S-1 1 d448022ds1.htm FORM S-1 Form S-1
Table of Contents

As filed with the Securities and Exchange Commission on December 27, 2012

Registration No. 333-                    

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

SeaWorld Entertainment, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   7990   27-1220297

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

 

9205 South Park Center Loop, Suite 400

Orlando, Florida 32819

(407) 226-5011

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

G. Anthony (Tony) Taylor, Esq.

Chief Legal Officer, General Counsel and Corporate Secretary

9205 South Park Center Loop, Suite 400

Orlando, Florida 32819

(407) 226-5011

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

With copies to:

 

Igor Fert, Esq.

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

(212) 455-2000

 

Marc D. Jaffe, Esq.

Cathy A. Birkeland, Esq.

Michael A. Pucker, Esq.

Latham & Watkins LLP

885 Third Avenue

New York, New York 10022-4834

(212) 906-1200

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:    ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Proposed

Maximum
Aggregate
Offering Price(1)(2)

  Amount of
Registration Fee

Common Stock, par value $0.01 per share

  $100,000,000   $13,640

 

 

(1) This amount represents the proposed maximum aggregate offering price of the securities registered hereunder to be sold by the Registrant and the selling stockholders. These figures are estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.
(2) Includes offering price of shares of common stock that the underwriters have the option to purchase. See “Underwriting (Conflicts of Interest).”

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor do we or the selling stockholders seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion. Dated December 27, 2012.

 

                Shares   

 

LOGO

SeaWorld Entertainment, Inc.

Common Stock

 

 

This is an initial public offering of shares of common stock of SeaWorld Entertainment, Inc.

SeaWorld Entertainment, Inc. is offering             of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional             shares. SeaWorld Entertainment, Inc. will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $         and $        . SeaWorld Entertainment, Inc. intends to list the common stock on                     under the symbol “SEAS.” After the completion of this offering, affiliates of The Blackstone Group L.P. will continue to own a majority of the voting power of all outstanding shares of the common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of                . See “Principal and Selling Stockholders.”

See “Risk Factors” beginning on page 17 to read about factors you should consider before buying shares of our common stock.

 

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

     Per Share      Total  

Initial public offering price

   $                    $                

Underwriting discount

   $         $     

Proceeds, before expenses, to SeaWorld Entertainment, Inc.

   $         $     

Proceeds, before expenses, to the selling stockholders

   $         $     

To the extent that the underwriters sell more than             shares of common stock, the underwriters have the option to purchase up to an additional             shares from the selling stockholders at the initial public offering price less the underwriting discount.

 

 

The underwriters expect to deliver the shares against payment in New York, New York on                     , 2013.

 

Goldman, Sachs & Co.           J.P. Morgan
Citigroup    BofA Merrill Lynch   Barclays   Wells Fargo Securities

 

 

Prospectus dated                     , 2013.


Table of Contents

TABLE OF CONTENTS

Prospectus

 

     Page  

Market and Industry Data

     ii   

Trademarks, Service Marks and Tradenames

     ii   

Basis of Presentation

     ii   

Prospectus Summary

     1   

Risk Factors

     17   

Special Note Regarding Forward-Looking Statements

     34   

Use of Proceeds

     36   

Dividend Policy

     37   

Capitalization

     38   

Dilution

     39   

Selected Historical Consolidated Financial Data

     41   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     43   

Business

     63   

Management

     83   

Principal and Selling Stockholders

     104   

Certain Relationships and Related Party Transactions

     106   

Organizational Structure

     111   

Description of Indebtedness

     112   

Description of Capital Stock

     117   

Shares Eligible for Future Sale

     125   

Material United States Federal Income and Estate Tax Consequences to Non-U.S. Holders

     127   

Underwriting (Conflicts of Interest)

     131   

Legal Matters

     136   

Experts

     136   

Where You Can Find More Information

     136   

Index to Consolidated Financial Statements

     F-1   

 

 

Through and including                     , 2013 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

Unless otherwise indicated or the context otherwise requires, financial data in this prospectus reflects the consolidated business and operations of SeaWorld Entertainment, Inc. and its consolidated subsidiaries.

 

 

We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

 

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MARKET AND INDUSTRY DATA

Market data and industry statistics and forecasts used throughout this prospectus are based on the good faith estimates of management, which in turn are based upon management’s reviews of independent industry publications, reports by market research firms and other independent and publicly available sources. Although we believe that these third-party sources are reliable, we do not guarantee the accuracy or completeness of this information and have not independently verified this information. Similarly, internal Company surveys, while believed by us to be reliable, have not been verified by any independent sources. Unless we indicate otherwise, market data and industry statistics used throughout this prospectus are for the year ended December 31, 2011.

Although we are not aware of any misstatements regarding the industry data that we present in this prospectus, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under “Risk Factors,” “Special Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus.

TRADEMARKS, SERVICE MARKS AND TRADENAMES

We own or have rights to use a number of registered and common law trademarks, service marks and trade names in connection with our business in the United States and in certain foreign jurisdictions, including SeaWorld Entertainment, SeaWorld Parks & Entertainment, SeaWorld®, Shamu®, Busch Gardens®, Aquatica, Discovery Cove®, Sea Rescue™ and other names and marks that identify our theme parks, characters, rides, attractions and other businesses. In addition, we have certain rights to use Sesame Street® marks, characters and related indicia through certain license agreements with Sesame Workshop (f/k/a Children’s Television Workshop) (“Sesame Workshop”).

Solely for convenience, the trademarks, service marks, and trade names referred to in this prospectus are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks, and trade names. This prospectus contains additional trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service marks and trade names appearing in this prospectus are, to our knowledge, the property of their respective owners.

BASIS OF PRESENTATION

On December 1, 2009, investment funds affiliated with The Blackstone Group L.P. and certain co-investors, through SeaWorld Entertainment, Inc. and its wholly-owned subsidiary, SeaWorld Parks & Entertainment, Inc. (“SWPEI”), acquired 100% of the equity interests of Sea World LLC (f/k/a SeaWorld, Inc.) and SeaWorld Parks & Entertainment LLC (f/k/a Busch Entertainment Corporation) from certain subsidiaries of Anheuser-Busch Companies, Inc. We refer to this acquisition and related financing transactions as the “2009 Transactions.” As a result of the 2009 Transactions, Blackstone and the other co-investors currently own, through SW Cayman L.P., SW Cayman A L.P., SW Cayman B L.P., SW Cayman C L.P., SW Delaware D L.P., SW Cayman E L.P., SW Cayman F L.P., SW Cayman Co-Invest L.P., SW Cayman (GS) L.P. and SW Cayman (GSO) L.P. (collectively, the “Partnerships”), 100% of the common stock of SeaWorld Entertainment, Inc., the issuer in this offering. The Partnerships are the selling stockholders in this offering. For a more complete description of the Partnerships, see “Principal and Selling Stockholders” and “Certain Relationships and Related Party Transactions—Limited Partnership Agreements and Equityholders Agreement.”

 

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As used in this prospectus, unless otherwise noted or the context otherwise requires, (i) references to the “Company,” “we,” “our” or “us” refer to SeaWorld Entertainment, Inc. and its consolidated subsidiaries, (ii) references to the “Issuer” refer to SeaWorld Entertainment, Inc. exclusive of its subsidiaries, (iii) references to “Blackstone” or the “Sponsor” refer to certain investment funds affiliated with The Blackstone Group L.P., (iv) references to the “Investor Group” refer, collectively, to Blackstone and other co-investors in the Partnerships, (v) references to the “2009 Advisory Agreement” refer to the Transaction and Advisory Fee Agreement, dated as of December 1, 2009, among SeaWorld Parks & Entertainment, Inc. (f/k/a SW Acquisitions Co., Inc.), Sea World LLC and affiliates of Blackstone, (vi) references to “ABI” refer to Anheuser-Busch, Incorporated and (vii) references to the “underwriters” are to the firms listed on the cover page of this prospectus.

All references herein to a fiscal year refer to the 12 months ended December 31 of such year, and references to the first, second, third and fourth fiscal quarters refer to the three months ended March 31, June 30, September 30 and December 31, respectively.

Information presented as of and for the fiscal years ended December 31, 2011 and December 31, 2010 is derived from our audited consolidated financial statements for those periods included elsewhere in this prospectus. Information presented for the one month period ended December 31, 2009 is derived from our audited consolidated statements of operations and comprehensive income (loss), stockholders’ equity and cash flows for the one month period ended December 31, 2009 included elsewhere in this prospectus. The results for the one month period ended December 31, 2009 include the results of operations of the Company from December 1, 2009, the date of the 2009 Transactions, to December 31, 2009. Information presented for the nine months ended September 30, 2012 and September 30, 2011 is derived from our unaudited condensed consolidated financial statements for those periods included elsewhere in this prospectus.

The historical consolidated financial statements and financial data included in this prospectus are those of SeaWorld Entertainment, Inc. and its consolidated subsidiaries. The historical consolidated financial information and financial data for the periods prior to the 2009 Transactions (the “Predecessor Financial Information”) is not presented in this prospectus because it is not comparable and therefore not meaningful to a prospective investor. The Predecessor Financial Information does not fully reflect our operations on a stand-alone basis and we believe would not materially contribute to an investor’s understanding of our historical financial performance. The Predecessor Financial Information prepared on a basis comparable with our consolidated financial statements included in this prospectus is not available and cannot be provided without unreasonable effort and expense. We believe that the omission of the Predecessor Financial Information will not have a material impact on an investor’s understanding of our financial results and condition and related trends.

 

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PROSPECTUS SUMMARY

This summary highlights certain significant aspects of our business and this offering. This is a summary of information contained elsewhere in this prospectus, is not complete and does not contain all of the information that you should consider before making your investment decision. You should carefully read the entire prospectus, including the information presented under the section entitled “Risk Factors” and the consolidated financial statements and the notes thereto, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from future results contemplated in the forward-looking statements as a result of certain factors such as those set forth in “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” When making an investment decision, you should also read the discussion under “Basis of Presentation” above for the definition of certain terms used in this prospectus and a description of certain transactions and other matters described in this prospectus.

 

 

Company 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 such iconic brands as SeaWorld, Shamu and Busch Gardens. Over our more than 50 year history, we have built a diversified portfolio of 11 premier destination and regional theme parks that are grouped in key markets across the United States, many of which showcase our one-of-a-kind collection of approximately 67,000 marine and terrestrial animals. Our theme parks feature a diverse array of rides, shows and other attractions with broad demographic appeal which deliver extraordinary 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 12 months ended September 30, 2012, we hosted more than 24 million guests in our theme parks, including approximately 2.7 million international guests from over 55 countries and six continents, and generated an estimated 5.6 billion impressions through television and digital platforms. In the year ended December 31, 2011 and the nine months ended September 30, 2012, we had total revenues of $1,330.8 million and $1,160.6 million, respectively. Our strong revenue and operating performance and stable profit margins, combined with our disciplined approach to capital expenditures and working capital management, enable us to generate strong and recurring cash flow.

Our portfolio of branded theme parks includes the following marquee names:

 

  Ÿ  

SeaWorld.    SeaWorld is widely recognized as the leading marine-life theme park brand in the world. Our SeaWorld theme parks, located in Orlando, San Antonio and San Diego, each rank among the most highly attended theme parks in the industry and offer up-close interactive experiences and a variety of live performances, including shows featuring Shamu in specially designed amphitheaters. We offer our guests numerous animal encounters, including the opportunity to work with trainers and feed marine animals, as well as themed thrill rides and theatrical shows that uniquely incorporate our one-of-a-kind animal collection.

 

  Ÿ  

Busch Gardens.    Our Busch Gardens theme parks are family-oriented destinations designed to immerse guests in foreign geographic settings. They are renowned for their beauty and award-winning landscaping and gardens and allow our guests to discover the natural side of

 

 

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fun by offering a family experience featuring a variety of attractions and world class rollercoasters in a richly-themed environment. Busch Gardens Tampa presents our collection of exotic animals from Africa, Asia and Australia. Busch Gardens Williamsburg, which has been named the Most Beautiful Park in the World by the National Amusement Park Historical Association for 22 consecutive years, showcases European-themed cultural and culinary experiences, including high-quality theatrical productions.

 

  Ÿ  

Aquatica.    Our Aquatica branded water parks are premium, family-oriented destinations that are based in a South Seas-themed tropical setting. Aquatica water parks build on the aquatic theme of our SeaWorld brand and feature high-energy rides, water attractions, white-sand beaches and an innovative and entertaining presentation of marine and terrestrial animals. We position our Aquatica water parks as companion water parks to our SeaWorld theme parks in Orlando and San Diego and we have an Aquatica water park situated within our SeaWorld San Antonio theme park.

 

  Ÿ  

Discovery Cove.    Discovery Cove is a reservations only, all-inclusive, marine-life day resort adjacent to SeaWorld Orlando. Discovery Cove offers guests personal, signature experiences, including the opportunity to swim and interact with dolphins, take an underwater walking reef tour and enjoy pristine white-sand beaches and landscaped private cabanas. Discovery Cove presently limits its attendance to approximately 1,300 guests per day and features premium culinary offerings in order to provide guests with a more relaxed, intimate and high-end luxury resort experience.

 

  Ÿ  

Sesame Place.    Sesame Place is the only U.S. theme park based entirely on the award-winning television show Sesame Street. Located between Philadelphia and New York City, Sesame Place is a destination where parents and children can share in the spirit of imagination and experience Sesame Street together through whirling rides, water slides, colorful shows and furry friends. In addition, we have introduced Sesame Street brands in our other theme parks through Sesame Street-themed rides, shows, children’s play areas and merchandise.

 

 

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Our theme parks are consistently recognized among the top theme parks in the world and rank among the most highly-attended in the industry. We generally locate our theme parks in geographical clusters, which improves our ability to serve guests by providing them with a varied, comprehensive vacation experience and valuable multi-park pricing packages, as well as improving our operating efficiency through shared overhead costs. The following table summarizes our theme park portfolio:

 

Location  

Theme

Park

  Year
Opened
  Season   Animal
Attractions(2)
  Rides(3)   Shows(4)   Play
Areas(5)
  Events(6)   Distinctive
Experiences(7)

Orlando, FL

  LOGO     1973   Year-
round
  19   14   18   2   7   17
  LOGO     2000   Year-
round
  5   0   0   0   0   5
  LOGO     2008   Year-
round
  5   13   0   2   0   2

Tampa, FL

  LOGO     1959   Year-
round
  16   31   17   10   9   14
  LOGO     1980   Mar-Oct   0   12   0   4   1   2

San Diego,

CA

  LOGO     1964   Year-
round
  26   10   18   2   4   11
  LOGO     1996(1)   May-Sep   2   11   0   0   0   0

San Antonio,

TX

  LOGO     1988   Feb-Dec   12   23   29   11   7   22

Williamsburg,

VA

  LOGO     1975   Mar-Oct
& Dec
  7   38   16   8   6   27
  LOGO     1984   May-Sep   1   15   1   4   0   6

Langhorne,

PA

  LOGO     1980   May-Oct
& Dec
  0   26   14   6   4   7

Total

 

 

LOGO  

          93   193   113   49   38   113

 

(1) On November 20, 2012, we acquired the Knott’s Soak City Chula Vista water park from a subsidiary of Cedar Fair, L.P. We plan to rebrand this water park as Aquatica San Diego before it re-opens in 2013.
(2) Represents animal attractions without a ride or show element, often adjacent to a similarly themed attraction.
(3) Represents rides, including mechanical rides and water slides.
(4) Represents annual and seasonal shows with live entertainment, animals, characters and/or 3-D or 4-D experiences.
(5) Represents pure play areas, typically designed for children or seasonal special event oriented, often without a queue (such as water splash areas, Halloween mazes).
(6) Represents special limited time events.
(7) Represents special experiences, such as educational tours, immersive dining experiences and swimming with animals, often limited to small groups and individuals and/or requiring a supplemental fee.

 

 

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Our Competitive Strengths

 

  Ÿ  

Iconic Brands That Consumers Know and Love.    Our brands are internationally recognized cultural touch points representing the intersection of “where imagination meets nature.” Our brand portfolio is highly stable, reducing our exposure to changing consumer tastes. We use our brands and intellectual property to increase awareness of our theme parks, deepen connections with our guests and drive attendance to our theme parks. The popularity of our brands is evidenced by over 30 million unique visitors to our websites from January 2012 through November 2012. In addition to our theme parks, we have recently begun to leverage our brands into media, entertainment and consumer products, and our Sea Rescue television program was seen by more than 27 million viewers in its first season and has been extended for a second season.

 

  Ÿ  

World-Class, Differentiated Theme Parks.    We own and operate 11 theme parks, including five of the top 20 theme parks in the United States as measured by attendance. Our theme parks are beautifully themed and deliver high-quality entertainment, aesthetic appeal, shopping and dining and have won numerous awards, including Amusement Today’s Golden Ticket Awards for Best Landscaping. Our theme parks feature seven of the 50 highest rated steel rollercoasters in the world, led by Apollo’s Chariot, the #4 rated steel rollercoaster in the world. Our SeaWorld theme parks have won the top three spots in Amusement Today’s annual Golden Ticket Award for Best Marine Life Park since the award’s inception in 2006. We have approximately 600 attractions that appeal to guests of all ages, including 93 animal attractions, 113 shows and 193 rides. In addition, we have over 300 restaurants and specialty shops. Our theme parks appeal to the entire family and offer a broad range of experiences, ranging from emotional and educational animal encounters to thrilling rides and exciting shows.

 

  Ÿ  

Diversified Business Portfolio.    Our portfolio of theme parks is diversified in a number of important respects. Our theme parks are located across the United States, which helps protect us from the impact of localized events. Each theme park showcases a different mix of zoological, thrill-oriented and family-friendly attractions. This varied portfolio of entertainment offerings attracts guests from a broad range of demographics and geographies. Our theme parks appeal to both regional and destination guests, which provides us with a stable attendance base while allowing us to benefit from improvements in macroeconomic conditions, including increased consumer spending and international travel.

 

  Ÿ  

One of the World’s Largest Zoological Collections.    We are uniquely positioned in the industry due to our ability to display our extensive animal collection in a differentiated and interactive manner. We have one of the world’s largest zoological collections with approximately 67,000 animals, including approximately 7,000 marine and terrestrial animals and approximately 60,000 fish. With 28 killer whales, we have the largest group of killer whales in human care. We have established successful and innovative breeding programs that have produced 29 killer whales, 151 dolphins and 115 sea lions, among other species, and our marine animal populations are characterized by their substantial genetic diversity. More than 80% of our marine mammals were born in human care.

 

  Ÿ  

Strong Competitive Position.    Our competitive position is protected by the combination of our powerful brands, extensive animal collection and expertise and premier in-park assets located on valuable real estate. Our animal collection and zoological expertise, which have evolved over our more than four decades of caring for animals, would be very difficult to replicate. Over the past two years, we have made extensive investments in new marketable attractions and infrastructure and we believe that our theme parks are well capitalized. The limited supply of real estate suitable for theme park development coupled with high initial capital investment, long development lead-times and zoning and other land use restrictions

 

 

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constrain the number of large theme parks that can be constructed. We estimate that the replacement value of our current assets and owned land (approximately 2,000 acres) exceeds $5 billion.

 

  Ÿ  

Proven and Experienced Management Team and Employees with Specialized Animal Expertise.    Our senior management team, led by Jim Atchison, our Chief Executive Officer and President, includes some of the most experienced theme park executives in the world, with an average tenure of more than 28 years in the industry. The management team is comprised of highly skilled and dedicated professionals with wide ranging experience in theme park operations, zoological operations, product development, business development and marketing. In addition, we are one of the world’s foremost zoological organizations with approximately 1,550 employees dedicated to animal welfare, training, husbandry and veterinary care.

 

  Ÿ  

Proximity of Complementary Theme Parks.    Our theme parks are grouped in key locations near large population centers across the United States, which allows us to realize revenue and operating expense efficiencies. Having theme parks located within close proximity to each other enables us to cross market and offer bundled ticket and travel packages. In addition, closely located theme parks provide operating efficiencies including sales, marketing, procurement and administrative synergies as overhead expenses are shared among the theme parks within each region. We intend to continue to capitalize on this strength through our recent acquisition of Knott’s Soak City in Chula Vista, CA, which will complement our SeaWorld San Diego theme park.

 

  Ÿ  

Attractive, Stable Profit Margins and Strong Cash Flow Generation.    Our attractive, stable profit margins, combined with our disciplined approach to capital expenditures and working capital management, enable us to generate strong and recurring cash flow. Five of our 11 theme parks are open year-round, reducing our seasonal cash flow volatility. In addition, we have substantial tax assets which we expect to be available to defer a portion of our cash tax burden going forward.

 

  Ÿ  

Care for Our Community and the Natural World.    Caring for our community and the natural world is a core part of our corporate identity and resonates with our guests. We focus on three core philanthropic areas: children, environment, and education. Through the power of entertainment, we are able to inspire children and educate guests of all ages. We support numerous charities and organizations across the country. For example, we are the primary supporter and corporate member of the SeaWorld & Busch Gardens Conservation Fund, a non-profit conservation foundation, which makes grants to wildlife research and conservation projects that protect wildlife and wild places worldwide. In addition, in collaboration with the government and other members of accredited stranding networks, we operate one of the world’s most respected programs to rescue ill and injured marine animals, with the goal to rehabilitate and return them back to the wild. Our animal experts have helped more than 22,000 ill, injured, orphaned and abandoned animals for more than four decades.

Our Strategies

We plan to grow our business by increasing our existing theme park revenues through strategies designed to drive higher attendance and increase in-park per capita spending, as well as by creating new sources of revenue through expansion of our theme parks, new theme park development and extending our brands into new media, entertainment and consumer products. We believe that our strategies complement each other as they lead to increased brand strength and awareness and drive revenue growth and profitability. Our strategies include the following components:

 

  Ÿ  

Continue to Create Memorable Experiences for Our Guests.    Our mission is to use the power of educational entertainment to continue to inspire our guests to celebrate, connect with

 

 

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and care for the natural world we share. We provide our guests with innovative and immersive theme park experiences, such as our 3-D, 360 degree TurtleTrek attraction at SeaWorld Orlando, which opened in 2012. We also offer guests exciting rides, animal encounters and beautifully-themed entertainment that are difficult to replicate, such as in-water experiences with beluga whales at SeaWorld Orlando and our Cheetah Hunt ride, which is a launch coaster opened in 2011 that runs alongside a cheetah habitat at Busch Gardens Tampa. As a result of these distinctive offerings, our guest surveys routinely report very high “Overall Satisfaction” scores, with 97% of recent respondents in 2012 ranking their experience good or excellent. Going forward, we will continue to develop high-quality experiences for our guests, focused on integrating our impressive animal collection with uniquely themed settings and products that our guests will remember long after they leave our theme parks.

 

  Ÿ  

Drive Increased Attendance to Our Theme Parks.    We plan to drive increased attendance to our theme parks by continually introducing new attractions, differentiated experiences and enhanced service offerings. Because of the historic correlation between capital investment and increased attendance, we plan to add to our award-winning portfolio of assets and spend capital in support of marketable events, such as SeaWorld’s 50th Anniversary Celebration. We also plan to increase awareness of our theme parks and brands through effective media and marketing campaigns, including the targeted use of online and social media platforms. For example, since their introduction in 2006, our YouTube channels have attracted approximately 16 million views, and we believe that we can continue to use traditional and new media to increase awareness of our brands and drive attendance to our theme parks.

 

  Ÿ  

Expand In-Park Per Capita Spending through New and Enhanced Offerings.    We believe that by providing our guests additional and enhanced offerings at various price points, we can drive further spending in our theme parks. For example, we recently introduced an “all-day-dining deal” for a supplemental fee, which we believe has resulted in increased in-park per capita spending. In addition, we have developed iPhone and Android smartphone applications for our SeaWorld and Busch Gardens theme parks, which offer GPS navigation through the theme parks and interactive theme park maps that show the nearest dining locations, gift shops and ATMs and provide real-time updates on wait times for rides. Our guests have quickly adopted these products with over one million downloads of our iPhone applications from June 2011 through December 2012. We believe that going forward, there are significant avenues to expand guest offerings in ways that both increase guest satisfaction and provide us with incremental revenue.

 

  Ÿ  

Grow Revenue through Disciplined and Dynamic Pricing.    We are focused on increasing our revenues through a variety of ticket options and disciplined pricing and promotional strategies. We offer an array of tailored admission options, including season passes and multi-park tickets to motivate the purchase of higher value products and increase in-park per capita spending. In addition, to increase non-peak demand we offer seasonal and special events and concerts, some of which are separately priced. We have begun deploying a dynamic pricing model, which will enable us to adjust admission prices for our theme parks based on expected demand.

 

  Ÿ  

Increase Profitability through Operating Leverage and Rigorous Cost Management.    Adding incremental attendance and driving additional in-park per capita spending affords us with an opportunity to realize gains in profitability because of the fixed cost base and high operating leverage of our business. We also employ rigorous cost management techniques to drive additional operating efficiencies. For example, we utilize a centralized procurement and strategic sourcing team and participate in several cooperative buying

 

 

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organizations to leverage our purchases company-wide and have also recently consolidated our marketing spending with a single agency to streamline our marketing efforts.

 

  Ÿ  

Pursue Disciplined Capital Deployment, Expansion and Acquisition Opportunities.    We pursue a disciplined capital deployment strategy focused on the development and improvement of rides, attractions and shows, as well as seek to leverage our strong brands and expertise to pursue selective domestic and international expansion and acquisition opportunities. As part of this strategy, we seek to replicate successful capital investments in particular attractions across multiple theme parks, as we did with our Journey to Atlantis watercoaster that premiered in SeaWorld Orlando and was later introduced in the other SeaWorld theme parks. We have been successful in grouping our theme parks and water parks near each other, which allows us to operate companion theme parks with reduced overhead costs and creates revenue opportunities through multi-park tickets and other joint marketing initiatives. For example, in November 2012, we acquired Knott’s Soak City Chula Vista, which is located near our SeaWorld San Diego theme park. We plan to re-launch the water park as Aquatica San Diego by mid-2013. We also evaluate new domestic theme park opportunities as well as potential joint venture opportunities that would allow us to expand internationally by combining our brands and zoological and operational expertise with third-party capital.

 

  Ÿ  

Leverage and Expand Our Brands to Increase Awareness and Create New Opportunities.    Our brands are highly regarded and are primarily based on our own intellectual property, which provides us with opportunities to leverage our intellectual property portfolio and develop new media, entertainment and consumer products. For example, in 2013 we will open Antarctica: Empire of the Penguin at our SeaWorld Orlando theme park that will feature a new animated penguin character, Puck, and coincide with the launch of new in-park merchandise, mobile gaming, and consumer products designed around the Puck character. In addition, we are able to expand into new media platforms by partnering with others to create new, powerful entertainment opportunities. For example, in 2012, we launched Sea Rescue, a Saturday morning television show airing on the ABC Network featuring our work to rescue injured animals in coordination with various government agencies and other rescue organizations, which attracted over 27 million viewers in its first season and has been rated as the number one show in its timeslot in most major U.S. markets since its debut.

 

  Ÿ  

Continue our Support of Species Conservation, Sustainability and Animal Welfare.    Our zoological know-how and coast-to-coast presence provide us with significant opportunities to contribute to global species conservation, sustainability and animal welfare initiatives. For example, our employees regularly assist in animal rescue efforts, and the non-profit SeaWorld & Busch Gardens Conservation Fund, of which we are the primary supporter and corporate member, makes grants to wildlife research and species conservation projects worldwide. Our species conservation efforts and philanthropic activities generate positive awareness and goodwill for our business. These efforts are a core part of our corporate culture and identity and resonate with our customers.

Our Industry

We believe that the theme park industry is an attractive sector characterized by a proven business model that generates significant cash flow and has clear avenues for growth. Theme parks offer a strong consumer value proposition, particularly when compared to other forms of out-of-home entertainment such as concerts, sporting events, cruises and movies. As a result, theme parks attract a broad range of guests and generally exhibit strong margins across regions, operators, park types and macroeconomic conditions.

 

 

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The U.S. theme park industry, which hosts approximately 315 million visitors per year, is comprised of a large number of venues ranging from a small group of high attendance, heavily-themed destination theme parks to a large group of lower attendance local theme parks and family entertainment centers. The United States is the largest theme park market in the world with six of the ten largest theme park operators and 12 of the 25 most-visited theme parks in the world. In 2011, the U.S. theme park industry generated approximately $11.0 billion in revenues, which represented a 3.0% compounded annual growth rate since 2003.

Risks Related to Our Business and this Offering

Investing in our common stock involves substantial risks, and our ability to successfully operate our business is subject to numerous risks, including those that are generally associated with operating in the theme park industry and the broader entertainment industry. Any of the factors set forth under “Risk Factors” in this prospectus may limit our ability to successfully execute our business strategy. Some of the more significant challenges and risks include the following:

 

  Ÿ  

various factors beyond our control that impact, among other things, discretionary consumer spending could adversely affect attendance figures at our theme parks, the frequency with which our guests choose to visit our theme parks and guest spending patterns at our theme parks;

 

  Ÿ  

damage to our brands or reputation could adversely affect the Company;

 

  Ÿ  

our intellectual property rights are valuable, and any inability to protect them could adversely affect our business;

 

  Ÿ  

we may be subject to claims for infringing the intellectual property rights of others, which could be costly and result in the loss of significant intellectual property rights;

 

  Ÿ  

incidents or adverse publicity concerning our theme parks or the theme park industry generally could harm our reputation as well as negatively impact our revenues and profitability;

 

  Ÿ  

catastrophic events, bad weather and even forecasts of bad weather can substantially and adversely impact attendance at our theme parks which would in turn negatively affect our revenues and profitability; and

 

  Ÿ  

you will incur immediate and substantial dilution in the net tangible book value of the shares you purchase in this offering.

Before you participate in this offering, you should carefully consider all of the information in this prospectus, including matters set forth under the heading “Risk Factors.”

Recent Developments

On November 20, 2012, we acquired the Knott’s Soak City Chula Vista water park from a subsidiary of Cedar Fair, L.P. We plan to rebrand this water park as Aquatica San Diego before it re-opens in mid-2013.

Corporate History and Information

SeaWorld Entertainment, Inc. was incorporated in Delaware on October 2, 2009 in connection with the 2009 Transactions and changed its name from “SW Holdco, Inc.” to SeaWorld Entertainment, Inc. on December 13, 2012.

 

 

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Our principal executive offices are located at 9205 South Park Center Loop, Suite 400, Orlando, Florida 32819, and our telephone number is (407) 226-5011. We maintain a corporate website at             , as well as a number of other theme park specific and marketing websites. The information contained on our websites or that can be accessed through our websites neither constitutes part of this prospectus nor is incorporated by reference herein.

Our Sponsor

Blackstone is one of the world’s leading investment and advisory firms. Blackstone’s alternative asset management businesses include the management of corporate private equity funds, real estate funds, hedge fund solutions, credit-oriented funds and closed-end mutual funds. Blackstone also provides various financial advisory services, including financial and strategic advisory, restructuring and reorganization advisory and fund placement services. Through its different investment businesses, as of September 30, 2012, Blackstone had total assets under management of approximately $204.6 billion.

 

 

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THE OFFERING

 

Common stock offered by SeaWorld Entertainment, Inc.

             shares.

 

Common stock offered by the selling stockholders

             shares.

 

Common stock to be outstanding immediately after this offering

             shares.

 

Option to purchase additional shares of common stock from the selling stockholders

             shares.

 

Use of proceeds

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $         million, based on the assumed initial public offering price of $         per share, which is the mid-point of the range set forth on the cover page of this prospectus. For a sensitivity analysis as to the initial public offering price and other information, see “Use of Proceeds.”

 

  We intend to use a portion of the net proceeds received by us from this offering to redeem $         million in aggregate principal amount of our 11% Senior Notes due 2016 (the “Senior Notes”) at a redemption price of 111.0% pursuant to a provision in the indenture governing the Senior Notes that permits us to redeem up to 35% of the aggregate principal amount of the Senior Notes with the net cash proceeds of certain equity offerings and to pay estimated premiums and accrued interest thereon.

Approximately $                 million of the net proceeds received by us from this offering will be used to make a one-time payment to an affiliate of Blackstone in connection with the termination of the 2009 Advisory Agreement as described in “Use of Proceeds.”

We intend to use the remaining proceeds received by us from this offering for other general corporate purposes.

 

  We will not receive any proceeds from the sale of shares of common stock offered by the selling stockholders, including upon the sale of shares if the underwriters exercise their option to purchase additional shares from the selling stockholders in this offering. The selling stockholders will distribute all of the net proceeds they receive to investment funds affiliated with Blackstone and other members of the Investor Group in accordance with the agreements governing the Partnerships. See “Use of Proceeds” and “Certain Relationships and Related Party Transactions—Limited Partnership Agreements and Equityholders Agreement.”

 

 

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Risk factors

See “Risk Factors” beginning on page 17 and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

 

Dividend policy

We intend to pay cash dividends on our common stock, subject to our compliance with applicable law, and depending on, among other things, our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in our debt agreements and in any preferred stock, business prospects and other factors that our Board of Directors may deem relevant. Our ability to pay dividends on our common stock is limited by the covenants of our senior secured credit facilities (the “Senior Secured Credit Facilities”) and the indenture governing the Senior Notes and may be further restricted by the terms of any future debt or preferred securities. See “Dividend Policy” and “Description of Indebtedness.”

 

Proposed                      ticker symbol

“SEAS.”

 

Conflicts of interest

Affiliates of Goldman, Sachs & Co. hold $300.0 million in aggregate principal amount of the Senior Notes. As described under “Use of Proceeds,” a portion of the net proceeds from this offering will be used to redeem $                 million in aggregate principal amount of the Senior Notes and such affiliates of Goldman, Sachs & Co. will receive their pro rata share of such redemption amount. Affiliates of Goldman, Sachs & Co. also own Class A and Class B Units in one of the Partnerships that collectively own 100% of our common stock and such affiliates will receive a portion of the net proceeds to the selling stockholders. Because Goldman, Sachs & Co. is an underwriter and its affiliates are expected to receive more than 5% of the net proceeds of this offering due to the redemption and the proceeds to the selling stockholders, Goldman, Sachs & Co. is deemed to have a “conflict of interest” under Rule 5121 (“Rule 5121”) of the Financial Industry Regulatory Authority, Inc. (“FINRA”). Accordingly, this offering will be conducted in accordance with Rule 5121, which requires, among other things, that a “qualified independent underwriter” has participated in the preparation of, and has exercised the usual standards of “due diligence” with respect to, the registration statement and this prospectus. Citigroup Global Markets Inc. has agreed to act as qualified independent underwriter for this offering and to undertake the legal responsibilities and liabilities of an underwriter under the Securities Act of 1933, as amended (the “Securities Act”), specifically including those inherent in Section 11 of the Securities Act.

 

 

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The number of shares of our common stock to be outstanding immediately after the consummation of this offering is based on              shares of common stock outstanding as of             , and does not give effect to              shares of common stock reserved for future issuance under the new incentive plan (the “2013 Omnibus Incentive Plan”).

Unless we indicate otherwise or the context otherwise requires, all information in this prospectus:

 

  Ÿ  

assumes (1) no exercise of the underwriters’ option to purchase additional shares and (2) an initial public offering price of $         per share, which is the mid-point of the range set forth on the cover page of this prospectus;

 

  Ÿ  

reflects a      for one stock split of our common stock, to be effected prior to the consummation of this offering; and

 

  Ÿ  

assumes the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the consummation of this offering.

 

 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA

The following tables set forth our summary historical consolidated financial and operating data for the periods and as of the dates indicated.

We derived the summary consolidated statements of operations data for the years ended December 31, 2011 and December 31, 2010 and the one month period ended December 31, 2009 from our audited consolidated financial statements included elsewhere in this prospectus. The financial information for the one month period ended December 31, 2009 is presented because the Company became a stand-alone entity on December 1, 2009 in connection with the 2009 Transactions. See “Basis of Presentation.”

We derived the unaudited statement of operations data for the nine months ended September 30, 2012 and September 30, 2011 and the balance sheet data as of September 30, 2012 from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. In the opinion of management, such unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of our results for those periods. The results of operations for these interim periods are not necessarily indicative of the results to be expected for a full year or any future period. Our historical operating results are not necessarily indicative of future operating results.

The consolidated balance sheet data as of September 30, 2012 is presented:

 

  Ÿ  

on an actual basis;

 

  Ÿ  

on an as adjusted basis to reflect (i) the issuance and sale of              shares of our common stock in this offering based on the assumed initial public offering price of $         per share, which is the mid-point of the range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, (ii) the redemption of $         million in aggregate principal amount of the Senior Notes at a redemption price of 111.0% and (iii) the payment of $         million to Blackstone in connection with the termination of the 2009 Advisory Agreement as described in “Use of Proceeds.”

The summary historical consolidated financial data set forth below should be read in conjunction with “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto included elsewhere in this prospectus.

 

 

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    Nine Months
Ended September 30,
    Year Ended December 31,     One Month
Period Ended
December 31,
 
    2012     2011     2011     2010     2009(1)  
    (Amounts in thousands, except per share and per capita amounts)  

Statement of operations data:

    (unaudited)         

Net revenues

       

Admissions

  $ 715,842      $ 666,097      $ 824,937      $ 730,368      $ 45,060   

Food, merchandise and other

    444,737        412,637        505,837        465,735        27,918   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    1,160,579        1,078,734        1,330,774        1,196,103        72,978   

Costs and expenses

       

Cost of food, merchandise and other revenues

    99,109        89,736        112,498        97,871        5,472   

Operating expenses

    560,145        521,390        687,999        673,829        51,957   

Selling, general and administrative

    150,571        142,447        172,368        159,506        11,544   

Depreciation and amortization

    122,085        154,862        213,592        207,156        17,973   

Acquisition-related expenses

    —          —          —          —          67,966   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    931,910        908,435        1,186,457        1,138,362        154,912   

Operating income (loss)

    228,669        170,299        144,317        57,741        (81,934

Other income (expense), net

    2,110        (1,661     (1,679     1,937        30   

Interest expense

    86,263        83,960        110,097        134,383        11,501   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    144,516        84,678        32,541        (74,705     (93,405

Provision for (benefit from) income taxes

    58,273        34,719        13,428        (29,241     (35,664
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 86,243      $ 49,959      $ 19,113      $ (45,464   $ (57,741
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

  $ 86,243      $ 49,959      $ 19,113      $ (45,464   $ (57,741
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Per share data:

     

Basic and diluted income (loss) per share

  $ 8.36  $8.28      $ 4.93  $4.90      $ 1.88  $1.86      $ (4.50)  $(4.50   $ (5.72)  $(5.72
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of shares used in per share amounts—basic and diluted

    10,310  10,413        10,138  10,205        10,174  10,253        10,100  10,100        10,100  10,100   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other financial and operating data:

       

Adjusted EBITDA(2)

  $ 365,749      $ 337,893      $ 382,059      $ 343,276      $ 8,379   

Capital expenditures

    154,976        163,551        225,316        112,438        3,149   

Attendance

    19,862        19,040        23,631        22,433        1,402   

Total revenue per capita

  $ 58.43      $ 56.66      $ 56.31      $ 53.32      $ 52.05   

 

     As of September 30, 2012  
     Actual        As adjusted    

Consolidated balance sheet data (at end of period):

     (unaudited)      

Cash and cash equivalents

   $ 142,843              (3) 

Total assets

     2,611,240      

Total long-term debt

     1,827,665      

Total equity

     458,410      

 

(1) Reflects our financial results from December 1, 2009 to December 31, 2009, which is the period in which we first became an independent, stand-alone entity following the 2009 Transactions.
(2) Under the indenture governing the Senior Notes and under our 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 Adjusted EBITDA.

 

 

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The Senior Notes and our 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 our Senior Secured Credit Facilities.

We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about the calculation of, and compliance with, certain financial covenants in the indenture governing the Senior Notes and in our 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 requirement, 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 as described under “Management—Compensation Discussion and Analysis.”

Adjusted EBITDA is not a recognized term under generally accepted accounting principles in the United States (“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.

We believe that the most directly comparable GAAP measure to Adjusted EBITDA is net income (loss). The following table sets forth a reconciliation of net income (loss) to Adjusted EBITDA:

 

     Nine Months Ended
September 30,
     Years Ended December 31,     One Month
Period Ended
December 31,
 
     2012      2011              2011                      2010                       2009             
     (Dollars in thousands)  

Net income (loss)

   $ 86,243       $ 49,959       $ 19,113       $ (45,464   $ (57,741

Provision for (benefit from) income taxes

     58,273         34,719         13,428         (29,241     (35,664

Interest expense

     86,263         83,960         110,097         134,383        11,501   

Depreciation and amortization expense

     122,085         154,862         213,592         207,156        17,973   

Deferred revenue write-downs(a)

     —           —           —           17,348        2,678   

Non-cash compensation expense(b)

     1,361         437         823         —          —     

Acquisition-related adjustments(c)

     —           —           —           —          67,966   

Advisory fee(d)

     5,075         4,948         6,012         4,704        290   

Carve-out costs(e)

     —           5,679         6,085         45,330        —     

Non-cash expenses(f)

     5,282         2,888         12,468         9,060        1,376   

Debt refinancing costs(g)

     1,000         441         441         —          —     

Chula Vista acquisition(h)

     167         —           —           —          —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 365,749       $ 337,893       $ 382,059       $ 343,276 (i)    $ 8,379   

 

  (a) Reflects amortization of deferred revenue that would have occurred absent purchase accounting relating to the 2009 Transactions.
  (b) Reflects non-cash compensation expense associated with the grants of partnership interests in the Partnerships recorded under “Equity-based Compensation” in our consolidated financial statements.
  (c) Reflects charges related to the 2009 Transactions, including third-party professional fees relating to the purchase of the Company by the Investor Group and related financing transactions.
  (d) Reflects historical fees paid to an affiliate of the Sponsor under the 2009 Advisory Agreement. In connection with this offering, we intend to terminate the 2009 Advisory Agreement in accordance with its terms. See “Certain Relationships and Related Party Transactions—Advisory Agreement and Support and Services Agreement.”
  (e) Reflects certain carve-out costs and savings related to our separation from ABI and the establishment of certain operations at the Company on a stand-alone basis. These amounts primarily consist of the cost of third-party professional services, relocation expenses, severance costs and cost savings related to the termination of certain employees.
  (f) Reflects non-cash expenses related to miscellaneous asset write-offs and non-cash gains/losses on foreign currencies.
  (g) Reflects certain costs related to the 2012 and 2011 amendments to our Senior Secured Credit Facilities.
  (h) Reflects certain costs related to our acquisition of the Chula Vista water park.

 

 

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  (i) The adjustments for the year ended December 31, 2010 include approximately $20.9 million of adjustments permitted under our debt covenants related to our separation from ABI and certain restructuring costs. As we established some of the services provided to us by ABI at the Company, such services became part of our ongoing cost structure and accordingly, we did not use these adjustments for any periods subsequent to the year ended December 31, 2010. Adjusted EBITDA excluding such adjustments would have been $322,376 for the year ended December 31, 2010.
(3) The as adjusted amount is calculated based on the mid-point of the range set forth on the cover of this prospectus and reflects the receipt of the net proceeds to us from this offering, the payment of $         million to Blackstone in connection with the termination of the 2009 Advisory Agreement and the redemption of $         million in aggregate principal amount of the Senior Notes as described in “Use of Proceeds.”

 

 

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RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider each of the following risks as well as the other information included in this prospectus, including “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes, before investing in our common stock. Any of the following risks could materially and adversely affect our business, financial condition or results of operations. However, the selected risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition or results of operations. In such a case, the trading price of the common stock could decline and you may lose all or part of your investment in the Company.

Risks Related to Our Business and Our Industry

Various factors beyond our control could adversely affect attendance figures at our theme parks, the frequency with which our guests choose to visit our theme parks and guest spending patterns at our theme parks.

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, including risks relating to the so-called “fiscal cliff,” has had and continues to have an adverse effect on consumers’ discretionary income and consumer confidence.

The difficult regional economic conditions and recessionary periods in the locations of our theme parks may adversely impact attendance figures, the frequency with which guests choose to visit our theme parks and guest spending patterns at our theme parks. The actual or perceived weakness in the economy could also lead to decreased spending by our guests. Both attendance and total per capita spending at our theme parks are key drivers of our revenue and profitability, and reductions in either can materially adversely affect our business, financial condition and results of operations.

In addition, other factors beyond our control could adversely affect attendance and guest spending patterns at our theme parks. These factors could also affect our suppliers, vendors, insurance carriers and other contractual counterparties. Such factors include:

 

  Ÿ  

war, terrorist activities or threats and heightened travel security measures instituted in response to these events;

 

  Ÿ  

outbreaks of pandemic or contagious diseases or consumers’ concerns relating to potential exposure to contagious diseases;

 

  Ÿ  

natural disasters, such as hurricanes, fires, earthquakes, tsunamis, tornados, floods and volcanic eruptions and man-made disasters such as the oil spill in the Gulf of Mexico, which may deter travelers from scheduling vacations or cause them to cancel travel or vacation plans;

 

  Ÿ  

bad weather and even forecasts of bad weather, including abnormally hot, cold and/or wet weather;

 

  Ÿ  

changes in the desirability of particular locations or travel patterns of our guests;

 

  Ÿ  

low consumer confidence;

 

  Ÿ  

oil prices and travel costs and the financial condition of the airline, automotive and other transportation-related industries, any travel-related disruptions or incidents and their impact on travel; and

 

  Ÿ  

actions or statements by U.S. and foreign governmental officials related to travel and corporate travel-related activities (including changes to the U.S. visa rules) and the resulting public perception of such travel and activities.

 

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Any one or more of these factors could adversely affect attendance and total per capita spending at our theme parks, which could materially adversely affect our business, financial condition and results of operations.

Our intellectual property rights are valuable, and any inability to protect them could adversely affect our business.

Our intellectual property, including our trademarks, service marks, domain names, copyrights, patent and other proprietary rights, constitutes a significant part of the value of the Company. To protect our intellectual property rights, we rely upon a combination of trademark, copyright, patent, trade secret and unfair competition laws of the United States and other countries, as well as contract provisions and third-party policies and procedures governing internet/domain name registrations. However, there can be no assurance that these measures will be successful in any given case, particularly in those countries where the laws do not protect our proprietary rights as fully as in the United States. We may be unable to prevent the misappropriation, infringement or violation of our intellectual property rights, breaching any contractual obligations to us, or independently developing intellectual property that is similar to ours, any of which could reduce or eliminate any competitive advantage we have developed, adversely affect our revenues or otherwise harm our business.

We have obtained and applied for numerous U.S. and foreign trademark and service mark registrations and will continue to evaluate the registration of additional trademarks and service marks or other intellectual property, as appropriate. We cannot guarantee that any of our pending applications will be approved by the applicable governmental authorities. Moreover, even if the applications are approved, third parties may seek to oppose or otherwise challenge these registrations. A failure to obtain registrations for our intellectual property in the United States and other countries could limit our ability to protect our intellectual property rights and impede our marketing efforts in those jurisdictions.

We are actively engaged in enforcement and other activities to protect our intellectual property rights. If it became necessary for us to resort to litigation to protect these rights, any proceedings could be burdensome, costly and divert the attention of our personnel, and we may not prevail. In addition, any repeal or weakening of laws or enforcement in the United States or internationally intended to protect intellectual property rights could make it more difficult for us to adequately protect our intellectual property rights, negatively impacting their value and increasing the cost of enforcing our rights.

We may be subject to claims for infringing the intellectual property rights of others, which could be costly and result in the loss of significant intellectual property rights.

We cannot be certain that we do not and will not infringe the intellectual property rights of others. We have been in the past, and may be in the future, subject to litigation and other claims in the ordinary course of our business based on allegations of infringement or other violations of the intellectual property rights of others. Regardless of their merits, intellectual property claims can divert the efforts of our personnel and are often time-consuming and expensive to litigate or settle. In addition, to the extent claims against us are successful, we may have to pay substantial money damages or discontinue, modify, or rename certain products or services that are found to be in violation of another party’s rights. We may have to seek a license (if available on acceptable terms, or at all) to continue offering products and services, which may significantly increase our operating expenses.

 

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Incidents or adverse publicity concerning our theme parks or the theme park industry generally could harm our brands or reputation as well as negatively impact our revenues and profitability.

Our brands and our reputation are among our most important assets. Our ability to attract and retain customers depends, in part, upon the external perceptions of the Company, the quality of our theme parks and services and our corporate and management integrity. The operation of theme parks involves the risk of accidents, illnesses, environmental incidents and other incidents which may negatively affect the perception of guest and employee safety, health, security and guest satisfaction and which could negatively impact our brands or reputation and our business and results of operations. An accident or an injury at any of our theme parks or at theme parks operated by competitors, particularly accidents or injuries involving the safety of guests and employees, and the media coverage thereof, may harm our brands or reputation, cause a loss of consumer confidence in the Company, reduce attendance at our theme parks and negatively impact our results of operations. Such incidents have occurred in the past and may occur in the future. The considerable expansion in the use of social media over recent years has compounded the potential scope of the negative publicity that could be generated by such incidents. If any such incident occurs during a time of high seasonal demand, the effect could disproportionately impact our results of operations for the year.

Animals in our care are important to our theme parks, and they could be exposed to infectious diseases.

Many of our theme parks are distinguished from those of our competitors in that we offer guest interactions with animals. Individual animals, specific species of animals or groups of animals in our collection could be exposed to infectious diseases. While we have never had any such experiences, an outbreak of an infectious disease among any animals in our theme parks or the public’s perception that a certain disease could be harmful to human health may materially adversely affect our animal collection, our business, financial condition and results of operations.

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.

We operate in a complex and evolving regulatory environment and are subject to various federal and state statutes and regulations and international treaties implemented by federal law. The states in which we operate also regulate zoological activity involving the import and export of exotic and native wildlife, endangered and/or otherwise protected species, zoological display and anti-cruelty statutes. We incur significant compliance costs in connection with these regulations and violation of such regulations could subject us to fines and penalties and result in the loss of our licenses and permits, which, if occurred, could impact our ability to display certain animals. Future amendments to existing statutes, regulations and treaties or new statutes, regulations and treaties may potentially restrict our ability to maintain our animals, or to acquire new ones to supplement or sustain our breeding programs or otherwise adversely affect our business.

Additionally, from time to time, animal activist and other third-party groups may make claims before government agencies and/or bring lawsuits against us. Such claims and lawsuits sometimes are based on allegations that we do not properly care for some of our marquee animals. On other occasions, such claims and/or lawsuits are specifically designed to change existing law or enact new law in order to impede our ability to retain, exhibit, acquire or breed animals. While we seek to structure our operations to comply with all applicable federal and state laws and vigorously defend ourselves when sued, there are no assurances as to the outcome of future claims and lawsuits that could be brought against us. In addition, associated negative publicity could adversely affect our reputation and results of operations.

 

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Featuring animals at our theme parks involves risks.

Our theme parks feature numerous displays and interactions that include animals. All animal enterprises involve some degree of risk. All animal interaction by our employees and our guests in attractions in our theme parks, where offered, involves risk. While we maintain strict safety procedures for the protection of our employees and guests, injuries or death, while rare, have occurred in the past and may occur in the future, which may harm our reputation, reduce attendance and negatively impact our business, financial condition and results of operations.

We maintain insurance of the type and in amounts that we believe is commercially reasonable and that is available to animal enterprise related businesses in the theme park industry. We cannot predict the level of the premiums that we may be required to pay for subsequent insurance coverage, the level of any self-insurance retention applicable thereto, the level of aggregate coverage available, or the availability of coverage for specific risks.

If we lose licenses and permits required to exhibit animals and/or violate laws and regulations, our business will be adversely affected.

We are required to hold government licenses and permits, some of which are subject to yearly or periodic renewal, for purposes of possessing, exhibiting and maintaining animals. Although our theme parks’ licenses and permits have always been renewed in the past, in the event that any of our licenses or permits are not renewed or any of our licenses or permits are revoked, portions of the affected theme park might not be able to remain open for purpose of displaying or retaining the animals covered by such license or permit. Such an outcome could materially adversely affect our business, financial condition and results of operations.

In addition, we are subject to periodic inspections by federal and state agencies and the subsequent issuance of inspection reports. While we believe that we comply with, or exceed, requisite care and maintenance standards that apply to our animals, government inspectors can cite us for alleged statutory or regulatory violations. In unusual instances when we are cited for an alleged deficiency, we are most often given the opportunity to correct any purported deficiencies without penalty. It is possible, however, that in some cases a federal or state regulator could seek to impose monetary fines on us. In the past, when we have been subjected to governmental claims for fines, the amounts involved were not material to our business, financial condition or results of operations. However, while highly unlikely, we cannot predict whether any future fines that regulators might seek to impose would materially adversely affect our business, financial condition or results of operations.

Moreover, many of the statutes under which we operate allow for the imposition of criminal sanctions. While neither of the foregoing situations are likely to occur, either could negatively affect the business, financial condition or results of operations at our theme parks.

A significant portion of our revenues are generated in the State of Florida and in the Orlando market.

Approximately 56% of our revenues are generated in the State of Florida. In addition, our revenues and results of operations depend significantly on the results of our Orlando theme parks. The Orlando theme park market is extremely competitive, with a high concentration of theme parks operated by several companies. As a result, any risks described in this prospectus affecting the State of Florida generally or our Orlando theme parks in particular may materially adversely affect our business, financial condition or results of operations.

 

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Because we operate in a highly competitive industry, our revenues, profits or market share could be harmed if we are unable to compete effectively.

The entertainment industry, and the theme park industry in particular, is highly competitive. Our theme parks compete with other theme, water and amusement parks and with other types of recreational facilities and forms of entertainment, including movies, home entertainment options, sports attractions, restaurants and vacation travel.

Principal direct competitors of our theme parks include theme parks operated by The Walt Disney Company, Universal Studios, Six Flags, Cedar Fair, Merlin Entertainments and Hershey Entertainment and Resorts Company. The principal competitive factors of a theme park include location, price, uniqueness and perceived quality of the rides and attractions, the atmosphere and cleanliness of the theme park, the quality of its food and entertainment, weather conditions, ease of travel to the theme park (including direct flights by major airlines), and availability and cost of transportation to a theme park. Certain of our direct competitors have substantially greater financial resources than we do, and they may be able to adapt more quickly to changes in guest preferences or devote greater resources to promotion of their offerings and attractions than us. Our competitors may be able to attract customers to their theme parks in lieu of our own through the development or acquisition of new rides, attractions or shows that are perceived by customers to be of a higher quality and entertainment value. As a result, we may not be able to compete successfully against such competitors.

If we lose key personnel, our business may be adversely affected.

Our success depends in part upon a number of key employees, including members of our senior management team who have extensive experience in the industry. The loss of the services of our key employees could have a materially adverse effect on our business. Presently, we do not have employment agreements with any of our key employees.

Increased labor costs and employee health and welfare benefits may reduce our results of operations.

Labor is a primary component in the cost of operating our business. We devote significant resources to recruiting and training our managers and employees. Increased labor costs due to competition, increased minimum wage or employee benefit costs or otherwise, would adversely impact our operating expenses. The Patient Protection and Affordable Care Act of 2010 and proposed amendments thereto contain provisions which could materially impact our future healthcare costs. While the legislation’s ultimate impact is not yet known, it is possible that these changes could significantly increase our compensation costs, which would reduce our net income and adversely affect our cash flows.

Unionization activities or labor disputes may disrupt our operations and affect our profitability.

Although none of our employees are currently covered under collective bargaining agreements, we cannot guarantee that our employees will not elect to be represented by labor unions in the future. If some or all of our employees were to become unionized and collective bargaining agreement terms were significantly different from our current compensation arrangements, it could adversely affect our business, financial condition or results of operations. In addition, a labor dispute involving some or all of our employees may disrupt our operations and reduce our revenues, and resolution of disputes may increase our costs.

Although we maintain binding policies that require employees to submit to a mandatory alternative dispute resolution procedure in lieu of other remedies, as employers, we may be subject to

 

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various employment-related claims, such as individual or class actions or government enforcement actions relating to alleged employment discrimination, employee classification and related withholding, wage-hour, labor standards or healthcare and benefit issues. Such actions, if brought against us and successful in whole or in part, may affect our ability to compete or materially adversely affect our business, financial condition or results of operations.

Our business depends on our ability to meet our workforce needs.

Our success depends on our ability to attract, train, motivate and retain qualified employees to keep pace with our needs, including employees with certain specialized skills in the field of animal training and care. If we are unable to do so, our results of operations and cash flows may be adversely affected.

In addition, we employ a significant seasonal workforce. We recruit year-round to fill thousands of seasonal staffing positions each season and work to manage seasonal wages and the timing of the hiring process to ensure the appropriate workforce is in place. There is no assurance that we will be able to recruit and hire adequate seasonal personnel as the business requires or that we will not experience material increases in the cost of securing our seasonal workforce in the future. Increased seasonal wages or an inadequate workforce could materially adversely affect our business, financial condition or results of operations.

Our growth strategy may not achieve the anticipated results.

Our future success will depend on our ability to grow our business, including through capital investments to improve existing and create new theme parks, rides, attractions and shows, as well as in-park product offerings and product offerings outside of our theme parks. Our growth and innovation strategies require significant commitments of management resources and capital investments and may not grow our revenues at the rate we expect or at all. As a result, we may not be able to recover the costs incurred in developing our new projects and initiatives or to realize their intended or projected benefits, which could materially adversely affect our business, financial condition or results of operations.

We may not be able to fund theme park capital expenditures and investment in future attractions and projects.

A principal competitive factor for a theme park is the uniqueness and perceived quality of its rides and attractions. We need to make continued capital investments through maintenance and the regular addition of new rides and attractions. Our ability to fund capital expenditures will depend on our ability to generate sufficient cash flow from operations and to raise capital from third parties. We cannot assure you that our operations will be able to generate sufficient cash flow to fund such costs, or that we will be able to obtain sufficient financing on adequate terms, or at all, which could cause us to delay or abandon certain projects or plans.

The high fixed cost structure of theme park operations can result in significantly lower margins if revenues decline.

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. These fixed costs may increase at a greater rate than our revenues and may not be able to be reduced at the same rate as declining revenues. If cost-cutting efforts are insufficient to offset declines in revenues or are impracticable, we could experience a material decline in margins, revenues,

 

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profitability and reduced or negative cash flows. Such effects can be especially pronounced during periods of economic contraction or slow economic growth, such as the recent economic recession.

If we are unable to maintain certain commercial licenses, our business, reputation and brand could be adversely affected.

We rely on licenses from Sesame Workshop to use the Sesame Place tradename and trademark and certain other intellectual property rights, including titles, marks, characters, logos and designs from the Sesame Street television series within our Sesame Place theme park and with respect to Sesame Street themed areas within certain areas of some of our other theme parks, as well as in connection with the sales of certain Sesame Street themed products. Our use of these intellectual property rights is subject to the approval of Sesame Workshop and the licenses may be terminated in certain limited circumstances or in the event of our bankruptcy. Furthermore, the current term of both the Sesame Place theme park license and the multi-park license expire on December 31, 2021, and there is no assurance that we will be able to renegotiate the use of such intellectual property on commercially acceptable terms or at all. The new terms of the licenses may significantly increase our operating expenses, or otherwise adversely affect our business.

ABI is the owner of the Busch Gardens trademarks and domain names. ABI has granted us a perpetual, exclusive, worldwide, royalty-free license to use the Busch Gardens trademark and certain related domain names in connection with the operation, marketing, promotion and advertising of certain of our theme parks, as well as in connection with the production, use, distribution and sale of merchandise sold in connection with such theme parks. Under the license, we are required to indemnify ABI against losses related to our use of the marks. If we were to lose or have to renegotiate this license, our business may be adversely affected.

Changes in consumer tastes and preferences for entertainment and consumer products could reduce demand for our entertainment offerings and products and adversely affect the profitability of our business.

The success of our business depends on our ability to consistently provide, maintain and expand theme park attractions as well as create and distribute media programming, online material and consumer products that meet changing consumer preferences. In addition, consumers from outside the United States constitute an increasingly important portion of our theme park attendance, and our success depends in part on our ability to successfully predict and adapt to tastes and preferences of this consumer group. If our entertainment offerings and products do not achieve sufficient consumer acceptance or if consumer preferences change, our business, financial condition or results of operations could be materially adversely affected.

Our existing debt agreements contain, and future debt agreements may contain, restrictions that may limit our flexibility in operating our business.

Our existing debt agreements contain, and documents governing our future indebtedness may contain, numerous financial and operating covenants that limit the discretion of management with respect to certain business matters. These covenants place restrictions on, among other things, our ability to incur additional indebtedness, pay dividends and other distributions, make capital expenditures, make certain loans, investments and other restricted payments, enter into agreements restricting our subsidiaries’ ability to pay dividends, engage in certain transactions with stockholders or affiliates, sell certain assets or engage in mergers, acquisitions and other business combinations, amend or otherwise alter the terms of our indebtedness, alter the business that we conduct, guarantee indebtedness or incur other contingent obligations and create liens. Our existing debt agreements also require, and documents governing our future indebtedness may require, us to meet certain financial

 

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ratios and tests. Our ability to comply with these and other provisions of the existing debt agreements is dependent on our future performance, which will be subject to many factors, some of which are beyond our control. The breach of any of these covenants or non-compliance with any of these financial ratios and tests could result in an event of default under the existing debt agreements, which, if not cured or waived, could result in acceleration of the related debt and the acceleration of debt under other instruments evidencing indebtedness that may contain cross-acceleration or cross-default provisions. Variable rate indebtedness subjects us to the risk of higher interest rates, which could cause our future debt service obligations to increase significantly.

Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, exposure us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations under our indebtedness.

We are highly leveraged. As of September 30, 2012, as adjusted to give effect to the completion of this offering and the use of proceeds therefrom to repay a portion of the Senior Notes, our total indebtedness would have been approximately $         million. Our high degree of leverage could have important consequences, including the following: (i) a substantial portion of our cash flow from operations is dedicated to the payment of principal and interest on indebtedness, thereby reducing the funds available for operations, future business opportunities and capital expenditures; (ii) our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate purposes in the future may be limited; (iii) certain of the borrowings are at variable rates of interest, which will increase our vulnerability to increases in interest rates; (iv) we are at a competitive disadvantage to lesser leveraged competitors; (v) we may be unable to adjust rapidly to changing market conditions; (vi) the debt service requirements of our other indebtedness could make it more difficult for us to satisfy our financial obligations; and (vii) we may be vulnerable in a downturn in general economic conditions or in our business and we may be unable to carry out activities that are important to our growth.

Our ability to make scheduled payments of the principal of, or to pay interest on, or to refinance indebtedness depends on and is subject to our financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business and other factors beyond our control, including the availability of financing in the international banking and capital markets. If unable to generate sufficient cash flow to service our debt or to fund our other liquidity needs, we will need to restructure or refinance all or a portion of our debt, which could cause us to default on our obligations and impair our liquidity. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations. We from time to time may increase the amount of our indebtedness, modify the terms of our financing arrangements, issue dividends, make capital expenditures and take other actions that may substantially increase our leverage.

Despite our significant leverage, we may be able to incur significant additional amounts of debt, which could further exacerbate the risks associated with our significant leverage.

Our operating results are subject to seasonal fluctuations.

We have historically experienced and expect to continue to experience seasonal fluctuations in our annual theme park attendance and revenue, which are typically higher in our second and third quarters, partly 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. In addition, school vacations and school start dates also cause fluctuations in our quarterly theme park attendance and revenue.

 

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Furthermore, the operating season at some of our theme parks, including Adventure Island, Aquatica San Diego, Busch Gardens Williamsburg, Water Country USA and Sesame Place, is of limited duration. In addition, most of our expenses for maintenance and costs of adding new attractions at our seasonal theme parks are incurred when the operating season is over, which may increase the need for borrowing to fund such expenses during such periods.

When conditions or events described in this section occur during the operating season, particularly during the second and third quarters, there is only a limited period of time during which the impact of those conditions or events can be mitigated. Accordingly, such conditions or events may have a disproportionately adverse effect on our revenues and cash flow.

We may not realize the benefits of acquisitions or other strategic initiatives.

Our business strategy may include selective expansion, both domestically and internationally, through acquisitions of assets or other strategic initiatives, such as joint ventures, that allow us to profitably expand our business and leverage our brands. The success of our acquisitions depends on effective integration of acquired businesses and assets into our operations, which is subject to risks and uncertainties, including realization of anticipated synergies and cost savings, the ability to retain and attract personnel, the diversion of management’s attention from other business concerns, and undisclosed or potential legal liabilities of an acquired businesses or assets. Additionally, any international transactions are subject to additional risks, including the impact of economic fluctuations in economies outside of the United States, difficulties and costs of staffing and managing foreign operations due to distance, language and cultural differences, as well as political instability and lesser degree of legal protection in certain jurisdictions, currency exchange fluctuations and potentially adverse tax consequences of overseas operations.

Adverse litigation judgments or settlements resulting from legal proceedings in which we may be involved in the normal course of our business could reduce our profits or limit our ability to operate our business.

We are subject to allegations, claims and legal actions arising in the ordinary course of our business, which may include claims by third parties, including guests who visit our theme parks, our employees or regulators. The outcome of many of these proceedings cannot be predicted. If any of these proceedings were to be determined adversely to us, a judgment, a fine or a settlement involving a payment of a material sum of money were to occur, or injunctive relief were issued against us, our business, financial condition and results of operations could be materially adversely affected.

Our insurance coverage may not be adequate to cover all possible losses that we could suffer and our insurance costs may increase.

We seek to maintain comprehensive insurance coverage at commercially reasonable rates. Although we maintain various safety and loss prevention programs and carry property and casualty insurance to cover certain risks, our insurance policies do not cover all types of losses and liabilities. There can be no assurance that our insurance will be sufficient to cover the full extent of all losses or liabilities for which we are insured, and we cannot guarantee that we will be able to renew our current insurance policies on favorable terms, or at all. In addition, if we or other theme park operators sustain significant losses or make significant insurance claims, then our ability to obtain future insurance coverage at commercially reasonable rates could be materially adversely affected.

We may be unable to purchase or contract with third-party manufacturers for our theme park rides and attractions.

We may be unable to purchase or contract with third parties to build high quality rides and attractions and to continue to service and maintain those rides and attractions at competitive or

 

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beneficial prices, or to provide the replacement parts needed to maintain the operation of such rides. In addition, if our third-party suppliers’ financial condition deteriorates or they go out of business, we may not be able to obtain the full benefit of manufacturer warranties or indemnities typically contained in our contracts or may need to incur greater costs for the maintenance, repair, replacement or insurance of these assets.

Our operations and our ownership of property subject us to environmental requirements, and to environmental expenditures and liabilities.

We incur costs to comply with environmental requirements, such as those relating to water use, wastewater and storm water management and disposal, air emissions control, hazardous materials management, solid and hazardous waste disposal, and the clean-up of properties affected by regulated materials.

We have been required and continue to investigate and clean-up hazardous or toxic substances or chemical releases, and other releases, from current or formerly owned or operated facilities. In addition, in the ordinary course of our business, we generate, use and dispose of large volumes of water, including saltwater, which requires us to comply with a number of federal, state and local regulations and to incur significant expenses. Failure to comply with such regulations could subject us to fines and penalties and/or require us to incur additional expenses. Although we are not now classified as a large quantity generator of hazardous waste, we do store and handle hazardous materials to operate and maintain our equipment and facilities and have done so historically.

We cannot assure you that we will not be required to incur substantial costs to comply with new or expanded environmental requirements in the future or to investigate or clean-up new or newly identified environmental conditions, which could also impair our ability to use or transfer the affected properties and to obtain financing.

Cyber security risks and the failure to maintain the integrity of internal or guest data could result in damages to our reputation and/or subject us to costs, fines or lawsuits.

We collect and retain large volumes of internal and guest data, including credit card numbers and other personally identifiable information, for business purposes, including for transactional or target marketing and promotional purposes, and our various information technology systems enter, process, summarize and report such data. We also maintain personally identifiable information about our employees. The integrity and protection of our guest, employee and Company data is critical to our business and our guests and employees have a high expectation that we will adequately protect their personal information. The regulatory environment, as well as the requirements imposed on us by the credit card industry, governing information, security and privacy laws is increasingly demanding and continue to evolve. Maintaining compliance with applicable security and privacy regulations may increase our operating costs and/or adversely impact our ability to market our theme parks, products and services to our guests. Furthermore, a penetrated or compromised data system or the intentional, inadvertent or negligent release or disclosure of data could result in theft, loss, fraudulent or unlawful use of guest, employee or Company data which could harm our reputation or result in remedial and other costs, fines or lawsuits.

The suspension or termination of any of our business licenses may have a negative impact on our business.

We maintain a variety of business licenses issued by federal, state and local authorities that are renewable on a periodic basis. We cannot guarantee that we will be successful in renewing all of our licenses on a periodic basis. The suspension, termination or expiration of one or more of these licenses could materially adversely affect our revenues and profits. In addition, any changes to the licensing requirements for any of our licenses could affect our ability to maintain the licenses.

 

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We have a limited operating history as a stand-alone company, which makes it difficult to predict our future prospects and financial performance.

We began operating as a stand-alone company in December 2009, following the 2009 Transactions, and, as a result, have a limited operating history as an independent company. Accordingly, you should consider our future prospects in light of the risks and challenges encountered by a company with a limited operating history. There can be no assurance that we will be able to successfully meet the challenges, uncertainties, expenses and difficulties encountered by us or that we will be successful in accomplishing our objectives. Our limited operating history as a stand-alone company makes it difficult to predict our future prospects and financial performance.

Affiliates of Blackstone control us and their interests may conflict with ours or yours in the future.

Immediately following this offering of common stock, affiliates of Blackstone will beneficially own approximately     % of our common stock, or approximately     % if the underwriters exercise in full their option to purchase additional shares. As a result, investment funds associated with or designated by affiliates of Blackstone will have the ability to elect all of the members of our Board of Directors and thereby control our policies and operations, including the appointment of management, future issuances of our common stock or other securities, the payment of dividends, if any, on our common stock, the incurrence or modification of debt by us, amendments to our amended and restated certificate of incorporation and amended and restated bylaws and the entering into of extraordinary transactions, and their interests may not in all cases be aligned with your interests. In addition, Blackstone may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to you. For example, Blackstone could cause us to make acquisitions that increase our indebtedness or cause us to sell revenue-generating assets. Additionally, in certain circumstances, acquisitions of debt at a discount by purchasers that are related to a debtor can give rise to cancellation of indebtedness income to such debtor for U.S. federal income tax purposes.

Blackstone is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. For example, Blackstone owns a substantial stake in Merlin Entertainments Group, which operates the Legoland theme parks, and certain other investments in the leisure and hospitality industries.

Our amended and restated certificate of incorporation will provide that none of Blackstone, any of its affiliates or any director who is not employed by us (including any non-employee director who serves as one of our officers in both his director and officer capacities) or his or her affiliates will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. Blackstone also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. So long as Blackstone continues to own a significant amount of our combined voting power, even if such amount is less than 50%, Blackstone will continue to be able to strongly influence or effectively control our decisions and, so long as Blackstone and its affiliates collectively own at least 5% of all outstanding shares of our stock entitled to vote generally in the election of directors, it will be able to appoint individuals to our Board of Directors under a stockholders agreement which we expect to adopt in connection with this offering. In addition, Blackstone will be able to determine the outcome of all matters requiring stockholder approval and will be able to cause or prevent a change of control of the Company or a change in the composition of our Board of Directors and could preclude any unsolicited acquisition of the Company. The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of common stock as part of a sale of the Company and ultimately might affect the market price of our common stock.

 

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Furthermore, under our stockholders agreement and amended and restated certificate of incorporation, which we expect to adopt in connection with this offering, so long as Blackstone and its affiliates collectively own at least 25% of our outstanding common stock, approval by Blackstone is required for certain actions including certain mergers, consolidations, recapitalizations, asset sales, dissolutions and entering into a business that is materially different from our existing business. These consent rights held by Blackstone could prevent us from engaging in beneficial transactions and adversely affect the market price of our common stock.

Risks Related to this Offering and Ownership of Our Common Stock

No market currently exists for our common stock, and an active, liquid trading market for our common stock may not develop, which may cause our common stock to trade at a discount from the initial offering price and make it difficult for you to sell the common stock you purchase.

Prior to this offering, there has not been a public market for our common stock. We cannot predict the extent to which investor interest in the Company will lead to the development of a trading market on              or otherwise or how active and liquid that market may become. If an active and liquid trading market does not develop or continue, you may have difficulty selling any of our common stock that you purchase. The initial public offering price for the shares will be determined by negotiations between us, the selling stockholders and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. The market price of our common stock may decline below the initial offering price, and you may not be able to sell your shares of our common stock at or above the price you paid in this offering, or at all.

You will incur immediate and substantial dilution in the net tangible book value of the shares you purchase in this offering.

Prior stockholders have paid substantially less per share of our common stock than the price in this offering. The initial public offering price of our common stock will be substantially higher than the net tangible book value per share of outstanding common stock prior to completion of the offering. Based on our net tangible book value as of September 30, 2012 and upon the issuance and sale of              shares of common stock by us at an assumed initial public offering price of $         per share, which is the mid-point of the range set forth on the cover page of this prospectus, if you purchase our common stock in this offering, you will pay more for your shares than the amounts paid by our existing stockholders for their shares and you will suffer immediate dilution of approximately $         per share in net tangible book value. Dilution is the amount by which the offering price paid by purchasers of our common stock in this offering will exceed the pro forma net tangible book value per share of our common stock upon completion of this offering. If the underwriters exercise their option to purchase additional shares, you will experience additional dilution. You may experience additional dilution upon future equity issuances or the exercise of stock options to purchase common stock granted to our employees, executive officers and directors under our current and future stock incentive plans, including our 2013 Omnibus Incentive Plan. See “Dilution.”

Our stock price may change significantly following the offering, and you may not be able to resell shares of our common stock at or above the price you paid or at all, and you could lose all or part of your investment as a result.

The trading price of our common stock is likely to be volatile. The stock market recently has experienced extreme volatility. This volatility often has been unrelated or disproportionate to the operating performance of particular companies. We, the selling stockholders and the underwriters will negotiate to determine the initial public offering price. You may not be able to resell your shares at or

 

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above the initial public offering price due to a number of factors such as those listed in “—Risks Related to Our Business and Our Industry” and the following:

 

  Ÿ  

results of operations that vary from the expectations of securities analysts and investors;

 

  Ÿ  

results of operations that vary from those of our competitors;

 

  Ÿ  

changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors;

 

  Ÿ  

declines in the market prices of stocks generally, or those of amusement and theme parks companies;

 

  Ÿ  

strategic actions by us or our competitors;

 

  Ÿ  

announcements by us or our competitors of significant contracts, new products, acquisitions, joint marketing relationships, joint ventures, other strategic relationships or capital commitments;

 

  Ÿ  

changes in general economic or market conditions or trends in our industry or markets;

 

  Ÿ  

changes in business or regulatory conditions;

 

  Ÿ  

future sales of our common stock or other securities;

 

  Ÿ  

investor perceptions or the investment opportunity associated with our common stock relative to other investment alternatives;

 

  Ÿ  

the public’s response to press releases or other public announcements by us or third parties, including our filings with the Securities and Exchange Commission (the “SEC”);

 

  Ÿ  

announcements relating to litigation;

 

  Ÿ  

guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance;

 

  Ÿ  

the development and sustainability of an active trading market for our stock;

 

  Ÿ  

changes in accounting principles; and

 

  Ÿ  

other events or factors, including those resulting from natural disasters, war, acts of terrorism or responses to these events.

These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance. In addition, price volatility may be greater if the public float and trading volume of our common stock is low.

In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.

We cannot assure you that we will pay dividends on our common stock, and our indebtedness could limit our ability to pay dividends on our common stock.

After completion of this offering, we intend to pay cash dividends on our common stock, subject to our compliance with applicable law, and depending on, among other things, our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in our debt agreements and in any preferred stock, business prospects and other factors that our Board of Directors may deem relevant. For more information, see “Dividend Policy.” There can be no assurance that we will pay a dividend in the future or continue to pay any dividend if we do commence paying dividends.

 

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If securities analysts do not publish research or reports about our business or if they downgrade our stock or our sector, our stock price and trading volume could decline.

The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrade our stock or our industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business, the price of our stock could decline. If one or more of these analysts ceases coverage of the Company or fail to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.

Future sales, or the perception of future sales, by us or our existing stockholders in the public market following this offering could cause the market price for our common stock to decline.

After this offering, the sale of shares of our common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Upon consummation of this offering we will have a total of              shares of common stock outstanding. Of the outstanding shares, the              shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except that any shares held by our affiliates, as that term is defined under Rule 144 of the Securities Act (“Rule 144”), including our directors, executive officers and other affiliates (including affiliates of Blackstone) may be sold only in compliance with the limitations described in “Shares Eligible for Future Sale.”

The remaining              shares, representing     % of our total outstanding shares of common stock following this offering, will be “restricted securities” within the meaning of Rule 144 and subject to certain restrictions on resale following the consummation of this offering. Restricted securities may be sold in the public market only if they are registered under the Securities Act or are sold pursuant to an exemption from registration such as Rule 144, as described in “Shares Eligible for Future Sale.”

In connection with this offering, we, our directors and executive officers, and holders of substantially all of our common stock prior to this offering have each agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of our or their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of the representatives of the underwriters. See “Underwriting (Conflicts of Interest)” for a description of these lock-up agreements.

Upon the expiration of the lock-up agreements described above, the remaining              shares will be eligible for resale, of which              would be subject to volume, manner of sale and other limitations under Rule 144. In addition, pursuant to a registration rights agreement entered into in connection with the 2009 Transactions, we granted the Partnerships the right, subject to certain conditions, to require us to register the sale of their shares of our common stock under the Securities Act. By exercising their registration rights and selling a large number of shares, the Partnerships could cause the prevailing market price of our common stock to decline. Following completion of this offering, the shares covered by registration rights would represent approximately     % of our outstanding common stock (or     %, if the underwriters exercise in full their option to purchase additional shares). Registration of any of these outstanding shares of common stock would result in such shares becoming freely tradable without compliance with Rule 144 upon effectiveness of the registration statement. See “Shares Eligible for Future Sale.”

As restrictions on resale end or if these stockholders exercise their registration rights, the market price of our shares of common stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our shares of common stock or other securities.

 

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In the future, we may also issue our securities in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to you.

Anti-takeover provisions in our organizational documents could delay or prevent a change of control.

Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have an anti-takeover effect and may delay, defer or prevent a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders.

These provisions provide for, among other things:

 

  Ÿ  

a classified Board of Directors with staggered three-year terms;

 

  Ÿ  

the ability of our Board of Directors to issue one or more series of preferred stock;

 

  Ÿ  

advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual meetings;

 

  Ÿ  

certain limitations on convening special stockholder meetings;

 

  Ÿ  

the removal of directors only for cause and only upon the affirmative vote of holders of at least 75% of the shares of common stock entitled to vote generally in the election of directors if Blackstone and its affiliates cease to hold a majority of our outstanding shares of common stock; and

 

  Ÿ  

that certain provisions may be amended only by the affirmative vote of at least 75% of the shares of common stock entitled to vote generally in the election of directors if Blackstone and its affiliates cease to hold a majority of our outstanding shares of common stock.

These anti-takeover provisions could make it more difficult for a third party to acquire us, even if the third-party’s offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares. See “Description of Capital Stock.”

We will be a “controlled company” within the meaning of the applicable exchange rules and the rules of the SEC. As a result, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements that provide protection to stockholders of other companies.

After completion of this offering, Blackstone will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of             . Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

 

  Ÿ  

the requirement that a majority of our Board of Directors consist of “independent directors” as defined under the rules of             ;

 

  Ÿ  

the requirement that our director nominees be selected, or recommended for our Board of Directors’ selection, either (1) by a majority of independent directors in a vote by independent

 

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directors, pursuant to a nominations process adopted by a Board of Directors resolution, or (2) by a nominating/governance committee comprised solely of independent directors with a written charter addressing the nominations process;

 

  Ÿ  

the requirement that the compensation of our executive officers be determined, or recommended to our Board of Directors for determination, by a majority of independent directors in a vote by independent directors, or a compensation committee comprised solely of independent directors; and

 

  Ÿ  

the requirement for an annual performance evaluation of the nominating/corporate governance and compensation committees.

Following this offering, we intend to utilize these exemptions. As a result, we will not have a majority of independent directors, our nominating/corporate governance committee, if any, and compensation committee will not consist entirely of independent directors and such committees will not be subject to annual performance evaluations. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of             .

In addition, on June 20, 2012, the SEC passed final rules implementing provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 pertaining to compensation committee independence and the role and disclosure of compensation consultants and other advisers to the compensation committee. The SEC’s rules direct each of the national securities exchanges (including the                      on which we intend to list our common stock) to develop listing standards requiring, among other things, that:

 

  Ÿ  

compensation committees be composed of fully independent directors, as determined pursuant to new independence requirements;

 

  Ÿ  

compensation committees be explicitly charged with hiring and overseeing compensation consultants, legal counsel and other committee advisors; and

 

  Ÿ  

compensation committees be required to consider, when engaging compensation consultants, legal counsel or other advisors, certain independence factors, including factors that examine the relationship between the consultant or advisor’s employer and us.

As a “controlled company,” we will not be subject to these compensation committee independence requirements if and when they are adopted by              under the SEC’s rules.

We may be unsuccessful in implementing required internal controls over financial reporting.

We are not currently required to comply with the SEC’s rules implementing Section 404 of the Sarbanes-Oxley Act of 2002, and are therefore not required to make a formal assessment of the effectiveness of our internal controls over financial reporting for that purpose. Upon becoming a public company, our management will be required to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal controls over financial reporting.

In connection with the audit for the year ended December 31, 2011, we identified certain significant deficiencies in our internal controls over financial reporting. If we fail to remediate the significant deficiencies identified, fail to remediate any significant deficiencies or material weaknesses that may be identified in the future, or encounter problems or delays in the implementation of internal controls over financial reporting, we may be unable to conclude that our internal controls over financial reporting are effective. Any failure to develop or maintain effective controls or any difficulties encountered in our implementation of our internal controls over financial reporting could result in

 

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material misstatements that are not prevented or detected on a timely basis, which could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. Ineffective internal controls could cause investors to lose confidence in us and the reliability of our financial statements and cause a decline in the price of our common stock.

Non-U.S. holders who own or owned more than a certain ownership threshold may be subject to United States federal income tax on gain realized on the disposition of our common stock.

We believe that we are currently a U.S. real property holding corporation for U.S. federal income tax purposes. So long as our common stock continues to be regularly traded on an established securities market, a non-U.S. holder (as defined in “Material United States Federal Income and Estate Tax Consequences to Non-U.S. Holders”) who purchases common stock in this offering and holds or held (at any time during the shorter of the five year period preceding the date of disposition or the holder’s holding period) more than 5% of our common stock will be subject to United States federal income tax on the disposition of our common stock. Non-U.S. holders should consult their own tax advisors concerning the consequences of disposing of shares of our common stock.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements” within the meaning of the federal securities laws. All statements, other than statements of historical facts included in this prospectus, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, our results of operations, financial position and our business outlook, business trends and other information referred to under “Prospectus Summary,” “Risk Factors,” “Dividend Policy,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” are forward-looking statements. When used in this prospectus, the words “estimates,” “expects,” “contemplates,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “may,” “should” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this prospectus. Such risks, uncertainties and other important factors include, among others, the risks, uncertainties and factors set forth above under “Risk Factors,” and the following risks, uncertainties and factors:

 

  Ÿ  

various factors beyond our control adversely affecting discretionary spending and attendance at our theme parks;

 

  Ÿ  

inability to protect our intellectual property or the infringement on intellectual property rights of others;

 

  Ÿ  

incidents or adverse publicity concerning our theme parks;

 

  Ÿ  

outbreak of infectious disease affecting our animals;

 

  Ÿ  

change in federal and state regulations governing the treatment of animals;

 

  Ÿ  

featuring animals at our theme parks;

 

  Ÿ  

the loss of licenses and permits required to exhibit animals;

 

  Ÿ  

significant portion of revenues generated in the State of Florida and the Orlando market;

 

  Ÿ  

inability to compete effectively;

 

  Ÿ  

loss of key personnel;

 

  Ÿ  

increased labor costs;

 

  Ÿ  

unionization activities or labor disputes;

 

  Ÿ  

inability to meet workforce needs;

 

  Ÿ  

inability to execute our growth strategy;

 

  Ÿ  

inability to fund theme park capital expenditures;

 

  Ÿ  

high fixed cost structure of theme park operations;

 

  Ÿ  

changing consumer tastes and preferences;

 

  Ÿ  

restrictions in our debt agreements and our substantial leverage;

 

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  Ÿ  

seasonal fluctuations;

 

  Ÿ  

inability to realize the benefits of acquisitions or other strategic initiatives;

 

  Ÿ  

adverse litigation judgments or settlements;

 

  Ÿ  

inadequate insurance coverage;

 

  Ÿ  

inability to purchase or contract with third-party manufacturers for rides and attractions;

 

  Ÿ  

environmental regulations, expenditures and liabilities;

 

  Ÿ  

cyber security risks;

 

  Ÿ  

suspension or termination of any of our business licenses;

 

  Ÿ  

our limited operating history as stand-alone company; and

 

  Ÿ  

Blackstone’s control of us.

There may be other factors that may cause our actual results to differ materially from the forward-looking statements, including factors disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.

We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. All forward-looking statements in this prospectus apply only as of the date made and are expressly qualified in their entirety by the cautionary statements included in this prospectus. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately $         million from the sale of              shares of our common stock in this offering, based on the assumed initial public offering price of $         per share, which is the mid-point of the range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders.

We intend to use a portion of the net proceeds received by us from this offering to redeem $         million in aggregate principal amount of the Senior Notes at a redemption price of 111.0% pursuant to a provision in the indenture governing the Senior Notes that permits us to redeem up to 35% of the aggregate principal amount of the Senior Notes with the net cash proceeds of certain equity offerings and to pay estimated premiums and accrued interest thereon. As of September 30, 2012, $400.0 million aggregate principal amount of the Senior Notes was outstanding. The Senior Notes mature on December 1, 2016 and have an interest rate of 11.0%. See “Description of Indebtedness.”

In connection with this offering, we intend to terminate the 2009 Advisory Agreement in accordance with its terms. We will use approximately $                 million of the net proceeds to us from this offering to pay a one-time termination fee to an affiliate of Blackstone in connection with the termination of the 2009 Advisory Agreement. See “Certain Relationships and Related Party Transactions—Advisory Agreement and Support and Services Agreement.”

We intend to use the remaining proceeds received by us from this offering for other general corporate purposes.

An increase (decrease) of 1,000,000 shares from the expected number of shares to be sold by us in this offering, assuming no change in the assumed initial public offering price per share, which is the mid-point of the range set forth on the cover page of this prospectus, would increase (decrease) our net proceeds from this offering by $         million. A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, based on the mid-point of the range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $         million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

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DIVIDEND POLICY

In 2011 and 2012, we paid special dividends of $110.1 million and $500.0 million, respectively, to our stockholders (net of required withholdings).

After completion of this offering, we intend to pay cash dividends on our common stock, subject to our compliance with applicable law, and depending on, among other things, our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in our debt agreements and in any preferred stock, business prospects and other factors that our Board of Directors may deem relevant.

Our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries, which may further restrict our ability to pay dividends as a result of the laws of their jurisdiction of organization, agreements of our subsidiaries or covenants under any existing and future outstanding indebtedness we or our subsidiaries incur. In particular, the ability of our subsidiaries to distribute cash to SeaWorld Entertainment, Inc. to pay dividends is limited by covenants in our Senior Secured Credit Facilities and the indenture governing the Senior Notes. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Indebtedness” for a description of the restrictions on our ability to pay dividends.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2012:

 

  Ÿ  

on an actual basis; and

 

  Ÿ  

on an as adjusted basis to give effect to (1) the sale by us of approximately              shares of our common stock in this offering, after deducting estimated underwriting discounts and commissions and offering expenses payable by us, and (2) the application of the estimated net proceeds from the offering, as described in “Use of Proceeds,” at an assumed initial public offering price of $         per share, which is the mid-point of the range set forth on the cover page of this prospectus.

You should read this table in conjunction with the information contained in “Use of Proceeds,” “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Indebtedness,” as well as the consolidated financial statements and the notes thereto included elsewhere in this prospectus.

 

                 As of September 30,  2012              
     Actual     As adjusted for
this offering(1)
 
     (Dollars in thousands, except per share
amounts)
 

Cash and cash equivalents

   $ 142,843      $                
  

 

 

   

 

 

 

Long-term debt, including current portion of long-term debt:

    

Senior Secured Credit Facility:

    

Revolving Credit Facility

     —       

Tranche A Term Loans

     153,875     

Tranche B Term Loans

     1,297,128     

Senior Notes

     400,000     

Unamortized discount on long term-debt

     (23,338  
  

 

 

   

Total debt

     1,827,665     
  

 

 

   

Stockholders’ equity:

    

Common stock, $0.01 par value, 12,000,000 shares authorized, actual; 10,310,266 shares issued and outstanding, actual;              shares authorized, as adjusted; and              shares issued and outstanding, as adjusted)

     103     

Additional paid-in capital

     457,328     

Accumulated other comprehensive loss

     (1,172  

Retained earnings

     2,151     
  

 

 

   

Total stockholders’ equity (deficit)

     458,410     
  

 

 

   

Total capitalization

   $ 2,286,075     
  

 

 

   

 

(1) To the extent we change the number of shares of common stock sold by us in this offering from the shares we expect to sell or we change the initial public offering price from the assumed initial offering price of $         per share, which is the mid-point of the range set forth on the cover page of this prospectus, or any combination of these events occurs, the net proceeds to us from this offering and each of total stockholders’ equity deficit and total capitalization may increase or decrease. A $1.00 increase (decrease) in the assumed initial public offering price per share of the common stock, assuming no change in the number of shares of common stock to be sold, would increase (decrease) the net proceeds that we receive in this offering and each of total stockholders’ equity deficit and total capitalization by approximately $         million. An increase (decrease) of 1,000,000 shares in the expected number of shares to be sold in the offering, assuming no change in the assumed initial offering price per share, would increase (decrease) our net proceeds from this offering and our total stockholders’ equity and total capitalization by approximately $         million. To the extent we raise less than $         million of proceeds in this offering, we will reduce the amount of indebtedness that will be repaid.

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest in us will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock as adjusted to give effect to this offering. Dilution results from the fact that the per share offering price of the common stock is substantially in excess of the book value per share attributable to the shares of common stock held by existing stockholders.

Our net tangible book value as of September 30, 2012 was approximately $         million, or $         per share of our common stock. We calculate net tangible book value per share by taking the amount of our total tangible assets, reduced by the amount of our total liabilities, and then dividing that amount by the total number of shares of common stock outstanding.

After giving effect to our sale of the shares in this offering at an assumed initial public offering price of $         per share, which is the mid-point of the range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and offering expenses payable by us, our pro forma net tangible book value per share of our common stock as adjusted to give effect to this offering on September 30, 2012 would have been $         million, or $         per share of our common stock. This amount represents an immediate increase in net tangible book value (or a decrease in net tangible book deficit) of $         per share to existing stockholders and an immediate and substantial dilution in net tangible book value of $         per share to new investors purchasing shares in this offering at the assumed initial public offering price.

The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share

   $                

Net tangible book value (deficit) per share as of September 30, 2012

  

Increase in net tangible book value per share attributable to new investors purchasing shares in this offering

  

Pro forma net tangible book value (deficit) per share of common stock, as adjusted to give effect to this offering

  
  

 

 

 

Dilution per share to new investors in this offering

   $     
  

 

 

 

Dilution is determined by subtracting pro forma net tangible book value per share of common stock, as adjusted to give effect to this offering, from the initial public offering price per share of common stock.

Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions and offering expenses payable by us, a $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the mid-point of the range set forth on the cover page of this prospectus, would increase or decrease the net tangible book value attributable to new investors purchasing shares in this offering by $         per share and the dilution to new investors by $         per share and increase or decrease the pro forma net tangible book value per share, as adjusted to give effect to this offering, by $         per share.

 

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The following table summarizes, as of September 30, 2012, the differences between the number of shares purchased from us, the total consideration paid to us, and the average price per share paid by existing stockholders and by new investors. As the table shows, new investors purchasing shares in this offering will pay an average price per share substantially higher than our existing stockholders paid. The table below assumes an initial public offering price of $         per share, which is the mid-point of the range set forth on the cover page of this prospectus, for shares purchased in this offering and excludes underwriting discounts and commissions and estimated offering expenses payable by us:

 

     Shares Purchased     Total Consideration     Average
Price Per
Share
 
       Number        Percent         Amount          Percent      

Existing stockholders

               $                             $                

New investors

            

Total

               $                  $     

If the underwriters were to fully exercise the underwriters’ option to purchase              additional shares of our common stock, the percentage of shares of our common stock held by existing stockholders who are directors, officers or affiliated persons would be     % and the percentage of shares of our common stock held by new investors would be     %.

Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting estimated underwriting discounts and commissions and offering expenses payable by us, a $1.00 increase or decrease in the assumed initial public offering price of $         per share, which is the mid-point of the range set forth on the cover page of this prospectus, would increase or decrease total consideration paid by new investors and total consideration paid by all stockholders by approximately $         million.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following tables set forth our selected historical consolidated financial and operating data as of the dates and for the periods indicated:

 

  Ÿ  

for each of the fiscal years ended December 31, 2011 and December 31, 2010 and for the one month period ended December 31, 2009;

 

  Ÿ  

as of and for the nine months ended September 30, 2012; and

 

  Ÿ  

for the nine months ended September 30, 2011.

The selected financial data for each of the fiscal years ended December 31, 2011 and December 31, 2010 and for the one month period ended December 31, 2009 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected financial data as of September 30, 2012 and for the nine months ended September 30, 2012 and September 30, 2011 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. In the opinion of management, such unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for those periods. The results of operations for these interim periods are not necessarily indicative of the results to be expected for a full year or any future period. Our historical operating results are not necessarily indicative of future operating results.

On December 1, 2009, investment funds affiliated with Blackstone and certain co-investors, through SeaWorld Entertainment, Inc. and its wholly-owned subsidiary, SWPEI, acquired 100% of the equity interests of Sea World LLC and SeaWorld Parks & Entertainment LLC (f/k/a Busch Entertainment Corporation) from subsidiaries of Anheuser-Busch Companies, Inc. The Predecessor Financial Information is not presented in this prospectus because it is not comparable and therefore not meaningful to a prospective investor. The Predecessor Financial Information does not fully reflect our operations on a stand-alone basis and we believe would not materially contribute to an investor’s understanding of our historical financial performance. The Predecessor Financial Information prepared on a basis comparable with our consolidated financial statements included in this prospectus is not available and cannot be provided without unreasonable effort and expense. We believe that the omission of the Predecessor Financial Information would not have a material impact on an investor’s understanding of our financial results and condition, cash flows and related trends.

The following tables should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto included elsewhere in this prospectus.

 

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    Nine Months Ended
September  30,
    Year Ended
December 31,
    One Month
Period Ended
December 31,
 
    2012     2011     2011     2010           2009(1)        
    (Amounts in thousands, except per share and per capita amounts)  
    (Unaudited)                    

Statement of operations data:

         

Net revenues

         

Admissions

  $ 715,842      $ 666,097      $ 824,937      $ 730,368      $ 45,060   

Food, merchandise and other

    444,737        412,637        505,837        465,735        27,918   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    1,160,579        1,078,734        1,330,774        1,196,103        72,978   

Costs and expenses

         

Cost of food, merchandise and other revenues

    99,109        89,736        112,498        97,871        5,472   

Operating expenses

    560,145        521,390        687,999        673,829        51,957   

Selling, general and administrative

    150,571        142,447        172,368        159,506        11,544   

Depreciation and amortization

    122,085        154,862        213,592        207,156        17,973   

Acquisition-related expenses

    —          —          —          —          67,966   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    931,910        908,435        1,186,457        1,138,362        154,912   

Operating income (loss)

    228,669        170,299        144,317        57,741        (81,934

Other income (expense), net

    2,110        (1,661     (1,679     1,937        30   

Interest expense

    86,263        83,960        110,097        134,383        11,501   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    144,516        84,678        32,541        (74,705     (93,405

Provision for (benefit from) income taxes

    58,273        34,719        13,428        (29,241     (35,664
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 86,243      $ 49,959      $ 19,113      $ (45,464   $ (57,741
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

  $ 86,243      $ 49,959      $ 19,113      $ (45,464   $ (57,741
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Per share data:

         

Basic and diluted income (loss) per share

  $ 8.36  $8.28      $ 4.93  $4.90      $ 1.88  $1.86        $(4.50)  $(4.50)        $(5.72)  $(5.72)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of shares used in per share amounts—basic and diluted

    10,310  10,413        10,138  10,205        10,174  10,253        10,100  10,100        10,100  10,100   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other financial and operating data:

         

Capital expenditures

  $ 154,976      $ 163,551      $ 225,316      $ 112,438      $ 3,149   

Attendance

    19,862        19,040        23,631        22,433        1,402   

Total revenue per capita

  $ 58.43      $ 56.66      $ 56.31      $ 53.32      $ 52.05   

 

     As of
September 30, 2012
 
    

(In thousands)

(Unaudited)

 

Consolidated balance sheet data (at end of period):

  

Cash and cash equivalents

   $ 142,843   

Total assets

     2,611,240   

Total long-term debt

     1,827,665   

Total equity

     458,410   

 

(1) Reflects our financial results from December 1, 2009 to December 31, 2009, which is the period in which we first became an independent, stand-alone entity in connection with the 2009 Transactions.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with “Selected Historical Consolidated Financial Data” and the historical consolidated financial statements and the notes thereto included elsewhere in this prospectus. 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 this prospectus. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”

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 with broad demographic appeal including such iconic brands as SeaWorld, Shamu and Busch Gardens. Over our more than 50 year history, we have built a diversified portfolio of 11 premier destination and regional theme parks that are grouped in key markets across the United States, many of which showcase our one-of-a-kind collection of approximately 67,000 marine and terrestrial animals. Our theme parks feature a diverse array of rides, shows and other attractions with broad demographic appeal which deliver extraordinary 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 12 months ended September 30, 2012, we hosted more than 24 million guests in our theme parks, including approximately 2.7 million international guests from over 55 countries and six continents, and generated an estimated 5.6 billion impressions through television and digital media platforms. During the year ended December 31, 2011 and the nine months ended September 30, 2012, we had total revenues of $1,330.8 million and $1,160.6 million, respectively.

Key Business Metrics Evaluated by Management

Attendance

We define attendance as the number of guest visits to our theme parks. Increased attendance drives increased admission revenue to our theme parks as well as total in-park spending. The level of attendance at our theme parks is a function of many factors, including the opening of new attractions and shows, weather, global and regional economic conditions, competitive offerings and overall consumer confidence in the economy.

Total Revenue Per Capita

Total revenue per capita consists of admission per capita and in-park per capita spending:

 

  Ÿ  

Admission Per Capita.    We calculate admission per capita for any period as total admission revenue divided by total attendance. Theme park admissions accounted for approximately 62% of our revenue for the nine months ended September 30, 2012. Over the same period of time, we reported $36.04 in admission per capita, representing an increase of 3.0%. 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.

 

  Ÿ  

In-Park Per Capita Spending.    In-park per capita spending represents the amount each guest spends on purchases of food, merchandise and other spending. For the nine months ended September 30, 2012, in-park per capita spending accounted for approximately 38% of our

 

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revenue. Over the same time period, we reported $22.39 of in-park per capita spending, representing an increase of 3.3%. 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.

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. The difficult regional economic conditions and recessionary periods in the locations of our theme parks may adversely impact attendance figures, the frequency with which guests choose to visit our theme parks and guest spending patterns at our theme parks. Both attendance and total per capita spending at our theme parks are key drivers of our revenue and profitability, and reductions in either can materially adversely affect our business, financial condition, results of operations and cash flows.

Seasonality

The theme park industry is seasonal in nature. Based upon historical results, we generate the highest revenues in the second and third quarters of each year, in part because six of our theme parks are only open for a portion of the year. Approximately two-thirds of our attendance and revenues are generated in the second and third quarters of the year and we typically incur a net loss in the first and fourth quarters. The mix of revenues by quarter is relatively constant, but revenues can shift between the first and second quarters due to the timing of Easter or between the first and fourth quarters due to the timing of Christmas and New Year’s. Even for our five theme parks open year-round, attendance patterns have significant seasonality, driven by holidays, school vacations and weather conditions. One of our goals in managing our business is to continue to generate cash flow throughout the year and minimize the effects of seasonality. In recent years, we have begun to encourage attendance during non-peak times by offering a variety of seasonal programs and events, such as a winter kids festival, spring concert series, and Halloween and Christmas events. In addition, during seasonally slow times, operating costs are controlled by reducing operating hours and show schedules. Employment levels required for peak operations are met largely through part-time and seasonal hiring.

Principal Factors Affecting Our Results of Operations

Revenues

Our revenues are driven primarily by attendance in our theme parks and the level of per capita spending for admission to the theme parks and per capita spending inside the theme parks for culinary, merchandise and other in-park experiences. The level of attendance in our theme parks is a function of many factors, including the opening of new attractions and shows, weather, global and regional economic conditions, competitive offerings and consumer confidence. The per capita spending for admission to the theme parks is driven by ticket pricing, the mix of ticket type purchased (such as single day, multi-day, and annual pass) and the mix of attendance by theme parks visited. In-park per capita spending is driven by pricing changes, penetration levels (percentage of guests purchasing), new product offerings, the mix of guests and the mix of in-park spending. For other factors affecting our revenues, see “Risk Factors—Risks Related to Our Business and Our Industry.”

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.

 

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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 “Risk Factors—Risks Related to Our Business and Our Industry.”

We barter theme park admission products for advertising and various other products and services. The fair value of the admission products is recognized into revenue and related expenses at the time of the exchange and approximates the fair value of the goods or services received, and such amounts are included within the theme park admission revenue and selling, general, and administrative expenses of our consolidated statements of operations related to bartered ticket transactions.

Results of Operations

The following discussion provides an analysis of our operating results for the nine months ended September 30, 2012 and 2011 and our audited consolidated financial data for the years ended December 31, 2011 and 2010, and the one month period ended December 31, 2009. This data should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this prospectus.

Comparison of the Nine Months Ended September 30, 2012 and 2011

The following table presents key operating and financial information for the nine months ended September 30, 2012 and 2011:

 

     Nine Months Ended September 30,  
               2012                          2011             
    

(Amounts in thousands, except
per capita amounts)

(Unaudited)

 

Statement of operations data:

    

Net revenues

    

Admissions

   $ 715,842      $ 666,097   

Food, merchandise and other

     444,737        412,637   
  

 

 

   

 

 

 

Total revenues

     1,160,579        1,078,734   

Costs and expenses

    

Cost of food, merchandise and other revenues

     99,109        89,736   

Operating expenses

     560,145        521,390   

Selling, general and administrative

     150,571        142,447   

Depreciation and amortization

     122,085        154,862   
  

 

 

   

 

 

 

Total costs and expenses

     931,910        908,435   

Operating income

     228,669        170,299   

Other income (expense), net

     2,110        (1,661

Interest expense

     86,263        83,960   
  

 

 

   

 

 

 

Income before income taxes

     144,516        84,678   

Provision for income taxes

     (58,273     (34,719
  

 

 

   

 

 

 

Net income

   $ 86,243      $ 49,959   
  

 

 

   

 

 

 

Other data:

    

Attendance

     19,862        19,040   

Total revenue per capita

   $ 58.43      $ 56.66   

 

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Admission revenue.    Admission revenue for the nine months ended September 30, 2012 increased $49.7 million (7%) to $715.8 million as compared to $666.1 million for the nine months ended September 30, 2011. The increase in revenue was a result of a 4% increase in attendance and a 3% increase in per capita spending from $34.98 in 2011 to $36.04 in 2012. The increase in admission revenue per capita was primarily a result of higher pricing while the increased attendance was primarily driven by the introduction of new attractions at our three SeaWorld theme parks and Busch Gardens Williamsburg.

Food, merchandise and other revenue.    Food, merchandise and other revenue for the nine months ended September 30, 2012 increased $32.1 million (8%) to $444.7 million as compared to $412.6 million for the nine months ended September 30, 2011. The increase in revenue was a result of a 4% increase in attendance and a 3% increase in per capita spending from $21.67 in 2011 to $22.39 in 2012. The increase in food, merchandise and other revenue per capita was driven primarily by price increases and product promotion.

Costs of food, merchandise and other revenues.    Costs of food, merchandise and other revenues for the nine months ended September 30, 2012 increased $9.4 million (10%) to $99.1 million as compared to $89.7 million for the nine months ended September 30, 2011. These costs represent 22.3% of related revenue earned for the nine months ended September 30, 2012 and 21.7% of related revenue earned for the nine months ended September 30, 2011. The increase in these costs as a percentage of revenue is primarily due to general commodity price increases and the impact of inflation.

Operating expenses.    Operating expenses for the nine months ended September 30, 2012 increased $38.7 million (7%) to $560.1 million as compared to $521.4 million for the nine months ended September 30, 2011. These expenses reflected 48.3% of total revenues for the nine months ended September 30, 2012 and the nine months ended September 30, 2011. The increase was primarily driven by increased operating costs relating to new attractions and increased variable costs due to our higher sales volume.

Selling, general and administrative.    Selling, general and administrative expenses for the nine months ended September 30, 2012 increased $8.2 million (6%) to $150.6 million as compared to $142.4 million for the nine months ended September 30, 2011. This increase primarily reflects an increase in marketing expenditures and higher corporate expenses resulting from the build-out of our corporate office staff.

Depreciation and amortization.    Depreciation and amortization expense for the nine months ended September 30, 2012 decreased $32.8 million (21%) to $122.1 million as compared to $154.9 million for the nine months ended September 30, 2011. The decrease was primarily attributable to the partial year impact of assets designated with two-year lives at the December 1, 2009 transaction date, which are now fully depreciated, partially offset by asset additions.

Other income (expense), net.    Other income for the nine months ended September 30, 2012 was $2.1 million as compared to other expense of $1.7 million for the nine months ended September 30, 2011. This primarily reflects the net gain or loss resulting from capital expenditures denominated in a foreign currency for the nine months ended September 30, 2012.

Interest expense.    Interest expense for the nine months ended September 30, 2012 increased $2.3 million (3%) to $86.3 million as compared to $84.0 million for the nine months ended September 30, 2011, primarily reflecting the effects of our March 2012 debt refinancing, which increased the amount of our outstanding principal balance of our long-term debt and reduced the interest rates on our long-term debt. See our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this prospectus for a further description of the terms of the refinancing.

 

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Provision for income taxes.    Provision for income taxes for the nine months ended September 30, 2012 increased $23.6 million (68%) to $58.3 million as compared to $34.7 million for the nine months ended September 30, 2011, which primarily reflects an increase in taxable earnings and was partially offset by a 70 basis point decrease in our effective income tax rate (from 41.0% to 40.3%).

Comparison of the Years Ended December 31, 2011 and 2010

The following table presents key operating and financial information for the years ended December 31, 2011 and 2010:

 

     Years Ended December 31,  
             2011                     2010          
     (Amounts in thousands, except per
capita amounts)
 

Statement of operations data:

    

Net revenues

    

Admissions

   $ 824,937      $ 730,368   

Food, merchandise and other

     505,837        465,735   
  

 

 

   

 

 

 

Total revenues

     1,330,774        1,196,103   

Costs and expenses

    

Cost of food, merchandise and other revenues

     112,498        97,871   

Operating expenses

     687,999        673,829   

Selling, general and administrative

     172,368        159,506   

Depreciation and amortization

     213,592        207,156   
  

 

 

   

 

 

 

Total costs and expenses

     1,186,457        1,138,362   

Operating income

     144,317        57,741   

Other (expense) income, net

     (1,679     1,937   

Interest expense

     110,097        134,383   
  

 

 

   

 

 

 

Income (loss) before income taxes

     32,541        (74,705

Provision for (benefit from) income taxes

     13,428        (29,241
  

 

 

   

 

 

 

Net income (loss)

   $ 19,113      $ (45,464
  

 

 

   

 

 

 

Other data:

    

Attendance

     23,631        22,433   

Total revenue per capita

   $ 56.31      $ 53.32   

Admission revenue.    Admission revenue in 2011 increased $94.5 million (13%) to $824.9 million as compared to $730.4 million in 2010. The increase in revenue was a result of a 5% increase in attendance and a 7% increase in per capita spending from $32.56 in 2010 to $34.91 in 2011. The increase in admission revenue per capita was primarily due to increased admission pricing. The attendance growth was primarily driven by new attractions and an improved economic environment.

Food, merchandise and other revenue.    Food, merchandise and other revenue in 2011 increased $40.1 million (9%) to $505.8 million as compared to $465.7 million in 2010. The increase in revenue was a result of a 5% increase in attendance and a 3% increase in food, merchandise and other revenue per capita from $20.76 in 2010 to $21.41 in 2011. The increase in food, merchandise and other revenue per capita was driven primarily by an increased focus on product promotion at our theme parks and strategic price increases in both food and merchandise. The attendance growth was primarily driven by new attractions and an improved economic environment.

 

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Costs of food, merchandise and other revenues.    Costs of food, merchandise and other revenues in 2011 increased $14.6 million to $112.5 million as compared to $97.9 million in 2010. These costs represent 22.2% of related revenue earned in 2011 as compared to 21.0% of related revenue in 2010 driven primarily by commodity price increases and the impact of inflation.

Operating expenses.    Operating expenses for 2011 increased $14.2 million (2%) to $688.0 million as compared to $673.8 million in 2010. These expenses represent 51.7% of total revenues in 2011 as compared to 56.3% in 2010. The year-over-year dollar increase was primarily driven by increased operating costs relating to new attractions and increases in compensation expense, partially offset by strategic cost reductions, such as staffing and scheduling changes and streamlined operating hours at our theme parks. The reduction in operating expenses as a percentage of total revenues year-over-year represents increased operating leverage.

Selling, general and administrative.    Selling, general and administrative expenses for 2011 increased $12.9 million (8%) to $172.4 million as compared to $159.5 million in 2010. This increase primarily reflects the separation from ABI and establishment of certain stand-alone corporate operations, including legal, payroll, and procurement, partially offset by a reduction in marketing expenditures.

Depreciation and amortization.    Depreciation and amortization expense for 2011 increased $6.4 million (3%) to $213.6 million as compared to $207.2 million in 2010. The increase was primarily attributable to asset additions related to the introduction of several new attractions at our theme parks.

Interest expense.    Interest expense for 2011 decreased $24.3 million (18%) to $110.1 million as compared to $134.4 million in 2010, driven primarily by a reduction in our interest rates on our long-term debt as a result of our refinancings in February and April 2011. See our consolidated financial statements and the notes thereto included elsewhere in this prospectus for a further description of the terms of the refinancing.

Provision for (benefit from) income taxes.    Provision for income taxes was $13.4 million for 2011 as compared to an income tax benefit of $29.2 million for 2010, which primarily reflects an increase in taxable earnings increasing our effective income tax rate from 39.1% to 41.3%.

 

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One Month Period Ended December 31, 2009

The following table presents key operating and financial information for the period from December 1, 2009 to December 31, 2009:

 

     One Month Period
Ended

December  31, 2009
 
    

(Amounts in
thousands, except

per capita amounts)

 

Statement of operations data:

  

Net revenues

  

Admissions

   $ 45,060   

Food, merchandise and other

     27,918   
  

 

 

 

Total revenues

     72,978   

Costs and expenses

  

Cost of food, merchandise and other revenues

     5,472   

Operating expenses

     51,957   

Selling, general and administrative

     11,544   

Depreciation and amortization

     17,973   

Acquisition-related expenses

     67,966   
  

 

 

 

Total costs and expenses

     154,912   

Operating loss

     (81,934

Other income, net

     30   

Interest expense

     11,501   
  

 

 

 

Loss before income taxes

     (93,405

Benefit from income taxes

     (35,664
  

 

 

 

Net loss

   $ (57,741
  

 

 

 

Other data:

  

Attendance

     1,402   

Total revenue per capita

   $ 52.05   

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 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 or otherwise. Any such repurchases 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, 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.

 

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

 

     Nine Months Ended
September 30,
    Years Ended December 31,     One Month
Period

Ended
December 31,
 
        
     2012     2011     2011     2010     2009  
     (Unaudited)                    
     (Dollars in thousands)  

Net cash provided by (used in) operating activities

   $ 302,648      $ 271,793      $ 268,249      $ 202,281      $ (31,864

Net cash used in investing activities

     (154,976     (163,551     (225,316     (120,196     (2,285,500

Net cash (used in) provided by financing activities

     (71,492     (127,766     (99,967     (20,500     2,379,476   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ 76,180      $ (19,524   $ (57,034   $ 61,585      $ 62,112   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Operating Activities

Net cash provided by operating activities increased during the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011 primarily as a result of the following: (i) an increase in cash generated from theme park operations due to increased theme park attendance, increased theme park admission fees and higher in-park spending per capita on food, merchandise and other in-park spending, (ii) lower costs and expenses as a percentage of sales due to our labor efficiency initiatives and greater economies of scale and (iii) changes in our deferred income tax provision. The increase in net cash provided by operating activities was partially offset by unfavorable changes in our working capital accounts.

Net cash provided by operating activities increased during the year ended December 31, 2011 as compared to the year ended December 31, 2010 primarily as a result of the following: (i) an increase in cash generated from theme park operations due to increased theme park attendance, increased theme park admission fees and higher in-park spending per capita on food, merchandise and other in-park spending; (ii) lower costs and expenses as a percentage of sales due to our labor efficiency initiatives and greater economies of scale; and (iii) changes in our deferred income tax provision. The increase in net cash provided by operating activities was partially offset by unfavorable 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 nine months ended September 30, 2012 consisted of capital expenditures of $155.0 million largely related to future attractions and zoological safety infrastructure. Net cash used in investing activities during the nine months ended September 30, 2011 consisted of $163.6 million of capital expenditures largely related to future attractions and infrastructure.

Net cash used in investing activities during the year ended December 31, 2011 consisted of capital expenditures of $225.3 million. The level of spending in 2011 was elevated as a result of costs related to building out our corporate infrastructure as a stand-alone company following our separation from ABI, one-time in-park infrastructure enhancements, and catch-up spending due to under-investment in our theme parks prior to the acquisition by Blackstone on December 1, 2009. We do not expect the level of spending in 2011 to be indicative of our capital needs in future years.

 

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Net cash used in investing activities during the year ended December 31, 2010 consisted of capital expenditures of $120.2 million. Our most significant capital expenditure items during the period included future attractions, exhibits and corporate infrastructure projects.

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 2012 capital expenditures through our operating cash flow.

Cash Flows from Financing Activities

In 2011 and 2012, we declared special dividends of $110.1 million and $500.0 million, respectively, to our stockholders.

Net cash used in financing activities during the nine months ended September 30, 2012 was attributable to the following: (i) the payment of a $463.2 million portion of our dividends described above (net of required withholdings), (ii) repayment of $88.5 million of debt under our Senior Secured Credit Facilities and (iii) costs of $7.0 million related to an amendment to the indenture governing our Senior Notes and an amendment to our Senior Secured Credit Facilities. This was partially offset by proceeds of $487.2 million from the term loan borrowings under our Senior Secured Credit Facilities.

Net cash used in financing activities during the nine months ended September 30, 2011 was attributable to the following: (i) repayment of $582.1 million of our long-term debt in connection with a refinancing of our Senior Secured Credit Facilities, (ii) the payment of a $103.1 million portion of our $110.1 million dividend described above (net of required withholdings) and (iii) costs of $5.9 million related to an amendment to the indenture governing our Senior Notes and an amendment to our Senior Secured Credit Facilities. This was partially offset by the proceeds of $550.3 million from the term loan borrowings under our Senior Secured Credit Facilities and $13.0 million of proceeds from the issuance of common stock to the Partnerships.

Net cash used in financing activities during the year ended December 31, 2011 was primarily attributable to the following: (i) repayment of $586.2 million of our long-term debt in connection with a refinancing of our Senior Secured Credit Facilities, (ii) the payment of a $106.9 million portion of our $110.1 million dividend (net of required withholdings) and (iii) debt issuance costs of $5.9 million related to an amendment to the indenture governing our Senior Notes and an amendment to our Senior Secured Credit Facilities. This was partially offset by the proceeds of $550.3 million from the term loan borrowings under our Senior Secured Credit Facilities, a draw on our revolving credit facility of $36.0 million and $12.8 million of proceeds (net of issuance costs) from the issuance of common stock to the Partnerships described above.

Net cash used in financing activities during the year ended December 31, 2010 consisted of repayment of long-term debt of $20.5 million.

Our Indebtedness

The Issuer is a holding company and conducts its operations through its subsidiaries, which have incurred or guaranteed indebtedness as described below.

Senior Secured Credit Facilities

SWPEI is the borrower under our Senior Secured Credit Facilities. The obligations under our Senior Secured Credit Facilities are fully, unconditionally and irrevocably guaranteed by each of the Issuer, any subsidiary of the Issuer that directly or indirectly owns 100% of the issued and outstanding

 

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equity interests of SWPEI, and, subject to certain exceptions, each of SWPEI’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 SWPEI’s direct or indirect domestic subsidiaries (other than a domestic subsidiary that is a subsidiary of a foreign subsidiary) and 65% of the capital stock of, or other equity interests in, any of SWPEI’s foreign subsidiaries and any of SWPEI’s domestic subsidiaries that are treated as disregarded entities for U.S. federal income tax purposes if substantially all the assets of such domestic subsidiary consist of equity interests of one or more “controlled foreign corporations” within the meaning of the Code and (ii) certain tangible and intangible assets of SWPEI and those of the Guarantors (subject to certain exceptions and qualifications).

Our Senior Secured Credit Facilities consist of:

 

  Ÿ  

a $153.9 million senior secured term loan facility (the “Tranche A Term Loans”), which will mature on February 17, 2016;

 

  Ÿ  

a $1,297.1 million senior secured term loan facility (the “Tranche B Term Loans”), which will mature on the earlier of (i) August 17, 2017 and (ii) the 91st day prior to the maturity of the Senior Notes, if more than $50 million of debt with respect to the Senior Notes is outstanding as of such date; and

 

  Ÿ  

a $172.5 million senior secured revolving credit facility (the “Revolving Credit Facility”), which will mature on February 17, 2016, including borrowing capacity available for letters of credit and for short-term borrowings referred to as the swingline borrowings. As of September 30, 2012, we had approximately $11.6 million of outstanding letters of credit.

In addition, our Senior Secured Credit Facilities also provide us with the option to raise incremental credit facilities, refinance the loans with debt incurred outside our Senior Secured Credit Facilities and extend the maturity date of the revolving loans and term loans, subject to certain limitations.

Borrowings under our Senior Secured Credit Facilities, other than swingline loans, bear interest at a rate per annum equal to, at SWPEI’s option, (a) a base rate determined by reference to the higher of either (1) the administrative agent’s prime lending rate and (2) the federal funds effective rate plus 1/2 of 1%; subject to a base rate floor of 2.00% and a LIBOR floor of 1.00% for Tranche B Term Loans or (b) a LIBOR rate determined by reference to the BBA LIBOR rate for the interest period relevant to such borrowing, in each case plus an applicable margin. Swingline loans bear interest at the interest rate applicable to base rate loans. The applicable margin for (i) Tranche A Term Loans and the revolving credit facility (to include letter of credit fees) is (a) 1.75% for base rate loans and (b) 2.75% for LIBOR rate loans and (ii) Tranche B Term Loans is (a) 2.00% for base rate loans and (b) 3.00% for LIBOR rate loans.

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

SWPEI is required to prepay outstanding term loans, subject to certain exceptions, with:

 

  Ÿ  

50% of SWPEI’s annual “excess cash flow” (with step-downs to 25% and 0%, as applicable, based upon SWPEI’s total leverage ratio), subject to certain exceptions;

 

  Ÿ  

100% of the net cash proceeds of certain non-ordinary course asset sales or other dispositions subject to reinvestment rights and certain exceptions; and

 

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  Ÿ  

100% of the net cash proceeds of any incurrence of debt by SWPEI or any of its restricted subsidiaries, other than debt permitted to be incurred or issued under our Senior Secured Credit Facilities.

SWPEI may voluntarily repay amounts outstanding under our Senior Secured Credit Facilities at any time without premium or penalty, other than prepayment premium on voluntary prepayment of Tranche B Term Loans on or prior to March 30, 2013 and customary “breakage” costs with respect to LIBOR loans.

SWPEI is currently required to repay installments on the term loans in quarterly installments equal to approximately $1.9 million with respect to Tranche A Term Loans and approximately $3.5 million with respect to Tranche B Term Loans, with the remaining amount payable on the applicable maturity date with respect to such term loans.

Our Senior Secured Credit Facilities contain a number of significant affirmative and negative covenants. Such covenants, among other things, restrict, subject to certain exceptions, the ability of SWPEI and its restricted subsidiaries to:

 

  Ÿ  

incur additional indebtedness, make guarantees and enter into hedging arrangements;

 

  Ÿ  

create liens on assets;

 

  Ÿ  

enter into sale and leaseback transactions;

 

  Ÿ  

engage in mergers or consolidations;

 

  Ÿ  

sell assets;

 

  Ÿ  

make fundamental changes;

 

  Ÿ  

pay dividends and distributions or repurchase SWPEI’s capital stock;

 

  Ÿ  

make investments, loans and advances, including acquisitions;

 

  Ÿ  

engage in certain transactions with affiliates;

 

  Ÿ  

make changes in nature of the business; and

 

  Ÿ  

make prepayments of junior debt.

Our Senior Secured Credit Facilities also contain covenants requiring SWPEI to maintain a specified maximum net total 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 September 30, 2012, we were in compliance in all material respects with all covenants in the provisions contained in the documents governing our Senior Secured Credit Facilities.

See “Description of Indebtedness—Senior Secured Credit Facilities” for further information on our Senior Secured Credit Facilities.

The Senior Notes

On December 1, 2009, SWPEI 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%. As of September 30, 2012, we had $400.0 million aggregate principal amount in 11.0% Senior Notes due 2016 outstanding. Interest on the Senior Notes is payable semi-annually in arrears. The obligations under the Senior Notes are guaranteed by the same entities as those that guarantee our Senior Secured Credit Facilities.

 

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The Senior Notes are senior unsecured obligations and:

 

  Ÿ  

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;

 

  Ÿ  

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

 

  Ÿ  

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.

The indenture governing the Senior Notes contains a number of covenants that, among other things, restrict SWPEI’s ability and the ability of its restricted subsidiaries to, among other things:

 

  Ÿ  

dispose of certain assets;

 

  Ÿ  

incur additional indebtedness;

 

  Ÿ  

pay dividends;

 

  Ÿ  

prepay subordinated indebtedness;

 

  Ÿ  

incur liens;

 

  Ÿ  

make capital expenditures;

 

  Ÿ  

make investments or acquisitions;

 

  Ÿ  

engage in mergers or consolidations; and

 

  Ÿ  

engage in certain types of transactions with affiliates.

These covenants are subject to a number of important limitations and exceptions.

The indenture governing the Senior Notes provides 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 to become or be declared due and payable (subject, in some cases, to specified grace periods).

We intend to use a portion of the net proceeds received by us from this offering to redeem $         million in aggregate principal amount of the Senior Notes at a redemption price of 111.0% pursuant to a provision in the indenture governing the Senior Notes that permits us to redeem up to 35% of the aggregate principal amount of the Senior Notes with the net cash proceeds of certain equity offerings and to pay estimated premiums and accrued interest thereon. See “Use of Proceeds.”

As of September 30, 2012, we were in compliance in all material respects with all covenants and the provisions contained in the indenture governing the Senior Notes. See “Description of Indebtedness” for further information on the Senior Notes.

Covenant Compliance

Under the indenture governing the Senior Notes and under our 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 Adjusted EBITDA.

The Senior Notes and our Senior Secured Credit Facilities generally define “Adjusted EBITDA” as net income (loss) before interest expense, income tax expense (benefit), depreciation and

 

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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 our Senior Secured Credit Facilities.

We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about the calculation of, and compliance with, certain financial covenants in the indenture governing the Senior Notes and in our 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 as described under “Management—Compensation Discussion and Analysis.” 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 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 net income (loss) to Adjusted EBITDA:

 

    Nine Months Ended
September  30,
    Years Ended December 31,     One Month
Period Ended
December 31,
 
    2012     2011             2011                     2010             2009  
    (Dollars in thousands)  

Net income (loss)

  $ 86,243      $ 49,959      $ 19,113      $ (45,464   $ (57,741

Provision for (benefit from) income taxes

    58,273        34,719        13,428        (29,241     (35,664

Interest expense

    86,263        83,960        110,097        134,383        11,501   

Depreciation and amortization expense

    122,085        154,862        213,592        207,156        17,973   

Deferred revenue write-downs(a)

    —          —          —          17,348        2,678   

Non-cash compensation expense(b)

    1,361        437        823        —          —     

Acquisition-related adjustments(c)

    —          —          —          —          67,966   

Advisory fee(d)

    5,075        4,948        6,012        4,704        290   

Carve-out costs(e)

    —          5,679        6,085        45,330        —     

Non-cash expenses(f)

    5,282        2,888        12,468        9,060        1,376   

Debt refinancing costs(g)

    1,000        441        441        —          —     

Chula Vista acquisition(h)

    167        —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 365,749      $ 337,893      $ 382,059      $ 343,276 (i)    $ 8,379   

 

(a) Reflects amortization of deferred revenue that would have occurred absent purchase accounting relating to the 2009 Transactions.
(b) Reflects non-cash compensation expense associated with the grants of partnership interests in the Partnerships recorded under “Equity-based compensation” in our consolidated financial statements.
(c) Reflects charges related to the 2009 Transactions, including third-party professional fees relating to the purchase of the Company by the Investor Group and related financing transactions.

 

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(d) Reflects historical fees paid to an affiliate of the Sponsor under the 2009 Advisory Agreement. In connection with this offering, we intend to terminate the 2009 Advisory Agreement in accordance with its terms. See “Certain Relationships and Related Party Transactions—Advisory Agreement and Support and Services Agreement.”
(e) Reflects certain carve-out costs and savings related to our separation from ABI and the establishment of certain operations at the Company on a stand-alone basis. These amounts primarily consist of the cost of third-party professional services, relocation expenses, severance costs and cost savings related to the termination of certain employees.
(f) Reflects non-cash expenses related to miscellaneous asset write-offs and non-cash gains/losses on foreign currencies.
(g) Reflects certain costs related to the 2012 and 2011 amendments to our Senior Secured Credit Facilities.
(h) Reflects certain costs related to our acquisition of the Chula Vista water park.
(i) The adjustments for the year ended December 31, 2010 include approximately $20.9 million of adjustments permitted under our debt covenants, related to our separation from ABI and certain restructuring costs. As we established some of the services provided to us by ABI, such services became part of our ongoing cost structure and accordingly, we did not use these adjustments for any periods subsequent to the year ended December 31, 2010. Adjusted EBITDA excluding such adjustments would have been $322,376 for the year ended December 31, 2010.

Contractual Obligations

The following table summarizes our principal contractual obligations as of December 31, 2011 (in thousands):

 

     Total      Less than 1
Year
     1-3 Years      3-5 Years      More than 5
Years
 

Long-term debt (including current portion)(1)

   $ 1,439,543       $ 52,500       $ 33,000       $ 1,354,043       $ —     

Interest(2)

     441,897         93,994         184,665         163,237         —     

Operating leases(3)

     357,544         13,393         21,900         20,035         302,216   

Purchase obligations(4)

     148,494         146,683         1,811         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 2,387,478       $ 306,570       $ 241,376       $ 1,537,315       $ 302,216   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The Senior Notes are reflected in this table at their principal amount. We intend to use a portion of the net proceeds received by us from this offering to redeem $         million in aggregate principal amount of the outstanding Senior Notes and pay approximately $         million of redemption premium, plus accrued interest thereon. As a result of the redemption, our annual interest expense is expected to be reduced by $         million.
(2) Estimated future interest payments for our Senior Secured Credit Facilities are based on interest rates in effect at December 31, 2011 and estimated future interest payments for the Senior Notes are based on interest rates in effect at December 31, 2011. Interest obligations also include letter of credit and commitment fees for the used and unused portions of our Revolving Credit Facility. In addition, interest expense associated with deferred financing fees was excluded from the table as the expense is non-cash in nature.
(3) Represents commitments under long-term operating leases, primarily consisting of the lease for the land of our SeaWorld theme park in San Diego, California, requiring annual minimum lease payments.
(4) We have minimum purchase commitments with various vendors through May 2013. Outstanding minimum purchase commitments consist primarily of capital expenditures related to future attractions, infrastructure enhancements for existing facilities and information technology products and services.

 

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Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of September 30, 2012.

Quantitative and Qualitative Disclosures about Market Risk

Inflation

The impact of inflation has affected, and will continue to affect, our operations significantly. Our costs of food, merchandise and other revenues are influenced by inflation and fluctuations in global commodity prices. In addition, costs for construction, repairs and maintenance are all subject to inflationary pressures.

Interest Rate Risk

We are exposed to market risks from fluctuations in interest rates, and to a lesser extent on currency exchange rates, from time to time, on imported rides and equipment. The objective of our financial risk management is to reduce the potential negative impact of interest rate and foreign currency exchange rate fluctuations to acceptable levels. We do not acquire market risk sensitive instruments for trading purposes.

We manage interest rate risk through the use of a combination of fixed-rate long-term debt and interest rate swaps that fix a portion of our variable-rate long-term debt.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. During the next 12 months, our estimate is that an additional $1.4 million will be reclassified as an increase to interest expense.

After considering the impact of interest rate swap agreements, at September 30, 2012, approximately $950.0 million of our outstanding long-term debt represents fixed-rate debt and approximately $901.0 million represents variable-rate debt. Assuming an average balance on our revolving credit borrowings of approximately $40.0 million, a hypothetical 100 bps increase in 30-day LIBOR on our variable-rate debt would lead to an increase of approximately $3.1 million in annual cash interest costs due to the impact of our fixed-rate swap agreements.

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. 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.

 

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Property and Equipment

Property and equipment additions are recorded at cost and the carrying value is depreciated on a straight-line basis over the estimated useful lives of those assets. Internal development costs associated with rides and equipment are capitalized after feasibility studies have been completed and substantially all product development is complete. Interest is capitalized on all major construction projects. It is possible that changes in circumstances such as technological advances, changes to our business model or changes in capital strategy could result in the actual useful lives differing from estimates. In those cases in which we determine that the useful life of property and equipment should be shortened, we depreciate the remaining net book value in excess of the salvage value over the revised remaining useful life, thereby increasing depreciation expense evenly through the remaining expected life.

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. The impairment indicators considered important that may trigger an impairment review, if significant, include the following:

 

  Ÿ  

underperformance relative to historical or projected future operating results;

 

  Ÿ  

changes in the manner of use of the assets;

 

  Ÿ  

changes in management, strategy or customers;

 

  Ÿ  

negative industry or economic trends; and

 

  Ÿ  

macroeconomic conditions.

An impairment loss may be recognized when estimated undiscounted future cash flows expected to result from the use of the asset, including disposition, are less than the carrying value of the asset. The measurement of the impairment loss to be recognized is based upon the difference between the fair value and the carrying amounts of the assets. Fair value is generally determined based upon a discounted cash flow analysis. In order to determine if an asset has been impaired, assets are grouped and tested at the lowest level for which identifiable, independent cash flows are available.

The determination of both undiscounted and discounted future cash flows requires management to make significant estimates and consider an anticipated course of action as of the balance sheet date. Subsequent changes in estimated undiscounted and discounted future cash flows arising from changes in anticipated actions could impact the determination of whether impairment exists, the amount of the impairment charge recorded and whether the effects could materially impact the consolidated financial statements included elsewhere in this prospectus.

Goodwill and Other Indefinite-Lived Intangible Assets

Goodwill and other indefinite-lived intangible assets are reviewed for impairment annually for ongoing recoverability based on applicable reporting unit performance and consideration of significant events or changes in the overall business environment.

In assessing goodwill for impairment, we initially evaluate qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We consider several factors, including macroeconomic conditions, industry and market conditions, overall financial performance of the reporting unit, changes in management, strategy or customers, and relevant reporting unit specific events such as a change in the carrying amount of net assets, a more-likely-

 

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than-not expectation of selling or disposing all, or a portion, of a reporting unit, and the testing of recoverability of a significant asset group within a reporting unit. If the qualitative assessment is not conclusive, then the recorded value of the reporting unit is compared to the fair value of the reporting unit, which is determined using a discounted future cash flow analysis. If the recorded amount exceeds the fair value, the impairment write-down is quantified by comparing the current implied value of goodwill to the recorded goodwill balance.

Significant judgments required in this testing process may include projecting future cash flows, determining appropriate discount rates and other assumptions. Projections are based on management’s best estimates given recent financial performance, market trends, strategic plans and other available information which in recent years have been materially accurate. Although not currently anticipated, changes in these estimates and assumptions could materially affect the determination of fair value or impairment. It is possible that our assumptions about future performance, as well as the economic outlook and related conclusions regarding the valuation of our assets, could change adversely, which may result in impairment that would have a material effect on our financial position and results of operations in future periods. At December 1, 2011, a qualitative assessment was performed and we determined, after assessing the totality of relevant events and circumstances, that it was not more likely than not that the carrying value exceeded the fair value of the reporting units. Accordingly, based upon the qualitative assessment test that was performed in 2011 and the quantitative assessment that was performed as of December 1, 2010, we had no reporting units that were considered at risk of failing step one of the goodwill impairment test.

Our indefinite-lived intangible assets consist of certain trade names which, after considering legal, regulatory, contractual, and other competitive and economic factors, are determined to have indefinite lives and are valued annually using the relief from royalty method. Significant estimates required in this valuation method include estimated future revenues impacted by the trade names, royalty rate by park, appropriate discount rates, remaining useful life, and other assumptions. Projections are based on management’s best estimates given recent financial performance, market trends, strategic plans, brand awareness, operating characteristics by park, and other available information which in recent years have been materially accurate. Changes in these estimates and assumptions could materially affect the fair value determination used in the assessment of impairment. At December 1, 2011, the fair value of trade names was substantially in excess of their carrying values.

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 sheet. We must then assess the likelihood that deferred tax assets (primarily net operating and capital loss carryforwards) will be recovered from future taxable income. To the extent that we believe that recovery is not likely, a valuation allowance against those amounts is recognized. To the extent that we recognize a valuation allowance or an increase in the valuation allowance during a period, we recognize these amounts as income tax expense in the consolidated statements of operations. If we undergo an ownership change in the future, as described in Section 382(g) of the Code, our ability to recover certain deferred tax assets (including loss carryforwards) may be limited. This limitation may have the effect of reducing our after-tax cash flow in future years and may affect our need for a valuation allowance on our deferred tax assets.

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

 

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assets. Management has analyzed the positive and negative evidence and has determined that it is more likely than not that our deferred tax assets will be realized, and, therefore, no valuation allowances are needed.

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, as well as industry averages. All reserves are periodically reviewed for changes in facts and circumstances and adjustments are made as necessary.

Revenue Recognition

We recognize revenue upon admission into a theme park or when products are delivered to customers. For season passes and other multiuse admissions, revenue is deferred and recognized based on the terms of the admission product and the estimated number of visits expected and is adjusted periodically.

We have entered into agreements with certain external theme park, zoo and other attraction operators, to jointly market and sell admission products. These joint products allow admission to both a Company park and an external park, zoo or other attraction. The agreements with the external parks specify the allocation of revenue to us from any jointly sold products. Deferred revenue is recorded based on the terms of the respective agreement and the related revenue is recognized upon admission.

Equity-Based Compensation

ASC 718, Stock Compensation, requires all share-based payments to employees, including the grants of employee units made by the Partnerships to certain of our key employees, to be recognized in the financial statements, based on their grant date fair value, over the requisite service period (generally the vesting period of the grant) or based upon the achievement of certain performance criteria. Because we are privately held and there is no public market for our common stock, management estimated the fair value of our employee units granted with assistance from a third party valuation firm. Such valuations were then approved by our Board of Directors at the time the employee units were awarded.

One of the key inputs utilized in calculating the fair value of share-based payments is the fair value of the underlying common stock on the grant date. For privately held companies, such valuation requires significant estimates and assumptions due to the lack of an active public market on which such stock trades.

During 2011, the fair value of our equity was estimated on the grant date using a composite of the income approach, which is based upon a discounted cash flow method, and the market approach, which is based upon a guideline public company method. The discounted cash flow method utilizes certain significant inputs that are not observable in the market. Key assumptions utilized in our discounted cash flow model included projected cash flows, a discount rate of 10.5%, and a terminal value. The guideline public company approach uses relevant public company valuation multiples to determine fair value, but requires judgment in selecting the appropriate multiple at which to value the company’s equity from the range of market multiples noted in the group of comparable public companies.

 

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During 2012, the fair value of our equity was estimated on the date of grant using the market approach, which consisted of a composite of the guideline public company method and the guideline transactions method. The guideline transactions method involves determining valuation multiples from sales of enterprises with similar financial and operating characteristics and applying those multiples to the subject enterprise. Such approach requires judgment in selecting the appropriate multiple at which to value the company’s equity from the range of multiples noted in comparable market transactions. The guideline transactions method was not utilized in 2011 due to a lack of recent, comparable transactions that could be used in a comparable valuation at that time. The income approach was not utilized in 2012 due to the availability of the transactions method.

The fair value of the individual tranches of units granted to our employees was estimated based upon the option pricing method using the Option-Pricing Method model. Expected volatilities were based on historical volatilities of the stock, or implied volatilities of market-traded options, of comparable companies. The expected term of the units granted represented the period of time that such units are expected to be outstanding. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant over the expected term of the units. The discount for the lack of marketability of the underlying common stock was estimated using the Asian Put method, which is a widely used method that quantifies a discount based on the time to liquidity and expected volatility for the shares.

The fair value of all tranches of the employee units awarded in May 2011 and June 2012 approximated $9.2 million and $1.3 million, respectively, on the date of grant. The resulting compensation expense relating to the time-vesting units is recognized over the five year vesting period (20% per year), while the compensation expense for the performance vesting units will be recognized only when the performance criteria required for vesting of such units actually occurs. In the event of a change in control, all time vesting units will vest immediately and all unrecognized compensation cost will be recognized at the time of such change in control.

While management believes that the estimates and assumptions utilized in calculating the fair value of the employee units granted were reasonable and based upon accepted valuation techniques, valuation results can vary, sometimes significantly, depending on the assumptions applied within an option pricing model.

A 10% change in the fair value of employee units granted in 2011 and 2012 would have had an immaterial impact on our consolidated financial statements as of and for the year ended December 31, 2011 and on its condensed consolidated financial statements as of and for the nine month period ended September 30, 2012.

Recently Issued Financial Accounting Standards

In May 2011, the Financial Accounting Standards Board (“FASB”) issued guidance clarifying how to measure and disclose fair value. This guidance amends the application of the “highest and best use” concept to be used only in the measurement of fair value of nonfinancial assets, clarifies that the measurement of the fair value of equity-classified financial instruments should be performed from the perspective of a market participant who holds the instrument as an asset, clarifies that an entity that manages a group of financial assets and liabilities on the basis of its net risk exposure can measure those financial instruments on the basis of its net exposure to those risks, and clarifies when premiums and discounts should be taken into account when measuring fair value. The fair value disclosure requirements were also amended. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. We adopted the amended guidance effective January 1, 2012 and it did not have a material effect on our consolidated financial statements included elsewhere in this prospectus.

 

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In June 2011, the FASB issued guidance that revises the manner in which entities present comprehensive income in their financial statements. The guidance requires entities to report the components of comprehensive income in either a single, continuous statement or two separate but consecutive statements. In December 2011, the FASB issued guidance which defers certain requirements set forth in June 2011. These amendments were made to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income in all periods presented. Both sets of guidance were effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and are required to be applied retrospectively. We adopted this guidance on January 1, 2012 and accordingly applied to the new guidance retrospectively. Such adoption only resulted in a change in how we present the components of comprehensive income.

In September 2011, the FASB issued guidance related to testing goodwill for impairment. Under the amended guidance, entities testing goodwill for impairment have the option of performing a qualitative assessment before calculating the fair value of the reporting units. If the entities determine, based on the qualitative assessment, that it is more likely than not an impairment has not occurred, no further quantitative testing is necessary. The guidance is effective for fiscal years beginning after December 15, 2011, with early adoption permitted. We early adopted the guidance and performed a qualitative assessment as our initial step for the 2011 annual review of goodwill impairment. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In July 2012, the FASB issued new accounting guidance relating to impairment testing for indefinite-lived intangible assets. In accordance with this guidance, an entity has the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that an indefinite-lived intangible asset is impaired. If after such assessment an entity concludes that the indefinite-lived intangible asset is not impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test as required by existing standards. This guidance is effective for annual and interim impairment tests for fiscal years beginning after September 15, 2012 and early adoption is permitted. We are in the process of evaluating this guidance, which is not expected to have a material impact on our consolidated financial statements included elsewhere in this prospectus.

 

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BUSINESS

Company 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 such iconic brands as SeaWorld, Shamu and Busch Gardens. Over our more than 50 year history, we have built a diversified portfolio of 11 premier destination and regional theme parks that are grouped in key markets across the United States, many of which showcase our one-of-a-kind collection of approximately 67,000 marine and terrestrial animals. Our theme parks feature a diverse array of rides, shows and other attractions with broad demographic appeal which deliver extraordinary 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 12 months ended September 30, 2012, we hosted more than 24 million guests in our theme parks, including approximately 2.7 million international guests from over 55 countries and six continents, and generated an estimated 5.6 billion impressions through television and digital media platforms. In the year ended December 31, 2011 and the nine months ended September 30, 2012, we had total revenues of $1,330.8 million and $1,160.6 million, respectively. Our strong revenue operating performance and stable profit margins, combined with our disciplined approach to capital expenditures and working capital management, enable us to generate strong and recurring cash flow.

Our legacy started in 1959 with the opening of our first Busch Gardens theme park in Tampa, Florida. Since then, we have built our portfolio of iconic brands and have strategically expanded our portfolio of theme parks across five states and approximately 2,000 acres of owned land, including through acquisitions. We most recently acquired Knott’s Soak City Chula Vista in California, which we are in the process of rebranding as Aquatica San Diego before it re-opens in 2013. We estimate that the replacement value of our current assets and owned land exceeds $5 billion.

Our portfolio of branded theme parks includes the following marquee names:

 

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SeaWorld.    SeaWorld is widely recognized as the leading marine-life theme park brand in the world. Our SeaWorld theme parks, located in Orlando, San Antonio and San Diego, each rank among the most highly attended theme parks in the industry and offer up-close interactive experiences and a variety of live performances, including shows featuring Shamu in specially designed amphitheaters. We offer our guests numerous animal encounters, including the opportunity to work with trainers and feed marine animals, as well as themed thrill rides and theatrical shows that uniquely incorporate our one-of-a-kind animal collection.

 

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Busch Gardens.    Our Busch Gardens theme parks are family-oriented theme park destinations designed to immerse guests in foreign geographic settings. They are renowned for their beauty and award-winning landscaping and gardens and allow our guests to discover the natural side of fun by offering a family experience featuring a variety of attractions and world class rollercoasters in a richly-themed environment. Busch Gardens Tampa presents our collection of animals from Africa, Asia and Australia. Busch Gardens Williamsburg, which has been named the Most Beautiful Park in the World by the National Amusement Park Historical Association for 22 consecutive years, showcases European-themed cultural and culinary experiences, including high-quality theatrical productions.

 

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Aquatica.    Our Aquatica branded water parks are premium, family-oriented destinations that are based in a South Seas-themed tropical setting. Aquatica water parks build on the aquatic theme of our SeaWorld brand and feature high-energy rides, water attractions, white-sand

 

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beaches and an innovative and entertaining presentation of marine and terrestrial animals. We position our Aquatica water parks as companion water parks to our SeaWorld theme parks in Orlando and San Diego and we have an Aquatica water park situated within our SeaWorld San Antonio theme park.

 

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Discovery Cove.    Discovery Cove is a reservations only, all-inclusive, marine-life day resort adjacent to SeaWorld Orlando. Discovery Cove offers guests personal, signature experiences, including the opportunity to swim and interact with dolphins, take an underwater walking reef tour and enjoy pristine white-sand beaches and landscaped private cabanas. Discovery Cove presently limits its attendance to approximately 1,300 guests per day and features premium culinary offerings in order to provide guests with a more relaxed, intimate and high-end luxury resort experience.

 

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Sesame Place.    Sesame Place is the only U.S. theme park based entirely on the award-winning television show Sesame Street. Located between Philadelphia and New York City, Sesame Place is a destination where parents and children can share in the spirit of imagination and experience Sesame Street together through whirling rides, water slides, colorful shows and furry friends. In addition, we have introduced Sesame Street brands in our other theme parks through Sesame Street-themed rides, shows, children’s play areas and merchandise.

We generate revenue primarily from selling admission to our theme parks and from purchases of food, merchandise and other spending. For the nine months ended September 30, 2012, theme park admissions accounted for approximately 62% of our revenue, and purchases of food, merchandise and other spending accounted for approximately 38% of our revenue. Over the same period of time, we reported $36.04 in admission per capita and $22.39 in-park per capita spending, representing an increase of 3.0% and 3.3%, respectively, compared to the same period of 2011. For more information, see “—Our Brands” and “—Our Products and Services” below.

As one of the world’s foremost zoological organizations and a global leader in animal welfare, training, husbandry and veterinary care, we are committed to helping protect and preserve the environment and the natural world. For more information, see “—Our Animals” and “—Philanthropy and Community Relations” below.

Our Competitive Strengths

 

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Iconic Brands That Consumers Know and Love.    Our brands are internationally recognized cultural touch points representing the intersection of “where imagination meets nature.” Our brand portfolio is highly stable, reducing our exposure to changing consumer tastes. We use our brands and intellectual property to increase awareness of our theme parks, deepen connections with our guests and drive attendance to our theme parks. The popularity of our brands is evidenced by over 30 million unique visitors to our websites from January 2012 through November 2012. In addition to our theme parks, we have recently begun to leverage our brands into media, entertainment and consumer products, and our Sea Rescue television program was seen by more than 27 million viewers in its first season and has been extended for a second season.

 

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World-Class, Differentiated Theme Parks.    We own and operate 11 theme parks, including five of the top 20 theme parks in the United States as measured by attendance. Our theme parks are beautifully themed and deliver high-quality entertainment, aesthetic appeal, shopping and dining and have won numerous awards, including Amusement Today’s Golden Ticket Awards for Best Landscaping. Our theme parks feature seven of the top 50 rated steel rollercoasters, led by Apollo’s Chariot, the #4 rated steel rollercoaster in the world. Our SeaWorld theme parks have won the top three spots in Amusement Today’s annual Golden Ticket Award for Best Marine Life Park since the award’s inception in 2006. We have approximately 600 attractions that appeal to guests of all ages, including 93 animal attractions,

 

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113 shows and 193 rides. In addition, we have over 300 restaurants and specialty shops. Our theme parks appeal to the entire family and offer a broad range of experiences, ranging from emotional and educational animal encounters to thrilling rides and exciting shows.

 

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Diversified Business Portfolio.    Our portfolio of theme parks is diversified in a number of important respects. Our theme parks are located across the United States, which helps protect us from the impact of localized events. Each theme park showcases a different mix of zoological, thrill-oriented and family-friendly attractions. This varied portfolio of entertainment offerings attracts guests from a broad range of demographics and geographies. Our theme parks appeal to both regional and destination guests, which provides us with a stable attendance base while allowing us to benefit from improvements in macroeconomic conditions, including increased consumer spending and international travel.

 

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One of the World’s Largest Zoological Collections.    We are uniquely positioned in the industry due to our ability to display our extensive animal collection in a differentiated and interactive manner. We have one of the world’s largest zoological collections with approximately 67,000 animals, including approximately 7,000 marine and terrestrial animals and approximately 60,000 fish. With 28 killer whales, we have the largest group of killer whales in human care. We have established successful and innovative breeding programs that have produced 29 killer whales, 151 dolphins and 115 sea lions, among other species, and our marine animal populations are characterized by their substantial genetic diversity. More than 80% of our marine mammals were born in human care.

 

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Strong Competitive Position.    Our competitive position is protected by the combination of our powerful brands, extensive animal collection and expertise and premier in-park assets located on valuable real estate. Our animal collection and zoological expertise, which have evolved over our more than four decades of caring for animals, would be very difficult to replicate. Over the past two years, we have made extensive investments in new marketable attractions and infrastructure and we believe that our theme parks are well capitalized. The limited supply of real estate suitable for theme park development coupled with high initial capital investment, long development lead-times and zoning and other land use restrictions constrain the number of large theme parks that can be constructed. We estimate that the replacement value of our current assets and owned land (approximately 2,000 acres) exceeds $5 billion.

 

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Proven and Experienced Management Team and Employees with Specialized Animal Expertise.    Our senior management team, led by Jim Atchison, our Chief Executive Officer and President, includes some of the most experienced theme park executives in the world, with an average tenure of more than 28 years in the industry. The management team is comprised of highly skilled and dedicated professionals with wide ranging experience in theme park operations, zoological operations, product development, business development and marketing. In addition, we are one of the world’s foremost zoological organizations with approximately 1,550 employees dedicated to animal welfare, training, husbandry and veterinary care.

 

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Proximity of Complementary Theme Parks.    Our theme parks are grouped in key locations near large population centers across the United States, which allows us to realize revenue and operating expense efficiencies. Having theme parks located within close proximity to each other enables us to cross market and offer bundled ticket and travel packages. In addition, closely located theme parks provide operating efficiencies including sales, marketing, procurement and administrative synergies as overhead expenses are shared among the theme parks within each region. We intend to continue to capitalize on this strength through our recent acquisition of Knott’s Soak City in Chula Vista, CA, which will complement our SeaWorld San Diego theme park.

 

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Attractive, Stable Profit Margins and Strong Cash Flow Generation.    Our attractive, stable profit margins, combined with our disciplined approach to capital expenditures and working

 

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capital management, enable us to generate strong and recurring cash flow. Five of our 11 theme parks are open year-round, reducing our seasonal cash flow volatility. In addition, we have substantial tax assets which we expect to be available to defer a portion of our cash tax burden going forward.

 

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Care for Our Community and the Natural World.    Caring for our community and the natural world is a core part of our corporate identity and resonates with our guests. We focus on three core philanthropic areas: children, environment, and education. Through the power of entertainment, we are able to inspire children and educate guests of all ages. We support numerous charities and organizations across the country. For example, we are the primary supporter and corporate member of the SeaWorld & Busch Gardens Conservation Fund, a non-profit conservation foundation, which makes grants to wildlife research and conservation projects that protect wildlife and wild places worldwide. In addition, in collaboration with the government and other members of accredited stranding networks, we operate one of the world’s most respected programs to rescue ill and injured marine animals, with the goal to rehabilitate and return them back to the wild. Our animal experts have helped more than 22,000 ill, injured, orphaned and abandoned animals for more than four decades.

Our Strategies

We plan to grow our business by increasing our existing theme park revenues through strategies designed to drive higher attendance and increase in-park per capita spending, as well as by creating new sources of revenue through expansion of our theme parks, new theme park development and extending our brands into new media, entertainment and consumer products. We believe that our strategies complement each other as they lead to increased brand strength and awareness and drive revenue growth and profitability. Our strategies include the following components:

 

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Continue to Create Memorable Experiences for Our Guests.    Our mission is to use the power of educational entertainment to continue to inspire our guests to celebrate, connect with and care for the natural world we share. We provide our guests with innovative and immersive theme park experiences, such as our 3-D, 360-degree TurtleTrek attraction at SeaWorld Orlando, which opened in 2012. We also offer guests exciting rides, animal encounters and beautifully-themed entertainment that are difficult to replicate, such as in-water experiences opened in 2011 with beluga whales at SeaWorld Orlando and our Cheetah Hunt ride, which is a launch coaster that runs alongside a cheetah habitat at Busch Gardens Tampa. As a result of these distinctive offerings, our guest surveys routinely report very high “Overall Satisfaction” scores, with 97% of recent respondents in 2012 ranking their experience good or excellent. Going forward, we will continue to develop high-quality experiences for our guests, focused on integrating our impressive animal collection with uniquely themed settings and products that our guests will remember long after they leave our theme parks.

 

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Drive Increased Attendance to Our Theme Parks.    We plan to drive increased attendance to our theme parks by continually introducing new attractions, differentiated experiences and enhanced service offerings. Because of the historic correlation between capital investment and increased attendance, we plan to add to our award-winning portfolio of assets and spend capital in support of marketable events, such as SeaWorld’s 50th Anniversary Celebration. We also plan to increase awareness of our theme parks and brands through effective media and marketing campaigns, including the targeted use of online and social media platforms. For example, since their introduction in 2006, our YouTube channels have attracted approximately 16 million views, and we believe that we can continue to use traditional and new media to increase awareness of our brands and drive attendance to our theme parks.

 

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Expand In-Park Per Capita Spending through New and Enhanced Offerings.    We believe that by providing our guests additional and enhanced offerings at various price points, we can

 

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drive further spending in our theme parks. For example, we recently introduced an “all-day-dining deal” for a supplemental fee, which we believe has resulted in increased in-park per capita spending. In addition, we have developed iPhone and Android smartphone applications for our SeaWorld and Busch Gardens theme parks, which offer GPS navigation through the theme parks and interactive theme park maps that show the nearest dining locations, gift shops and ATMs and provide real-time updates on wait times for rides. Our guests have quickly adopted these products with over one million downloads of our iPhone applications from June 2011 through December 2012. We believe that going forward, there are significant avenues to expand guest offerings in ways that both increase guest satisfaction and provide us with incremental revenue.

 

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Grow Revenue through Disciplined and Dynamic Pricing.    We are focused on increasing our revenues through a variety of ticket options and disciplined pricing and promotional strategies. We offer an array of tailored admission options, including season passes and multi-park tickets to motivate the purchase of higher value products and increase in-park per capita spending. In addition, to increase non-peak demand we offer seasonal and special events and concerts, some of which are separately priced. We have begun deploying a dynamic pricing model, which will enable us to adjust admission prices for our theme parks based on expected demand.

 

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Increase Profitability through Operating Leverage and Rigorous Cost Management.    Adding incremental attendance and driving additional in-park per capita spending affords us with an opportunity to realize gains in profitability because of the fixed cost base and high operating leverage of our business. We also employ rigorous cost management techniques to drive additional operating efficiencies. For example, we utilize a centralized procurement and strategic sourcing team and participate in several cooperative buying organizations to leverage our purchases company-wide and have recently consolidated our marketing spending with a single agency to streamline our marketing efforts.

 

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Pursue Disciplined Capital Deployment, Expansion and Acquisition Opportunities.    We pursue a disciplined capital deployment strategy focused on the development and improvement of rides, attractions and shows, as well as seek to leverage our strong brands and expertise to pursue selective domestic and international expansion and acquisition opportunities. As part of this strategy, we seek to replicate successful capital investments in particular attractions across multiple theme parks, as we did with our Journey to Atlantis watercoaster that premiered in SeaWorld Orlando and was later introduced in the other SeaWorld theme parks. We have been successful in grouping our theme parks and water parks near each other, which allows us to operate companion theme parks with reduced overhead costs and creates revenue opportunities through multi-park tickets and other joint marketing initiatives. For example, in November 2012, we acquired Knott’s Soak City Chula Vista, which is located near our SeaWorld San Diego theme park. We plan to re-launch the water park as Aquatica San Diego by mid-2013. We also evaluate new domestic theme park opportunities as well as potential joint venture opportunities that would allow us to expand internationally by combining our brands and zoological and operational expertise with third-party capital.

 

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Leverage and Expand Our Brands to Increase Awareness and Create New Opportunities.    Our brands are highly regarded and are primarily based on our own intellectual property, which provides us with opportunities to leverage our intellectual property portfolio and develop new media, entertainment and consumer products. For example, in 2013 we will open Antarctica: Empire of the Penguin at our SeaWorld Orlando theme park that will feature a new animated penguin character, Puck, and coincide with the launch of new in-park merchandise, mobile gaming, and consumer products designed around the Puck character. In addition, we are able to expand into new media platforms by partnering with others to create new, powerful entertainment opportunities. For example, in 2012, we launched Sea Rescue, a

 

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Saturday morning television show airing on the ABC Network featuring our work to rescue injured animals in coordination with various government agencies and other rescue organizations, which attracted over 27 million viewers in its first season and has been rated as the number one show in its timeslot in most major U.S. markets since its debut.

 

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Continue our Support of Species Conservation, Sustainability and Animal Welfare.    Our zoological know-how and coast-to-coast presence provide us with significant opportunities to contribute to global species conservation, sustainability and animal welfare initiatives. For example, our employees regularly assist in animal rescue efforts, and the non-profit SeaWorld & Busch Gardens Conservation Fund, of which we are the primary supporter and corporate member, makes grants to wildlife research and species conservation projects worldwide. Our species conservation efforts and philanthropic activities generate positive awareness and goodwill for our business. These efforts are a core part of our corporate culture and identity and resonate with our customers.

Our Industry

We believe that the theme park industry is an attractive sector characterized by a proven business model that generates significant cash flow and has clear avenues for growth. Theme parks offer a strong consumer value proposition, particularly when compared to other forms of out-of-home entertainment such as concerts, sporting events, cruises and movies. As a result, theme parks attract a broad range of guests and generally exhibit strong margins across regions, operators, park types and macroeconomic conditions.

The U.S. theme park industry, which hosts approximately 315 million visitors per year, is comprised of a large number of venues ranging from a small group of high attendance, heavily-themed destination theme parks to a large group of lower attendance local theme parks and family entertainment centers. The United States is the largest theme park market in the world with six of the ten largest theme park operators and 12 of the 25 most-visited theme parks in the world. In 2011, the U.S. theme park industry generated approximately $11.0 billion in revenues, which represented a 3.0% compounded annual growth rate since 2003.

Our Brands

We own or license a portfolio of globally recognized brands, including SeaWorld, Shamu, Busch Gardens and Sesame Place. By focusing on nature-based themes, our theme parks distinguish themselves from traditional theme parks and are able to attract a diverse geographic and demographic mix of guests. Our brand portfolio is highly stable, reducing our exposure to changing consumer tastes.

Our strong brands allow us to command higher admissions prices, drive in-park per capita spending and generate out-of-park revenue. We are focused on developing proprietary brands and intellectual property that we can leverage through a variety of media and entertainment platforms and consumer products to deepen connections with our guests and drive attendance to our theme parks. Our brands are among our most important assets, and we are actively engaged in enforcement and other activities to protect our intellectual property rights.

Our Theme Parks

We are best known for our theme parks, which hosted more than 24 million guests during the twelve months ended September 30, 2012. Our theme parks offer guests a variety of exhilarating experiences, from animal encounters that invite exploration and appreciation of the natural world, to thrilling rides and spectacular shows. The theme parks are beautifully themed venues that are consistently recognized among the top theme parks in the world and rank among the most highly attended in the industry. In

 

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2011, SeaWorld Orlando, Busch Gardens Tampa and SeaWorld San Diego each ranked among the top 25 theme parks worldwide based on attendance, and Aquatica Orlando and Water Country USA each ranked among the top 20 water parks worldwide based on attendance. We generally locate our theme parks in geographical clusters, which improves our ability to serve guests by providing them with a varied, comprehensive vacation experience and valuable multi-park pricing packages, as well as improving our operating efficiency through shared overhead costs.

The following table summarizes our theme park portfolio:

 

Location   Theme
Park
  Year
Opened
    Season   Animal
Habitats(2)
  Rides(3)   Shows(4)   Play
Areas(5)
  Events(6)   Distinctive
Experiences(7)

Orlando, FL

  LOGO       1973      Year-

round

  19   14   18   2   7   17
  LOGO       2000      Year-
round
  5   0   0   0   0   5
  LOGO       2008      Year-
round
  5   13   0   2   0   2

Tampa, FL

  LOGO       1959      Year-
round
  16   31   17   10   9   14
  LOGO       1980      Mar-Oct   0   12   0   4   1   2

San Diego,

CA

  LOGO       1964      Year-
round
  26   10   18   2   4   11
  LOGO       1996 (1)    May-Sep   2   11   0   0   0   0

San Antonio,

TX

  LOGO       1988      Feb-Dec   12   23   29   11   7   22

Williamsburg,

VA

  LOGO       1975      Mar-Oct
& Dec
  7   38   16   8   6   27
  LOGO       1984      May-Sep   1   15   1   4   0   6

Langhorne,

PA

  LOGO       1980      May-Oct
& Dec
  0   26   14   6   4   7

Total

  LOGO                 93   193   113   49   38   113

 

(1) On November 20, 2012, we acquired the Knott’s Soak City Chula Vista water park from Cedar Fair, L.P. We plan to rebrand this water park as Aquatica San Diego before it re-opens in 2013.
(2) Represents animal attractions without a ride or show element, often adjacent to a similarly themed attraction.
(3) Represents rides, including mechanical rides and water slides.
(4) Represents annual and seasonal shows with live entertainment, animals, characters and/or 3-D or 4-D experiences.
(5) Represents pure play areas, typically designed for children or seasonal special event oriented, often without a queue (such as water splash areas, Halloween mazes).
(6) Represents special limited time events.
(7) Represents special experiences, such as educational tours, immersive dining experiences and swimming with animals, often limited to small groups and individuals and/or requiring a supplemental fee.

 

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SeaWorld.    SeaWorld is globally recognized as the leading marine-life theme park brand in the world. Our SeaWorld theme parks offer a truly unique experience for guests of all ages: up-close animal encounters, thrilling attractions and lavish performances that immerse guests in the marine-life theme. Each SeaWorld theme park showcases the iconic killer whale, Shamu, at Shamu Stadium, which features inspiring shows, underwater viewing and special dining experiences. We currently own and operate the following SeaWorld branded theme parks:

 

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SeaWorld Orlando is a 279 acre theme park in Orlando, Florida and is open year-round. It is our largest theme park as measured by attendance and revenue. SeaWorld Orlando is home to the original Journey to Atlantis watercoaster ride and Kraken, a floorless rollercoaster. In 2009, SeaWorld Orlando opened Manta, integrating animals and a beautiful aquarium into the theming of a flying rollercoaster. In April 2012, we opened TurtleTrek, one of the first attractions with two extensive naturalistic habitats, home to manatees and sea turtles, and a 3-D, 360-degree dome theater, which allows a 3-D movie to be shown all around guests and even above them.

 

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SeaWorld San Antonio is one of the world’s largest marine-life theme parks, encompassing 416 acres in San Antonio, Texas. Open 11 months of the year, SeaWorld San Antonio features thrilling rollercoasters, including the Steel Eel and The Great White, along with a collection of marine-themed shows and experiences, including the killer whale show One Ocean. Our guests can upgrade their experience for an additional fee to also enjoy our Aquatica water park located within SeaWorld San Antonio.

 

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SeaWorld San Diego is the original SeaWorld theme park spanning 190 acres of waterfront property on Mission Bay in San Diego, California. SeaWorld San Diego is open year-round and is one of the most visited paid attractions in San Diego. Its newest attraction is Manta, built in 2012 and modeled on the successful Manta ride in SeaWorld Orlando, which includes animal habitats featuring bat rays and other marine-life as well as a launch rollercoaster shaped like a giant manta ray.

Collectively, our SeaWorld theme parks have won the top three spots in Amusement Today’s annual Golden Ticket Award for Best Marine Life Park since the award’s inception in 2006. We have over 48 years of experience developing techniques for reproducing, maintaining and showing marine mammals.

 

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Busch Gardens.    Our Busch Gardens theme parks are family-oriented theme parks designed to immerse guests in foreign geographic settings and they feature a combination of world class rollercoasters, exotic animals and high-energy theatrical productions that appeal to all ages. Our Busch Gardens theme parks are renowned for their beauty and cleanliness with award-winning landscaping and gardens. We currently own and operate the following Busch Gardens theme parks:

 

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Busch Gardens Tampa features exotic animals, thrill rides and shows on 414 acres of lush natural landscape. With more than 12,000 animals representing more than 300 species, Busch Gardens Tampa offers more opportunities to learn about and interact with amazing animals than any other of our theme parks. Our zoological collection is a marquee attraction for families, and its portfolio of rides, including three of the world’s top 30 steel rollercoasters, broaden the theme park’s appeal to teens and thrill seekers of all ages. Our newest attractions include the award winning Iceploration show, state-of-the-art Animal Care Center and Christmas Town, which opened in 2012.

 

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Busch Gardens Williamsburg is regularly recognized as one of the highest quality theme parks in the world, capturing dozens of awards over its 37-year history for attraction and show quality, design, landscaping, culinary operations and theming. This 422 acre theme park has been named the Most Beautiful Park in the World by the National Amusement Park Historical

 

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Association for 22 consecutive years and has earned the Golden Ticket for Best Landscaping each year since the category’s inception in 1998. It features some of the industry’s top thrill rides with three steel rollercoasters, Apollo’s Chariot, Alpengeist and Griffon, ranked in the top 50 in Amusement Today’s annual survey. Its newest steel rollercoaster, Verbolten, a multi-launch, indoor/outdoor rollercoaster that ends with an 88-foot drop toward the theme park’s Rhine River, opened in 2012.

 

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Aquatica.    Aquatica are high-end water parks that place an equal emphasis on high-energy water rides and innovative presentations of marine and terrestrial animals, while leveraging our unique brand and aquatic mammal expertise. We position our Aquatica water parks as companions to our SeaWorld theme parks and currently own and operate the following Aquatica branded theme parks:

 

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Aquatica Orlando is an 81 acre South Seas-themed water park adjacent to SeaWorld Orlando. It was the 3rd most attended water park in North America in 2011 and is open year-round. The theme park features state-of-the-art attractions for guests of all ages and swimming abilities, including some that pass by or through animal habitats, including the signature Dolphin Plunge that carries guests through a Commerson’s dolphin habitat.

 

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Aquatica San Diego is the latest theme park to be added to our portfolio. This theme park was acquired from Cedar Fair in November 2012 and is being extensively renovated and rebranded as Aquatica San Diego before it re-opens in 2013.

 

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Aquatica San Antonio is a newly-added water park located within SeaWorld San Antonio and accessible to guests for an additional fee. It features a variety of waterslides, rivers, lagoons, more than 42,000 square feet of beach area, private cabanas and more than 500 stingrays and tropical fish.

 

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Discovery Cove.    Located next to SeaWorld Orlando, Discovery Cove is a reservations only, all-inclusive marine-life theme park that is open year-round to guests. The theme park restricts its attendance to approximately 1,300 guests per day in order to assure a more intimate experience. Discovery Cove provides guests with a full day of activities, including a 30-minute dolphin swim session and the opportunity to snorkel with thousands of tropical fish, wade in a lush lagoon with stingrays, and hand-feed birds in a free flight aviary. We opened new attractions at Discovery Cove in the last two years, The Grand Reef, which includes SeaVenture, an underwater walking tour where guests can get up close to exotic fish and sharks, and Freshwater Oasis, which offers wading adventures and face-to-face encounters with otters and marmosets.

 

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Sesame Place.    Located between Philadelphia and New York City, Sesame Place is the only theme park in America entirely dedicated to Sesame Street’s spirit of imagination. The theme park shares SeaWorld’s “education and learning through entertainment” philosophy and allows parents to rediscover their own childhood. Our rights to the Sesame Street brand in the United States extend through 2021. Despite its small size and seasonal operating schedule, Sesame Place attracts more than one million guests annually due to its strong family appeal. Sesame Place debuted the Neighborhood Street Party Parade and an annual Christmas event in 2011.

 

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Water Country USA.    Virginia’s largest family water play park, Water Country USA, features state-of-the-art water rides and attractions, all set to a 1950s and 1960s surf theme. Water Country USA is the sixth most attended water park in North America and features a 23,000 square-foot wave pool, a science fiction themed interactive children’s play area, kid-sized water slides, live shows and several other attractions. Its newest attraction is Vanish Point, a thrilling drop slide, which opened in 2011.

 

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Adventure Island.    Located adjacent to Busch Gardens Tampa, Adventure Island’s 56 acres are filled with water rides, dining and other attractions that incorporate a Key West

 

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theme. The theme park is the seventh most attended water park in North America and features a friendly wave pool and children’s water playground that appeal to its core constituency, local families with young children.

Our New Attractions

Our theme parks feature a variety of attractions for our guests, including the following attractions added in 2012:

 

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Animal Care Center (Busch Gardens Tampa): At our Animal Care Center guests have the opportunity to observe and take part in the animal care experience. From nutrition to x-rays and surgeries, much of the animal care is conducted within guest view in this unique state-of-the-art animal care facility.

 

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Aquatica San Antonio (SeaWorld San Antonio): Aquatica San Antonio is a resort style water park opened inside SeaWorld San Antonio and available for an additional fee. It features thrilling water slides, rivers, lagoons, more than 42,000 square feet of beach area, private cabanas and more than 500 stingrays and tropical fish. The water park’s signature attraction, Stingray Falls, takes four-seat rafts down twists and turns to an underwater grotto, where guests view stingrays and tropical fish. In addition, Walhalla Wave, a family raft ride, sends guests to the top of a zero-gravity wall, giving riders the sense of weightlessness.

 

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Christmas Town (Busch Gardens Tampa): Christmas Town allows guests to experience the Christmas season with a separate admission evening event offering more than a million holiday lights, special entertainment, shopping, dining and seasonal attractions.

 

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Entwined: Tales of Good and Grimm (Busch Gardens Williamsburg): Entwined is Busch Gardens’ new storytelling show in Das Festhaus, a restaurant and entertainment venue.

 

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Freshwater Oasis (Discovery Cove): Freshwater Oasis offers wading adventures and face-to-face encounters with otters and marmosets.

 

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Iceploration (Busch Gardens Tampa): Iceploration is a new ice show set in the 1,100-seat Moroccan Palace Theater. It combines skaters, oversized puppets, atmospheric special effects, original music and animals to tell the story of a young boy and his grandfather exploring the world.

 

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Just for Kids (SeaWorld Orlando): Just for Kids is an event that provides children with an opportunity to sing, dance and play. Guests experience live shows, kid-sized rides and some of today’s favorite children’s music artists at this popular festival.

 

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Let’s Play Together (Sesame Place): Let’s Play Together is the newest addition to Sesame Place. Elmo, Cookie Monster, Grover, Rosita, Bert, Ernie and Abby Cadabby play, sing and dance while learning all about the wonderful things that friends do together.

 

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Manta (SeaWorld San Diego): Manta is an attraction that includes animal habitats featuring bat rays and other marine-life, as well as a launch rollercoaster shaped like a giant manta ray.

 

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TurtleTrek (SeaWorld Orlando): TurtleTrek is a realistic 3-D, 360 degree movie, providing guests with an opportunity to find out what it is like to “be a turtle” on an epic journey where they encounter hardships and challenges as they try to make it back to their home beach. TurtleTrek also features two large saltwater and freshwater habitats that are home to endangered sea turtles and manatees.

 

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Verbolten (Busch Gardens Williamsburg): Verbolten is a multi-launch, indoor/outdoor rollercoaster that ends with an 88-foot drop toward the theme park’s Rhine River.

 

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Capital Improvements

We make annual investments to support our existing theme park facilities and attractions, as well as enable the development of new theme park attractions and infrastructure. Maintaining and improving our theme parks, as well as opening new attractions, is critical to remain competitive and increase attendance and our guests’ length of stay.

In 2012, we opened new attractions in seven of our theme parks. In 2013, we will open one of our biggest new attractions: Antarctica: Empire of the Penguin, a realm within our SeaWorld Orlando park themed to the snowy continent that will include a new attraction with innovative industry-leading ride technology. Antarctica will immerse guests into a penguin’s habitat and will allow them to stroll with a colony of penguins. Also in 2013, we plan to re-open the Knott’s Soak City Chula Vista water park, which we acquired in November 2012, as Aquatica San Diego, after making capital investments to upgrade its facilities.

During 2014 and 2015, we plan to celebrate the 50th anniversary of the SeaWorld brand at all three of our SeaWorld theme parks with a variety of new events, attractions, decors and musical features that celebrate our leadership in the marine-life theme park segment. SeaWorld’s 50th Anniversary Celebration will be highlighted by major new attractions, such as Explorer’s Reef in SeaWorld San Diego, which features an opportunity for our guests to experience hands-on interactions with sea creatures. Beyond the new products and experiences that we will be offering to our guests, we believe that we will be able to capitalize on the strong brand recognition and widespread appeal of our theme parks by raising public awareness of the anniversary celebration across traditional and digital media.

Maintenance and Inspection

Maintenance at our theme parks is a key component of guest service and safety and includes two areas of focus: facilities and infrastructure and rides and attractions. Facilities and infrastructure consists of all functions associated with upkeep, repair, preventative maintenance, code compliance, and improvement of theme park infrastructure. This area is staffed with a combination of external contractors/suppliers and our employees.

Rides and attractions maintenance represents all functions dedicated to the inspection, upkeep, repair and testing of guest experiences, particularly rides. Rides and attractions maintenance is also staffed with a combination of external suppliers, inspectors and our employees, who work to assure that ride experiences are operating within the manufacturer’s criteria and that maintenance is conducted according to internal standards, industry best practice and standards (such as ASTM International), state or jurisdictional requirements, as well as the ride designer or manufacturer’s specifications. All ride maintenance personnel are trained to perform their duties according to internal training processes, in addition to recognized industry certification programs for maintenance leadership. Every ride at our theme parks is inspected regularly, according to daily, weekly, monthly, and annual schedules, by both park maintenance experts or external consultants. Additionally, all rides are inspected daily by maintenance personnel before use by guests to ensure proper and safe operation.

All maintenance activities are planned and tracked using a networked enterprise software system, in order to schedule and request work, track completion progress and manage costs of parts and materials.

 

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Our Animals

We are one of the world’s foremost zoological organizations and a global leader in animal welfare, training, husbandry and veterinary care. Our mission is to inspire guests through education and up-close experiences and to care for and protect animals. We care for one of the largest animal collections in the world, with approximately 67,000 animals, including 7,000 marine and terrestrial animals and 60,000 fish. Animals in our care include certain rare species such as the cheetah, Bengal tiger, West Indian manatee, black rhinoceros and polar bear.

The well-being of the animals in our care is a top priority. Our zoological staff has been caring for animals for more than five decades, and our expertise is a resource for zoos, aquariums and conservation organizations worldwide. Our expertise and innovation in animal husbandry have led to advances in the care of species in zoological facilities and in the conservation of wild populations.

We operate successful zoological breeding programs that help maintain a large and genetically-diverse animal collection. Those efforts have produced 29 killer whales, 151 dolphins and 115 sea lions, among other species. More than 80% of the marine mammals living in our zoological theme parks were born in human care.

Many of our programs represent pioneering contributions to the zoological community. Until the birth of our first killer whale calf in 1985, no zoological institution had successfully bred killer whales. We care for the largest killer whale population in zoological facilities worldwide and today have the most genetically diverse killer whale and dolphin collection in our history.

Our commitment to animals also extends beyond our theme parks and throughout the world. We actively participate in species conservation and rescue efforts as discussed in “—Conservation Efforts” and “—Philanthropy and Community Relations” below.

Our Products and Services

Admission Tickets

We generate most of our revenue from selling admission to our theme parks. For the nine months ended September 30, 2012, theme park admissions accounted for approximately 62% of our revenue. We work with travel agents, ticket resellers and travel agencies, as well as maintain an online presence to promote advanced sales and provide guest convenience and ease of entry. Approximately 30% of our admission ticket purchases are made online.

Guests who visit our theme parks have the option of purchasing multiple types of admission tickets, from single and multi-day tickets to season, annual and two year passes. We also offer a Fun Card at select theme parks that allows additional visits throughout that calendar year. In addition, visitors can purchase vacation packages with preferred hotels, behind-the-scenes tours, specialty dining packages and front of the line access to enhance their experience.

We also participate in joint programs that are designed to provide visitors to Florida and Southern California with options, flexibility and value in creating their vacation itineraries. For example, we have partnered with several theme parks in Orlando to create the Orlando FlexTicket, which allows guests to purchase a ticket providing access to our theme parks in Orlando and Tampa as well as Universal Studios’ Universal Orlando, Islands of Adventure and Wet ‘n Wild. We also created the 2-Park FlexTicket in conjunction with Universal Studios, which allows guests to purchase a ticket providing access to SeaWorld San Diego and Universal Studios Hollywood. In addition, we partner with independent third parties who sell tickets and/or packages to our theme parks.

We provide discounts, actively run promotions and use dynamic pricing models to adjust to changes in demand during targeted periods to maximize revenue and manage capacity.

 

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Theme Park Operations

Our theme park operations strive to deliver a high level of service, safety and security at our theme parks. Comprised of rides, shows and attractions operations, safety, security, environmental, water park and guest arrival services (including parking, tolls, admissions, guest relations, entry and exit), the theme park operations team manages the planning and execution of the overall theme park experience on a daily basis. In pursuit of continuous improvement at our guest touch points, theme park operations identify and leverage internal best practices across all of our theme parks in order to create a seamless and enjoyable guest experience throughout the entire visit.

Culinary Offerings

We strive to deliver a variety of high quality, creative and memorable culinary experiences to our guests. Our culinary operations are strategically organized into five key guest-oriented disciplines designed to drive in-park per capita spending: restaurants, catering, carts and kiosks, specialty snacks and vending. Our culinary team focuses on providing creative menu offerings that appeal to our diverse guest base.

We offer a variety of dining programs that provide value to our guests while driving incremental revenues. While our menu offerings have broad appeal, they also cater to guests who desire healthy options and those with special allergy-related needs. Our successful all-day-dining program delivers convenience and value to our guests with numerous restaurant choices for one price. We also offer creative immersive dining experiences that allow guests to dine up-close with our animals and characters. Our commitment to care for the natural world extends to the food that we serve. Some of our menus feature sustainable, organic, seasonal and locally grown ingredients that aim to minimize environmental impacts to animals and their habitats. In addition, through culinary supply chain management initiatives, we are well-positioned to take advantage of changing economic and market conditions.

Merchandise

We offer guests the opportunity to capture memories through our products and services, including through traditional retail shops, game venues and customized photos and videos. We make a focused effort to leverage the emotional connection of the theme park experiences, capitalize on trends and optimize brand alignment with our merchandise product offerings.

We operate more than 200 specialty shops at our theme parks, and our retail business encompasses the entire value chain, from product design to production and sourcing, importing and logistics and visual presentation up to the point of sale. Our products encompass more than 55,000 unique SKUs across five divisions. Whether a plush toy, a stylish apparel item showcasing an attraction, a commemorative memento or a tote to carry it all, we create items both big and small so that every guest has a chance to find that perfect item that is a reminder of the memories made in our theme parks.

Through real time photo and video technologies, guests can purchase visual memories to commemorate their experience with us. Whether on a traditional ride or during one of our numerous animal experiences, we capture the moment through the use of state-of-the-art processes and technologies. We continue to explore and develop our photo and retail business to extend beyond the visit with online opportunities to further create customized products.

In-park games span from traditional theme park operations to arcade experiences, all with the goal of creating positive family experiences for guests of every age.

 

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Our merchandise teams also focus on making a visit to our theme parks easy, convenient and comfortable. This includes offering lockers or service vehicle rentals such as strollers, electric personal carts and wheelchairs.

Licensing and Consumer Products

To capitalize on our popular brands, we have begun to leverage our intellectual property and content through media and consumer strategic licensing arrangements. We extended the reach of our brands through outbound media licensing in areas such as films, television programs and digital e-books, as well as our first-ever multi-platform mobile app game, TurtleTrek, which launched on iTunes in November 2012. We have also expanded into the development of licensed consumer products to drive consumer sales through retail channels beyond our theme parks. Our licensed consumer product offerings currently include toys, books, apparel, and technology accessories, among many other product types. For example, we worked with Mattel to develop our first Barbie I Can Be: SeaWorld Trainer Doll playset, which debuted to the public in 2008. By 2013, we believe that our licensees will have an aggregate of over 250 SKUs across more than 25,000 retail stores. Upcoming new product launches in 2013 are anticipated for direct to retail products, consumer packaged goods, office supplies, puzzles, board games and pet products. We believe that by leveraging our brands and our intellectual property through media and consumer products, we will create new revenue streams and enhance the value of our brands through greater consumer awareness and increased consumer loyalty.

In addition, we have expanded our brand appeal through strategic alliances with well-known external brands, including Sesame Street and The Polar Express. Recently, we entered into an exclusive theme park license with Nelvana Enterprises, a division of Corus Entertainment, for the animated character and series Franklin and Friends, which includes in-park character appearances, DVD specials, custom publishing and co-branded merchandise.

Group Events and Conventions

We host a variety of different group events, meetings and conventions at our theme parks both during the day and at night. Our venues offer indoor and outdoor space for meetings, special events, entertainment shows, picnics, teambuilding events, group tours and special group ticket packages. Park buy-outs allow groups to enjoy exclusive itineraries, including meetings and shows, up-close encounters with animals and behind the scenes tours. Each of our theme parks offers unique venues, such as SeaWorld Orlando’s Ports of Call, a 70,000 square foot dedicated special events complex and banquet facility at the theme park, which is themed as a nautical wharf-side warehouse district, complete with two miniature submarines. The facility offers more than 30,000 square feet of dining space, with a ballroom that provides seating for more than 750 guests and a larger outdoor garden reception area that can accommodate additional guests. In 2011, we hosted more than 1,200 group events at our theme parks across the country.

Corporate Sponsorships and Strategic Alliances

We seek to secure long-term corporate sponsorships and strategic alliances with leading companies and brands that share our core values, deliver significant brand marketing value and influence and drive mutual business gains. We identify prospective corporate sponsors based on their industry and industry-leading position among Fortune 1000 companies, and we select them based on their ability to deliver impactful marketing value to our theme parks and our brands, as well as to consumer products and various entertainment platforms. Our current corporate sponsors include, among others, Southwest Airlines, which has been a sponsor for over 20 years, and The Coca-Cola Company. Our corporate sponsors contribute to us in a multitude of ways, such as through direct

 

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marketing, advertising, media exposure and licensing opportunities, as well as through the non-for-profit SeaWorld & Busch Gardens Conservation Fund. For example, in 2012, The Coca-Cola Company and Southwest Airlines launched new channel marketing programs and consumer promotions on our behalf with Walmart, Wendy’s, Dunkin Donuts, Regal Cinemas, Cinemark, NASCAR, MyCokeRewards, and Southwest Vacations.

Our Corporate Culture

Our corporate culture is built on our mission to deliver personal, interactive and educational experiences that enable our customers to celebrate, connect with and care for the natural world we share. Our management team and our employees are passionate about connecting people to nature and animals and are committed to working in a socially responsible and environmentally sustainable manner. We teach our employees to be welcoming, friendly and attentive and to create an environment that allows our guests to build lasting memories with their family and friends. Our consumer-oriented corporate culture is integral to our organization and the cornerstone of our success.

Conservation Efforts

We contribute to species conservation, wildlife rescue, education and environmental stewardship programs around the world. Through SeaWorld & Busch Gardens Conservation Fund, a non-profit organization, we support wildlife research, habitat protection, animal rescue and conservation education. We also work with and support environmental organizations, including the National Wildlife Federation, World Wildlife Fund and The Nature Conservancy and contribute funds in support of efforts to ensure the sustainability of animal species in the wild. Some of our animals also serve as ambassadors in helping raise awareness for species in danger through numerous national media and public appearances. Through our theme parks’ up-close animal encounters, educational exhibits and innovative entertainment, we strive to inspire each guest who visits one of our parks to care for and conserve the natural world.

In addition, in collaboration with federal, state and local governments, among others, we operate one of the world’s most respected rescue programs for ill and injured marine animals, with the goal of rehabilitating and returning them to the wild. Over four decades, our animal experts have helped more than 22,000 ill, injured, orphaned and abandoned animals.

Our commitment to research and conservation also has led to advances in the care of animals in both zoological facilities and in conserving wild populations. We have pioneered new ways to rehabilitate animals in need. For example, we helped to create nutritional formulas and custom nursing bottles to hand-feed orphaned animals and developed techniques to help save sea turtles with cracked shells, created prosthetic beaks for injured birds and outfitted injured manatees with an “animal wetsuit” allowing them to stay afloat and warm.

Most recently, we have undertaken major sustainability initiatives in our theme parks. For example, we are in the process of discontinuing the use of plastic bags in all our gift shops, and in 2013, we expect to be using only paper and reusable bags. In doing so, we will keep an estimated four million plastic bags from entering landfills and the environment each year.

Philanthropy and Community Relations

We focus our philanthropic efforts in three areas: children, education, and the environment. We are committed to the communities in which we live, learn, work, and play. We also partner with charities across the country whose values and missions are aligned with our own, including hospitals, organizations that serve children with disabilities and animal shelter and rescue groups. Through long-term strategic support to advance the missions of these groups, financial support, in-kind resources or hands-on volunteer work, service is an active part of the work we do.

 

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Our theme parks inspire and educate children and guests of all ages through the power of entertainment and our philanthropic efforts reflect this commitment. We extend educational outreach visits to inner-city schools, host “special wish” children to enjoy theme park adventures and create Skype visits with our animals for children too ill to travel.

Finally, a key component of our community outreach is our long-term commitment to honoring the service of members of the U.S. military and acknowledging the sacrifices that their families have made. Currently, we offer a free admission program, which provided approximately 735,000 free single day passes to active military personnel and their families in 2011.

Our Customers

Our theme parks are located near a number of large metropolitan areas, with a total population of over 55 million people located within 150 miles. Additionally, because our theme parks are divided between regional and destination theme parks, our guests are further diversified among a more stable base of local visitors, non-local domestic visitors and international tourists. All of our theme parks are world-class entertainment venues and able to attract a highly desirable demographic: young, affluent families. Families comprise 58% of our attendance with an average party size of 3.8 people.

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 the Company’s attendance and revenues are generated in the second and third quarters of the year. 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 between the first and fourth quarters due to the timing of Christmas and New Year’s. Even for our five theme parks open year-round, attendance patterns have significant seasonality, driven by holidays, school vacations, and weather conditions. One of our goals in managing our business is to continue to generate cash flow throughout the year and minimize the effects of seasonality. In recent years, we have begun to encourage attendance during non-peak times by offering a variety of seasonal programs and events, such as a winter kids festival, spring concert series, and Halloween and Christmas events. In addition, during seasonally slow times, operating costs are controlled by reducing operating hours and show schedules. Employment levels required for peak operations are met largely through part-time and seasonal hiring.

Marketing

Our marketing and sales efforts are focused on generating profitable attendance, in-park per capita spending and building the value of our brands. Through advertising, including local customization, promotions, retail and corporate partners, digital platforms, public relations and sales initiatives, we drive awareness of and intent to visit our theme parks, attendance and higher in-park per capita spending on an international, national and regional level. Our attractive destination locations and strategy of grouping parks together creates high appeal for multi-day visits. Our strategic priorities include: (i) building our brands, (ii) improving guest loyalty, (iii) expanding digital expertise and (iv) broadening appeal (among multi-cultural consumers, kids and domestic markets). With great brands and a diverse team, marketing and sales will play a significant role in driving future growth.

Intellectual Property

Our business is affected by our ability to protect against infringement of our intellectual property, including our trademarks, service marks, domain names, copyrights and other proprietary rights.

 

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Important intellectual property includes rights in names, logos, character likenesses, theme park attractions, content of television programs and systems related to the study and care of certain of our animals. In addition, we are party to key license agreements as licensee, including our agreements with Sesame Workshop and ABI as discussed below. To protect our intellectual property rights, we rely upon a combination of trademark, copyright, trade secret and unfair competition laws of the United States and other countries, as well as contract provisions and third-party policies and procedures governing internet/domain name registrations.

Busch Gardens License Agreement

Our subsidiary, SeaWorld Parks & Entertainment LLC, is a party to a trademark license agreement with ABI, which governs our use of the Busch Gardens name and logo. Under the license agreement, ABI granted to us a perpetual, exclusive, worldwide, royalty-free license to use the Busch Gardens trademark and certain related domain names in connection with the operation, marketing, promotion and advertising of our theme parks, as well as in connection with the production, use, distribution and sale of merchandise sold in connection with such theme parks.

The license extends to our Busch Gardens theme parks located in Williamsburg, Virginia and Tampa, Florida, and may also include any amusement or theme park anywhere in the world that we acquire, build or rebrand with the Busch Gardens name in the future, subject to certain conditions. ABI may not assign, transfer or sell the Busch Gardens mark without first granting us a reasonable right of first refusal to purchase such mark.

We have agreed to indemnify ABI from and against third party claims and losses arising out of or in connection with the operation of the theme parks and the related marketing or promotion thereof, any merchandise branded with the licensed marks and the infringement of a third party’s intellectual property. We are required to carry certain insurance coverage throughout the term of the license.

The license agreement can be terminated by ABI under certain limited circumstances, including in connection with certain types of change of control of SeaWorld Parks & Entertainment LLC.

Sesame Licenses

Sesame Place Theme Park License Agreements

Our subsidiary, SeaWorld Parks & Entertainment LLC (f/k/a SPI, Inc.), is a party to a license agreement with Sesame Workshop (f/k/a Children’s Television Workshop). Under the license agreement, we were granted the right to use titles, marks, names, and characters from the Sesame Street and The Electric Company television series, as well as certain characters and elements created by the Muppets for the Sesame Street series, related marketing materials, and the Sesame Place design trademark in connection with the children’s play parks in Langhome, Pennsylvania. We pay specified royalties based on receipts from business conducted on the premises of the theme park to Sesame Workshop. We are required to include Sesame Workshop and the Muppets as insured parties under any relevant insurance policies, and have agreed to indemnify Sesame Workshop from and against certain claims and expenses arising out of any personal or property injury at our Sesame Place park or breach of the license agreement. The license agreement can be terminated by Sesame Workshop under certain circumstances, including in connection with a specified change of control of SeaWorld Parks & Entertainment LLC, specified uncured breaches of the license agreement or specified bankruptcy events.

Under a separate agreement, Sesame Workshop granted SeaWorld Parks & Entertainment LLC a license to develop, manufacture, and produce in the United States (and, in some circumstances, elsewhere in the world) and to distribute and sell at Sesame Place branded play parks, certain

 

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products bearing Sesame Place, Sesame Street, and Sesame Street Muppet characters, likenesses, logos, marks and materials, including apparel, flags, bags, mugs, buttons, pens, wristbands and other miscellaneous products. The parties have agreed to indemnify each other from and against claims and expenses in connection with our respective performance under the license agreement and any breach thereof. Sesame Workshop may terminate the license under certain circumstances, including our uncured breach or bankruptcy.

Both agreements are scheduled to remain in effect until December 31, 2021.

Multi-Park License

Under a separate agreement, Sesame Workshop granted SeaWorld Parks & Entertainment LLC rights to use the Sesame Place and Sesame Workshop names and logos, certain Sesame Street characters (including Elmo, Big Bird and Cookie Monster), and granted a limited term right of first negotiation to utilize characters from other Sesame Workshop television series at SeaWorld San Diego, SeaWorld San Antonio, SeaWorld Orlando, and our two Busch Gardens theme parks. Within these theme parks we have rights to use the marks and characters in connection with Sesame Street themed attractions, Sesame Street shows and character appearances, and the marketing, advertising and promotion of the theme parks.

Sesame Workshop has also granted us the right to develop, manufacture, distribute and sell products within our SeaWorld and Busch Gardens theme parks, but also other parks in the United States that are owned or operated by SeaWorld Parks & Entertainment LLC, its subsidiaries or affiliates.

Pursuant to this agreement we pay a specified annual license fee, as well as a specified royalty based on revenues earned in connection with sales of licensed products, all food and beverage items utilizing the licensed elements and any events utilizing such elements if a separate fee is paid for such event.

The parties have agreed to indemnify each other from and against third party claims and expenses arising from their respective performance under the agreement or any breach thereof. Sesame Workshop has the right to terminate the agreement under certain limited circumstances, including a change of control of SeaWorld Parks & Entertainment LLC, SeaWorld Parks & Entertainment LLC’s bankruptcy or uncured breach of the agreement, or the termination of the license agreement regarding our Sesame Place theme park.

The agreement is scheduled to remain in effect until December 31, 2021 unless earlier terminated or extended.

Competition

Our theme parks and other product and entertainment offerings compete directly for discretionary spending with other destination and regional theme parks and water and amusement parks and indirectly with other types of recreational facilities and forms of entertainment, including movies, home entertainment options, sports attractions, restaurants and vacation travel. Principal direct competitors of our theme parks include theme parks operated by The Walt Disney Company, Universal Studios, Six Flags, Cedar Fair, Merlin Entertainments and Hershey Entertainment and Resorts Company. Our highly differentiated products provide a complementary experience to those offered by fantasy-themed Disney and Universal parks. In addition, we benefit from the significant capital investments made in developing the tourism industry in the Orlando area. The Orlando theme park market is extremely competitive, with a high concentration of theme parks operated by several companies.

 

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Competition is based on multiple factors including location, price, the uniqueness and perceived quality of the rides and attractions, the atmosphere and cleanliness of the theme park, the quality of food and entertainment, weather conditions, ease of travel to the theme park (including direct flights by major airlines), and availability and cost of transportation to a theme park. We believe we compete effectively, and our competitive position is protected, due to our strong brand recognition, extensive animal collection, high historical capital investment and valuable real estate. Additionally, we believe that our theme parks feature a sufficient quality and variety of rides and attractions, educational and interactive experiences, merchandise locations, restaurants and family orientation to make them highly competitive with other destination and regional theme parks, as well as other forms of entertainment.

Employees

We currently employ approximately 22,109 employees, approximately 4,400 of whom are employed on a full-time basis. The number of part-time and seasonal employees, many of whom are high school and college students, increases during our peak operating season. None of our employees are covered by a collective bargaining agreement, and we consider our employee relations to be good.

Regulatory

Our operations are subject to a variety of federal, state and local laws, regulations and ordinances including, but not limited to, those regulating the environmental, display, possession and care of our animals, amusement park rides, building and construction, health and safety, labor and employment, workplace safety, zoning and land use and alcoholic beverage and food service. Key statutes and treaties relating to the display, possession and care of our animal collection include the Endangered Species Act, Marine Mammal Protection Act, Animal Welfare Act, Convention on International Trade in Endangered Species and Fauna Protection Act and the Lacey Act. We must also comply with the Migratory Bird Treaty Act, Bald and Golden Eagle Protection Act, Wild Bird Conservation Act and National Environmental Policy Act, among other laws and regulations. We believe that we are in substantial compliance with applicable laws, regulations and ordinances; however, such requirements may change over time, and there can be no assurance that new requirements, changes in enforcement policies or newly discovered conditions relating to our properties or operations will not require significant expenditures in the future.

Insurance

We maintain insurance of the type and in the amounts that we believe to be commercially reasonable for businesses in our industry. We maintain primary and excess casualty coverage of up to $100 million. As part of this coverage, we retain deductible/self-insured retention exposures of $1 million per occurrence for general liability claims, $250,000 for property claims, $250,000 per accident for automobile liability claims, and $750,000 per occurrence for workers compensation claims. We maintain employers’ liability and all coverage required by law in the states in which we operate. Defense costs are included in the insurance coverage we obtain against losses in these areas. Based upon our historical experience of reported claims and an estimate for incurred-but-not-reported claims, we accrue a liability for our deductible/self-insured retention contingencies regarding general liability, automobile liability and workers compensation exposures. We maintain additional forms of special casualty coverage appropriate for businesses in our industry. We also maintain commercial property coverage against fire, natural perils, so-called “extended coverage” perils such as civil commotion, business interruption and terrorism exposures for protection of our real and personal properties (other than land). We generally renegotiate our insurance policies on an annual basis. We cannot predict the amounts of premium cost that we may be required to pay for future insurance coverage, the level of any deductibles/self-insured retentions we may retain applicable thereto, the level of aggregate excess coverage available or the availability of coverage for special or specific risks.

 

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Properties

The following table summarizes our principal properties, which includes undeveloped land.

 

Location

  

Size

 

Use

Orlando, FL

   111,679 sq ft   Leased Office Space (corporate headquarters)

Orlando, FL

   9,636 sq ft   Leased Office Space (call center)

San Diego, CA

   190 acres   Leased Land

Chula Vista, CA

   66 acres   Owned Water Park

Orlando, FL

   279 acres   Owned Theme Park

Orlando, FL

   58 acres   Owned All-inclusive Interactive Park

Orlando, FL

   81 acres   Owned Water Park

Tampa, FL

   56 acres   Owned Water Park

Tampa, FL

   306 acres   Owned Theme Park

Dade City, FL

   109 acres   Owned Breeding Farm

Langhorne, PA

   55 acres   Owned Theme Park

San Antonio, TX

   416 acres   Owned Theme Park

Williamsburg, VA

   222 acres   Owned Water Park

Williamsburg, VA

   422 acres   Owned Theme Park

Williamsburg, VA

   5 acres   Owned Warehouse Space

Williamsburg, VA

   5 acres   Owned Seasonal Worker Lodging

Our Senior Secured Credit Facilities are collateralized by first priority or equivalent security interests in, among other things, certain tangible and intangible assets, including our fee-owned properties. See “Description of Indebtedness.”

Legal Proceedings

We are subject to various allegations, claims and legal actions arising in the ordinary course of business. While it is impossible to determine with certainty the ultimate outcome of any of these proceedings, lawsuits and claims, management believes that adequate provisions have been made and insurance secured for all currently pending proceedings so that the ultimate outcomes will not have a material adverse effect on our financial position.

 

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MANAGEMENT

Executive Officers and Directors

The following table sets forth certain information regarding our executive officers and directors as of December 1, 2012:

 

Name

   Age     

Position

David F. D’Alessandro

     61       Chairman of the Board of the Directors

Jim Atchison

     46       Chief Executive Officer and President, Director

James M. Heaney

     49       Chief Financial Officer

Daniel B. Brown

     58       Chief Operating Officer—SeaWorld & Discovery Cove

Donald W. Mills Jr.

     54       Chief Operating Officer—Busch Gardens & Sesame Place

Scott D. Helmstedter

     48       Chief Creative Officer

G. Anthony (Tony) Taylor

     47       Chief Legal Officer, General Counsel and Corporate Secretary

Dave Hammer

     52       Chief Administrative Officer

Marc Swanson

     41       Chief Accounting Officer

Brad Andrews

     63       Chief Zoological Officer

Joseph P. Baratta

     41       Director

Bruce McEvoy

     35       Director

Peter F. Wallace

     37       Director

David F. D’Alessandro has been the chairman of the Board of Directors of the Company since 2010. He served as Chairman, President and Chief Executive Officer of John Hancock Financial Services from 2000 to 2004, having served as President and Chief Operating Officer of the same entity from 1996 to 2000, and guided the company through a merger with ManuLife Financial Corporation in 2004. Mr. D’Alessandro served as President and Chief Operating Officer of ManuLife in 2004. He is a former Partner of the Boston Red Sox. A graduate of Syracuse University, he holds honorary doctorates from three colleges and serves as vice chairman of Boston University.

Jim Atchison has been a director, Chief Executive Officer and President of the Company since 2009. He served as President and Chief Operating Officer of Busch Entertainment Corporation from 2007 to 2009, as Executive Vice President and General Manager of SeaWorld Orlando from 2003 to 2007 and as Vice President of Marketing of the same entity from 2002 to 2003. Prior to that, Mr. Atchison was the Vice President of Finance of Busch Gardens Tampa from 1998 to 2002. Mr. Atchison is also a member of the board of directors of the SeaWorld & Busch Gardens Conservation Fund and Hubbs-SeaWorld Research Institute, and he is also a member of the University of Central Florida Board of Trustees. Mr. Atchison holds a bachelor’s degree in marketing from the University of South Florida and a master’s degree in business administration from the University of Central Florida.

James M. Heaney has been our Chief Financial Officer since January 2012. Prior to that, he served as the Chief Financial Officer and Senior Vice President of Finance of the Walt Disney Company, and from 1990 to 1994 he was the Finance Manager and Financial Analyst of Royal Caribbean Cruises. From 1989 to 1990 he served as Financial Analyst of Pueblo Xtra International, and from 1988 to 1989 as Financial Systems Analyst of Gould, Inc CSD. Mr. Heaney holds a bachelor’s degree in operations management from Texas Tech University and a master’s degree in business administration with an academic emphasis in finance from University of Florida.

Daniel B. Brown has been the Chief Operating Officer—SeaWorld & Discovery Cove since 2010. Prior to that, Mr. Brown served as Park President of SeaWorld Orlando, Discovery Cove and Aquatica from 2007 to 2010, Park President of Busch Gardens Tampa and Adventure Island from 2003 to 2007, Park

 

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President of Busch Gardens Williamsburg from 1999 to 2003, and Vice President of Operations of Busch Entertainment Corporation from 1997 to 1999. Mr. Brown serves on the Dean’s Advisory Board of USF’s Rosen College of Hospitality Management, the executive board of Visit Orlando, the board of the Hubbs-SeaWorld Research Institute and the Orange County International Drive Community Development Area Advisory Committee. He holds a bachelor’s degree of Arts from Webster University.

Donald W. Mills Jr. has been the Chief Operating Officer—Busch Gardens & Sesame Place theme parks since 2010. Prior to that, Mr. Mills served as Executive Vice President and General Manager of Busch Gardens Tampa from 2007 to 2010, Executive Vice President and General Manager of Busch Gardens Williamsburg from 2003 to 2007, Vice President of Park Operations of Busch Gardens Williamsburg from 2002 to 2003, Vice President of Park Operations of SeaWorld San Diego from 1999 to 2002, Vice President of Park Operations of Busch Gardens Tampa and Vice President of Adventure Island from 1992 to 1994. Mr. Mills is a member of the advisory board of the University of South Florida College of Business. He holds a bachelor’s degree of Science and Marketing from the University of South Florida.

Scott D. Helmstedter has been our Chief Creative Officer since 2011. He served as Principal and Executive Producer of In Motion Entertainment from 2000 to 2011, and from 1997 to 1999 as a Producer at Universal Studios. Prior to that, from 1995 to 1997, Mr. Helmstedter was the Line Producer of Buena Vista Pictures of The Walt Disney Company, and from 1986 until 1995 he served as Production Manager of The Walt Disney Company. Mr. Helmstedter holds a bachelor’s degree of Arts from Azusa Pacific University and a master’s degree in business administration from Claremont Graduate University.

G. Anthony (Tony) Taylor has been our Chief Legal Officer, General Counsel and Corporate Secretary since 2010. He is also responsible for Industry & Government Affairs, Risk Management and Corporate Social Responsibility. Prior to that, Mr. Taylor held the position of Associate General Counsel of Anheuser-Busch Companies, Inc. from 2000 to 2010, and a Principal in Blumenfeld Kaplan in St. Louis from 1993 to 2000. He holds bachelors’ degrees in media and political science from University of Missouri and a juris doctor degree from Washington University. Mr. Taylor is a board member and serves as president of The Anthony Armstrong 88 Foundation.

Dave Hammer has been our Chief Administrative Officer since 2009. Prior to that, Mr. Hammer served as Corporate Vice President of Human Resources of Busch Entertainment Corporation from 2004 until 2009, Vice President of Human Resources of Sea World Florida and Corporate Manager of Human Resources for Busch Entertainment Corporation from 1999 to 2001, Director of Human Resources of Busch Properties, Inc. from 1995 to 1999 and as Vice President of Human Resources for Sesame Place from 1991 to 1995. Mr. Hammer is a member of the board of directors of the Florida Chamber of Commerce. He holds a bachelor’s degree in human resources from St. Leo College in Tampa, Florida.

Marc Swanson has been our Chief Accounting Officer since 2012. Prior to that, he has been Vice President Performance Management and Corporate Controller of SeaWorld Parks & Entertainment, Inc. from 2011 to 2012, the Corporate Controller of Busch Entertainment Corporation from 2008 to 2011 and the Vice President of Finance of Sesame Place from 2004 to 2008. He is a member of the board of directors of the SeaWorld & Busch Gardens Conservation Fund. Mr. Swanson holds a bachelor’s degree in accounting from Purdue University and a master’s degree in business administration from DePaul University.

Brad Andrews has been our Chief Zoological Officer since 2010. He served as Corporate Vice President of Zoological Operations of Busch Entertainment Corporation from 1991 to 2010, Vice President and Assistant Zoological Director of the same entity from 1990 to 1991. Prior to that, he served as Curator and Vice President Mammals of SeaWorld Orlando from 1988 until 1990. Mr. Andrews is also a member of the board of directors of the SeaWorld & Busch Gardens Conservation

 

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Fund, Hubbs-SeaWorld Research Institute, Wildlife Assistance, International Elephant Foundation, International Rhino Foundation, Cheetah Conservation Foundation, African Carnivore Research Association, Conservation Breeding Specialist Group and United States Rugby Foundation. Mr. Andrews holds a bachelor’s degree of Science from St. Mary’s College.

Joseph P. Baratta has been a director of the Company since 2009. Mr. Baratta is the Global Head of the Private Equity Group at Blackstone, which he joined in 1998. Before joining Blackstone, Mr. Baratta worked at Tinicum Incorporated, McCown De Leeuw & Company and Morgan Stanley. Mr. Baratta also currently serves on the board of directors of Center Parcs plc and he is also a trustee of the Private Equity Foundation. Mr. Baratta holds a bachelor’s degree from Georgetown University, where he currently serves on the University’s Board of Regents and the Advisory Board of the McDonough School of Business.

Bruce McEvoy has been a director of the Company since 2009. Mr. McEvoy is a Managing Director in the Private Equity Group at Blackstone, which he joined in 2006. Before joining Blackstone, Mr. McEvoy worked at General Atlantic and McKinsey & Company. Mr. McEvoy also currently serves on the board of directors of Catalent, GCA Services, Performance Food Group, RGIS Inventory Specialists and Vivint, and he was formerly a director of DJO Orthopedics. Mr. McEvoy graduated from Princeton University and Harvard Business School.

Peter F. Wallace has been a director of the Company since 2009. Mr. Wallace is a Senior Managing Director in Blackstone’s Private Equity Group, which he joined in 1997. Mr. Wallace also currently serves on the board of directors of AlliedBarton Security Services, GCA Services, Michaels Stores, Inc., Vivint and the Weather Channel Companies. Mr. Wallace was formerly a director of Crestwood Midstream Partners, New Skies Satellites and Pelmorex Media. Mr. Wallace graduated from Harvard College.

Composition of the Board of Directors

Our business and affairs are managed under the direction of our Board of Directors. Following the completion of this offering, we expect our Board of Directors to initially consist of      directors,      of whom will be independent. In connection with this offering, we will be amending and restating our certificate of incorporation to provide for a classified Board of Directors, with      directors in Class I (expected to be     ),      directors in Class II (expected to be     ) and      directors in Class III (expected to be     ). See “Description of Capital Stock—Anti-Takeover Effects of our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws and Certain Provisions of Delaware Law—Classified Board of Directors.” In addition, we intend to enter into a stockholders agreement with certain affiliates of Blackstone in connection with this offering. This agreement will grant Blackstone the right to designate nominees to our Board of Directors subject to the maintenance of certain ownership requirements in us. See “Certain Relationships and Related Party Transactions—Stockholders Agreement.”

Background and Experience of Directors

When considering whether directors and nominees have the experience, qualifications, attributes or skills, taken as a whole, to enable our Board of Directors to satisfy its oversight responsibilities effectively in light of our business and structure, the Board of Directors focused primarily on each person’s background and experience as reflected in the information discussed in each of the directors’ individual biographies set forth above. We believe that our directors provide an appropriate mix of experience and skills relevant to the size and nature of our business. Once appointed, directors serve until they resign or are terminated by the stockholders. In particular, the members of our Board of Directors considered the following important characteristics, among others: Messrs. Baratta, McEvoy and Wallace are representatives proposed by affiliates of Blackstone, our principal stockholder, and

 

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have significant financial, investment and operational experience from their involvement in Blackstone’s investment in numerous portfolio companies and have played active roles in overseeing those businesses.

Board Leadership Structure

Our Board of Directors is led by the Non-Executive Chairman. The Chief Executive Officer position is separate from the Chairman position. We believe that the separation of the Chairman and Chief Executive Officer positions is appropriate corporate governance for us at this time.

Role of Board in Risk Oversight

The Board of Directors has extensive involvement in the oversight of risk management related to us and our business and accomplishes this oversight through the regular reporting by the Audit Committee. The Audit Committee represents the Board of Directors by periodically reviewing our accounting, reporting and financial practices, including the integrity of our financial statements, the surveillance of administrative and financial controls and our compliance with legal and regulatory requirements. Through its regular meetings with management, including the finance, legal, and internal audit functions, the Audit Committee reviews and discusses all significant areas of our business and summarizes for the Board of Directors all areas of risk and the appropriate mitigating factors. In addition, our Board of Directors receives periodic detailed operating performance reviews from management.

Controlled Company Exception

After the completion of this offering, investment funds associated with or designated by Blackstone will continue to beneficially own more than 50% of our common stock and voting power. As a result, (x) under the terms of the Stockholders Agreement, Blackstone will be entitled to nominate      of the      members of our Board of Directors (see “Certain Relationships and Related Party Transactions—Stockholders Agreement”) and (y) we will be a “controlled company” within the meaning of              corporate governance standards. Under              corporate governance standards, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance standards, including (1) the requirement that a majority of the Board of Directors consist of independent directors, (2) the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities, (3) the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities and (4) the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees. Following this offering, we intend to utilize these exemptions. As a result, following this offering, we will not have a majority of independent directors on our Board of Directors; and we will not have a nominating and corporate governance committee or a compensation committee that is composed entirely of independent directors. Also, such committee will not be subject to annual performance evaluations. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of              corporate governance requirements. In the event that we cease to be a “controlled company,” we will be required to comply with these provisions within the transition periods specified in              corporate governance rules.

Board Committees

After the completion of this offering, the standing committees of our Board of Directors will consist of an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.

 

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Our president and chief executive officer and other executive officers will regularly report to the non-executive directors and the Audit, the Compensation and the Nomination and Corporate Governance Committees to ensure effective and efficient oversight of our activities and to assist in proper risk management and the ongoing evaluation of management controls. The vice president of internal audit will report functionally and administratively to our chief financial officer and directly to the Audit Committee. We believe that the leadership structure of our Board of Directors provides appropriate risk oversight of our activities given the controlling interests held by Blackstone.

So long as Blackstone and its affiliates own at least 50% of our common stock, under our stockholders agreement Blackstone will have the right to designate a majority of the members of the committees of our Board of Directors to the extent permitted by law. See “Certain Relationships and Related Party Transactions—Stockholders Agreement.”

Audit Committee

Upon the completion of this offering, we expect to have an Audit Committee, consisting of     ,      and     . Messrs.                      and      qualify as independent directors under              corporate governance standards and the independence requirements of Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We expect a new third independent member to be placed on the Audit Committee within one year of the completion of this offering so that all of our Audit Committee members will be independent as such term is defined in Rule 10A-3(b)(i) under the Exchange Act and under             . Following this offering, our Board of Directors will determine which member of our Audit Committee qualifies as an “audit committee financial expert” as such term is defined in Item 407(d)(5) of Regulation S-K.

The purpose of the Audit Committee will be to prepare the audit committee report required by the SEC to be included in our proxy statement and to assist our Board of Directors in overseeing and monitoring (1) the quality and integrity of our financial statements, (2) our compliance with legal and regulatory requirements, (3) our independent registered public accounting firm’s qualifications and independence, (4) the performance of our internal audit function and (5) the performance of our independent registered public accounting firm.

Our Board of Directors will adopt a written charter for the Audit Committee which will be available on our website upon the completion of this offering.

Compensation Committee

Upon the completion of this offering, we expect to have a Compensation Committee, consisting of     ,      and     .

The purpose of the Compensation Committee is to assist our Board of Directors in discharging its responsibilities relating to (1) setting our compensation program and compensation of our executive officers and directors, (2) monitoring our incentive and equity-based compensation plans and (3) preparing the compensation committee report required to be included in our proxy statement under the rules and regulations of the SEC.

Our Board of Directors will adopt a written charter for the Compensation Committee which will be available on our website upon the completion of this offering.

Nominating and Corporate Governance Committee

Upon the completion of this offering, we expect to have a Nominating and Corporate Governance Committee, consisting of     ,     and     . The purpose of our Nominating and Corporate Governance

 

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Committee will be to assist our Board of Directors in discharging its responsibilities relating to (1) identifying individuals qualified to become new Board of Directors members, consistent with criteria approved by the Board of Directors, subject to the stockholders agreement with Blackstone; (2) reviewing the qualifications of incumbent directors to determine whether to recommend them for reelection and selecting, or recommending that the Board of Directors select, the director nominees for the next annual meeting of stockholders; (3) identifying Board of Directors members qualified to fill vacancies on any Board of Directors committee and recommending that the Board of Directors appoint the identified member or members to the applicable committee, subject to the stockholders agreement with Blackstone; (4) reviewing and recommending to the Board of Directors corporate governance guidelines applicable to us; (5) overseeing the evaluation of the Board of Directors and management; and (6) handling such other matters that are specifically delegated to the committee by the Board of Directors from time to time.

Our Board of Directors will adopt a written charter for the Nominating and Corporate Governance Committee which will be available on our website upon completion of this offering.

Compensation Committee Interlocks and Insider Participation

Presently, our Board of Directors does not have a compensation committee; therefore, our Board of Directors makes all decisions about our executive compensation. Mr. Atchison does not participate in the Board of Directors’ discussions regarding his own compensation. None of our executive officers currently serves, or has served during the last year, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our Board of Directors or the Compensation Committee. We are parties to certain transactions with Blackstone described in “Certain Relationships and Related Party Transactions” section of this prospectus.

Code of Ethics

We will adopt a new Code of Business Conduct that applies to all of our officers and employees, including our principal executive officer, principal financial officer and principal accounting officer, which has been posted on our Internet website          on the “    ” link to the “    ” page. Our Code of Business Conduct is a “code of ethics,” as defined in Item 406(b) of Regulation S-K. Please note that our Internet website address is provided as an inactive textual reference only. We will make any legally required disclosures regarding amendments to, or waivers of, provisions of our code of ethics on our Internet website.

Compensation Discussion and Analysis

Introduction

Our executive compensation plan is designed to attract and retain individuals with the qualifications to manage and lead the Company as well as to motivate them to develop professionally and contribute to the achievement of our financial goals and ultimately create and grow our equity value.

Our named executive officers for 2012 are:

 

  Ÿ  

Jim Atchison, our President and Chief Executive Officer;

 

  Ÿ  

James M. Heaney, our Chief Financial Officer; and

 

  Ÿ  

our three other most highly compensated executive officers who served in such capacities at December 31, 2012, namely,

 

  Ÿ  

Daniel B. Brown, our Chief Operating Officer—SeaWorld & Discovery Cove;

 

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  Ÿ  

Donald W. Mills, Jr., our Chief Operating Officer—Busch Gardens & Sesame Place; and

 

  Ÿ  

Scott D. Helmstedter, our Chief Creative Officer.

Executive Compensation Objectives and Philosophy

Our primary executive compensation objectives are to:

 

  Ÿ  

attract, retain and motivate senior management leaders who are capable of advancing our mission and strategy and ultimately, create and maintain our long-term equity value. Such leaders must engage in a collaborative approach and possess the ability to execute our business strategy in an industry characterized by competitiveness, growth and a challenging business environment;

 

  Ÿ  

reward senior management in a manner aligned with our financial performance; and

 

  Ÿ  

align senior management’s interests with our equity owners’ long-term interests through equity participation and ownership.

To achieve our objectives, we deliver executive compensation through a combination of the following components:

 

  Ÿ  

Base salary;

 

  Ÿ  

Bonuses which are tied to company financial performance;

 

  Ÿ  

Long-term incentive compensation;

 

  Ÿ  

Broad-based employee benefits;

 

  Ÿ  

Supplemental executive perquisites; and

 

  Ÿ  

Severance benefits.

Our total executive compensation plan is inclusive of base salaries and other benefits and perquisites, including severance benefits, which are designed to attract and retain senior management talent. We also use annual cash incentive compensation and long-term equity incentives to ensure a performance-based delivery of pay that aligns, as closely as possible, the rewards of our named executive officers with the long-term interests of our equity-owners while enhancing executive retention.

Compensation Determination Process

Presently, our Board of Directors does not have a compensation committee; therefore, our Board of Directors makes all decisions about our executive compensation.

In making initial compensation determinations with respect to our named executive officers, our Board of Directors considered a number of variables, consistent with our executive compensation objectives, including individual circumstances related to each executive’s recruitment or retention and the position for which they were hired. For example, our Board of Directors granted to Mr. Atchison a substantially greater number of equity awards in light of his role as our President and Chief Executive Officer as compared to the other named executive officers. The specific terms of each of the equity grants to our named executive officers are discussed below under “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards.” Our Board of Directors did not use any compensation consultants in making its compensation determinations and has not benchmarked any of its compensation determinations against a peer group.

Mr. Atchison generally participates in discussions and deliberations with our Board of Directors regarding the determinations of annual cash incentive awards for our executive officers. Specifically,

 

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he makes recommendations to our Board of Directors regarding the performance targets to be used under our annual bonus plan and the amounts of annual cash incentive awards. Mr. Atchison does not participate in discussions regarding his own compensation. In connection with this offering, we will establish a compensation committee that will be responsible for making all executive compensation determinations. We also intend to review, and may engage a compensation consultant to assist us in evaluating, the elements and levels of our executive compensation, including base salaries, annual cash incentive awards and annual equity-based incentives for our named executive officers.

Compensation Elements

The following is a discussion and analysis of each component of our executive compensation program.

Base Salary

Annual base salaries compensate our executive officers for fulfilling the requirements of their respective positions and provide them with a level of cash income predictability and stability with respect to a portion of their total compensation. Our Board of Directors believes that the level of an executive officer’s base salary should reflect such executive’s performance, experience and breadth of responsibilities, salaries for similar positions within our industry and any other factors relevant to that particular job. The Board of Directors utilized the experience, market knowledge and insight of its members in evaluating the competitiveness of current salary levels. Our Human Resources Department is also a resource for such information as needed.

In the sole discretion of our Board of Directors, base salaries for our executive officers may be periodically adjusted to take into account changes in job responsibilities or competitive pressures. Our Board of Directors did not make any adjustments to any of our named executive officers’ base salaries in 2012.

Bonuses

Annual Cash Incentive Compensation.    Annual cash incentive awards are available to all salaried exempt employees, including our named executive officers, under our annual bonus plan. The objectives of the bonus plan are to motivate these employees to achieve short-term performance goals and tie a portion of their cash compensation to our performance by rewarding them based on our overall performance.

Under our SeaWorld Parks & Entertainment Bonus Plan (the “2012 Bonus Plan”), each employee eligible to participate in the 2012 Bonus Plan was eligible to earn an annual cash incentive award based on our achievement of such employee’s Adjusted EBITDA target for 2012. The Adjusted EBITDA target was determined by our Board of Directors early in the year, after taking into consideration management’s recommendations and our budget for the year.

Under our 2012 Bonus Plan, Adjusted EBITDA is defined in the same way as the definition of Adjusted EBITDA that is used for covenant calculations under the indenture governing our Senior Notes and the credit agreement governing our Senior Secured Credit Facilities, which 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 under such covenants.

Each participant in the 2012 Bonus Plan had a bonus potential target, computed as a percentage of salary, based on job level. For fiscal 2012, the bonus potential target for Mr. Atchison was 100% of his 2012 base salary and the bonus potential target for each of Messrs. Heaney, Brown, Mills and Helmstedter was 75% of their respective 2012 base salaries.

 

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As detailed in the following table, actual amounts paid under the 2012 Bonus Plan were calculated by multiplying each named executive officer’s base salary by his bonus potential percentage to obtain their bonus potential target, which was then adjusted by an achievement factor based on our actual achievement against the Adjusted EBITDA target.

 

Salary

   X    Bonus

Potential
Percentage

   =    Bonus

Potential

Target

Bonus

Potential

Target

   X    Achievement
Factor
   =    Actual

Bonus Paid

The achievement factor was determined by calculating our achievement against the Adjusted EBITDA target based on the pre-established scale set forth in the following table:

 

     Adjusted EBITDA Target  
     Threshold     Target     Maximum  

Performance Percentage of Target

     95     100     105

Achievement Factor

     33     100     130

Based on the pre-established scale set forth above, no cash incentive award would have been paid unless our Adjusted EBITDA for 2012 was at or above 95% of the Adjusted EBITDA target; provided, however, that if Adjusted EBITDA performance was below 95% of target, but no less than 83.3% of target, then the Board of Directors had the ability to award a special discretionary payment up to 25% of a named executive officer’s bonus potential target. If our actual performance was 100% of target, then the named executive officers would have been paid their respective bonus potential target amounts. If performance was 105% of target, then our named executive officers would have been eligible for a maximum cash incentive award equal to 130% of their respective bonus potential target amounts. For performance percentages between the specified threshold, target and maximum levels, the resulting achievement factor would have been adjusted on a linear basis. For performance above 105% of target, additional payments could have been awarded by our Board of Directors upon a determination that an additional discretionary payment was warranted.

Notwithstanding the establishment of the performance target and the formula for determining the cash incentive award payment amounts as illustrated in the tables above, our Board of Directors had the ability to exercise negative discretion and award a lesser amount to our named executive officers under our annual 2012 Bonus Plan than the amount determined by the bonus plan formula if, in the exercise of its business judgment, our Board of Directors determined that a lesser amount was warranted under the circumstances. In addition, with respect to Messrs. Heaney, Brown, Mills and Helmstedter, if Adjusted EBITDA performance exceeded target, then a cash incentive award above target could only be paid upon an initial recommendation from Mr. Atchison to our Board of Directors and a final determination by our Board of Directors that an award above target was warranted.

 

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For fiscal 2012, our Board of Directors set an Adjusted EBITDA target of $         million and our actual Adjusted EBITDA was $         (or     % of target), which resulted in an achievement factor of     % based on the pre-established scale. The following table illustrates the calculation of the annual cash incentive awards payable to each of our named executive officers under our 2012 Bonus Plan in light of these performance results. Actual amounts awarded to each of the named executive officers are also reported under the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table under the “2012” designation.

 

     2012
Salary
     Bonus
Potential
Percentage
    Bonus
Potential
Target
     Achievement
Factor
    Actual
Bonus
Paid
 

Jim Atchison

   $ 395,000         100   $ 395,000                $                

James M. Heaney

   $ 300,000         75   $ 225,000                $     

Daniel B. Brown

   $ 297,000         75   $ 222,750                $     

Donald W. Mills, Jr.

   $ 280,008         75   $ 210,006                $     

Scott D. Helmstedter

   $ 275,000         75   $ 206,250                $     

Long-Term Incentive Compensation.

Our management employees, including our named executive officers, were granted long-term incentive awards that are designed to promote our interests by providing our management employees with the opportunity to participate in our equity, thereby incentivizing them to remain in our service. These long-term incentive awards were granted to our named executive officers in the form of Employee Units in the Partnerships. In addition, certain members of management, including Messrs. Atchison, Brown and Mills, purchased Class D Units of the Partnerships.

The Class D Units have economic characteristics that are similar to those of shares of common stock in a corporation and the Employee Units are profits interests having economic characteristics similar to stock appreciation rights.

Investment funds affiliated with Blackstone and other co-investors hold Class A Units and Class B Units of the Partnerships. In addition, ABI holds Class C Units in the Partnerships, which entitle ABI to receive, subject to certain conditions, a specified portion of distributions from the Partnerships. Under the terms of the Partnership Agreements of the Partnerships, an affiliate of Blackstone determines any voting and disposition decisions with respect to the shares of our common stock held by the Partnerships.

The Employee Units are divided into a time-vesting portion (one-third of the Employee Units granted), a 2.25x exit-vesting portion (one-third of the Employee Units granted), and a 2.75x exit-vesting portion (one-third of the Employee Units granted). Unvested Employee Units are not entitled to distributions from the Partnerships. For additional information regarding our Employee Units, see “—Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards—Employee Units.”

The Employee Units granted to our named executive officers are designed to motivate them to focus on efforts that will increase the value of our equity while enhancing their retention. The specific sizes of the equity grants made to our named executive officers were determined in light of Blackstone’s practices with respect to management equity programs at other private companies in its portfolio and the executive officer’s position and level of responsibilities with us.

Fiscal 2012 Grants.    On June 7, 2012, Mr. Heaney was granted 37,500 Employee Units and Mr. Brown was granted 10,000 Employee Units. Mr. Heaney commenced employment as our Chief Financial Officer on January 20, 2012 and his fiscal 2012 grant reflected an initial grant of Employee

 

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Units in connection with his hiring. In fiscal 2011, a portion of Mr. Brown’s initial grant of Employee Units was withheld. On June 7, 2012, Mr. Brown was granted the 10,000 Employee Units that had been withheld from his original allocation. Since the 10,000 Employee Units had been withheld from Mr. Brown’s initial fiscal 2011 grant, it was determined appropriate to compensate Mr. Brown for the taxes he incurred in connection with this grant.

Benefits and Perquisites.

We provide to all our employees, including our named executive officers, broad-based benefits that are intended to attract and retain employees while providing them with retirement and health and welfare security. Broad-based employee benefits include:

 

  Ÿ  

a 401(k) savings plan;

 

  Ÿ  

medical, dental, vision, life and accident insurance, disability coverage, dependent care and healthcare flexible spending accounts; and

 

  Ÿ  

employee assistance program benefits.

Under our 401(k) savings plan, we match a portion of the funds set aside by the employee. All matching contributions by us become vested on the two-year anniversary of the participant’s hire date. At no cost to the employee, we provide an amount of basic life and accident insurance coverage valued at two times the employee’s annual base salary. The employee may also select supplemental life and accident insurance, for a premium to be paid by the employee.

We also provide our executive officers with limited perquisites and personal benefits that are not generally available to all employees, such as executive relocation assistance and complimentary access to our theme parks. In addition, all employees with at least three weeks of vacation have the opportunity to participate in our vacation sell benefit program and sell back vacation days to us in order to offset personal health insurance premiums. We provide these limited perquisites and personal benefits in order to further our goal of attracting and retaining our executive officers. These benefits and perquisites are reflected in the All Other Compensation column of the Summary Compensation Table and the accompanying footnote in accordance with SEC rules.

Severance Arrangements

Our Board of Directors believes that a Key Employee Severance Plan (the “Severance Plan”) is necessary to attract and retain the talent necessary for our long-term success. Our Board of Directors views our Severance Plan as a recruitment and retention device that helps secure the continued employment and dedication of our named executive officers, including when we are considering strategic alternatives.

Each of our named executive officers is eligible for the Severance Plan benefits. Under the terms of the Severance Plan, each named executive officer is entitled to severance benefits if his employment is terminated for any reason other than voluntary resignation or willful misconduct. The severance payments under the Severance Plan are contingent upon the affected executive’s execution of a release and waiver of claims, which contains non-compete, non-solicitation and confidentiality provisions. See “—Potential Payments Upon Termination” for descriptions of these arrangements.

 

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Summary Compensation Table

The following table provides summary information concerning compensation paid or accrued by us to or on behalf of our named executive officers for services rendered to us during 2012.

 

Name and Principal
Position

  Year     Salary
($)(1)
    Bonus
($)(2)
  Stock
Awards
($)(2)
    Option
Awards

($)
  Non-Equity
Incentive Plan
Compensation
($)(3)
  Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings

($)(4)
  All Other
Compensation
($)(5)
  Total
($)

Jim Atchison

    2012        395,000                 

Chief Executive Officer and President and Director

                 

James M. Heaney

    2012        283,077          542,750             

Chief Financial Officer

                 

Daniel B. Brown

    2012        297,000          240,000             

Chief Operating Officer—SeaWorld & Discovery Cove

                 

Donald W. Mills, Jr.

    2012        280,008                 

Chief Operating Officer—Busch Gardens

                 

Scott D. Helmstedter

    2012        275,000                 

Chief Creative Officer

                 

 

(1) Mr. Heaney commenced employment as our Chief Financial Officer on January 20, 2012 and the amount reported in this column for Mr. Heaney reflects the portion of his annual base salary earned in fiscal 2012 from such date.
(2) Amounts included in this column reflect the aggregate grant date fair value of Employee Units in the Partnerships granted during 2012, calculated in accordance with FASB ASC Topic 718, utilizing the assumptions discussed in Note      to our consolidated financial statements for the year ended December 31, 2012.
(3) Annual cash incentive awards for the named executive officers are expected to be determined in January 2013. See “—Compensation Discussion and Analysis—Compensation Elements—Bonuses—Annual Cash Incentive Compensation.” In addition, the amount reported for Mr. Heaney in fiscal 2012 will reflect a pro-rated annual cash incentive award based on his January 20, 2012 employment commencement date.
(4) We have no pension benefits, nonqualified defined contribution or other nonqualified deferred compensation plans for executive officers.
(5) Amounts reported under All Other Compensation for fiscal 2012 include contributions to our 401(k) plan on behalf of our named executive officers as follows: Mr. Atchison $8,750; Mr. Heaney $7,437; Mr. Brown $8,750, Mr. Mills $8,750 and Mr. Helmstedter $8,750. Amounts reported also include life and long-term disability insurance premiums paid by us on behalf of our named executive officers as follows: Mr. Atchison $1,435; Mr. Heaney $1,041; Mr. Brown $1,131, Mr. Mills $1,076 and Mr. Helmstedter $1,052. Amounts reported for Messrs. Atchison, Brown and Mills also include the dollar value of vacation days sold to pay for personal health insurance premiums under our vacation sell benefit program as follows: Mr. Atchison $7,596; Mr. Brown $11,423 and Mr. Mills $8,616. Amount reported for Mr. Brown also includes a tax gross-up of $309,725 with respect to the taxable income on his June 7, 2012 Employee Unit grant. See “Compensation Discussion and Analysis—Long-Term Incentive Compensation—Fiscal 2012 Grants.” In addition, the named executive officers (and their spouses) each receive a Corporate Executive Card that entitles them and an unlimited number of guests to complimentary access to our theme parks. There is no incremental cost to us associated with the use of the Corporate Executive Card.

 

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Grants of Plan-Based Awards in 2012

The following table provides supplemental information relating to grants of plan-based awards made to our named executive officers during 2012.

 

Name

  Grant
Date
    Estimated Possible
Payouts
Under Non-Equity
Incentive
Plan Awards(1)
    Estimated Future
Payouts
Under Equity Incentive
Plan Awards
  All  Other
Stock
Awards:

Number
of Shares
of Stock
or Units
(#)(2)
    Grant
Date Fair
Value of
Stock and
Option
Awards

($)(3)
 
    Threshold
($)
    Target
($)
    Maximum
($)
    Threshold
(#)
  Target
(#)(2)
    Maximum
(#)
   

Jim Atchison

      130,350        395,000        513,500             

James M. Heaney

    6/7/2012        74,250        225,000        292,500             
              25,000          12,500        542,750   

Daniel B. Brown

    6/7/2012        73,508        222,750        289,575             
              6,667          3,333        240,000   

Donald W. Mills, Jr.

      69,302        210,006        273,007             

Scott D. Helmstedter

      68,063        206,250        268,125             

 

(1) Reflects possible payouts under our 2012 Bonus Plan. See “—Compensation Discussion and Analysis—Compensation Elements—Bonuses—Annual Cash Incentive Compensation” for a discussion of threshold, target and maximum cash incentive compensation payouts. The actual amounts of cash incentive compensation paid to our named executive officers under our 2012 Bonus Plan are disclosed in the Summary Compensation Table under the Non-Equity Incentive Plan Compensation column.
(2) As described in more detail in the “—Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards-Terms of Equity Award Grants” section that follows, amounts reported reflect grants of Employee Units that are divided into three tranches for vesting purposes; one third are time-vesting and two-thirds are exit-vesting (of which one-third are 2.25x exit-vesting and one-third are 2.75x exit-vesting). The exit-vesting units are reported as an equity incentive plan award in the “Estimated Future Payouts Under Equity Incentive Plan Awards” column, while the time-vesting tranche of the awards are reported as an all other stock award in the “All Other Stock Awards: Number of Shares of Stock or Units” column.
(3) Represents the grant date fair value of the 37,500 Employee Units granted to Mr. Heaney and the 10,000 Employee Units granted to Mr. Brown, calculated in accordance with FASB ASC Topic 718 and utilizing the assumptions discussed in Note      to our consolidated financial statements for the year ended December 31, 2012.

 

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Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards

Terms of Equity Award Grants

Employee Units

As a condition to receiving his Employee Units, each named executive officer was required to enter into a subscription agreement with us and the Partnerships and to become a party to the partnership agreements of each of the Partnerships as well as an equity holders agreement. These agreements generally govern the named executive officer’s rights with respect to the Employee Units.

Vesting Terms

Only vested Employee Units are entitled to distributions from the Partnerships. The Employee Units are divided into a time-vesting portion (1/3 of the Employee Units granted), a 2.25x exit-vesting portion (1/3 of the Employee Units granted), and a 2.75x exit-vesting portion (1/3 of the Employee Units granted).

 

  Ÿ  

Time-Vesting Units: 12 months after the initial “vesting reference date,” as defined in the applicable subscription agreement, 20% of the named executive officer’s time-vesting Employee Units will vest, subject to his continued employment through such date. Thereafter, an additional 20% of the named executive officer’s time-vesting Employee Units will vest every year until he is fully vested, subject to his continued employment through each vesting date. Notwithstanding the foregoing, the time-vesting Employee Units will become fully vested on an accelerated basis upon a change of control (as defined in the equity holders agreement) that occurs while the named executive officer is still employed by us.

 

  Ÿ  

2.25x Exit-Vesting Units: The 2.25x exit-vesting Employee Units vest if the named executive officer is employed by us when and if Blackstone receives cash proceeds in respect of its Partnership units equal to (x) a 20% annualized effective compounded return rate on its investment and (y) a 2.25x multiple on its investment.

 

  Ÿ  

2.75x Exit-Vesting Units: The 2.75x exit-vesting Employee Units vest if the named executive officer is employed by us when and if Blackstone receives cash proceeds in respect of its Partnership units equal to (x) a 15% annualized effective compounded return rate on its investment and (y) a 2.75x multiple on its investment.

Employee Units will vest across all Partnerships pro rata with the named executive officer’s aggregate holdings in each Partnership, maintaining a constant ratio of Employee Units held in each Partnership throughout the period in which a named executive officer holds Employee Units, subject to the right of the Partnerships to adjust the number of a named executive officer’s Employee Units in a particular Partnership from time to time (which will not affect any vesting thereof).

Any Employee Units that have not vested as of the date of termination of a named executive officer’s employment will be immediately forfeited.

 

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Outstanding Equity Awards at 2012 Fiscal-Year End

The following table provides information regarding outstanding equity awards made to our named executive officers as of December 31, 2012. The equity awards held by the named executive officers are Employee Units, which represent an equity interest in the Partnerships.

 

     Stock Awards

Name

   Grant Date      Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)(1)
     Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(3)
   Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)(2)
     Equity
Incentive
Plan Awards:
Market or
Payout Value of
Unearned
Shares,  Units
or Other
Rights That
Have Not
Vested

($)

Jim Atchison

     5/6/2011         15,000            75,000      

James M. Heaney

     6/7/2012         12,500            25,000      

Daniel B. Brown

     5/6/2011         3,667            18,333      
     6/7/2012         3,333            6,667      

Donald W. Mills, Jr.

     5/6/2011         5,000            25,000      

Scott D. Helmstedter

     5/6/2011         6,000            15,000      

 

(1) Reflects time-vesting Employee Units that have not vested. The following provides information with respect to the vesting schedule of the time-vesting Employee Units that have not vested as of December 31, 2012:

 

  Ÿ  

Mr. Atchison—these units vest 20% a year over five years on each anniversary of the December 1, 2009 vesting reference date.

 

  Ÿ  

Mr. Heaney—these units vest 20% a year over five years on each anniversary of the April 1, 2012 vesting reference date.

 

  Ÿ  

Mr. Brown—the units granted to Mr. Brown on May 6, 2011 vest 20% a year over five years on each anniversary of the December 1, 2009 vesting reference date. The units granted to Mr. Brown on June 7, 2012 vest 20% a year over five years on each anniversary of the January 1, 2012 vesting reference date.

 

  Ÿ  

Mr. Mills—these units vest 20% a year over five years on each anniversary of the December 1, 2009 vesting reference date.

 

  Ÿ  

Mr. Helmstedter—these units vest 20% a year over five years on each anniversary of the April 1, 2011 vesting reference date.

Vesting of the time-vesting Employee Units will be accelerated upon a change of control that occurs while the executive is still employed by us, as described under “—Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards-Terms of Equity Award Grants.”

 

(2) Reflects exit-vesting Employee Units (of which one-half are 2.25x exit-vesting and one-half are 2.75x exit-vesting). Unvested exit-vesting Employee Units vest as described under the “—Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards-Terms of Equity Award Grants” section above.
(3) Based on a value of $         per time-vesting Employee Unit as of December 31, 2012.

 

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Option Exercises and Stock Vested in 2012

The following table provides information regarding the number of Employee Units held by our named executive officers that vested during 2012.

 

     Stock Awards  

Name

   Number of Shares
Acquired on
Vesting (#)
     Value
Realized on
Vesting

($)(1)
 

Jim Atchison

     7,500      

James M. Heaney

     —             

Daniel B. Brown

     1,833      

Donald W. Mills, Jr.

     2,500      

Scott D. Helmstedter

     1,500      

 

(1) Based on a value of $         per Employee Unit on the applicable vesting dates.

Pension Benefits

We have no pension benefits for the executive officers.

Nonqualified Deferred Compensation for 2012

We have no nonqualified defined contribution or other nonqualified deferred compensation plans for executive officers.

 

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Potential Payments Upon Termination

The following table describes the potential payments and benefits that would have been payable to our named executive officers under existing plans assuming a termination of their employment for reasons other than willful misconduct or a voluntary resignation on December 31, 2012.

The amounts shown in the table do not include payments and benefits to the extent they are provided generally to all salaried employees upon termination of employment and do not discriminate in scope, terms or operation in favor of the named executive officers. These include accrued but unpaid salary and distributions of plan balances under our 401(k) savings plan. Furthermore, the amounts shown in the table do not include amounts that may be payable to a named executive officer upon the sale or purchase of his vested equity units pursuant to the exercise of the put or call rights described under “—Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards—Terms of Equity Award Grants.”

 

Name

   Cash
Severance
Payment
($)(1)
    Continuation
of Group
Health Plans
($)(2)
    Accrued but
Unused
Vacation
($)(3)
    Executive
Outplacement
Services
($)(4)
    Value of
Employee Unit
Acceleration
($)(5)
  Total
($)

Jim Atchison

            

Termination under the Severance Plan

     1,185,000        71,540          10,000       

Change of Control

     —          —          —          —         

James M. Heaney

            

Termination under the Severance Plan

     675,000        19,777          10,000       

Change of Control

     —          —          —          —         

Daniel B. Brown

            

Termination under the Severance Plan

     519,750        19,777          10,000       

Change of Control

     —          —          —          —         

Donald W. Mills, Jr.

            

Termination under the Severance Plan

     490,014        24,199          10,000       

Change of Control

     —          —          —          —         

Scott D. Helmstedter

            

Termination under the Severance Plan

     618,750        11,532          10,000       

Change of Control

     —          —          —          —         

 

(1) Cash severance payment includes the following:

 

  Ÿ  

Mr. Atchison—two times the sum of his annual base salary ($395,000) plus his targeted bonus under the 2012 Bonus Plan ($395,000);

 

  Ÿ  

Mr. Heaney—eighteen months base salary ($450,000) plus his targeted bonus under the 2012 Bonus Plan ($225,000);

 

  Ÿ  

Mr. Brown—twelve months base salary ($297,000) plus his targeted bonus under the 2012 Bonus Plan ($222,750);

 

  Ÿ  

Mr. Mills—twelve months base salary ($280,008) plus his targeted bonus under the 2012 Bonus Plan ($210,006); and

 

  Ÿ  

Mr. Helmstedter—eighteen months base salary ($412,500) plus his targeted bonus under the 2012 Bonus Plan ($206,250).

 

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(2) Reflects the cost of providing the executive officer with continued health, dental, vision, prescription drug and mental health coverage as enrolled at the time of his termination for a period of twenty-four months for Mr. Atchison and for a period of twelve months for Messrs. Heaney, Brown, Mills and Helmstedter, in each case, assuming 2013 rates.
(3) Amounts shown represent the following number of accrued but unused vacation days: Mr. Atchison,          days; Mr. Heaney,          days; Mr. Brown,          days; Mr. Mills,          days; and Mr. Helmstedter,          days
(4) Amounts shown assume that executive outplacement services are provided to each of the named executive officers for a period of nine months.
(5) Upon a change of control, our named executive officers’ unvested time-vesting Employee Units would become immediately vested. The amounts reported are based on the Employee Units having a value of $             on December 31, 2012.

Severance Arrangements and Restrictive Covenants

We have adopted the Severance Plan for the benefit of certain key employees. Each of the named executive officers is a member of our Strategy Committee and is eligible for severance pay and benefits under the Severance Plan. All severance pay and benefits must be approved by the Chief Administrative Officer and our Chairman of the Board of Directors.

Mr. Atchison

If Mr. Atchison’s employment terminates as a result of (1) job elimination resulting from a business reorganization, reduction in force, facility closure, business consolidation; (2) job elimination resulting from a sale or merger; (3) lack of an available position following a return from a certified medical leave of absence or work related injury or illness; or (4) unsatisfactory job performance, Mr. Atchison will be entitled to receive:

 

  Ÿ  

a lump sum payment equal to two times his annual base pay at the time of termination;

 

  Ÿ  

any remaining accrued but unused vacation;

 

  Ÿ  

the targeted bonus for the plan year in which he is terminated;

 

  Ÿ  

continued health, dental, vision, prescription drug and mental health coverage as enrolled at the time of his termination for a period of twenty four months; and

 

  Ÿ  

executive outplacement services (as determined by us), which services must be engaged within thirty days of the termination of employment.

Messrs. Heaney and Helmstedter

If the employment of Messrs. Heaney and Helmstedter terminates as a result of (1) job elimination resulting from a business reorganization, reduction in force, facility closure, business consolidation; (2) job elimination resulting from a sale or merger; (3) lack of an available position following a return from a certified medical leave of absence or work related injury or illness; or (4) unsatisfactory job performance, Messrs. Heaney and Helmstedter will be entitled to receive:

 

  Ÿ  

a lump sum payment equal to eighteen months of his annual base pay at the time of termination;

 

  Ÿ  

any remaining accrued but unused vacation;

 

  Ÿ  

the targeted bonus for the plan year in which he is terminated;

 

  Ÿ  

continued health, dental, vision, prescription drug and mental health coverage as enrolled at the time of his termination for a period of twelve months; and

executive outplacement services (as determined by us), which services must be engaged within thirty days of the termination of employment.

 

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Messrs. Brown and Mills

If the employment of Messrs. Brown and Mills terminates as a result of (1) job elimination resulting from a business reorganization, reduction in force, facility closure, business consolidation; (2) job elimination resulting from a sale or merger; (3) lack of an available position following a return from a certified medical leave of absence or work related injury or illness; or (4) unsatisfactory job performance, Messrs. Brown and Mills will be entitled to receive:

 

  Ÿ  

a lump sum payment equal to twelve months of his annual base pay at the time of termination;

 

  Ÿ  

any remaining accrued but unused vacation;

 

  Ÿ  

the targeted bonus for the plan year in which he is terminated;

 

  Ÿ  

continued health, dental, vision, prescription drug and mental health coverage as enrolled at the time of his termination for a period of twelve months; and

 

  Ÿ  

executive outplacement services (as determined by us), which services must be engaged within thirty days of the termination of employment.

In order to be eligible for the Severance Plan benefits, the employee must sign and return a release and waiver of claims that will include but is not limited to (1) a one-year non-compete covenant; (2) a two-year non-solicitation covenant; (3) a non-disparagement covenant; (4) an agreement to cooperate in any current or future legal matters relating to activities or matters occurring the employees term of employment; and (5) the release of any and all claims that the employee may have in connection with their employment with us or with the termination of employment.

No benefits are payable under the Severance Plan if (1) the eligible employee fails or refuses to return the release and waiver of claims; (2) the eligible employee voluntarily terminates their employment for “any” reason; or (3) the eligible employee engages in willful misconduct as determined at the discretion of the Chief Administrative Officer and our Chairman of the Board of Directors.

Director Compensation

The following table summarizes all compensation for our non-employee directors (other than Sponsor-affiliated directors) for fiscal year 2012. The employee directors and Sponsor-affiliated directors receive no additional compensation for serving on the Board of Directors or the Audit Committee and, as a result, are not listed in the table below. The compensation paid to Mr. Atchison, our President and Chief Executive Officer, is presented in the Summary Compensation Table and the related explanatory tables.

 

Name

  Fees Earned
or Paid in
Cash

($)
    Stock
Awards

($)(1)
    Option
Awards
($)
    Non-Equity
Incentive Plan
Compensation
($)
    Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
    All Other
Compensation
($)
    Total
($)
 

David F. D’Alessandro

    200,000        —          —          —          —          —          200,000   

Joseph P. Baratta

    —          —          —          —          —          —          —     

Bruce McEvoy

    —          —          —          —          —          —          —     

Peter F. Wallace

    —          —          —          —          —          —          —     

 

(1) As of December 31, 2012, Mr. D’Alessandro held 6,562 unvested time-vesting Employee Units and 35,000 unvested Employee Units subject to both time-vesting and exit-vesting criteria.

 

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Description of Director Compensation

This section contains a description of the material terms of our compensation arrangements for Mr. D’Alessandro. As noted above, Messrs. Baratta, McEvoy and Wallace are employees of Blackstone and do not receive any compensation from us for their services on our Board of Directors. All of our directors, including Messrs. Baratta, McEvoy and Wallace, are reimbursed for the out-of-pocket expenses they incur in connection with their service as directors. Following the completion of this offering, we intend to continue to pay a cash retainer to our independent directors for serving as directors and an additional cash payment for serving as a committee chair, and we expect to grant equity-based awards to our independent directors under the 2013 Omnibus Incentive Plan (as defined herein).

Mr. D’Alessandro.    Mr. D’Alessandro, who serves as Chairman of the Board of Directors, receives an annual cash retainer of $200,000 a year. In addition, Mr. D’Alessandro was provided the opportunity to invest in Class D Units of the Partnerships and, in fiscal 2010, he was granted 52,500 Employee Units as part of his compensation. Similar to the Employee Units granted to our named executive officers, Mr. D’Alessandro’s Employee Units are divided into a time-vesting portion (one-third of the Employee Units granted), a 2.25x exit-vesting portion (one-third of the Employee Units granted), and a 2.75x exit-vesting portion (one-third of the Employee Units granted). The vesting terms of Mr. D’Alessandro’s Employee Units are set forth below.

Vesting Terms

 

  Ÿ  

Time-Vesting Units: 25% of the time-vesting Employee Units vested on Mr. D’Alessandro’s September 7, 2010 start date and the remaining 75% vest in equal annual installments on each of the first four anniversaries of his September 7, 2010 start date. Notwithstanding the foregoing, the time-vesting Employee Units will become fully vested on an accelerated basis upon a change of control (as defined in the equity holders agreement) that occurs while Mr. D’Alessandro is still serving as our Chairman of the Board of Directors.

 

  Ÿ  

2.25x Exit-Vesting Units: The 2.25x Employee Units vest based on a double trigger that includes both time-vesting and exit-vesting criteria. The time-vesting criteria are the same as the portion of his award that is solely time-vesting described above. 25% of the 2.25x Employee Units satisfied the time-vesting criteria on Mr. D’Alessandro’s September 7, 2010 start date and the remaining 75% will satisfy the time-vesting criteria in equal annual installments on each of the first four anniversaries of his September 7, 2010 start date. The exit-vesting criteria will be satisfied when and if Blackstone receives cash proceeds in respect of its Partnership units equal to (x) a 20% annualized effective compounded return rate on its investment and (y) a 2.25x multiple on its investment. Upon Mr. D’Alessandro’s departure as Chairman of the Board of Directors, all 2.25x Employee Units which have satisfied the time-vesting criteria, will remain outstanding subject to achievement of the exit-vesting criteria.

 

  Ÿ  

2.75x Exit-Vesting Units: The 2.75x Employee Units vest based on a double trigger that includes both time-vesting and exit-vesting criteria. The time-vesting criteria are the same as the portion of his award that is solely time-vesting described above. 25% of the 2.25x Employee Units satisfied the time-vesting criteria on Mr. D’Alessandro’s September 7, 2010 start date and the remaining 75% will satisfy the time-vesting criteria in equal annual installments on each of the first four anniversaries of his September 7, 2010 start date. The exit-vesting criteria will be satisfied when and if Blackstone receives cash proceeds in respect of its Partnership units equal to (x) a 15% annualized effective compounded return rate on its investment and (y) a 2.75x multiple on its investment. Upon Mr. D’Alessandro’s departure as Chairman of the Board of Directors, all 2.75x Employee Units which have satisfied the time-vesting criteria, will remain outstanding subject to achievement of the exit-vesting criteria.

 

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Forfeiture Provisions

Any Employee Units that have not vested upon Mr. D’Alessandro’s departure as Chairman of the Board of Directors will be immediately forfeited. If Mr. D’Alessandro is terminated by us for cause (or he voluntarily resigns when grounds exist for cause) or in the event he breaches any of the restrictive covenants set forth in the subscription agreement, all of his Employee Units (whether vested or unvested) will be forfeited.

Compensation Arrangements to be Adopted in Connection with This Offering

In connection with this offering, our Board of Directors expects to adopt, and our stockholders expect to approve the 2013 Omnibus Incentive Plan prior to the completion of the offering.

 

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PRINCIPAL AND SELLING STOCKHOLDERS

The following table and accompanying footnotes set forth information with respect to the beneficial ownership of our common stock, as of September 30, 2012, for:

 

  Ÿ  

each person known by us to own beneficially more than 5% of our outstanding shares of common stock;

 

  Ÿ  

each of our directors;

 

  Ÿ  

each of our named executive officers;

 

  Ÿ  

all of our directors and executive officers as a group; and

 

  Ÿ  

each selling stockholder.

For further information regarding material transactions between us and the selling stockholders, see “Certain Relationships and Related Party Transactions.”

The number of shares and percentages of beneficial ownership prior to this offering set forth below are based on the number of shares of our common stock to be issued and outstanding immediately prior to the consummation of this offering. The number of shares and percentages of beneficial ownership after this offering set forth below are based on the number of shares of our common stock to be issued and outstanding immediately after the consummation of this offering.

Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. A person is a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of the security, or “investment power,” which includes the power to dispose of or to direct the disposition of the security or has the right to acquire such powers within 60 days.

To our knowledge, unless otherwise noted in the footnotes to the following table, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to their beneficially owned common stock.

Except as otherwise indicated in the footnotes below, the address of each beneficial owner is c/o SeaWorld Entertainment, Inc., 9205 South Park Center Loop, Suite 400, Orlando, Florida 32819.

 

    Common  Stock
Beneficially
Owned

Prior to this
Offering
    Shares of
Common
Stock
Offered
  Common Stock Beneficially Owned After this
Offering
        Assuming the
Underwriters’
Option is not
Exercised
  Assuming the Underwriters’
Option is Exercised
in Full

Name of Beneficial Owner

  Number   %(3)       Number   %   Number   %

Principal and selling stockholders:

             

The Partnerships(1)(2)

      100          

Directors and Named Executive Officers:

             

David F. D’Alessandro

      —               

Jim Atchison

      —               

Joseph P. Baratta(4)

      —               

Bruce McEvoy(4)

      —               

Peter Wallace(4)

      —               

James M. Heaney

      —               

Dan Brown

      —               

Donald Mills

      —               

Scott Helmstedter

      —               

All directors and executive officers as a group (9 persons)(3)

      —               

 

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(1) As of September 30, 2012, the Partnerships owned 100% of our outstanding common stock and no other person or entity had a direct beneficial ownership interest in our common stock as of such date until the expiration of the lock-up period related to such common stock.
(2) Reflects shares of our common stock held by the Partnerships as follows: 8,056,541.01 shares of our common stock held by SW Cayman L.P. (“SWC”), 251,474.43 shares of our common stock held by SW Cayman A L.P. (“SWCA”), 282,826.98 shares of our common stock held by SW Cayman B L.P. (“SWCB”), 258,035.64 shares of our common stock held by SW Cayman C L.P. (“SWCC”), 92,701.14 shares of our common stock held by SW Delaware D L.P. (“SWDD”), 290,513.04 shares of our common stock held by SW Cayman E L.P. (“SWCE”), 227,044.97 shares of our common stock held by SW Cayman F L.P. (“SWCF”), 345,800.96 shares of our common stock held by SW Cayman Co-Invest L.P. (“SWCCI”), 378,995.51 shares of our common stock held by SW Cayman (GS) L.P. (“SWCGS”) and 126,331.84 shares of our common stock held by SW Cayman (GSO) L.P. Members of the Investor Group own various classes of interests in the Partnerships as described under “Certain Relationships and Related Party Transactions—Limited Partnership Agreements.” Investors in SCWGS include certain affiliates of Goldman, Sachs & Co. The general partner of each of the Partnerships is SW Cayman Limited. SW Cayman Limited is wholly owned by Blackstone Capital Partners (Cayman III) V L.P. The general partner of Blackstone Capital Partners (Cayman III) V L.P. is Blackstone Management Associates (Cayman) V L.P. The general partner of Blackstone Management Associates (Cayman) V L.P. is BCP V GP L.L.C. The sole member of BCP V GP L.L.C. is Blackstone Holdings III L.P. The general partner of Blackstone Holdings III L.P. is Blackstone Holdings III GP L.P. The general partner of Blackstone Holdings III GP L.P. is Blackstone Holdings III GP Management L.L.C. The sole member of Blackstone Holdings III GP Management L.L.C. is The Blackstone Group L.P. The general partner of The Blackstone Group L.P. is Blackstone Group Management L.L.C. Blackstone Group Management L.L.C. is wholly owned by Blackstone’s senior managing directors and controlled by its founder, Stephen A. Schwarzman. Each of such Blackstone entities (other than the Partnerships to the extent of their direct holdings) and Mr. Schwarzman may be deemed to beneficially own the shares beneficially owned by the Partnerships directly or indirectly controlled by it or him, but each disclaims beneficial ownership of such shares. The address of each of Mr. Schwarzman and each of the other entities listed in this footnote is c/o The Blackstone Group L.P., 345 Park Avenue, New York, New York 10154.
(3) As of September 30, 2012, the Partnerships owned 100% of our outstanding common stock. Certain of our directors and officers own 29,240 Class D Units and 673,760 Employee Units in the Partnerships, as described under “Management—Compensation Discussion and Analysis,” and will receive a portion of the net proceeds to the selling stockholders as a result of their ownership of the Class D Units. Under the terms of the partnership agreements of the Partnerships, an affiliate of Blackstone determines any voting and disposition decisions with respect to the shares of our common stock held by the Partnerships.
(4) Messrs. Baratta, McEvoy, and Wallace are each employees of Blackstone, but each disclaims beneficial ownership of the shares beneficially owned by the Partnerships. The address for Messrs. Baratta, McEvoy and Wallace is c/o The Blackstone Group L.P., 345 Park Avenue, New York, New York 10154.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Stockholders Agreement

In connection with this offering, we expect to enter into a stockholders agreement with Blackstone. This agreement will grant Blackstone the right to nominate to our Board of Directors a number of designees equal to: (i) at least a majority of the total number of directors comprising our Board of Directors as long as Blackstone beneficially owns at least 50% of the shares of our common stock entitled to vote generally in the election of our directors; (ii) at least 40% of the total number of directors comprising our Board of Directors at such time as long as Blackstone beneficially owns at least 40% but less than 50% of the shares of our common stock entitled to vote generally in the election of our directors; (iii) at least 30% of the total number of directors comprising our Board of Directors at such time as long as Blackstone beneficially owns at least 30% but less than 40% of the shares of our common stock entitled to vote generally in the election of our directors; (iv) at least 20% of the total number of directors comprising our Board of Directors at such time as long as Blackstone beneficially owns at least 20% but less 30% of the shares of our common stock entitled to vote generally in the election of our directors; and (v) at least 10% of the total number of directors comprising our Board of Directors at such time as long as Blackstone beneficially owns at least 5% but less than 20% of the shares of our common stock entitled to vote generally in the election of our directors. For purposes of calculating the number of directors that Blackstone is entitled to nominate pursuant to the formula outlined above, any fractional amounts would be rounded up to the nearest whole number (e.g., one and one quarter directors shall equate to two directors) and the calculation would be made after taking into account any increase in the size of our Board of Directors.

Furthermore, under the stockholders agreement, so long as the Blackstone owns at least 25% of our outstanding common stock, approval by Blackstone is required for us to take certain actions, including certain mergers, consolidations, recapitalizations, asset sales, dissolutions and entering into a business that is materially different from our existing business.

Limited Partnership Agreements and Equityholders Agreement

Investment funds affiliated with Blackstone and other co-investors hold Class A Units and Class B Units of the Partnerships. In addition, ABI holds Class C Units in the Partnerships, which entitle ABI to receive, subject to certain conditions, a specified portion of distributions from the Partnerships.

As of September 30, 2012, Blackstone owned 8,000,000 Class A Units in the Partnerships consisting of 6,870,315.17 Class A Units in SWC, 248,783.61 Class A Units in SWCA, 279,799.84 Class A Units in SWCB, Blackstone owned 255,273.63 Class A Units in SWCC, 91,709.15 Class A Units in SWDD, 287,403.79 Class A Units in SWCE, 224,615.11 Class A Units in SWCF and 342,099.70 Class A Units in SWCCI. Other members of the Investor Group, including certain of our directors and officers, affiliates of Goldman, Sachs & Co. and other investors, own the remaining limited partnership units in the Partnerships, consisting of 101,000 Class B Units, ten Class C Units, 29,240.02 Class D Units and 673,760 Employee Units.

Pursuant to the limited partnership agreements of each of the Partnerships (referred to herein as the “Partnership Agreements”), Blackstone, through its affiliate SW Cayman Limited, the general partner of the Partnerships, has the right to determine when dispositions of shares of our common stock held by the Partnerships will be made and, subject to certain exceptions, when distributions will be made to the limited partners of the Partnerships and the amount of any such distributions. If SW Cayman Limited authorizes a distribution, such distribution will be made to the partners of the Partnerships (1) in the case of a tax distribution (as described below), to the holders of limited partnerships units in proportion to the amount of taxable income of the Partnerships allocated to such

 

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holders and (2) in the case of other distributions, pro rata in accordance with the percentages of their respective partnership interests, subject to vesting requirements of certain Employee Units held by members of our management. ABI holds Class C Units in the Partnerships, which entitle ABI to receive, subject to certain conditions, a specified portion of distributions from the Partnerships.

The Partnership Agreements provide that SW Cayman Limited, as the general partner, will be entitled in its sole discretion and without the approval of the other partners to perform or cause to be performed all management and operational functions relating to the Partnerships and shall have the sole power to bind the Partnerships. The limited partners may not participate in the management or control of the Partnerships.

The Partnership Agreements provide that, subject to certain exceptions, the general partner will not withdraw from the Partnerships, resign as a general partner, or transfer its general partnership interests, and limited partners will not transfer their limited partnership interests.

The Partnership Agreements contain a covenant limiting the Partnerships’ ability to enter into transactions with their affiliates, which is similar to the affiliate transactions covenant contained in the indenture governing the Senior Notes.

The Partnership Agreements provide that each of the Partnerships will be dissolved upon the earliest of (i) the determination of the general partner to dissolve the Partnerships, (ii) such date when there are no limited partners, (iii) at such times as all of the assets of the Partnership have been converted into cash and cash equivalents, (iv) the entry of a decree of judicial dissolution of the Partnership or (v) the dissolution, resignation, expulsion or bankruptcy of the general partner.

In connection with the 2009 Transactions, we entered into an equityholders agreement with the Partnerships and certain equity holders of the Partnerships. Pursuant to the agreement, in the event that we propose to redeem or repurchase any of our equity interests held by the Partnerships, we are required to offer each Partnership the right to participate in such redemption or repurchase on a pro rata basis. The agreement also requires us to issue a corresponding number of common equity interests to the Partnerships in connection with vesting of Employee Units.

Registration Rights Agreement

In connection with the 2009 Transactions, we entered into a registration rights agreement with the Partnerships and certain equity holders of the Partnerships. This agreement provides to the Partnerships an unlimited number of “demand” registrations and customary “piggyback” registration rights. The registration rights agreement also provide that we will pay certain expenses of the Partnerships and certain of its equity holders relating to such registrations and indemnify them against certain liabilities which may arise under the Securities Act of 1933, as amended.

Advisory Agreement and Support and Services Agreement

In connection with the 2009 Transactions, SWPEI, SeaWorld Parks & Entertainment LLC and Sea World LLC entered into the 2009 Advisory Agreement with Blackstone Management Partners L.L.C. (“BMP”) pursuant to which Blackstone or its affiliates provided certain strategic and structuring advice and assistance to us. In connection with this offering, the parties intend to terminate the 2009 Advisory Agreement, and in connection with such termination we will pay BMP total fees of approximately $         million.

The termination fee will be calculated by determining the present value (using a discount rate equal to the yield to maturity on the business day immediately preceding the date on which such

 

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termination fee is payable of the class of outstanding U.S. government bonds having a final maturity closest to the tenth anniversary of the date of 2009 Advisory Agreement) of all then-current and future monitoring fees payable under the agreement (assuming that the agreement terminated on its tenth anniversary).

Following termination of the 2009 Advisory Agreement and in connection with this offering, we expect to enter into a new Support and Services Agreement (the “Support and Services Agreement”) with BMP. Under the Support and Services Agreement, we will until the first to occur of (i) the tenth anniversary of the closing date of this offering and (ii) the date upon which the Partnerships or affiliates of Blackstone owns less than         % of our common stock and such stock has a fair market value (as determined by Blackstone) of less than $             million (each of the events specified in clauses (i) through (ii) above, the “Exit Date”) (or an earlier date determined by BMP), engage BMP to arrange for Blackstone’s portfolio operations group to provide support services customarily provided by Blackstone’s portfolio operations group to Blackstone’s private equity portfolio companies of a type and amount determined with reference to the actual services provided. In addition, BMP will make available to us the opportunity to participate in Blackstone’s group purchasing arrangements and, for a customary fee, the benefits of Blackstone’s equity health care program for participating portfolio companies.

Debt and Interest Payments

As of September 30, 2012, approximately $100.0 million of the Senior Notes and approximately $120.0 million of aggregate principal amount of Tranche B Term Loans under our Senior Secured Credit Facilities were owned by affiliates of Blackstone. We make periodic interest payments on such debt in accordance with its terms. See “Description of Indebtedness—Senior Notes.”

Repurchase of Securities

As market conditions warrant, we and our major stockholders, including Blackstone and its affiliates, may from time to time, depending upon market conditions, seek to repurchase our debt securities or loans in privately negotiated or open market transactions, by tender offer or otherwise.

Equity Investment by Directors and Executive Officers

Our management employees, including our named executive officers, received long-term incentive awards that are designed to promote our interests by providing our management employees with the opportunity to acquire an equity interest in the Partnerships as an incentive for the person to remain in our service. In fiscal 2011 and fiscal 2012, our named executive officers received grants of such awards in the form of Employee Units in the Partnerships. In addition, certain directors and members of management, including Messrs. Atchison, Brown and Mills, purchased Class D Units of the Partnerships.

Equity Healthcare Program Agreement

Effective as of January 1, 2012, we entered into an employer health program agreement with Equity Healthcare LLC (“Equity Healthcare”), an affiliate of Blackstone, pursuant to which Equity Healthcare provides to us certain negotiating, monitoring and other services in connection with our health benefit plans. Because of the combined purchasing power of its client participants, Equity Healthcare is able to negotiate pricing terms for providers that are believed to be more favorable than the companies could obtain for themselves on an individual basis.

In consideration for Equity Healthcare’s services, we will pay Equity Healthcare a fee of $2.50 per participating employee per month for benefit plans beginning on or after January 1, 2012, $2.60 per

 

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participating employee per month for plans beginning on or after January 1, 2013, and $2.70 per participating employee per month for plans beginning on or after January 1, 2014. As of December 31, 2011, we had approximately 8,400 employees enrolled in Equity Healthcare health benefit plans.

Equity Healthcare is an affiliate of Blackstone, with whom Messrs. Baratta, McEvoy and Wallace, members of our Board of Directors, are affiliated.

Core Trust Purchasing Group Participation Agreement

Effective May 1, 2010, we entered into a five year participation agreement with Core Trust Purchasing Group (“CPG”), which designates CPG as our exclusive “group purchasing organization” for the purchase of certain products and services from third party vendors. CPG secures from vendors pricing terms for goods and services that are believed to be more favorable than participants in the group purchasing organization could obtain for themselves on an individual basis. Under the participation agreement, we must purchase 80% of the requirements of our participating locations for core categories of specified products and services, from vendors participating in the group purchasing arrangement with CPG or CPG may terminate the contract.

We do not pay any fees to participate in this group arrangement, and we can terminate participation in any category of products and services at any time prior to the expiration of the agreement without penalty with a reasonable business justification, including if pricing under the agreement becomes uncompetitive or uneconomical, customer service is not satisfactory and participation negatively impacts our corporate governance or compliance policies.

In connection with purchases by its participants (including us), CPG receives a commission from the vendors in respect of such purchases. Additionally, Blackstone entered into an agreement with CPG whereby Blackstone receives a portion of the gross fees vendors pay to CPG based on the volume of purchases made between us and other participants. Amounts paid for purchases through CPG were approximately $19.4 million and $29.0 million for the six months ended June 30, 2012 and the fiscal year ended December 31, 2011, respectively.

Other

Mr. Thomas J. Valley, the Director Domestic Sales of a subsidiary of the Company, is the brother-in-law of our Chief Executive Officer and President. Mr. Valley’s total compensation for fiscal 2012 was $            .

From time to time, we do business with a number of other companies affiliated with Blackstone. We believe that all such arrangements have been entered into in the ordinary course of business and have been conducted on an arms-length basis.

Related Persons Transaction Policy

Our Board of Directors recognizes the fact that transactions with related persons present a heightened risk of conflicts of interests and/or improper valuation (or the perception thereof). Prior to the completion of this offering, our Board of Directors will adopt a written policy on transactions with related persons that is in conformity with the requirements upon issuers having publicly-held common stock that is listed on                     . Under the new policy:

 

  Ÿ  

any related person transaction, and any material amendment or modification to a related person transaction, must be reviewed and approved or ratified by a committee of the Board of Directors composed solely of independent directors who are disinterested or by the disinterested members of the Board of Directors; and

 

 

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  Ÿ  

any employment relationship or transaction involving an executive officer and any related compensation must be approved by the compensation committee of the Board of Directors or recommended by the compensation committee to the Board of Directors for its approval.

In connection with the review and approval or ratification of a related person transaction:

 

  Ÿ  

management must disclose to the committee or disinterested directors, as applicable, the name of the related person and the basis on which the person is a related person, the material terms of the related person transaction, including the approximate dollar value of the amount involved in the transaction, and all the material facts as to the related person’s direct or indirect interest in, or relationship to, the related person transaction;

 

  Ÿ  

management must advise the committee or disinterested directors, as applicable, as to whether the related person transaction complies with the terms of our agreements governing our material outstanding indebtedness that limit or restrict our ability to enter into a related person transaction;

 

  Ÿ  

management must advise the committee or disinterested directors, as applicable, as to whether the related person transaction will be required to be disclosed in our applicable filings under the Securities Act or the Exchange Act, and related rules, and, to the extent required to be disclosed, management must ensure that the related person transaction is disclosed in accordance with such Acts and related rules; and

 

  Ÿ  

management must advise the committee or disinterested directors, as applicable, as to whether the related person transaction constitutes a “personal loan” for purposes of Section 402 of the Sarbanes-Oxley Act of 2002.

In addition, the related person transaction policy provides that the committee or disinterested directors, as applicable, in connection with any approval or ratification of a related person transaction involving a non-employee director or director nominee, should consider whether such transaction would compromise the director or director nominee’s status as an “independent,” “outside,” or “non-employee” director, as applicable, under the rules and regulations of the SEC,                      and the Code.

 

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ORGANIZATIONAL STRUCTURE

The following diagram illustrates our organizational structure after giving effect to the consummation of this offering.

 

LOGO

 

(1) SWPEI is the borrower under our Senior Secured Credit Facilities and the issuer of the Senior Notes. We intend to use a portion of the net proceeds received by us from this offering to redeem $         million in aggregate principal amount of the Senior Notes and pay approximately $         million of redemption premium, plus accrued interest thereon. See “Description of Indebtedness” and “Use of Proceeds.”
(2) The obligations under our Senior Secured Credit Facilities and the Senior Notes are guaranteed by the Issuer and substantially all of the Issuer’s existing subsidiaries.

 

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DESCRIPTION OF INDEBTEDNESS

Senior Secured Credit Facilities

In December 2009, SWPEI entered into Senior Secured Credit Facilities with Bank of America, N.A., as administrative agent, collateral agent, letter of credit issuer and swing line lender, Banc of America Securities LLC and Deutsche Bank Securities Inc., as joint lead arrangers, and the other agents and lenders from time to time party thereto. In February and April 2011, we entered into amendments of our Senior Secured Credit Facilities with Bank of America, N.A., as administrative agent, collateral agent, letter of credit issuer and swing line lender, and the other agents and lenders from time to time party thereto. In March 2012, SWPEI entered into an amendment of our Senior Secured Credit Facilities with Bank of America, N.A., as administrative agent, collateral agent, letter of credit issuer and swing line lender, and the other agents and lenders from time to time party thereto.

Our Senior Secured Credit Facilities consist of:

 

  Ÿ  

the $153.9 million Tranche A Term Loans, which will mature on February 17, 2016;

 

  Ÿ  

the $1,297.1 million Tranche B Term Loans, which will mature on the earlier of (i) August 17, 2017 and (ii) the 91st day prior to the maturity of the Senior Notes, if more than $50 million of debt with respect to the Senior Notes is outstanding as of such date; and

 

  Ÿ  

the $172.5 million Revolving Credit Facility, $160.9 million of which would have been available for borrowing as of September 30, 2012 after giving effect to $11.6 million of outstanding letters of credit, which will mature on February 17, 2016.

The obligations under our Senior Secured Credit Facilities are fully, unconditionally and irrevocably guaranteed by each of the Issuer, any subsidiary of the Issuer that directly or indirectly owns 100% of the issued and outstanding equity interests of SWPEI, and, subject to certain exceptions, each of SWPEI’s existing and future material domestic wholly-owned subsidiaries.

The Revolving Credit Facility includes borrowing capacity available for letters of credit and for short-term borrowings referred to as the swingline borrowings. In addition, our Senior Secured Credit Facilities also provide us with the option to raise incremental credit facilities, refinance the loans with debt incurred outside our Senior Secured Credit Facilities and extend the maturity date of the revolving loans and term loans, subject to certain limitations.

Interest Rate and Fees

Borrowings for the Tranche A Term Loans bear interest, at SWPEI’s option, at a rate equal to a margin over either (a) a base rate determined by reference to the higher of (1) the administrative agent’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 BBA LIBOR rate for the interest period relevant to such borrowing. The margin for the Tranche A Term Loans is 1.75%, in the case of base rate loans, and 2.75%, in the case of LIBOR rate loans, subject to a step-down of 0.25% upon achievement of a secured leverage ratio less than or equal to 2.25 to 1.00.

Borrowings under the Tranche B Term Loans bear interest, at SWPEI’s option, at a rate equal to a margin over either (a) a base rate determined by reference to the higher of (1) the administrative agent’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 BBA LIBOR rate for the interest period relevant to such borrowing. The margin for the Tranche B Term Loans is 2.00%, in the case of base rate loans, and 3.00%, in the case of LIBOR rate loans, subject to a base rate floor of 2.00% and a LIBOR floor of 1.00%.

Borrowings under the Revolving Credit Facility bear interest, at SWPEI’s option, at a rate equal to a margin over either (a) a base rate determined by reference to the higher of (1) the administrative

 

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agent’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 BBA LIBOR rate for the interest period relevant to such borrowing. The margin for the Revolving Credit Facility is 1.75%, in the case of base rate loans, and 2.75%, in the case of LIBOR rate loans, subject to a step-down of 0.25% upon achievement of a secured leverage ratio less than or equal to 2.25 to 1.00.

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

Prepayments

Our Senior Secured Credit Facilities, as amended, requires SWPEI to prepay outstanding term loans, subject to certain exceptions, with:

 

  Ÿ  

50% of SWPEI’s annual “excess cash flow” (with step-downs to 25% and 0%, as applicable, based upon SWPEI’s total leverage ratio), subject to certain exceptions;

 

  Ÿ  

100% of the net cash proceeds of certain non-ordinary course asset sales or other dispositions, subject to reinvestment rights and certain exceptions; and

 

  Ÿ  

100% of the net cash proceeds of any incurrence of debt by SWPEI or any of its restricted subsidiaries, other than debt permitted to be incurred or issued under our Senior Secured Credit Facilities.

Notwithstanding any of the foregoing, each lender of term loans has the right to reject its pro rata share of mandatory prepayments described above, in which case we may retain the amounts so rejected.

The foregoing mandatory prepayments will be applied pro rata to installments of term loans in direct order of maturity.

SWPEI may voluntarily repay amounts outstanding under our Senior Secured Credit Facilities at any time without premium or penalty, other than prepayment premium on voluntary prepayment of Tranche B Term Loans on or prior to March 30, 2013 and customary “breakage” costs with respect to LIBOR loans.

Amortization

SWPEI is currently required to repay installments on the term loans in quarterly installments equal to approximately $1.9 million with respect to Tranche A Term Loans and approximately $3.5 million with respect to Tranche B Term Loans, with the remaining amount payable on the applicable maturity date with respect to such term loans.

Collateral

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 of SWPEI’s direct or indirect domestic subsidiaries (other than a domestic subsidiary that is a subsidiary of a foreign subsidiary) and 65% of the capital stock of, or other equity interests in, any of SWPEI’s direct foreign subsidiaries and any of SWPEI’s domestic subsidiaries that are treated as disregarded entities for U.S. federal income tax purposes if substantially all the assets of such domestic subsidiary consist of equity

 

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interests of one or more “controlled foreign corporations” within the meaning of the Code and (ii) certain tangible and intangible assets of SWPEI and those of the Guarantors (subject to certain exceptions and qualifications).

Certain Covenants and Events of Default

Our Senior Secured Credit Facilities contain a number of significant affirmative and negative covenants. Such covenants, among other things, restrict, subject to certain exceptions, the ability of SWPEI and its restricted subsidiaries to:

 

  Ÿ  

incur additional indebtedness, make guarantees and enter into hedging arrangements;

 

  Ÿ  

create liens on assets;

 

  Ÿ  

enter into sale and leaseback transactions;

 

  Ÿ  

engage in mergers or consolidations;

 

  Ÿ  

sell assets;

 

  Ÿ  

make fundamental changes;

 

  Ÿ  

pay dividends and distributions or repurchase SWPEI’s capital stock;

 

  Ÿ  

make investments, loans and advances, including acquisitions;

 

  Ÿ  

engage in certain transactions with affiliates;

 

  Ÿ  

make changes in nature of the business; and

 

  Ÿ  

make prepayments of junior debt.

Our Senior Secured Credit Facilities also contain covenants that (i) require SWPEI to maintain a (A) maximum net total leverage ratio and (B) minimum interest coverage ratio, and (ii) impose maximum annual capital expenditures requirements.

In addition, our Senior Secured Credit Facilities contain certain customary representations and warranties, affirmative covenants and events of default. If an event of default occurs, the lenders under our Senior Secured Credit Facilities will be entitled to take various actions, including the acceleration of amounts due under our Senior Secured Credit Facilities and all actions permitted to be taken by a secured creditor.

As of September 30, 2012, we were in compliance in all material respects with all covenants in the provisions contained in the documents governing our Senior Secured Credit Facilities.

Senior Notes

General

On December 1, 2009, SWPEI 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%. As of September 30, 2012, we had $400.0 million aggregate principal amount in Senior Notes outstanding. Interest on the Senior Notes is payable semi-annually in arrears. The obligations under the Senior Notes are guaranteed by the same entities as those that guarantee our Senior Secured Credit Facilities.

 

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Ranking

The Senior Notes are senior unsecured obligations and:

 

  Ÿ  

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;

 

  Ÿ  

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

 

  Ÿ  

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.

Optional Redemption

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 Senior Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest to, the redemption date, subject to the right of 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 or 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.

After December 1, 2014, we may redeem the Senior Notes at the redemption prices listed below, if redeemed during the 12-month period beginning on December 1 of each of the years indicated below:

 

Year

   Percentage  

2014

     105.50

2015

     102.75

In addition, until December 1, 2014, we may redeem up to 35% of the aggregate principal amount of the Senior Notes at a redemption price equal to 111.0% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, subject to the right of holders of the Senior Notes of record on the relevant record date to receive interest due on the relevant interest payment date, with the net cash proceeds received by us from one or more equity offerings; provided that (i) at least 65% of the sum of the aggregate principal amount of the Senior Notes originally issued under the indenture remains outstanding immediately after the occurrence of each such redemption and (ii) each such redemption occurs within 90 days of the date of closing of each such equity offering. Pursuant to such provisions, we intend to use a portion of the net proceeds received by us from this offering to redeem $         million in aggregate principal amount of the Senior Notes at a redemption price of 111.0% and to pay estimated premiums and accrued interest thereon. We intend to use the remaining proceeds received by us from this offering for other general corporate purposes. See “Use of Proceeds.”

Change of Control Offer

Upon the occurrence of a change of control (as defined in the indenture governing the Senior Notes), SWPEI will be required to offer to repurchase some or all of the Senior Notes at 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date.

 

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Covenants

The indenture governing the Senior Notes contains a number of covenants that, among other things, restrict SWPEI’s ability and the ability of its restricted subsidiaries to, among other things:

 

  Ÿ  

dispose of certain assets;

 

  Ÿ  

incur additional indebtedness;

 

  Ÿ  

pay dividends;

 

  Ÿ  

prepay subordinated indebtedness;

 

  Ÿ  

incur liens;

 

  Ÿ  

make capital expenditures;

 

  Ÿ  

make investments or acquisitions;

 

  Ÿ  

engage in mergers or consolidations; and

 

  Ÿ  

engage in certain types of transactions with affiliates.

These covenants are subject to a number of important limitations and exceptions.

Events of Default

The indenture governing the Senior Notes provides 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 to become or be declared due and payable (subject, in some cases, to specified grace periods).

As of September 30, 2012, we were in compliance in all material respects with all covenants and the provisions contained in the indenture governing the Senior Notes.

 

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DESCRIPTION OF CAPITAL STOCK

The following is a description of the material terms of, and is qualified in its entirety by, our amended and restated certificate of incorporation and amended and restated bylaws, each of which will be in effect upon the consummation of this offering, the forms of which are filed as exhibits to the registration statement of which this prospectus is a part.

Our purpose is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the General Corporation Law of the State of Delaware (the “DGCL”). Upon the consummation of this offering, our authorized capital stock will consist of              shares of common stock, par value $0.01 per share, and              shares of preferred stock, par value $0.01 per share. No shares of preferred stock will be issued or outstanding immediately after the public offering contemplated by this prospectus. Unless our Board of Directors determines otherwise, we will issue all shares of our capital stock in uncertificated form.

Common Stock

Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders, including the election or removal of directors. The holders of our common stock do not have cumulative voting rights in the election of directors.

Upon our liquidation, dissolution or winding up and after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of our common stock will be entitled to receive pro rata our remaining assets available for distribution. Holders of our common stock do not have preemptive, subscription, redemption or conversion rights. The common stock will not be subject to further calls or assessment by us. There will be no redemption or sinking fund provisions applicable to the common stock. All shares of our common stock that will be outstanding at the time of the completion of the offering will be fully paid and non-assessable. The rights, powers, preferences and privileges of holders of our common stock will be subject to those of the holders of any shares of our preferred stock we may authorize and issue in the future.

Preferred Stock

Our amended and restated certificate of incorporation authorizes our Board of Directors to establish one or more series of preferred stock (including convertible preferred stock). Unless required by law or by             , the authorized shares of preferred stock will be available for issuance without further action by you. Our Board of Directors is able to determine, with respect to any series of preferred stock, the voting powers (if any), preferences and rights, and the qualifications, limitations or restrictions of that series, including, without limitation:

 

  Ÿ  

the designation of the series;

 

  Ÿ  

the number of shares of the series, which our Board of Directors may, except where otherwise provided in the preferred stock designation, increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares then outstanding);

 

  Ÿ  

whether dividends, if any, will be cumulative or non-cumulative and the dividend rate of the series;

 

  Ÿ  

the dates at which dividends, if any, will be payable;

 

  Ÿ  

the redemption rights and price or prices, if any, for shares of the series;

 

  Ÿ  

the terms and amounts of any sinking fund provided for the purchase or redemption of shares of the series;

 

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  Ÿ  

the amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Company;

 

  Ÿ  

whether the shares of the series will be convertible into shares of any other class or series, or any other security, of the Company or any other corporation, and, if so, the specification of the other class or series or other security, the conversion price or prices or rate or rates, any rate adjustments, the date or dates as of which the shares will be convertible and all other terms and conditions upon which the conversion may be made;

 

  Ÿ  

restrictions on the issuance of shares of the same series or of any other class or series; and

 

  Ÿ  

the voting rights, if any, of the holders of the series.

We could issue a series of preferred stock that could, depending on the terms of the series, impede or discourage an acquisition attempt or other transaction that some, or a majority, of the holders of our common stock might believe to be in their best interests or in which the holders of our common stock might receive a premium for your common stock over the market price of the common stock. Additionally, the issuance of preferred stock may adversely affect the rights of holders of our common stock by restricting dividends on the common stock, diluting the voting power of the common stock or impairing the liquidation rights of the common stock. As a result of these or other factors, the issuance of preferred stock could have an adverse impact on the market price of our common stock.

Dividends

The DGCL permits a corporation to declare and pay dividends out of “surplus” or, if there is no “surplus,” out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. “Surplus” is defined as the excess of the net assets of the corporation over the amount determined to be the capital of the corporation by the Board of Directors. The capital of the corporation is typically calculated to be (and cannot be less than) the aggregate par value of all issued shares of capital stock. Net assets equals the fair value of the total assets minus total liabilities. The DGCL also provides that dividends may not be paid out of net profits if, after the payment of the dividend, remaining capital would be less than the capital represented by the outstanding stock of all classes having a preference upon the distribution of assets.

Declaration and payment of any dividend will be subject to the discretion of our Board of Directors. The time and amount of dividends will be dependent upon our financial condition, operations, cash requirements and availability, debt repayment obligations, capital expenditure needs and restrictions in our debt instruments, industry trends, the provisions of Delaware law affecting the payment of distributions to stockholders and any other factors our Board of Directors may consider relevant.

We intend to pay cash dividends on our common stock, subject to our compliance with applicable law, and depending on, among other things, our results of operations, financial condition, level of indebtedness, capital requirements, contractual restrictions, restrictions in our debt agreements and in any preferred stock, business prospects and other factors that our Board of Directors may deem relevant. Our ability to pay dividends on our common stock is limited by the covenants of our Senior Secured Credit Facilities and the indenture governing the Senior Notes and may be further restricted by the terms of any future debt or preferred securities. See “Dividend Policy” and “Description of Indebtedness.”

Annual Stockholder Meetings

Our amended and restated bylaws provide that annual stockholder meetings will be held at a date, time and place, if any, as exclusively selected by our Board of Directors.

 

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Anti-Takeover Effects of Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws and Certain Provisions of Delaware Law

Our amended and restated certificate of incorporation, amended and restated bylaws and the DGCL, which are summarized in the following paragraphs, contain provisions that are intended to enhance the likelihood of continuity and stability in the composition of our Board of Directors. These provisions are intended to avoid costly takeover battles, reduce our vulnerability to a hostile change of control and enhance the ability of our Board of Directors to maximize stockholder value in connection with any unsolicited offer to acquire us. However, these provisions may have an anti-takeover effect and may delay, deter or prevent a merger or acquisition of the Company by means of a tender offer, a proxy contest or other takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the prevailing market price for the shares of common stock held by stockholders.

Authorized but Unissued Capital Stock

Delaware law does not require stockholder approval for any issuance of authorized shares. However, the listing requirements of                     , which would apply if and so long as our common stock remains listed on                     , require stockholder approval of certain issuances equal to or exceeding 20% of the then outstanding voting power or then outstanding number of shares of common stock. Additional shares that may be used in the future may be used for a variety of corporate purposes, including future public offerings, to raise additional capital or to facilitate acquisitions.

Our Board of Directors may generally issue preferred shares on terms calculated to discourage, delay or prevent a change of control of the Company or the removal of our management. Moreover, our authorized but unissued shares of preferred stock will be available for future issuances without stockholder approval and could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, to facilitate acquisitions and employee benefit plans.

One of the effects of the existence of unissued and unreserved common stock or preferred stock may be to enable our Board of Directors to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of our management and possibly deprive our stockholders of opportunities to sell their shares of common stock at prices higher than prevailing market prices.

Classified Board of Directors

Our amended and restated certificate of incorporation provides that our Board of Directors will be divided into three classes of directors, with the classes to be as nearly equal in number as possible, and with the directors serving three-year terms. As a result, approximately one-third of our Board of Directors will be elected each year. The classification of directors will have the effect of making it more difficult for stockholders to change the composition of our Board of Directors. Our amended and restated certificate of incorporation and amended and restated bylaws provide that, subject to any rights of holders of preferred stock to elect additional directors under specified circumstances, the number of directors will be fixed from time to time exclusively pursuant to a resolution adopted by the Board of Directors, but must consist of not less than      nor more than      directors.

 

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Business Combinations

We have opted out of Section 203 of the DGCL; however, our amended and restated certificate of incorporation contains similar provisions providing that we may not engage in certain “business combinations” with any “interested stockholder” for a three-year period following the time that the stockholder became an interested stockholder, unless:

 

  Ÿ  

prior to such time, our Board of Directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

 

  Ÿ  

upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding certain shares; or

 

  Ÿ  

at or subsequent to that time, the business combination is approved by our Board of Directors and by the affirmative vote of holders of at least 66 2/3% of our outstanding voting stock that is not owned by the interested stockholder.

Generally, a “business combination” includes a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is a person who, together with that person’s affiliates and associates, owns, or within the previous three years owned, 15% or more of our outstanding voting stock. For purposes of this section only, “voting stock” has the meaning given to it in Section 203 of the DGCL.

Under certain circumstances, this provision will make it more difficult for a person who would be an “interested stockholder” to effect various business combinations with the Company for a three-year period. This provision may encourage companies interested in acquiring the Company to negotiate in advance with our Board of Directors because the stockholder approval requirement would be avoided if our Board of Directors approves either the business combination or the transaction which results in the stockholder becoming an interested stockholder. These provisions also may have the effect of preventing changes in our Board of Directors and may make it more difficult to accomplish transactions which stockholders may otherwise deem to be in their best interests.

Our amended and restated certificate of incorporation provides that Blackstone, and any of its respective direct or indirect transferees and any group as to which such persons are a party, do not constitute “interested stockholders” for purposes of this provision.

Removal of Directors; Vacancies

Under the DGCL, unless otherwise provided in our amended and restated certificate of incorporation, directors serving on a classified board may be removed by the stockholders only for cause. Our amended and restated certificate of incorporation and amended and restated bylaws provide that directors may be removed with or without cause upon the affirmative vote of a majority in voting power of all outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class; provided, however, at any time when Blackstone beneficially owns in the aggregate, less than 40% in the voting power of all outstanding shares of our stock entitled to vote generally in the election of directors, directors may only be removed for cause, and only upon the affirmative vote of holders of at least 75% of the voting power of all the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class. In addition, our amended and restated certificate of incorporation and amended and restated bylaws also provide that, subject to the rights granted to one or more series of preferred stock then outstanding or the rights granted under the stockholders agreement with Blackstone, any vacancies on our Board of Directors will be filled only by the affirmative vote of a majority of the remaining directors, even if less than a quorum, or by a sole remaining director or, for so long as Blackstone beneficially owns, in the aggregate, at least 40% in voting power of all outstanding shares of our stock entitled to vote generally in the election of directors, by the stockholders.

 

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No Cumulative Voting

Under Delaware law, the right to vote cumulatively does not exist unless the certificate of incorporation specifically authorizes cumulative voting. Our amended and restated certificate of incorporation does not authorize cumulative voting. Therefore, stockholders holding a majority of the shares of our stock entitled to vote generally in the election of directors will be able to elect all our directors.

Requirements for Advance Notification of Special Stockholder Meetings, Nominations and Proposals

Our amended and restated certificate of incorporation provides that special meetings of our stockholders may be called at any time only by or at the direction of the chairman of the Board of Directors, the Board of Directors or a committee of the Board of Directors which has been designated by the Board of Directors or, for so long as Blackstone beneficially owns, in the aggregate, more than 40% voting power of all outstanding shares of our stock entitled to vote generally in the election of directors, at the request of Blackstone. Our amended and restated bylaws prohibit the conduct of any business at a special meeting other than as specified in the notice for such meeting. These provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of the Company.

Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the Board of Directors or a committee of the Board of Directors. In order for any matter to be “properly brought” before a meeting, a stockholder will have to comply with advance notice requirements and provide us with certain information. Generally, to be timely, a stockholder’s notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary date of the immediately preceding annual meeting of stockholders. Our amended and restated bylaws also specify requirements as to the form and content of a stockholder’s notice. Our amended and restated bylaws allow the presiding officer at a meeting of the stockholders to adopt rules and regulations for the conduct of meetings which may have the effect of precluding the conduct of certain business at a meeting if the rules and regulations are not followed. These provisions will not apply to Blackstone and its affiliates so long as the stockholders agreement with Blackstone remains in effect. These provisions may also defer, delay or discourage a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to influence or obtain control of the Company.

Stockholder Action by Written Consent

Pursuant to Section 228 of the DGCL, any action required to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of our stock entitled to vote thereon were present and voted, unless our amended and restated certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation will preclude stockholder action by written consent after the date on which Blackstone ceases to hold at least 40% of the voting power of all the then outstanding shares of our stock entitled to vote generally in the election of directors.

Supermajority Provisions

Our amended and restated certificate of incorporation and amended and restated bylaws will provide that the Board of Directors is expressly authorized to make, alter, amend, change, add to or repeal, in whole or in part, our bylaws without a stockholder vote in any matter not inconsistent with the

 

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laws of the State of Delaware and our amended and restated certificate of incorporation. For as long as Blackstone beneficially owns, in the aggregate, at least 40% in voting power of all outstanding shares of our stock entitled to vote generally in the election of directors, any amendment, alteration, change, addition or repeal of our bylaws by our stockholders will require the affirmative vote of a majority in voting power of the outstanding shares of our stock present in person or represented by proxy at the meeting of stockholders and entitled to vote on such amendment, alteration, change, addition or repeal. At any time when Blackstone beneficially owns, in the aggregate, less than 40% in voting power of all outstanding shares of our stock entitled to vote generally in the election of directors, any amendment, alteration, change, addition or repeal of our bylaws by our stockholders will require the affirmative vote of holders of at least 75% of the voting power of all the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class.

The DGCL provides generally that the affirmative vote of a majority of the outstanding shares then entitled to vote, voting together as a single class, is required to amend a corporation’s certificate of incorporation, unless the certificate of incorporation requires a greater percentage.

Our amended and restated certificate of incorporation provides that at any time when Blackstone beneficially owns less than 40% in voting power of all outstanding shares of our capital stock entitled to vote generally in the election of directors, the following provisions in our amended and restated certificate of incorporation may be amended only by a vote of 75% or more of all of the outstanding shares of our capital stock entitled to vote generally in the election of directors, voting together as a single class:

 

  Ÿ  

the provision requiring a 75% supermajority vote for stockholders to amend our amended and restated bylaws;

 

  Ÿ  

the provisions providing for classified Board of Directors (the election and term of our directors);

 

  Ÿ  

the provisions regarding resignation and removal of directors;

 

  Ÿ  

the provisions regarding competition and corporate opportunities;

 

  Ÿ  

the provisions regarding entering into business combinations with interested stockholders;

 

  Ÿ  

the provisions regarding stockholder action by written consent;

 

  Ÿ  

the provisions regarding calling special meetings of stockholders;

 

  Ÿ  

the provisions regarding filling vacancies on our Board of Directors and newly created directorships;

 

  Ÿ  

the provisions eliminating monetary damages for breaches of fiduciary duty by a director; and

 

  Ÿ  

the amendment provision requiring that the above provisions be amended only with a 75% supermajority vote.

The combination of the classification of our Board of Directors, the lack of cumulative voting and the supermajority voting requirements will make it more difficult for our existing stockholders to replace our Board of Directors as well as for another party to obtain control of us by replacing our Board of Directors. Because our Board of Directors has the power to retain and discharge our officers, these provisions could also make it more difficult for existing stockholders or another party to effect a change in management.

These provisions may have the effect of deterring hostile takeovers or delaying or preventing changes in control of our management or the Company, such as a merger, reorganization or tender offer. These provisions are intended to enhance the likelihood of continued stability in the composition of our Board of Directors and its policies and to discourage certain types of transactions that may involve an actual or threatened acquisition of the Company. These provisions are designed to reduce

 

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our vulnerability to an unsolicited acquisition proposal. The provisions are also intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our shares that could result from actual or rumored takeover attempts.

Dissenters’ Rights of Appraisal and Payment

Under the DGCL, with certain exceptions, our stockholders will have appraisal rights in connection with a merger or consolidation of us. Pursuant to the DGCL, stockholders who properly request and perfect appraisal rights in connection with such merger or consolidation will have the right to receive payment of the fair value of their shares as determined by the Delaware Court of Chancery.

Stockholders’ Derivative Actions

Under the DGCL, any of our stockholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the stockholder bringing the action is a holder of our shares at the time of the transaction to which the action relates or such stockholder’s stock thereafter devolved by operation of law.

Conflicts of Interest

Delaware law permits corporations to adopt provisions renouncing any interest or expectancy in certain opportunities that are presented to the corporation or its officers, directors or stockholders. Our amended and restated certificate of incorporation will, to the maximum extent permitted from time to time by Delaware law, renounce any interest or expectancy that we have in, or right to be offered an opportunity to participate in, specified business opportunities that are from time to time presented to our officers, directors or stockholders or their respective affiliates, other than those officers, directors, stockholders or affiliates who are our or our subsidiaries’ employees. Our amended and restated certificate of incorporation will provide that, to the fullest extent permitted by law, none of Blackstone or any of its affiliates or any director who is not employed by us (including any non-employee director who serves as one of our officers in both his director and officer capacities) or his or her affiliates will have any duty to refrain from (i) engaging in a corporate opportunity in the same or similar lines of business in which we or our affiliates now engage or propose to engage or (ii) otherwise competing with us or our affiliates. In addition, to the fullest extent permitted by law, in the event that Blackstone or any non-employee director acquires knowledge of a potential transaction or other business opportunity which may be a corporate opportunity for itself or himself or its or his affiliates or for us or our affiliates, such person will have no duty to communicate or offer such transaction or business opportunity to us or any of our affiliates and they may take any such opportunity for themselves or offer it to another person or entity. Our amended and restated certificate of incorporation will not renounce our interest in any business opportunity that is expressly offered to a non-employee director solely in his or her capacity as a director or officer of the Company. To the fullest extent permitted by law, no business opportunity will be deemed to be a potential corporate opportunity for us unless we would be permitted, to undertake the opportunity under our amended and restated certificate of incorporation, we have sufficient financial resources to undertake the opportunity and the opportunity would be in line with our business.

Limitations on Liability and Indemnification of Officers and Directors

The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties, subject to certain exceptions. Our amended and restated certificate of incorporation includes a provision that eliminates the personal liability of directors for monetary damages for any breach of

 

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fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL. The effect of these provisions is to eliminate the rights of us and our stockholders, through stockholders’ derivative suits on our behalf, to recover monetary damages from a director for breach of fiduciary duty as a director, including breaches resulting from grossly negligent behavior. However, exculpation does not apply to any director if the director has acted in bad faith, knowingly or intentionally violated the law, authorized illegal dividends or redemptions or derived an improper benefit from his or her actions as a director.

Our amended and restated bylaws provide that we must indemnify and advance expenses to our directors and officers to the fullest extent authorized by the DGCL. We also are expressly authorized to carry directors’ and officers’ liability insurance providing indemnification for our directors, officers and certain employees for some liabilities. We believe that these indemnification and advancement provisions and insurance are useful to attract and retain qualified directors and executive officers.

The limitation of liability, advancement and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

We currently are party to indemnification agreements with certain of our directors and officers. These agreements require us to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. In connection with this offering, we intend to enter into indemnification agreements with each of our current directors and executive officers. These agreements will require us to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.

There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is             .

Listing

We intend to apply to list our common stock on              under the symbol “SEAS.”

 

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SHARES ELIGIBLE FOR FUTURE SALE

General

Prior to this offering, there has not been a public market for our common stock, and we cannot predict what effect, if any, market sales of shares of common stock or the availability of shares of common stock for sale will have on the market price of our common stock prevailing from time to time. Nevertheless, sales of substantial amounts of common stock, including shares issued upon the exercise of outstanding options, in the public market, or the perception that such sales could occur, could materially and adversely affect the market price of our common stock and could impair our future ability to raise capital through the sale of our equity or equity-related securities at a time and price that we deem appropriate. See “Risk Factors—Risks Related to this Offering and Ownership of Our Common Stock—Future sales, or the perception of future sales, by us or our existing stockholders in the public market following this offering could cause the market price for our common stock to decline.”

Upon the consummation of this offering, we will have              shares of common stock outstanding, or             shares, if the underwriters exercise in full their option to purchase additional shares. Of these shares, only              shares of common stock sold in this offering by us will be freely tradable without registration under the Securities Act and without restriction by persons other than our “affiliates” (as defined under Rule 144). The              shares of common stock held by the Partnerships after this offering will be “restricted” securities under the meaning of Rule 144 and may not be sold in the absence of registration under the Securities Act, unless an exemption from registration is available, including the exemptions pursuant to Rule 144 under the Securities Act.

The restricted shares held by our affiliates will be available for sale in the public market as follows:

 

  Ÿ  

             shares will be eligible for sale at various times after the date of this prospectus pursuant to Rule 144; and

 

  Ÿ  

             shares subject to the lock-up agreements described below will be eligible for sale at various times beginning 180 days after the date of this prospectus pursuant to Rule 144.

Rule 144

In general, under Rule 144, as currently in effect, a person (or persons whose shares are aggregated) who is not deemed to be or have been one of our affiliates for purposes of the Securities Act at any time during 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than an affiliate, is entitled to sell such shares without registration, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of a prior owner other than an affiliate, then such person is entitled to sell such shares without complying with any of the requirements of Rule 144.

In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates, who have met the six month holding period for beneficial ownership of “restricted shares” of our common stock, are entitled to sell within any three-month period, a number of shares that does not exceed the greater of:

 

  Ÿ  

1% of the number of shares of our common stock then outstanding, which will equal approximately              shares immediately after this offering; or

 

  Ÿ  

the average reported weekly trading volume of our common stock on                      during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

 

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Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us. The sale of these shares, or the perception that sales will be made, could adversely affect the price of our common stock after this offering because a great supply of shares would be, or would be perceived to be, available for sale in the public market.

Lock-Up Agreements

In connection with this offering, we, our officers, directors, and holders of substantially all of our common stock, including the selling stockholders, have agreed with the underwriters, subject to certain exceptions, not to sell, dispose of or hedge any shares of our common stock or securities convertible into or exchangeable for shares of common stock during the period ending 180 days after the date of this prospectus, except with the prior written consent of the representatives of the underwriters.

The 180-day restricted period described in the preceding paragraph will be automatically extended if:

 

  Ÿ  

during the last 17 days of the 180-day restricted period we issue an earnings release or announce material news or a material event; or

 

  Ÿ  

prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 15-day period following the last day of the 180-day period,

in which case the restrictions described in this paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or material event. See “Underwriting (Conflicts of Interest).”

Registration Rights

Pursuant to a registration rights agreement, we have granted the Partnerships and certain equity holders of the Partnerships the right to cause us, in certain instances, at our expense, to file registration statements under the Securities Act covering resales of our common stock held by them. Following completion of this offering, the shares covered by registration rights would represent approximately     % of our outstanding common stock (or     %, if the underwriters exercise in full their option to purchase additional shares). These shares also may be sold under Rule 144 under the Securities Act, depending on their holding period and subject to restrictions in the case of shares held by persons deemed to be our affiliates. For a description of rights the Partnerships and certain equity holders of the Partnerships have to require us to register the shares of common stock they own, see “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”

 

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MATERIAL UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO NON-U.S. HOLDERS

The following is a summary of the material United States federal income and estate tax consequences to a non-U.S. holder (as defined below) of the purchase, ownership and disposition of our common stock issued pursuant to this offering as of the date hereof. Except where noted, this summary deals only with common stock that is held as a capital asset.

A “non-U.S. holder” means a person (other than a partnership) that is not for United States federal income tax purposes any of the following:

 

  Ÿ  

an individual citizen or resident of the United States;

 

  Ÿ  

a corporation (or any other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

  Ÿ  

an estate the income of which is subject to United States federal income taxation regardless of its source; or

 

  Ÿ  

a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.

This summary is based upon provisions of the Code and regulations, rulings and judicial decisions as of the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in United States federal income and estate tax consequences different from those summarized below. This summary does not address all aspects of United States federal income and estate taxes and does not deal with foreign, state, local or other tax considerations that may be relevant to non-U.S. holders in light of their particular circumstances. In addition, it does not represent a detailed description of the United States federal income tax consequences applicable to you if you are subject to special treatment under the United States federal income tax laws (including if you are a United States expatriate, “controlled foreign corporation,” “passive foreign investment company,” a person who holds or receives our common stock pursuant to the exercise of any employee stock option or otherwise as compensation or a partnership or other pass-through entity for United States federal income tax purposes). We cannot assure you that a change in law will not alter significantly the tax considerations that we describe in this summary.

If a partnership holds our common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our common stock, you should consult your tax advisors.

If you are considering the purchase of our common stock, you should consult your own tax advisors concerning the particular United States federal income and estate tax consequences to you of the ownership of the common stock, as well as the consequences to you arising under the laws of any other taxing jurisdiction.

Dividends

Distributions on our common stock will constitute dividends for U.S. federal income tax purposes to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and will first be applied against and reduce a holder’s adjusted tax basis in the common stock, but not below zero. Any remaining excess will be treated as capital gain subject to the rules discussed under “—Gain on Disposition of Common Stock.”

 

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Dividends paid to a non-U.S. holder of our common stock generally will be subject to withholding of United States federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct of a trade or business by the non-U.S. holder within the United States (and, if required by an applicable income tax treaty, are attributable to a United States permanent establishment) are not subject to the withholding tax, provided certain certification and disclosure requirements are satisfied. Instead, such dividends are subject to United States federal income tax on a net income basis in the same manner as if the non-U.S. holder were a United States person as defined under the Code. Any such effectively connected dividends received by a foreign corporation may be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

A non-U.S. holder of our common stock who wishes to claim the benefit of an applicable treaty rate and avoid backup withholding, as discussed below, for dividends will be required (a) to complete Internal Revenue Service Form W-8BEN (or other applicable form) and certify under penalty of perjury that such holder is not a United States person as defined under the Code and is eligible for treaty benefits or (b) if our common stock is held through certain foreign intermediaries, to satisfy the relevant certification requirements of applicable United States Treasury regulations. Special certification and other requirements apply to certain non-U.S. holders that are pass-through entities rather than corporations or individuals.

A non-U.S. holder of our common stock eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the Internal Revenue Service.

Gain on Disposition of Common Stock

Any gain realized on the disposition of our common stock generally will not be subject to United States federal income tax unless:

 

  Ÿ  

the gain is effectively connected with a trade or business of the non-U.S. holder in the United States (and, if required by an applicable income tax treaty, is attributable to a United States permanent establishment of the non-U.S. holder);

 

  Ÿ  

the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other conditions are met; or

 

  Ÿ  

we are or have been a “United States real property holding corporation” for United States federal income tax purposes at any time during the shorter of the five-year period ending on the date of the disposition or such non-U.S. holder’s holding period for our common stock.

An individual non-U.S. holder described in the first bullet point immediately above will be subject to tax on the net gain derived from the sale under regular graduated United States federal income tax rates. If a non-U.S. holder that is a foreign corporation falls under the first bullet point immediately above, it will be subject to tax on its net gain in the same manner as if it were a United States person as defined under the Code and, in addition, may be subject to the branch profits tax equal to 30% of its effectively connected earnings and profits or at such lower rate as may be specified by an applicable income tax treaty. An individual non-U.S. holder described in the second bullet point immediately above will be subject to a flat 30% tax on the gain derived from the sale, which may be offset by United States source capital losses (even though the individual is not considered a resident of the United States) provided such a non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.

We believe that we are currently a “United States real property holding corporation” for United States federal income tax purposes. So long as our common stock continues to be regularly traded on

 

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an established securities market, only a non-U.S. holder who holds or held (at any time during the shorter of the five year period preceding the date of disposition or the holder’s holding period) more than 5% of our common stock will be subject to United States federal income tax on the disposition of our common stock.

Federal Estate Tax

Common stock held by an individual non-U.S. holder at the time of death will be included in such holder’s gross estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.

Information Reporting and Backup Withholding

We must report annually to the Internal Revenue Service and to each non-U.S. holder the amount of dividends paid to such holder and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the non-U.S. holder resides under the provisions of an applicable income tax treaty.

A non-U.S. holder will be subject to backup withholding for dividends paid to such holder unless such holder certifies under penalty of perjury that it is a non-U.S. holder (and the payor does not have actual knowledge or reason to know that such holder is a United States person as defined under the Code), or such holder otherwise establishes an exemption.

Information reporting and, depending on the circumstances, backup withholding will apply to the proceeds of a sale of our common stock within the United States or conducted through certain United States-related financial intermediaries, unless the beneficial owner certifies under penalty of perjury that it is a non-U.S. holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a United States person as defined under the Code), or such owner otherwise establishes an exemption.

Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder’s United States federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.

Additional Withholding Requirements

Under recently enacted legislation, proposed Treasury Regulations and recent administrative guidance, the relevant withholding agent may be required to withhold 30% of any dividends paid after December 31, 2013 and the proceeds of a sale of our common stock occurring after December 31, 2016 paid to (i) a foreign financial institution unless such foreign financial institution agrees to verify, report and disclose its U.S. accountholders and meets certain other specified requirements or (ii) a non-financial foreign entity that is the beneficial owner of the payment unless such entity certifies that it does not have any substantial United States owners or provides the name, address and taxpayer identification number of each substantial United States owner and such entity meets certain other specified requirements. The proposed Treasury Regulations will not be effective unless and until they are issued in final form. Prospective investors should consult their tax advisors regarding these withholding provisions.

 

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New Tax on Investment Income

Recent legislation would require certain taxpayers to pay a 3.8% tax on, among other things, dividends on and capital gains from the sale or other disposition of our common stock for taxable years beginning after December 31, 2012, but exempts from such tax non-resident alien individuals. Newly published proposed regulations, upon which, by their terms, taxpayers may rely until final regulations are promulgated, exempt from the tax non-U.S. trusts and estates all of whose beneficiaries are non-U.S. persons. Such proposed regulations reserve on the treatment of non-U.S. trusts and estates with U.S. beneficiaries. Prospective investors should consult their tax advisors regarding the tax consequences of the new legislation and the proposed regulations on the ownership and disposition of our common stock.

 

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UNDERWRITING (CONFLICTS OF INTEREST)

We, the selling stockholders and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co. and J.P. Morgan Securities LLC are the representatives of the underwriters.

 

Underwriters

   Number of Shares

Goldman, Sachs & Co.

  

J.P. Morgan Securities LLC

  

Citigroup Global Markets Inc.

  

Merrill Lynch, Pierce, Fenner & Smith

                   Incorporated

  

Barclays Capital Inc.

  

Wells Fargo Securities, LLC

  
  

 

Total

  
  

 

The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below unless and until this option is exercised.

The underwriters have an option to buy up to an additional              shares from the selling stockholders to cover sales by the underwriters of a greater number of shares than the total number set forth in the table above. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.

The following tables show the per share and total underwriting discounts and commissions to be paid to the underwriters by us and the selling stockholders. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase              additional shares.

Paid by Us

 

     No Exercise      Full Exercise  

Per Share

   $                    $                

Total

   $         $     

Paid by the Selling Stockholders

 

     No Exercise      Full Exercise  

Per Share

   $                    $                

Total

   $         $     

Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $         per share from the initial public offering price. After the initial offering of the shares, the representatives may change the offering price and the other selling terms. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters’ right to reject any order in whole or in part.

We and our officers, directors, and holders of substantially all of our common stock, including the selling stockholders, have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of

 

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common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of the representatives. See “Shares Eligible for Future Sale” for a discussion of certain transfer restrictions.

The 180-day restricted period described in the preceding paragraph will be automatically extended if: (1) during the last 17 days of the 180-day restricted period, we issue an earnings release or announce material news or a material event; or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 15-day period following the last day of the 180-day period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release of the announcement of the material news or material event.

Prior to the offering, there has been no public market for the shares. The initial public offering price has been negotiated among us and the representatives. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be our historical performance, estimates of our business potential and earnings prospects, an assessment of our management and the consideration of the above factors in relation to market valuation of companies in related businesses.

We intend to apply for the common stock on the              under the symbol “SEAS.”

In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering, and a short position represents the amount of such sales that have not been covered by subsequent purchases. A “covered short position” is a short position that is not greater than the amount of additional shares for which the underwriters’ option described above may be exercised. The underwriters may cover any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to cover the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option described above. “Naked” short sales are any short sales that create a short position greater than the amount of additional shares for which the option described above may be exercised. The underwriters must cover any such naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.

The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.

Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of our stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. The underwriters are not required to engage in these activities and may end any of these activities at any time. These transactions may be effected on                     , in the over-the-counter market or otherwise.

 

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In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, no offer of shares may be made to the public in that Relevant Member State other than:

(a) to any legal entity which is a qualified investor as defined in the Prospectus Directive;

(b) to fewer than 100, or, if the Relevant Member State has implemented the relevant portion of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representative;

(c) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of shares shall require the Company or the representatives to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer of shares to the public” in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression Prospectus Directive means Directive 2003/71/EC (including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

Each underwriter has represented and agreed that:

 

  (a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the FSMA does not apply to the Company; and

 

  (b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom.

The shares may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or

 

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distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for six months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.

The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.

We and the selling stockholders estimate that the underwriters’ share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $        .

We and the selling stockholders have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act.

Conflicts of Interest

Affiliates of Goldman, Sachs & Co. hold $300.0 million in aggregate principal amount of the Senior Notes. As described under “Use of Proceeds,” a portion of the net proceeds from this offering will be used to redeem $             million in aggregate principal amount of the Senior Notes and such affiliates of Goldman, Sachs & Co. will receive their pro rata share of such redemption amount. Affiliates of Goldman, Sachs & Co. also own Class A and Class B Units in one of the Partnerships that collectively own 100% of our common stock and such affiliates will receive a portion of the net proceeds to the selling stockholders. Because Goldman, Sachs & Co. is an underwriter and its affiliates are expected to receive more than 5% of the net proceeds of this offering due to the redemption and the proceeds to the selling stockholders, Goldman, Sachs & Co. is deemed to have a “conflict of interest” under FINRA Rule 5121. Accordingly, this offering will be conducted in accordance with Rule 5121, which requires, among other things, that a “qualified independent underwriter” has participated in the preparation of, and has exercised the usual standards of “due diligence” with respect to, the registration statement and this prospectus. Citigroup Global Markets Inc. has agreed to act as qualified independent underwriter for this offering and to undertake the legal responsibilities and liabilities of an underwriter under the Securities Act, specifically including those inherent in Section 11 of the Securities Act. Pursuant to Rule 5121, Goldman, Sachs & Co. will not confirm any sales to any account over which it exercises discretionary authority without the specific written approval of the account holder. See “Use of Proceeds.”

 

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Discretionary Sales

The underwriters have informed us that they do not intend to confirm sales to discretionary accounts that exceed 5% of the total number of shares offered by them.

Other Relationships

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to us and to persons and entities with relationships with us, for which they received or will receive customary fees and expenses. In particular, affiliates of each of Goldman, Sachs & Co., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Barclays Capital Inc. are lenders under our Senior Secured Credit Facilities and have received and will receive fees from us.

In the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to our assets, securities and/or instruments (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with us. The underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.

 

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LEGAL MATTERS

The validity of the shares of common stock offered by this prospectus will be passed upon for us by Simpson Thacher & Bartlett LLP, New York, New York. Certain legal matters relating to this offering will be passed upon for the underwriters by Latham & Watkins LLP, New York, New York. An investment vehicle comprised of selected partners of Simpson Thacher & Bartlett LLP, members of their families, related persons and others owns an interest representing less than 1% of the capital commitments of funds affiliated with The Blackstone Group L.P.

EXPERTS

The financial statements of the Company as of December 31, 2011 and 2010, for each of the two years in the period ended December 31, 2011 and the one month period ended December 31, 2009, and the related financial statement schedule included elsewhere in this prospectus, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein. Such financial statements and financial statement schedule have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the common stock offered by this prospectus. This prospectus is a part of the registration statement and does not contain all of the information set forth in the registration statement and its exhibits and schedules, portions of which have been omitted as permitted by the rules and regulations of the SEC. For further information about us and our common stock, you should refer to the registration statement and its exhibits and schedules. Statements in this prospectus about the contents of any contract, agreement or other document are not necessarily complete and in each instance that a copy of such contract, agreement or document has been filed as an exhibit to the registration statement, we refer you to the copy that we have filed as an exhibit.

We will file annual, quarterly and special reports and other information with the SEC. Our filings with the SEC will be available to the public on the SEC’s website at http://www.sec.gov. Those filings will also be available to the public on, or accessible through, our corporate website under the heading              at             . The information we file with the SEC or contained on or accessible through our corporate website or any other website that we may maintain is not part of this prospectus or the registration statement of which this prospectus is a part. You may also read and copy, at SEC prescribed rates, any document we file with the SEC, including the registration statement (and its exhibits) of which this prospectus is a part, at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington D.C. 20549. You can call the SEC at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room.

We intend to make available to our common stockholders annual reports containing consolidated financial statements audited by an independent registered public accounting firm.

 

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INDEX TO FINANCIAL STATEMENTS

 

     Page
Number
 

Audited Consolidated Financial Statements as of December 31, 2011 and 2010 and for the years ended December 31, 2011 and 2010 and the one month period ended December 31, 2009

  

Report of Independent Registered Public Accounting Firm

     F-2     

Consolidated Balance Sheets

     F-3     

Consolidated Statements of Operations and Comprehensive Income (Loss)

     F-4     

Consolidated Statements of Changes in Stockholders’ Equity

     F-5     

Consolidated Statements of Cash Flows

     F-6     

Notes to the Consolidated Financial Statements

     F-7     

Schedule I—Registrant’s Condensed Financial Statements

     F-24   

Unaudited Condensed Consolidated Financial Statements as of September 30, 2012 and December 31, 2011 and for the nine months ended September 30, 2012 and 2011

  

Condensed Consolidated Balance Sheets

     F-28   

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

     F-29   

Condensed Consolidated Statements of Changes in Stockholders’ Equity

     F-30   

Condensed Consolidated Statements of Cash Flows

     F-31   

Notes to the Condensed Consolidated Financial Statements

     F-32   

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

SeaWorld Entertainment, Inc.

Orlando, Florida

We have audited the accompanying consolidated balance sheets of SeaWorld Entertainment, Inc. and subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2011 and for the one month period ended December 31, 2009. Our audits also included the financial statement schedule listed in the Index at Page F-1. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of SeaWorld Entertainment, Inc. and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2011 and for the one month period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Deloitte & Touche LLP

Certified Public Accountants

Tampa, Florida

December 26, 2012

 

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SeaWorld Entertainment, Inc. and Subsidiaries

Consolidated Balance Sheets

as of December 31, 2011 and 2010

(In thousands, except share and per share amounts)

 

     2011     2010  
Assets     

Current assets:

    

Cash and cash equivalents

   $ 66,663      $ 123,697   

Accounts receivable—net

     45,980        54,927   

Inventories

     32,431        28,342   

Prepaid expenses and other current assets

     12,252        9,775   

Deferred tax assets, net

     9,529        1,744   
  

 

 

   

 

 

 

Total current assets

     166,855        218,485   

Property and equipment, net

     1,747,878        1,742,789   

Goodwill

     335,610        335,610   

Trade names, net

     165,709        166,808   

Other intangible assets, net

     33,837        37,056   

Deferred tax assets, net

     52,566        72,547   

Other assets

     44,640        47,986   
  

 

 

   

 

 

 

Total

   $ 2,547,095      $ 2,621,281   
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity     

Current liabilities:

    

Accounts payable

   $ 104,915      $ 104,389   

Current maturities on long-term debt

     52,500        10,500   

Accrued salaries and wages

     32,189        25,675   

Deferred revenue

     82,233        84,136   

Other accrued expenses

     8,399        7,213   
  

 

 

   

 

 

 

Total current liabilities

     280,236        231,913   

Long-term debt

     1,365,387        1,400,029   

Other liabilities

     29,005        39,544   
  

 

 

   

 

 

 

Total liabilities

     1,674,628        1,671,486   
  

 

 

   

 

 

 

Commitments and contingencies (Note 13)

    

Stockholders’ Equity:

    

Common stock, $0.01 par value—authorized, 12,000,000 shares; issued and outstanding, 10,302,351 shares in 2011 and 10,100,000 in 2010

     103        101   

Additional paid-in capital

     956,456        1,052,899   

Accumulated deficit

     (84,092     (103,205
  

 

 

   

 

 

 

Total stockholders’ equity

     872,467        949,795   
  

 

 

   

 

 

 

Total

   $ 2,547,095      $ 2,621,281   
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

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SeaWorld Entertainment, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income (Loss)

for the Years Ended December 31, 2011 and 2010 and the One Month Period Ended December 31, 2009

(In thousands, except per share amounts)

 

     Year Ended
December 31,
2011
    Year Ended
December 31,
2010
    One Month
Period Ended
December 31,
2009
 

Net revenues:

      

Admissions

   $ 824,937      $ 730,368      $ 45,060   

Food, merchandise and other

     505,837        465,735        27,918   
  

 

 

   

 

 

   

 

 

 

Total revenues

     1,330,774        1,196,103        72,978   
  

 

 

   

 

 

   

 

 

 

Costs and expenses:

      

Cost of food, merchandise and other revenues

     112,498        97,871        5,472   

Operating expenses

     687,999        673,829        51,957   

Selling, general and administrative

     172,368        159,506        11,544   

Depreciation and amortization

     213,592        207,156        17,973   

Acquisition-related expenses

     —          —          67,966   
  

 

 

   

 

 

   

 

 

 

Total costs and expenses

     1,186,457        1,138,362        154,912   
  

 

 

   

 

 

   

 

 

 

Operating income (loss)

     144,317        57,741        (81,934

Other (expense) income, net

     (1,679     1,937        30   

Interest expense

     110,097        134,383        11,501   
  

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     32,541        (74,705     (93,405

Provision for (benefit from) income taxes

     13,428        (29,241     (35,664
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 19,113      $ (45,464   $ (57,741
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 19,113      $ (45,464   $ (57,741
  

 

 

   

 

 

   

 

 

 

Basic earnings per share:

      

Weighted average common shares outstanding

     10,174        10,100        10,100   
  

 

 

   

 

 

   

 

 

 

Net income (loss) per share

   $ 1.88      $ (4.50   $ (5.72
  

 

 

   

 

 

   

 

 

 

Diluted earnings per share:

      

Weighted average common shares outstanding

     10,253        10,100        10,100   
  

 

 

   

 

 

   

 

 

 

Net income (loss) per share

   $ 1.86      $ (4.50   $ (5.72
  

 

 

   

 

 

   

 

 

 

See notes to consolidated financial statements.

 

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SeaWorld Entertainment, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

for the Years Ended December 31, 2011 and 2010

and for the One Month Period Ended December 31, 2009

(In thousands, except share amounts)

 

    Shares of
Common Stock
    Common
Stock
    Additional
Paid—In
Capital
    Accumulated
Deficit
    Total
Stockholders’
Equity
 

Balance—December 1, 2009

    —          —          —          —          —     

Issuance of common stock

    10,100,000      $ 101      $ 1,009,899        —        $ 1,010,000   

Contributed capital—purchase price (Note 4)

    —          —        $ 38,000        —          38,000   

Contributed capital—issuance of warrants (Note 11)

    —          —        $ 5,000        —          5,000   

Net loss

    —          —          —        $ (57,741     (57,741
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance—December 31, 2009

    10,100,000        101        1,052,899        (57,741     995,259   

Net loss

    —          —          —          (45,464     (45,464
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance—December 31, 2010

    10,100,000        101        1,052,899        (103,205     949,795   

Issuance of common stock

    130,240        2        12,834        —          12,836   

Equity-based compensation

    72,111        —          823        —          823   

Dividend declared to stockholders

    —          —          (110,100     —          (110,100

Net income

    —          —          —          19,113        19,113   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance—December 31, 2011

    10,302,351      $ 103      $ 956,456      $ (84,092   $ 872,467   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See notes to consolidated financial statements.

 

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SeaWorld Entertainment, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

for the Years Ended December 31, 2011 and 2010 and the One Month Period Ended December 31, 2009

(In thousands)

 

     2011     2010     One Month
Period Ended
December 31,
2009
 

Cash Flows From Operating Activities:

      

Net income (loss)

   $ 19,113      $ (45,464   $ (57,741

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Depreciation and amortization

     213,592        220,695        17,973   

Amortization of debt issuance costs and discounts

     18,446        20,814        1,706   

Loss on disposal of property and equipment

     11,346        9,060        —     

Deferred income tax provision (benefit)

     12,197        (29,241     (35,664

Equity-based compensation

     823        —          —     

Changes in assets and liabilities:

      

Accounts receivable

     11,574        14,710        3,244   

Inventories

     (4,089     2,372        (37

Prepaid expenses and other current assets

     (3,711     1,038        (11,082

Accounts payable

     (6,223     (26,684     35,115   

Accrued salaries and wages

     6,514        14,778        3,232   

Deferred revenue

     (13,983     21,057        78   

Other accrued expenses

     1,186        (5,879     10,551   

Other assets and liabilities

     1,464        5,025        761   
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     268,249        202,281        (31,864
  

 

 

   

 

 

   

 

 

 

Cash Flows From Investing Activities:

      

Purchase of Busch Entertainment LLC, net of cash acquired

     —          —          (2,282,351

Capital expenditures

     (225,316     (120,196     (3,149
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (225,316     (120,196     (2,285,500
  

 

 

   

 

 

   

 

 

 

Cash Flows From Financing Activities:

      

Repayment of long-term debt

     (586,248     (20,500     —     

Proceeds from the issuance of long-term debt

     550,291        —          1,426,050   

Net proceeds from issuance of common stock

     12,836        —          1,010,000   

Draw on revolving credit facility

     36,000        —          —     

Dividend paid to stockholders

     (106,920     —          —     

Debt issuance costs

     (5,926     —          (56,574
  

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (99,967     (20,500     2,379,476   
  

 

 

   

 

 

   

 

 

 

Change in Cash and Cash Equivalents

     (57,034     61,585        62,112   

Cash and Cash Equivalents—Beginning of year

     123,697        62,112        —     
  

 

 

   

 

 

   

 

 

 

Cash and Cash Equivalents—End of year

   $ 66,663      $ 123,697      $ 62,112   
  

 

 

   

 

 

   

 

 

 

Supplemental Disclosures of Noncash Investing and Financing Activities:

      

Warrants and original issuance discounts issued in conjunction with the Senior Notes

   $ —        $ —        $ 38,950   
  

 

 

   

 

 

   

 

 

 

Contributed capital

   $ —        $ —        $ 38,000   
  

 

 

   

 

 

   

 

 

 

Dividends declared, but unpaid

   $ 3,180      $ —        $ —     
  

 

 

   

 

 

   

 

 

 

Capital expenditures in accounts payable

   $ 28,441      $ 24,872      $ 7,758   
  

 

 

   

 

 

   

 

 

 

Debt financing fees in accounts payable

   $ —        $ —        $ 6,007   
  

 

 

   

 

 

   

 

 

 

See notes to consolidated financial statements.

 

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SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2011 AND DECEMBER 31, 2010, AND THE

ONE MONTH PERIOD ENDED DECEMBER 31, 2009

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. DESCRIPTION OF THE BUSINESS

SeaWorld Entertainment, Inc. (f/k/a SW Holdco, Inc.) through its wholly-owned subsidiary SeaWorld Parks & Entertainment, Inc. (“SEA”) (collectively, the “Company”), owns and operates ten theme parks within the United States. The Company is owned by ten limited partnerships (the “Partnerships”), owned by affiliates of The Blackstone Group L.P. (“Blackstone”) and certain co-investors.

Prior to December 1, 2009, the Company did not have any operations. On December 1, 2009, the Company acquired all of the outstanding equity interests of Busch Entertainment LLC and affiliates (the “Predecessor”) from Anheuser-Busch Companies, Inc. and Anheuser-Busch InBev SA/NV (“A-B/InBev”). See Note 4.

The Company operates SeaWorld theme parks in Orlando, Florida; San Antonio, Texas; and San Diego, California, and Busch Gardens theme parks in Tampa, Florida, and Williamsburg, Virginia. The Company operates water park attractions in Orlando, Florida (Aquatica); Tampa, Florida (Adventure Island), and Williamsburg, Virginia (Water Country USA). The Company also operates a reservations-only attraction offering interaction with marine animals (Discovery Cove) and a seasonal park in Langhorne, Pennsylvania (Sesame Place).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation—The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements include the accounts of the Company beginning with the commencement of operations on December 1, 2009, as described in Note 1. All intercompany accounts have been eliminated in consolidation.

Use of 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 accounting for self-insurance, deferred tax assets, deferred revenue, and valuation of goodwill and other indefinite-lived intangible assets. Actual results could differ from those estimates.

Cash and Cash Equivalents—Cash and cash equivalents include cash held at financial institutions as well as operating cash on-site at each theme park to fund daily operations and amounts due from third-party credit card companies. The cash balances in non-interest bearing accounts held at financial institutions are fully insured by the Federal Deposit Insurance Corporation (“FDIC”) through December 31, 2012. Interest bearing accounts are insured up to $250. At times, cash balances may exceed federally insured amounts and potentially subject the Company to a concentration of credit risk. Management believes that no significant concentration of credit risk exists with respect to these cash balances because of its assessment of the creditworthiness and financial viability of the respective financial institutions.

Accounts ReceivableNet—Accounts receivable are reported at net realizable value and consist primarily of amounts due from customers for the sale of admission products. The Company is not exposed to a significant concentration of credit risk. The Company does record an allowance for

 

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estimated uncollectible receivables, based on the amount and status of past-due accounts, contractual terms of the receivables, and the Company’s history of uncollectible accounts. For all periods presented, the allowance for uncollectible accounts and the related provision were insignificant.

Inventories—Inventories are stated at the lower of cost or market value with the cost being determined by the weighted average cost method. Inventories consist primarily of products for resale, including merchandise, culinary items, and miscellaneous supplies. Obsolete or excess inventories are recorded at their estimated realizable value.

Property and EquipmentNet—Property and equipment are recorded at cost; the cost of routine maintenance, repairs, spare parts and minor renewals is expensed as incurred. Internal development costs associated with rides and equipment are capitalized after feasibility studies have been completed and substantially all product development is complete. The cost of the assets is depreciated using the straight-line method based on the following estimated useful lives:

 

Land improvements

     10–40 years   

Buildings

     5–40 years   

Rides and equipment

     3–15 years   

Animals

     1–40 years   

Material costs to purchase animals exhibited in the theme parks are capitalized and amortized over their estimated remaining productive lives (1-40 years). In-house animal breeding costs are expensed as they are incurred since they are insignificant to the consolidated financial statements. All costs (including training) to maintain the animals after they are placed into service at the parks are expensed as incurred.

Construction in process assets consist primarily of rides and other attractions that are under construction and have not yet been placed in service. These assets are stated at cost and are not depreciated. Once construction of assets is completed and the assets are placed into service, assets are reclassified to the appropriate asset class based on their nature and depreciated in accordance with the useful lives above. Interest is capitalized on major construction projects. Total interest capitalized for the years ended December 31, 2011 and 2010, was $5,600 and $2,394, respectively.

Computer System Development Costs—The Company capitalizes computer system development costs that meet established criteria and amortizes those costs to expense on a straight-line basis over five years. The capitalized costs related to the computer system development costs were $2,009 and $661 for the years ended December 31, 2011 and 2010, respectively, and are recorded in other assets in the accompanying consolidated balance sheets. Computer system development costs not meeting the proper criteria for capitalization, including systems reengineering costs, are expensed as incurred.

Impairment of Long-Lived Assets—All long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances that would indicate that the carrying value of the assets may not be recoverable. An impairment loss may be recognized when estimated undiscounted future cash flows expected to result from the use of the asset, including disposition, are less than the carrying value of the asset.

The measurement of the impairment loss to be recognized is based upon the difference between the fair value and the carrying amounts of the assets. Fair value is generally determined based upon a discounted cash flow analysis. In order to determine if an asset has been impaired, assets are grouped and tested at the lowest level for which identifiable independent cash flows are available (generally a theme park). No impairment losses were recognized during the years ended December 31, 2011 and 2010, and the one month period ended December 31, 2009.

 

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Goodwill and Indefinite-Lived Intangible Assets—Goodwill and indefinite-lived intangible assets are not amortized, but instead reviewed for impairment at least annually on December 1, with ongoing recoverability based on applicable reporting unit performance and consideration of significant events or changes in the overall business environment.

The following description of the Company’s policy and process for assessing goodwill for possible impairment reflects the adoption of Accounting Standards Update (ASU) 2011-08 in 2011. Prior to 2011, the Company performed the quantitative two-step process further described below.

In assessing goodwill for impairment, we initially evaluate qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We consider several factors, including macroeconomic conditions, industry and market conditions, overall financial performance of the reporting unit, changes in management, strategy or customers, and relevant reporting unit specific events such as a change in the carrying amount of net assets, a more-likely-than-not expectation of selling or disposing all, or a portion, of a reporting unit, and the testing for recoverability of a significant asset group within a reporting unit. If this qualitative assessment results in a conclusion that it is more likely than not that the fair value of a reporting unit exceeds the carrying value, then no further testing is performed for that reporting unit.

If the qualitative assessment is not conclusive and it is necessary to calculate the fair value of a reporting unit, then the impairment analysis for goodwill is performed at the reporting unit level using a two-step approach. The first step is a comparison of the fair value of the reporting unit, determined using future cash flow analysis, to its recorded amount. If the recorded amount exceeds the fair value, the second step quantifies any impairment write-down by comparing the current implied value of goodwill to the recorded goodwill balance. The Company’s indefinite-lived intangible assets consist of certain trade names which, after considering legal, regulatory, contractual, and other competitive and economic factors, are determined to have indefinite lives and are valued annually using the relief from royalty method. The Company performed its annual impairment test of goodwill and indefinite lived assets on December 1, 2011 and 2010, and found no impairments.

Other Intangible Assets—The Company’s other intangible assets consist primarily of certain trade names, relationships with ticket resellers, and a favorable lease asset. These intangible assets are amortized on the straight-line basis over their estimated remaining lives.

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

Debt Financing Costs—Direct costs incurred in issuance of long-term debt are being amortized to interest expense using the effective interest method over the term of the related debt.

Revenue Recognition—The Company recognizes revenue upon admission into a park or when products are delivered to customers. For season passes and other multi-use admissions, deferred revenue is recorded and the related revenue is recognized over the terms of the admission product and its related use. Deferred revenue includes a current and long-term portion. At December 31, 2011 and 2010, long-term deferred revenue of $8,109 and $20,189, respectively, is included in other liabilities in the accompanying consolidated balance sheets.

 

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The Company has entered into agreements with certain external theme park, zoo, and other attraction operators to jointly market and sell admission products. These joint products allow admission to both a Company park and an external park, zoo or other attraction. The agreements with the external parks, specify the allocation of revenue to the Company from any jointly sold products. The Company’s portion of revenue is deferred and recognized upon admission.

The Company barters theme park admission products for advertising, employee recognition awards, and various other services. The fair value of the admission products is recognized into revenue and related expense at the time of the exchange and approximates the fair value of the goods or services received. For the years ended December 31, 2011 and 2010, and the one month period ended December 31, 2009, $19,734, $17,149, and $693, respectively, were included within admissions revenue and selling, general, and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss) related to bartered ticket transactions.

Advertising and Promotional Costs—Advertising production costs are deferred and expensed the first time the advertisement is shown. Advertising and media costs are expensed as incurred and for the years ended December 31, 2011 and 2010, and the one month period ended December 31, 2009, totaled approximately $113,300, $122,600, and $9,700, respectively, and are included in selling, general, and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss).

Equity-Based Compensation—The Company measures the cost of employee services rendered in exchange for share-based compensation based upon the grant date fair market value. The cost is recognized over the requisite service period.

Income Taxes—Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.

A valuation allowance is established for deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Realization is dependent on generating future taxable income or the reversal of deferred tax liabilities during the periods in which those temporary differences become deductible.

The Company evaluates its tax positions by determining if it is more likely than not a tax position is sustainable upon examination, based upon the technical merits of the position, before any of the benefit is recorded for financial statement purposes. Previously recorded benefits that no longer meet the more-likely than not threshold are charged to earnings in the period that the determination is made. Interest and penalties accrued related to uncertain positions are charged to the provision/benefit for income taxes.

Fair Value Measurements—Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

An entity is permitted to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period. The Company has not elected to use the fair value option for any of its financial assets and financial liabilities that are not already recorded at fair value. Carrying values of financial instruments classified as current assets and current liabilities approximate fair value, due to their short-term nature.

 

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A description of the Company’s policies regarding fair value measurement is summarized below.

Fair Value Hierarchy—Fair value is determined for assets and liabilities, which are grouped according to a hierarchy, based upon significant levels of observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These two types of inputs have created the following fair value hierarchy:

Level 1—Quoted prices for identical instruments in active markets.

Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Determination of Fair Value—The Company generally uses quoted market prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access to determine fair value, and classifies such items in Level 1. Fair values determined by Level 2 inputs utilize inputs other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted market prices in active markets for similar assets or liabilities, and inputs other than quoted market prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently sourced market parameters, such as interest and currency rates, and the like. Assets or liabilities valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.

Segment Reporting—The Company maintains discrete financial information for each of its ten theme parks, which is used by the Chief Operating Decision Maker (“CODM”), identified as the Chief Executive Officer, as a basis for allocating resources. Each theme park has been identified as an operating segment and meets the criteria for aggregation due to similar economic characteristics. In addition, all of the theme parks provide similar products and services and share similar processes for delivering services. The theme parks have a high degree of similarity in the workforces and target the same consumer group. Accordingly, based on these economic and operational similarities and the way the CODM monitors the operations, the Company has concluded that its operating segments may be aggregated and that it has one reportable segment.

3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (“FASB”) issued guidance clarifying how to measure and disclose fair value. This guidance amends the application of the “highest and best use” concept to be used only in the measurement of fair value of nonfinancial assets, clarifies that the measurement of the fair value of equity-classified financial instruments should be performed from the perspective of a market participant who holds the instrument as an asset, clarifies that an entity that manages a group of financial assets and liabilities on the basis of its net risk exposure can measure those financial instruments on the basis of its net exposure to those risks, and clarifies when premiums and discounts should be taken into account when measuring fair value. The fair value disclosure requirements were also amended. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

 

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In June 2011, the FASB issued guidance that revises the manner in which entities present comprehensive income in their financial statements. The guidance requires entities to report the components of comprehensive income in either a single, continuous statement or two separate but consecutive statements. In December 2011, the FASB issued guidance which defers certain requirements set forth in June 2011. These amendments were made to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income in all periods presented. Both sets of guidance are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and are required to be applied retrospectively. The Company adopted this guidance on January 1, 2012 and accordingly applied the new guidance retrospectively. The Company had no components of comprehensive income in any of the periods presented.

In September 2011, the FASB issued guidance related to testing goodwill for impairment. Under the amended guidance, entities testing goodwill for impairment have the option of performing a qualitative assessment before calculating the fair value of the reporting units. If the entities determine, based on the qualitative assessment, that it is more likely than not an impairment has not occurred, no further quantitative testing is necessary. The guidance is effective for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company early adopted the guidance and performed a qualitative assessment as its initial step for the 2011 annual review of goodwill impairment. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In July 2012, the FASB issued new accounting guidance relating to impairment testing for indefinite-lived intangible assets. In accordance with this guidance, an entity has the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that an indefinite-lived intangible asset is impaired. If after such assessment an entity concludes that the indefinite-lived intangible asset is not impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test as required by existing standards. This guidance is effective for annual and interim impairment tests for fiscal years beginning after September 15, 2012 and early adoption is permitted. The Company is in the process of evaluating this guidance, which is not expected to have a material impact on its consolidated financial statements.

4. ACQUISITION OF BUSCH ENTERTAINMENT LLC AND AFFILIATES

On December 1, 2009, investment funds affiliated with Blackstone and certain co-investors, through SeaWorld Entertainment, Inc. and its wholly-owned subsidiary, SEA, acquired all of the outstanding equity interests of SeaWorld LLC and SeaWorld Parks & Entertainment LLC from Anheuser-Busch Companies, Inc. for approximately $2,300,000. The acquisition (and its related expenses) was financed by a capital contribution from the Partnerships of $1,010,000, and the issuance of $1,460,000 in long-term debt, net of $34,000 original issue discount (see Note 11).

In connection with the acquisition, Anheuser-Busch received from the Partnerships the right to receive, subject to certain conditions, distributions of up to $400,000 under the terms of the Partnership agreements. Such right has been included in the purchase price and included in additional paid-in capital at their aggregate fair value of $38,000 using a valuation technique referred to as a Monte Carlo simulation. The Monte Carlo simulation is based upon significant inputs that are not observable in the market. Key assumptions include the probability of a liquidation event, projected income before income taxes, amortization, depreciation, interest, and a discount rate of 16%. The estimated fair value of these instruments was measured on a nonrecurring basis as they were valued on the date of acquisition using significant unobservable (Level 3) inputs under the guidance for fair value measurements.

 

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Goodwill recognized in the acquisition, which is deductible for tax purposes, is attributed primarily to historical operating performance of the parks. Goodwill of $269,332 and $66,278 respectively, have been allocated to the SeaWorld Orlando and Discovery Cove theme parks and will be tested annually for impairment on December 1. There were no changes to the goodwill balance for the years ended December 31, 2011 or 2010.

5. EARNINGS PER SHARE

Earnings per share is computed as follows (in thousands, except per share data):

 

    Year Ended December 31, 2011     Year Ended December 31, 2010     One Month Period
Ended December 31, 2009
 
    Net
Income
    Shares     Per Share
Amount
    Net
Loss
    Shares     Per Share
Amount
    Net
Loss
    Shares     Per Share
Amount
 

Basic earnings per share

  $ 19,113        10,174      $ 1.88      $ (45,464     10,100      $ (4.50   $ (57,741     10,100      $ (5.72

Effect of dilutive equity-based awards

      79            —              —       
   

 

 

       

 

 

       

 

 

   

Diluted earnings per share

  $ 19,113        10,253      $ 1.86      $ (45,464     10,100      $ (4.50   $ (57,741     10,100      $ (5.72
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is determined based on the dilutive effect of warrants and incentive units using the treasury stock method.

Warrants to purchase 101,000 shares (not in thousands) of the Company’s common stock were outstanding at December 31, 2010 and 2009, but were not included in the computation of diluted earnings per share because the effect of exercising such warrants would be antidilutive.

6. INVENTORIES

Inventories as of December 31, 2011 and 2010, consist of the following:

 

     2011      2010  

Merchandise

   $ 27,937       $ 23,753   

Food and beverage

     4,461         4,555   

Supplies

     33         34   
  

 

 

    

 

 

 

Total

   $ 32,431       $ 28,342   
  

 

 

    

 

 

 

7. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets at December 31, 2011 and 2010, consist of the following:

 

     2011      2010  

Prepaid insurance

   $ 7,152       $ 8,386   

Prepaid marketing and advertising costs

     3,365         1,275   

Other

     1,735         114   
  

 

 

    

 

 

 

Total

   $ 12,252       $ 9,775   
  

 

 

    

 

 

 

 

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8. PROPERTY AND EQUIPMENT—NET

The components of property and equipment—net as of December 31, 2011 and 2010, consist of the following:

 

     2011     2010  

Land

   $ 274,100      $ 274,100   

Land improvements

     201,319        151,059   

Buildings

     418,318        395,758   

Rides and equipment

     977,233        899,246   

Animals

     161,144        164,063   

Construction in process

     140,770        76,474   

Less accumulated depreciation

     (425,006     (217,911
  

 

 

   

 

 

 

Total

   $ 1,747,878      $ 1,742,789   
  

 

 

   

 

 

 

Depreciation expense was approximately $209,300, $202,800, and $17,700 for the years ended December 31, 2011 and 2010, and the one month period ended December 31, 2009, respectively.

9. TRADE NAMES AND OTHER INTANGIBLE ASSETS—NET

Trade names-net are comprised of the following at December 31, 2011:

 

     Weighted Average
Amortization
Period
   Gross Carrying
Amount
     Accumulated
Amortization
     Net Carrying
Value
 

Trade names—indefinite lives

      $ 157,000       $         $ 157,000   

Trade names—definite lives

   10 years      11,000         2,291         8,709   
     

 

 

    

 

 

    

 

 

 

Total

      $ 168,000       $ 2,291       $ 165,709   
     

 

 

    

 

 

    

 

 

 

Trade names-net are comprised of the following at December 31, 2010:

 

     Weighted Average
Amortization
Period
   Gross Carrying
Amount
     Accumulated
Amortization
     Net Carrying
Value
 

Trade names—indefinite lives

      $ 157,000       $         $ 157,000   

Trade names—definite lives

   10 years      11,000         1,192         9,808   
     

 

 

    

 

 

    

 

 

 

Total

      $ 168,000       $ 1,192       $ 166,808   
     

 

 

    

 

 

    

 

 

 

Other intangible assets-net at December 31, 2011, consist of the following:

 

     Weighted Average
Amortization
Period
   Gross Carrying
Amount
     Accumulated
Amortization
     Net Carrying
Value
 

Favorable lease asset

   39 years    $ 18,200       $ 934       $ 17,266   

Reseller agreements

   8.11 years      22,300         5,729         16,571   
     

 

 

    

 

 

    

 

 

 

Total

      $ 40,500       $ 6,663       $ 33,837   
     

 

 

    

 

 

    

 

 

 

 

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Other intangible assets-net at December 31, 2010, consist of the following:

 

     Weighted Average
Amortization
Period
   Gross Carrying
Amount
     Accumulated
Amortization
     Net Carrying
Value
 

Favorable lease asset

   39 years    $ 18,200       $ 467       $ 17,733   

Reseller agreements

   8.11 years      22,300         2,977         19,323   
     

 

 

    

 

 

    

 

 

 

Total

      $ 40,500       $ 3,444       $ 37,056   
     

 

 

    

 

 

    

 

 

 

Total amortization was approximately $4,300 for the years ended December 31, 2011 and 2010, and $321 for the one month period ended December 31, 2009. The total weighted average amortization period of all finite-lived intangibles is 19.4 years. Total expected amortization of the finite-lived intangible assets for the five succeeding years and thereafter is as follows:

 

Years Ending

December 31

      

2012

   $ 4,318   

2013

     4,318   

2014

     4,318   

2015

     4,318   

2016

     4,318   

Thereafter

     20,956   
  

 

 

 
   $ 42,546   
  

 

 

 

10. OTHER ACCRUED EXPENSES

Other accrued expenses at December 31, 2011 and 2010, consist of the following:

 

     2011      2010  

Accrued property taxes

   $ 1,644       $ 1,720   

Accrued interest

     4,908         4,996   

Other

     1,847         497   
  

 

 

    

 

 

 

Total

   $ 8,399       $ 7,213   
  

 

 

    

 

 

 

11. LONG-TERM DEBT

Long-term debt at December 31, 2011 and 2010, consists of the following:

 

     2011     2010  

Term loan

   $ —        $ 1,039,500   

Term Loan A

     159,500        —     

Term Loan B

     844,043        —     

Revolving credit agreement

     36,000        —     

Senior Notes

     400,000        400,000   
  

 

 

   

 

 

 
     1,439,543        1,439,500   

Less discounts

     (21,656     (28,971

Less current maturities

     (52,500     (10,500
  

 

 

   

 

 

 

Total long-term debt, net of current maturities

   $ 1,365,387      $ 1,400,029   
  

 

 

   

 

 

 

 

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In connection with the acquisition described in Note 4, on December 1, 2009, SEA both entered into senior secured credit facilities (“Senior Secured Credit Facilities”) and issued senior notes (the “Senior Notes”):

Senior Secured Credit Facilities

Effective on February 17 and April 15, 2011, SEA entered into Amendments No. 1 and 2, respectively, of the Senior Secured Credit Facilities (collectively, the “Amendments”). As a result of Amendment No. 1, the original term loan was refinanced into two tranches of term loans, Term A Loans (original balance of $150,000), and Term B Loans (original balance of $900,000). As a result of Amendment No. 2, $17,000 of Term Loan B was refinanced to Term Loan A. In addition, the revolving credit commitment availability under the Senior Secured Credit Facilities increased to $172,500. The amended credit agreement was not deemed to be substantially different, as defined in the authoritative accounting guidance, from the original agreement. At December 31, 2011, following the Amendments, the Senior Secured Credit Facilities consist of:

 

  Ÿ  

Tranche A Term Loans, balance of $159,500, which will mature on February 17, 2016;

 

  Ÿ  

Tranche B Term Loans, balance of $844,043 in Tranche B Term Loans, which will mature on the earlier of (i) August 17, 2017 or (ii) the 91st day prior to the maturity of the Senior Notes, if more than $50 million of debt with respect to the Senior Notes is outstanding as of such date; and

 

  Ÿ  

Revolving Credit Facility, balance of $36,000, which will mature on February 17, 2016.

Borrowings related to the Tranche A Term Loans and the revolving credit facility 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 (“BBA”) LIBOR rate for the interest period relevant to such borrowing. The margin for the Tranche A Term Loans is 1.75%, in the case of base rate loans, and 2.75%, in the case of LIBOR rate loans, subject to a step-down of 0.25% upon achievement of a secured leverage ratio less than or equal to 2.25 to 1.00. SEA selected the LIBOR rate at December 31, 2011, related to the Term A Term Loans and the revolving credit loans (interest rate of 3.046% and 2.99%, respectively).

Borrowings under the Tranche B Term Loans bear interest, at SEA’s option, at a rate equal to a margin over either (a) a base rate determined by reference to the higher of (1) the Bank of America’s prime lending rate and (2) the federal funds effective rate plus 1/2 of 1% or (b) a LIBOR rate determined by reference to the BBA LIBOR rate for the interest period relevant to such borrowing. The margin for the Tranche B Term Loans is 2.00%, in the case of base rate loans, and 3.00%, in the case of LIBOR rate loans, subject to a base rate floor of 2.00% and a LIBOR floor of 1.00%. SEA selected the LIBOR rate at December 31, 2011, related to the Term B Term Loans (interest rate of 4%).

The option selected and rate in effect at December 31, 2010, was the LIBOR rate (interest rate of 5.75% at December 31, 2010). Under the terms of the Senior Secured Credit Facilities at December 31, 2010, the LIBOR interest rate could be no lower than 5.75%.

SEA is required to repay installments on the term loans in quarterly installments equal to $1,875 with respect to Tranche A Term Loans and 0.25% of the original principal balance with respect to Tranche B Term Loans, with the remaining amount payable on the applicable maturity date with respect to such term loans.

 

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In addition, the Senior Secured Credit Facilities, as amended, requires the Company to prepay outstanding term loans, subject to certain exceptions, in an amount equal to:

 

  Ÿ  

50% (which percentage will be reduced to 25% and 0%, as applicable, subject to SEA attaining certain total leverage ratios) of its annual excess cash flow, as defined;

 

  Ÿ  

100% of the net cash proceeds of all non-ordinary course asset sales or other dispositions of property by SEA and its restricted subsidiaries (including insurance and condemnation proceeds, subject to de minimis thresholds), if SEA does not reinvest those net cash proceeds in assets to be used in its business or to make certain other permitted investments (a) within 12 months of the receipt of such net cash proceeds or (b) if SEA commits to reinvest such net cash proceeds within 12 months of the receipt thereof, within 180 days of the date of such commitment; and

 

  Ÿ  

100% of the net proceeds of any incurrence of debt by SEA or any of its restricted subsidiaries, other than debt permitted to be incurred or issued under the Senior Secured Credit Facilities.

Notwithstanding any of the foregoing, each lender of term loans has the right to reject its pro rata share of mandatory prepayments described above, in which case SEA may retain the amounts so rejected. The foregoing mandatory prepayments will be applied pro rata to installments of term loans in direct order of maturity.

There were no mandatory prepayments during the year ended December 31, 2011 or 2010.

The obligations under the Senior Secured Credit Facilities are fully, unconditionally and irrevocably guaranteed by the Company, any subsidiary of the Company that directly or indirectly owns 100% of the issued and outstanding equity interests of SEA, and, subject to certain exceptions, each of SEA’s existing and future material domestic wholly-owned subsidiaries. The Senior Secured Credit Facilities are collateralized by first priority or equivalent security interests, subject to certain exceptions, in (i) all the capital stock of, or other equity interests in, substantially all of our direct or indirect domestic subsidiaries and 65% of the capital stock of, or other equity interests in, any foreign subsidiaries and (ii) certain tangible and intangible assets of SEA and the Company. Certain financial, affirmative and negative covenants, including a maximum total net leverage ratio and minimum interest coverage ratio, are included in the Senior Secured Credit Facilities. If an event of default occurs, the lenders under the Senior Secured Credit Facilities will be entitled to take various actions, including the acceleration of amounts due under the Senior Secured Credit Facilities and all actions permitted to be taken by a secured creditor. SEA was in compliance with the covenants at December 31, 2011 and 2010.

Revolving credit available under the Senior Secured Credit Facilities as of December 31, 2011 and 2010, was $124,707 and $135,001, respectively. The revolving credit commitment includes up to $20,000 in short-term loans (five days in duration) and up to $50,000 in letters of credit. Any amounts borrowed under the short-term loans or as letters of credit reduce the total amount available under the revolving credit loan. All amounts outstanding under the revolving credit commitment are due on February 17, 2016, except for borrowings under the short-term loans, which are payable within five business days of the original borrowing.

Amounts outstanding at December 31, 2011, relating to the Revolving Credit Facility were $36,000 at an interest rate of 2.99%. No amounts were outstanding at December 31, 2010.

As of December 31, 2011, the Company had approximately $11.8 million of outstanding letters of credit.

Senior Notes

On December 1, 2009, SEA issued $400.0 million of 13.5% Senior Notes due December 1, 2016. SEA can redeem the Senior Notes at any time and the Senior Notes are unsecured. Interest is paid semi-annually in arrears. Prior to December 1, 2012, the redemption price is 100% of the principal

 

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amount of the Senior Notes, plus an applicable premium, as defined. However, in the case of an equity offering prior to December 1, 2012, SEA may redeem up to 35% of the Senior Notes for 113.5% of the principal amount. The Senior Notes may be redeemed by the Company at 110%, 106.75%, 104.5%, and 102.25% of the principal balance beginning on December 1, 2012, 2013, 2014, and 2015, respectively. The terms were amended on March 30, 2012. (See Note 18). The Senior Notes were issued at a discount of $80.72 per $1 or a total of $33,950. The discount is being amortized to interest expense using the weighted average interest method and the discount balance is $18,144 and $24,745 at December 31, 2011 and 2010, respectively. The obligations under the Senior Notes are guaranteed by the same entities as those that guarantee the Senior Secured Credit Facilities.

Cash paid for interest relating to the Senior Secured Credit Facilities and the Senior Notes discussed above was $97,575 and $121,239 during the years ended December 31, 2011 and 2010, respectively.

In connection with the issuance of the Senior Notes, the holders of the Senior Notes received warrants to purchase 101,000 (not in thousands) Partnerships units for $100 (not in thousands) per unit. The Partnerships, in turn, received warrants to acquire 101,000 (not in thousands) shares of the Company’s common stock. The total value of the warrants at December 1, 2009 was $5,000 and was recorded by the Company as additional paid-in capital and a discount on the Senior Notes. The additional discount is being amortized to interest expense over the term of the Senior Notes. The unamortized discount at December 31, 2011 and 2010, of $3,512 and $4,226, respectively, is presented as a reduction of the carrying value of the Senior Notes in the accompanying consolidated financial statements. During 2011, all the warrants were exercised for cash in accordance with the underlying warrant agreement, the holders of the Senior Notes received 101,000 (not in thousands) limited partnership units of the Partnerships and the Company issued a total of 101,000 (not in thousands) shares of common stock to the Partnerships.

The Company has deferred $62,500 in financing costs that were paid to issue the long-term debt. Deferred financing costs, net of accumulated amortization, were $39,232 and $44,437 as of December 31, 2011 and 2010, respectively, and are being amortized to interest expense using the effective interest method over the term of the Senior Notes and are included in other assets in the accompanying consolidated balance sheets. Financing costs paid to the creditors amounting to $5,926 directly related to the Amendments noted above were recorded as deferred financing costs.

The fair value of the term loans at December 31, 2011, approximates their carrying value due to the variable nature of the underlying interest rates. The fair value of the Senior Notes approximates $429,000 at December 31, 2011. The estimated fair value of the Senior Notes was computed using significant inputs that are not observable in the market including a discount rate of 12.5% and projected cash flows of the underlying Senior Notes.

Long-term debt at December 31, 2011, is repayable as follows, not including any possible prepayments described above:

 

Years Ending

December 31

      

2012

   $ 52,500   

2013

     16,500   

2014

     16,500   

2015

     16,500   

2016

     1,337,543   
  

 

 

 

Total

   $ 1,439,543   
  

 

 

 

 

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12. INCOME TAXES

For the years ended December 31, 2011, and 2010, and the one month period ended December 31, 2009, the provision for (benefit from) income taxes is comprised of the following:

 

     2011     2010     2009  

Current income tax expense (benefit)

      

Federal

   $ (70   $ —        $ —     

State

     1,277        —          —     

Foreign

     24        —          —     
  

 

 

   

 

 

   

 

 

 

Total current income tax provision

     1,231        —          —     
  

 

 

   

 

 

   

 

 

 

Deferred income tax provision (benefit):

      

Federal

     11,429        (24,074     (31,089

State

     768        (5,167     (4,575
  

 

 

   

 

 

   

 

 

 

Total deferred income tax provision (benefit)

     12,197        (29,241     (35,664
  

 

 

   

 

 

   

 

 

 

Total income tax provision (benefit)

   $ 13,428      $ (29,241   $ (35,664
  

 

 

   

 

 

   

 

 

 

The deferred income tax provision (benefit) represents the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Cash paid for income taxes totaled $513, $0, and $0 for the years ended December 31, 2011 and 2010 and the one month period ended December 31, 2009, respectively.

The Company has determined that there are no positions currently taken that would rise to a level requiring an amount to be recorded or disclosed as an uncertain tax position. If such positions do arise, it is the Company’s intent that any interest or penalty amount related to such positions will be recorded as a component of tax expense to the applicable period.

The components of deferred income tax assets and liabilities as of December 31, 2011 and 2010, are as follows:

 

     2011     2010  

Deferred income tax assets:

    

Acquisition costs

   $ 23,866      $ 25,157   

Net operating loss

     197,241        152,319   

Self-insurance

     7,507        2,127   

Deferred revenue

     3,337        1,177   

Other

     2,477        1,614   
  

 

 

   

 

 

 

Total deferred income tax assets

     234,428        182,394   
  

 

 

   

 

 

 

Deferred income tax liabilities:

    

Property and equipment

     (146,002     (93,330

Goodwill

     (14,030     (6,875

Other

     (12,301     (7,898
  

 

 

   

 

 

 

Total deferred income tax liabilities

     (172,333     (108,103
  

 

 

   

 

 

 

Net deferred income tax assets

   $ 62,095      $ 74,291   
  

 

 

   

 

 

 

The Company has federal tax net operating loss carryforwards as of December 31, 2011, of approximately $507,600. The net operating loss carryforwards, if not used to reduce taxable income in future periods, will begin to expire in 2029, for both state and federal tax purposes. Realization of the net deferred income tax assets is dependent upon generating sufficient taxable income prior to expiration of the loss carryforwards, which may include reversal of the other deferred income tax

 

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components. Although realization is not assured, management believes it is more likely than not that all of the deferred income tax assets will be realized. The Company files federal and state income tax returns in various jurisdictions with varying statute of limitation expiration dates. The 2009 through 2011 tax years generally remain subject to examination by tax authorities.

The reconciliation between the U.S. federal statutory income tax rate and the Company’s effective income tax provision (benefit) rate for the years ended December 31, 2011 and 2010, and the one month period ended December 31, 2009, is as follows:

 

     2011     2010     2009  

Income tax rate at federal statutory rates

     35.00     35.00     35.00

State taxes, net of federal benefit

     5.57        3.67        3.17   

Other

     0.69        0.47        —     

Income tax rate

     41.26     39.14     38.17

13. COMMITMENTS AND CONTINGENCIES

At December 31, 2011, the Company has commitments under long-term operating leases requiring annual minimum lease payments as follows:

 

Years Ending December 31

      

2012

   $ 13,393   

2013

     11,501   

2014

     10,399   

2015

     10,398   

2016

     9,637   

Thereafter

     302,216   
  

 

 

 

Total

   $ 357,544   
  

 

 

 

Rental expense was $22,119, $19,719, and $1,332 for the years ended December 31, 2011 and 2010, and the one month period ended December 31, 2009, respectively.

The SeaWorld theme park in San Diego, California, leases the land for the theme park from the City of San Diego. The lease term is for 50 years ending on July 1, 2048. Lease payments are based upon gross revenue from the San Diego theme park subject to certain minimums. On January 1, 2011, the minimum annual rent payment was recalculated in accordance with the lease agreement and remained at $9,600 and is included in the table above for all periods presented. This annual rent will remain in effect until January 1, 2014, at which time the next recalculation will be completed in accordance with the lease agreement.

Pursuant to license agreements with Sesame Workshop, the Company pays a specified annual license fee, as well as a specified royalty based on revenues earned in connection with sales of licensed products, all food and beverage items utilizing the licensed elements and any events utilizing such elements if a separate fee is paid for such event.

The Company has commenced construction of certain new theme park attractions and other projects under contracts with various third parties. At December 31, 2011, additional capital payments of approximately $146,600 are necessary to complete these projects. These projects are expected to be completed during 2012 and 2013.

In addition, the Company is party to various claims and legal proceedings arising in the normal course of business. Matters where an unfavorable outcome to the Company is probable and which can

 

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be reasonably estimated are accrued. Such accruals, which are not material for any period presented, are based on information known about the matters, the Company’s estimate of the outcomes of such matters, and the Company’s experience in contesting, litigating, and settling similar matters. Matters that are considered reasonably possible to result in a material loss are not accrued for, but an estimate of the possible loss or range of loss is disclosed, if such amount or range can be determined. Management does not expect any known claims or legal proceedings to have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.

14. RELATED-PARTY TRANSACTIONS

Certain affiliates of Blackstone provide monitoring, advisory, and consulting services to the Company under an advisory fee agreement. Fees related to these services, which are based upon a multiple of EBITDA, as defined in the advisory agreement, amounted to $6,012, $4,704, and $290 for the years ended December 31, 2011 and 2010, and the one month period ended December 31, 2009, respectively, are included in selling, general, and administrative expenses in the accompanying consolidated statements of operations and other comprehensive income (loss). In connection with the advisory agreement, a termination fee calculated based on the terms of the agreement will be assessed if certain triggering events occur, including, but not limited to, an initial public offering.

The Company had an arrangement with another former Blackstone portfolio theme park company to sell admission tickets on a combined basis. The Company earned revenue of approximately $7,400 (through June, 2011) and $18,400 during the years ended December 31, 2011 and 2010, respectively under the combined ticket arrangement. Blackstone sold its interest in such theme park company in June 2011.

The Company entered into a transition services agreement (“TSA”) with Anheuser-Busch Companies, Inc., effective December 1, 2009, to receive support in the areas of information technology, accounting, tax, human resources, and procurement. Services were provided for a term of six months. The services were at graduated rates that increased over the term and range from $10 to $190 per month, depending upon the type of service. Extensions were charged at the initial rates plus 33%. In addition, in February 2010, the Company elected to purchase certain one-time information technology support for $624. As of December 31, 2010, the Company no longer received services under the TSA. Total cost under the TSA for the year ended December 31, 2010 and the one month period ended December 31, 2009, was $4,860 and $700, respectively, and is included in selling, general, and administrative expenses in the accompanying consolidated statements of operations and other comprehensive income (loss).

15. RETIREMENT PLAN

The Company sponsors a defined contribution plan, under Section 401(k) of the Internal Revenue Code, that it established in March 2010. The plan is a qualified automatic contributions arrangement, which automatically enrolls employees, once eligible, unless they opt out. The Company makes matching cash contributions subject to certain restrictions, structured as a 100% match on the first 1% contributed by the employee and a 50% match on the next 5% contributed by the employee. Employer-matching contributions for the year ended December 31, 2011 and 2010 totaled $7,345 and $6,165, respectively.

 

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16. EQUITY-BASED COMPENSATION

In 2011, the Partnerships granted employee units to certain key employees of SEA. Upon vesting of the employee units, the Company issues the corresponding number of shares of common stock of the Company to the Partnerships.

The total number of employee units granted, (which are accounted for as equity awards) was 657,910 and they were divided into three equal tranches as follows:

Time-Vesting Units (TVUs)—One-third of the employee units (219,303) (not in thousands) granted vest over five years (20% per year). The vesting begins on the earlier of December 1, 2009, or the grant date. Vesting is contingent upon continued employment. In the event of a change of control (defined as a sale or disposition of the assets of the limited partnership to other than a Blackstone-affiliated group or, if any group other than a Blackstone-affiliated entity, becomes the general partner or the beneficial owner of more than 50% interest), the employee units immediately 100% vest. The TVUs were recorded at the fair market value at the date of grant and will be amortized to compensation expense over the vesting period. Total compensation expense related to the TVUs was $823 for the year ended December 31, 2011, and is included in selling, general, and administrative expenses in the accompanying consolidated statement of operations and other comprehensive income (loss) and as contributed capital in the accompanying statement of stockholders’ equity. The weighted-average grant date fair value of these grants was $21.34 and the total intrinsic value of the grants was approximately $4,700. Total unrecognized compensation cost related to the nonvested TVUs, expected to be recognized over the next four years, was approximately $3,580 as of December 31, 2011.

The activity related to the TVUs for the year ended December 31, 2011, is as follows:

 

     Employee
Units
     Weighted
Average Fair
Value
     Weighted
Average
Remaining
Contractual
Term
     Aggregate
Intrinsic Value
 
     (not in
thousands)
                      

Outstanding—January 1. 2011

     —         $ —           

Granted

     219,303         21.34         

Forfeited

     13,083         21.34         
  

 

 

          

Outstanding—December 31, 2011

     206,220         21.34         35 months       $ 4.4 million   
  

 

 

          

Vested—December 31, 2011

     72,111            

2.25x and 2.75x Performance Vesting Units (PVUs)—Two tranches of the employee units vest only if certain events occur. The 2.25x PVUs vest if the employee is employed by the Company when and if Blackstone receives cash proceeds (not subject to any clawback, indemnity or similar contractual obligation) in respect of its Partnerships units equal to (x) a 20% annualized effective compounded return rate on Blackstone’s investment and (y) a 2.25x on Blackstone’s investment. The 2.75x PVUs vest if the employee is employed by the Company when and if Blackstone receives cash proceeds (not subject to any clawback, indemnity or similar contractual obligation) in respect of its Partnerships units equal to (x) a 15% annualized effective compounded return rate on Blackstone’s investment and (y) a 2.75x multiple on Blackstone’s investment. The employee units have no termination date other than termination of employment from the Company. There are no service or period vesting conditions associated with the PVUs other than employment at the time the benchmark is reached. No compensation will be recorded related to these PVUs until their issuance is probable. There was no compensation expense recorded during 2011 for the PVUs. The 2.25x and the 2.75x PVUs had grant date fair values of $12.65 and $8.88, respectively. A total of 219,303 and 13,083 (not in thousands) were granted and forfeited, respectively, from each tranche during the year ended December 31, 2011,

 

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for a total of 206,220 (not in thousands) outstanding for each tranche. Total intrinsic value as of December 31, 2011, was approximately $2,610 and $1,800 for the 2.25x and the 2.75x PVUs, respectively. None of the PVUs were exercisable at December 31, 2011.

The fair value of each employee unit granted was estimated on the date of grant using a composite of the discounted cash flow model and the guideline public company approach to determine the underlying enterprise value. The discounted cash flow model is based upon significant inputs that are not observable in the market. Key assumptions include projected cash flows, a discount rate of 10.5%, and a terminal value. The guideline public company approach uses relevant public company valuation multiples to determine fair value. The value of the individual equity tranches was allocated based upon the Option-Pricing Method model. Significant assumptions include a holding period of 3.6 years, a risk free rate of 1.22%, volatility of approximately 49% and a discount for lack of marketability, depending upon the units, from 40% to 53%.

17. STOCKHOLDERS’ EQUITY

In 2011, the Company sold 29,240 shares of common stock to the Partnership (not in thousands) for net cash consideration of $2,736.

The Company declared a dividend in the amount of $110,100 to common stockholders on September 29, 2011. The dividend was accounted for as a return of capital.

18. SUBSEQUENT EVENTS

In connection with the preparation of the consolidated financial statements, the Company evaluated subsequent events after the consolidated balance sheet date of December 31, 2011, through December 26, 2012, the date the consolidated financial statements were issued, to determine whether any events occurred that required recognition or disclosure in the accompanying consolidated financial statements. The Company believes the following events require disclosure:

On March 30, 2012, pursuant to an amendment to the indenture governing the Senior Notes, the interest rate was changed from 13.5% to 11.0%. Until December 1, 2014, and in the case of an Equity Offering (as defined in the indenture), SEA may redeem up to 35% of the Senior Notes at a price of 111% of the aggregate principal balance plus accrued interest using the net cash proceeds from an Equity Offering. Except in the case of an Equity Offering, prior to December 1, 2014, the Senior Notes may be redeemed at 100% of the outstanding principal balance plus the greater of 1% of the principal balance of the Senior Notes or the excess of the present value of the Senior Notes as of December 1, 2014 plus required interest and redemption rates using the Treasury Rate plus 50 basis points over the principal balance of the Senior Notes. On or after December 1, 2014, the Senior Notes may be redeemed at 105.5% and 102.75% of the principal balance beginning on December 1, 2014 and 2015, respectively.

On March 30, 2012, the Company amended the terms of its Senior Secured Credit Facilities and increased borrowings under Term Loan B by $500,000. The Company used the proceeds from these borrowings to pay a dividend of the same amount to stockholders. The dividend of $500,000 to stockholders was paid in March 2012.

On November 20, 2012, the Company acquired Knott’s Soak City, a standalone Southern California water park, from an affiliate of Cedar Fair L.P. for $15,000, of which approximately $12,000 was paid at closing, and the remaining $3,000 will be paid on or before September 1, 2013. The Company plans to rebrand this water park as Aquatica San Diego before it re-opens in 2013.

 

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Schedule I—Registrant’s Condensed Financial Statements

Seaworld Entertainment, Inc.

Parent Company Only

Condensed Balance Sheets

as of December 31, 2011 and 2010

(In thousands, except share and per share amounts)

 

     2011     2010  
Assets     

Current assets:

    

Cash

   $ 3,180      $ —     
  

 

 

   

 

 

 

Total current assets

     3,180        —     

Investment in wholly owned subsidiary

     872,467        949,795   
  

 

 

   

 

 

 

Total assets

   $ 875,647      $ 949,795   
  

 

 

   

 

 

 
Liabilities and Stockholders' Equity     

Current liabilities:

    

Accrued liabilities

   $ 3,180      $ —     
  

 

 

   

 

 

 

Total current liabilities

     3,180        —     
  

 

 

   

 

 

 

Total liabilities

     3,180        —     
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholders' equity:

    

Common stock $0.01 par value—authorized, 12,000,000 shares; issued and outstanding, 10,302,351 shares in 2011 and 10,100,000 shares in 2010

     103        101   

Additional paid-in capital

     956,456        1,052,899   

Accumulated deficit

     (84,092     (103,205
  

 

 

   

 

 

 

Total stockholders' equity

     872,467        949,795   
  

 

 

   

 

 

 

Total liabilities and stockholders' equity

   $ 875,647      $ 949,795   
  

 

 

   

 

 

 

See accompanying notes to condensed financial statements.

 

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Seaworld Entertainment, Inc.

Parent Company Only

Condensed Statements of Operations and Comprehensive Income (Loss)

for the Years Ended December 31, 2011 and 2010

and for the One Month Period Ended December 31, 2009

(In thousands)

 

     2011      2010     2009  

Equity in net income (loss) of subsidiary

   $ 19,113       $ (45,464   $ (57,741
  

 

 

    

 

 

   

 

 

 

Net income (loss)

     19,113         (45,464     (57,741

Other comprehensive income (loss)

     —           —          —     
  

 

 

    

 

 

   

 

 

 

Comprehensive income (loss)

   $ 19,113       $ (45,464   $ (57,741
  

 

 

    

 

 

   

 

 

 

See accompanying notes to condensed financial statements.

 

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Seaworld Entertainment, Inc.

Parent Company Only

Condensed Statements of Cash Flows

for the Years Ended December 31, 2011 and 2010

and for the One Month Period Ended December 31, 2009

(In thousands)

 

     2011     2010     2009  

Cash Flows From Operating Activities

      

Net income (loss)

   $ 19,113      $ (45,464   $ (57,741

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Equity in net (income) loss of subsidiary

     (19,113     45,464        57,741   
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Cash Flows From Investing Activities

      

Capital contributed to subsidiary

     (2,736     —          (1,010,000

Dividend received from subsidiary (return of capital)

     100,000        —          —     
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     97,264        —          (1,010,000
  

 

 

   

 

 

   

 

 

 

Cash Flows From Financing Activities

      

Net proceeds from the issuance of common stock

     12,836        —          1,010,000   

Dividend paid to stockholders (return of capital)

     (106,920     —          —     
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (94,084     —          1,010,000   
  

 

 

   

 

 

   

 

 

 

Cash — Beginning of year

     —          —          —     

Change in cash

     3,180        —          —     
  

 

 

   

 

 

   

 

 

 

Cash — End of year

   $ 3,180      $ —        $ —     
  

 

 

   

 

 

   

 

 

 

Supplemental Disclosure of Noncash Investing and Financing Activities

      

Capital contributed to subsidiary

   $ —        $ —        $ 43,000   
  

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed financial statements.

 

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Notes to Condensed Parent Company Only Financial Statements

 

1. DESCRIPTION OF SEAWORLD ENTERTAINMENT, INC.

SeaWorld Entertainment, Inc. (the “Parent”) was incorporated in Delaware on October 2, 2009 to effect the purchase of all the outstanding equity interests of Busch Entertainment LLC and affiliates from Anheuser-Busch Companies, Inc. The Parent has no operations or significant assets or liabilities other than its investment in SeaWorld & Parks Entertainment, Inc. (“SEA”). Accordingly, the Parent is dependent upon distributions from SEA to fund its obligations. However, under the terms of SEA’s various debt agreements, SEA’s ability to pay dividends or lend to the Parent is restricted, except that SEA may pay specified amounts to the Parent to fund the payment of the Company’s tax obligations.

 

2. BASIS OF PRESENTATION

The accompanying condensed financial statements (parent company only) include the accounts of the Parent and its investment in SEA accounted for in accordance with the equity method, and do not present the financial statements of the Parent and its subsidiary on a consolidated basis. These parent company only financial statements should be read in conjunction with the SeaWorld Entertainment, Inc. consolidated financial statements.

 

3. ACQUISITION OF BUSCH ENTERTAINMENT LLC AND AFFILIATES

On December 1, 2009, Parent and its subsidiary acquired all of the outstanding equity interests of Busch Entertainment LLC and affiliates from Anheuser-Busch Companies, Inc. The acquisition was partially financed by a capital contribution to Parent of $1,010,000. Upon receipt of the capital contribution, Parent contributed these funds to SEA as a $1,010,000 capital contribution.

 

4. GUARANTEES

In connection with the business combination described in Note 3 above, on December 1, 2009, SEA entered into senior secured credit facilities (the “Senior Secured Credit Facilities”) and issued senior notes (the “Senior Notes”). The Senior Secured Credit Facilities were amended on February 17, 2011 and April 15, 2011.

Under the terms of the Senior Secured Credit Facilities, the obligations of SEA are fully, unconditionally and irrevocably guaranteed by Parent, any subsidiary of Parent that directly or indirectly owns 100% of the issued and outstanding equity interest of SEA, and subject to certain exceptions, each of SEA’s existing and future material domestic wholly-owned subsidiaries (collectively, the “Guarantors”).

The obligations under the Senior Notes are guaranteed by the same Guarantors as under the Senior Secured Credit Facilities. In the event of a default under the Senior Notes, the principal and accrued interest would become immediately due and payable (subject to, in some cases, grace periods).

 

5. DIVIDENDS FROM SUBSIDIARIES

The Parent received a dividend in the amount of $100,000 from SEA on September 29, 2011 which has been reflected as a return of capital in the accompanying condensed financial statements. On that same date, the Parent declared a dividend (defined as a restricted payment in the Senior Secured Credit Facilities) of $110,100 to the Partnerships, of which $106,920 was paid as of December 31, 2011. This dividend has also been reflected as a return of capital in the accompanying condensed financial statements.

 

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SeaWorld Entertainment, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

as of September 30, 2012 and December 31, 2011

(In thousands, except share and per share amounts)

 

     September 30,
2012
    December 31,
2011
 
Assets     

Current assets:

    

Cash and cash equivalents

   $ 142,843      $ 66,663   

Accounts receivable, net

     52,054        45,980   

Inventories

     36,646        32,431   

Prepaid expenses and other current assets

     8,761        12,252   

Deferred tax assets, net

     12,675        9,529   
  

 

 

   

 

 

 

Total current assets

     252,979        166,855   

Property and equipment, at cost

     2,309,917        2,172,884   

Accumulated depreciation

     (528,172     (425,006

Property and equipment, net

     1,781,745        1,747,878   

Goodwill

     335,610        335,610   

Trade names, net

     164,883        165,709   

Other intangible assets, net

     31,424        33,837   

Deferred tax assets, net

     —          52,566   

Other assets

     44,599        44,640   
  

 

 

   

 

 

 

Total

   $ 2,611,240      $ 2,547,095   
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity     

Current liabilities:

    

Accounts payable

   $ 134,491      $ 104,915   

Current maturities on long-term debt

     21,330        52,500   

Accrued salaries and wages

     24,190        32,189   

Deferred revenue

     95,702        82,233   

Other accrued expenses

     28,560        8,399   
  

 

 

   

 

 

 

Total current liabilities

     304,273        280,236   

Long-term debt

     1,806,335        1,365,387   

Other liabilities

     42,222        29,005   
  

 

 

   

 

 

 

Total liabilities

     2,152,830        1,674,628   
  

 

 

   

 

 

 

Stockholders’ Equity:

    

Common stock, $0.01 par value—authorized, 12,000,000 shares; issued and outstanding, 10,310,266 shares in 2012 and 10,302,351 shares in 2011, respectively

     103        103   

Additional paid-in capital

     457,328        956,456   

Accumulated other comprehensive loss

     (1,172     —     

Retained earnings (accumulated deficit)

     2,151        (84,092
  

 

 

   

 

 

 

Total stockholders’ equity

     458,410        872,467   
  

 

 

   

 

 

 

Total

   $ 2,611,240      $ 2,547,095   
  

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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SeaWorld Entertainment, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

for the Nine Months Ended September 30, 2012 and 2011

(In thousands, except per share amounts)

 

     For the Nine Months Ended
September 30, 2012 and 2011
 
               2012                          2011             

Net revenues:

    

Admissions

   $ 715,842      $ 666,097   

Food, merchandise and other

     444,737        412,637   
  

 

 

   

 

 

 

Total revenues

     1,160,579        1,078,734   
  

 

 

   

 

 

 

Costs and expenses:

    

Cost of food, merchandise and other revenues

     99,109        89,736   

Operating expenses

     560,145        521,390   

Selling, general and administrative

     150,571        142,447   

Depreciation and amortization

     122,085        154,862   
  

 

 

   

 

 

 

Total costs and expenses

     931,910        908,435   
  

 

 

   

 

 

 

Operating income

     228,669        170,299   

Other income (expense), net

     2,110        (1,661

Interest expense

     86,263        83,960   
  

 

 

   

 

 

 

Income before income taxes

     144,516        84,678   

Provision for income taxes

     (58,273     (34,719
  

 

 

   

 

 

 

Net income

   $ 86,243      $ 49,959   
  

 

 

   

 

 

 

Other comprehensive loss

    

Unrealized loss from cash flow hedging derivatives, net of tax

     (1,172     —     
  

 

 

   

 

 

 

Other comprehensive loss

   $ (1,172   $ —     
  

 

 

   

 

 

 

Comprehensive income

   $ 85,071      $ 49,959   
  

 

 

   

 

 

 

Basic earnings per share:

    

Weighted average common shares outstanding

     10,310        10,138   
  

 

 

   

 

 

 

Net income per share

   $ 8.36      $ 4.93   
  

 

 

   

 

 

 

Diluted earnings per share:

    

Weighted average common shares outstanding

     10,413        10,205   
  

 

 

   

 

 

 

Net income per share

   $ 8.28      $ 4.90   
  

 

 

   

 

 

 

Unaudited pro forma basic net income per common share (Note 3)

   $       

Unaudited pro forma diluted net income per common share (Note 3)

   $       

See notes to unaudited condensed consolidated financial statements.

 

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SeaWorld Entertainment, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity

for the Nine Months Ended September 30, 2012 and the Year Ended December 31, 2011

(In thousands, except share amounts)

 

    Shares of
Common Stock
    Common
Stock
    Additional
Paid-In
Capital
    Retained
Earnings
(Accumulated)

Deficit
    Accumulated
Other

Comprehensive
Loss
    Total
Stockholders’
Equity
 

Balance at December 31, 2010

    10,100,000      $ 101      $ 1,052,899      $ (103,205   $ —        $ 949,795   

Issuance of common stock

    130,240        2        12,834        —          —          12,836   

Equity-based compensation

    72,111        —          823        —          —          823   

Dividend declared to stockholders

    —          —          (110,100     —          —          (110,100

Net income

    —          —          —          19,113        —          19,113   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

    10,302,351      $ 103      $ 956,456      $ (84,092   $ —        $ 872,467   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity-based compensation

    7,915        —          872        —          —          872   

Unrealized loss on derivatives, net of tax

    —          —          —          —          (1,172     (1,172

Dividend declared to stockholders

    —          —          (500,000     —          —          (500,000

Net income

    —          —          —          86,243        —          86,243   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2012

    10,310,266      $ 103      $ 457,328      $ 2,151      $ (1,172   $ 458,410   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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SeaWorld Entertainment, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

for the Nine Months Ended September 30, 2012 and 2011

(In thousands)

 

    For the Nine Months Ended
September 30, 2012 and 2011
 
            2012                     2011          

Cash Flows From Operating Activities:

   

Net income

  $ 86,243      $ 49,959   

Adjustments to reconcile net income to net cash provided by operating activities:

   

Depreciation and amortization

    122,085        154,862   

Amortization of debt issuance costs and discounts

    14,757        13,933   

Loss on sale and disposal of property and equipment

    6,139        1,799   

Deferred income tax provision

    58,273        34,719   

Equity-based compensation

    887        437   

Changes in assets and liabilities:

   

Accounts receivable

    (8,053     (1,619

Inventories

    (4,215     (4,473

Other current assets

    3,491        5,007   

Accounts payable

    (8,238     (17,452

Accrued salaries and wages

    (8,014     (3,291

Deferred revenue

    16,131        11,725   

Other accrued expenses

    20,161        24,316   

Other assets and liabilities

    3,001        1,871   
 

 

 

   

 

 

 

Net cash provided by operating activities

    302,648        271,793   
 

 

 

   

 

 

 

Cash Flows From Investing Activities:

   

Capital expenditures

    (154,976     (163,551
 

 

 

   

 

 

 

Net cash used in investing activities

    (154,976     (163,551
 

 

 

   

 

 

 

Cash Flows From Financing Activities:

   

Repayment of long-term debt

    (52,451     (582,123

Proceeds from the issuance of debt

    487,163        550,291   

Repayment of revolving credit facility

    (36,000     —     

Dividend paid to stockholders

    (463,180     (103,078

Net proceeds from issuance of common stock

    —          13,024   

Debt issuance costs

    (7,024     (5,880
 

 

 

   

 

 

 

Net cash used in financing activities

    (71,492     (127,766
 

 

 

   

 

 

 

Change in Cash and Cash Equivalents

    76,180        (19,524

Cash and Cash Equivalents—Beginning of period

    66,663        123,697   
 

 

 

   

 

 

 

Cash and Cash EquivalentsEnd of period

  $ 142,843      $ 104,173   
 

 

 

   

 

 

 

Supplemental Disclosures of Noncash Investing and Financing Activities

   

Capital expenditures in accounts payable

  $ 28,496      $ 29,543   
 

 

 

   

 

 

 

Dividends declared, but unpaid

  $ 40,000      $ 7,022   
 

 

 

   

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

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SEAWORLD ENTERTAINMENT, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. BASIS OF PRESENTATION

SeaWorld Entertainment, Inc. (f/k/a SW Holdco, Inc.), through SeaWorld Parks & Entertainment, Inc. (“SEA”) (collectively, the “Company”), owns and operates ten theme parks within the United States. The Company is owned by ten limited partnerships (the “Partnerships”), ultimately controlled by affiliates of The Blackstone Group L.P. (“Blackstone”) and certain co-investors.

The Company operates SeaWorld theme parks in Orlando, Florida; San Antonio, Texas; and San Diego, California, and Busch Gardens theme parks in Tampa, Florida, and Williamsburg, Virginia. The Company operates water park attractions in Orlando, Florida (Aquatica); Tampa, Florida (Adventure Island), and Williamsburg, Virginia (Water Country USA). The Company also operates a reservations-only attraction offering interaction with marine animals (Discovery Cove) and a seasonal park in Langhorne, Pennsylvania (Sesame Place).

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2011. The unaudited condensed consolidated balance sheet as of December 31, 2011 has been derived from the audited consolidated financial statements at that date.

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the Company’s customary accounting practices. In the opinion of management, such unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations for the full 2012 fiscal year or any future period due to the seasonal nature of the Company’s operations.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including SEA. All intercompany accounts have been eliminated in consolidation.

 

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Significant Accounting Policies

Derivative Instruments and Hedging Activities

During fiscal year 2012, the Company entered into certain derivative transactions, as detailed in Note 7, and elected the related derivative instruments and hedging activities accounting policy described herein. Accounting Standards Codification Topic (“ASC”) 815, Derivatives and Hedging, provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of, and gains and losses on, derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

Fair Value Measurements

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Carrying values of financial instruments classified as current assets and current liabilities approximate fair value, due to their short-term nature.

An entity is permitted to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period. The Company has not elected to use the fair value option for any of its financial assets and financial liabilities that are not already recorded at fair value.

A description of the Company’s policies regarding fair value measurement is summarized below.

Fair Value Hierarchy—Fair value is determined for assets and liabilities, which are grouped according to a hierarchy, based upon significant levels of observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These two types of inputs have created the following fair value hierarchy:

Level 1—Quoted prices for identical instruments in active markets.

 

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Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Determination of Fair Value—The Company generally uses quoted market prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access to determine fair value, and classifies such items in Level 1. Fair values determined by Level 2 inputs utilize inputs other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted market prices in active markets for similar assets or liabilities, and inputs other than quoted market prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently sourced market parameters, such as interest and currency rates, and the like. Assets or liabilities valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.

Segment Reporting—The Company maintains discrete financial information for each of its ten theme parks which is used by the Chief Operating Decision Maker (“CODM”), identified as the Chief Executive Officer, as a basis for allocating resources. Each theme park has been identified as an operating segment and meets the criteria for aggregation due to similar economic characteristics. In addition, all of the theme parks provide similar products and services and share similar processes for delivering services. The theme parks have a high degree of similarity in the workforces and target the same consumer group. Accordingly, based on these economic and operational similarities and the way the CODM monitors the operations, the Company has concluded that its operating segments may be aggregated and that it has one reportable segment.

Recently Issued Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued guidance clarifying how to measure and disclose fair value. This guidance amends the application of the “highest and best use” concept to be used only in the measurement of fair value of nonfinancial assets, clarifies that the measurement of the fair value of equity-classified financial instruments should be performed from the perspective of a market participant who holds the instrument as an asset, clarifies that an entity that manages a group of financial assets and liabilities on the basis of its net risk exposure can measure those financial instruments on the basis of its net exposure to those risks, and clarifies when premiums and discounts should be taken into account when measuring fair value. The fair value disclosure requirements were also amended. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. The Company adopted the amended guidance effective January 1, 2012 and it did not have a material effect on the unaudited condensed consolidated financial statements.

In June 2011, the FASB issued guidance that revises the manner in which entities present comprehensive income in their financial statements. The guidance requires entities to report the components of comprehensive income in either a single, continuous statement or two separate but consecutive statements. In December 2011, the FASB issued guidance which defers certain requirements set forth in June 2011. These amendments were made to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other

 

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comprehensive income in all periods presented. Both sets of guidance were effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and are required to be applied retrospectively. The Company adopted this guidance on January 1, 2012 and such adoption only resulted in a change in how the Company presents the components of comprehensive income.

In July 2012, the FASB issued new accounting guidance relating to impairment testing for indefinite-lived intangible assets. In accordance with this guidance, an entity has the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that an indefinite-lived intangible asset is impaired. If after such assessment an entity concludes that the indefinite-lived intangible asset is not impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test as required by existing standards. This guidance is effective for annual and interim impairment tests for fiscal years beginning after September 15, 2012 and early adoption is permitted. The Company is in the process of evaluating this guidance, which is not expected to have a material impact on its consolidated financial statements.

3. EARNINGS PER SHARE

Earnings per share is computed as follows (in thousands, except per share data):

 

     Nine Months Ended September 30, 2012      Nine Months Ended September, 2011  
     Net
      Income      
     Shares      Per Share
Amount
     Net
Income
     Shares      Per Share
      Amount      
 

Basic earnings per share

   $ 86,243         10,310       $ 8.36       $ 49,959         10,138       $ 4.93   

Effect of dilutive incentive-based awards

        103               67      
     

 

 

       

 

 

    

 

 

    

 

 

 

Diluted earnings per share

   $ 86,243         10,413       $ 8.28       $ 49,959         10,205       $ 4.90   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Unaudited pro forma basic net income per common share

   $            $              

Unaudited pro forma diluted net income per common share

   $            $              

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is determined based on the dilutive effect of incentive units using the treasury stock method.

Unaudited pro forma net income per share was calculated using the number of shares that would be required to be sold at the initial public offering price to fund the $500.0 million dividend declared in March 2012, less the net income for the period ended September 30, 2012.

4. INCOME TAXES

Income tax expense is recognized based on the Company’s estimated annual effective tax rate which is based upon the tax rate expected for the full calendar year applied to the pre-tax income of the interim period. The Company’s consolidated effective tax rate for the nine months ended September 30, 2012 and 2011 was 40.32% and 41.0%, respectively, and differs from the statutory federal income tax rate primarily due to state income taxes.

The Company has determined that there are no positions currently taken that would rise to a level requiring an amount to be recorded or disclosed as an uncertain tax position. If such positions do arise, it is the Company’s intent that any interest or penalty amount related to such positions will be recorded as a component of tax expense to the applicable period.

 

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5. OTHER ACCRUED EXPENSES

Other accrued expenses at September 30, 2012 and December 31, 2011, consist of the following:

 

     September 30,
2012
     December 31,
2011
 

Accrued property taxes

   $ 10,940       $ 1,644   

Accrued interest

     15,210         4,908   

Other

     2,410         1,847   
  

 

 

    

 

 

 

Total

   $ 28,560       $ 8,399   
  

 

 

    

 

 

 

6. LONG-TERM DEBT

Long-term debt as of September 30, 2012 and December 31, 2011 consists of the following:

 

     September 30,
2012
    December 31,
2011
 

Term Loan A

   $ 153,875      $ 159,500   

Term Loan B

     1,297,128        844,043   

Revolving credit agreement

     —          36,000   

Senior Notes

     400,000        400,000   
  

 

 

   

 

 

 
     1,851,003        1,439,543   

Less discounts

     (23,338     (21,656

Less current maturities

     (21,330     (52,500
  

 

 

   

 

 

 

Total long-term debt, net of current maturities

   $ 1,806,335      $ 1,365,387   
  

 

 

   

 

 

 

Effective on March 30, 2012, SEA entered into Amendment No. 3 to the senior secured credit facilities (the “Senior Secured Credit Facilities”) to increase the amount of Term B Loans (“Additional Term B Loans”) by $500,000 for the purposes of financing a dividend payment to the stockholders in the same amount. The Additional Term B loans were issued at a discount of $6,245. The discount is being amortized to interest expense using the weighted average interest method. Borrowings under the Tranche B Term Loans bear interest, at SEA’s option, at a rate equal to a margin over either (a) a base rate determined by reference to the higher of (1) the Bank of America’s prime lending rate and (2) the federal funds effective rate plus 1/2 of 1% or (b) a LIBOR rate determined by reference to the British Bankers Association (“BBA”) LIBOR rate for the interest period relevant to such borrowing. The margin for the Tranche B Term Loans is 2.00%, in the case of base rate loans, and 3.00%, in the case of LIBOR rate loans, subject to a base rate floor of 2.00% and a LIBOR floor of 1.00%. SEA selected the LIBOR rate at September 30, 2012, related to the Term B loans (interest rate of 4%).

The Additional Term B Loans mature on the earlier of August 17, 2017 or the 91st day prior to the maturity of any mezzanine debt with an aggregate principal amount greater than $50,000.

In conjunction with the issuance of the Additional Term B loans and the Revised Indenture (as defined below), SEA deferred $13,527 in financing costs.

In conjunction with the execution of Amendment No. 3 to the Senior Secured Credit Facilities, SEA also entered into the Second Supplemental Indenture (the “Revised Indenture”) dated March 30, 2012 relating to the Senior Notes. Among other matters, the Revised Indenture granted waivers to allow SEA to issue the additional $500,000 of Term B Loans to fund the dividend payment discussed above and decreased the interest rate on the Senior Notes from 13.5% per annum to 11% per annum. Until December 1, 2014, and in the case of an Equity Offering (as defined in the indenture), SEA may

 

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redeem up to 35% of the Senior Notes at a price of 111% of the aggregate principal balance plus accrued interest using the net cash proceeds from an Equity Offering. Except in the case of an Equity Offering, prior to December 1, 2014, the Senior Notes may be redeemed at 100% of the outstanding principal balance plus the greater of 1% of the principal balance of the Senior Notes or the excess of the present value of the notes as of December 1, 2014 plus required interest and redemption rates using the Treasury Rate plus 50 basis points over the principal balance of the Senior Notes. On or after December 1, 2014, the Senior Notes may be redeemed at 105.5% and 102.75% of the principal balance beginning on December 1, 2014 and 2015, respectively. The Revised Indenture also increased the minimum covenant leverage ratio from 2.75 to 1.00 to 3.0 to 1.0.

Additionally, on August 23, 2012, SEA executed two interest rate swap agreements to effectively fix the interest rate on $550,000 of the Term B Loans. Each interest rate swap has a notional amount of $275,000; matures on September 30, 2016, pays a fixed rate of interest of 1.247% per annum; receives a variable rate of interest based upon three month BBA LIBOR; and has interest settlement dates occurring on the last day of December, March, June and September through maturity. SEA has designated such interest rate swap agreements as qualifying cash flow hedge accounting relationships as further discussed in Note 7 below.

7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings.

As of September 30, 2012, the Company does not have any derivatives outstanding that are not designated in hedge accounting relationships. In addition, the Company did not have any material derivatives outstanding as of December 31, 2011.

As of September 30, 2012, the Company had approximately $11.6 million of outstanding letters of credit.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. During the nine months ended September 30, 2012, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. As of September 30, 2012, the Company had two outstanding interest rate derivatives with a combined notional of $550,000 that were designated as cash flow hedges of interest rate risk.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be

 

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reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next 12 months, the Company estimates that an additional $1,360 will be reclassified as an increase to interest expense.

Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the balance sheet as of September 30, 2012:

 

     Asset Derivatives
As of September 30, 2012
     Liability Derivatives
As of September 30, 2012
 
   Balance Sheet Location      Fair Value      Balance Sheet Location      Fair Value  

Derivatives designated as hedging instruments:

           

Interest rate swaps

     Other assets       $ —           Other liabilities       $ 1,964   

Total derivatives designated as hedging instruments

      $ —            $ 1,964   
     

 

 

       

 

 

 

Tabular Disclosure of the Effect of Derivative Instruments on the Statement of Comprehensive Income (Loss)

The table below presents the pre-tax effect of the Company’s derivative financial instruments on the statement of comprehensive income (loss) for the nine months ended September 30, 2012:

 

     Nine months ended
September 30, 2012
 

Derivatives in Cash Flow Hedging Relationships:

  

Gain (loss) related to effective portion of derivatives recognized in accumulated other comprehensive income

   $ (1,964

Gain (loss) related to effective portion of derivatives reclassified from accumulated other comprehensive income to interest expense

   $ (11

Gain (loss) related to ineffective portion of derivatives recognized in other income (expense)

   $ —     

Credit Risk-Related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

As of September 30, 2012, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $2,002. As of September 30, 2012, the Company has posted no collateral related to these agreements. If the Company had breached any of these provisions at September 30, 2012, it could have been required to settle its obligations under the agreements at their termination value of $2,002.

 

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8. FAIR VALUE MEASUREMENTS

Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement is required to be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

The Company has determined that the majority of the inputs used to value its derivative financial instruments using the income approach fall within Level 2 of the fair value hierarchy. The Company uses readily available market data to value its derivatives, such as interest rate curves and discount factors. ASC 820 also requires consideration of credit risk in the valuation. The Company uses a potential future exposure model to estimate this credit valuation adjustment (“CVA”). The inputs to the CVA are largely based on observable market data, with the exception of certain assumptions regarding credit worthiness which make the CVA a Level 3 input. Based on the magnitude of the CVA, it is not considered a significant input and the derivatives are classified as Level 2. Of the Company’s long-term obligations, the Term A Loans and Term B Loans are classified in Level 2 of the fair value hierarchy. The fair value of the term loans as of September 30, 2012 approximates their carrying value due to the variable nature of the underlying interest rates and the frequent intervals at which such interest rates are reset. The Senior Notes are classified in Level 3 of the fair value hierarchy and have been valued using significant inputs that are not observable in the market including a discount rate of 10.83% and projected cash flows of the underlying Senior Notes. The Company does not have any assets measured at fair value as of September 30, 2012.

 

     Quoted Prices in
Active Markets
for Identical
Assets and
Liabilities
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
     Balance at
September 30,
2012
 

Liabilities:

           

Long-term obligations(a)

     —         $ 1,451,003       $ 412,581       $ 1,863,584   

Derivative financial instruments(b)

     —         $ 1,964         —         $ 1,964   

 

(a) Reflected at carrying value in the unaudited condensed consolidated balance sheet as current maturities on long-term debt of $21,330 and long-term debt of $1,806,335. As of December 31, 2011, the carrying value and fair value of long-term obligations, including the current portion, was $1,417,887 and $1,468,543, respectively.
(b) Reflected at fair value in the unaudited condensed consolidated balance sheet as other liabilities of $1,964.

9. RELATED-PARTY TRANSACTIONS

Certain affiliates of Blackstone provide monitoring, advisory, and consulting services to the Company under an advisory fee agreement. Fees related to these services, which are based upon a multiple of EBITDA as defined in the advisory agreement, amounted to $5,075 and $4,948 for the nine months ended September 30, 2012 and 2011, respectively, are included in selling, general, and administrative expenses in the accompanying unaudited condensed consolidated statements of operations and other comprehensive income (loss).

In March 2012, the Company declared a $500,000 dividend to its stockholders. The dividend was accounted for as a return of capital in the September 30, 2012 condensed consolidated balance sheet as the Company was in a net accumulated deficit position at the time that such dividends were declared.

 

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10. SUBSEQUENT EVENTS

In connection with the preparation of the unaudited condensed consolidated financial statements, the Company evaluated subsequent events after the condensed consolidated balance sheet date of September 30, 2012, through December 26, 2012, the date the unaudited condensed consolidated financial statements were issued, to determine whether any events occurred that required recognition or disclosure in the accompanying unaudited condensed consolidated financial statements. The Company believes the following event requires disclosure:

On November 20, 2012, the Company acquired Knott’s Soak City, a standalone Southern California water park, from an affiliate of Cedar Fair L.P. for $15,000, of which approximately $12,000 was paid at closing, and the remaining $3,000 will be paid on or before September 1, 2013. The Company plans to rebrand this water park as Aquatica San Diego before it re-opens in 2013.

 

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             Shares

SeaWorld Entertainment, Inc.

Common Stock

 

 

LOGO

 

 

Goldman, Sachs & Co.

J.P. Morgan

Citigroup

BofA Merrill Lynch

Barclays

Wells Fargo Securities

 

 

 

 

 


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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth the expenses payable by the Registrant expected to be incurred in connection with the issuance and distribution of common stock being registered hereby (other than underwriting discounts and commissions). All of such expenses are estimates, except for the Securities and Exchange Commission (the “SEC”) registration fee, the Financial Industry Regulatory Authority Inc. (“FINRA”) filing fee and stock exchange and listing fees.

 

SEC registration fee

   $ 13,640   

FINRA filing fee

     15,500   

Stock exchange filing fee and listing fee

                 

Printing fees and expenses

                 

Legal fees and expenses

                 

Registrar and transfer agent fees

                 

Accounting fees and expenses

                 

Miscellaneous expenses

                 
  

 

 

 

Total

   $             
  

 

 

 

 

* To be completed by amendment.

Item 14. Indemnification of Directors and Officers.

Section 102(b)(7) of the Delaware General Corporation Law (the “DGCL”) allows a corporation to provide in its certificate of incorporation that a director of the corporation will not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except where the director breached the duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Our amended and restated certificate of incorporation will provide for this limitation of liability. We will enter into indemnification agreements with our director nominees that provide for us to indemnify them to the fullest extent permitted by Delaware law.

Section 145 of the DGCL (“Section 145”), provides, among other things, that a Delaware corporation may indemnify any person who was, is or is threatened to be made, party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was unlawful. A Delaware corporation may indemnify any persons who were or are a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person is or was a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the

 

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corporation’s best interests, provided further that no indemnification is permitted without judicial approval if the officer, director, employee or agent is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses (including attorneys’ fees) which such officer or director has actually and reasonably incurred.

Section 145 further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would otherwise have the power to indemnify such person under Section 145.

Our amended and restated bylaws will provide that we must indemnify and advance expenses to our directors and officers to the full extent authorized by the DGCL.

In connection with this offering, we intend to enter into indemnification agreements with each of our current directors and executive officers. These agreements will require us to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.

The indemnification rights set forth above shall not be exclusive of any other right which an indemnified person may have or hereafter acquire under any statute, any provision of our amended and restated certificate of incorporation, our amended and restated bylaws, agreement, vote of stockholders or disinterested directors or otherwise. Notwithstanding the foregoing, we shall not be obligated to indemnify a director or officer in respect of a proceeding (or part thereof) instituted by such director or officer, unless such proceeding (or part thereof) has been authorized by the Board of Directors pursuant to the applicable procedure outlined in the amended and restated bylaws.

Section 174 of the DGCL provides, among other things, that a director, who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption, may be held jointly and severally liable for such actions. A director who was either absent when the unlawful actions were approved or dissented at the time may avoid liability by causing his or her dissent to such actions to be entered in the books containing the minutes of the meetings of the Board of Directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts.

We expect to maintain standard policies of insurance that provide coverage (1) to our directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act and (2) to us with respect to indemnification payments that we may make to such directors and officers.

The underwriting agreement provides for indemnification by the underwriters of us and our officers and directors and the selling stockholders, and by us and the selling stockholders of the underwriters, for certain liabilities arising under the Securities Act or otherwise in connection with this offering.

Item 15. Recent Sales of Unregistered Securities.

Following the 2009 Transactions, the Registrant issued an aggregate of 242,126 shares of its common stock to the Partnerships for aggregate proceeds to the Registrant of approximately $12.8 million. Such securities were issued in reliance on the exemption contained in Section 4(2) of the Securities Act as transactions by the issuer not involving a public offering. No underwriters were involved in any of these sales of securities.

 

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Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits.    See the Exhibit Index immediately following the signature page hereto, which is incorporated by reference as if fully set forth herein.

(b) Financial Statement Schedules.    Schedule I—Registrant’s Condensed Financial Statements is included in the registration statement beginning on page F-24.

Item 17. Undertakings.

(1) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

(2) The undersigned Registrant hereby undertakes that:

 

  (A) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

  (B) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Orlando, Florida, on December 26, 2012.

 

SeaWorld Entertainment, Inc.

By:  

 

/S/    JAMES ATCHISON

 

Name: James Atchison

 

Title: Chief Executive Officer and President

POWER OF ATTORNEY

The undersigned directors and officers of SeaWorld Entertainment, Inc. hereby constitute and appoint G. Anthony (Tony) Taylor, James M. Heaney and Paul B. Powers and each of them, any of whom may act without joinder of the other, the individual’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the person and in his or her name, place and stead, in any and all capacities, to sign this Registration Statement and any or all amendments, including post-effective amendments to the Registration Statement, including a prospectus or an amended prospectus therein and any Registration Statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act, and all other documents in connection therewith to be filed with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact as agents or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this registration statement and power of attorney have been signed by the following persons in the capacities indicated on December 26, 2012.

 

Signature

  

Capacity

/S/    JAMES ATCHISON        

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

/S/     JAMES M. HEANEY        

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

/S/    MARC G. SWANSON        

   Chief Accounting Officer (Principal Accounting Officer)
Marc G. Swanson   

/S/    DAVID F. D’ALESSANDRO        

   Director
David F. D’Alessandro   

/S/    BRUCE MCEVOY        

   Director
Bruce McEvoy   

/S/    PETER WALLACE        

   Director
Peter Wallace   

 

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EXHIBIT INDEX

 

Exhibit No.

  

Description

  1.1*    Form of Underwriting Agreement
  3.1*    Form of Amended and Restated Certificate of Incorporation of SeaWorld Entertainment, Inc.
  3.2*    Form of Amended and Restated Bylaws of SeaWorld Entertainment, Inc.
  5.1*    Opinion of Simpson Thacher & Bartlett LLP
10.1    Indenture, dated as of December 1, 2009, among SW Acquisitions Co., Inc., the guarantors named therein and Wilmington Trust FSB, as trustee
10.2    First Supplemental Indenture, dated as of August 30, 2011, among SeaWorld Parks & Entertainment, Inc. (f/k/a SW Acquisitions Co., Inc.), the guarantors named therein and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as trustee
10.3    Second Supplemental Indenture, dated as of March 30, 2012, among SeaWorld Parks & Entertainment, Inc. (f/k/a SW Acquisitions Co., Inc.,), the guarantors named therein and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as trustee
10.4    Third Supplemental Indenture, dated as of December 17, 2012, among SeaWorld Parks & Entertainment, Inc., (f/k/a SW Acquisitions Co., Inc.), the guarantors named therein and Wilmington Trust, National Association (as successor by merger to Wilmington Trust FSB), as trustee
10.5    Amendment No. 3, dated as of March 30, 2012, to the Credit Agreement, among SeaWorld Parks & Entertainment, Inc. (f/k/a SW Acquisitions Co., Inc.), the guarantors party thereto from time to time, Bank of America, N.A., as administrative agent, collateral agent, Letter of Credit issuer and swing line lender, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Bank of America, N.A., as joint lead arrangers, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Capital, Deutsche Bank Securities Inc., Goldman Sachs Lending Partners LLC, J.P. Morgan Securities LLC, Macquarie Capital (USA) Inc. and Mizuho Corporate Banks, Ltd. as joint bookrunners, Deutsche Bank Securities Inc. and Barclays Bank plc, as co-syndication agents, and the other agents and lenders from time to time party thereto (the amended and restated Credit Agreement is included as Exhibit A hereto)
10.6    Joinder Agreement, dated as of December 17, 2012, under the Credit Agreement, among SeaWorld of Texas Holdings, LLC, SeaWorld of Texas Management, LLC, SeaWorld of Texas Beverage, LLC and Bank of America, N.A., as administrative agent and collateral agent
10.7    Security Agreement, dated as of December 1, 2009, among SW Acquisitions Co., Inc., the other grantors named therein and Bank of America, N.A., as collateral agent
10.8    Supplement No. 1, dated as of December 17, 2012, to the Security Agreement among the grantors identified therein and Bank of America, N.A., as collateral agent
10.9    Pledge Agreement, dated as of December 1, 2009, between SeaWorld Entertainment, Inc. (f/k/a/SW Holdco, Inc.) and Bank of America, N.A., as collateral agent
10.10    Patent Security Agreement, dated as of December 1, 2009, by SeaWorld Parks & Entertainment (f/k/a Busch Entertainment LLC) in favor of Bank of America, N.A., as collateral agent
10.11    Trademark Security Agreement, dated as of December 1, 2009, by SeaWorld Parks & Entertainment (f/k/a Busch Entertainment LLC) in favor of Bank of America, N.A., as collateral agent


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Exhibit No.

 

Description

10.12   Trademark Security Agreement, dated as of December 1, 2009, by Sea World LLC in favor of Bank of America, N.A., as collateral agent
10.13   Copyright Security Agreement, dated as of December 1, 2009, by SeaWorld Parks & Entertainment (f/k/a Busch Entertainment LLC) in favor of Bank of America, N.A., as collateral agent
10.14  

Copyright Security Agreement, dated as of December 1, 2009, by Sea World LLC in favor of Bank of America, N.A., as collateral agent

10.15*   Form of Support and Services Agreement
10.16*   Form of Stockholders Agreement
10.17*   Registration Rights Agreement, dated December 1, 2009, by and among SeaWorld Entertainment, Inc. (f/k/a SW Holdco, Inc.), SW Cayman L.P. and the equityholders named therein
10.18   Lease Amendment, dated January 9, 1978, by and between the City of San Diego and Sea World Inc.
10.19   Lease Amendment, dated March 6, 1979, by and between the City of San Diego and Sea World Inc.
10.20   Lease Amendment, dated December 12, 1983, by and between the City of San Diego and Sea World Inc.
10.21   Lease Amendment, dated June 24, 1985, by and between the City of San Diego and Sea World Inc.
10.22   Lease Amendment, dated September 22, 1986, by and between the City of San Diego and Sea World Inc.
10.23   Lease Amendment, dated June 29, 1998, by and between the City of San Diego and Sea World Inc.
10.24   Lease Amendment, dated July 9, 2002, by and between the City of San Diego and Sea World Inc.
10.25   Trademark License Agreement, dated December 1, 2009, by and between Anheuser-Busch Incorporated and Busch Entertainment LLC
10.26*   Amended and Restated Agreement, dated April 1, 1983, by and between SeaWorld Parks & Entertainment LLC (f/k/a SPI, Inc.) and Sesame Workshop (f/k/a Children’s Television Workshop)
10.27*   Amendment, dated August 24, 2006, to the Amended and Restated Agreement, dated April 1, 1983, by and between SeaWorld Parks & Entertainment LLC (f/k/a SPI, Inc.) and Sesame Workshop (f/k/a Children’s Television Workshop)
10.28*   License Agreement, dated August 24, 2006, by and between Sesame Workshop and SeaWorld Parks & Entertainment LLC (f/k/a Busch Entertainment Corporation)
10.29*   Change in Control Notification and Consent, dated October 6, 2009, pursuant to the license agreement, dated April 1, 1983, as amended on August 24, 2006, between SeaWorld Parks & Entertainment LLC (f/k/a Busch Entertainment Corporation) and Sesame Workshop
10.30*  

Change in Control Notification and Consent, dated October 6, 2009, pursuant to the license agreement, dated August 24, 2006, between SeaWorld Parks & Entertainment LLC (f/k/a Busch Entertainment Corporation) and Sesame Workshop

10.31*†   Form of 2013 Omnibus Incentive Plan
10.32*   Form of Indemnification Agreement
21.1  

List of Subsidiaries

23.1*  

Consent of Simpson Thacher & Bartlett LLP (included in exhibit 5.1)


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Exhibit No.

  

Description

23.2   

Consent of Deloitte & Touche LLP

24.1   

Power of Attorney (included in the signature page to this Registration Statement)

 

* To be filed by amendment.
Identifies exhibits that consist of a management contract or compensatory plan or arrangement.