SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended
September 30,
☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from to
Commission file number: 1-13703
Six Flags Entertainment Corporation
(Exact Name of Registrant as Specified in Its Charter)
| | |
Delaware (State or Other Jurisdiction of Incorporation or Organization) | 13-3995059 (I.R.S. Employer Identification No.) | |
| | |
924 Avenue J East,Grand Prairie, TX75050 (Address of Principal Executive Offices, Including Zip Code) | | (972) 595-5000 ( |
Securities registered pursuant to Section 12(b) of the Act:
| | |||
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common stock, $0.025 par value per share | | SIX | | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | |
Large Accelerated Filer1⌧ | Accelerated Filer ◻ | Non-accelerated Filer ◻ | Smaller Reporting Company ☐ | |||||
Emerging |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
FORM 10-Q
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This Quarterly Report on Form 10-Q (this "Quarterly Report") and the documents incorporated herein by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include all statements that are not historical facts and can be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects," "may," "should," "could" and variations of such words or similar expressions. Forward-looking statements are based on our current beliefs, expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are, by their nature, subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. Therefore, we caution you that you should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance. These statements may involve risks and uncertainties that could cause actual results to differ materially from those described in such statements. These risks and uncertainties include, but are not limited to, statements we make regarding: (i) the adequacy of cash flows from operations, available cash and available amounts under our credit facilities to meet our future liquidity needs, (ii) our plans and ability to roll out our capital enhancements and open new theme parks and waterparksplanned initiatives in a timely and cost effective manner, (iii) our ability to improve operating results by implementing strategic cost reductions and organizational and personnel changes without adversely affecting our business, (iv) our dividend policy and ability to pay dividends on our common stock, (v) the expected impacteffect of and adoptioncost and timing of newcompliance with newly enacted laws, regulations and accounting policies, (v)(vi) our ability to realize future growth and execute and deliver on our strategic initiatives, (vii) our expectations regarding uncertain tax positions, (vi)(viii) our ability to realize the benefits of acquisitionsexpectations regarding our deferred revenue growth, and the timing and certainty of future growth opportunities and strategic initiatives, and (vii)(ix) our operations and results of operations. Additional important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions and include, but are not limited to, the following:
A more complete discussion of these factors and other risks applicable to our business is contained in "Part I, Item 1A. Risk Factors" of the 20172018 Annual Report. All forward-looking statements in this Quarterly Report, or that are made on our behalf by our directors, officers or employees related to the information contained herein, apply only as of the date of this Quarterly Report or as of the date they were made. While we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will be realized and actual results could vary materially. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation, except as required by applicable
1
law, to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
Available Information
Copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, are available free of charge through our website at investors.sixflags.com. References to our website in this Quarterly Report are provided as a convenience and do not constitute an incorporation by reference of the information contained on, or accessible through, the website. Therefore, such information should not be considered part of this Quarterly Report. These reports, and any amendments to these reports, are made available on our website as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the United States Securities and Exchange Commission (the "SEC"). Copies are also available, without charge, by sending a written request to Six Flags Entertainment Corporation, 924 Avenue J East, Grand Prairie, TX 75050, Attn: Investor Relations.
* * * * *
As used herein, unless the context requires otherwise, the terms "we," "our," "Company" and "Six Flags" refer collectively to Six Flags Entertainment Corporation and its consolidated subsidiaries, and "Holdings" refers only to Six Flags Entertainment Corporation, without regard to its consolidated subsidiaries.
2
ITEM 1. FINANCIAL STATEMENTS
SIX FLAGS ENTERTAINMENT CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
| | | | | | |
|
| As of | ||||
|
| September 30, 2019 |
| December 31, 2018 | ||
(Amounts in thousands, except share data) | | (unaudited) | | | | |
ASSETS |
| |
|
| |
|
Current assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | 211,797 | | $ | 44,608 |
Accounts receivable, net | |
| 199,127 | |
| 116,043 |
Inventories | |
| 36,953 | |
| 28,779 |
Prepaid expenses and other current assets | |
| 60,508 | |
| 52,499 |
Total current assets | |
| 508,385 | |
| 241,929 |
Property and equipment, net: | |
|
| |
|
|
Property and equipment, at cost | |
| 2,322,291 | |
| 2,204,678 |
Accumulated depreciation | |
| (1,032,914) | |
| (950,996) |
Total property and equipment, net | |
| 1,289,377 | |
| 1,253,682 |
Other assets: | |
|
| |
|
|
Right-of-use operating leases, net | | | 202,935 | | | — |
Debt issuance costs | |
| 3,836 | |
| 1,793 |
Deposits and other assets | |
| 10,740 | |
| 11,277 |
Goodwill | |
| 659,618 | |
| 659,618 |
Intangible assets, net of accumulated amortization of $22,623 and $21,133 as of September 30, 2019 and December 31, 2018, respectively | |
| 345,812 | |
| 349,029 |
Total other assets | |
| 1,222,941 | |
| 1,021,717 |
Total assets | | $ | 3,020,703 | | $ | 2,517,328 |
| | | | | | |
LIABILITIES AND STOCKHOLDERS' DEFICIT | |
|
| |
|
|
Current liabilities: | |
|
| |
|
|
Accounts payable | | $ | 51,428 | | $ | 32,905 |
Accrued compensation, payroll taxes and benefits | |
| 23,994 | |
| 30,468 |
Accrued insurance reserves | |
| 37,108 | |
| 39,183 |
Accrued interest payable | |
| 20,819 | |
| 30,697 |
Other accrued liabilities | |
| 61,038 | |
| 45,880 |
Deferred revenue | |
| 197,674 | |
| 146,227 |
Short-term borrowings | |
| — | |
| 43,000 |
Current portion of long-term debt | | | 8,000 | | | — |
Short-term operating lease liabilities | | | 10,585 | | | — |
Total current liabilities | |
| 410,646 | |
| 368,360 |
Noncurrent liabilities: | |
|
| |
|
|
Long-term debt | |
| 2,268,704 | |
| 2,063,512 |
Long-term operating lease liabilities | | | 185,365 | | | — |
Other long-term liabilities | |
| 22,133 | |
| 29,280 |
Deferred income taxes | |
| 223,656 | |
| 173,998 |
Total noncurrent liabilities | |
| 2,699,858 | |
| 2,266,790 |
Total liabilities | |
| 3,110,504 | |
| 2,635,150 |
| | | | | | |
Redeemable noncontrolling interests | |
| 545,386 | |
| 525,271 |
| | | | | | |
Stockholders' deficit: | |
|
| |
|
|
Preferred stock, $1.00 par value | |
| — | |
| — |
Common stock, $0.025 par value, 140,000,000 shares authorized; 84,516,567 and 83,962,182 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively | |
| 2,113 | |
| 2,099 |
Capital in excess of par value | |
| 1,066,312 | |
| 1,037,640 |
Accumulated deficit | |
| (1,628,394) | |
| (1,611,334) |
Accumulated other comprehensive loss, net of tax | |
| (75,218) | |
| (71,498) |
Total stockholders' deficit | |
| (635,187) | |
| (643,093) |
Total liabilities and stockholders' deficit | | $ | 3,020,703 | | $ | 2,517,328 |
See accompanying notes to unaudited condensed consolidated financialstatements.
3
SIX FLAGS ENTERTAINMENT CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
| | | | | | |
|
| Three Months Ended | ||||
(Amounts in thousands, except per share data) | | September 30, 2019 | | September 30, 2018 | ||
Park admissions | | $ | 352,664 | | $ | 350,977 |
Park food, merchandise and other | |
| 242,059 | |
| 232,952 |
Sponsorship, international agreements and accommodations | |
| 26,457 | |
| 35,891 |
Total revenues | |
| 621,180 | |
| 619,820 |
Operating expenses (excluding depreciation and amortization shown separately below) | |
| 189,820 | |
| 188,704 |
Selling, general and administrative expenses (including stock-based compensation of $3,903 and $10,183 in 2019 and 2018, respectively, and excluding depreciation and amortization shown separately below) | |
| 55,144 | |
| 65,783 |
Costs of products sold | |
| 53,508 | |
| 50,081 |
Other net periodic pension benefit | |
| (1,038) | |
| (1,290) |
Depreciation | |
| 30,084 | |
| 29,008 |
Amortization | |
| 601 | |
| 612 |
Loss on disposal of assets | |
| 2,659 | |
| 386 |
Interest expense | |
| 28,686 | |
| 27,142 |
Interest income | |
| (350) | |
| (157) |
Other expense (income), net | |
| 231 | |
| (130) |
Income before income taxes | |
| 261,835 | |
| 259,681 |
Income tax expense | |
| 61,626 | |
| 55,260 |
Net income | |
| 200,209 | |
| 204,421 |
Less: Net income attributable to noncontrolling interests | |
| (20,376) | |
| (20,004) |
Net income attributable to Six Flags Entertainment Corporation | | $ | 179,833 | | $ | 184,417 |
| | | | | | |
Weighted-average common shares outstanding: | |
| | |
| |
Basic: | |
| 84,413 | |
| 84,143 |
Diluted: | |
| 85,045 | |
| 85,516 |
| | | | | | |
Net income per average common share outstanding: | | | | | | |
Basic: | | $ | 2.13 | | $ | 2.19 |
Diluted: | | $ | 2.11 | | $ | 2.16 |
| | | | | | |
Cash dividends declared per common share | | $ | 0.82 | | $ | 0.78 |
See accompanying notes to the unaudited condensed consolidated financial statements
4
As of | |||||||
September 30, 2018 | December 31, 2017 | ||||||
(Amounts in thousands, except share data) | (unaudited) | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 68,557 | $ | 77,496 | |||
Accounts receivable, net | 171,867 | 72,693 | |||||
Inventories | 35,826 | 24,960 | |||||
Prepaid expenses and other current assets | 67,158 | 45,923 | |||||
Total current assets | 343,408 | 221,072 | |||||
Property and equipment, net: | |||||||
Property and equipment, at cost | 2,197,350 | 2,095,887 | |||||
Accumulated depreciation | (930,786 | ) | (857,930 | ) | |||
Total property and equipment, net | 1,266,564 | 1,237,957 | |||||
Other assets: | |||||||
Debt issuance costs | 2,092 | 2,991 | |||||
Deposits and other assets | 12,403 | 12,821 | |||||
Goodwill | 659,248 | 630,248 | |||||
Intangible assets, net of accumulated amortization of $20,537 and $19,584 as of September 30, 2018 and December 31, 2017, respectively | 349,720 | 351,587 | |||||
Total other assets | 1,023,463 | 997,647 | |||||
Total assets | $ | 2,633,435 | $ | 2,456,676 | |||
LIABILITIES AND STOCKHOLDERS' DEFICIT | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 51,273 | $ | 28,998 | |||
Accrued compensation, payroll taxes and benefits | 33,307 | 26,576 | |||||
Accrued insurance reserves | 40,644 | 39,347 | |||||
Accrued interest payable | 21,268 | 26,288 | |||||
Other accrued liabilities | 58,833 | 34,617 | |||||
Deferred revenue | 192,925 | 142,014 | |||||
Total current liabilities | 398,250 | 297,840 | |||||
Noncurrent liabilities: | |||||||
Long-term debt | 2,062,467 | 2,021,178 | |||||
Other long-term liabilities | 31,479 | 41,488 | |||||
Deferred income taxes | 142,450 | 106,851 | |||||
Total noncurrent liabilities | 2,236,396 | 2,169,517 | |||||
Total liabilities | 2,634,646 | 2,467,357 | |||||
Redeemable noncontrolling interests | 514,002 | 494,431 | |||||
Stockholders' deficit: | |||||||
Preferred stock, $1.00 par value | — | — | |||||
Common stock, $0.025 par value, 140,000,000 shares authorized; 84,394,292 and 84,488,433 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively | 2,110 | 2,112 | |||||
Capital in excess of par value | 1,146,990 | 1,086,265 | |||||
Accumulated deficit | (1,595,807 | ) | (1,529,608 | ) | |||
Accumulated other comprehensive loss, net of tax | (68,506 | ) | (63,881 | ) | |||
Total stockholders' deficit | (515,213 | ) | (505,112 | ) | |||
Total liabilities and stockholders' deficit | $ | 2,633,435 | $ | 2,456,676 |
SIX FLAGS ENTERTAINMENT CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
| | | | | | |
|
| Nine Months Ended | ||||
(Amounts in thousands, except per share data) |
| September 30, 2019 |
| September 30, 2018 | ||
Park admissions | | $ | 671,252 | | $ | 657,769 |
Park food, merchandise and other | |
| 472,692 | |
| 451,253 |
Sponsorship, international agreements and accommodations | |
| 82,639 | |
| 85,182 |
Total revenues | |
| 1,226,583 | |
| 1,194,204 |
Operating expenses (excluding depreciation and amortization shown separately below) | |
| 482,690 | |
| 455,168 |
Selling, general and administrative expenses (including stock-based compensation of $11,347 and $30,772 in 2019 and 2018, respectively, and excluding depreciation and amortization shown separately below) | |
| 154,977 | |
| 175,507 |
Costs of products sold | |
| 107,296 | |
| 100,064 |
Other net periodic pension benefit | |
| (3,148) | |
| (3,844) |
Depreciation | |
| 87,228 | |
| 84,335 |
Amortization | |
| 1,805 | |
| 1,835 |
Loss on disposal of assets | |
| 3,105 | |
| 2,551 |
Interest expense | |
| 86,965 | |
| 80,820 |
Interest income | |
| (709) | |
| (470) |
Loss on debt extinguishment | |
| 6,231 | |
| — |
Other (income) expense, net | |
| (1,474) | |
| 2,159 |
Income before income taxes | |
| 301,617 | |
| 296,079 |
Income tax expense | |
| 70,644 | |
| 59,498 |
Net income | | | 230,973 | | | 236,581 |
Less: Net income attributable to noncontrolling interests | |
| (40,753) | |
| (40,007) |
Net income attributable to Six Flags Entertainment Corporation | | $ | 190,220 | | $ | 196,574 |
| | | | | | |
Weighted-average common shares outstanding: | |
| | | | |
Basic: | |
| 84,276 | |
| 84,087 |
Diluted: | |
| 84,938 | |
| 85,504 |
| | | | | | |
Net income per average common share outstanding: | | | | | | |
Basic: | | $ | 2.26 | | $ | 2.34 |
Diluted: | | $ | 2.24 | | $ | 2.30 |
| | | | | | |
Cash dividends declared per common share | | $ | 2.46 | | $ | 2.34 |
See accompanying notes to unaudited condensed consolidated financial statements.
5
(Unaudited)
| | | | | | |
|
| Three Months Ended | ||||
(Amounts in thousands) |
| September 30, 2019 |
| September 30, 2018 | ||
Net income | | $ | 200,209 | | $ | 204,421 |
Other comprehensive (loss) income, net of tax: | |
|
| |
|
|
Foreign currency translation adjustment (1) | |
| (1,466) | |
| 3,338 |
Defined benefit retirement plan (2) | |
| 151 | |
| 135 |
Change in cash flow hedging (3) | |
| (2,268) | |
| — |
Other comprehensive (loss) income, net of tax | |
| (3,583) | |
| 3,473 |
Comprehensive income | | | 196,626 | | | 207,894 |
Less: Comprehensive income attributable to noncontrolling interests | |
| (20,376) | |
| (20,004) |
Comprehensive income attributable to Six Flags Entertainment Corporation | | $ | 176,250 | | $ | 187,890 |
Three Months Ended | |||||||
(Amounts in thousands, except per share data) | September 30, 2018 | September 30, 2017 | |||||
Theme park admissions | $ | 350,977 | $ | 331,244 | |||
Theme park food, merchandise and other | 232,952 | 223,861 | |||||
Sponsorship, international agreements and accommodations | 35,891 | 25,313 | |||||
Total revenues | 619,820 | 580,418 | |||||
Operating expenses (excluding depreciation and amortization shown separately below) | 188,704 | 167,450 | |||||
Selling, general and administrative expenses (including stock-based compensation of $10,183 in 2018 and a reversal of stock-based compensation of $(35,740) in 2017, and excluding depreciation and amortization shown separately below) | 65,783 | 11,629 | |||||
Costs of products sold | 50,081 | 45,951 | |||||
Other net periodic pension benefit | (1,290 | ) | (846 | ) | |||
Depreciation | 29,008 | 27,962 | |||||
Amortization | 612 | 571 | |||||
Loss on disposal of assets | 386 | 2,010 | |||||
Interest expense | 27,142 | 25,892 | |||||
Interest income | (157 | ) | (171 | ) | |||
Other (income) expense, net | (130 | ) | 375 | ||||
Income before income taxes | 259,681 | 299,595 | |||||
Income tax expense | 55,260 | 98,665 | |||||
Net income | 204,421 | 200,930 | |||||
Less: Net income attributable to noncontrolling interests | (20,004 | ) | (19,605 | ) | |||
Net income attributable to Six Flags Entertainment Corporation | $ | 184,417 | $ | 181,325 | |||
Weighted-average common shares outstanding: | |||||||
Basic: | 84,143 | 84,480 | |||||
Diluted: | 85,516 | 85,876 | |||||
Net income per average common share: | |||||||
Basic: | $ | 2.19 | $ | 2.15 | |||
Diluted: | $ | 2.16 | $ | 2.11 | |||
Cash dividends declared per common share | $ | 0.78 | $ | 0.64 |
(1) Foreign currency translation adjustment is presented net of tax benefit of $0.4 million for the three months ended September 30, 2019 and tax expense of $0.9 million for the three months ended September 30, 2018, respectively.
(2) Defined benefit retirement plan is presented net of tax expense of $0.1 million for the three months ended September 30, 2019 and net of nominal tax expense for the three months ended September 30, 2018, respectively.
(3) Change in fair value of cash flow hedging is presented net of tax benefit of $0.8 million for the three months ended September 30, 2019.
See accompanying notes to unaudited condensed consolidated financial statements
6
SIX FLAGS ENTERTAINMENT CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
| | | | ��� | | |
|
| Nine Months Ended | ||||
(Amounts in thousands) |
| September 30, 2019 |
| September 30, 2018 | ||
Net income | | $ | 230,973 | | $ | 236,581 |
Other comprehensive (loss) income, net of tax: | |
|
| |
| |
Foreign currency translation adjustment (1) | |
| 249 | |
| 4,413 |
Defined benefit retirement plan (2) | |
| 440 | |
| 401 |
Change in cash flow hedging (3) | |
| (4,409) | |
| — |
Other comprehensive (loss) income, net of tax | |
| (3,720) | |
| 4,814 |
Comprehensive income | | | 227,253 | | | 241,395 |
Less: Comprehensive income attributable to noncontrolling interests | |
| (40,753) | |
| (40,007) |
Comprehensive income attributable to Six Flags Entertainment Corporation | | $ | 186,500 | | $ | 201,388 |
(1) Foreign currency translation adjustment is presented net of tax expense of $0.1 million and $1.2 million for the nine months ended September 30, 2019 and September 30, 2018, respectively.
(2) Defined benefit retirement plan is presented net of tax expense of $0.1 million for the nine months ended September 30, 2019 and 2018.
(3) Change in fair value of cash flow hedging is presented net of tax benefit of $1.5 million for the nine months ended September 30, 2019.
See accompanying notes to unaudited condensed consolidated financial statements.
7
(Unaudited)
Nine Months Ended | |||||||
(Amounts in thousands, except per share data) | September 30, 2018 | September 30, 2017 | |||||
Theme park admissions | $ | 657,769 | $ | 604,105 | |||
Theme park food, merchandise and other | 451,253 | 429,033 | |||||
Sponsorship, international agreements and accommodations | 85,182 | 69,180 | |||||
Total revenues | 1,194,204 | 1,102,318 | |||||
Operating expenses (excluding depreciation and amortization shown separately below) | 455,168 | 406,906 | |||||
Selling, general and administrative expenses (including stock-based compensation of $30,772 in 2018 and a reversal of stock-based compensation of ($39,055) in 2017, and excluding depreciation and amortization shown separately below) | 175,507 | 96,778 | |||||
Costs of products sold | 100,064 | 91,021 | |||||
Other net periodic pension benefit | (3,844 | ) | (2,538 | ) | |||
Depreciation | 84,335 | 80,776 | |||||
Amortization | 1,835 | 1,870 | |||||
Loss on disposal of assets | 2,551 | 4,337 | |||||
Interest expense | 80,820 | 74,322 | |||||
Interest income | (470 | ) | (444 | ) | |||
Loss on debt extinguishment | — | 37,109 | |||||
Other expense, net | 2,159 | 40 | |||||
Income before income taxes | 296,079 | 312,141 | |||||
Income tax expense | 59,498 | 97,128 | |||||
Net income | 236,581 | 215,013 | |||||
Less: Net income attributable to noncontrolling interests | (40,007 | ) | (39,210 | ) | |||
Net income attributable to Six Flags Entertainment Corporation | $ | 196,574 | $ | 175,803 | |||
Weighted-average common shares outstanding: | |||||||
Basic: | 84,087 | 87,676 | |||||
Diluted: | 85,504 | 89,434 | |||||
Net income per average common share: | |||||||
Basic: | $ | 2.34 | $ | 2.01 | |||
Diluted: | $ | 2.30 | $ | 1.97 | |||
Cash dividends declared per common share | $ | 2.34 | $ | 1.92 |
| | | | | | | | | | | | | | | | | |
| | | | | | | | Accumulated | | | |||||||
| | |
| Capital in | | |
| other |
| Total | |||||||
| | Common stock | | excess of | | Accumulated | | comprehensive | | stockholders' | |||||||
(Amounts in thousands, except share data) |
| Shares issued |
| Amount |
| par value |
| deficit |
| loss |
| deficit | |||||
Balances at June 30, 2018 |
| 83,910,255 | | $ | 2,098 | | $ | 1,118,411 | | $ | (1,714,524) | | $ | (71,979) | | $ | (665,994) |
Issuance of common stock |
| 484,657 | |
| 12 | |
| 18,437 | |
| — | |
| — | |
| 18,449 |
Stock-based compensation |
| — | |
| — | |
| 10,183 | |
| — | |
| — | |
| 10,183 |
Dividends declared to common shareholders |
| — | |
| — | |
| — | |
| (65,699) | |
| — | |
| (65,699) |
Repurchase of common stock |
| (684) | |
| — | |
| (45) | |
| (1) | |
| — | |
| (46) |
Employee stock purchase plan |
| 64 | |
| — | |
| 4 | |
| — | |
| — | |
| 4 |
Net income attributable to Six Flags Entertainment Corporation |
| — | |
| — | |
| — | |
| 184,417 | |
| — | |
| 184,417 |
Net other comprehensive income, net of tax |
| — | |
| — | |
| — | |
| — | |
| 3,473 | |
| 3,473 |
Balances at September 30, 2018 |
| 84,394,292 | | $ | 2,110 | | $ | 1,146,990 | | $ | (1,595,807) | | $ | (68,506) | | $ | (515,213) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | Accumulated | | | |||||||
| | |
| Capital in | | |
| other |
| Total | |||||||
| | Common stock | | excess of | | Accumulated | | comprehensive | | stockholders' | |||||||
(Amounts in thousands, except share data) |
| Shares issued |
| Amount |
| par value |
| deficit |
| loss |
| deficit | |||||
Balances at June 30, 2019 |
| 84,334,531 | | $ | 2,108 | | $ | 1,058,675 | | $ | (1,738,955) | | $ | (71,635) | | $ | (749,807) |
Issuance of common stock |
| 182,851 | |
| 5 | |
| 3,782 | |
| — | |
| — | |
| 3,787 |
Stock-based compensation |
| — | |
| — | |
| 3,903 | |
| — | |
| — | |
| 3,903 |
Dividends declared to common shareholders |
| — | |
| — | |
| — | |
| (69,272) | |
| — | |
| (69,272) |
Repurchase of common stock |
| (815) | |
| — | |
| (48) | |
| — | |
| — | |
| (48) |
Net income attributable to Six Flags Entertainment Corporation |
| — | |
| — | |
| — | |
| 179,833 | |
| — | |
| 179,833 |
Net other comprehensive loss, net of tax |
| — | |
| — | |
| — | |
| — | |
| (3,583) | |
| (3,583) |
Balances at September 30, 2019 |
| 84,516,567 | | $ | 2,113 | | $ | 1,066,312 | | $ | (1,628,394) | | $ | (75,218) | | $ | (635,187) |
See accompanying notes to unaudited condensed consolidated financial statements.
8
SIX FLAGS ENTERTAINMENT CORPORATION
(Unaudited)
Three Months Ended | |||||||
(Amounts in thousands) | September 30, 2018 | September 30, 2017 | |||||
Net income | $ | 204,421 | $ | 200,930 | |||
Other comprehensive income, net of tax: | |||||||
Foreign currency translation adjustment (1) | 3,338 | 248 | |||||
Defined benefit retirement plan (2) | 135 | 129 | |||||
Change in cash flow hedging (3) | — | 98 | |||||
Other comprehensive income, net of tax | 3,473 | 475 | |||||
Comprehensive income | 207,894 | 201,405 | |||||
Less: Comprehensive income attributable to noncontrolling interests | (20,004 | ) | (19,605 | ) | |||
Comprehensive income attributable to Six Flags Entertainment Corporation | $ | 187,890 | $ | 181,800 |
| | | | | | | | | | | | | | | | | |
| | | | | | | | Accumulated | | | |||||||
| | |
| Capital in | | |
| other |
| Total | |||||||
| | Common stock | | excess of | | Accumulated | | comprehensive | | stockholders' | |||||||
(Amounts in thousands, except share data) |
| Shares issued |
| Amount |
| par value |
| deficit |
| loss |
| deficit | |||||
Balances at December 31, 2017 |
| 84,488,433 | | $ | 2,112 | | $ | 1,086,265 | | $ | (1,529,608) | | $ | (63,881) | | $ | (505,112) |
Cumulative effect adjustment - adoption of ASU 2018-02 and ASU 2014-09 |
| — | |
| — | |
| — | |
| 4,557 | |
| (9,439) | |
| (4,882) |
Balances at January 1, 2018 |
| 84,488,433 | | $ | 2,112 | | $ | 1,086,265 | | $ | (1,525,051) | | $ | (73,320) | | $ | (509,994) |
Issuance of common stock |
| 1,190,870 | |
| 30 | |
| 39,357 | |
| — | |
| — | |
| 39,387 |
Stock-based compensation |
| — | |
| — | |
| 30,772 | |
| — | |
| — | |
| 30,772 |
Dividends declared to common shareholders |
| — | |
| — | |
| — | |
| (196,944) | |
| — | |
| (196,944) |
Repurchase of common stock |
| (1,303,122) | |
| (33) | |
| (10,493) | |
| (70,466) | |
| — | |
| (80,992) |
Employee stock purchase plan |
| 18,111 | |
| 1 | |
| 1,089 | |
| — | |
| — | |
| 1,090 |
Fresh start valuation adjustment for SFOT units purchased |
| — | |
| — | |
| — | |
| 80 | |
| — | |
| 80 |
Net income attributable to Six Flags Entertainment Corporation |
| — | |
| — | |
| — | |
| 196,574 | |
| — | |
| 196,574 |
Net other comprehensive income, net of tax |
| — | |
| — | |
| — | |
| — | |
| 4,814 | |
| 4,814 |
Balances at September 30, 2018 |
| 84,394,292 | | $ | 2,110 | | $ | 1,146,990 | | $ | (1,595,807) | | $ | (68,506) | | $ | (515,213) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | |||||
| | | | Capital in | | | | other | | Total | |||||||
| | Common stock | | excess of | | Accumulated | | comprehensive | | stockholders' | |||||||
(Amounts in thousands, except share data) |
| Shares issued |
| Amount |
| par value |
| deficit |
| loss |
| deficit | |||||
Balances at December 31, 2018 | | 83,962,182 | | $ | 2,099 | | $ | 1,037,640 | | $ | (1,611,334) | | $ | (71,498) | | $ | (643,093) |
Issuance of common stock | | 528,330 | | | 13 | | | 16,173 | | | — | | | — | | | 16,186 |
Stock-based compensation | | — | | | — | | | 11,347 | | | — | | | — | | | 11,347 |
Dividends declared to common shareholders | | — | | | — | | | — | | | (207,325) | | | — | | | (207,325) |
Repurchase of common stock | | (882) | | | — | | | (52) | | | — | | | — | | | (52) |
Employee stock purchase plan | | 26,937 | | | 1 | | | 1,204 | | | — | | | — | | | 1,205 |
Fresh start valuation adjustment for SFOT units purchased | | — | | | — | | | — | | | 45 | | | — | | | 45 |
Net income attributable to Six Flags Entertainment Corporation | | — | | | — | | | — | | | 190,220 | | | — | | | 190,220 |
Net other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | (3,720) | | | (3,720) |
Balances at September 30, 2019 | | 84,516,567 | | $ | 2,113 | | $ | 1,066,312 | | $ | (1,628,394) | | $ | (75,218) | | $ | (635,187) |
See accompanying notes to unaudited condensed consolidated financial statements.
9
(Unaudited)
Nine Months Ended | |||||||
(Amounts in thousands) | September 30, 2018 | September 30, 2017 | |||||
Net income | $ | 236,581 | $ | 215,013 | |||
Other comprehensive income, net of tax: | |||||||
Foreign currency translation adjustment (1) | 4,413 | 5,027 | |||||
Defined benefit retirement plan (2) | 401 | 386 | |||||
Change in cash flow hedging (3) | — | 408 | |||||
Other comprehensive income, net of tax | 4,814 | 5,821 | |||||
Comprehensive income | 241,395 | 220,834 | |||||
Less: Comprehensive income attributable to noncontrolling interests | (40,007 | ) | (39,210 | ) | |||
Comprehensive income attributable to Six Flags Entertainment Corporation | $ | 201,388 | $ | 181,624 |
| | | | | | |
|
| Nine Months Ended | ||||
(Amounts in thousands) |
| September 30, 2019 |
| September 30, 2018 | ||
Cash flows from operating activities: | | | | | | |
Net income | | $ | 230,973 | | $ | 236,581 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
|
| |
|
|
Depreciation and amortization | |
| 89,033 | |
| 86,170 |
Stock-based compensation | |
| 11,347 | |
| 30,772 |
Interest accretion on notes payable | |
| 988 | |
| 1,007 |
Loss on debt extinguishment | |
| 6,231 | |
| — |
Amortization of debt issuance costs | |
| 2,703 | |
| 2,972 |
Other, including loss on disposal of assets | |
| 3,773 | |
| 5,755 |
Gain on sale of investee | | | (724) | | | — |
Increase in accounts receivable | |
| (83,061) | |
| (94,567) |
Increase in inventories, prepaid expenses and other current assets | |
| (19,188) | |
| (24,614) |
Decrease in deposits and other assets | |
| 242 | |
| 515 |
Decrease in ROU operating leases | | | 6,030 | | | — |
Increase in accounts payable, deferred revenue, accrued liabilities and other long-term liabilities | |
| 62,266 | |
| 68,786 |
Decrease in operating lease liabilities | | | (10,823) | | | — |
Decrease in accrued interest payable | |
| (9,878) | |
| (5,020) |
Deferred income taxes | |
| 50,953 | |
| 33,654 |
Net cash provided by operating activities | |
| 340,865 | |
| 342,011 |
| | | | | | |
Cash flows from investing activities: | |
|
| |
|
|
Additions to property and equipment | |
| (123,662) | |
| (112,242) |
Property insurance recoveries | |
| 1,637 | |
| — |
Acquisition of park assets, net of cash acquired | |
| — | |
| (19,059) |
Proceeds from sale of assets | |
| 24 | |
| 55 |
Net cash used in investing activities | |
| (122,001) | |
| (131,246) |
| | | | | | |
Cash flows from financing activities: | |
|
| |
|
|
Repayment of borrowings | |
| (800,750) | |
| (257,000) |
Proceeds from borrowings | |
| 970,000 | |
| 296,000 |
Payment of debt issuance costs | |
| (8,927) | |
| (793) |
Payment of cash dividends | |
| (208,740) | |
| (198,245) |
Proceeds from issuance of common stock | | | 17,391 | | | 40,477 |
Stock repurchases | | | (52) | | | (80,992) |
Purchase of redeemable noncontrolling interest | |
| (217) | |
| (353) |
Distributions to noncontrolling interests | | | (20,376) | | | (20,003) |
Net cash used in financing activities | |
| (51,671) | |
| (220,909) |
| | | | | | |
Effect of exchange rate on cash | |
| (4) | |
| 1,205 |
| | | | | | |
Net increase (decrease) in cash and cash equivalents | |
| 167,189 | |
| (8,939) |
Cash and cash equivalents at beginning of period | |
| 44,608 | |
| 77,496 |
Cash and cash equivalents at end of period | | $ | 211,797 | | $ | 68,557 |
| | | | | | |
Supplemental cash flow information | |
|
| |
|
|
Cash paid for interest | | $ | 93,153 | | $ | 81,861 |
Cash paid for income taxes | | $ | 24,953 | | $ | 24,659 |
See accompanying notes to unaudited condensed consolidated financial statements.
10
Nine Months Ended | |||||||
(Amounts in thousands) | September 30, 2018 | September 30, 2017 | |||||
Cash flows from operating activities: | |||||||
Net income | $ | 236,581 | $ | 215,013 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 86,170 | 82,646 | |||||
Stock-based compensation | 30,772 | (39,055 | ) | ||||
Interest accretion on notes payable | 1,007 | 723 | |||||
Loss on debt extinguishment | — | 37,109 | |||||
Amortization of debt issuance costs | 2,972 | 3,101 | |||||
Other, including loss on disposal of assets | 5,755 | 2,023 | |||||
Increase in accounts receivable | (94,567 | ) | (39,273 | ) | |||
Increase in inventories, prepaid expenses and other current assets | (24,614 | ) | (11,374 | ) | |||
Decrease (increase) in deposits and other assets | 515 | (3,769 | ) | ||||
Increase in accounts payable, deferred revenue, accrued liabilities and other long-term liabilities | 68,786 | 53,851 | |||||
Decrease in accrued interest payable | (5,020 | ) | (6,621 | ) | |||
Deferred income taxes | 33,654 | 85,282 | |||||
Net cash provided by operating activities | 342,011 | 379,656 | |||||
Cash flows from investing activities: | |||||||
Additions to property and equipment | (112,242 | ) | (116,548 | ) | |||
Acquisition of theme park assets, net of cash acquired | (19,059 | ) | — | ||||
Sale of restricted-use investments, net | — | 2,106 | |||||
Proceeds from sale of assets | 55 | 11 | |||||
Net cash used in investing activities | (131,246 | ) | (114,431 | ) | |||
Cash flows from financing activities: | |||||||
Repayment of borrowings | (257,000 | ) | (949,161 | ) | |||
Proceeds from borrowings | 296,000 | 1,313,000 | |||||
Payment of debt issuance costs | (793 | ) | (37,336 | ) | |||
Payment of cash dividends | (198,245 | ) | (168,034 | ) | |||
Proceeds from issuance of common stock | 40,477 | 36,256 | |||||
Stock repurchases | (80,992 | ) | (499,442 | ) | |||
Purchase of redeemable noncontrolling interests | (353 | ) | (128 | ) | |||
Distributions to noncontrolling interests | (20,003 | ) | (19,605 | ) | |||
Net cash used in financing activities | (220,909 | ) | (324,450 | ) | |||
Effect of exchange rate on cash | 1,205 | 4,523 | |||||
Net decrease in cash and cash equivalents | (8,939 | ) | (54,702 | ) | |||
Cash and cash equivalents at beginning of period | 77,496 | 137,385 | |||||
Cash and cash equivalents at end of period | $ | 68,557 | $ | 82,683 | |||
Supplemental cash flow information | |||||||
Cash paid for interest | $ | 81,861 | $ | 77,120 | |||
Cash paid for income taxes | $ | 24,659 | $ | 11,179 |
1. General — Basis of Presentation
We own and operate regional theme parks and waterparks and are the largest regional theme park operator in the world and the largest operator of waterparks in North America based on the number of parks we operate. Of the 2526 parks we currently ownowned or operate,
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted, pursuant to the rules and regulations of the SEC.
"Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations" contains a discussion of our results of operations and our financial position and should be read in conjunction with the unaudited condensed consolidated financial statements and notes. The 20172018 Annual Report includes additional information about us, our operations and our financial position, and should be referred to in conjunction with this Quarterly Report. The information furnished in this Quarterly Report reflects all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the results for the periods presented.
Results of operations for the
nine months ended September 30,a. Consolidated U.S. GAAP Presentation
Our accounting policies reflect industry practices and conform to U.S. GAAP.
The unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly owned subsidiaries. We also consolidate the partnerships that own Six Flags Over Texas ("SFOT") and Six Flags Over Georgia (including Six Flags White Water Atlanta) ("SFOG", and together with SFOT, the "Partnership Parks") as subsidiaries in our unaudited condensed consolidated financial statements, as we have determined that we have the power to direct the activities of the Partnership Parks that most significantly impact their economic performance and we have the obligation to absorb losses and receive benefits from the Partnership Parks that can be potentially significant to these entities. The equity interests owned by non-affiliated parties in the Partnership Parks are reflected in the accompanying unaudited condensed consolidated balance sheets as redeemable noncontrolling interests. See Note
6 for a description of the partnership agreements applicable to the Partnership Parks and Note 8 for furtherb. 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, including net operating loss and other tax carryforwards. 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. We recorded a valuation allowance of $113.7$116.4 million and $113.5$115.2 million as of
11
In determining the effective tax rate for interim periods, we consider the expected changes in our valuation allowance from current year originating or reversing timing differences between financial accounting and tax purposes and the taxable income or loss expected for the current year. For interim periods, we also account for the tax effect of significant non-recurring items in the period in which they occur as well as changes in the valuation allowance relating to a change in the assessment of the probability of utilization of the deferred income tax assets.
Our liability for income taxes is finalized as auditable tax years pass their respective statutes of limitations in the various jurisdictions in which we are subject to tax. However, taxing authorities of these jurisdictions may audit prior years for which the statute of limitations is closed for the purpose of making an adjustment to our taxable income in a year for which the statute of limitations
We classify interest and penalties attributable to income taxes as part of income tax expense. As of
September 30,Because we do not permanently reinvest foreign earnings, United States deferred income taxes have been provided on unremitted foreign earnings to the extent that such foreign earnings are expected to be taxable upon repatriation.
c. Long-Lived Assets
We review long-lived assets, including finite-lived intangible assets subject to amortization, for impairment upon the occurrence of events or changes in circumstances that would indicate that the carrying value of the asset or group of assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison ofcomparing the carrying amount of the asset or group of assets to the future net cash flows expected to be generated by the asset or group of assets. If such assets are not considered to be fully recoverable, any impairment to be recognized is measured by the amount by which the carrying amount of the asset or group of assets exceeds its respective fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
d. Earnings Per Common Share
Basic earnings per common share is computed by dividing net income attributable to Holdings'Holdings’ common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is computed by dividing net income attributable to Holdings'Holdings’ common stockholders by the weighted average number of common shares outstanding during the period, including the effect of all dilutive common stock equivalents using the treasury stock method. In periods for which there is a net loss, diluted loss per common share is equal to basic loss per common share, since the effect of including any common stock equivalents would be antidilutive.
12
Earnings per common share for the three and nine months ended September 30, 20182019 and September 30, 20172018 was calculated as follows:
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | ||||||||||||
(Amounts in thousands, except per share data) | |||||||||||||||
Net income attributable to Six Flags Entertainment Corporation | $ | 184,417 | $ | 181,325 | $ | 196,574 | $ | 175,803 | |||||||
Weighted-average common shares outstanding — basic: | 84,143 | 84,480 | 84,087 | 87,676 | |||||||||||
Effect of dilutive stock options and restricted shares | 1,373 | 1,396 | 1,417 | 1,758 | |||||||||||
Weighted-average common shares outstanding — diluted: | 85,516 | 85,876 | 85,504 | 89,434 | |||||||||||
Earnings per share — basic: | $ | 2.19 | $ | 2.15 | $ | 2.34 | $ | 2.01 | |||||||
Earnings per share — diluted: | $ | 2.16 | $ | 2.11 | $ | 2.30 | $ | 1.97 |
| | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended | ||||||||
(Amounts in thousands, except per share data) |
| September 30, 2019 |
| September 30, 2018 |
| September 30, 2019 |
| September 30, 2018 | ||||
Net income attributable to Six Flags Entertainment Corporation |
| $ | 179,833 | | $ | 184,417 |
| $ | 190,220 | | $ | 196,574 |
| | | | | | | | | | | | |
Weighted-average common shares outstanding - basic: | | | 84,413 | | | 84,143 | | | 84,276 | | | 84,087 |
Effect of dilutive stock options and restricted stock units | | | 632 | | | 1,373 | | | 662 | | | 1,417 |
Weighted-average common shares outstanding - diluted: | | | 85,045 | | | 85,516 | | | 84,938 | | | 85,504 |
| | | | | | | | | | | | |
Earnings per share - basic: | | $ | 2.13 | | $ | 2.19 | | $ | 2.26 | | $ | 2.34 |
Earnings per share - diluted: | | $ | 2.11 | | $ | 2.16 | | $ | 2.24 | | $ | 2.30 |
The computation of diluted earnings per share excluded the effect of 881,0003,554,000 and 1,111,000881,000 antidilutive stock options for the three months ended September 30, 20182019 and September 30, 2017,2018, respectively. The computation of diluted earnings per share excluded the effect of 729,0003,595,000 and 886,000729,000 antidilutive stock options and restricted sharesstock units for the nine months ended September 30, 20182019 and September 30, 2017,2018, respectively.
e. Derivative Instruments and Hedging Activities
We account for derivatives and hedging activities in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging. This accounting guidance establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the condensed consolidated balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge for accounting purposes. The accounting for changes in the fair value of a derivative (e.g., gains and losses) depends on the intended use of the derivative and the resulting designation.
We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and our strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash flow hedges to forecasted transactions. We also assess, both at the hedge’s inception and on an ongoing basis throughout the contract term, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.
Changes in the fair value of interest rate derivatives that are effective and that are designated and qualify as cash flow hedges are recorded in “Other comprehensive (loss) income” until operations are affected by the variability in cash flows of the designated hedged item, at which point they are reclassified to “interest expense”. Changes in the fair value of derivatives that do not qualify for hedge accounting or that are de-designated are recorded in “Other expense (income), net” in the unaudited condensed consolidated statements of operations.
f. Fair Value of Financial Instruments
The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. We use a market approach for our recurring fair value measurements, and we endeavor to use the best information available. Accordingly, valuation techniques that maximize the use of observable impacts are favored. We present the estimated fair values and classifications of our financial instruments in accordance with FASB Accounting Standards Consideration ("ASC")ASC Topic 820,
We use the following methods and assumptions were used to estimate the fair value of each class of financial instruments:
● | The carrying values of cash and cash equivalents, accounts receivable, notes receivable, accounts payable and accrued liabilities approximate fair value because of the short maturity of these instruments. |
13
The measurement of the fair value of long-term debt is based on market prices that generally are observable for similar liabilities at commonly quoted intervals and is considered a Level 2 fair value measurement. See Note 3 for additional information. |
● | The measurement of the fair value of derivative assets and liabilities is based on market prices that generally are observable for similar assets and liabilities at commonly quoted intervals and is considered a Level 2 fair value measurement. Derivative assets and liabilities that have maturity dates equal to or less than twelve months from the balance sheet date are included in prepaid and other current assets and other accrued liabilities, respectively. Derivative assets and liabilities that have maturity dates greater than twelve months from the balance sheet date are included in deposits and other assets and other long-term liabilities, respectively. See Note 5 for additional information on our derivative instruments and related Company policies. |
g. Stock Benefit Plans
Pursuant to the Six Flags Entertainment Corporation Long-Term Incentive Plan (the "Long-Term Incentive Plan"), Holdings may grant stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, deferred stock units, performance and cash-settled awards and dividend equivalent rights ("DERs") to select employees, officers, directors and consultants of Holdings and its affiliates. In May 2017, our stockholders approved an amendment to the Long-Term Incentive Plan that increased the number of shares available for issuance under the Long-Term Incentive Plan by 4,000,000 shares.
We recognize the fair value of each grant as compensation expense on a straight-line basis over the vesting period using the graded vesting terms of the respective grant. The fair value of stock option grants is estimated using the Black-Scholes option pricing valuation model. The fair value of stock, restricted stock units and restricted stock awards is the quoted market price of Holdings'Holdings’ common stock on the date of grant.
During the year ended December 31, 2014, a performance award was established based on our goal to achieve "Modified EBITDA" of $600 million by 2017 (the "Project 600 Performance Award"). "Modified EBITDA" is defined as the Company's consolidated income from continuing operations excluding the cumulative effect of changes in accounting principles; discontinued operations gains or losses; income tax expense or benefit; restructure costs or recoveries; reorganization items (net); other income or expense; gain or loss on early extinguishment of debt; equity in income or loss of investees; interest expense (net); gain or loss on disposal of assets; gain or loss on the sale of investees; amortization; depreciation; stock-based compensation; and fresh start accounting valuation adjustments. The compensation committee of Holdings' Board of Directors determined that, since the incremental investment in the new waterpark in Mexico was not planned when the Project 600
Three Months Ended | Nine Months Ended | ||||||||||||||
(Amounts in thousands) | September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | |||||||||||
Project 600 Performance Award | $ | 5,201 | $ | (36,691 | ) | $ | 16,899 | $ | (45,076 | ) | |||||
Project 600 Performance Award - DERs | 840 | (2,861 | ) | 2,283 | (4,082 | ) | |||||||||
Total Project 600 Performance Award Expense | $ | 6,041 | $ | (39,552 | ) | $ | 19,182 | $ | (49,158 | ) |
| | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended | ||||||||
(Amounts in thousands) |
| September 30, 2019 |
| September 30, 2018 |
| September 30, 2019 |
| September 30, 2018 | ||||
Long-Term Incentive Plan |
| | | | | |
| | | | | |
Options and other | | $ | 3,828 | | $ | 4,067 | | $ | 11,138 | | $ | 11,336 |
Performance awards (1) | |
| — | | | 6,041 | | | — | | | 19,182 |
Employee Stock Purchase Plan | |
| 75 | |
| 75 | |
| 209 | |
| 254 |
Total Stock-Based Compensation | | $ | 3,903 | | $ | 10,183 | | $ | 11,347 | | $ | 30,772 |
Three Months Ended | Nine Months Ended | ||||||||||||||
(Amounts in thousands) | September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | |||||||||||
Long-Term Incentive Plan | $ | 10,108 | $ | (35,815 | ) | $ | 30,518 | $ | (39,245 | ) | |||||
Employee Stock Purchase Plan | 75 | 75 | 254 | 190 | |||||||||||
Total Stock-Based Compensation | $ | 10,183 | $ | (35,740 | ) | $ | 30,772 | $ | (39,055 | ) |
(1) Relates to purchase approximately 5,475,000 shares of common stock of Holdings and approximately 16,000 shares of restricted stock or restricted stock units were outstanding under the Long-Term Incentive Plan, and approximately 3,607,000 shares were available for future grant.
h. Revenue Recognition
FASB ASC 606,
Revenue from Contracts with Customers (14
memberships after the initial twelve-month term, we recognize revenue monthly as payments are received.
We have entered into international agreements to assist third parties in the planning, design, development and operation of Six Flags-branded theme parks outside of North America. These agreements typically consist of a brand licensing agreement, project services agreement, and management services agreement. Under Topic 606, we treat these agreements as one1 contract because they were negotiated with a single commercial objective. We have identified three3 distinct promises within the agreement with each third party partner as brand licensing, project services and management services. Each of these promises is its own performance obligation and distinct, as the third party could benefit from each service on its own with other readily available resources, and each service is separately identifiable from other services in the context of the contract. We recognize revenue under our international agreements over the relevant service period of each performance obligation based on its relative stand-alone selling price, as determined by our best estimate of selling price. We review the service period of each performance obligation on an ongoing basis and revise it as necessary throughout the year. Revisions to the relevant service periods of the performance obligations may result in revisions to revenue in future periods and are recognized in the period in which the change is identified.
Our contracts with customers may include multiple performance obligations. For such arrangements, we adopted Topic 606 usingallocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the modified retrospective method appliedobservable prices charged to thosecustomers. We generally expense (i) sales commissions when incurred, and (ii) certain costs to obtain a contract where the amortization period would have been one year or less. These costs are recognized in "Selling, general and administrative expenses." We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less or (ii) contracts for which werewe recognize revenue at the amount for which we have the right to invoice for services performed. For certain of our contracts that have an original expected length of one year or less, we use the practical expedient applicable to such contracts and do not completed asconsider the time value of January 1, 2018. Resultsmoney.
i. Leases
We or certain of our subsidiaries are a lessee in various noncancelable operating leases, primarily for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjustedoperating rights to amusement parks, land, office space, warehouses, office equipment and continue to be reportedmachinery. We account for leases in accordance with our historic accounting under FASB ASC 605,
For our operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. Key estimates and judgments include how we determine (i) the discount rate used to discount the unpaid lease payments to present value, (ii) the lease term and (iii) the lease payments. Topic 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate ("IBR"). Generally, we cannot determine the interest rate implicit in the lease and therefore we use the IBR as a discount rate for our leases. The IBR reflects the rate of interest we would pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The lease term for all of our leases includes the noncancelable period of the lease plus any additional periods covered by an option to extend the lease that are reasonably certain to be executed by us. Lease payments included in the measurement of the lease liability comprise fixed payments owed over the lease term, variable lease payments that depend on an index or rate, and the exercise price of an option to purchase the underlying asset if it is reasonably certain that we will exercise the option.
The ROU asset is initially measured at cost, which comprises the initial amount of lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred, less any lease incentives received. For our operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, and adjusted for any prepaid or accrued lease payments, less the
15
unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the term of the operating lease.
Variable lease payments associated with our leases are recognized upon the occurrence of the event, activity, or circumstance in the lease agreement on which those payments are assessed. Variable lease payments for operating leases are presented as operating expense in our condensed consolidated statements of operations in the same line item as expense arising from fixed lease payments. Property taxes and insurance paid on behalf of our lessors is included within variable lease payments.
Operating lease ROU assets net of accumulated amortization are presented as "Right-of-use operating leases, net" on the condensed consolidated balance sheets. The current portion of operating lease liabilities is presented as "Short-term operating lease liabilities" and the long-term portion is presented separately as "Long-term operating lease liabilities" on the condensed consolidated balance sheets.
We have elected not to recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less. We recognize the lease payments associated with short-term leases as an expense on a straight-line basis over the lease term. Variable lease payments associated with short-term leases are recognized and presented in the same manner as for all other leases.
The ROU assets for operating leases may be periodically reduced by impairment losses. We use the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant and Equipment - Overall, to determine whether an ROU asset is impaired and if so, the amount of the impairment loss to recognize. We monitor for events or changes in circumstances that require a reassessment of one of our leases. When a reassessment results in the remeasurement of a lease liability, an adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in our condensed consolidated statements of operations.
j. Accounts Receivable, Net
Accounts receivable are reported at net realizable value and consist primarily of amounts due from guests for the sale of group outings and multi-use admission products, such as season passes and the membership program. We are not exposed to a significant concentration of credit risk; however, based on the age of the receivables, our historical experience and other factors and assumptions we believe to be customary and reasonable, we record an allowance for doubtful accounts. As of September 30, 20182019 and December 31, 2017,2018, we have recorded an allowance for doubtful accounts of $17.5$20.5 million and $4.2$7.4 million, respectively, which is primarily comprised of estimated payment defaults under our membership plans.program. To the extent that payments under our membership plansprogram have not been recognized in revenue, the allowance for doubtful accounts recorded against our membership plansprogram is offset with a corresponding reduction in deferred revenue.
k. Recently Adopted |
On January 1, 2018,2019, we adopted Topic 606842 using the modified retrospective transition method applied to those contractsleases with customers which were not completed as ofterms extending past January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under2019. Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under FASB ASC 605,
l. Recent Accounting Pronouncements
In June 2016, FASB issued Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments, ("Topic 326"). The standard requires the immediate recognition of estimated credit losses expected to occur
16
over the life of financial assets rather than the current incurred loss impairment model that recognizes losses when a probable threshold is met. Topic 326 is effective for annual periods beginning after December 15, 2019 and interim periods within those fiscal years. We recorded a net reduction to our opening "Accumulated deficit"are evaluating the provisions of $4.9 million, net of taxes of $1.3 million as of January 1, 2018, to recognize the cumulative impact of adopting Topic 606, withthis accounting standards update and assessing the impact, primarily related toif any, it may have on our international agreements revenue. The impact to revenues for the three and nine months ended September 30, 2018 was an increase of $1.3 million and $5.7 million, respectively, as a result of applying Topic 606.
Revenues are recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense.
(Amounts in thousands) | Balance at September 30, 2018 | |||||||||||
Balance Sheet | As Reported | Balances Without Adoption | Effect of Change Higher/(Lower) | |||||||||
Assets | ||||||||||||
Accounts receivable, net | $ | 171,867 | $ | 172,065 | $ | (198 | ) | |||||
Liabilities | ||||||||||||
Deferred revenue | 192,925 | 193,242 | (317 | ) | ||||||||
Deferred income taxes | 142,450 | 142,342 | 108 | |||||||||
Stockholders' Deficit | ||||||||||||
Accumulated deficit | (1,595,807 | ) | (1,595,400 | ) | (407 | ) | ||||||
Total stockholders' deficit | (515,213 | ) | (514,806 | ) | (407 | ) |
(Amounts in thousands) | Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 | |||||||||||||||||||||
Statement of Operations | As Reported | Balances Without Adoption | Effect of Change Higher/(Lower) | As Reported | Balances Without Adoption | Effect of Change Higher/(Lower) | |||||||||||||||||
Revenues | |||||||||||||||||||||||
Sponsorship, international agreements and accommodations | $ | 35,891 | $ | 34,572 | $ | 1,319 | $ | 85,182 | $ | 79,516 | $ | 5,666 | |||||||||||
Costs and expenses | |||||||||||||||||||||||
Income tax expense | 55,260 | 54,983 | 277 | 59,498 | 58,308 | 1,190 | |||||||||||||||||
Net income | 184,417 | 183,375 | 1,042 | 196,574 | 192,098 | 4,476 |
The following tables present our revenues disaggregated by contract duration for the three and nine months ended September 30, 20182019 and September 30, 2017,2018, respectively. Long-term and short-term contracts consist of our contracts with customers with terms greater than one year and less than or equal to one year, respectively. Sales and usage-based taxes are excluded from revenues.
| | | | | | | | | | | | |
| | Three Months Ended September 30, 2019 | ||||||||||
|
| |
| | | |
| Sponsorship, | | | | |
| | | | | Park Food, | | International | | | | ||
| | | | | Merchandise | | Agreements and | | | | ||
(Amounts in thousands) |
| Park Admissions |
| and Other |
| Accommodations |
| Consolidated | ||||
Long-term contracts | | $ | 38,684 | | $ | 7,897 | | $ | 16,029 | | $ | 62,610 |
Short-term contracts and other (a) | |
| 313,980 | |
| 234,162 | |
| 10,428 | |
| 558,570 |
Total revenues | | $ | 352,664 | | $ | 242,059 | | $ | 26,457 | | $ | 621,180 |
| | | | | | | | | | | | |
| | Three Months Ended September 30, 2018 | ||||||||||
|
| | |
| | |
| Sponsorship, |
| | | |
| | | |
| Park Food, |
| International | | | | ||
| | | |
| Merchandise |
| Agreements and | | | | ||
(Amounts in thousands) |
| Park Admissions |
| and Other |
| Accommodations |
| Consolidated | ||||
Long-term contracts | | $ | 43,976 | | $ | 10,032 | | $ | 25,703 | | $ | 79,711 |
Short-term contracts and other (a) | |
| 307,001 | |
| 222,920 | |
| 10,188 | |
| 540,109 |
Total revenues | | $ | 350,977 | | $ | 232,952 | | $ | 35,891 | | $ | 619,820 |
| | | | | | | | | | | | |
| | Nine Months Ended September 30, 2019 | ||||||||||
|
| | |
| | |
| Sponsorship, |
| | | |
| | | |
| Park Food, |
| International | | | | ||
| | | |
| Merchandise |
| Agreements and | | | | ||
(Amounts in thousands) |
| Park Admissions |
| and Other |
| Accommodations |
| Consolidated | ||||
Long-term contracts | | $ | 70,227 | | $ | 15,511 | | $ | 61,462 | | $ | 147,200 |
Short-term contracts and other (a) | |
| 601,025 | |
| 457,181 | |
| 21,177 | |
| 1,079,383 |
Total revenues | | $ | 671,252 | | $ | 472,692 | | $ | 82,639 | | $ | 1,226,583 |
| | | | | | | | | | | | |
| | Nine Months Ended September 30, 2018 | ||||||||||
|
| | |
| | |
| Sponsorship, |
| | | |
| | | |
| Park Food, |
| International | | | | ||
| | | |
| Merchandise |
| Agreements and | | | | ||
(Amounts in thousands) |
| Park Admissions |
| and Other |
| Accommodations |
| Consolidated | ||||
Long-term contracts | | $ | 78,203 | | $ | 18,419 | | $ | 60,938 | | $ | 157,560 |
Short-term contracts and other (a) | |
| 579,566 | |
| 432,834 | |
| 24,244 | |
| 1,036,644 |
Total revenues | | $ | 657,769 | | $ | 451,253 | | $ | 85,182 | | $ | 1,194,204 |
(a) | Other revenues primarily include sales of single-use tickets and short-term transactional sales for which we have the right to invoice. |
(Amounts in thousands) | Three Months Ended September 30, 2018 | ||||||||||||||
Theme Park Admissions | Theme Park Food, Merchandise and Other | Sponsorship, International Agreements and Accommodations | Consolidated | ||||||||||||
Long-term contracts | $ | 43,976 | $ | 10,032 | $ | 25,703 | $ | 79,711 | |||||||
Short-term contracts and other (a) | 307,001 | 222,920 | 10,188 | 540,109 | |||||||||||
Total revenues | $ | 350,977 | $ | 232,952 | $ | 35,891 | $ | 619,820 |
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(Amounts in thousands) | Three Months Ended September 30, 2017 | ||||||||||||||
Theme Park Admissions | Theme Park Food, Merchandise and Other | Sponsorship, International Agreements and Accommodations | Consolidated | ||||||||||||
Long-term contracts | $ | 40,866 | $ | 7,375 | $ | 14,922 | $ | 63,163 | |||||||
Short-term contracts and other (a) | 290,378 | 216,486 | 10,391 | 517,255 | |||||||||||
Total revenues | $ | 331,244 | $ | 223,861 | $ | 25,313 | $ | 580,418 |
(Amounts in thousands) | Nine Months Ended September 30, 2018 | ||||||||||||||
Theme Park Admissions | Theme Park Food, Merchandise and Other | Sponsorship, International Agreements and Accommodations | Consolidated | ||||||||||||
Long-term contracts | $ | 78,203 | $ | 18,419 | $ | 60,938 | $ | 157,560 | |||||||
Short-term contracts and other (a) | 579,566 | 432,834 | 24,244 | 1,036,644 | |||||||||||
Total revenues | $ | 657,769 | $ | 451,253 | $ | 85,182 | $ | 1,194,204 |
(Amounts in thousands) | Nine Months Ended September 30, 2017 | ||||||||||||||
Theme Park Admissions | Theme Park Food, Merchandise and Other | Sponsorship, International Agreements and Accommodations | Consolidated | ||||||||||||
Long-term contracts | $ | 72,334 | $ | 14,261 | $ | 43,797 | $ | 130,392 | |||||||
Short-term contracts and other (a) | 531,771 | 414,772 | 25,383 | 971,926 | |||||||||||
Total revenues | $ | 604,105 | $ | 429,033 | $ | 69,180 | $ | 1,102,318 |
Our long-term contracts consist of season passes withpurchased by customers in the year preceding the operating season to which they relate, sponsorship contracts and international agreements with third parties. We earn season pass revenue when our customers purchase a season pass for a fixed fee, which entitles the customer to visit our parks, including certain waterparks, throughout the duration of the parks'parks’ operating season. Current year season passes classified as long-term contracts are sold in the year preceding the operating season to which they relate. We earn sponsorship revenue from separately-priced contracts with third parties pursuant to which we sell and advertise the third party'sparty’s products within the parks in exchange for consideration. Advertisements may include, but are not limited to, banners, signs, radio ads, association with certain events, sponsorship of rides within our parks and retail promotions. We earn international agreements revenue pursuant to arrangements in which we assist in the development and management of Six Flags-branded theme parks and waterparks outside of North America. Within our international agreements, we have identified three3 distinct performance obligations as brand licensing, project services and management services. We do not consider revenue generated fromrecognized for the performance obligations related to our international agreements to be significant, neither individually nor in the aggregate, to the financial statements. Refer toany period presented. See Note 1 for additional information on our accounting for performance obligations inunder these contracts.
The transaction price for our long-term contracts is explicitly stated within the contracts. Our sponsorship contracts and international agreements may include estimated variable consideration such as penalties for delay in performance of contract terms, and certain volume-based discounts and rebates. We do not believe there will be significant changes to our estimates of variable consideration. Our brand licensing and management services performance obligationsagreements include royalty payments and management fees, respectively, based on gross sales from Six Flags-branded theme parks.parks once opened. We have elected to apply the sales-based royalty exemption to the brand licensing performance obligation, and accordingly, do not estimate revenue attributable to the gross sales-based royalty. We have also elected to apply the direct allocation exemption to the management services performance obligation, and accordingly, do not estimate revenue attributable to the gross sales basedsales-based management fee.
We recognize season pass revenue in "Theme park"Park admissions" over the estimated redemption rate as we believe this appropriately depicts the transfer of service to our customers. We estimate the redemption rate based on historical experience and other factors and assumptions that we believe to be customary and reasonable. We review the estimated redemption rate regularly, on an ongoing basis, and revise it as necessary throughout the year. Amounts received for multi-use admissions in excess of redemptions are recognized in "Deferred revenue." We recognize sponsorship and international agreements revenue over the term of the agreements using the passage of time as a measure of complete satisfaction of the performance obligations in "Sponsorship, international agreements and accommodations." Amounts received for unsatisfied sponsorship and international agreements performance obligations are recognized in "Deferred revenue." As a result
At January 1, 2019, $100.8 million of the adoptionunearned revenue associated with outstanding long-term contracts was reported in "Deferred revenue," of Topic 606, we recognized an increase to "Sponsorship, international agreements and accommodations" revenue previously recognized in prior periods of $1.3which $46.9 million and $5.7$109.7 million was recognized as revenue for long-term contracts during the three and nine months ended September 30, 2018,2019, respectively.
As of September 30, 2018,2019, we expect to recognize estimated revenue for partially or wholly unsatisfied performance obligations on long-term contracts of approximately $109.7$30.9 million in 2018, $80.5 million inthe remainder of 2019, $48.1$119.4 million in 2020, $34.8$49.4 million in 2021, and $27.7$29.9 million in 2022, and $1.0 million in 2023 and thereafter.
Short-term Contracts and Other
Our short-term contracts consist primarily of season passes and memberships withpurchased by customers in the year of the operating season to which they relate, certain sponsorship contracts and international agreements with third parties. We earn revenue from customer's purchaseguests’ purchases of our season pass and membership products, which entitles the customer to
18
visit our parks, including certain waterparks, throughout the duration of the parks'parks’ operating season for a fixed fee. Current year season passes classified as short-term contracts are sold during the operating season to which they relate. We earn sponsorship and international agreements revenue from contracts with third parties, pursuant to which we sell and advertise the third party'sparty’s products within our parks on a short-term basis that generally coincides with our annual operating season and pursuant to certain activities in connection with our international agreements. The transaction price for our short-term contracts is explicitly stated within the contracts.
We generally recognize revenue from short-term contracts over the passage of time, with the exception of season pass and membership revenues. We recognize season pass and membership revenues in "Theme park"Park admissions" over the estimated redemption rate, as we believe this appropriately depicts the transfer of service to our customers. We estimate the redemption rate based on historical experience and other factors and assumptions we believe to be customary and reasonable. We review the estimated redemption rate regularly and on an ongoing basis and revise it as necessary throughout the year. Payments made by our members that have been enrolled in the membership program for longer than 12 months are recognized in revenue monthly as the payments are made. Amounts received for multi-use admissions in excess of redemptions are recognized in "Deferred revenue". There was no change in the pattern of recognition for season pass and membership revenue during the three and nine months ended September 30, 2018 under Topic 606, as compared to historic accounting under Topic 605.
Other revenues consist primarily of revenues from single-use tickets for entrance to our parks, in-park services (such as the sale of food and beverages, merchandise, games and attractions, standalone parking sales and other services inside our parks), accommodations revenue, and other miscellaneous products and services. Due to the short-term transactional nature of such purchases, we apply the practical expedient to recognize revenue for single-use ticket sales, in-park services, accommodations and other miscellaneous servicesgoods and goodsservices for which we have the right to invoice.
3. Long-Term Indebtedness
Credit Facility
As part of our contracts that have an original expected lengthongoing operations, we periodically refinance our existing credit facility. As of one year or less, we use the practical expedient applicable to such contracts and do not consider the time value of money.
On March 26, 2018, we entered into an amendment to the Amended and Restated2015 Credit Facility that reduced the overall borrowing rate on the Amended and Restated2015 Term Loan B by 25 basis points through a reduction in the applicable margin from LIBOR plus 2.00% to LIBOR plus 1.75%. We capitalized $0.5 million of debt issuance costs directly associated with the issuance of this amendment.
On April 18, 2018, we entered into an amendment to the Amended and Restated2015 Credit Facility that increased our Amended and Restatedthe 2015 Term Loan B borrowings by $39.0 million. We capitalized $0.3 million of debt issuance costs directly associated with the issuance of this amendment. The proceeds of the additional borrowings were used for general corporate purposes, including share repurchases.
On April 17, 2019, we amended and restated the 2015 Credit Facility (as previously amended). The Second Amended and Restated Credit Facility is comprised of a $350.0 million revolving credit loan facility and an $800.0 million Tranche B term loan facility. In connection with entering into the Second Amended and Restated Credit Facility, we repaid the amounts outstanding on the 2015 Revolving Loan and the outstanding 2015 Term Loan B and we recognized a loss on debt extinguishment of $6.2 million. The remaining proceeds from the Second Amended and Restated Credit Facility will be used for general corporate purposes, including payment of refinancing fees. We capitalized $8.9 million of debt issuance costs directly associated with the issuance of the Second Amended and Restated Credit Facility.
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As of September 30, 2018 and December 31, 2017, no amounts2019, 0 advances under the Second Amended and Restated Revolving Loan were outstanding (excluding amounts reserved for letters of credit in the amount of $20.8 million). As of December 31, 2018, $43.0 million under the 2015 Revolving Loan was outstanding (excluding amounts reserved for letters of credit in the amount of $18.1 million and $18.7 million, respectively)million). Interest on the Second Amended and Restated Revolving Loan accrues at an annual rate of LIBOR plus an applicable margin with an unused commitment fee based on our senior secured leverage ratio. As of September 30, 2018,2019, the Second Amended and Restated Revolving Loan unused commitment fee was 0.25%0.30%. The principal amount of the Second Amended and Restated Revolving Loan is due and payable on June 30, 2020.
As of September 30, 2018 and December 31, 2017, $583.8 million and $544.82019, $798.0 million was outstanding under the Second Amended and Restated Term Loan B, respectively.B. As of December 31, 2018, $583.8 million was outstanding under the 2015 Term Loan B. Interest on the Second Amended and Restated Term Loan B accrues at an annual rate of LIBOR plus 2.00%. In June 2019, we entered into 3 separate interest rate swap agreements with a notional amount of $300.0 million (collectively, the “June 2019 Swap Agreements”) to mitigate the risk of an applicable margin, basedincrease in the LIBOR interest rate in effect on our consolidated leverage ratio.the Second Amended and Restated Term Loan B. In August 2019, we entered into 2 additional separate interest rate swap agreements with a notional value of $400.0 million (collectively, the “August 2019 Swap Agreements”) to mitigate the risk of an increase in the LIBOR interest rate in effect on the Second Amended and Restated Term Loan B. See Note 5 for a further discussion. As of September 30, 2018,2019, the applicable interest rate on the Second Amended and Restated Term Loan B was 3.85%3.71%. TheBeginning on September 30, 2019, the Second Amended and Restated Term Loan B wasbecame payable in equal quarterly principal installments of $1.8 million, but the $150.0 million prepayment with proceeds from the 2024 Notes discussed below was applied to the quarterly amortization payments and eliminated the future quarterly amortization payments until maturity. The$2.0 million. All remaining outstanding principal of the Second Amended and Restated Term Loan B is due and payable on June 30, 2022.
Amounts outstanding under the Second Amended and Restated Credit Facility are guaranteed by Holdings, Six Flags Operations Inc. ("SFO") and certain of the domestic subsidiaries of SFTPSix Flags Theme Parks Inc. ("SFTP") (collectively, the "Loan Parties"). The Second Amended and Restated
2024 Notes and 2027 Notes
On June 16, 2016, Holdings issued $300.0 million of 4.875% senior unsecured notes due July 31, 2024 (the "2024 Notes"). We capitalized $4.7 million of debt issuance costs directly associated with the issuance of the 2024 Notes. We used approximately $150.0 million of the proceeds from the issuance of the 2024 Notes to reduce our borrowings under the Amended and Restated2015 Term Loan B, and we used the remaining net proceeds of the sale of the 2024 Notes for general corporate and working capital purposes, which primarily includedconsisted of share repurchases.
On April 13, 2017, Holdings issued an additional $700.0 million of 4.875% Senior Notes due 2024 (the "2024 Notes Add-on"). We capitalized $3.9 million of debt issuance costs directly associated with the issuance of the 2024 Notes Add-on. Interest payments of $24.4 million for the 2024 Notes and the 2024 Notes Add-on are due semi-annually on January 31 and July 31 of each year, with the exception of the first payment for the 2024 Notes on January 31, 2017, which was $9.1 million.
On April 13, 2017, Holdings issued $500.0 million of 5.50% Senior Notes due 2027 (the "2027 Notes"). We capitalized $2.6 million of debt issuance costs directly associated with the issuance of the 2027 Notes. Interest payments of $13.8 million are due semi-annually on April 15 and October 15 of each year, with the exception of the first payment on October 15, 2017, which was $13.9 million.
The 2024 Notes, the 2024 Notes Add-on and the 2027 Notes are guaranteed by the Loan Parties as defined under the indenture agreement.Parties. The 2024 Notes, the 2024 Notes Add-on and the 2027 Notes contain restrictive covenants that, subject to certain exceptions, limit or restrict, among other things, the ability of the Loan Parties to incur additional indebtedness, create liens, engage in
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mergers, consolidations and other fundamental changes, make investments, engage in transactions with affiliates, pay dividends and repurchase capital stock. The 2024 Notes, the 2024 Notes Add-on and the 2027 Notes contain certain events of default, including payment defaults, breaches of covenants and representations, cross defaults to other material indebtedness, judgment, and changes of control and bankruptcy events of default.
Long-Term Indebtedness Summary
As of
September 30,As of | |||||||
(Amounts in thousands) | September 30, 2018 | December 31, 2017 | |||||
Amended and Restated Term Loan B | $ | 583,750 | $ | 544,750 | |||
2024 Notes | 1,000,000 | 1,000,000 | |||||
2027 Notes | 500,000 | 500,000 | |||||
Net discount | (7,129 | ) | (8,137 | ) | |||
Deferred financing costs | (14,154 | ) | (15,435 | ) | |||
Total long-term debt | $ | 2,062,467 | $ | 2,021,178 |
| | | | | | |
|
| As of | ||||
(Amounts in thousands) |
| September 30, 2019 |
| December 31, 2018 | ||
Second Amended and Restated Credit Facility | | | | | | |
Second Amended and Restated Term Loan B |
| $ | 798,000 |
| $ | — |
2015 Credit Facility | | | | | | |
2015 Term Loan B | | | — | | | 583,750 |
2015 Revolving Loan | |
| — | |
| 43,000 |
2024 Notes | |
| 1,000,000 | |
| 1,000,000 |
2027 Notes | |
| 500,000 | |
| 500,000 |
Net discount | |
| (6,904) | |
| (6,792) |
Deferred financing costs | |
| (14,392) | |
| (13,446) |
Total debt | | $ | 2,276,704 | | $ | 2,106,512 |
Less current portion of long-term debt | |
| (8,000) | |
| — |
Less short-term borrowings | | | — | | | (43,000) |
Total long-term debt | | $ | 2,268,704 | | $ | 2,063,512 |
Fair-Value of Long-Term Indebtedness
As of September 30, 20182019 and December 31, 2017,2018, the fair value of our long-term debt was $2,042.4$2,347.4 million and $2,057.1$2,012.4 million, respectively. The measurement of the fair value of long-term debt is based on market prices that are generally observable for similar liabilities at commonly quoted intervals and is considered a Level 2 fair value measurement.
4. Accumulated Other Comprehensive Loss
Changes in the composition of AOCIAccumulated Other Comprehensive Loss ("AOCI") during the
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Accumulated | |
| | Cumulative | | | | | | | | | | | Other | ||
| | Translation | | Cash Flow | | Defined Benefit | | Income | | Comprehensive | |||||
(Amounts in thousands) |
| Adjustment |
| Hedges |
| Plans |
| Taxes |
| Loss | |||||
Balances at December 31, 2018 | | $ | (27,352) | | $ | — | | $ | (41,071) | | $ | (3,075) | | $ | (71,498) |
Net current period change | |
| 316 | |
| (5,901) | |
| — | |
| 1,425 | |
| (4,160) |
Amounts reclassified from AOCI | |
| — | |
| — | |
| 589 | |
| (149) | |
| 440 |
Balances at September 30, 2019 | | $ | (27,036) | | $ | (5,901) | | $ | (40,482) | | $ | (1,799) | | $ | (75,218) |
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(Amounts in thousands) | Cumulative Translation Adjustment | Defined Benefit Plans | Income Taxes | Accumulated Other Comprehensive Loss | |||||||||||
Balances at December 31, 2017 | $ | (28,822 | ) | $ | (41,959 | ) | $ | 6,900 | $ | (63,881 | ) | ||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | 540 | (139 | ) | 401 | ||||||||||
Current period other comprehensive income (loss) activity | 5,588 | — | (1,175 | ) | 4,413 | ||||||||||
Effects of adoption of ASU 2018-02 | — | — | (9,439 | ) | (9,439 | ) | |||||||||
Balances at September 30, 2018 | $ | (23,234 | ) | $ | (41,419 | ) | $ | (3,853 | ) | $ | (68,506 | ) |
The Company had the following reclassifications out of AOCI during the three and nine months ended
September 30, 2019 and September 30, 2018:
| | | | | | | | | | | | | | |
| | | | Amount of Reclassification from AOCI | ||||||||||
| | | | Three Months Ended | | Nine Months Ended | ||||||||
Component of AOCI |
| Location of Reclassification into Income | | September 30, 2019 | | September 30, 2018 |
| September 30, 2019 |
| September 30, 2018 | ||||
| | | | | | | | | | | | | | |
Amortization of deferred actuarial loss and prior service cost |
| Operating expenses | | $ | 205 | | $ | 182 | | $ | 589 | | $ | 540 |
|
| Income tax expense | |
| (54) | |
| (47) | |
| (149) | |
| (139) |
|
| Net of tax | | $ | 151 | | $ | 135 | | $ | 440 | | $ | 401 |
| | | | | | | | | | | | | | |
Total reclassifications |
|
| | $ | 151 | | $ | 135 | | $ | 440 | | $ | 401 |
5. Derivative Financial Instruments
In June 2019, we entered the June 2019 Swap Agreements with an aggregate notional amount of $300.0 million to mitigate the risk of an increase in the LIBOR interest rate in effect on the Second Amended and Restated Term Loan B. The term of the June 2019 Swap Agreements began in June 2019 and expires in June 2023. Upon execution, we designated and documented the June 2019 Swap Agreements as cash flow hedges. The June 2019 Swap Agreements serve as economic hedges and provide protection against rising interest rates.
In August 2019, we entered the August 2019 Swap Agreements with an aggregate notional amount of $400.0 million to mitigate the risk of an increase in the LIBOR interest rate in effect on the Second Amended and Restated Term Loan B. The term of the August 2019 Swap Agreements began in August 2019 and expires in August 2024. Upon execution, we designated and documented the August 2019 Swap Agreements as cash flow hedges. The August 2019 Swap Agreements serve as economic hedges and provide protection against rising interest rates.
By utilizing a derivative instrument to hedge our exposure to LIBOR rate changes, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instrument is placed with counterparties that we believe pose minimal credit risk. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates, commodity prices or currency exchange rates. We manage the market risk associated with derivative instruments by establishing and monitoring parameters that limit the types and degree of market risk that we may undertake. We hold and issue derivative instruments for risk management purposes only and do not utilize derivatives for trading or speculative purposes.
We record derivative instruments at fair value on our unaudited condensed consolidated balance sheets. When in qualifying relationships, the effective portion of all cash flow designated derivatives are deferred in AOCI and are reclassified to interest expense when the forecasted transaction takes place. Ineffective changes, if any, and changes in the fair value of derivatives that are not designated as hedging instruments are recorded directly to “interest expense” and “other expense (income), net”, respectively. Derivative assets and derivative liabilities that have maturity dates equal to or less than twelve months from the balance sheet date are included in prepaid and other current assets and other accrued liabilities, respectively. Derivative assets and derivative liabilities that have maturity dates greater than twelve months from the balance sheet date are included in deposits and other assets and other long-term liabilities, respectively.
Our derivatives are measured on a recurring basis using Level 2 inputs. The fair value measurements of our derivatives are based on market prices that generally are observable for similar assets or liabilities at commonly quoted intervals.
22
Derivative assets recorded at fair value in our condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively, consisted of the following:
| | | | | |
| Derivative Assets | ||||
(Amounts in thousands) | September 30, 2019 |
| December 31, 2018 | ||
Derivatives Designated as Cash Flow Hedges | | | | | |
Interest Rate Swap Agreements — Current | $ | 718 |
| $ | — |
Interest Rate Swap Agreements — Noncurrent | | — | | | — |
| $ | 718 |
| $ | — |
Derivative liabilities recorded at fair value in our condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively, consisted of the following:
| | | | | | |
| | Derivative Liabilities | ||||
(Amounts in thousands) | | September 30, 2019 | December 31, 2018 | |||
Derivatives Designated as Cash Flow Hedges | | | | | | |
Interest Rate Swap Agreements — Current | | $ | (598) | $ | — | |
Interest Rate Swap Agreements — Noncurrent | | | (6,021) | | | — |
| | $ | (6,619) | $ | — |
As of September 30, 2019, we had no derivatives not designated as cash flow hedges.
Gains and losses before taxes on derivatives designated as a cash flow hedge for the three and nine months ended September 30, 2019 and September 30, 2018 and were as follows:
Three Months Ended September 30, 2017:
Location of Reclassification into Income | Amount of Reclassification from AOCI | |||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||
Component of AOCI | September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | ||||||||||||||
(Amounts in thousands) | ||||||||||||||||||
Amortization of loss on interest rate hedge | Interest expense | $ | — | $ | 160 | $ | — | $ | 611 | |||||||||
Income tax expense | — | (62 | ) | — | (238 | ) | ||||||||||||
Net of tax | $ | — | $ | 98 | $ | — | $ | 373 | ||||||||||
Amortization of deferred actuarial loss and prior service cost | Operating expenses | $ | 182 | $ | 211 | $ | 540 | $ | 632 | |||||||||
Income tax expense | (47 | ) | (83 | ) | (139 | ) | (247 | ) | ||||||||||
Net of tax | $ | 135 | $ | 128 | $ | 401 | $ | 385 | ||||||||||
Total reclassifications | $ | 135 | $ | 226 | $ | 401 | $ | 758 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Loss Recognized in | ||||
| | | | | | | | | | | | | | Operations on Derivatives | ||||
| | Loss | | Loss Reclassified from | | (Ineffective Portion and | ||||||||||||
| | Recognized in AOCI | | AOCI into Operations | | Amount Excluded from | ||||||||||||
| | (Effective Portion) | | (Effective Portion) | | Effectiveness Testing) | ||||||||||||
(Amounts in thousands) |
| 2019 |
| 2018 |
| 2019 | | 2018 |
| 2019 |
| 2018 | ||||||
Interest Rate Swap Agreements | | $ | (3,035) |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
Total |
| $ | (3,035) |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
Nine Months Ended September 30, 2019 and September 30, 2018
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Loss Recognized in | ||||
| | | | | | | | | | | | | | Operations on Derivatives | ||||
| | Loss | | Loss Reclassified from | | (Ineffective Portion and | ||||||||||||
| | Recognized in AOCI | | AOCI into Operations | | Amount Excluded from | ||||||||||||
| | (Effective Portion) | | (Effective Portion) | | Effectiveness Testing) | ||||||||||||
(Amounts in thousands) |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||||
Interest Rate Swap Agreements | | $ | (5,901) |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
Total |
| $ | (5,901) |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
6. Commitments and Contingencies
Partnership Parks
On April 1, 1998, we acquired all of the capital stock of the former Six Flags Entertainment Corporation (a corporation that has been merged out of existence and that has always been a separate corporation from Holdings, "Former SFEC") for
23
to (i) make minimum annual distributions (including rent) of approximately $71.1$72.5 million in 20182019 (subject to cost of living adjustments) to the limited partners in the Partnership Parks (based on our ownership of units as of September 30, 2018,2019, our share of the distribution will be approximately $31.1 million)$31.7 million) and (ii) make minimum capital expenditures at each of the Partnership Parks during rolling five-yearfive-year periods, based generally on 6% of the Partnership Parks'Parks’ revenues. Cash flow from operations at the Partnership Parks is used to satisfy these requirements first, before any funds are required from us. We also guaranteed the obligation of our subsidiaries to annually purchase all outstanding limited partnership units to the extent tendered by the unit holders (the "Partnership Park Put"). The agreed price for units tendered in the Partnership Park Put is based on a valuation of each of the respective Partnership Parks (the "Specified Price") that is the greater of (a) a valuation for each of the respective Partnership Parks derived by multiplying such park'spark’s weighted average four yearfour-year EBITDA (as defined in the agreements that govern the partnerships) by a specified multiple (8.0(8.0 in the case of SFOG and 8.5 in the case of SFOT) and (b) a valuation derived from the highest prices previously paidoffered for the units of the Partnership Parks by certain entities. Pursuant to the valuation methodologies described in the preceding sentence, the Specified Price for the Partnership Parks, if determined as of September 30, 2018,2019, is $387.0$408.3 million in the case of SFOG and $485.2$520.6 million in the case of SFOT. As of September 30, 2018,2019, we owned approximately 31.0% and 53.2% of the Georgia limited partner interests and Texas limited partner interests, respectively. Our obligations with respect to SFOG and SFOT will continue until 2027 and 2028, respectively.
In 2027 and 2028, we will have the option to purchase all remaining units in the Georgia limited partner and the Texas limited partner, respectively, at a price based on the Specified Price, increased by a cost of living adjustment. Pursuant to the 20182019 annual offer, no0 partnership units in the Georgia partnershipPartnership were tendered for purchase, and we purchased 0.1750.1 units offrom the Texas partnership for approximately $0.4$0.2 million in May 2018.2019. As we purchase additional units, we are entitled to a proportionate increase in our share of the minimum annual distributions. The maximum unit purchase obligations for 2019 at both parks will beis approximately $494.0$525.1 million, representing approximately 69.0% of the outstanding units of SFOG and 46.8% of the outstanding units of SFOT. An additional $350.0 million of the Amended and Restated Term Loan Bincremental borrowing is available under the Second Amended and Restated Credit Facility is available for borrowing for future "put" obligations, if necessary.
In connection with our acquisition of the Former SFEC, we entered into the Subordinated Indemnity Agreement with certain of the Company'sCompany’s entities, Time Warner, and an affiliate of Time Warner (an indirect subsidiary of AT&T Inc. as a result of a merger in 2018), pursuant to which, among other things, we transferred to Time Warner (which has guaranteed all of our obligations under the Partnership Park arrangements) record title to the corporations whichthat own the entities that have purchased and will purchase limited partnership units of the Partnership Parks, and we received an assignment from Time Warner of all cash flow received on such limited partnership units, and we otherwise control such entities. In addition, we issued preferred stock of the managing partner of the partnerships to Time Warner. In the event of a default by us under the Subordinated Indemnity Agreement or of our obligations to our partners in the Partnership Parks, these arrangements would permit Time Warner to take full control of both the entities that own limited partnership units and the managing partner. If we satisfy all such obligations, Time Warner is required to transfer to us the entire equity interests of these entities.
We incurred
Insurance
We maintain insurance of the types and in amounts that we believe are commercially reasonable and that are available to businesses in our industry. We maintain multi-layered general liability policies that provide for excess
24
liability coverage of up to
The majority of our current insurance policies expire on December 31, 2018.2019. We generally renegotiate our insurance policies on an annual basis. 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.
Litigation
We are party to various legal actions arising in the normal course of business, including the cases discussed below. We record a liability when we believe that it is probable that a loss has been incurred and the amount can be reasonably estimated. We evaluate developments in our legal matters that could affect the amount of liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and make adjustments as appropriate. We exercise significant judgment to evaluate both the likelihood and the estimated amount of a loss related to such matters. Based on our current knowledge, we believe that the amount of reasonably possible loss will not, either individually or in aggregate, have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. However, the outcome of such legal matters is subject to inherent uncertainties and management’s view of these matters may change in the future.
On January 7, 2016, a potential class action complaint was filed against Six Flags Entertainment Corporation in the Circuit Court of Lake County, Illinois. On April 22, 2016, Great America, LLC was added as a defendant. The complaint asserts that we violated the Illinois Biometric Information Privacy Act ("BIPA") in connection with the admission of season pass holders and members through the finger scan program that commenced in the 2014 operating season at Six Flags Great America in Gurnee, Illinois, and seeks statutory damages, attorneys'attorneys’ fees and an injunction. An aggrieved party under BIPA may recover (i) $1,000 if a company is found to have negligently violated BIPA or (ii) $5,000 if a company is found to have intentionally or recklessly violated BIPA, plus reasonable attorneys'attorneys’ fees in each case. The complaint does not allege that any information was misused or disseminated. On April 7, 2017, the trial court certified two2 questions for consideration by the Illinois Appellate Court of the Second District. On June 7, 2017, the Illinois Appellate Court granted our motion to appeal. Accordingly, two2 questions regarding the interpretation of BIPA were certified for consideration by the Illinois Appellate Court. On December 21, 2017, the Illinois Appellate Court found in our favor, holding that the plaintiff had to allege more than a technical violation of BIPA and had to be injured in some way.way in order to have a right of action. On March 1, 2018, the plaintiff filed a petition for leave to appeal to the Illinois Supreme Court. On May 30, 2018, the Illinois Supreme Court granted the plaintiff'splaintiff’s petition for leave to appeal.appeal and oral arguments were heard on November 20, 2018. On January 25, 2019, the Illinois Supreme Court found in favor of the plaintiff, holding that the plaintiff does not need to allege an actual injury beyond the violation of his rights under BIPA in order to proceed with a complaint. We intend to continue to vigorously defend ourselves against this litigation. Since this litigation is still in an early stage, the outcome is currently not determinable and a reasonable estimate of loss or range of loss in excess of the immaterial amount that we have recorded for this litigation cannot be made.
During 2017, four4 potential class action complaints were filed against Six Flags Entertainment Corporation or one of its subsidiaries. Complaints were filed on August 11, 2017 in the Circuit Court of Lake County, Illinois, on September 1, 2017 in the United States District Court for the Northern District of Georgia, on September 11, 2017, in the Superior Court of Los Angeles County, California, and on November 30, 2017, in the Superior Court of Ocean County,
25
New Jersey. The complaints allege that we, in violation of federal law, printed more than the last five digits of a credit or debit card number on customers’ receipts, and/or the expiration dates of those cards. A willful violation may subject a company to liability for actual damages or statutory damages between $100 and $1,000 per person, punitive damages in an amount determined by a court, and reasonable attorneys’ fees, all of which are sought by the plaintiffs. The complaints do not allege that any information was misused. We
7. Leases
On January 1, 2019, we adopted Topic 842 using the modified retrospective approach on leases with terms extending past January 1, 2019. Results for reporting periods beginning after January 1, 2019, are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 840. As a result, we were not required to adjust our comparative period financial information for the effects of Topic 842 or make new lease disclosures for comparative prior periods before the date of adoption. See Note 1 (i.Leases) for additional information concerning our accounting policies and the election of certain practical expedients under Topic 842.
Upon adoption of Topic 842 on January 1, 2019, we recorded right-of-use assets and corresponding liabilities of $207.4 million and $204.3 million, respectively, with the impact primarily related to our leases of operating rights for theme park and waterpark properties and land. There was not a material impact to our condensed consolidated statements of operations or statements of cash flows as a result of adoption of Topic 842.
We have operating leases for amusement parks, land, vehicles, machinery and certain equipment. Our leases have remaining lease terms of less than one year to 46 years, some of which include options to extend leases up to 20 years, and some of which include options to terminate the lease within one year. For our noncancelable operating leases with options to extend, because we may determine it is not reasonably certain we will exercise the option, the options are not considered in determining the lease term, and associated potential option payments are excluded from lease payments. Our leases generally do not include restrictive financial or other covenants. Payments due under the lease contracts include fixed payments and, for certain of our leases, variable payments.
The components of lease cost for the three and nine months ended September 30, 2019 are as follows:
| | | | | | |
| | Three Months Ended | | Nine Months Ended | ||
(Amounts in thousands) | | September 30, 2019 |
| September 30, 2019 | ||
Operating lease cost | | $ | 6,127 |
| $ | 18,524 |
Short-term lease cost | | | 1,754 | | | 5,289 |
Variable lease cost | | | 1,224 | | | 2,091 |
Total lease cost | | $ | 9,105 | | $ | 25,904 |
Lease costs for the three and nine months ended September 30, 2018 included minimum rental payments under operating leases recognized on a straight-line basis over the term of the lease. Rental expense for operating leases during the three and nine months ended September 30, 2018 was $9.5 million and $19.6 million, respectively.
Other information related to leases for the three and nine months ended September 30, 2019 is as follows:
| | | | | | | | |
| | Three Months Ended | |
| Nine Months Ended |
| ||
(Amounts in thousands, except for lease term and discount rate) | | September 30, 2019 | |
| September 30, 2019 |
| ||
Cash paid for amounts included in the measurement of lease liability operating cash flows | | $ | 14,011 | | | $ | 22,464 | |
ROU assets obtained in exchange for lease liabilities | | | 253 | | |
| 4,610 | |
Weighted-average remaining lease term (in years) | | | 19.62 | | |
| 19.62 | |
Weighted-average discount rate | | | 6.91 | % | |
| 6.91 | % |
26
Maturities of noncancelable operating lease liabilities under Topic 842 as of September 30, 2018 and2019 are summarized in the table below.
| | | |
(Amounts in thousands) |
| As of September 30, 2019 | |
Remaining in 2019 | | $ | 1,559 |
2020 | |
| 23,741 |
2021 | |
| 22,597 |
2022 | |
| 21,588 |
2023 | |
| 21,406 |
Thereafter | |
| 287,536 |
Total | | $ | 378,427 |
Less: present value discount | |
| (182,477) |
Lease liability | | $ | 195,950 |
Future minimum lease payments for long-term noncancelable operating leases under Topic 840 as of December 31, 2017, we had a nominal amount of accrued liabilities for tax and other indemnification contingencies related to certain parks sold in previous years that could be recognized as recovery of losses2018 are summarized in the future if such liabilities aretable below.
| | | |
(Amounts in thousands) |
| As of December 31, 2018 | |
2019 | | $ | 23,936 |
2020 | |
| 23,266 |
2021 | |
| 22,384 |
2022 | |
| 21,626 |
2023 | |
| 21,563 |
Thereafter | |
| 314,799 |
Total | | $ | 427,574 |
Practical Expedients
We have elected the package of practical expedients for adoption of Topic 842 permitted under the transition guidance within the standard, which among other things allows us to carryforward historical lease classification, indirect costs, and the original determination of whether or not requesteda contract contained a lease.
We have elected the practical expedient to be paid.
8. Redeemable Noncontrolling Interests
Redeemable noncontrolling interests represent the non-affiliated parties'parties’ share of the assets of the Partnership Parks that are less than wholly-owned: SFOT, SFOG and Six Flags White Water Atlanta, which is owned by the partnership that owns SFOG. As of September 30, 2018,2019, redeemable noncontrolling interests inof the SFOT and SFOG partnerships was $237.2$253.7 million and $276.8$291.7 million, respectively.
(Amounts in thousands) | SFOT | SFOG | Total | ||||||||
Balance at December 31, 2017 | $ | 227,593 | $ | 266,838 | $ | 494,431 | |||||
Purchase of redeemable units of SFOT | (353 | ) | — | (353 | ) | ||||||
Fresh start accounting fair market value adjustment for purchased units | (80 | ) | — | (80 | ) | ||||||
Net income attributable to noncontrolling interests | 20,086 | 19,921 | 40,007 | ||||||||
Distributions to noncontrolling interests | $ | (10,043 | ) | $ | (9,960 | ) | $ | (20,003 | ) | ||
Balance at September 30, 2018 | $ | 237,203 | $ | 276,799 | $ | 514,002 |
| | | | | | | | | |
(Amounts in thousands) |
| SFOT |
| SFOG |
| Total | |||
Balance at December 31, 2018 | | $ | 243,756 | | $ | 281,515 | | $ | 525,271 |
Purchase of redeemable units of SFOT | |
| (217) | |
| — | |
| (217) |
Fresh start accounting fair market value adjustment for purchased units | | | (45) | | | — | | | (45) |
Net income attributable to noncontrolling interests | |
| 20,452 | |
| 20,301 | |
| 40,753 |
Distributions to noncontrolling interests | | | (10,226) | | | (10,150) | | | (20,376) |
Balance at September 30, 2019 | | $ | 253,720 | | $ | 291,666 | | $ | 545,386 |
The redemption value of the noncontrolling partnership units in SFOT and SFOG as of September 30, 2019 was approximately $243.6 million and $281.5 million, respectively. See Note 56 for a description of the partnership arrangements applicable to the Partnership Parks, the accounts of which are included in the accompanying unaudited condensed consolidated financial statements. The redemption value
27
9. Business Segments
We manage our operations on an individual park location basis, including operations from parks owned, managed and branded. Discrete financial information is maintained for each park and provided to our corporate management for review and as a basis for decision making. The primary performance measure used to allocate resources is Park EBITDA (defined as park-related operating earnings, excluding the impact of interest, taxes, depreciation, amortization and any other non-cash income or expenditures). PrimarilyIn general, all of our parks provide similar products and services through a similar process to the same class of customer through a consistent method. We also believe that the parks share common economic characteristics. Based on these factors, we have only one1 reportable segment—theme parks.
The following table presents segment financial information and a reconciliation of net income to Park EBITDA. Park level expenses exclude all non-cash operating expenses, principally depreciation and amortization and all non-operating expenses.
Three Months Ended | Nine Months Ended | ||||||||||||||
(Amounts in thousands) | September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | |||||||||||
Net income | $ | 204,421 | $ | 200,930 | $ | 236,581 | $ | 215,013 | |||||||
Interest expense, net | 26,985 | 25,721 | 80,350 | 73,878 | |||||||||||
Income tax expense | 55,260 | 98,665 | 59,498 | 97,128 | |||||||||||
Depreciation and amortization | 29,620 | 28,533 | 86,170 | 82,646 | |||||||||||
Corporate expenses | 12,523 | 9,768 | 41,656 | 36,258 | |||||||||||
Stock-based compensation (reversal) | 10,183 | (35,740 | ) | 30,772 | (39,055 | ) | |||||||||
Non-operating park level expense, net: | |||||||||||||||
Loss on disposal of assets | 386 | 2,010 | 2,551 | 4,337 | |||||||||||
Loss on debt extinguishment | — | — | — | 37,109 | |||||||||||
Other (income) expense, net | (130 | ) | 375 | 2,159 | 40 | ||||||||||
Park EBITDA | $ | 339,248 | $ | 330,262 | $ | 539,737 | $ | 507,354 |
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
(Amounts in thousands) | | September 30, 2019 | | September 30, 2018 |
| September 30, 2019 |
| September 30, 2018 | ||||
Net income |
| $ | 200,209 | | $ | 204,421 |
| $ | 230,973 |
| $ | 236,581 |
Interest expense, net | |
| 28,336 | |
| 26,985 | |
| 86,256 | |
| 80,350 |
Income tax expense | |
| 61,626 | |
| 55,260 | |
| 70,644 | |
| 59,498 |
Depreciation and amortization | |
| 30,685 | |
| 29,620 | |
| 89,033 | |
| 86,170 |
Corporate expenses | |
| 10,060 | |
| 12,523 | |
| 39,984 | |
| 41,656 |
Stock-based compensation | |
| 3,903 | |
| 10,183 | |
| 11,347 | |
| 30,772 |
Non-operating park level expense, net: | | | | | | | | | | | | |
Loss on disposal of assets | |
| 2,659 | |
| 386 | |
| 3,105 | |
| 2,551 |
Loss on debt extinguishment, net | |
| — | |
| — | |
| 6,231 | |
| — |
Other expense (income), net | |
| 231 | |
| (130) | |
| (1,474) | |
| 2,159 |
Park EBITDA |
| $ | 337,709 | | $ | 339,248 |
| $ | 536,099 |
| $ | 539,737 |
All of our owned or managed parks are located in the United States with the exception of
Domestic | Foreign | Total | |||||||||
2018 | (Amounts in thousands) | ||||||||||
Long-lived assets | $ | 2,171,503 | $ | 104,029 | $ | 2,275,532 | |||||
Revenues | 1,101,836 | 92,368 | 1,194,204 | ||||||||
Income before income taxes | 274,811 | 21,268 | 296,079 | ||||||||
2017 | |||||||||||
Long-lived assets | $ | 2,134,645 | $ | 102,340 | $ | 2,236,985 | |||||
Revenues | 1,015,047 | 87,271 | 1,102,318 | ||||||||
Income before income taxes | 292,648 | 19,493 | 312,141 |
| | | | | | | | | |
|
| Domestic |
| Foreign |
| Total | |||
2019 | | (Amounts in thousands) | |||||||
Long-lived assets |
| $ | 2,361,622 |
| $ | 136,120 |
| $ | 2,497,742 |
Revenues | |
| 1,138,640 | |
| 87,943 | |
| 1,226,583 |
Income before income taxes | |
| 284,868 | |
| 16,749 | |
| 301,617 |
2018 | | | | | | | | | |
Long-lived assets |
| $ | 2,171,503 |
| $ | 104,029 |
| $ | 2,275,532 |
Revenues | |
| 1,101,836 | |
| 92,368 | |
| 1,194,204 |
Income before income taxes | |
| 274,811 | |
| 21,268 | |
| 296,079 |
10. Pension Benefits
We froze our pension plan effective March 31, 2006, pursuant to which most participants no longer earned future pension benefits. Effective February 16, 2009, the remaining participants in the pension plan no longer earned future benefits. The following summarizes our pension costs during the three and nine months ended
September 30,
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
(Amounts in thousands) | | September 30, 2019 | | September 30, 2018 |
| September 30, 2019 |
| September 30, 2018 | ||||
Service cost | | $ | 313 | | $ | 250 | | $ | 988 | | $ | 1,050 |
Interest cost | |
| 1,995 | |
| 1,844 | |
| 5,999 | |
| 5,542 |
Expected return on plan assets | |
| (3,318) | |
| (3,431) | |
| (9,979) | |
| (10,307) |
Amortization of net actuarial loss | |
| 205 | |
| 182 | |
| 589 | |
| 540 |
Total net periodic benefit | | $ | (805) | | $ | (1,155) | | $ | (2,403) | | $ | (3,175) |
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Three Months Ended | Nine Months Ended | ||||||||||||||
(Amounts in thousands) | September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | |||||||||||
Service cost | $ | 250 | $ | 425 | $ | 1,050 | $ | 1,275 | |||||||
Interest cost | 1,844 | 2,065 | 5,542 | 6,196 | |||||||||||
Expected return on plan assets | (3,431 | ) | (3,211 | ) | (10,307 | ) | (9,632 | ) | |||||||
Amortization of net actuarial loss | 182 | 211 | 540 | 632 | |||||||||||
Total net periodic benefit | $ | (1,155 | ) | $ | (510 | ) | $ | (3,175 | ) | $ | (1,529 | ) |
The components of net periodic pension benefit other than the service cost component were included in "Other net periodic pension benefit" in the condensed consolidated statements of operations.
Weighted-Average Assumptions Used To Determine Net Cost
Three Months Ended | Nine Months Ended | ||||||||||
September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | ||||||||
Discount rate | 3.45 | % | 3.90 | % | 3.45 | % | 3.90 | % | |||
Rate of compensation increase | N/A | N/A | N/A | N/A | |||||||
Expected return on plan assets | 7.25 | % | 7.25 | % | 7.25 | % | 7.25 | % |
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||
| | September 30, 2019 | | September 30, 2018 |
| September 30, 2019 |
| September 30, 2018 | |
Discount rate |
| 4.05 | % | 3.45 | % | 4.05 | % | 3.45 | % |
Rate of compensation increase |
| N/A |
| N/A |
| N/A |
| N/A |
|
Expected return on plan assets |
| 7.25 | % | 7.25 | % | 7.25 | % | 7.25 | % |
Employer Contributions
During eachboth of the nine months ended September 30, 20182019 and September 30, 20172018, we made pension contributions of $6.0 million.
11. Stock Repurchase Plan"). Holdings fully utilized the availability under the June 2016 Stock Repurchase Plan by May 2017. Throughout the program, Holdings repurchased 8,392,000 shares at a cumulative cost of approximately $500.0 million and an average price per share of $59.58.
On March 30, 2017, Holdings announced that its Board of Directors approved a stock repurchase plan that permits Holdings to repurchase an incremental $500.0 million in shares of Holdings'Holdings’ common stock (the "March 2017 Stock Repurchase Plan"). As of October 19, 2018,18, 2019, Holdings repurchased 4,079,0004,604,000 shares at a cumulative cost of approximately $238.2$268.3 million and an average price per share of $58.41$58.27 under the March 2017 Stock Repurchase Plan, leaving approximately $261.8$231.7 million available for permitted repurchases.
The amount of share repurchases is limited by the covenants in the Second Amended and Restated Credit Facility, the 2024 Notes, the 2024 Notes Add-on and the 2027 Notes. We will continue to evaluate the share repurchase limits under the covenants on an ongoing basis to determine our ability to utilizeuse the remaining amount authorized for share repurchases. See Note
12. Subsequent Event
On October 18, 2019, we entered into an amendment to the Second Amended and Restated Credit Facility which reduced the overall borrowing rate on the Second Amended and Restated Term Loan B by 25 basis points by reducing the applicable margin from LIBOR plus 2.00% to LIBOR plus 1.75%. Excluding the cost to execute the transaction, the lower borrowing rate will reduce interest expense by approximately $2.0 million annually.
29
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains forward-looking statements that are based on our current beliefs, expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are, by their nature, subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results could differ materially from those anticipated in these forward-looking statements. Please see the discussion regarding forward-looking statements included under the caption "Cautionary Note Regarding Forward-Looking Statements" included elsewhere in this Quarterly Report and "Item 1A. Risk Factors" in our 20172018 Annual Report for further discussion of the uncertainties, risks and assumptions associated with these statements.
The following discussion and analysis presents information that we believe is relevant to an assessment and understanding of our consolidated financial position and results of operations. This information should be read in conjunction with our unaudited condensed consolidated financial statements, and the notes thereto, and other financial data included elsewhere in this Quarterly Report. The following information should also be read in conjunction with our audited consolidated financial statements, and the notes thereto, and "Management's"Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our 20172018 Annual Report.
Overview
General
We are the largest regional theme park operator in the world and the largest operator of waterparks in North America based on the number of parks we operate. Of our 2526 regional theme parks and waterparks, 2223 are located in the United States, two are located in Mexico and one is located in Montreal, Canada. Our parks are located in geographically diverse markets across North America and they generally offer a broad selection of state-of-the-art and traditional thrill rides, water attractions, themed areas, concerts and shows, restaurants, game venues and retail outlets, thereby providing a complete family-oriented entertainment experience. We work continuously to improve our parks and our guests'guests’ experiences and to meet our guests'guests’ evolving needs and preferences.
The results of operations for the
three and nine months ended September 30, 2019 and September 30, 2018Our revenue is primarily derived from (i) the sale of tickets (including season passes and memberships) for entrance to our parks (which accounted for approximately 55% of total revenues during each of the nine months ended September 30, 20182019 and September 30, 2017)2018), (ii) the sale of food and beverages, merchandise, games and attractions, parking and other services inside our parks, and (iii) sponsorship, international agreements and accommodations, including revenue earned under international development contracts. Revenues from ticket sales and in-park sales are primarily impacted by park attendance. Revenues from sponsorship, international agreements and accommodations can be impacted by the term, timing and extent of services and fees under these arrangements, which can result in fluctuations from quarter to quarter and year to year. During the first nine months of 2018,2019, our park earnings before interest, taxes, depreciation and amortization ("Park EBITDA") increased,decreased relative to the comparable period in the prior year, primarily as a result of increases in cash operating costs, resulting from (i) a 6% increase in attendance primarilyexpenses related to our acquisitionthe addition of five new parks on June 1, 2018,2018; (ii) expenses related to our new waterparks in Mexico and California and the impact of 365-day operations at Six Flagsnewly added Magic Mountain, (ii) a 23% increase in sponsorship, international agreements and accommodations revenues, and (iii) a $0.61 or 1% increase in guest spending per-capita, which excludes sponsorship, international agreements, and accommodations. These increases were partially offset by an increase in cash operating costs, primarily resulting from (i) incremental investments to acquire, integrate, and operate our five new parks including the operating lease expense; (ii) ourWaters waterpark in Concord, California which we began operating in May 2017;Rockford, Illinois on April 1, 2019; and (iii) increased costs from mandated minimum wage increases and competitive labor markets. Total revenue per capita (representingThese decreases were partially offset by an increase in attendance of 1.0 million guests primarily as a result of (i) our
30
five new parks acquired on June 1, 2018; (ii) our newly added Magic Waters waterpark; and (iii) a 2% year-over-year increase in our Active Pass Base, which represents the total revenue divided by total attendance)number of guests who are enrolled in our membership program or who have a season pass. During the three month period ended September 30, 2019, Park EBITDA increased relative to the comparable period inover the prior year primarily as a result of an increase in guest spending revenue driven by $1.07, or 2%.
Our principal costs of operations include salaries and wages, employee benefits, advertising, third party services, repairs and maintenance, utilities and insurance. A large portion of our expensesexpense is relatively fixed, as our costs for full-time employees, maintenance, utilities, advertising and insurance do not vary significantly with attendance.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses earned and incurred during the reporting period. Critical accounting estimates are fundamental to the portrayal of both our financial condition and results of operations and often require difficult, subjective and complex estimates and judgments. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which we believe to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from the continuing changes in the economic environment will be reflected in the financial statements in future periods. With respect to our critical accounting policies and estimates, there have been no material developments or changes from the policies and estimates discussed in our 20172018 Annual Report.
Recent Events
On February 20, 2018, we announced a new initiative in connection with Jones Lang LaSalle, Inc., a global professional services firm that specializes in real estate and investment management, to power two more of our parks – Six Flags Discovery Kingdom in Vallejo, California and Six Flags Magic Mountain, near Los Angeles, California – almost entirely with solar power. A renewable energy independent power producer will build, own and operate the renewable energy systems in California. Separately, in September 2018, construction of a solar energy project began at Six Flags Great Adventure in Jackson, New Jersey.
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Results of Operations
Three Months Ended September 30, 20182019 Compared to Three Months Ended September 30, 2017
The following table sets forth summary financial information for the three months ended September 30, 20182019 and September 30, 2017:
Three Months Ended | Percentage Change (%) | |||||||||
(Amounts in thousands, except per capita data) | September 30, 2018 | September 30, 2017 | ||||||||
Total revenue | $ | 619,820 | $ | 580,418 | 7 | % | ||||
Operating expenses | 188,704 | 167,450 | 13 | % | ||||||
Selling, general and administrative expenses | 65,783 | 11,629 | N/M | |||||||
Costs of products sold | 50,081 | 45,951 | 9 | % | ||||||
Other net periodic pension benefit | (1,290 | ) | (846 | ) | 52 | % | ||||
Depreciation and amortization | 29,620 | 28,533 | 4 | % | ||||||
Loss on disposal of assets | 386 | 2,010 | (81 | )% | ||||||
Interest expense, net | 26,985 | 25,721 | 5 | % | ||||||
Other (income) expense, net | (130 | ) | 375 | N/M | ||||||
Income before income taxes | 259,681 | 299,595 | (13 | )% | ||||||
Income tax expense | 55,260 | 98,665 | (44 | )% | ||||||
Net income | 204,421 | 200,930 | 2 | % | ||||||
Less: Net income attributable to noncontrolling interests | (20,004 | ) | (19,605 | ) | 2 | % | ||||
Net income attributable to Six Flags Entertainment Corporation | $ | 184,417 | $ | 181,325 | 2 | % | ||||
Other Data: | ||||||||||
Attendance | 13,572 | 12,926 | 5 | % | ||||||
Total revenue per capita | $ | 45.67 | $ | 44.90 | 2 | % |
| | | | | | | | | |
| | Three Months Ended | | Percentage | |||||
(Amounts in thousands, except percentage and per capita data) |
| September 30, 2019 |
| September 30, 2018 |
| Change (%) | |||
Total revenue |
| $ | 621,180 |
| $ | 619,820 | | 0 | % |
Operating expenses | |
| 189,820 | |
| 188,704 | | 1 | % |
Selling, general and administrative expenses | |
| 55,144 | |
| 65,783 | | (16) | % |
Cost of products sold | |
| 53,508 | |
| 50,081 | | 7 | % |
Other net periodic pension benefit | |
| (1,038) | |
| (1,290) | | (20) | % |
Depreciation and amortization | |
| 30,685 | |
| 29,620 | | 4 | % |
Loss on disposal of assets | |
| 2,659 | |
| 386 | | N/M | |
Interest expense, net | |
| 28,336 | |
| 26,985 | | 5 | % |
Other expense (income), net | |
| 231 | |
| (130) | | N/M | |
Income before income taxes | |
| 261,835 | |
| 259,681 | | 1 | % |
Income tax expense | |
| 61,626 | |
| 55,260 | | 12 | % |
Net income | |
| 200,209 | |
| 204,421 | | (2) | % |
Less: Net income attributable to noncontrolling interests | |
| (20,376) | |
| (20,004) | | 2 | % |
Net income attributable to Six Flags Entertainment Corporation | | $ | 179,833 | | $ | 184,417 | | (2) | % |
| | | | | | | | | |
Other Data: | |
|
| |
|
| |
| |
Attendance | |
| 14,012 | |
| 13,572 | | 3 | % |
Total revenue per capita | | $ | 44.33 | | $ | 45.67 | | (3) | % |
Revenue
Revenue for the three months ended September 30, 20182019 totaled $619.8$621.2 million, an increase of $39.4$1.4 million or 7%, compared to $580.4$619.8 million for the three months ended September 30, 2017.2018. The revenue growthincrease was attributable to a 5%3% increase in attendance primarily driven by our five new parks acquired on June 1, 2018 and(i) the operation of our newly addedacquired Magic Waters waterpark in Concord, California, as well asRockford, Illinois; and (ii) a 42%2% year-over-year increase in our Active Pass Base. These revenue increases were offset by a 26% reduction in sponsorship, international agreements and accommodations revenue. In addition, guest spending per-capita, which excludes sponsorship, international agreements and accommodations, increased to $43.02 during the three months ended September 30, 2018 from $42.94 during the three months ended September 30, 2017. The increase in guest spendingTotal revenue per capita related primarilydecreased $1.34, or 3% compared to ticket price gains and premium membership sales more than offsetting the lower guest spending per capita at our five new parks, which have a higher mix of waterpark attendance.
Admissions revenue per capita for the three months ended September 30, 2019 decreased $0.69, or 3%, compared to the same period in the prior year. This decrease was primarily driven by (i) lower admissions revenue per capita at the five new domestic parks acquired on June 1, 2018 and at our newly acquired Magic Waters waterpark in Rockford, Illinois, which we began operating in April 2019; and (ii) a higher mix of attendance from our Active Pass Base, which represents the total number of guests who are enrolled in our membership program or who have a season pass. These decreases were partially offset by price increases and the benefit of premium priced membership sales. Non-admissions revenue per capita for the three months ended September 30, 2019 increased $0.23,$0.11, or 1%, relative to the comparable period in the prior year. This increase was primarily driven by the continued pricing improvements related tosuccess in selling our all tickets, coupled with an increase in our premium membership sales, partially offset by the lower admissions revenue per capita at our five new parks. Non-admissions revenue per capitaseason dining passes.
Operating expenses
Operating expenses for the three months ended September 30, 2018 decreased $0.15,2019 increased $1.1 million, or less than 1%, relativecompared to the comparablesame period in the prior year, primarily as a result of a greater percentage of the attendance atincremental costs to lease and operate Magic Waters, our five new parks coming fromnewly acquired waterpark visits, which have lower non-admissions per-capita guest spending.
Selling, general and administrative expenses
Selling, general and administrative expenses for the three months ended September 30, 2018 increased $54.22019 decreased $10.6 million, or 16%, compared to the three months ended September 30, 2017same period in the prior year. The decrease was primarily as a result of an increase(i) a decrease in stock-based compensation expense related to the Project 600 Performance Award. During the three months ended September 30, 2017,Award, which we determined thatwere accruing in 2018 but
32
ultimately reversed when we did not achieve the Project 600 Performance Award was no longer deemed probable, which resultedapplicable targets; (ii) a reduction in an adjustment to the stock-based compensation expense incurred to date for the three months ended September 30, 2017, to reflect late achievement. We are now recognizing stock-based compensation expense based on the probable late achievement of the Project 600 Performance Award in 2018. Ourinsurance expenses; and (iii) reduced advertising expenses also increased for the three months ended September 30, 2018 in connection with supporting our five new parks.
Cost of products sold
Cost of products sold in the three months ended September 30, 20182019 increased $4.1$3.4 million, or 9%7%, compared to the three months ended September 30, 2017,same period in the prior year, primarily due to the increased food and merchandise sales.sales associated with our successful all season dining passes. Cost of products sold as a percentage of non-admissionspark food, merchandise and other revenue for the three months ended September 30, 2018 increased slightly relative to the comparable period in the prior year, primarily as a result of product mix, including the growth of our all-season dining pass program.
Depreciation and amortization expense
Depreciation and amortization expense for the three months ended September 30, 20182019 increased $1.1 million, or 4%, compared to the three months ended September 30, 2017.same period in the prior year. The increase in depreciation and amortization expense is primarily the result of asset additions made in conjunction with our ongoing capital program.
Loss on disposal of assets
Loss on disposal of assets for the three months ended September 30, 2018 decreased $1.62019 increased $2.3 million compared to the same period in the prior year. The increase was primarily driven by the write-off of assets associated with our ongoing capital program.
Interest expense, net
Interest expense, net increased $1.4 million, or 81%5%, for the three months ended September 30, 2019 compared to the same period in the prior year, primarily as a result of the increased debt level related to the Second Amended and Restated Term Loan B which increased borrowings by $216.2 million. This increase was partially offset by lower interest rates and less borrowings outstanding under the Second Amended and Restated Revolving Loan compared to outstanding borrowings under the 2015 Revolving Loan in the prior year.
Income tax expense
Income tax expense increased $6.4 million, or 12%, for the three months ended September 30, 2019 compared to the same period in the prior year, primarily as a result of (i) an increase in income before income taxes year over year, (ii) a change in certain state income tax laws that generated a favorable discrete tax benefit in the same period in the prior year, and (iii) lower discrete tax benefits primarily related to the recognition of fewer excess tax benefits from stock-based compensation during the three months ended September 30, 2019.
33
Results of Operations
Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018
The following table sets forth summary financial information for the nine months ended September 30, 2019 and September 30, 2018:
| | | | | | | | | |
| | Nine Months Ended | | Percentage | |||||
(Amounts in thousands, except per capita data) |
| September 30, 2019 |
| September 30, 2018 |
| Change (%) | |||
Total revenue |
| $ | 1,226,583 |
| $ | 1,194,204 | | 3 | % |
Operating expenses | |
| 482,690 | |
| 455,168 | | 6 | % |
Selling, general and administrative expenses | |
| 154,977 | |
| 175,507 | | (12) | % |
Costs of products sold | |
| 107,296 | |
| 100,064 | | 7 | % |
Other net periodic pension benefit | |
| (3,148) | |
| (3,844) | | (18) | % |
Depreciation and amortization | |
| 89,033 | |
| 86,170 | | 3 | % |
Loss on disposal of assets | |
| 3,105 | |
| 2,551 | | 22 | % |
Interest expense, net | |
| 86,256 | |
| 80,350 | | 7 | % |
Loss on debt extinguishment | |
| 6,231 | |
| — | | N/M | |
Other (income) expense, net | |
| (1,474) | |
| 2,159 | | N/M | |
Income before income taxes | |
| 301,617 | |
| 296,079 | | 2 | % |
Income tax expense | |
| 70,644 | |
| 59,498 | | 19 | % |
Net income | | | 230,973 | | | 236,581 | | (2) | % |
Less: Net income attributable to noncontrolling interests | |
| (40,753) | |
| (40,007) | | 2 | % |
Net income attributable to Six Flags Entertainment Corporation | | $ | 190,220 | | $ | 196,574 | | (3) | % |
| | | | | | | | | |
Other Data: | |
|
| |
|
| |
| |
Attendance | |
| 26,688 | |
| 25,699 | | 4 | % |
Total revenue per capita | | $ | 45.96 | | $ | 46.47 | | (1) | % |
Revenue
Revenue for the nine months ended September 30, 2019 totaled $1,226.6 million, an increase of $32.4 million, or 3%, compared to $1,194.2 million for the nine months ended September 30, 2018. The increase was primarily driven by (i) an increase in attendance of 1.0 million guests, or 4%, primarily related to the attendance gains at our five new parks acquired in 2018; (ii) the operation of our newly acquired Magic Waters waterpark in Rockford, Illinois; and (iii) a 2% year-over-year increase in our Active Pass Base. These increases were partially offset by a 3% decrease in sponsorship, international agreements and accommodations revenue. Total revenue per capita decreased $0.51, or 1% compared to the same period in 2018.
Admissions revenue per capita for the nine months ended September 30, 2019 decreased $0.44, or 2%, compared to the same period in the prior year. This decrease was primarily driven by (i) lower admissions revenue per capita at the five new domestic parks acquired on June 1, 2018 and at our newly acquired Magic Waters waterpark in Rockford, Illinois, which we began operating in April 2019; (ii) strategically targeted promotions to drive membership penetration; and (iii) a higher mix of attendance from our Active Pass Base, which represents the total number of guests who are enrolled in our membership program or who have a season pass. These decreases were partially offset by price increases and the benefit of premium priced membership sales. Non-admissions revenue per capita for the nine months ended September 30, 2019 increased $0.15, or 1%, compared to the same period in the prior year. This increase was primarily driven by the continued success in selling our all season dining products.
Operating expenses
Operating expenses for the nine months ended September 30, 2019 increased $27.5 million, or 6%, compared to the same period in the prior year, primarily as a result of fewer(i) incremental operating costs in the first five months of 2019, including lease expense, to operate and rebrand our five new domestic parks we began operating on June 1, 2018; (ii) increased costs from statutory minimum wage rate increases and competitive market rate increases at many of our parks; and (iii) incremental costs to lease and operate Magic Waters, a waterpark in Rockford, Illinois that we began operating on April 1, 2019.
34
Selling, general and administrative expenses
Selling, general and administrative expenses for the nine months ended September 30, 2019 decreased $20.5 million, or 12%, compared to the nine months ended September 30, 2018 primarily as a result of a decrease in stock-based compensation expense related to the Project 600 Performance Award which we were accruing in 2018, but ultimately reversed when we did not achieve the applicable targets.
Cost of products sold
Cost of products sold in the nine months ended September 30, 2019, increased $7.2 million, or 7%, compared to the nine months ended September 30, 2018. This increase was primarily due to a higher volume of sales driven by (i) increased revenue associated with the continued success of selling our all season dining passes; (ii) the operation of our five new parks acquired on June 1, 2018 for additional operating days compared to 2018; and (iii) the operation of our newly acquired Magic Waters waterpark in Rockford, Illinois. Cost of products sold as a percentage of park food, merchandise and other revenue remained relatively flat.
Depreciation and amortization expense
Depreciation and amortization expense for the nine months ended September 30, 2019 increased $2.9 million, or 3%, compared to the nine months ended September 30, 2018. The increase in depreciation and amortization expense is primarily the result of asset additions made in conjunction with our ongoing capital program, partially offset by asset retirements.
Loss on disposal of assets
Loss on disposal of assets for the nine months ended September 30, 2019 increased $0.6 million, or 22%, compared to the same period in the prior year, primarily as a result of increased asset disposals in conjunction with the execution of our ongoing capital program during the current year relative to the prior year.
Interest expense, net
Interest expense, net increased $1.3$5.9 million, or 5%7%, for the three months ended September 30, 2018 relative to the comparable period in the prior year, primarily as a result of (i) the incremental interest incurred on a higher debt balance resulting from the $39.0 million upsize to our Amended and Restated Term Loan B, (ii) higher levels of borrowing under the Amended and Restated Revolving Loan, and (iii) the impact of rising interest rates.
Nine Months Ended | Percentage Change (%) | |||||||||
(Amounts in thousands, except per capita data) | September 30, 2018 | September 30, 2017 | ||||||||
Total revenue | $ | 1,194,204 | $ | 1,102,318 | 8 | % | ||||
Operating expenses | 455,168 | 406,906 | 12 | % | ||||||
Selling, general and administrative expenses | 175,507 | 96,778 | 81 | % | ||||||
Costs of products sold | 100,064 | 91,021 | 10 | % | ||||||
Other net periodic pension benefit | (3,844 | ) | (2,538 | ) | 51 | % | ||||
Depreciation and amortization | 86,170 | 82,646 | 4 | % | ||||||
Loss on disposal of assets | 2,551 | 4,337 | (41 | )% | ||||||
Interest expense, net | 80,350 | 73,878 | 9 | % | ||||||
Loss on extinguishment of debt | — | 37,109 | (100 | )% | ||||||
Other expense, net | 2,159 | 40 | N/M | |||||||
Income before income taxes | 296,079 | 312,141 | (5 | )% | ||||||
Income tax expense | 59,498 | 97,128 | (39 | )% | ||||||
Net income | $ | 236,581 | $ | 215,013 | 10 | % | ||||
Less: Net income attributable to noncontrolling interests | (40,007 | ) | (39,210 | ) | 2 | % | ||||
Net income attributable to Six Flags Entertainment Corporation | $ | 196,574 | $ | 175,803 | 12 | % | ||||
Other Data: | ||||||||||
Attendance | 25,699 | 24,281 | 6 | % | ||||||
Total revenue per capita | $ | 46.47 | $ | 45.40 | 2 | % |
Income tax expense net
Income tax expense net increased $6.5$11.1 million, or 9%19%, for the nine months ended September 30, 2018 relative2019 compared to the comparablesame period in the prior year primarily as a result of (i) an increase in income before income taxes, (ii) a change in certain state income tax laws that generated a favorable discrete tax benefit in the incremental interest incurred on a higher debt balance resulting fromsame period in the issuance of the 2024 Notes Add-onprior year, and the 2027 Notes, the $39.0 million upsize(iii) lower discrete tax benefits primarily related to the Amended and Restated Term Loan B, and higher levelsrecognition of borrowing under the Amended and Restated Revolving Loan.
35
Liquidity, Capital Commitments and Resources
On an annual basis, our principal sources of liquidity are cash generated from operations, funds from borrowings and existing cash on hand. Our principal uses of cash include working capital obligations, the funding of working capital obligations, debt service,common stock dividends, investments in parks (including capital projects), common stock dividends,debt service, payments to our partners in the Partnership Parks and common stock repurchases.
In February November 2018, Holdings' Board of Directors increased theHoldings announced a quarterly cash dividend from $0.70 per share of common stock to $0.78$0.82 per share of common stock. During the
On March 30, 2017, Holdings announced that its Board of Directors approved a stock repurchase plan that permits Holdings to repurchase an incremental $500.0 million in shares of Holdings'Holdings’ common stock (the "March 2017 Stock Repurchase Plan"). As of October 19, 2018,18, 2019, Holdings has repurchased 4,079,0004,604,000 shares at a cumulative cost of approximately $238.2$268.3 million and an average cost per share of $58.41$58.27 under the March 2017 Stock Repurchase Plan, leaving approximately $261.8$231.7 million available for permitted repurchases.
Based on historical and anticipated operating results, we believe cash flows from operations, available cash and amounts available under the Second Amended and Restated Credit Facility will be adequate to meet our liquidity needs, including any anticipated requirements for working capital, capital expenditures, common stock dividends, scheduled debt service, obligations under arrangements relating to the Partnership Parks and discretionary common stock repurchases. Additionally, based on our current federal net operating loss carryforwards, we anticipate paying minimal federal income taxes in 2019 and 2020 and do not anticipate becoming a full cash taxpayer until 2024. ForDuring the years 20182021 through 2024, we have significant federal net operating loss carryforwards subject to an annual limitation that we expect will offset approximately $32.5 million of taxable income per year. We do, however, anticipate paying a low level of federal income taxes beginning in 2018 and estimate a slow growth in federal income taxes payable in cash going forward.
Our current and future liquidity is greatly dependent upon our operating results, which are driven largely by overall economic conditions as well as the price and perceived quality of the entertainment experience at our parks. Our liquidity could also be adversely affected by a disruption in the availability of credit as well as unfavorable weather; natural disasters; contagious diseases, such as Ebola, Zika, or swine or avian flu; accidents or the occurrence of an event or condition at our parks, including terrorist acts or threats inside or outside of our parks; negative publicity; or significant local competitive events, which could significantly reduce paid attendance and revenue related to that attendance at any of our parks. While we work with local police authorities on security-related precautions to prevent certain types of disturbances, we can make no assurance that these precautions will be able to prevent these types of occurrences. However, we believe that our ownership of many parks in different geographic locations reduces the effects of adverse weather and these other types of occurrences on our consolidated results. If such an adverse event were to occur, we may be unable to borrow under the Second Amended and Restated Revolving Loan or may be required to repay amounts outstanding under the Second Amended and Restated Credit Facility and/or may need to seek additional financing. In addition, we expect that we may be required to refinance all or a significant portion of our existing debt on or prior to maturity, requiring us to potentially seek additional financing. The degree to which we are leveraged could adversely affect our ability to obtain any additional financing. See "Cautionary Note Regarding Forward-Looking Statements" and "Item 1A. Risk Factors" in the 20172018 Annual Report.
As of September 30, 2018,2019, our total indebtedness, net of discount and deferred financing costs, was approximately $2,062.5$2,276.7 million. Based on (i) non-revolving credit debt outstanding on that date, (ii) anticipated levels of working capital revolving borrowings during 20182019 and 2019,2020, (iii) estimated interest rates for floating-rate debt and (iv) the 2024 Notes, the 2024 Notes Add-on and the 2027 Notes, we anticipate annual cash interest payments of approximately $102.0$115 million during 2018both 2019 and 2019. Under the Amended and Restated Credit Facility, all remaining outstanding principal2020.
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As of
September 30,We currently plan on spending approximately 9% of annual revenues on capital expenditures during the 20182019 calendar year.
During the nine months ended September 30, 2018,2019, net cash provided by operating activities was $342.0$340.9 million. Net cash used in investing activities during the nine months ended September 30, 20182019 was $131.2$122.0 million, consisting primarily of capital expenditures, and the purchasenet of the operating rights to our five new parks.property insurance recoveries. Net cash used in financing activities during the nine months ended September 30, 20182019 was $220.9$51.7 million, primarily attributable to paymentsnet proceeds from borrowings under the Second Amended and Restated Credit Facility and proceeds from the issuance of $198.2common stock, partially offset by the payment of $208.7 million in cash dividends and $81.0$8.9 million for stock repurchases, partially offset by net borrowings under the Amended and Restated Revolving Loan and proceeds from option exercises.
Since our business is both seasonal in nature and involves significant levels of cash transactions and most of our cash-based expenses are relatively fixed and do not vary significantly with either attendance or per capita spending, our net operating cash flows are largely driven by attendance and per capita spending levels. These cash-based operating expenses include salaries and wages, employee benefits, advertising, third party services, repairs and maintenance, utilities and insurance.
Contractual Obligations
Since December 31, 2017,2018, there have been no material changes to the contractual obligations of the Company outside the ordinary course of the Company’s business except with respect to the upsize of theSecond Amended and Restated Term Loan B in April 2018 and the asset purchase agreement with Premier Parks LLCCredit Facility entered into in May 2018.April 2019. Set forth below is certain updated information regarding our debt and operating lease obligations as of September 30, 2018:
| | | | | | | | | | | | | | | |
|
| Payment Due by Period | |||||||||||||
(Amounts in thousands) |
| 2019 |
| 2020 - 2021 |
| 2022 - 2023 |
| 2024 and beyond |
| Total | |||||
Long-term debt including current portion (1) | | $ | 2,000 |
| $ | 16,000 |
| $ | 16,000 | | $ | 764,000 | | $ | 798,000 |
Interest on long-term debt (2) | |
| 7,565 |
| | 59,356 |
| | 58,279 | |
| 70,406 | |
| 195,606 |
Payment Due by Period | |||||||||||||||||||
(Amounts in thousands) | 2018 | 2019-2020 | 2021-2022 | 2023 and beyond | Total | ||||||||||||||
Interest on long-term debt (1) | $ | 19,688 | $ | 199,371 | $ | 186,211 | $ | 221,250 | $ | 626,520 |
(1) Payments are shown at principal amount for the Second Amended and Restated Term Loan B. See Note 3 to the condensed consolidated financial statements included elsewhere in Quarterly Report for further discussion on long-term debt. (2)See Note 3 to the |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 2018,2019, there have been no material changes in our market risk exposure from that disclosed in the 20172018 Annual Report.Report, except as it relates to our derivative financial instruments. See Note 5 to the condensed consolidated financial statements included elsewhere in this report for further discussion. For a discussion of our market risk exposure, please see "Item 7A. Quantitative and Qualitative Disclosure About Market Risk" contained in the 20172018 Annual Report.
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ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation, as of
September 30,There were no other changes in our internal control over financial reporting, as such term is defined under Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act, that occurred during our fiscal quarter ended
ITEM 1. LEGAL PROCEEDINGS
The nature of the industry in which we operate tends to expose us to claims by guests, generally for injuries. Accordingly, we are party to various legal actions arising in the normal course of business. Historically, the great majority of these claims have been minor. Although we believe that we are adequately insured against guests'guests’ claims, if we become subject to damages that cannot by law be insured against, such as punitive damages or certain intentional misconduct by employees, there may be a material adverse effect on our operations.
Certain legal proceedings in which we are involved are discussed in Item 3 of the 20172018 Annual Report, and in Note 56 to the unaudited condensed consolidated financial statements contained in this Quarterly Report. ThereOther than as previously disclosed in Item 3 of the 2018 Annual Report, there were no material developments concerning our legal proceedings during the quarter ended September 30, 2018.
ITEM 1A. RISK FACTORS
There have been no material changes to the principal risks that we believe are material to our business, results of operations and financial condition, from the risk factors previously disclosed in the 20172018 Annual Report. For a discussion on these risk factors, please see "Item 1A. Risk Factors" contained in the 20172018 Annual Report.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On March 30, 2017, Holdings announced that its Board of Directors approved a stock repurchase plan that permits Holdings to repurchase an incremental $500.0 million in shares of Holdings'Holdings’ common stock (the "March 2017 Stock Repurchase Plan"). As of October 19, 2018,18, 2019, Holdings has repurchased 4,079,0004,604,000 shares at a cumulative cost of approximately $238.2$268.3 million and an average cost per share of $58.41$58.27 under the March 2017 Stock Repurchase Plan, leaving approximately $261.8$231.7 million available for permitted repurchases.
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The following table sets forth information regarding purchases of Holdings'Holdings’ common stock during the three months ended September 30, 20182019 under the March 2017 Stock Repurchase Plan:
| | | | | | | | | | | | |
|
| |
| |
| | |
| Total number of |
| Approximate dollar | |
| | |
| Total |
| Average |
| shares purchased |
| value of shares that | ||
| | |
| number of |
| price |
| as part of publicly |
| may yet be purchased | ||
| | |
| shares |
| paid per |
| announced plans |
| under the plans | ||
|
| Period |
| purchased |
| share |
| or programs |
| or programs | ||
Month 1 |
| July 1 - July 31 |
| — |
| $ | — |
| — | | $ | 231,775,000 |
Month 2 |
| August 1 - August 31 |
| 815 | | $ | 58.42 |
| 815 | | $ | 231,727,000 |
Month 3 |
| September 1 - September 30 |
| — | | $ | — |
| — | | $ | 231,727,000 |
| | |
| 815 | | $ | 58.42 |
| 815 | | $ | 231,727,000 |
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Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Approximate dollar value of shares that may yet be purchased under the plans or programs | |||||||||||
Month 1 | July 1 - July 31 | — | — | — | $ | 261,824,000 | |||||||||
Month 2 | August 1 - August 31 | 669 | $ | 66.30 | 669 | $ | 261,780,000 | ||||||||
Month 3 | September 1 - September 30 | 15 | $ | 65.27 | 15 | $ | 261,779,000 | ||||||||
684 | $ | 66.27 | 684 | $ | 261,779,000 |
ITEM 6. EXHIBITS
| |
| |
| |
| |
| |
Exhibit | The following financial statements and footnotes from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 fomatted in Inline XBRL: (i) the Unaudited Condensed Consolidated Balance Sheets, (ii) the Unaudited Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Stockholders’ Deficit, (v) the Unaudited Condensed Statements of Cash Flow, and (vi) related Notes to the Condensed Consolidated Financial Statements. |
| |
Exhibit | |
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL. |
*
Filed herewith40
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | |
| | |
SIX FLAGS ENTERTAINMENT CORPORATION | ||
| | (Registrant) |
| | |
Date: | October | /s/ James Reid-Anderson |
| | James Reid-Anderson |
| | Chairman, President and Chief Executive Officer |
| | |
Date: | October | /s/ Marshall Barber |
| | Marshall Barber |
| | Executive Vice President and Chief Financial Officer |
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