News Column

SEAWORLD ENTERTAINMENT, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

May 15, 2014

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 Annual Report on Form 10-K. 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 86,000 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 March 31, 2014, we hosted approximately 3.0 million guests in our theme parks, including approximately 0.7 million international guests. In the three months ended March 31, 2014, we generated total revenues of $212.3 million and net loss of $49.4 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 admissions 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 admissions revenue divided by total attendance. Theme park admissions accounted for approximately 65% of our total revenue for the three months ended March 31, 2014. For the first quarter of 2014, we reported $45.12 in admission per capita, representing an increase of 3.6% from the first quarter of 2013. 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 the three months ended March 31, 2014, food, merchandise and other revenue accounted for approximately 35% of our total revenue. For the first quarter of 2014, we reported $24.60 of in-park per capita spending, relatively flat from the first quarter of 2013. 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. 20



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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 revenue per capita at our theme parks are key drivers of our revenue and profitability, and reductions in either can materially adversely affect our business, financial condition, results of operations and cash flows.

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 kid's festivals, special 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. Admission per capita 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 Annual Report on Form 10-K.

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 Annual Report on Form 10-K.

We barter theme park admission products for advertising and various other products and services. The fair value of the admission products is recognized into revenue or contra-expense 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 months ended March 31, 2014 and 2013. 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 March 31, 2014 and 2013

The following table presents key operating and financial information for the three months ended March 31, 2014 and 2013:

For the Three Months Ended March 31, 2014 2013 (Unaudited, amounts in thousands, except per Statement of comprehensive loss data: capita data) Net revenues: Admissions $ 137,386$ 152,426 Food, merchandise and other 74,904 86,184 Total revenues 212,290 238,610 Costs and expenses: Cost of food, merchandise and other revenues 16,760 19,828 Operating expenses (exclusive of depreciation and amortization shown separately below) 167,912 173,260 Selling, general and administrative 45,076 39,987 Secondary offering costs 674 - Depreciation and amortization 41,276 41,408 Total costs and expenses 271,698 274,483 Operating loss (59,408 ) (35,873 ) Other loss (income), net 17 (73 ) Interest expense 20,046 28,606 Loss before income taxes (79,471 ) (64,406 ) Benefit from income taxes (30,040 ) (24,046 ) Net loss $ (49,431 )$ (40,360 ) Other data: Attendance 3,045 3,499 Total revenue per capita $ 69.72$ 68.19



Admissions revenue. Admissions revenue for the three months ended March 31, 2014 decreased $15.0 million (9.9%) to $137.4 million as compared to $152.4 million for the three months ended March 31, 2013. The decrease in admissions revenue was a result of a 13.0% decrease in attendance, offset slightly by a 3.6% increase in admission per capita from $43.56 in the first quarter of 2013 to $45.12 in the first quarter of 2014. Attendance in the quarter was primarily impacted by a shift in the timing of Easter into the second quarter in 2014, which caused a shift in the spring break holiday period for schools in many key source markets. Attendance was also impacted by adverse weather, particularly above average precipitation in the Florida market as well as below average temperatures in the Texas market for the first quarter of 2014. The increase in admission per capita was primarily a result of higher ticket pricing and the mix of ticket products purchased.

Food, merchandise and other revenue. Food, merchandise and other revenue for the three months ended March 31, 2014 decreased by $11.3 million (13.1%) to $74.9 million as compared to $86.2 million for the three months ended March 31, 2013. This decrease was primarily a result of the 13.0% decrease in total attendance. In-park per capita spending was $24.60 for the first quarter of 2014, relatively flat compared to $24.63 in the first quarter of 2013.

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Costs of food, merchandise and other revenues. Costs of food, merchandise and other revenues for the three months ended March 31, 2014 decreased $3.1 million (15.5%) to $16.8 million as compared to $19.8 million for the three months ended March 31, 2013. These costs represent 22.4% of related revenue earned for the three months ended March 31, 2014 and 23.0% of related revenue earned for the three months ended March 31, 2013.

Operating expenses. Operating expenses for the three months ended March 31, 2014 decreased $5.3 million (3.1%) to $167.9 million as compared to $173.3 million for the three months ended March 31, 2013. The decrease was primarily a result of a reduction in variable direct labor costs due to the decline in attendance along with a decrease in miscellaneous asset write-offs, offset partially by increased operating costs to support the launch of our 50thanniversary celebration at our SeaWorld parks. Operating expenses reflected 79.1% of total revenues for the three months ended March 31, 2014 compared to 72.6% for the three months ended March 31, 2013.

Selling, general and administrative. Selling, general and administrative expenses for the three months ended March 31, 2014 increased $5.1 million (12.7%) to $45.1 million as compared to $40.0 million for the three months ended March 31, 2013. The increase was primarily related to increased marketing costs driven by the launch of our SeaWorld brand 50th anniversary celebration and increased labor and benefit costs due to planned additions to our corporate structure as a result of our initial public offering along with increased equity compensation expenses. These increases were offset partially by the elimination of the 2009 Advisory Agreement fees due to the termination of this agreement in April 2013. As a percentage of total revenue, selling, general and administrative expenses were 21.2% in the three months ended March 31, 2014 compared to 16.8% in the first quarter of 2013.

Secondary Offering Costs. Secondary offering costs for the three months ended March 31, 2014 of $0.7 million relate to fees and expenses incurred prior to March 31, 2014 in connection with the secondary offering of our common stock by the selling stockholders that was completed on April 9, 2014. The selling stockholders received all of the net proceeds from the offering and we paid all expenses related to the offering, other than underwriting discounts and commissions. No shares were sold by us in the secondary offering.

Depreciation and amortization. Depreciation and amortization expense for the three months ended March 31, 2014 decreased $0.1 million (less than 1%) to $41.3 million as compared to $41.4 million for the three months ended March 31, 2014 due to the impact of fully depreciated assets offset by new asset additions.

Interest expense. Interest expense for the three months ended March 31, 2014 decreased $8.6 million (29.9%) to $20.0 million as compared to $28.6 million for the three months ended March 31, 2013, 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.

Benefit from income taxes. The benefit from income taxes for the three months ended March 31, 2014 increased $6.0 million (24.9%) to $30.0 million as compared to $24.0 million for the three months ended March 31, 2013. The increase results from the impact of a higher pretax loss in the first quarter of 2014 along with an increase in our effective income tax rate (from 37.3% to 37.8%). Our effective income tax rate increased compared to 2013 due to certain tax credits taken in 2013 that are currently expired.

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 March 31, 2014, we had a working capital deficit of approximately $114.3 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 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

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otherwise. Any such repurchases may be funded by incurring new debt, including additional borrowings under the Senior Secured Credit Facilities. Any new debt may also be secured debt. We may also use available cash on our balance sheet. The amounts involved in any such transactions, individually or in the aggregate, may be material. Further, since some of our debt may trade at a discount to the face amount among current or future syndicate members, any such purchases may result in our acquiring and retiring a substantial amount of any particular series, with the attendant reduction in the trading liquidity of any such series.

In June 2013, the Company's Board of Directors (the "Board") adopted a policy to pay, subject to legally available funds, a regular quarterly dividend. The Board declared quarterly cash dividends of $0.20 per share to all common stockholders of record at the close of business on June 20, 2013, September 20, 2013, December 20, 2013, and March 20, 2014 which were paid on July 1, 2013, October 1, 2013, January 3, 2014 and April 1, 2014, respectively. Approximately $17.9 million was paid on both July 1 and October 1, 2013 and approximately $17.7 million was paid on both January 3 and April 1, 2014 related to these dividend declarations. On May 13, 2014, the Board declared a cash dividend of $0.21 per share, payable on July 1, 2014, to all common stockholders of record at the close of business on June 20, 2014. The amount and timing of any future dividends payable on our common stock is within the sole discretion of our Board of Directors.

Approximately $0.3 million of dividends declared through March 31, 2014, will be paid as certain time restricted shares vest over their requisite service periods. Dividends on certain performance restricted shares were approximately $2.3 million and will accumulate and be paid only if and to the extent the shares vest in accordance with their terms. See Note 12-Stockholders' Equity to our unaudited condensed consolidated financial statements for further discussion.

Concurrently with the closing of the secondary offering on December 17, 2013, we repurchased 1.5 million shares of our common stock directly from the selling stockholders in a private, non-underwritten transaction. All repurchased shares are recorded as treasury stock at a cost of $44.2 million and reflected as a reduction to stockholders' equity at March 31, 2014 and December 31, 2013.

Concurrently with the closing of the secondary offering on April 9, 2014, we repurchased 1.75 million shares of our common stock directly from the selling stockholders in a private, non-underwritten transaction. All repurchased shares will be recorded as treasury stock at a cost of approximately $50.7 million.

In March 2014, we executed a new interest rate swap agreement to effectively fix the interest rate on $450.0 million of the Term B-2 Loans. The interest rates swap has an effective date of March 31, 2014, has a notional amount of $450.0 million and is scheduled to mature on September 30, 2016.

Subsequent to March 31, 2014, we drew $40.0 million on our senior secured revolving credit facility for working capital requirements and have repaid $25.0 million.

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 Three Months Ended March 31, 2014 2013 (Unaudited, amounts in thousands) Net cash provided by operating activities $ 13,011$ 24,174 Net cash used in investing activities (47,331 ) (32,786 ) Net cash (used in) provided by financing activities (21,281 ) 22,304



Net (decrease) increase in cash and cash equivalents $ (55,601 )$ 13,692

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Cash Flows from Operating Activities

Net cash provided by operating activities was $13.0 million during the three months ended March 31, 2014 as compared to $24.2 million during the three months ended March 31, 2013. Cash provided by operating activities decreased largely as a result of a decrease in total revenue primarily related to lower admissions revenue resulting from a decrease in attendance offset by favorable changes in our working capital accounts.

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 three months ended March 31, 2014 consisted primarily of capital expenditures of $46.8 million largely related to future attractions. Net cash used in investing activities during the three months ended March 31, 2013 consisted of $32.3 million of capital expenditures primarily related to future attractions which opened later in 2013.

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 2014 capital expenditures through our operating cash flow.

Cash Flows from Financing Activities

Net cash used in financing activities during the three months ended March 31, 2014 was primarily attributable to $17.7 million in cash dividends paid to common stockholders along with a $3.5 million repayment of our Term B-2 Loan under the Senior Secured Credit Facilities, as defined below.

Net cash provided by financing activities during the three months ended March 31, 2013 was primarily attributable to proceeds of $35.0 million from the draw down on our Revolving Credit Facility, as defined below, offset by a $5.2 million repayment of term loan borrowings under our Senior Secured Credit Facilities, a $5.0 million repayment on our Revolving Credit Facility and $2.3 million paid in offering costs.

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") pursuant to a credit agreement dated as of December 1, 2009, by and among SEA, as borrower, Bank of America, N.A., as administrative agent, collateral agent, letter of credit issuer and swing line lender and the other agents and lenders party thereto, as the same may be amended, restated, supplemented or modified from time to time.

As of March 31, 2014, our Senior Secured Credit Facilities consisted of a $1,394.5 million senior secured term loan facility (the "Term B-2 Loans"), which will mature on May 14, 2020 and a $192.5 million senior secured revolving credit facility (the "Revolving Credit Facility"), which was not drawn upon at March 31, 2014. The Revolving Credit Facility will mature on the earlier of (a) April 24, 2018 and (b) the 91st day prior to the earlier of (1) the maturity date of Senior Notes with an aggregate principal amount greater than $50.0 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 swing line borrowings. As of March 31, 2014, we had approximately $23.5 million of outstanding letters of credit. Subsequent to March 31, 2014, we drew $40.0 million on the Revolving Credit Facility and have repaid $25.0 million.

Borrowings under our Senior Secured Credit Facilities bear interest, at SEA's option, at a rate equal to a margin over either (a) a base rate determined by reference to the higher of (1) 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 LIBOR rate, or the successor thereto if the BBA is no longer making a LIBOR rate available, for the interest period relevant to such borrowing. The applicable margin for the Term B-2 Loans is 1.25%, in the case of base rate loans and 2.25%, in the case of LIBOR rate loans, subject to a base rate floor of 1.75% and a LIBOR floor of 0.75%. The applicable margin for the Term B-2 Loans (under either a base rate or LIBOR rate) is subject to one 25 basis point step-down upon achievement by SEA of a certain total leverage ratio. At March 31, 2014, we selected the LIBOR rate (interest rate of 3.00% at March 31, 2014).

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The applicable margin for borrowings under the Revolving Credit Facility is 1.75%, in the case of base rate loans and 2.75% , in the case of LIBOR rate loans. The applicable margin (under either a base rate or LIBOR rate) is subject to one 25 basis point step-down upon achievement by SEA of certain corporate credit ratings. At March 31, 2014, SEA selected the LIBOR rate and achieved the corporate credit ratings for an applicable margin of 2.50%.

In addition to paying interest on outstanding principal under our Senior Secured Credit Facilities, SEA is required to pay a commitment fee to the lenders under the Revolving Credit Facility in respect of the unutilized commitments thereunder at a rate of 0.50% per annum. SEA is also required to pay customary letter of credit fees.

SEA is required 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 achievement by SEA of a certain total net leverage ratio), subject to certain exceptions; (ii) 100% of the net cash proceeds of certain non-ordinary course asset sales or other dispositions subject to reinvestment rights and certain exceptions; and (iii) 100% of the net cash proceeds of any incurrence of debt by SEA or any of its restricted subsidiaries, other than debt permitted to be incurred or issued under our Senior Secured Credit Facilities.

Term B-2 Loans amortize in equal quarterly installments in an aggregate annual amount equal to 1.0% per annum of the original principal amount of the Term B-2 Loans, with the balance due on the final maturity date. SEA may voluntarily repay amounts outstanding under our Senior Secured Credit Facilities at any time without premium or penalty, other than customary "breakage" costs with respect to LIBOR loans.

The obligations under our Senior Secured Credit Facilities are fully, unconditionally and irrevocably guaranteed by each of the Company, any subsidiary of the Company that directly or indirectly owns 100% of the issued and outstanding equity interests of SEA, and, subject to certain exceptions, each of SEA's existing and future material domestic wholly-owned subsidiaries (collectively, the "Guarantors"). Our 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 material domestic subsidiaries (subject to certain exceptions and qualifications) and 65% of the capital stock of, or other equity interests in, any of SEA's first tier foreign subsidiaries and (ii) certain tangible and intangible assets of SEA and those of the Guarantors (subject to certain exceptions and qualifications).

Our Senior Secured Credit Facilities contain a number of customary negative covenants. Such covenants, among other things, restrict, subject to certain exceptions, the ability of SEA and its restricted subsidiaries to incur additional indebtedness; make guarantees; create liens on assets; enter into sale and leaseback transactions; engage in mergers or consolidations; sell assets; make fundamental changes; pay dividends and distributions or repurchase SEA's capital stock; make investments, loans and advances, including acquisitions; engage in certain transactions with affiliates; make changes in nature of the business; and make prepayments of junior debt.

Our Senior Secured Credit Facilities also contain covenants requiring SEA to maintain specified maximum annual capital expenditures, a maximum total net leverage ratio and a minimum interest coverage ratio. In addition, our Senior Secured Credit Facilities contain certain customary representations and warranties, affirmative covenants and events of default.

As of March 31, 2014, we were in compliance with all covenants in the provisions contained in the documents governing our Senior Secured Credit Facilities.

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 11.0%. 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 our Senior Secured Credit Facilities. As of March 31, 2014, we had $260.0 million aggregate principal amount of the Senior Notes outstanding.

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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 our 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 our 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 amount beginning on December 1, 2014 and 2015, respectively.

We used a portion of the net proceeds received by us in our initial public offering to redeem $140.0 million in aggregate principal amount of the Senior Notes in April 2013 at a redemption price of 111.0%. The redemption premium of $15.4 million, along with a write-off of approximately $5.5 million in related discounts and deferred financing costs was recorded as a loss on early extinguishment of debt and write-off of discounts and deferred financing costs for the year ended December 31, 2013.

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; 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.

As of March 31, 2014, we were in compliance with all covenants in the provisions contained in the indenture governing our Senior Notes.

See Note 6-Long-Term Debt to our unaudited condensed consolidated financial statements therein for further discussion regarding our Senior Secured Credit Facilities and Senior Notes.

Covenant Compliance

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).

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.

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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 eliminates the effect of certain non-cash depreciation of tangible assets and amortization of intangible assets, along with the effects of interest rates and changes in capitalization which management believes may not necessarily be indicative of a company's underlying operating performance.

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.

The following table reconciles Adjusted EBITDA to net loss for the periods indicated: For the Three Months Ended March 31, 2014 2013 (Unaudited, amounts in thousands) Net loss $ (49,431 )$ (40,360 ) Benefit from income taxes (30,040 ) (24,046 ) Interest expense 20,046 28,606 Depreciation and amortization 41,276 41,408 Secondary offering costs (a) 674 - Advisory fees (b) - 925 Equity-based compensation expense (c) 762 320 Other adjusting items (d) - 111 Other non-cash expenses (e) 908 4,147 Adjusted EBITDA $ (15,805 )$ 11,111



(a) Reflects fees and expenses incurred prior to March 31, 2014 in connection

with the secondary offering of our common stock in April 2014. The selling stockholders received all of the net proceeds from the offering and we paid all expenses related to the offering, other than underwriting discounts and commissions. No shares were sold by us in the secondary offering.



(b) Reflects historical 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.

(c) Reflects non-cash compensation expense associated with the grants of equity

compensation.

(d) Reflects costs related to our acquisition of the Knott's Soak City Chula

Vista water park and pre-opening costs related to Aquatica San Diego.

(e) Reflects non-cash expenses related to miscellaneous asset write-offs which

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Contractual Obligations

There have been no material changes to our contractual obligations from those previously disclosed in our Annual Report on Form 10-K.

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 Annual Report on Form 10-K 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 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of March 31, 2014.

Recently Issued Financial Accounting Standards

The Company reviews new accounting pronouncements as they are issued or proposed by the Financial Accounting Standards Board ("FASB"). The Company is not aware of any new accounting pronouncements that will have a material impact on the Company's financial position, results of operations or cash flows.


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Source: Edgar Glimpses