# United Parks & Resorts Inc. (PRKS) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from United Parks & Resorts Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1564902/000156459022007356/seas-10k_20211231.htm
Accession: 0001564590-22-007356
Filing date: 2022-02-28
Report date: 2021-12-31
Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub.
Confidence: high

Company profile: /company/PRKS/
All MD&A years: /company/PRKS/mda/
Next year: /company/PRKS/mda/fy2022/ (FY 2022)

Introduction

The following discussion and analysis is intended to facilitate an understanding of our business and results of operations and should be read in conjunction with our historical consolidated financial statements and the notes thereto in the “Financial Statements and Supplementary Data” section included elsewhere in this Annual Report on Form 10-K. The discussion which follows consists of the following sections:

[[GREPCENT_TABLE]]
[["","\u2022","Business Overview: Provides an overview of the business."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Recent Developments: Provides a discussion concerning recent developments which have impacted the business."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Principal Factors and Trends Affecting our Results of Operations: Provides a discussion concerning the principal factors and trends affecting our results of operations, including a discussion relating to revenue, attendance, costs and expenses and seasonality."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Results of Operations: Provides a discussion of our operating results and applicable year-to-year comparisons including a supplemental discussion of our operating results for the fiscal year ended December 31, 2021 compared to the fiscal year ended December 31, 2019."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Liquidity, Capital Resources and Indebtedness: Provides a discussion of our cash flows, sources and uses of cash, commitments, capital resources and indebtedness as of December 31, 2021."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Critical Accounting Policies and Estimates: Provides a discussion of our critical accounting policies which require the exercise of judgement and the use of estimates."]]
[[/GREPCENT_TABLE]]

Management’s discussion and analysis relating to the fiscal year ended December 31, 2020 and the applicable year-to-year comparisons to the fiscal year ended December 31, 2019 are not included in this Annual Report on Form 10-K but can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which specific discussion is incorporated herein by reference.

Business Overview

We are a leading theme park and entertainment company providing experiences that matter and inspiring guests to protect animals and the wild wonders of our world.  We own or license a portfolio of recognized brands, including SeaWorld, Busch Gardens, Aquatica, Discovery Cove and Sesame Place. Over our more than 60-year history, we have developed a diversified portfolio of 12 differentiated theme parks that are grouped in key markets across the United States.  Many of our theme parks showcase our one-of-a-kind zoological collection and feature a diverse array of both thrill and family-friendly rides, educational presentations, shows and/or other attractions with broad demographic appeal which deliver memorable experiences and a strong value proposition for our guests.

Recent Developments

See the discussion under “Recent Developments” in the “Business” section included elsewhere in this Annual Report on Form 10-K, which includes a discussion relating to the impact of the global COVID-19 pandemic on our business. For other factors concerning the current operating environment and the COVID-19 pandemic, see the “Risk Factors” section of this Annual Report on Form 10-K, including “The COVID-19 pandemic has disrupted our business and could adversely affect our results of operations and/or various other factors beyond our control could materially adversely affect our financial condition and results of operations”, and “If we fail to hire and/or retain employees, our business may be adversely affected”.

Regulatory Developments

See the discussion of relevant regulatory developments under “Recent Regulatory Developments” in the “Business” section included elsewhere in this Annual Report on Form 10-K. For a discussion of certain risks associated with federal and state regulations governing the treatment of animals, see the “Risk Factors” section included elsewhere in this Annual Report on Form 10-K, including “Risks Related to Our Business and Our Industry—We are subject to complex federal and state regulations governing the treatment of animals, which can change, and to claims and lawsuits by activist groups before government regulators and in the courts.”

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Principal Factors and Trends 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 and per capita spending for food and beverage, merchandise and other in-park products. We define attendance as the number of guest visits. Attendance drives admissions revenue as well as total in-park spending. Admissions revenue primarily consists of single-day tickets, annual passes (which generally expire after a 12-month term), season passes (including our fun card products and, collectively with annual passes, referred to as “passes” or “season passes”) or other multi-day or multi-park admission products. Revenue from these admissions products are generally recognized based on attendance.  Certain pass products are purchased through monthly installment arrangements which allow guests to pay over the product’s initial commitment period.  Once the initial commitment period is reached, these products transition to a month-to-month basis providing these guests access to specific parks on a monthly basis with related revenue recognized monthly.  During the period each park was temporarily closed due to the COVID-19 pandemic, which started on March 16, 2020, we did not recognize revenue from the closed park's admission products.

Total revenue per capita, defined as total revenue divided by total attendance, consists of admission per capita and in-park per capita spending:

[[GREPCENT_TABLE]]
[["","\u2022","Admission Per Capita. We calculate admission per capita as total admissions revenue divided by total attendance. Admission per capita is primarily driven by ticket pricing, the admissions product mix (including the impact of pass visitation rates), and the park attendance mix, among other factors. The admissions product mix, also referred to as the attendance or visitation mix, is defined as the mix of attendance by ticket category such as single day, multi-day, annual/season passes or complimentary tickets and can be impacted by the mix of guests as domestic and international guests generally purchase higher admission per capita ticket products than our local guests. A higher mix of complimentary tickets will lower our admissions per capita. Pass visitation rates are the number of visits per pass. A higher number of visits per pass would yield a lower admissions per capita as the revenue is recognized over more visits. The park attendance mix is defined as the mix of theme parks visited and can impact admission per capita based on the theme park\u2019s respective pricing which, on average, is lower for our water parks compared to our other theme parks."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","In-Park Per Capita Spending. We calculate in-park per capita spending as total food, merchandise and other revenue divided by total attendance. Food, merchandise and other revenue primarily consists of food and beverage, merchandise, parking and other in-park products and also includes other miscellaneous revenue, including online transaction fees, not necessarily generated in our parks, which is not significant in the periods presented. In-park per capita spending is primarily driven by pricing changes, new product offerings, the mix of guests (such as local, domestic or international guests), guest penetration levels (percentage of guests purchasing) and the mix of in-park spending, among other factors."]]
[[/GREPCENT_TABLE]]

See further discussion in the “Results of Operations” section which follows and in Note 2–Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.  For other factors affecting our revenues, see the “Risk Factors” section of this Annual Report on Form 10-K.

Attendance

The level of attendance in our theme parks is generally a function of many factors, including affordability, the opening of new attractions and shows, competitive offerings, weather, marketing and sales efforts, awareness and type of ticket and park offerings, travel patterns of both our domestic and international guests, fluctuations in foreign exchange rates and global and regional economic conditions, consumer confidence, the external perceptions of our brands and reputation, industry best practices and perceptions as to safety. The external perceptions of our brands and reputation have at times impacted relationships with some of our business partners, including certain ticket resellers that have terminated relationships with us and other zoological-themed attractions.  

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

As approved vaccines continue to be distributed, the operating environment has improved and COVID-19 related capacity limitations have been eliminated; however, there can be no certainty of the extent and effectiveness of the vaccines or how they will impact these factors and others, including domestic or international travel, group events and group-related attendance, public opinion concerning social gatherings, consumer behavior or federal, state and local regulations related to health protocols, capacity limitations and social gatherings. See the “Risk Factors” section of this Annual Report on Form 10-K for further discussion.

See discussion on seasonality of our attendance in the “Seasonality” section which follows.

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Costs and Expenses

Historically, the principal costs of our operations are employee wages and benefits, driven partly by staffing levels, advertising, maintenance, animal care, utilities and insurance. Factors that affect our costs and expenses include fixed operating costs, competitive wage pressures including minimum wage legislation, commodity prices, costs for construction, repairs and maintenance, other inflationary pressures and attendance levels, among other factors. The mix of products sold compared to the prior year period can also impact our costs as generally retail products have a higher cost of sales component than our food and beverage or other in-park offerings.  

We continue our focus on reducing costs, improving operating margins and streamlining our labor structure to better align with our strategic business objectives.  Since the start of the COVID-19 pandemic, we have spent significant time reviewing our operations and have identified meaningful cost savings opportunities which we believe will further strengthen our business as we return to normalized operations.  

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

For other factors affecting our costs and expenses, see the “Risk Factors” section included elsewhere in this Annual Report on Form 10-K.  Additionally, we maintain valuation allowances for certain deferred tax assets which rely on estimates and assumptions on future financial performance, which may need to be adjusted in the future.  See Note 13–Income Taxes in our notes to the consolidated financial statements for further details.  

We make annual investments to support and improve our existing theme park facilities and attractions.  Maintaining and improving our theme parks, as well as opening new attractions, is critical to remain competitive, grow revenue, and increase our guests’ length of stay.  For further discussion of our new and planned attractions, see “Capital Improvements” in the “Business” section included elsewhere in this Annual Report on Form 10-K.

Seasonality

The theme park industry is seasonal in nature. Historically, we generate the highest revenues in the second and third quarters of each year, in part because seven of our theme parks were historically only open for a portion of the year. As a result, approximately two-thirds of our attendance and revenues were historically generated in the second and third quarters of the year and we generally incurred a net loss in the first and fourth quarters. The percent mix of revenues by quarter is relatively constant each year, but revenues can shift between the first and second quarters due to the timing of Easter and spring break holidays and between the first and fourth quarters due to the timing of holiday breaks around Christmas and New Year. Even for our theme parks which have historically been open year-round, attendance patterns have significant seasonality, driven by holidays, school vacations and weather conditions. Changes in school calendars that impact traditional school vacation breaks could also impact attendance patterns.

Due in part to the temporary park closures in 2020, along with capacity limitations and/or modified/limited operations and other COVID-19 related impacts on our attendance, the COVID-19 pandemic has impacted the seasonality of our business and it is difficult to estimate how the COVID-19 pandemic will impact seasonality in the future. Furthermore, any changes to the operating schedule of a park such as increasing operating days for our historically seasonal parks, could change the impact of seasonality in the future.  During the year ended December 31, 2021, we began year-round operations at our SeaWorld park in Texas and began to operate on select days on a year round basis at both our Busch Gardens park in Virginia and our Sesame Place park in Pennsylvania.

See “Risk Factors” section included elsewhere in this Annual Report on Form 10-K for further discussion of the adverse impacts of the COVID-19 pandemic on our business and financial performance.  

Results of Operations

The following discussion provides an analysis of our operating results for the years ended December 31, 2021 and 2020. The COVID-19 pandemic materially impacted our revenue and results of operations for the year ended December 31, 2020 primarily due to the temporary park closures, effective on March 16, 2020, capacity limitations, and modified/limited operations associated with the COVID-19 pandemic.  As a result, our operating results for the fiscal year ended December 31, 2021 are not directly comparable to the fiscal year ended December 31, 2020.  Our business continues to be impacted by the COVID-19 pandemic; however, we have seen improvement in operating results during the year ended December 31, 2021 due in part to an improving operating environment along with the impact of strategic measures we have taken both before and during the COVID-19 pandemic.  

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See “Attendance” section previously discussed and “Risk Factors” section included elsewhere in this Annual Report on Form 10-K for further discussion of the adverse impacts of the COVID-19 pandemic on our business.

Comparison of the Years Ended December 31, 2021 and 2020

The following data should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. The following table presents key operating and financial information for the years ended December 31, 2021 and 2020:

[[GREPCENT_TABLE]]
[["","","For the Year Ended"],["","","December 31,","","","Variance"],["","","2021","","","2020","","","#","","","%"],["Selected Statements of Comprehensive Income (Loss) Data:","","(In thousands, except per capita data and %)"],["Net revenues:"],["Admissions","","$","851,891","","","$","255,376","","","$","596,515","","","NM"],["Food, merchandise and other","","","651,839","","","","176,403","","","","475,436","","","NM"],["Total revenues","","","1,503,730","","","","431,779","","","","1,071,951","","","NM"],["Costs and expenses:"],["Cost of food, merchandise and other revenues","","","114,287","","","","36,712","","","","77,575","","","NM"],["Operating expenses (exclusive of depreciation and amortization shown separately below)","","","622,419","","","","388,473","","","","233,946","","","","60.2","%"],["Selling, general and administrative expenses","","","184,871","","","","94,885","","","","89,986","","","","94.8","%"],["Severance and other separation costs","","","1,531","","","","2,826","","","","(1,295",")","","","(45.8","%)"],["Depreciation and amortization","","","148,660","","","","150,546","","","","(1,886",")","","","(1.3","%)"],["Total costs and expenses","","","1,071,768","","","","673,442","","","","398,326","","","","59.1","%"],["Operating income (loss)","","","431,962","","","","(241,663",")","","","673,625","","","NM"],["Other expense, net","","","144","","","","276","","","","(132",")","","","(47.8","%)"],["Interest expense","","","116,642","","","","100,907","","","","15,735","","","","15.6","%"],["Loss on early extinguishment of debt and write-off of discounts and debt issuance costs","","","58,827","","","","\u2014","","","","58,827","","","ND"],["Income (loss) before income taxes","","","256,349","","","","(342,846",")","","","599,195","","","NM"],["Benefit from income taxes","","","(164",")","","","(30,525",")","","","30,361","","","NM"],["Net income (loss)","","$","256,513","","","$","(312,321",")","","$","568,834","","","NM"],["Other data:"],["Attendance","","","20,203","","","","6,373","","","","13,830","","","NM"],["Total revenue per capita","","$","74.43","","","$","67.75","","","$","6.68","","","","9.9","%"],["Admission per capita","","$","42.17","","","$","40.07","","","$","2.10","","","","5.2","%"],["In-park per capita spending","","$","32.26","","","$","27.68","","","$","4.58","","","","16.5","%"]]
[[/GREPCENT_TABLE]]

NM-Not meaningful

ND-Not determinable

Admissions revenue. Admissions revenue for the year ended December 31, 2021 increased $596.5 million, or 233.6%, to $851.9 million as compared to $255.4 million for the year ended December 31, 2020.  The improvement was a result of an increase in attendance and admissions per capita. Total attendance for 2021 increased by approximately 13.8 million guests when compared to 2020.  Attendance improved primarily due to an increase in demand and approximately 90% more operating days resulting from a return to more normalized operations in 2021 compared to 2020, which was significantly impacted by the temporary park closures. The increase in operating days more than offset unfavorable impacts on attendance from COVID-19 related impacts including capacity limitations and/or modified/limited operations for some of 2021. Admission per capita increased by 5.2% to $42.17 in 2021 compared to $40.07 in 2020. Admission per capita increased primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts, which was largely offset by the net impact of the park attendance mix and admissions product mix when compared to 2020 due in part to the limited operating days and temporary park closures.

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Food, merchandise and other revenue. Food, merchandise and other revenue for the year ended December 31, 2021 increased $475.4 million, or 269.5% to $651.8 million as compared to $176.4 million for the year ended December 31, 2020.  The increase largely results from the increase in attendance discussed above.  In-park per capita spending increased by 16.5%, to $32.26 in 2021 from $27.68 in 2020. In park per capita spending improved due to a combination of factors including, an improved product mix, the impact of new or enhanced and expanded in-park offerings and higher realized prices when compared to 2020. We believe we also benefited from a strong consumer demand environment which contributed to higher guest spending levels when compared to the prior year.

Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the year ended December 31, 2021 increased $77.6 million, or 211.3%, to $114.3 million as compared to $36.7 million for the year ended December 31, 2020. The increase primarily relates to the increase in attendance as discussed above.  These costs represent 17.5% and 20.8% of related revenue for the years ended December 31, 2021 and 2020, respectively. The decrease as a percent of related revenue primarily reflects a return to more normalized operations and the impact of sourcing cost savings initiatives combined with higher realized prices on our in-park products, which more than offset inflationary pressures.

Operating expenses. Operating expenses for the year ended December 31, 2021 increased by $233.9 million, or 60.2% to $622.4 million as compared to $388.5 million for the year ended December 31, 2020. Operating expenses in 2020 were significantly impacted by limited operating days and hours, furloughs and workforce reductions resulting from limited reopenings and temporary park closures due to the COVID-19 pandemic. As a result, the increase in operating expenses during 2021 primarily results from a return to more normalized operations. In particular, operating expenses increased largely due to labor-related and other operating costs to staff and operate open parks in a more normalized environment, partially offset by structural cost savings initiatives when compared to the prior year. Operating expenses in 2021 were also impacted by approximately $11.9 million of certain nonrecurring contractual liabilities and legal costs resulting from the temporary COVID-19 park closures, an increase of approximately $9.1 million in non-cash equity compensation expenses, and operating costs associated with incremental events added in 2021.  The increase in non-cash equity compensation expense partly relates to the impact of certain performance vesting restricted awards which were previously not considered probable of vesting.  See Note 15–Commitments and Contingencies and Note 19–Equity-Based Compensation to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details. Operating expenses as a percent of revenue were 41.4% for 2021 and are not comparable to 2020 primarily due to the impact of certain operating costs in 2020 which are not dependent on attendance levels.  

Selling, general and administrative expenses. Selling, general and administrative expenses for the year ended December 31, 2021 increased by $90.0 million, or 94.8% to $184.9 million as compared to $94.9 million for the year ended December 31, 2020.  Excluding the impact of approximately $12.5 million in legal settlement proceeds in 2020, selling, general and administrative expenses increased by approximately $77.5 million primarily due to increased marketing-related costs, an increase of $23.2 million in non-cash equity compensation expense and an increase in labor-related costs resulting from the impact of furloughs in 2020, partially offset by the impact of cost savings and efficiency initiatives.  The increased marketing-related costs result from a return to more normalized operations in 2021 as we substantially reduced marketing-related costs due to limited reopenings and temporary park closures in 2020.  The increase in non-cash equity compensation expense partly relates to the impact of certain performance vesting restricted awards which were previously not considered probable of vesting.  See Note 15–Commitments and Contingencies and Note 19–Equity-Based Compensation to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details. Selling, general and administrative expenses as a percent of revenue were 12.3% for the year ended December 31, 2021 and are not comparable to 2020 primarily due to the impact of the temporary park closures.

Severance and other separation costs. Severance and other separation costs for the year ended December 31, 2021 decreased by $1.3 million, or 45.8%, to $1.5 million as compared to $2.8 million for the year ended December 31, 2020.  Severance and other termination costs in 2021 primarily relate to positions which were eliminated in 2021.  Severance and other termination costs in 2020 primarily relates to the 2020 Restructuring Program.  See Note 21–Severance and Other Separation Costs in our notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.   

Depreciation and amortization. Depreciation and amortization expense for the year ended December 31, 2021 decreased by $1.9 million, or 1.3% to $148.7 million as compared to $150.5 million for the year ended December 31, 2020. The decrease primarily relates to a decline in asset additions, particularly in 2020, in part due to strategic efforts as a result of the COVID-19 pandemic along with the impact of asset retirements and fully depreciated assets.

Interest expense. Interest expense for the year ended December 31, 2021 increased $15.7 million, or 15.6% to $116.6 million as compared to $100.9 million for the year ended December 31, 2020. The increase primarily relates to the net impact of interest on the Second-Priority Senior Secured Notes issued in August 2020, the First-Priority Senior Secured Notes issued in April 2020, and the Senior Notes issued in August 2021, partially offset by the impact of a lower average outstanding balance on our Revolving Credit Facility, which was undrawn in 2021, the impact of decreased LIBOR rates and a lower average outstanding balance on our Term Loans. See Note 11–Long-Term Debt to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K and the “Our Indebtedness” section which follows for further details.  

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Loss on early extinguishment of debt and write-off of discounts and debt issuance costs. Loss on early extinguishment of debt and write-off of discounts and debt issuance costs for the year ended December 31, 2021 primarily relate to a write-off of discounts and debt issuance costs resulting from the Refinancing Transactions during the year ended December 31, 2021.  See Note 11–Long-Term Debt to our consolidated financial statements included elsewhere in this Form 10-K and the “Our Indebtedness” section which follows for further details.

Benefit from income taxes. Benefit from income taxes was $0.2 million and $30.5 million in the years ended December 31, 2021 and 2020, respectively. Our consolidated effective tax rate was -0.1% for 2021 compared to 8.9% for 2020.  The effective tax rate decreased primarily due to non-cash valuation allowance adjustments on federal and state net operating loss carryforwards and federal tax credits, impacts from equity-based compensation and changes in state tax rates. See Note 13–Income Taxes in our notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.

Supplemental comparison of the year ended December 31, 2021 to the year ended December 31, 2019

We believe a comparison of selected financial results for the year ended December 31, 2021 to the year ended December 31, 2019 may provide additional insight on our business as 2019 was prior to the impact of the COVID-19 pandemic.  As such, the following supplemental discussion provides an analysis of selected operating results for the year ended December 31, 2021 compared to the year ended December 31, 2019.

[[GREPCENT_TABLE]]
[["","","For the Year Ended"],["","","December 31,","","","Variance"],["","","2021","","","2019","","","#","","","%"],["Selected Statements of Comprehensive Income (Loss) Data:","","(In thousands, except per capita data and %)"],["Net revenues:"],["Admissions","","$","851,891","","","$","802,834","","","$","49,057","","","","6.1","%"],["Food, merchandise and other","","","651,839","","","","595,410","","","","56,429","","","","9.5","%"],["Total revenues","","","1,503,730","","","","1,398,244","","","","105,486","","","","7.5","%"],["Selected costs and expenses:"],["Cost of food, merchandise and other revenues","","","114,287","","","","108,953","","","","5,334","","","","4.9","%"],["Operating expenses (exclusive of depreciation and amortization shown separately below)","","","622,419","","","","649,657","","","","(27,238",")","","","(4.2","%)"],["Selling, general and administrative expenses","","","184,871","","","","261,701","","","","(76,830",")","","","(29.4","%)"],["Other data:"],["Attendance","","","20,203","","","","22,624","","","","(2,421",")","","","(10.7","%)"],["Total revenue per capita","","$","74.43","","","$","61.80","","","$","12.63","","","","20.4","%"],["Admission per capita","","$","42.17","","","$","35.48","","","$","6.69","","","","18.9","%"],["In-park per capita spending","","$","32.26","","","$","26.32","","","$","5.94","","","","22.6","%"]]
[[/GREPCENT_TABLE]]

Admissions revenue. Admissions revenue for the year ended December 31, 2021 increased $49.1 million, or 6.1%, to $851.9 million as compared to $802.8 million for the year ended December 31, 2019. The increase in admissions revenue was primarily a result of an increase in admissions per capita which more than offset a decrease in attendance of approximately 2.4 million guests, or 10.7%.  Admission per capita increased by 18.9% to $42.17 in 2021 compared to $35.48 in 2019. Admission per capita increased primarily due to the realization of higher prices in our admission products resulting from our strategic pricing efforts, along with the net impact of the admissions product mix when compared to 2019. Attendance declined when compared to 2019 primarily due to COVID-19 related impacts including capacity limitations and/or modified/limited operations at our parks for part of 2021.  Attendance was also impacted by a decline from international guest visitation and group-related attendance when compared to 2019.  Excluding international guest visitation and group-related attendance, attendance increased by approximately 2% when compared to 2019.

Food, merchandise and other revenue. Food, merchandise and other revenue for the year ended December 31, 2021 increased $56.4 million, or 9.5%, to $651.8 million as compared to $595.4 million for the year ended December 31, 2019, primarily as a result of an increase in in-park per capita spending, partially offset by a decrease in attendance as discussed above.  In-park per capita spending increased by 22.6% to $32.26 in 2021 compared to $26.32 in 2019. In-park per capita spending improved due to a combination of factors including an improved product mix, higher realized prices and fees and the impact of new, enhanced or expanded in-park offerings when compared to 2019. We believe we also benefited from a strong consumer demand environment which contributed to higher guest spending levels when compared to 2019.

Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the year ended December 31, 2021 increased $5.3 million, or 4.9%, to $114.3 million as compared to $109.0 million for the year ended December 31, 2019.  These costs represent 17.5% and 18.3% of the related revenue earned for the year ended December 31, 2021 and 2019, respectively.  

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The decrease as a percent of related revenue relates to the impact of sourcing cost savings initiatives combined with higher realized prices on some of our in-park products, which more than offset inflationary pressures.  

Operating expenses. Operating expenses for the year ended December 31, 2021 decreased $27.2 million, or 4.2%, to $622.4 million as compared to $649.7 million for the year ended December 31, 2019.  The decrease is primarily due to a net reduction in labor-related costs and other operating costs primarily resulting from structural cost savings initiatives and the impact of modified/limited operations due to COVID-19, partially offset by approximately $11.9 million of certain nonrecurring contractual liabilities and legal costs impacted by the temporary COVID-19 park closures, operating costs associated with incremental operating days and events added in 2021 and an increase of approximately $5.5 million in non-cash equity compensation expense. The increase in non-cash equity compensation expense partly relates to the impact of certain performance vesting restricted awards which were previously not considered probable of vesting.  See Note 15–Commitments and Contingencies and Note 19–Equity-Based Compensation to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details. Operating expenses were 41.4% of total revenues for the year ended December 31, 2021 compared to 46.5% for the year ended December 31, 2019.

Selling, general and administrative expenses. Selling, general and administrative expenses for the year ended December 31, 2021 decreased $76.8 million, or 29.4%, to $184.9 million as compared to $261.7 million for the year ended December 31, 2019.  The decrease primarily relates to the following factors: (i) a targeted reduction in marketing related costs; (ii) a decrease in legal costs primarily related to a legal settlement charge in 2019, net of insurance recoveries, of approximately $32.1 million; (iii) a decline in third-party consulting costs; and (iv) the impact of cost savings and efficiency initiatives.  These factors were partially offset by an increase of $23.1 million in non-cash equity compensation expense (as discussed above). See Note 15–Commitments and Contingencies and Note 19–Equity-Based Compensation to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details. As a percentage of total revenue, selling, general and administrative expenses were 12.3% for the year ended December 31, 2021 compared to 18.7% for the year ended December 31, 2019.

Liquidity and Capital Resources

Overview

Generally, our principal sources of liquidity are cash generated from operations, funds from borrowings and existing cash on hand. Our principal uses of cash include the funding of working capital obligations, debt service, investments in theme parks (including capital projects), share repurchases and/or other return of capital to stockholders, when permitted. As of December 31, 2021, we had a working capital ratio (defined as current assets divided by current liabilities) of 1.5, due in part to our outstanding cash balance at December 31, 2021.  Historically, we typically have operated with a working capital ratio of less than 1 due to significant deferred revenue balance from revenues paid in advance for our theme park admissions products and high turnover of in-park products that result in limited inventory balances. Our cash flow from operations, along with our revolving credit facilities, have historically allowed us to meet our liquidity needs.

As market conditions warrant and subject to our contractual restrictions and liquidity position, we or our affiliates may from time to time purchase our outstanding equity and/or debt securities, including our outstanding bank loans in privately negotiated or open market transactions, by tender offer or otherwise. Any such purchases may be funded by incurring new debt, including additional borrowings under our Senior Secured Credit Facilities. Any new debt may also be secured debt. We may also use available cash on our balance sheet. The amounts involved in any such transactions, individually or in the aggregate, may be material. Further, since some of our debt may trade at a discount to the face amount among current or future syndicate members, any such purchases may result in our acquiring and retiring a substantial amount of any particular series, with the attendant reduction in the trading liquidity of any such series. Depending on conditions in the credit and capital markets and other factors, we will, from time to time, consider other financing transactions, the proceeds of which could be used to refinance our indebtedness or for other purposes.

Share Repurchases

See Note 20–Stockholders’ (Deficit) Equity in our notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information on the Share Repurchase Program.  

Other

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

48

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2021","","","2020","","","2019"],["","","(In thousands)"],["Net cash provided by (used in) operating activities","","$","503,012","","","$","(120,729",")","","$","348,416"],["Net cash used in investing activities","","","(128,854",")","","","(109,175",")","","","(195,193",")"],["Net cash (used in) provided by financing activities","","","(364,897",")","","","624,204","","","","(147,305",")"],["Net increase in cash and cash equivalents, including restricted cash","","$","9,261","","","$","394,300","","","$","5,918"]]
[[/GREPCENT_TABLE]]

Cash Flows from Operating Activities

Net cash provided by operating activities was $503.0 million during the year ended December 31, 2021 as compared to net cash used in operating activities of $120.7 million during the year ended December 31, 2020. Net cash provided by (used in) operating activities was primarily impacted by improved operating performance, including increased sales of admission and other products, partially offset by the impact of increased interest payments in the year ended December 31, 2021 when compared to the year ended December 31, 2020, which was impacted by the temporary park closures.

Net cash used in operating activities was $120.7 million during the year ended December 31, 2020 as compared to net cash provided by operating activities of $348.4 million during the year ended December 31, 2019. Net cash (used in) provided by operating activities in 2020 was primarily impacted by the decline in revenue due to the temporary park closures and limited park reopenings.

Cash Flows from Investing Activities

Investing activities consist principally of capital investments we make in our theme parks for future attractions and infrastructure. Net cash used in investing activities during the year ended December 31, 2021 consisted of capital expenditures of $128.9 million largely related to future attractions (see further breakdown of capital expenditures in the table below). Net cash used in investing activities during the year ended December 31, 2020 consisted of capital expenditures of $109.2 million.

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2021","","","2020","","","2019"],["Capital Expenditures:","","(Unaudited, in thousands)"],["Core(a)","","$","69,402","","","$","94,671","","","$","171,789"],["Expansion/ROI projects(b)","","","59,452","","","","14,504","","","","23,428"],["Capital expenditures, total","","$","128,854","","","$","109,175","","","$","195,217"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(a)","Reflects capital expenditures for park rides, attractions and maintenance activities."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(b)","Reflects capital expenditures for park expansion, new properties, or other revenue and/or expense return on investment (\u201cROI\u201d) projects."]]
[[/GREPCENT_TABLE]]

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. Historically, we generally expect to fund our capital expenditures through our operating cash flow, which was materially impacted in 2020. Due to the COVID-19 pandemic, we took proactive measures starting in March 2020 relating to our capital expenditures including delaying the opening of certain new rides which were originally scheduled to open in 2020 and are now scheduled to open in 2022.

Cash Flows from Financing Activities

Net cash used in financing activities during the year ended December 31, 2021 results primarily from $215.7 million used to repurchase shares, net debt repayments of $133.8 million, which includes the Refinancing Transactions and payments on the Second-Priority Senior Secured Notes, and the payment of tax withholdings on equity-based compensation through shares withheld of $14.5 million. The Refinancing Transactions primarily consisted of $1,934.6 million in repayments of our Term B-5 Loans and Second-Priority Senior Secured Notes, approximately $34.3 million related to a premium paid for redemption of our Second-Priority Senior Secured Notes, and approximately $23.3 million in debt issuance costs partially offset by net proceeds from our Term B Loans and the Senior Notes of $1,922.2 million.

Net cash provided by financing activities during the year ended December 31, 2020 results primarily from net proceeds from our First-Priority Senior Secured Notes and our Second-Priority Senior Secured Notes offering of $713.7 million, partially offset by net repayments on our revolving credit facility of $50.0 million, repayments of $15.5 million on our long-term debt, $12.4 million used to repurchase shares early in the first quarter of 2020 and $7.5 million of debt issuance costs paid in connection with the issuance of the First-Priority Senior Secured Notes and Second-Priority Senior Secured Notes, and as a result of amendments to our senior secured credit facilities.

49

See Note 11–Long-Term Debt to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.

Our Indebtedness

We are a holding company and conduct our operations through our subsidiaries, which have incurred or guaranteed indebtedness as described below. As of December 31, 2021, our indebtedness consisted of senior secured credit facilities, 8.75% first-priority senior secured notes (the “First-Priority Senior Secured Notes”) and 5.25% senior notes due 2029 (the “Senior Notes”).

See discussion which follows and Note 11–Long-Term Debt to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details related to our indebtedness and related debt transactions.

Senior Secured Credit Facilities

SeaWorld Parks & Entertainment, Inc. (“SEA”) is the borrower under the senior secured credit facilities, as amended and restated pursuant to a credit agreement (the “Amended and Restated Credit Agreement”) dated August 25, 2021 (the “Senior Secured Credit Facilities”).

As of December 31, 2021, our Senior Secured Credit Facilities consisted of $1.197 billion in Term B Loans, which will mature in August 2028, along with a $385.0 million Revolving Credit Facility, which had no amounts outstanding as of December 31, 2021 and will mature in August 2026.  As of December 31, 2021, SEA had approximately $20.5 million of outstanding letters of credit, leaving approximately $364.5 million available for borrowing under the Revolving Credit Facility.

First-Priority Senior Secured Notes, Senior Notes and Second-Priority Senior Secured Notes

On April 30, 2020, SEA closed on a private offering of $227.5 million aggregate principal amount of 8.750% First-Priority Senior Secured Notes. On August 5, 2020, SEA closed on a private offering of $500.0 million aggregate principal amount of 9.500% second-priority senior secured notes (the “Second-Priority Senior Secured Notes”), which were fully redeemed during the year ended December 31, 2021.

On August 25, 2021, SEA closed on a private offering of $725.0 million aggregate principal amount of 5.250% senior notes due 2029 (the “Senior Notes”).  

Covenant Compliance

As of December 31, 2021, we were in compliance with all covenants in the credit agreement governing the Senior Secured Credit Facilities and the indentures governing our Senior Notes and First-Priority Senior Secured Notes. See Note 11–Long-Term Debt to our consolidated financial statements for further details relating to our restrictive covenants.

Adjusted EBITDA

We define Adjusted EBITDA as net income (loss) plus (i) income tax (benefit) provision, (ii) interest expense, consent fees and similar financing costs, (iii) depreciation and amortization, (iv) equity-based compensation expense, (v) loss on extinguishment of debt, (vi) non-cash charges/credits related to asset disposals, (vii) certain business optimization, development and strategic initiative costs, (viii) merger, acquisition, integration and certain investment costs, and (ix) other nonrecurring costs including incremental costs associated with the COVID-19 pandemic or similar unusual events.

Under the credit agreement governing the Senior Secured Credit Facilities and the indentures governing our Senior Notes and First-Priority Senior Secured Notes (collectively, the “Debt Agreements”), 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 Adjusted EBITDA as defined in the Debt Agreements (“Covenant Adjusted EBITDA”).  

Covenant Adjusted EBITDA is defined as Adjusted EBITDA plus certain other items as defined in the Debt Agreements, including estimated cost savings among other adjustments.  Cost savings represent annualized estimated savings expected to be realized over the following 24 month period related to certain specified actions including restructurings and cost savings initiatives, net of actual benefits realized during the last twelve months.  Other adjustments include (i) recruiting and retention costs, (ii) public company compliance costs, (iii) litigation and arbitration costs, and (iv) other costs and adjustments as permitted by the Debt Agreements.

50

We believe that the presentation of Adjusted EBITDA is appropriate as it eliminates the effect of certain non-cash and other items not necessarily indicative of a company’s underlying operating performance.  We use Adjusted EBITDA in connection with certain components of our executive compensation program. In addition, investors, lenders, financial analysts and rating agencies have historically used EBITDA related measures in our industry, along with other measures, to estimate the value of a company, to make informed investment decisions and to evaluate companies in the industry. In addition, we believe the presentation of Covenant Adjusted EBITDA for the last twelve months is appropriate as it provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the Debt Agreements. See Note 11–Long-Term Debt to our consolidated financial statements for further details relating to our restrictive covenants.

Adjusted EBITDA and Covenant Adjusted EBITDA are not recognized terms under accounting principles generally accepted in the United States of America (“GAAP”), should not be considered in isolation or as a substitute for a measure of our financial performance prepared in accordance with GAAP and are not indicative of income or loss from operations as determined under GAAP. Adjusted EBITDA, Covenant Adjusted EBITDA and other non-GAAP financial measures have limitations which should be considered before using these measures to evaluate our financial performance. Adjusted EBITDA and Covenant Adjusted EBITDA as presented by us, may not be comparable to similarly titled measures of other companies due to varying methods of calculation.

The following table reconciles Adjusted EBITDA and Covenant Adjusted EBITDA to net income (loss) for the periods indicated:

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2021","","","2020","","","2019"],["","","(In thousands)"],["Net income (loss)","","$","256,513","","","$","(312,321",")","","$","89,476"],["(Benefit from) provision for income taxes","","","(164",")","","","(30,525",")","","","39,528"],["Loss on early extinguishment of debt and write-off of discounts and debt issuance costs (a)","","","58,827","","","","\u2014","","","","\u2014"],["Interest expense","","","116,642","","","","100,907","","","","84,178"],["Depreciation and amortization","","","148,660","","","","150,546","","","","160,557"],["Equity-based compensation expense (b)","","","41,018","","","","7,467","","","","11,106"],["Loss on impairment or disposal of assets and certain non-cash expenses (c)","","","7,099","","","","7,187","","","","3,198"],["Business optimization, development and strategic initiative costs (d)","","","8,759","","","","7,268","","","","27,869"],["Certain investment costs and other taxes (e)","","","830","","","","1,044","","","","5,056"],["COVID-19 related incremental costs (f)","","","22,562","","","","8,808","","","","\u2014"],["Other adjusting items (g)","","","1,302","","","","(13,567",")","","","35,954"],["Adjusted EBITDA (h)","","","662,048","","","","(73,186",")","","","456,922"],["Items added back to Covenant Adjusted EBITDA as defined in the Debt Agreements:"],["Estimated cost savings (i)","","","7,100","","","","\u2014","","","","11,300"],["Other adjustments as defined in the Debt Agreements (j)","","","19,990","","","(j)","","","(j)"],["Covenant Adjusted EBITDA (k)","","$","689,138","","","$","(73,186",")","","$","468,222"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(a)","Reflects a loss on early extinguishment of debt and write-off of discounts and debt issuance costs associated with the Refinancing Transactions. See Note 11\u2013Long-Term Debt to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(b)","Reflects non-cash equity compensation expenses and related payroll taxes associated with the grants of equity-based compensation. For the year ended December 31, 2021, includes equity compensation expense related to certain performance vesting restricted awards which were previously not considered probable of vesting. For the year ended December 31, 2020, includes a reversal of equity compensation for certain performance vesting restricted units which at the time were no longer considered probable of vesting. See Note 19-Equity Based Compensation to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(c)","Reflects primarily non-cash expenses related to asset write-offs and costs related to certain rides and equipment which were removed from service. See Note 8\u2013Property and Equipment, Net, to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(d)","For the year ended December 31, 2021, reflects business optimization, development and other strategic initiative costs primarily related to: (i) $4.2 million of third-party consulting costs; (ii) $3.1 million of other business optimization costs and strategic initiative costs and (iii) $1.5 million of severance and other separation costs associated with positions eliminated."]]
[[/GREPCENT_TABLE]]

51

[[GREPCENT_TABLE]]
[["","For the year ended December 31, 2020, reflects business optimization, development and other strategic initiative costs primarily related to: (i) $3.1 million of third party consulting costs and (ii) $2.8 million of severance and other separation costs primarily related to the 2020 Restructuring Program. See Note 21 \u2013 Severance and Other Separation Costs in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","For the year ended December 31, 2019, reflects business optimization, development and other strategic initiative costs primarily related to: (i) $21.2 million of third-party consulting costs and (ii) $4.2 million of severance and other separation costs associated with positions eliminated."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(e)","For the year ended December 31, 2019, includes approximately $4.3 million relating to expenses associated with the previously disclosed transfer of shares and HP Agreements. See Note 17\u2013Related Party Transactions in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(f)","For the year ended December 31, 2021, includes approximately $11.9 million of nonrecurring contractual liabilities and legal costs impacted by the temporary COVID-19 park closures and approximately $9.0 million of incremental temporary labor-related costs incurred to prepare and staff the parks and other incremental, nonrecurring, temporary incentives paid to attract employees to return to or remain in the workforce during the COVID-19 related environment."]]
[[/GREPCENT_TABLE]]

For the year ended December 31, 2020, primarily includes incremental labor-related costs to prepare and operate the parks with enhanced safety measures, incremental third-party consulting costs primarily related to our COVID-19 response and safety communication strategies, contract termination or modification costs related to impacts from the temporary COVID-19 park closures, legal costs related to COVID-19 related matters, and temporary or initial purchases of safety monitoring and personal protective equipment. These costs were included with other adjusting items in the Adjusted EBITDA calculation previously reported for the year ended December 31, 2020 and have been reclassified to COVID-19 related incremental costs above to conform with the current year presentation.

[[GREPCENT_TABLE]]
[["(g)","For the year ended December 31, 2020, includes approximately $16.9 million of legal settlement proceeds partially offset by approximately $3.3 million in other legal fees. The legal settlement proceeds received in 2020 relate to the following: (i) $12.5 million of insurance proceeds related to a legal settlement gain as previously disclosed and (ii) $4.4 million related to the return of funds previously paid for a legal settlement."]]
[[/GREPCENT_TABLE]]

For the year ended December 31, 2019, includes approximately $32.1 million related to a legal settlement charge, net of insurance recoveries.

See Note 15–Commitments and Contingencies in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.

[[GREPCENT_TABLE]]
[["(h)","Adjusted EBITDA is defined as net income (loss) before income tax expense, interest expense, depreciation and amortization, as further adjusted to exclude certain non-cash, and other items as described above."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(i)","Our Debt Agreements, which were effective for the year ended December 31, 2021, permit the calculation of certain covenants to be based on Covenant Adjusted EBITDA, as defined above, for the last twelve-month period further adjusted for net annualized estimated savings we expect to realize over the following 24-month period related to certain specified actions, including restructurings and cost savings initiatives. These estimated savings are calculated net of the amount of actual benefits realized during such period. These estimated savings are a non-GAAP Adjusted EBITDA add-back item only as defined in the Debt Agreements and does not impact our reported GAAP net income (loss)."]]
[[/GREPCENT_TABLE]]

For the years ended December 31, 2020 and 2019, the estimated cost savings calculation was based on annualized estimated savings we expected to realize over the following 18-month period related to certain specified actions, including restructurings and cost savings initiatives. These estimated savings were calculated net of the amount of actual benefits realized during such period and were limited to 25% of Adjusted EBITDA, calculated for the last twelve months before the impact of these estimated cost savings.

[[GREPCENT_TABLE]]
[["(j)","The Debt Agreements, which were effective for the year ended December 31, 2021, permit our calculation of certain covenants to be based on Covenant Adjusted EBITDA as defined above, for the last twelve-month period further adjusted for certain costs as permitted by the Debt Agreements including recruiting and retention expenses, public company compliance costs and litigation and arbitration costs, if any. Prior to the Debt Agreements, these costs were not permitted adjustments in the calculation, as such, these adjustments are not applicable to the prior years."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(k)","Covenant Adjusted EBITDA is defined in the Debt Agreements as Adjusted EBITDA for the last twelve-month period further adjusted for net annualized estimated savings among other adjustments as described in footnotes (i) and (j) above."]]
[[/GREPCENT_TABLE]]

52

Contractual Obligations

We had no off-balance sheet arrangements as of December 31, 2021. The following table summarizes our principal contractual obligations as of December 31, 2021:

[[GREPCENT_TABLE]]
[["","","Total","","","Less than 1 Year","","","1-3 Years","","","3-5 Years","","","More than 5 Years"],["","","(In thousands)"],["Long-term debt (including current portion)(a)","","$","2,149,500","","","$","12,000","","","$","24,000","","","$","251,500","","","$","1,862,000"],["Interest on long-term debt(b)","","","664,211","","","","101,823","","","","206,520","","","","174,758","","","","181,110"],["Operating and finance leases(c)","","","298,184","","","","23,858","","","","24,346","","","","23,751","","","","226,229"],["Purchase obligations, license commitments and other(d)","","","213,086","","","","149,865","","","","55,987","","","","2,067","","","","5,167"],["Total contractual obligations","","$","3,324,981","","","$","287,546","","","$","310,853","","","$","452,076","","","$","2,274,506"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(a)","Represents principal payments. See Note 11\u2013Long-Term Debt to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(b)","Includes amounts attributable to the Senior Secured Credit Facilities, Senior Notes and First-Priority Senior Notes calculated as of December 31, 2021. See Note 11\u2013Long-Term Debt to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(c)","Represents commitments under long-term operating and finance leases requiring annual minimum lease payments, primarily consisting of the lease for the land of our SeaWorld theme park in San Diego, California. Included in the less than 1 year column is approximately $10.8 million in deferred rent payments and certain fees related to the land lease, which is accrued as of December 31, 2021. See Note 14\u2013Leases to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(d)","We have minimum purchase commitments with various vendors through 2031. Outstanding minimum purchase commitments consist primarily of capital expenditures related to future attractions, infrastructure enhancements for existing facilities and information technology products and services. Amounts have been calculated using early termination fees or non-cancelable minimum contractual obligations by period, as applicable, under contracts that were in effect as of December 31, 2021. In addition, in connection with the Sesame License Agreement, we have made certain commitments including opening a new Sesame Place theme park. As a result, obligations related to this agreement are included in the table above. For further details, refer to Note 15\u2013Commitments and Contingencies in our notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K."]]
[[/GREPCENT_TABLE]]

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, revenues and expenses, and disclosure of contingencies during the reporting period. Significant estimates and assumptions include the valuation and useful lives of long-lived assets, the accounting for income taxes, the accounting for self-insurance and revenue recognition. Actual results could differ from those estimates.

We believe that the following discussion addresses our critical accounting policies which require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. For more discussion of these and other significant accounting policies, refer to Note 2–Summary of Significant Accounting Policies in our notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Impairment of Long-Lived Assets

All long-lived assets, including property and equipment and finite-lived intangible assets, are reviewed for impairment upon the occurrence of events or changes in circumstances that would indicate that the carrying value of the assets may not be recoverable. Assets are grouped and tested at the lowest level for which identifiable, independent cash flows are available. An impairment loss may be recognized when estimated undiscounted future cash flows expected to result from the use of the asset, including disposition, are less than the carrying value of the asset. The measurement of the impairment loss to be recognized is based upon the difference between the estimated fair value and the carrying amounts of the assets. Fair value is generally determined based upon a discounted cash flow analysis. If significant, certain impairment indicators may trigger an impairment review.

53

Accounting for Income Taxes

We are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciation periods for property and equipment and deferred revenue, for tax and financial accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must then assess the likelihood that deferred tax assets (primarily net operating loss and charitable contribution carryforwards) will be recovered from future taxable income. To the extent that we believe that recovery is not more likely than not, a valuation allowance against those amounts is recorded. To the extent that we record a valuation allowance or a change in the valuation allowance during a period, we recognize these amounts as income tax expense or benefit in the consolidated statements of comprehensive income (loss). Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), contains rules that limit the ability of a company that undergoes an ownership change, which is generally any change in ownership of more than 50% of its stock over a rolling three-year period, to utilize its net operating loss carryforwards in years after the ownership change. These rules generally operate by focusing on ownership shifts among stockholders owning directly or indirectly 5% or more of the stock of a company and any change in ownership arising from shares of stock sold by these same stockholders.

Significant management judgment is required in determining our provision or benefit for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets.  Management has analyzed all available evidence, both positive and negative, using a more likely than not standard in assessing the need for a valuation allowance against its deferred income tax assets.  This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecast of future profitability, the duration of the statutory carryback and carryforward periods and tax planning alternatives. Forecasted financial performance is not used as evidence until such time as the Company has cumulative pretax income for a rolling 36-month period. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates we use to manage the underlying business.  

Through December 31, 2020, approximately $65.6 million of valuation allowances were established for some of our deferred tax assets, which, based on our analysis at the time, we believed did not meet the “more likely than not” criteria and would expire before being realized in future periods. Based on our assessment of the realizability of our deferred tax assets during the year ended December 31, 2021, which included a review of current and forecasted financial performance as the Company is now in a cumulative pretax income position, we now believe that some of these deferred tax assets meet the “more likely than not” criteria and will be realized in future periods before they expire. As a result, we reversed our valuation allowances by approximately $60.8 million during the year ended December 31, 2021. As of December 31, 2021, we have a remaining valuation allowance of approximately $4.8 million, net of federal tax benefit, on the deferred tax assets related to state net operating loss carryforwards.

Our valuation allowances, in part, rely on estimates and assumptions related to our future financial performance.  Given the macroeconomic environment related to the COVID-19 pandemic and the uncertainties regarding the related impact on financial performance, our valuation allowances may need to be adjusted in the future.  

For further details, also refer to Note 13–Income Taxes, in our notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Self-Insurance Reserves

Reserves are recorded for the estimated amounts of guest and employee claims and expenses incurred each period that are not covered by insurance. Reserves are established for both identified claims and incurred but not reported (“IBNR”) claims. Such amounts are accrued for when claim amounts become probable and estimable. Reserves for identified claims are based upon our own historical claims experience and third-party estimates of settlement costs. Reserves for IBNR claims are based upon our own claims data history, actuarially determined loss development factors and qualitative considerations such as claims management activities. All reserves are periodically reviewed for changes in facts and circumstances and adjustments are made as necessary.

Revenue Recognition

Admissions revenue primarily consists of single-day tickets, annual or season passes or other multi-day or multi-park admission products.  Food, merchandise and other revenue primarily consists of food and beverage, merchandise and other in-park products and also includes other miscellaneous revenue, which is not significant in the periods presented.  For single-day tickets, we recognize revenue at a point in time, upon admission to the park, and for food, merchandise and other in-park products we recognize revenue when the related products or services are received by our guests.  For annual or season passes and multi-use admission products, revenue is deferred and recognized over the terms of the admission product based on estimated redemption rates for similar products and is adjusted periodically. We estimate redemption rates using historical and forecasted attendance trends by park for similar products. Attendance trends factor in seasonality and are adjusted based on actual trends periodically. These estimated redemption rates impact the timing of when revenue is recognized on these products. Actual results could materially differ from these estimates based on actual attendance patterns. Revenue is recognized on a pro-rata basis based on the estimated allocated selling price of the admission product. For pass products purchased on an installment plan that have met their initial commitment period and have

54

transitioned to a month to month basis, monthly charges are recognized as revenue when payments are received each month, with the exception of payments received during the temporary park closures in 2020. For multi-day admission products, revenue is allocated based on the number of visits included in the pass and recognized ratably based on each admission into the theme park.

Certain admission products may also include bundled products at the time of purchase, such as food and beverage or merchandise items.  We conduct an analysis of bundled products to identify separate distinct performance obligations that are material in the context of the contract. For those products that are determined to be distinct performance obligations and material in the context of the contract, we allocate a portion of the transaction price to each distinct performance obligation using each performance obligation’s standalone price.  If the bundled product is related to a pass product and offered over time, revenue will be recognized over time accordingly.

For further details, also refer to Note 4–Revenues, in our notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.