	  	
Loss on early extinguishment of debt and write-off of discounts and deferred financing costs	  	 	32,429	  	  	 	—  	  	
	  	 	 	 	  	 	 	 	
Income before income taxes	  	 	95,915	  	  	 	144,516	  	
Provision for income taxes	  	 	31,930	  	  	 	58,273	  	
	  	 	 	 	  	 	 	 	
Net income	  	$	63,985	  	  	$	86,243	  	
	  	 	 	 	  	 	 	 	
Other data:	  				  				
Attendance	  	 	18,926	  	  	 	19,862	  	
	  	 	 	 	  	 	 	 	
Total revenue per capita	  	$	62.79	  	  	$	58.43	  	
	  	 	 	 	  	 	 	 	
Admissions revenue.  Admissions revenue for the nine months ended September 30, 2013 increased $31.8 million (4.4%) to $747.6 million as compared to $715.8 million for the nine months ended September 30, 2012. The increase in revenue was a result of a 9.6% increase in admission per capita from $36.04 in the first nine months of 2012 to $39.50 in the first nine months of 2013 offset largely by a 4.7% decrease in total attendance. The improvement in admission per capita was primarily a result of higher ticket pricing and yield management strategies implemented at the beginning of 2013. Attendance for the first nine months of 2013 declined primarily due to the anticipated impact of these new pricing and yield management strategies, which increased revenue but reduced low yielding and free attendance. Also contributing to the decline was unexpected adverse weather conditions, particularly during the second quarter and in July of 2013. The unfavorable timing of Easter on March 31 in 2013 also contributed to the attendance decline as it caused an overlap with the spring break holiday period for schools in many of our key markets.
Food, merchandise and other revenue.  Food, merchandise and other revenue for the nine months ended September 30, 2013 decreased $4.0 million (0.9%) to $440.7 million as compared to $444.7 million for the nine months ended September 30, 2012. This decrease was a result of the decrease in attendance offset by a 4.0% increase in in-park per capita spending from $22.39 in the nine months ended September 30, 2012 to $23.28 in the nine months ended September 30, 2013. The increase in in-park per capita spending was due to targeted price increases and increased penetration and in-park offerings reflecting our continued efforts to provide incremental and enhanced service offerings.
 
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Costs of food, merchandise and other revenues.  Costs of food, merchandise and other revenues for the nine months ended September 30, 2013 decreased $5.9 million (5.9%) to $93.2 million as compared to $99.1 million for the nine months ended September 30, 2012. These costs represent 21.2% of related revenue earned for the nine months ended September 30, 2013 and 22.3% of related revenue earned for the nine months ended September 30, 2012.
Operating expenses.  Operating expenses for the nine months ended September 30, 2013 increased by $10.4 million (1.9%) to $570.5 million as compared to $560.1 million for the nine months ended September 30, 2012. The increase was primarily a result of increased direct labor costs, additional operating costs to support new attractions and our new Aquatica San Diego park which opened in 2013, and miscellaneous asset write-offs, offset by successful expense reductions implemented during the year. Operating expenses reflected 48.0% of total revenues for the nine months ended September 30, 2013 and 48.3% for the nine months ended September 30, 2012.
Selling, general and administrative.  Selling, general and administrative expenses for the nine months ended September 30, 2013 decreased by $1.0 million (0.7%) to $149.6 million as compared to $150.6 million for the nine months ended September 30, 2012. This decrease was primarily a result of the elimination of the 2009 Advisory Agreement fees due to the termination of this agreement in April 2013, offset by additional equity compensation expense primarily related to a new restricted stock grant in April 2013 as well as an increase in corporate salaries due to planned additions to our corporate structure as a result of our initial public offering and the related increased public company requirements. As a percentage of total revenue, selling, general and administrative expenses were 12.6% in the nine months ended September 30, 2013 compared to 13.0% in the nine months ended September 30, 2012.
Termination of advisory agreement. In connection with the completion of our initial public offering on April 24, 2013, the 2009 Advisory Agreement was terminated. In connection with such termination, we paid a termination fee of $46.3 million to an affiliate of Blackstone and recorded a write-off of $3.8 million in 2013 prepaid advisory fees.
Depreciation and amortization.  Depreciation and amortization expense for the nine months ended September 30, 2013 increased by $2.1 million (1.7%) to $124.2 million as compared to $122.1 million for the nine months ended September 30, 2012 due to the impact of fully depreciated assets offset by new asset additions.
Interest expense.  Interest expense for the nine months ended September 30, 2013 decreased $13.7 million (15.9%) to $72.6 million as compared to $86.3 million for the nine months ended September 30, 2012, primarily reflecting the effects of our March 2012 and May 2013 amendments to the terms of our Senior Secured Credit Facilities, which reduced our interest rates as well as the redemption of $140.0 million of our Senior Notes and the repayment of $37.0 million under our Term B Loan in April 2013 with a portion of the net proceeds from our initial public offering.
Loss on early extinguishment of debt and write-off of discounts and deferred financing costs. Loss on early extinguishment of debt and write-off of discounts and deferred financing costs of $32.4 million for the nine months ended September 30, 2013 relates to a $15.4 million premium paid for the early redemption of $140.0 million of our Senior Notes with a portion of the net proceeds from our initial public offering in April 2013, along with a write-off of approximately $5.5 million in related discounts and deferred financing costs and the write-off of approximately $11.5 million of certain debt issuance costs in connection with Amendment No. 5 to our Senior Secured Credit Facilities.
Provision for income taxes.  The provision for income taxes for the nine months ended September 30, 2013 was $31.9 million compared to $58.3 million in the nine months ended September 30, 2012. The decrease primarily results from the decrease in pretax income in the first nine months of 2013 compared to the first nine months of 2012 along with a decrease in our effective income tax rate (from 40.3% to 33.3%). Our effective income tax rate decreased due to certain tax credits along with changes in our state tax compliance structure.
Liquidity and Capital Resources
Overview
Our principal sources of liquidity are cash generated from operations, funds from borrowings and existing cash on hand. Our principal uses of cash include the funding of working capital obligations, debt service, investments in theme parks (including capital projects), and common stock dividends. As of September 30, 2013, we had a working capital balance of approximately $44.6 million. We typically operate with a working capital deficit and we expect that we will continue to have working capital deficits in the future. The working capital deficits are due in part to a significant deferred revenue balance from revenues paid in advance for our theme park
 
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admissions products and high turnover of in-park products that results in a limited inventory balance. Our cash flow from operations, along with our revolving credit facilities, have allowed us to meet our liquidity needs while maintaining a working capital deficit.
As market conditions warrant and subject to our contractual restrictions and liquidity position, we, our affiliates and/or our major stockholders, including Blackstone and its affiliates, may from time to time repurchase our outstanding equity and/or debt securities, including the Senior Notes and/or our outstanding bank loans in privately negotiated or open market transactions, by tender offer or otherwise. Any such repurchases may be funded by incurring new debt, including additional borrowings under the Senior Secured Credit Facilities. Any new debt may also be secured debt. We may also use available cash on our balance sheet. The amounts involved in any such transactions, individually or in the aggregate, may be material. Further, since some of our debt may trade at a discount to the face amount, any such purchases may result in our acquiring and retiring a substantial amount of any particular series, with the attendant reduction in the trading liquidity of any such series.
In June 2013, our Board of Directors adopted a policy to pay quarterly dividends. As a result, an initial quarterly cash dividend of $0.20 per share was declared to all common stockholders of record at the close of business on June 20, 2013, which was paid on July 1, 2013. Additionally, in September 2013, our Board of Directors declared a cash dividend of $0.20 per share to all common stockholders of record at the close of business on September 20, 2013, which was paid on October 1, 2013. Approximately $17.9 million was paid on both July 1, 2013 and October 1, 2013 related to these dividend declarations. Approximately $0.3 million will be paid as certain time restricted shares vest over their requisite service periods. Dividends on certain performance restricted shares were approximately $1.8 million and will accumulate and be paid only if and to the extent the shares vest in accordance with their terms. See Note 12-Dividends to our unaudited condensed consolidated financial statements for further discussion.
In March 2012, the Board of Directors declared a $500.0 million cash dividend to our common stockholders, which at that time consisted of entities controlled by certain affiliates of Blackstone, of which $463.2 million was paid in the nine months ended September 30, 2012. The amount and timing of any future dividends payable on our common stock is within the sole discretion of our Board of Directors.
We believe that existing cash and cash equivalents, cash flow from operations, and available borrowings under the Senior Secured Credit Facilities will be adequate to meet the capital expenditures, dividends and working capital requirements of our operations for at least the next 12 months.
The following table presents a summary of our cash flows provided by (used in) operating, investing, and financing activities for the periods indicated:

 	  	For the Nine Months Ended
September 30,	 	
 	  	2013	 	 	2012	 	
 	  	(Unaudited, in thousands)	 	
Net cash provided by operating activities	  	$	276,317	  	 	$	302,648	  	
Net cash used in investing activities	  	 	(125,803	) 	 	 	(154,976	) 	
Net cash provided by (used in) financing activities	  	 	14,327	  	 	 	(71,492	) 	
	  	 	 	 	 	 	 	 	
Net increase in cash	  	$	164,841	  	 	$	76,180	  	
	  	 	 	 	 	 	 	 	
Cash Flows from Operating Activities
Net cash provided by operating activities was $276.3 million during the nine months ended September 30, 2013 as compared to $302.6 million during the nine months ended September 30, 2012. Cash provided by operating activities decreased primarily as a result of the cash payment of $46.3 million for the 2009 Advisory Agreement termination fee in conjunction with our initial public offering in April 2013, partially offset by additional cash generated from theme park operations due to an increase in total revenue primarily related to higher admissions revenue.
 
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Cash Flows from Investing Activities
Investing activities consist principally of capital investments we make in our theme parks for future attractions and infrastructure. Net cash used in investing activities during the nine months ended September 30, 2013 consisted primarily of capital expenditures of $125.9 million largely related to future attractions. Net cash used in investing activities during the nine months ended September 30, 2012 consisted of $155.0 million of capital expenditures largely related to a greater number of attractions opening in 2012 due to capital under-investments in previous years.
The amount of our capital expenditures may be affected by general economic and financial conditions, among other things, including restrictions imposed by our borrowing arrangements. We generally expect to fund our 2013 capital expenditures through our operating cash flow.
Cash Flows from Financing Activities
Net cash provided by financing activities during the nine months ended September 30, 2013 was primarily attributable to the receipt of $253.8 million of the proceeds from our initial public offering, net of underwriter discounts and commissions, offset by $185.7 million of repayments of debt which consisted of the redemption of $140.0 million of our Senior Notes and a repayment of $37.0 million of indebtedness under our Term B Loan. During the nine months ended September 30, 2013, we also paid $18.1 million in cash dividends, $15.4 million in a redemption premium for the Senior Notes, $14.0 million in debt issuance costs, $4.7 million in costs incurred in connection with our initial public offering and $3.0 million related to a note payable which was due on September 1, 2013 for the November 2012 acquisition of Knott’s Soak City, a standalone Southern California water park, from an affiliate of Cedar Fair L.P.
Net cash used in financing activities during the nine months ended September 30, 2012 was primarily attributable to cash dividends paid of $463.2 million, $52.5 million in repayments of debt, $36.0 million of repayments on the revolving credit facility and debt issuance costs paid of $7.0 million. This was partially offset by proceeds of $487.2 million from term loan borrowings under the Senior Secured Credit Facilities.
Our Indebtedness
The Company is a holding company and conducts its operations through its subsidiaries, which have incurred or guaranteed indebtedness as described below.
Senior Secured Credit Facilities
SeaWorld Parks and Entertainment, Inc. (“SEA”) is the borrower under our senior secured credit facilities (the “Senior Secured Credit Facilities”). The obligations under the Senior Secured Credit Facilities are fully, unconditionally and irrevocably guaranteed by each of the Company, any subsidiary of the Company that directly or indirectly owns 100% of the issued and outstanding equity interests of SEA, and, subject to certain exceptions, each of SEA’s existing and future material domestic wholly-owned subsidiaries (collectively, the “Guarantors”). The Senior Secured Credit Facilities are collateralized by first priority or equivalent security interests in (i) all the capital stock of, or other equity interests in, substantially all SEA’s direct or indirect domestic subsidiaries (other than a domestic subsidiary that is a subsidiary of a foreign subsidiary) and 65% of the capital stock of, or other equity interests in, any of SEA’s foreign subsidiaries and any of SEA’s domestic subsidiaries that are treated as disregarded entities for U.S. federal income tax purposes if substantially all the assets of such domestic subsidiary consist of equity interests of one or more “controlled foreign corporations” within the meaning of the Internal Revenue Code and (ii) certain tangible and intangible assets of SEA and those of the Guarantors (subject to certain exceptions and qualifications).
As of September 30, 2013, our Senior Secured Credit Facilities consisted of:
 
 	•	 	a $1,401.5 million senior secured term loan facility (the “Term B-2 Loans”), which will mature on the May 14, 2020.	
 
 	•	 	a $192.5 million senior secured revolving credit facility (the “Revolving Credit Facility”), which was not drawn upon at September 30, 2013. The Revolving Credit Facility will mature on the earlier of (a) April 24, 2018 or (b) the 91st day prior to the earlier of (1) the maturity date of Senior Notes with an aggregate principal amount greater than $50.0 million outstanding and (2) the maturity date of any indebtedness incurred to refinance the Term B-2 Loans or the Senior Notes, and includes borrowing capacity available for letters of credit and for short-term borrowings referred to as the swingline borrowings. As of September 30, 2013, we had approximately $18.5 million of outstanding letters of credit, leaving approximately $174.0 million available for borrowing.	
 
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In addition, our Senior Secured Credit Facilities also provide us with the option to raise incremental credit facilities, refinance the loans with debt incurred outside our Senior Secured Credit Facilities and extend the maturity date of the revolving loans and term loans, subject to certain limitations.
The Senior Secured Credit Facilities requires SEA to prepay outstanding term loans, subject to certain exceptions, with (i) 50% of SEA’s annual “excess cash flow” (with step-downs to 25% and 0%, as applicable, based upon SEA’s total leverage ratio), subject to certain exceptions; (ii) 100% of the net cash proceeds of certain non-ordinary course asset sales or other dispositions, subject to reinvestment rights and certain exceptions; and (iii) 100% of the net cash proceeds of any incurrence of debt by SEA or any of its restricted subsidiaries, other than debt permitted to be incurred or issued under the Senior Secured Credit Facilities.
In conjunction with our initial public offering in April 2013, we used $37.0 million of the net proceeds received by us from our initial public offering to repay a portion of the outstanding indebtedness under the then existing Term B Loan.
Amendments to the Senior Secured Credit Facilities
On March 30, 2012, April 5, 2013 and May 14, 2013, SEA entered into Amendments No. 3, 4 and 5, respectively, of the Senior Secured Credit Facilities.
Amendment No. 3 increased the amount of Term B Loans (“Additional Term B Loans”) by $500.0 million for the purposes of financing a dividend payment to the stockholders in the same amount during the three months ended March 31, 2012. The Additional Term B Loans were issued at a discount which was being amortized to interest expense using the weighted average interest method.
Amendment No. 4 amended the terms of the existing Senior Secured Credit Facilities to, among other things, permit SEA to pay certain distributions following an initial public offering and replaced the then existing $172.5 million senior secured revolving credit facility with a new $192.5 million senior secured revolving credit facility.
Amendment No. 5 amended the terms of the existing Senior Secured Credit Facilities to, among other things, refinance Term A Loan and Term B Loan into new Term B-2 Loans, extend the final maturity date of the term loan facilities, reduce future principal and interest payments, and provide for additional future borrowings.
The Term B-2 Loans were borrowed in an aggregate principal amount of $1,405.0 million. Borrowings under the Term B-2 Loans 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 for the interest period relevant to such borrowing. The 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 leverage ratio. At September 30, 2013, we selected the LIBOR rate (interest rate of 3.00% at September 30, 2013).
Term B-2 Loans will 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 the Amendment No. 5 effective date, with the first payment due and paid on September 30, 2013 and the balance due on the final maturity date. The Term B-2 Loans have a final maturity date of May 14, 2020. Amendment No. 5 also permits us to 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 $350.0 million. We 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 net leverage ratio, as defined in the Senior Secured Credit Facility, is no greater than 3.50 to 1.00.
As a result of Amendment No. 5, approximately $11.5 million of debt issuance costs were written off and are included as loss on early extinguishment of debt and write-off of discounts and deferred financing costs on our unaudited condensed consolidated statements of operations and comprehensive income (loss) for the nine months ended September 30, 2013. As a result of Amendments No. 4 and 5, we capitalized fees totaling approximately $14.0 million which are amortized to interest expense using weighted average interest method.
On August 9, 2013, SEA entered into Amendment No. 6 of the Senior Secured Credit Facilities. Amendment No. 6 amends the calculation of the Company’s covenant Adjusted EBITDA to allow the add back of the $46.3 million termination fee paid in connection with the termination of the advisory agreement between the Company and affiliates of Blackstone. See Note 9-Related-Party Transactions to our unaudited condensed consolidated financial statements therein for further discussion.
 
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The Senior Notes
On December 1, 2009, SEA issued $400.0 million aggregate principal amount of 13.5% Senior Notes due 2016. On March 30, 2012, pursuant to an amendment to the indenture governing the Senior Notes, the interest rate was reduced from 13.5% to 11%. Interest on the Senior Notes is payable 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.
The Senior Notes are senior unsecured obligations and:
 
 	•	 	rank senior in right of payment to all existing and future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the Senior Notes;	
 
 	•	 	rank equally in right of payment to all existing and future senior debt and other obligations that are not, by their terms, expressly subordinated in right of payment to the Senior Notes; and	
 
 	•	 	are effectively subordinated in right of payment to all existing and future secured debt (including obligations under the Senior Secured Credit Facilities), to the extent of the value of the assets securing such debt, and are structurally subordinated to all obligations of each of the subsidiaries that is not a guarantor of the Senior Notes.	
We may redeem some or all of the Senior Notes at any time prior to December 1, 2014, 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.
In conjunction with the initial public offering in April 2013, SEA entered into the Fourth Supplemental Indenture to the indenture, dated April 5, 2013 (the “Fourth Supplemental Indenture”). Among other things, the Fourth Supplemental Indenture increased by $20.0 million the amount of debt that we can incur and have outstanding at one time under the Senior Secured Credit Facilities and amended the transactions with affiliates covenant to allow for the payment of a termination fee, not to exceed $50.0 million, in connection with the termination of the 2009 Advisory Agreement.
The Fourth Supplemental Indenture provided additional flexibility under the limitation on restricted payments covenant to permit, following an initial public offering, payments of dividends or other distributions in an amount not exceed the greater of (i) 6% per annum of the net proceeds received by, or contributed to, us and our restricted subsidiaries from the initial public offering and (ii) an aggregate amount per annum not to exceed:
 
 	•	 	$90.0 million, so long as, after giving pro forma effect to such payment, the consolidated total leverage ratio shall be no greater than 5.00 to 1.00 and greater than 4.50 to 1.00;	
 
 	•	 	$120.0 million, so long as, after giving pro forma effect to such payment, the consolidated total leverage ratio shall be no greater than 4.50 to 1.00 and greater than 4.00 to 1.00;	
 
 	•	 	the greater of (a) $120.0 million and (b) 7.5% of “market capitalization”, so long as, after giving pro forma effect to such payment, the consolidated total leverage ratio shall be no greater than 4.00 to 1.00 and greater than 3.50 to 1.00; and	
 
 	•	 	an unlimited amount, so long as, after giving pro forma effect to such payment, the consolidated total leverage ratio shall be no greater than 3.50 to 1.00.	
 
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In conjunction with our initial public offering in April 2013, we used a portion of the net received by us from our initial public offering to redeem $140.0 million in aggregate principal amount on of our Senior Notes at a redemption price of 111.0% pursuant to a provision in the indenture governing the Senior Notes that permitted us to redeem up to 35% of the aggregate principal amount of the Senior Notes with the net cash proceeds of certain equity offerings and to pay estimated premiums and accrued interest thereon. The redemption premium of $15.4 million along with a write-off of approximately $5.5 million in related discounts and deferred financing costs is included as loss on early extinguishment of debt and write-off of discounts and deferred financing costs on our unaudited condensed consolidated statements of operations and comprehensive income (loss) for the nine months ended September 30, 2013.
As of September 30, 2013, we had $260.0 million aggregate principal amount in 11.0% Senior Notes due 2016 outstanding. Interest on the Senior Notes is payable 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.
See Note 6-Long-Term Debt to our unaudited condensed consolidated financial statements therein for further discussion regarding our Term B-2 Loans and Senior Notes.
Covenant Compliance
The Senior Secured Credit Facilities contain a number of significant affirmative and negative covenants. Such covenants, among other things, restrict, subject to certain exceptions, the ability of SEA and its restricted subsidiaries to:
 
 	•	 	incur additional indebtedness, make guarantees and enter into hedging arrangements;	
 
 	•	 	create liens on assets;	
 
 	•	 	enter into sale and leaseback transactions;	
 
 	•	 	engage in mergers or consolidations;	
 
 	•	 	sell assets;	
 
 	•	 	make fundamental changes;	
 
 	•	 	pay dividends and distributions or repurchase SEA’s capital stock;	
 
 	•	 	make investments, loans and advances, including acquisitions;	
 
 	•	 	engage in certain transactions with affiliates;	
 
 	•	 	make changes in nature of the business; and	
 
 	•	 	make prepayments of junior debt.	
The Senior Secured Credit Facilities also contain covenants that (i) require SEA to maintain a (A) maximum net total leverage ratio and (B) minimum interest coverage ratio, and (ii) impose maximum annual capital expenditures requirements.
The indenture governing the Senior Notes contains a number of covenants that, among other things, restrict SEA’s ability and the ability of its restricted subsidiaries to, among other things:
 
 	•	 	dispose of certain assets;	
 
 	•	 	incur additional indebtedness;	
 
 	•	 	pay dividends;	
 
 	•	 	prepay subordinated indebtedness;	
 
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 	•	 	incur liens;	
 
 	•	 	make capital expenditures;	
 
 	•	 	make investments or acquisitions;	
 
 	•	 	engage in mergers or consolidations; and	
 
 	•	 	engage in certain types of transactions with affiliates.	
These covenants are subject to a number of important limitations and exceptions.
The indenture governing the Senior Notes and the credit agreement governing the Senior Secured Credit Facilities provide for certain events of default which, if any of them were to occur, would permit or require the principal of and accrued interest, if any, on the Senior Notes or the loans under the Senior Secured Credit Facilities, respectively, to become or be declared due and payable (subject, in some cases, to specified grace periods).
As of September 30, 2013, we were in compliance in all material respects with all covenants in the provisions contained in the documents governing our Senior Secured Credit Facilities and in the indenture governing the Senior Notes.
Under the indenture governing the Senior Notes and under the credit agreement governing the Senior Secured Credit Facilities, our ability to engage in activities such as incurring additional indebtedness, making investments, refinancing certain indebtedness, paying dividends and entering into certain merger transactions is governed, in part, by our ability to satisfy tests based on covenant Adjusted EBITDA.
The Senior Notes and the Senior Secured Credit Facilities generally define “Adjusted EBITDA” as net income (loss) before interest expense, income tax expense (benefit), depreciation and amortization, as further adjusted to exclude certain unusual, non-cash, and other items permitted in calculating covenant compliance under the indenture governing the Senior Notes and the Senior Secured Credit Facilities.
We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about the calculation of, and compliance with, certain financial covenants in the indenture governing the Senior Notes and in the Senior Secured Credit Facilities. Adjusted EBITDA is a material component of these covenants. In addition, investors, lenders, financial analysts and rating agencies have historically used EBITDA related measures in our industry, along with other measures, to evaluate a company’s ability to meet its debt service requirements, to estimate the value of a company and to make informed investment decisions. We also use Adjusted EBITDA in connection with certain components of our executive compensation program.
Adjusted EBITDA is not a recognized term under accounting principles generally accepted in the United States of America (“GAAP”), and should not be considered in isolation or as a substitute for a measure of our liquidity or performance prepared in accordance with GAAP and is not indicative of income from operations as determined under GAAP. Adjusted EBITDA and other non-GAAP financial measures have limitations which should be considered before using these measures to evaluate our liquidity or financial performance. Adjusted EBITDA, as presented by us, may not be comparable to similarly titled measures of other companies due to varying methods of calculation.
 
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The following table reconciles Adjusted EBITDA to net income for the periods indicated:

 	  	For the Three Months Ended	 	 	For the Nine Months Ended	 	
 	  	September 30,	 	 	September 30,	 	
 	  	2013	 	  	2012	 	 	2013	 	  	2012	 	
 	  	(Unaudited, in thousands)	 	
Net income	  	$	120,199	  	  	$	92,257	  	 	$	63,985	  	  	$	86,243	  	
Provision for income taxes	  	 	64,390	  	  	 	62,297	  	 	 	31,930	  	  	 	58,273	  	
Loss on early extinguishment of debt and write-off of discounts and deferred financing costs (a)	  	 	—  	  	  	 	—  	  	 	 	32,429	  	  	 	—  	  	
Interest expense	  	 	21,018	  	  	 	29,545	  	 	 	72,550	  	  	 	86,263	  	
Depreciation and amortization	  	 	42,322	  	  	 	44,737	  	 	 	124,154	  	  	 	122,085	  	
Termination of advisory agreement (b)	  	 	—  	  	  	 	—  	  	 	 	50,072	  	  	 	—  	  	
Advisory fees (c)	  	 	—  	  	  	 	2,264	  	 	 	2,799	  	  	 	5,075	  	
Equity-based compensation expense (d)	  	 	2,482	  	  	 	320	  	 	 	4,704	  	  	 	1,361	  	
Debt refinancing costs (e)	  	 	111	  	  	 	—  	  	 	 	892	  	  	 	1,000	  	
Other adjusting items (f)	  	 	—  	  	  	 	167	  	 	 	843	  	  	 	167	  	
Other non-cash expenses (g)	  	 	3,894	  	  	 	(10	) 	 	 	8,129	  	  	 	5,282	  	
	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
Adjusted EBITDA	  	 	$254,416	  	  	 	$231,577	  	 	 	$392,487	  	  	 	$365,749	  	

(a)	Reflects a $15.4 million premium paid for the early redemption of $140.0 million of the Company’s Senior Notes using net proceeds from the Company’s initial public offering in April 2013, along with a write-off of approximately $5.5 million in related discounts and deferred financing costs and a write-off of approximately $11.5 million of certain capitalized debt issuance costs in connection with Amendment No. 5 to our Senior Secured Credit Facilities.	
(b)	Reflects a one-time fee of $46.3 million paid by the Company to an affiliate of Blackstone in connection with the termination of the 2009 Advisory Agreement, and a related write-off of prepaid advisory fees of $3.8 million.	
(c)	Reflects fees paid to an affiliate of Blackstone under the 2009 Advisory Agreement. The 2009 Advisory Agreement was terminated on April 24, 2013 in connection with the Company’s initial public offering.	
(d)	Reflects non-cash compensation expense associated with the grants of equity compensation.	
(e)	Reflects costs which were expensed related to the April, May and August 2013 amendments and the March 2012 amendment to the Senior Secured Credit Facilities.	
(f)	Reflects certain acquisition and pre-opening costs related to Aquatica San Diego.	
(g)	Reflects non-cash expenses related to miscellaneous asset write-offs and non-cash gains/losses on foreign currencies.	
Contractual Obligations
There have been no material changes to our contractual obligations from those previously disclosed in our prospectus dated as of, and filed with the SEC on April 18, 2013, other than the long-term debt and interest obligations. As a result of the changes due to Amendment No. 5 to our Senior Secured Credit Facilities, our long-term debt obligations at September 30, 2013 (in thousands), not including any possible prepayments are as follows for the less than one year, 1-3 year, 3-5 year and more than 5 year periods, respectively: $14,050; $14,050; $274,050; and $1,359,337. Our estimated future interest payments for our Senior Secured Credit Facilities and Senior Notes based on interest rates in effect at September 30, 2013 are as follows for the less than one year, 1-3 year, 3-5 year and more than 5 year periods, respectively: $71,920; $142,456; $87,973; and $62,786. Interest obligations also include letter of credit and commitment fees for the used and unused portions of our Revolving Credit Facility. See Note 6-Long-Term Debt to our unaudited condensed consolidated financial statements therein for further discussion.
 
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Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, revenues and expenses, and disclosure of contingencies during the reporting period. Significant estimates and assumptions include the valuation and useful lives of long-lived tangible and intangible assets, the valuation of goodwill and other indefinite-lived intangible assets, the accounting for income taxes, the accounting for self-insurance, revenue recognition and equity-based compensation. Actual results could differ from those estimates. The critical accounting estimates associated with these policies are described in our prospectus under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. These critical accounting policies include property and equipment, impairment of long-lived assets, goodwill and other indefinite-lived intangible assets, accounting for income taxes, self-insurance reserves, and revenue recognition. There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our prospectus.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of September 30, 2013.
Recently Issued Financial Accounting Standards
In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2013-02, “ Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income ,” which amends ASC 220, Comprehensive Income . The amended guidance requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. Additionally, entities are required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. The amended guidance does not change the current requirements for reporting net income or other comprehensive income. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. The adoption of ASU No. 2013-02 did not have a significant impact on our condensed consolidated financial statements. 
 
 Item 3.	Quantitative and Qualitative Disclosures about Market Risk	
Inflation
The impact of inflation has affected, and will continue to affect, our operations significantly. Our costs of food, merchandise and other revenues are influenced by inflation and fluctuations in global commodity prices. In addition, costs for construction, repairs and maintenance are all subject to inflationary pressures.
Interest Rate Risk
We are exposed to market risks from fluctuations in interest rates, and to a lesser extent on currency exchange rates, from time to time, on imported rides and equipment. The objective of our financial risk management is to reduce the potential negative impact of interest rate and foreign currency exchange rate fluctuations to acceptable levels. We do not acquire market risk sensitive instruments for trading purposes.
We manage interest rate risk through the use of a combination of fixed-rate long-term debt and interest rate swaps that fix a portion of our variable-rate long-term debt.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive 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. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. During the next 12 months, our estimate is that an additional $1.6 million will be reclassified as an increase to interest expense.
After considering the impact of interest rate swap agreements, at September 30, 2013, approximately $810.0 million of our outstanding long-term debt represents fixed-rate debt and approximately $851.5 million represents variable-rate debt. Assuming an average balance on our revolving credit borrowings of approximately $40.0 million, a hypothetical 100 bps increase in 30-day LIBOR on our variable-rate debt would lead to an increase of approximately $4.6 million in annual cash interest costs due to the impact of our fixed-rate swap agreements.
 
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 Item 4.	Controls and Procedures	
Evaluation of Disclosure Controls and Procedures
Regulations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), require public companies, including us, to maintain “disclosure controls and procedures,” which are defined in Rule 13a-15(e) and Rule 15d-15(e) to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required or necessary disclosures. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. Our principal executive officer and principal financial officer have concluded, based on the evaluation of the effectiveness of the disclosure controls and procedures by our management as of the end of the fiscal quarter covered by this Quarterly Report, that our disclosure controls and procedures were effective to accomplish their objectives at a reasonable assurance level.
Changes in Internal Control over Financial Reporting
Regulations under the Exchange Act require public companies, including our Company, to evaluate any change in our “internal control over financial reporting” as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. There have been no changes in our internal control over financial reporting during the fiscal quarter covered by this Quarterly Report that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
 PART II — OTHER INFORMATION
 
 Item 1.	Legal Proceedings	
We are subject to various allegations, claims and legal actions arising in the ordinary course of business.
While it is impossible to determine with certainty the ultimate outcome of any of these proceedings, lawsuits and claims, management believes that adequate provisions have been made and insurance secured for all currently pending proceedings so that the ultimate outcomes will not have a material adverse effect on our financial position.
 
 Item 1A.	Risk Factors	
There have been no material changes to our principal risks that we believe are material to our business, results of operations and financial condition, from the risk factors previously disclosed in our prospectus dated as of, and filed with the SEC on April 18, 2013, which is accessible on the SEC’s website at www.sec.gov .
 
 Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	
Not applicable.
 
 Item 3.	Defaults Upon Senior Securities	
Not applicable.
 
 Item 4.	Mine Safety Disclosures	
Not applicable.
 
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 Item 5.	Other Information	
Rule 10b5-1 Plans
Our policy governing transactions in our securities by our directors, officers and employees permits such persons to adopt stock trading plans pursuant to Rule 10b5-1 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Our directors, officers and employees have in the past and may from time to time establish such stock trading plans. We do not undertake any obligation to disclose, or to update or revise any disclosure regarding, any such plans and specifically do not undertake to disclose the adoption, amendment, termination or expiration of any such plans.
Iran Threat Reduction and Syria Human Rights Act of 2012
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) of the Exchange Act, the Company hereby incorporates by reference herein Exhibit 99.1 of this report, which includes disclosures publicly filed and/or provided to Blackstone, an affiliate of our major stockholders, by Travelport Limited which may be considered the Company’s affiliate.
New Director
Effective on November 11, 2013, our Board of Directors (the “Board”), increased the size of the Board to seven members and elected Deborah Thomas as an independent Class III director of the Company to fill the vacancy on the Board. Ms. Thomas has also been appointed to serve on the Board’s Audit Committee. We expect Ms. Thomas to stand for election at the annual meeting of stockholders in 2016.
Ms. Thomas’ compensation for her services as a director will be consistent with that of our other non-employee directors. Accordingly, she will receive the pro rata portion of the annual board member retainer for service on the Board (currently $60,000 per year). Ms. Thomas will also receive our annual board member equity award comprised of restricted shares of our common stock with a value of $120,000 based on the closing price of our common stock on the date of grant, which vests in three equal annual installments on each anniversary of the date of grant.
 
 Item 6.	Exhibits	
See Exhibit Index immediately following signature page hereto, which is incorporated herein by reference.
 
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	 		 	SEAWORLD ENTERTAINMENT, INC.	
	 		 	(Registrant)	
				
Date: November 14, 2013	 		 	By:	 	/s/ James M. Heaney	
	 		 		 	James M. Heaney	
	 		 		 	Chief Financial Officer	
	 		 		 	(Principal Financial Officer)	
				
Date: November 14, 2013	 		 	By:	 	/s/ Marc Swanson	
	 		 		 	Marc Swanson	
	 		 		 	Chief Accounting Officer	
	 		 		 	(Principal Accounting Officer)	
 
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EXHIBIT INDEX
The following is a list of all exhibits filed or furnished as part of this report:

Exhibit No.	  	Description	
		
  10.1	  	Amendment No. 6, dated as of August 9, 2013, to the Credit Agreement, among SeaWorld Parks & Entertainment, Inc. (f/k/a SW Acquisitions Co., Inc.), the guarantors party thereto from time to time, Bank of America, N.A., as administrative agent, collateral agent, L/C issuer and swing line lender, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Bank of America, N.A., as joint lead arrangers, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Capital, Deutsche Bank Securities Inc., Goldman Sachs Lending Partners LLC, J.P. Morgan Securities LLC, Macquarie Capital (USA) Inc. and Mizuho Corporate Banks, Ltd. as joint bookrunners, Deutsche Bank Securities Inc. and Barclays Bank plc, as co-syndication agents, and the other agents and lenders from time to time party thereto (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q filed on August 14, 2013)	
		
  31.1	  	Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002	
		
  31.2	  	Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002	
		
  32.1	  	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	
		
  32.2	  	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	
		
  99.1	  	Section 13(r) Disclosure	
		
101.INS*	  	XBRL Instance Document.	
		
101.SCH*	  	XBRL Taxonomy Extension Schema Document.	
		
101.CAL*	  	XBRL Taxonomy Extension Calculation Linkbase Document.	
		
101.DEF*	  	XBRL Taxonomy Extension Definition Linkbase Document.	
		
101.LAB*	  	XBRL Taxonomy Extension Label Linkbase Document.	
		
101.PRE*	  	XBRL Taxonomy Extension Presentation Linkbase Document.	
 
*	XBRL (Extensible Business Reporting Language) information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.	
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
 
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Exhibit 31.1
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, James Atchison, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended September 30, 2013 of SeaWorld Entertainment, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 14, 2013

/s/ James Atchison	
James Atchison	
Chief Executive Officer	
(Principal Executive Officer )	

Exhibit 31.2
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, James M. Heaney, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended September 30, 2013 of SeaWorld Entertainment, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 14, 2013

/s/ James M. Heaney	
James M. Heaney	
Chief Financial Officer	
(Principal Financial Officer)	

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SeaWorld Entertainment, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2013 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James Atchison, Chief Executive Officer and President, Director of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
 	•	 	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	
 
 	•	 	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.	
Date: November 14, 2013

/s/ James Atchison	
James Atchison	
Chief Executive Officer and President, Director	
(Principal Executive Officer )	

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SeaWorld Entertainment, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2013 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James M. Heaney, Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
 	•	 	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	
 
 	•	 	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.	
Date: November 14, 2013

/s/ James M. Heaney	
James M. Heaney	
Chief Financial Officer	
(Principal Financial Officer)	

Exhibit 99.1
Section 13(r) Disclosure
Travelport Limited, which may be considered our affiliate, included the disclosure reproduced below in its Form 10-Q for the fiscal quarter ended September 30, 2013. We have not independently verified or participated in the preparation of this disclosure.
“The following activities are disclosed as required by Section 13(r)(1)(D)(iii) of the Exchange Act.
As part of our global business in the travel industry, we provide certain passenger travel related GDS and Airline IT Solutions services to Iran Air. We also provide certain Airline IT Solutions services to Iran Air Tours. All of these services are either exempt from applicable sanctions prohibitions pursuant to a statutory exemption in the International Emergency Economic Powers Act permitting transactions ordinarily incident to travel or, to the extent not otherwise exempt, specifically licensed by the U.S. Office of Foreign Assets Control (“OFAC”). Subject to any changes in the exempt/licensed status of such activities, we intend to continue these business activities, which are directly related to and promote the arrangement of travel for individuals.
The gross revenue and net profit attributable to these activities in the quarter ended September 30, 2013 were approximately $164,000 and $122,000, respectively.”