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Six Flags Entertainment (SIX)

Filed: 11 Aug 22, 4:34pm

UNITED STATES

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 July 3, 2022 or

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from to

Commission file number: 1-13703

Graphic

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.)

1000 Ballpark Way Suite 400, Arlington, TX 76011
(Address of Principal Executive Offices, Including Zip Code)

(972) 595-5000
(Registrant’s Telephone Number, Including Area Code)

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   No 

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   No 

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 Filer

  

Accelerated Filer

  

Non-accelerated Filer

  

Smaller Reporting Company

  

Emerging Growth Company

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   No 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  At August 8, 2022, Six Flags Entertainment Corporation had 83,109,177 outstanding shares of common stock, par value $0.025 per share.

SIX FLAGS ENTERTAINMENT CORPORATION

FORM 10-Q

INDEX

Cautionary Note Regarding Forward-Looking Statements

1

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets as of July 3, 2022 (unaudited), January 2, 2022 and July 4, 2021 (unaudited)

3

Condensed Consolidated Statements of Operations (unaudited) for the Three Months Ended July 3, 2022 and July 4, 2021

4

Condensed Consolidated Statements of Operations (unaudited) for the Six Months Ended July 3, 2022 and July 4, 2021

5

Condensed Consolidated Statements of Comprehensive (Loss) Income (unaudited) for the Three Months Ended July 3, 2022 and July 4, 2021

6

Condensed Consolidated Statements of Comprehensive (Loss) Income (unaudited) for the Six Months Ended July 3, 2022 and July 4, 2021

7

Condensed Consolidated Statements of Stockholders’ Deficit (unaudited) for the Three Months Ended July 3, 2022 and July 4, 2021

8

Condensed Consolidated Statements of Stockholders’ Deficit (unaudited) for the Six Months Ended July 3, 2022 and July 4, 2021

9

Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended July 3, 2022 and July 4, 2021

10

Notes to Condensed Consolidated Financial Statements

11

Item 2.

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

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

36

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 6.

Exhibits

38

Signatures

39

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors include (i) global coronavirus (“COVID-19”) pandemic-related business disruptions and economic uncertainty, (ii) the adequacy of our cash flows from operations, available cash and available amounts under our credit facilities to meet our liquidity needs, (iii) our expectations regarding the timing, costs, benefits and results of our strategic plan, (iv) impact of macro-economic conditions, including inflation, on consumer spending, (v) our ability to implement our capital plans in a timely and cost effective manner, and our expectations regarding the anticipated costs, benefits and results of such capital plans, (vi) the extent to which having parks in diverse geographical locations protects our consolidated results against the effects of adverse weather and other events, (vii) our ongoing compliance with laws and regulations, and the effect of, and cost and timing of compliance with, newly enacted laws and regulations, (viii) our ability to obtain additional financing, (ix) our expectations regarding future interest payments, (x) our expectations regarding the effect of certain accounting pronouncements, (xi) our expectations regarding the cost or outcome of any litigation or other disputes, (xii) our annual income tax liability and the availability and effect of net operating loss carryforwards and other tax benefits, and (xiii) our expectations regarding uncertain tax positions.

Forward-looking statements are based on our current 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. Additional risks and uncertainties that could cause actual results to differ materially from those described in such forward-looking statements include, among others, the following:

factors impacting attendance, such as local conditions, contagious diseases, including COVID-19 and Monkeypox, or the perceived threat of contagious diseases, events, disturbances and terrorist activities;
regulations and guidance of federal, state and local governments and health officials regarding the response to the COVID-19 pandemic or other health emergencies such as Monkeypox, including, with respect to business operations, safety protocols and public gatherings (such as voluntary and, in some cases, mandatory, quarantines, as well as shut downs and other restrictions on travel and commercial, social and other activities);
economic impact of political instability and conflicts globally, such as the war in Ukraine;
recall of food, toys and other retail products sold at our parks;
accidents or incidents involving the safety of guests and employees, or contagious disease outbreaks at our parks or other parks in our industry, and negative publicity about us or our industry;
availability of commercially reasonable insurance policies at reasonable rates;
inability to achieve desired improvements and financial performance targets;
adverse weather conditions, such as excess heat or cold, rain and storms;
general financial and credit market conditions, including our ability to access credit or raise capital;
macro-economic conditions (including impact of inflation on customer spending patterns);
changes in public and consumer tastes;
construction delays in capital improvements or ride downtime;
competition with other theme parks and entertainment alternatives;
dependence on a seasonal workforce;
unionization activities and labor disputes;
laws and regulations affecting labor and employee benefit costs, including increases in state and federally mandated minimum wages, and healthcare reform;
environmental laws and regulations;
laws and regulations affecting corporate taxation;
pending, threatened or future legal proceedings and the significant expenses associated with litigation;

1

cyber security risks; and
other factors or uncertainties described in "Item 1A. Risk Factors" set forth in our Annual Report on Form 10-K for the year ended January 2, 2022 (the "2021 Annual Report"), and in this Quarterly 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 provide 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 law, to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise. Additionally, the continued impact of COVID-19, virus variants, and the rate of vaccinations could heighten many of the risk factors described herein.

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, 1000 Ballpark Way Suite 400, Arlington, TX 76011, 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

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SIX FLAGS ENTERTAINMENT CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

 

As of

    

July 3, 2022

    

January 2, 2022

    

July 4, 2021

(Amounts in thousands, except share data)

(unaudited)

(unaudited)

ASSETS

 

  

 

  

 

  

Current assets:

 

  

 

  

 

  

Cash and cash equivalents

$

74,802

$

335,585

$

252,887

Accounts receivable, net

 

70,473

 

97,722

 

124,846

Inventories

 

47,531

 

27,273

 

36,038

Prepaid expenses and other current assets

 

69,990

 

55,455

 

66,094

Total current assets

 

262,796

 

516,035

 

479,865

Property and equipment, net:

 

  

 

  

 

  

Property and equipment, at cost

 

2,552,144

 

2,501,829

 

2,445,453

Accumulated depreciation

 

(1,297,710)

 

(1,250,902)

 

(1,205,950)

Total property and equipment, net

 

1,254,434

 

1,250,927

 

1,239,503

Other assets:

 

  

 

  

 

  

Right-of-use operating leases, net

180,836

186,754

193,254

Debt issuance costs

 

3,832

 

4,899

 

5,966

Deposits and other assets

 

8,101

 

6,170

 

6,006

Goodwill

 

659,618

 

659,618

 

659,618

Intangible assets, net of accumulated amortization of $272, $261 and $249 as of July 3, 2022, January 2, 2022 and July 4, 2021, respectively

 

344,176

 

344,187

 

344,187

Total other assets

 

1,196,563

 

1,201,628

 

1,209,031

Total assets

$

2,713,793

$

2,968,590

$

2,928,399

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

  

 

  

 

  

Current liabilities:

 

  

 

  

 

  

Accounts payable

$

67,925

$

38,251

$

65,526

Accrued compensation, payroll taxes and benefits

 

24,968

 

51,473

 

47,846

Accrued insurance reserves

 

37,017

 

32,182

 

26,998

Accrued interest payable

 

24,713

 

50,554

 

25,289

Other accrued liabilities

 

102,626

 

101,790

 

108,330

Deferred revenue

 

171,238

 

177,831

 

310,441

Short-term borrowings

 

200,000

 

 

Short-term lease liabilities

11,394

11,158

10,801

Total current liabilities

 

639,881

 

463,239

 

595,231

Noncurrent liabilities:

 

  

 

  

 

  

Long-term debt

 

2,277,910

 

2,629,524

 

2,626,082

Long-term lease liabilities

175,786

178,200

188,687

Other long-term liabilities

 

5,476

 

9,469

 

32,750

Deferred income taxes

 

152,041

 

148,291

 

102,853

Total noncurrent liabilities

 

2,611,213

 

2,965,484

 

2,950,372

Total liabilities

 

3,251,094

 

3,428,723

 

3,545,603

Redeemable noncontrolling interests

 

543,719

 

522,067

 

542,950

Stockholders' deficit:

 

  

 

  

 

  

Preferred stock, $1.00 par value

 

 

 

Common stock, $0.025 par value, 280,000,000 shares authorized; 83,026,556, 86,162,879 and 85,871,956 shares issued and outstanding at July 3, 2022, January 2, 2022 and July 4, 2021, respectively

 

2,075

 

2,154

 

2,147

Capital in excess of par value

 

1,103,534

 

1,120,084

 

1,108,680

Accumulated deficit

 

(2,114,697)

 

(2,023,251)

 

(2,178,493)

Accumulated other comprehensive loss, net of tax

 

(71,932)

 

(81,187)

 

(92,488)

Total stockholders' deficit

 

(1,081,020)

 

(982,200)

 

(1,160,154)

Total liabilities and stockholders' deficit

$

2,713,793

$

2,968,590

$

2,928,399

See accompanying notes to unaudited condensed consolidated financial statements.

3

SIX FLAGS ENTERTAINMENT CORPORATION

Condensed Consolidated Statements of Operations

(Unaudited)

 

Three Months Ended

(Amounts in thousands, except per share data)

July 3, 2022

    

July 4, 2021

Park admissions

$

241,777

$

245,165

Park food, merchandise and other

 

183,081

 

198,897

Sponsorship, international agreements and accommodations

 

10,564

 

15,725

Total revenues

 

435,422

 

459,787

Operating expenses (excluding depreciation and amortization shown separately below)

 

173,582

 

183,768

Selling, general and administrative expenses (including stock-based compensation of $3,223 and $3,001 in 2022 and 2021, respectively, and excluding depreciation and amortization shown separately below)

 

53,573

 

50,205

Costs of products sold

 

35,710

 

39,194

Other net periodic pension benefit

 

(1,920)

 

(1,690)

Depreciation

 

27,532

 

28,047

Amortization

 

5

 

5

Loss on disposal of assets

 

98

 

719

Interest expense

 

36,250

 

38,113

Interest income

 

(272)

 

(65)

Loss on debt extinguishment

 

17,533

 

Other expense, net

 

898

 

831

Income before income taxes

 

92,433

 

120,660

Income tax expense

 

24,716

 

29,257

Net income

 

67,717

 

91,403

Less: Net income attributable to noncontrolling interests

 

(22,325)

 

(20,883)

Net income attributable to Six Flags Entertainment Corporation

$

45,392

$

70,520

Weighted-average common shares outstanding:

 

 

Basic:

 

84,992

 

85,673

Diluted:

 

85,242

 

86,751

Earnings per average common share outstanding:

Basic:

$

0.53

$

0.82

Diluted:

$

0.53

$

0.81

See accompanying notes to the unaudited condensed consolidated financial statements

4

SIX FLAGS ENTERTAINMENT CORPORATION

Condensed Consolidated Statements of Operations

(Unaudited)

 

Six Months Ended

(Amounts in thousands, except per share data)

    

July 3, 2022

    

July 4, 2021

Park admissions

$

314,764

$

289,499

Park food, merchandise and other

 

237,350

 

230,121

Sponsorship, international agreements and accommodations

 

21,415

 

22,191

Total revenues

 

573,529

 

541,811

Operating expenses (excluding depreciation and amortization shown separately below)

 

283,526

 

276,411

Selling, general and administrative expenses (including stock-based compensation of $7,448 and $9,638 in 2022 and 2021, respectively, and excluding depreciation and amortization shown separately below)

 

92,905

 

86,331

Costs of products sold

 

45,825

 

46,409

Other net periodic pension benefit

 

(3,371)

 

(3,333)

Depreciation

 

56,575

 

56,874

Amortization

 

11

 

11

(Gain) loss on disposal of assets

 

(2,002)

 

1,239

Interest expense

 

74,107

 

76,573

Interest income

 

(599)

 

(105)

Loss on debt extinguishment

 

17,533

 

Other expense, net

 

1,361

 

8,450

Income (loss) before income taxes

 

7,658

 

(7,049)

Income tax expense (benefit)

 

5,603

 

(2,613)

Net income (loss)

$

2,055

$

(4,436)

Less: Net income attributable to noncontrolling interests

(22,325)

(20,883)

Net loss attributable to Six Flags Entertainment Corporation

$

(20,270)

$

(25,319)

Weighted-average common shares outstanding:

 

Basic:

85,594

 

85,437

Diluted:

85,594

85,437

Loss per average common share outstanding:

Basic:

$

(0.24)

$

(0.30)

Diluted:

$

(0.24)

$

(0.30)

See accompanying notes to unaudited condensed consolidated financial statements.

5

SIX FLAGS ENTERTAINMENT CORPORATION

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

 

Three Months Ended

(Amounts in thousands)

    

July 3, 2022

    

July 4, 2021

    

    

Net income

$

67,717

$

91,403

Other comprehensive income, net of tax:

 

  

 

  

Foreign currency translation adjustment (1)

 

3,920

 

1,532

Defined benefit retirement plan (2)

 

172

 

254

Change in cash flow hedging (3)

 

(402)

 

21

Other comprehensive income, net of tax

 

3,690

 

1,807

Comprehensive income

$

71,407

$

93,210

Less: Comprehensive income attributable to noncontrolling interests

 

(22,325)

 

(20,883)

Comprehensive income attributable to Six Flags Entertainment Corporation

$

49,082

$

72,327

(1) Foreign currency translation adjustment is presented net of tax expense of $1.0 million and $0.3 million for the three months ended July 3, 2022 and July 4, 2021, respectively.

(2) Defined benefit retirement plan is presented net of tax expense of $0.1 million for the three months ended July 3, 2022 and July 4, 2021, respectively.

(3) Change in fair value of cash flow hedging is presented net of tax benefit of $0.1 million for the three months ended July 3, 2022 and net of nominal tax expense for the three months July 4, 2021.

See accompanying notes to unaudited condensed consolidated financial statements

6

SIX FLAGS ENTERTAINMENT CORPORATION

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

 

Six Months Ended

(Amounts in thousands)

    

July 3, 2022

    

July 4, 2021

Net income (loss)

$

2,055

$

(4,436)

Other comprehensive income, net of tax:

 

  

 

Foreign currency translation adjustment (1)

 

(165)

 

(441)

Defined benefit retirement plan (2)

 

343

 

509

Change in cash flow hedging (3)

 

9,077

 

3,948

Other comprehensive income, net of tax

 

9,255

 

4,016

Comprehensive income (loss)

$

11,310

$

(420)

Less: Comprehensive income attributable to noncontrolling interests

(22,325)

(20,883)

Comprehensive loss attributable to Six Flags Entertainment Corporation

$

(11,015)

$

(21,303)

(1)  Foreign currency translation adjustment is presented net of tax benefit of a nominal amount for the three months ended July 3, 2022 and net of tax benefit of $0.1 million for the six months ended July 4, 2021.

(2)  Defined benefit retirement plan is presented net of tax expense of $0.1 million and $0.2 million for the six months ended July 3, 2022 and July 4, 2021, respectively.

(3)  Change in fair value of cash flow hedging is presented net of tax expense of $3.0 million and $1.3 million for the six months ended July 3, 2022 and July 4, 2021, respectively.

See accompanying notes to unaudited condensed consolidated financial statements.

7

SIX FLAGS ENTERTAINMENT CORPORATION

Consolidated Statements of Stockholders’ Deficit

(Unaudited)

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 April 4, 2021

 

85,369,434

$

2,134

$

1,104,904

$

(2,249,207)

$

(94,295)

$

(1,236,464)

Issuance of common stock

 

530,239

 

13

 

2,303

 

 

 

2,316

Stock-based compensation

 

 

 

3,001

 

 

 

3,001

Dividends declared to common shareholders

 

 

 

 

 

 

Repurchase of common stock

Payment of tax withholdings on equity-based compensation through shares withheld

 

(49,454)

 

(1)

 

(2,178)

 

 

 

(2,179)

Employee stock purchase plan

 

21,737

 

1

 

650

 

 

 

651

Fresh start valuation adjustment for partnership park units purchased

 

 

 

 

194

 

 

194

Net income attributable to Six Flags Entertainment Corporation

 

 

 

 

70,520

 

 

70,520

Net other comprehensive income, net of tax

 

 

 

 

 

1,807

 

1,807

Balances at July 4, 2021

 

85,871,956

$

2,147

$

1,108,680

$

(2,178,493)

$

(92,488)

$

(1,160,154)

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 April 3, 2022

 

86,248,545

$

2,156

$

1,124,603

$

(2,088,913)

$

(75,622)

$

(1,037,776)

Issuance of common stock

 

215,707

 

5

 

735

 

 

 

740

Stock-based compensation

 

 

 

3,223

 

 

 

3,223

Repurchase of common stock

 

(3,464,385)

 

(87)

 

(25,394)

 

(71,293)

 

 

(96,774)

Payment of tax withholdings on equity-based compensation through shares withheld

 

(5,304)

 

 

(257)

 

 

 

(257)

Employee stock purchase plan

 

31,993

 

1

 

624

 

 

 

625

Fresh start valuation adjustment for partnership park units purchased

 

 

 

 

117

 

 

117

Net income attributable to Six Flags Entertainment Corporation

 

 

 

 

45,392

 

 

45,392

Net other comprehensive loss, net of tax

 

 

 

 

 

3,690

 

3,690

Balances at July 3, 2022

 

83,026,556

$

2,075

$

1,103,534

$

(2,114,697)

$

(71,932)

$

(1,081,020)

See accompanying notes to unaudited condensed consolidated financial statements.

8

SIX FLAGS ENTERTAINMENT CORPORATION

Consolidated Statements of Stockholders’ Deficit

(Unaudited)

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, 2020

 

85,075,901

$

2,126

$

1,089,199

$

(2,153,368)

$

(96,504)

$

(1,158,547)

Issuance of common stock

 

823,836

 

21

 

11,374

 

 

 

11,395

Stock-based compensation

 

 

 

9,638

 

 

 

9,638

Payment of tax withholdings on equity-based compensation through shares withheld

 

(49,454)

 

(1)

 

(2,178)

 

 

 

(2,179)

Employee stock purchase plan

21,673

1

647

648

Fresh start valuation adjustment for partnership park units purchased

194

194

Net loss attributable to Six Flags Entertainment Corporation

 

 

 

 

(25,319)

 

 

(25,319)

Net other comprehensive income, net of tax

 

 

 

 

 

4,016

 

4,016

Balances at July 4, 2021

 

85,871,956

$

2,147

$

1,108,680

$

(2,178,493)

$

(92,488)

$

(1,160,154)

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 January 2, 2022

86,162,879

$

2,154

$

1,120,084

$

(2,023,251)

$

(81,187)

$

(982,200)

Issuance of common stock

303,409

7

1,032

1,039

Stock-based compensation

7,448

7,448

Repurchase of common stock

(3,464,385)

(87)

(25,394)

(71,293)

(96,774)

Payment of tax withholdings on equity-based compensation through shares withheld

(7,340)

(260)

(260)

Employee stock purchase plan

31,993

1

624

625

Fresh start valuation adjustment for partnership park units purchased

117

117

Net loss attributable to Six Flags Entertainment Corporation

(20,270)

(20,270)

Net other comprehensive income, net of tax

9,255

9,255

Balances at July 3, 2022

83,026,556

$

2,075

$

1,103,534

$

(2,114,697)

$

(71,932)

$

(1,081,020)

See accompanying notes to unaudited condensed consolidated financial statements.

9

SIX FLAGS ENTERTAINMENT CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

Six Months Ended

(Amounts in thousands)

    

July 3, 2022

    

July 4, 2021

Cash flows from operating activities:

Net income (loss)

$

2,055

$

(4,436)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

  

 

  

Depreciation and amortization

 

56,586

 

56,885

Stock-based compensation

 

7,448

 

9,638

Interest accretion on notes payable

 

555

 

554

Loss on debt extinguishment

 

17,533

 

Amortization of debt issuance costs

 

3,965

 

3,956

Other, including (gain) loss on disposal of assets

 

(5,405)

 

(445)

Change in accounts receivable

 

27,327

 

(88,193)

Change in inventories, prepaid expenses and other current assets

 

(34,698)

 

10,393

Change in deposits and other assets

 

(1,928)

 

1,099

Change in ROU operating leases

5,517

4,382

Change in accounts payable, deferred revenue, accrued liabilities and other long-term liabilities

 

11,012

 

175,266

Change in operating lease liabilities

(1,615)

(4,457)

Change in accrued interest payable

 

(25,841)

 

(34,895)

Deferred income taxes

 

726

 

(414)

Net cash provided by operating activities

 

63,237

 

129,333

Cash flows from investing activities:

 

  

 

  

Additions to property and equipment

 

(59,006)

 

(42,250)

Property insurance recoveries

 

3,664

 

Proceeds from sale of assets

 

 

41

Net cash used in investing activities

 

(55,342)

 

(42,209)

Cash flows from financing activities:

 

  

 

  

Repayment of borrowings

 

(360,000)

 

(2,000)

Proceeds from borrowings

 

200,000

 

2,000

Stock repurchases

 

(96,774)

 

Redemption premium payments on debt extinguishment

(12,600)

Payment of cash dividends

 

(3)

 

(210)

Proceeds from issuance of common stock

1,665

11,784

Payment of tax withholdings on equity-based compensation through shares withheld

(260)

(2,179)

Reduction in finance lease liability

(490)

(350)

Purchase of redeemable noncontrolling interest

 

(556)

 

(1,115)

Net cash (used in) provided by financing activities

 

(269,018)

 

7,930

Effect of exchange rate on cash

 

340

 

73

Net change in cash and cash equivalents

 

(260,783)

 

95,127

Cash and cash equivalents at beginning of period

 

335,585

 

157,760

Cash and cash equivalents at end of period

$

74,802

$

252,887

Supplemental cash flow information

 

  

 

  

Cash paid for interest

$

95,141

$

107,855

Cash paid for income taxes

$

1,661

$

564

See accompanying notes to unaudited condensed consolidated financial statements.

10

1.  General — Basis of Presentation

We own and operate regional theme parks and waterparks. We are the largest regional theme park operator in the world, and we are the largest operator of waterparks in North America based on the number of parks we operate. Of the 27 parks we owned or operated as of July 3, 2022, 24 parks are located in the United States, 2 are located in Mexico, and 1 is located in Montreal, Canada.

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.

Our current fiscal year will end on January 1, 2023. This Quarterly Report covers the period January 3, 2022 – July 3, 2022 (“the six months ended July 3, 2022”) and the period ended April 4, 2022 – July 3, 2022 (“the three months ended July 3, 2022”). The comparison period in the prior year covers the dates January 1, 2021 – July 4, 2021 (“the six months ended July 4, 2021”) and the period ended April 5, 2021 – July 4, 2021 (“the three months ended April 4, 2021”). The additional 3 days in the six months ended July 4, 2021 accounted for 89 thousand additional guests.

The 2021 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 six months ended July 3, 2022, are not indicative of the results expected for the full year. Our operations are highly seasonal, with approximately 75% of park attendance and revenues in a typical year occurring in the second and third calendar quarters of each year, with the most significant period falling between Memorial Day and Labor Day.

COVID-19 Pandemic

The COVID-19 pandemic continues to present material uncertainty and risk with respect to our performance and financial results. Significant government and private sector actions have been taken since 2020 and likely will continue to be taken intended to control the spread and mitigate the economic effects of the pandemic. Since early 2021, the availability and administration of vaccines against COVID-19 has increased, and there has been an easing of restrictions on social, business, travel and government activities and functions. On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains, and wage rates. The duration and severity of the impact of the COVID-19 pandemic are currently unknown. The pandemic has impacted the Company and could materially impact our financial results in the future.

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.

11

b.  Income Taxes

We recorded a valuation allowance of $108.4 million, $107.4 million and $129.4 million as of July 3, 2022, January 2, 2022, and July 4, 2021, respectively, due to uncertainties related to our ability to use some of our deferred tax assets, primarily consisting of certain state net operating loss and other tax carryforwards, before they expire. The valuation allowance was based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets were recoverable. Our projected taxable income over the foreseeable future indicates we will be able to use all of our federal net operating loss carryforwards before they expire.

We classify interest and penalties attributable to income taxes as part of income tax expense. As of July 3, 2022, January 2, 2022, and July 4, 2021, we had 0 recorded amounts for accrued interest or penalties.

c. Goodwill and Intangibles

Goodwill and intangible assets with indefinite lives are tested for impairment annually, or more frequently if events or circumstances indicate that the assets might be impaired. We identify our reporting unit and determine the carrying value of the reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to the reporting unit. We then determine the fair value of the reporting unit and compare it to the carrying amount of the reporting unit. All of our parks are operated in a similar manner and have comparable characteristics in that they produce and distribute similar services and products using similar processes, have similar types of customers, are subject to similar regulations and exhibit similar economic characteristics. As such, we are a single reporting unit.

As of July 3, 2022, the fair value of the single reporting unit exceeded our carrying amount. We have 1 reporting unit at the same level for which Holdings common stock is traded and we believe our market capitalization is the best indicator of our reporting unit’s fair value. At July 3, 2022, we did not identify any triggering events that would require a full quantitative analysis to be performed.

d.  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 comparing 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. At July 3, 2022, we did not identify any triggering events.

12

e.  Earnings (loss) Per Common Share

Earnings (loss) per common share for the three and six months ended July 3, 2022, and July 4, 2021, was calculated as follows:

 

Three Months Ended

 

Six Months Ended

(Amounts in thousands, except per share data)

    

July 3, 2022

    

July 4, 2021

    

July 3, 2022

    

July 4, 2021

Net income (loss) attributable to Six Flags Entertainment Corporation

 

$

45,392

$

70,520

 

$

(20,270)

$

(25,319)

Weighted-average common shares outstanding - basic:

84,992

85,673

85,594

85,437

Effect of dilutive stock options and restricted stock units

250

1,078

Weighted-average common shares outstanding - diluted:

85,242

86,751

85,594

85,437

Earnings (loss) per share - basic:

$

0.53

$

0.82

$

(0.24)

$

(0.30)

Earnings (loss) per share - diluted:

$

0.53

$

0.81

$

(0.24)

$

(0.30)


The computation of diluted earnings (loss) per share excluded the effect of 2,462,000 and 3,509,000 antidilutive stock options and restricted stock units for the three months ended July 3, 2022, and July 4, 2021, respectively, and excluded the effect of 2,415,000 and 5,247,000 antidilutive stock options and restricted stock units for the six months ended July 3, 2022, and July 4, 2021, respectively.

f.  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 stock units, performance and cash-settled awards and dividend equivalent rights ("DERs") to select employees, officers, directors and consultants of Holdings and its affiliates.

Periodically, we will grant performance stock units to key employees. These awards vest on attainment of specific objectives most often related to Adjusted EBITDA or recognized revenue over a defined period. During the three and six months ended July 3, 2022, it was determined that our March 8, 2021 grant was probable of achievement at the threshold level and stock compensation expense was recognized totaling $0.1 million and $1.0 million, respectively.

During the three and six months ended July 3, 2022, and July 4, 2021, stock-based compensation expense consisted of the following:

 

Three Months Ended

 

Six Months Ended

(Amounts in thousands)

    

July 3, 2022

    

July 4, 2021

    

July 3, 2022

    

July 4, 2021

Long-Term Incentive Plan

$

3,229

$

2,785

$

7,379

$

9,347

Employee Stock Purchase Plan

 

(6)

 

216

 

69

 

291

Total Stock-Based Compensation

$

3,223

$

3,001

$

7,448

$

9,638

g.  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, annual passes, summer passes and memberships. 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 July 3, 2022, January 2, 2022, and July 4, 2021, we have recorded an allowance for doubtful accounts of $6.7 million, $13.8 million, and $29.8 million, respectively, which is primarily comprised of estimated payment defaults under our membership and annual pass programs. We expect this amount to increase over the next twelve months as the newly created annual pass program grows. To the extent that payments under our membership and annual pass programs have not been recognized in revenue, the allowance for doubtful accounts recorded against our membership and annual pass programs is offset with a corresponding reduction in deferred revenue.

13

h.  Recent Accounting Pronouncements Not Yet Adopted

In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“Update 2020-04”), which provides optional expedients and exceptions for applying U.S. GAAP principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in Update 2020-04 apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected optional expedients for and that are retained through the end of the hedging relationship. The provisions in Update 2020-04 are effective upon issuance and can be applied prospectively through December 31, 2022. Interest on the Second Amended and Restated Credit Facility accrues at an annual rate based on LIBOR. We do not expect Update 2020-04 to have a material effect on our condensed consolidated financial statements.

2.  Revenue

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.

The following tables present our revenues disaggregated by contract duration for the three and six month periods ended July 3, 2022, and July 4, 2021, 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.

Three Months Ended July 3, 2022

    

    

    

Sponsorship, 

Park Food, 

International 

Merchandise 

Agreements and 

(Amounts in thousands)

    

Park Admissions

    

and Other

    

Accommodations

    

Consolidated

Long-term contracts

$

16,001

$

2,226

$

3,500

$

21,727

Short-term contracts and other (a)

 

225,776

 

180,855

 

7,064

 

413,695

Total revenues

$

241,777

$

183,081

$

10,564

$

435,422

Three Months Ended July 4, 2021

    

    

    

Sponsorship,

    

 

Park Food, 

 

 International 

 

Merchandise

 

Agreements and 

(Amounts in thousands)

    

Park Admissions

    

and Other

    

Accommodations

    

Consolidated

Long-term contracts

$

69,784

$

6,826

$

8,741

$

85,351

Short-term contracts and other (a)

 

175,381

 

192,071

 

6,984

 

374,436

Total revenues

$

245,165

$

198,897

$

15,725

$

459,787

14

Six Months Ended July 3, 2022

 

 

 

Sponsorship, 

 

 

Park Food, 

 

International 

 

Merchandise

 

Agreements and 

(Amounts in thousands)

    

Park Admissions

    

 and Other

    

Accommodations

    

Consolidated

Long-term contracts

$

19,952

$

3,008

$

10,028

$

32,988

Short-term contracts and other (a)

 

294,812

 

234,342

 

11,387

 

540,541

Total revenues

$

314,764

$

237,350

$

21,415

$

573,529

Six Months Ended July 4, 2021

 

 

 

Sponsorship, 

 

 

Park Food, 

 

International 

 

Merchandise

 

Agreements and 

(Amounts in thousands)

    

Park Admissions

    

 and Other

    

Accommodations

    

Consolidated

Long-term contracts

$

76,794

$

7,823

$

12,904

$

97,521

Short-term contracts and other (a)

 

212,705

 

222,298

 

9,287

 

444,290

Total revenues

$

289,499

$

230,121

$

22,191

$

541,811

(a)Other revenues primarily include sales of single-day tickets and short-term transactional sales for which we have the right to invoice.

Long-term Contracts

Our long-term contracts consist of season passes that have a duration more than twelve months, consisting of season passes purchased by customers in the year preceding the operating season to which they relate, sponsorship contracts, and international agreements with third parties. We recently shifted our product offering from season passes to annual passes, which expire on the first anniversary of purchase. Annual passes are categorized as short-term contracts as described below under “Short-Term Contracts and Other”. We earn season pass revenue pursuant to our customers purchasing a season pass for a fixed fee, which entitles the customer to visit our parks, including certain waterparks, throughout the duration of the parks’ operating season. Our pass products are noncancelable and nonrefundable. We earn sponsorship revenue from separately-priced contracts with third parties pursuant to which we sell and advertise the third party’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 parks outside of North America. Within our international agreements, we have identified 3 distinct performance obligations as brand licensing, project services and management services. We do not consider revenue recognized for the performance obligations related to our international agreements to be significant, neither individually nor in the aggregate, to any period presented.

At January 2, 2022, $58.7 million of unearned revenue associated with outstanding long-term contracts was reported in "Deferred revenue," of which $20.8 million and $33.0 million was recognized as revenue for long-term contracts during the three and six months ended July 3, 2022, respectively. As of July 3, 2022, the total unearned amount of revenue for remaining long-term contract performance obligations was $37.6 million. At January 1, 2021, $77.6 million of unearned revenue associated with outstanding long-term contracts was reported in "Deferred revenue," of which $26.6 million and $35.0 million was recognized as revenue for long-term contracts during the three and six months ended July 4, 2021, respectively. As of July 4, 2021, the total unearned amount of revenue for remaining long-term contract performance obligations was $112.6 million.

As of July 3, 2022, we expect to recognize estimated revenue for partially or wholly unsatisfied performance obligations on long-term contracts of approximately $50.9 million in the remainder of 2022, $8.6 million in 2023, $6.4 million in 2024, $0.6 million in 2025, and $0.8 million in 2026 and thereafter.

15

Short-term Contracts and Other

Our short-term contracts consist primarily of annual passes, season passes that have a duration of less than twelve months, consisting of season passes purchased by customers during the operating season to which they relate and memberships with customers, certain sponsorship contracts and international agreements with third parties. We earn revenue from a customer’s purchase of our annual pass, season pass and membership products, which entitles the customer to visit our parks, including certain waterparks, throughout the duration of the parks’ operating season for a fixed fee. We earn sponsorship and international agreements revenue from contracts with third parties, pursuant to which we sell and advertise the third party’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 "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. Amounts received for multi-use admissions in excess of redemptions are recognized in "Deferred revenue".

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 services and goods for which we have the right to invoice.

3. Long-Term Indebtedness

Credit Facility

As of July 3, 2022, our credit facility consisted of a $350.0 million revolving credit loan facility (the “Second Amended and Restated Revolving Loan”) and a $479.0 million Tranche B Term Loan facility (the “Second Amended and Restated Term Loan B”) pursuant to the amended and restated credit facility that we entered into in 2019 (the “Second Amended and Restated Credit Facility”) and further amended in both April 2020, August 2020 and May 2022. On May 18, 2022, we reduced and terminated the Series B replacement Revolving Commitments by $131 million, which reduced the Second Amended and Restated Revolving Loan capacity to $350.0 million from $481.0 million.

As of July 3, 2022, $200.0 million was outstanding under the Second Amended and Restated Revolving Loan (excluding amounts reserved for letters of credit in the amount of $21.0 million). As of January 2, 2022 and July 4, 2021, 0 advances under the Second Amended and Restated Revolving Loan were outstanding (excluding amounts reserved for letters of credit in the amount of $20.2 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 July 3, 2022, the Second Amended and Restated Revolving loan had an interest rate of 5.17%. As of July 3, 2022, the Second Amended and Restated Revolving Loan unused commitment fee was 0.625%. The Second Amended and Restated Revolving Loan matures on April 17, 2024.

As of July 3, 2022, January 2, 2022 and July 4, 2021, $479.0 million was outstanding under the Second Amended and Restated Term Loan B. Interest on the Second Amended and Restated Term Loan B accrues at an annual rate of LIBOR plus 1.75%. In June 2019, we entered into 3 separate interest rate swap agreements with a notional amount of $300.0 million (the “June 2019 Swap Agreements”) and, in August 2019, we entered into 2 separate interest rate swap agreements with a notional amount of $400.0 million (the “August 2019 Swap Agreements”). These swaps were entered into to mitigate the risk of an increase in the LIBOR interest rate on the Second Amended and Restated Term Loan B by exchanging the floating LIBOR rate for a negotiated fixed rate. On March 24, 2022, we terminated the August 2019

16

Swap Agreements. The June 2019 Swap Agreements expire in June 2023. The Second Amended and Restated Term Loan B now consists of only floating rate debt. As of July 3, 2022, the applicable interest rate on the Second Amended and Restated Term Loan B was 3.42%. The Second Amended and Restated Term Loan B matures on April 17, 2026.

2024 Notes, 2025 Notes and 2027 Notes

In June 2016, Holdings issued $300.0 million of 4.875% senior unsecured notes due 2024 and, in April 2017, issued an additional $700.0 million of senior unsecured notes due 2024 (together, the “2024 Notes”). In April 2017, Holdings issued $500.0 million of 5.50% senior notes due 2027 (the "2027 Notes"). In April 2020, SFTP issued $725.0 million of 7.00% senior secured notes due 2025 (the “2025 Notes”).

On July 1, 2022, Holdings prepaid $360.0 million of the 2025 Notes at a premium of 103.5%. The transaction reduced the outstanding amount of the 2025 Notes to $365.0 million. We incurred a $17.5 million charge containing $12.6 million for the premium paid above par and $5.0 million related to the write-off of deferred financing costs related to the transaction.

As of July 3, 2022, $949.5 million of the 2024 Notes, $365.0 million of the 2025 Notes, and $500.0 million of the 2027 Notes, were issued and outstanding. Interest payments of $23.1 million for the 2024 Notes are due semi-annually on January 31 and July 31 of each year. Following the repayment of $360 million of the 2025 Notes, interest payments of $12.7 million for the 2025 Notes are due semi-annually on January 1 and July 1 each year. Interest payments of $13.8 million for the 2027 Notes are due semi-annually on April 15 and October 15 of each year.

Long-Term Indebtedness Summary

As of July 3, 2022, January 2, 2022, and July 4, 2021, the principal balance of our long-term debt consisted of the following:

 

As of

(Amounts in thousands)

    

July 3, 2022

    

January 2, 2022

    

July 4, 2021

Second Amended and Restated Credit Facility

Second Amended and Restated Term Loan B

    

$

479,000

    

$

479,000

    

$

479,000

Second Amended and Restated Revolving Loan

200,000

2024 Notes

 

949,490

 

949,490

 

949,490

2025 Notes

365,000

725,000

725,000

2027 Notes

 

500,000

 

500,000

 

500,000

Net discount

 

(2,694)

 

(3,249)

 

(3,803)

Deferred financing costs

 

(12,886)

 

(20,717)

 

(23,605)

Total debt

$

2,477,910

$

2,629,524

$

2,626,082

Less short-term borrowings

(200,000)

Total long-term debt

$

2,277,910

$

2,629,524

$

2,626,082

Fair-Value of Long-Term Indebtedness

As of July 3, 2022, January 2, 2022, and July 4, 2021, the fair value of our long-term debt, excluding discounts and deferred financing costs, was $2,368.2 million, $2,703.5 million and $2,705.3 million, respectively.

17

4.  Accumulated Other Comprehensive Loss

Changes in the composition of Accumulated Other Comprehensive Loss ("AOCL") during the six months ended July 3, 2022, were as follows:

Accumulated

Cumulative

Other

Translation

Cash Flow

Defined Benefit

Income

Comprehensive

(Amounts in thousands)

    

Adjustment

    

Hedges

    

Plans

    

Taxes

    

Loss

Balances at January 2, 2022

$

(31,970)

$

(4,985)

$

(44,093)

$

(139)

$

(81,187)

Net current period change

 

(209)

 

11,778

 

 

(2,912)

 

8,657

Amounts reclassified from AOCI

 

 

343

 

458

 

(203)

 

598

Balances at July 3, 2022

$

(32,179)

$

7,136

$

(43,635)

$

(3,254)

$

(71,932)

Reclassifications out of AOCI during the three and six months ended July 3, 2022 and July 4, 2021:

Amount of Reclassification from AOCI

Amount of Reclassification from AOCI

Three Months Ended

Six Months Ended

Component of AOCI

    

Location of Reclassification into Income (Loss)

July 3, 2022

July 4, 2021

    

July 3, 2022

July 4, 2021

Amortization of loss on interest rate hedge

Interest expense

$

(774)

$

1,381

$

343

$

2,742

Income tax benefit

193

(347)

 

(88)

 

(689)

Net of tax

$

(581)

$

1,034

$

255

$

2,053

Amortization of deferred actuarial loss and prior service cost

 

Operating expenses

$

229

$

340

$

458

$

680

 

Income tax benefit

 

(58)

 

(86)

 

(115)

 

(171)

 

Net of tax

$

171

$

254

$

343

$

509

Total reclassifications

 

  

$

(410)

$

1,288

$

598

$

2,562

5.  Derivative Financial Instruments

We hold interest rate swap agreements that mitigate the risk of an increase in the LIBOR rate in effect on the Second Amended and Restated Term Loan B. We enter into derivative contracts for risk management purposes only and do not utilize derivative instruments for trading or speculative purposes. As such, in conjunction with the repayment of a portion of the Second Amended and Restated Term Loan B in April 2020, certain of our interest rate swap agreements were de-designated because the hedged interest was no longer probable to occur.

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 expenses 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.

On March 24, 2022, we terminated the August 2019 Swap Agreements for net cash proceeds of $7.4 million. The swap agreements were used as economic hedges against rising interest rates and had been designated as cash flow hedges prior to termination. We recorded the settlement in accumulated other comprehensive income in the amount of $7.7 million which will be amortized through September 2024 until the maturity of the Second Amended and Restated Term Loan B.

Derivative assets recorded at fair value in an asset position as well as their classification on our unaudited condensed consolidated balance sheets as of July 3, 2022, January 2, 2022, and July 4, 2021:

18

Derivative Assets

(Amounts in thousands)

July 3, 2022

    

January 2, 2022

    

July 4, 2021

Derivatives Not Designated as Hedging Instruments

Interest rate swap agreements — other current assets

$

3,688

$

$

833

Interest rate swap agreements — other non-current assets

2,829

$

6,517

 

$

 

$

833


Derivative liabilities recorded at fair value in our unaudited condensed consolidated balance sheets as of July 3, 2022, January 2, 2022, and July 4, 2021:

Derivative Liabilities

(Amounts in thousands)

July 3, 2022

    

January 2, 2022

    

July 4, 2021

Derivatives Designated as Cash Flow Hedges

Interest rate swap agreements — other accrued liabilities

$

 

$

(3,986)

 

$

(5,169)

Interest rate swap agreements — other long-term liabilities

(1,046)

(6,434)

Derivatives Not Designated as Hedging Instruments

Interest rate swap agreements — other accrued liabilities

$

(7,589)

$

(4,012)

$

(4,830)

Interest rate swap agreements — other long-term liabilities

(5,196)

(4,581)

(6,549)

$

(12,785)

 

$

(13,625)

 

$

(22,982)


Earnings before taxes on derivatives not designated as a cash flow hedge of $0.2 million and $0.3 million were presented in “Interest expense” in the condensed consolidated statement of operations for the three and six months ended July 3, 2022, respectively.

Gains and losses before taxes on derivatives designated as hedging instruments that were presented in “Interest expense” in the condensed consolidated statements of operations for the three and six months ended July 3, 2022, and July 4, 2021, were as follows:

Three Months Ended July 3, 2022 and July 4, 2021

Loss

Loss Reclassified from

Recognized in AOCL

AOCL into Operations

(Amounts in thousands)

    

2022

    

2021

    

2022

2021

Interest rate swap agreements

$

 

$

(1,354)

 

$

774

 

$

(1,381)

Total

 

$

 

$

(1,354)

 

$

774

 

$

(1,381)

Six Months Ended July 3, 2022 and July 4, 2021

Gain (Loss)

Loss Reclassified from

Recognized in AOCL

AOCL into Operations

(Amounts in thousands)

    

2022

    

2021

    

2022

    

2021

Interest rate swap agreements

$

11,778

 

$

2,529

 

$

(343)

 

$

(2,742)

Total

 

$

11,778

 

$

2,529

 

$

(343)

 

$

(2,742)

As of July 3, 2022, we expect to reclassify net losses of $3.1 million, currently recorded in AOCL, into “Interest expense, net” within the next twelve months. However, the actual amount reclassified could vary due to future changes in the fair value of derivatives.

6.  Commitments and Contingencies

Partnership Parks

We have guaranteed the obligations of the general partners of those partnerships to (i) make minimum annual distributions (including rent) of approximately $80.5 million in 2022 (subject to cost of living adjustments) to the limited partners in the Partnership Parks (based on our ownership of units as of July 3, 2022, our share of the distribution will be approximately $35.8 million) and (ii) make minimum capital expenditures at each of the Partnership Parks during rolling five-year periods, based generally on 6.0% of the Partnership Parks’ revenues. Pursuant to the 2022 annual offer to

19

purchase limited partnership units tendered by the unit holders (the "Partnership Park Put") in May 2022, we purchased 0.2536 units from the Texas partnership for $0.6 million. 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 2022 at both parks is approximately $521.5 million, representing approximately 68.5% of the outstanding units of SFOG and 46.0% of the outstanding units of SFOT.

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’s weighted average four-year EBITDA (as defined in the agreements that govern the partnerships) by a specified multiple (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 offered for the units of the Partnership Parks by certain entities. In light of the temporary suspension of operations of the parks due to the COVID-19 pandemic in March 2020, which would have caused the value of the Partnership Park units to decrease in 2021 and thereafter, we adjusted our annual offer to purchase these units to set a minimum price floor for all future purchases. Pursuant to the new minimum price floor, the Specified Price for the Partnership Parks, if determined as of July 3, 2022, is $409.7 million in the case of SFOG and $527.4 million in the case of SFOT. As of July 3, 2022, we owned approximately 31.5% and 54.0% 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.

We incurred $25.5 million of capital expenditures at the Partnership Parks during 2021 and intend to incur approximately $20.6 million of capital expenditures at these parks during 2022, an amount in excess of the minimum required expenditure. Cash flows from operations at the Partnership Parks will be used to satisfy the annual distribution and capital expenditure requirements, before any funds are required from us. The Partnership Parks generated approximately $73.8 million of cash in 2021 in operating activities, after deduction of capital expenditures and excluding the impact of short-term intercompany advances from or payments to Holdings. As of both July 3, 2022, January 2, 2022 and July 4, 2021, we had total loans receivable outstanding of $288.3 million from the partnerships that own the Partnership Parks. The loans were primarily used to fund the acquisition of Six Flags White Water Atlanta and to make capital improvements to the Partnership Parks and distributions to the limited partners in prior years.

Redeemable noncontrolling interests represent the non-affiliated 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 July 3, 2022, redeemable noncontrolling interests of the SFOT and SFOG partnerships was $252.3 million and $291.4 million, respectively.

(Amounts in thousands)

    

SFOT

    

SFOG

    

Total

Balance at January 2, 2022

$

241,866

$

280,201

$

522,067

Purchase of redeemable units

 

(556)

 

 

(556)

Fresh start accounting fair market value adjustment for purchased units

(117)

(117)

Net income attributable to noncontrolling interests

 

11,141

 

11,184

 

22,325

Distributions to noncontrolling interests

Balance at July 3, 2022

$

252,334

$

291,385

$

543,719

The redemption value of the noncontrolling partnership units in SFOT and SFOG as of July 3, 2022, was approximately $241.3 million and $280.2 million, respectively.

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.

The majority of our current insurance policies expire on December 31, 2022. 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.

20

Litigation

In the normal course of our business, we are involved from time to time in various arbitrations, class actions, commercial litigation, investigations and other legal, regulatory or governmental actions, including the matters described below. In many proceedings, including the specific matters described below, it is inherently difficult to determine whether any loss is probable or to estimate the size or range of the possible loss, and accruals for legal matters are when we believe a loss for a particular matter is considered probable and reasonably estimable. However, the outcome of such legal matters is subject to inherent uncertainties and management’s view of these matters may change in the future.

Securities Class Action Lawsuits

In February 2020, 2 putative securities class action complaints were filed against Holdings and certain of its former executive officers (collectively, the “defendants”) in the U.S. District Court for the Northern District of Texas. On March 2, 2020, the 2 cases were consolidated in an action captioned Electrical Workers Pension Fund Local 103 I.B.E.W. v. Six Flags Entertainment Corp., et al., Case No. 4:20-cv-00201-P (N.D. Tex.) (the “Electrical Workers litigation”), and an amended complaint was filed on March 20, 2020. On May 8, 2020, Oklahoma Firefighters Pension and Retirement System and Electrical Workers Pension Fund Local 103 I.B.E.W. were appointed as lead plaintiffs, Bernstein Litowitz Berger & Grossman LLP was appointed as lead counsel, and McKool Smith PC was appointed as liaison counsel. On July 2, 2020, lead plaintiffs filed a consolidated complaint. The consolidated complaint alleges, among other things, that the defendants made materially false or misleading statements or omissions regarding the Company’s business, operations and growth prospects, specifically with respect to the development of its Six Flags branded parks in China and the financial health of its former partner, Riverside Investment Group Co. Ltd., in violation of the federal securities laws. The consolidated complaint seeks compensatory damages and other relief on behalf of a putative class of purchasers of Holdings’ publicly traded common stock during the period between April 24, 2018 and February 19, 2020. On August 3, 2020, defendants filed a motion to dismiss the consolidated complaint. On March 3, 2021, the district court granted defendants’ motion, dismissing the complaint in its entirety and with prejudice. Plaintiffs filed a motion to amend or set aside judgment and for leave to file an amended complaint on March 31, 2021, which the district court denied on July 26, 2021. Plaintiffs filed a motion for leave to file a supplemental brief on June 17, 2021, which the district court denied on June 18, 2021.

On August 25, 2021, plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Fifth Circuit from the district court’s decisions granting defendants’ motion to dismiss, denying plaintiffs’ motion to amend or set aside judgment, and denying plaintiffs’ motion for leave to file a supplemental brief. Plaintiffs’ appeal is captioned Oklahoma Firefighters Pension & Ret. Sys. v. Six Flags Ent. Corp., et al., No. 21-10865 (5th Cir.). The appeal is fully briefed and oral argument was held on March 7, 2022.

We believe that these lawsuits are without merit and intend to defend this litigation vigorously. However, there can be no assurance regarding the ultimate outcome of the lawsuit.

Stockholder Derivative Lawsuits

On March 20, 2020, a putative stockholder derivative lawsuit was filed on behalf of nominal defendant Holdings, by Mr. Mark Schwartz in the U.S. District Court for the Northern District of Texas against certain of its current and former executive officers and directors (the “individual defendants”) in an action captioned Schwartz v. Reid-Anderson, et al., Case No. 4:20-cv-00262-P (N.D. Tex.). In April 2020, 2 additional stockholder derivative lawsuits, making substantially identical allegations as the Schwartz complaint, were filed on behalf of nominal defendant Holdings by Trustees of the St. Clair County Employees’ Retirement System and Mr. Mehmet Ali Albayrak in the U.S. District Court for the Northern District of Texas in actions captioned Martin, et al. v. Reid-Anderson, et al., Case No. 4:20-cv-00311-P (N.D. Tex.) and Albayrak v. Reid-Anderson, et al., Case No. 4:20-cv-00312-P (N.D. Tex.), respectively. On April 8, 2020, plaintiffs in all 3 of these putative derivative actions moved to consolidate the 3 actions and to appoint lead counsel. On May 8, 2020, the district court granted the plaintiffs’ motion to consolidate. The consolidated action is captioned In re Six Flags Entertainment Corp. Derivative Litigation, Case No. 4:20-cv-00262-P (N.D. Tex.). On August 10, 2020, plaintiffs filed a consolidated derivative complaint. The consolidated derivative complaint alleges breach of fiduciary duty, insider selling, waste of corporate assets, unjust enrichment, and contribution for violations of

21

federal securities laws. The consolidated derivative complaint references, and makes many of the same allegations as are set forth in, the Electrical Workers litigation, alleging, among other things, that the individual defendants breached their fiduciary duties, committed waste, are liable for contribution for, or were unjustly enriched by making, failing to correct, or failing to implement adequate internal controls relating to alleged materially false or misleading statements or omissions regarding the Company’s business, operations and growth prospects, specifically with respect to the prospects of the development of its Six Flags branded parks in China and the financial health of its former partner, Riverside Investment Group Co. Ltd. The consolidated derivative complaint also alleges that a former officer and director sold shares of the Company while allegedly in possession of material non-public information concerning the same. On September 9, 2020, Holdings and the individual defendants filed a motion to dismiss the consolidated complaint. On April 28, 2021, the district court granted defendants’ motion, dismissing the consolidated complaint in its entirety and with prejudice and denying leave to amend. Plaintiffs’ time to appeal the judgment dismissing this action in its entirety and with prejudice and denying leave to amend lapsed in May 2021.

On May 5, 2020, a putative stockholder derivative lawsuit was filed on behalf of nominal defendant Holdings, by Mr. Richard Francisco in the District Court for Dallas County, Texas, 160th Judicial District, against certain of its current and former executive officers and directors (the “individual defendants”) in an action captioned Francisco v. Reid-Anderson, et al., Case No. DC-20-06425 (160th Dist. Ct., Dallas Cty., Tex.) (the “Francisco action”). The petition in the Francisco action alleges breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. The petition in the Francisco action references, and makes many of the same allegations, as are set forth in the Electrical Workers litigation, alleging, among other things, that the individual defendants breached their fiduciary duties, were unjustly enriched by, abused their control, committed gross mismanagement, and committed waste by making, failing to correct, or failing to implement adequate internal controls relating to alleged materially false or misleading statements or omissions regarding the Company’s business, operations and growth prospects, specifically with respect to the prospects of the development of its Six Flags branded parks in China and the financial health of its former partner, Riverside Investment Group Co. Ltd. The petition also alleges that a former officer and director engaged in insider trading. On May 28, 2020, the parties in the Francisco action filed a joint motion to stay proceedings through the resolution of the forthcoming motion to dismiss the Electrical Workers litigation. On June 3, 2020, the district court granted the joint motion to stay proceedings. On June 12, 2020, an additional stockholder derivative lawsuit, making substantially identical allegations as the Francisco petition, was filed on behalf of nominal defendant Holdings in the District Court for Dallas County, Texas, 298th Judicial District by putative stockholder Mr. Cliff Bragdon in an action captioned Bragdon v. Reid-Anderson, et al., Case No. DC-20-08180 (298th Dist. Ct., Dallas Cty., Tex.) (the “Bragdon action”). On July 10, 2020, the district court granted an agreed motion filed by the parties in the Francisco and Bragdon actions to consolidate cases, to accept service and an unopposed motion to appoint co-lead and liaison counsel, and to stay both the Francisco and Bragdon actions through final resolution of the motion to dismiss the Electrical Workers litigation. The consolidated state derivative action was captioned In re Six Flags Entertainment Corp. Derivative Litigation, Case No. DC-20-06425 (160th Dist. Ct., Dallas Cty., Tex.). On September 8, 2020, the parties to the consolidated state derivative action filed an agreed motion to transfer the case from Dallas County to Tarrant County, which motion was so ordered on September 27, 2020. The consolidated action is now captioned In re Six Flags Ent. Corp. Derivative Litigation, No. 096-320958-20 (Tex. Dist. Ct., Tarrant Cty.), and remains stayed.

We believe that these complaints are without merit and intend to defend these lawsuits vigorously. However, there can be no assurance regarding the ultimate outcome of these lawsuits.

Wage and Hour Class Action Lawsuits

On April 20, 2018, a complaint was filed against Holdings and Six Flags Concord, LLC in the Superior Court of Solano County, California, on behalf of a purported class of current and former employees of Six Flags Discovery Kingdom. On June 15, 2018, an amended complaint was filed adding Park Management Corp. as a defendant. The amended complaint alleges violations of California law governing, among other things, employee overtime, meal and rest breaks, wage statements, and seeks damages in the form of unpaid wages and related penalties, and attorneys’ fees and costs. In September 2021, the parties entered into a settlement agreement to resolve the lawsuit, for an immaterial amount, and the court granted preliminary approval on March 30, 2022. A final approval hearing occurred on July 13, 2022, and the court took the matter under submission, with the only outstanding issue being a reduction of class counsel attorneys’ fees.

22

On September 18, 2019, a complaint was filed against Magic Mountain LLC in the Superior Court of Los Angeles County, California, on behalf of a purported class of current and former employees of Six Flags Magic Mountain. An amended complaint was filed on November 24, 2019. The complaint alleges violations of California law governing payment of wages, wage statements, and seeks unpaid wages and statutory damages under California law as well as under the Private Attorneys General Act, and attorneys’ fees and costs. We intend to vigorously defend ourselves against this lawsuit. The outcome is currently not determinable and a reasonable estimate of loss or range of loss cannot be made.

On April 6, 2020, a complaint was filed against Magic Mountain LLC in the Superior Court of Los Angeles County, California, on behalf of a purported class of current and former employees of Six Flags Magic Mountain. The complaint alleges violations of California law governing background checks, and seeks statutory damages under California law as well as under the Private Attorneys General Act, and attorneys’ fees and costs. In January 2022, the parties entered into a settlement agreement to resolve the lawsuit for an immaterial amount, and the court granted preliminary approval on July 12, 2022. The final approval hearing is scheduled for November 29, 2022.

On February 14, 2020, a complaint was filed against Magic Mountain, LLC in the Superior Court of Los Angeles County, California, on behalf of a purported class of current and former employees of Six Flags Magic Mountain. The complaint alleges one cause of action for failure to furnish accurate, itemized wage statements in violation of California labor law, and seeks statutory damages under California law as well as under the Private Attorneys General Act, and attorneys’ fees and costs. In October 2021, the parties entered into a settlement agreement to resolve the lawsuit, for an immaterial amount, and the court granted preliminary approval on April 5, 2022. A final approval hearing will likely be scheduled for Fall 2022.

On February 21, 2020, a complaint was filed against Park Management Corp. in the Superior Court of Solano County, California, on behalf of a purported class of current and former employees of Six Flags Discovery Kingdom. The complaint alleges violations of California law governing payment of wages, wage statements, and background checks, and seeks statutory damages under federal and California law and attorneys’ fees and costs. The claims related to wages and wage statements will be resolved under the settlement of the April 2018 litigation above. In January 2022, the parties entered into a settlement agreement to resolve the lawsuit, for an immaterial amount, and the court granted preliminary approval on May 5, 2022. A final approval hearing scheduled for October 27, 2022.

On October 22, 2021, a complaint was filed against Riverside Park Enterprises, Inc. in the Superior Court of Hampden County, Massachusetts, on behalf of a purported class of current and former employees of Six Flags New Engalnd. The complaint alleges violations of Massachusetts law governing payment of wages and seeks unpaid wages as well as attorneys’ fees and costs. We intend to vigorously defend ourselves against this lawsuit. The outcome is currently not determinable and a reasonable estimate of loss or range of loss cannot be made.

Personal Injury Lawsuit

On November 18, 2021, the Texas Judicial Panel on Multidistrict Litigation consolidated numerous lawsuits filed against Six Flags Splashtown, LLC d/b/a Six Flags Hurricane Harbor Splashtown asserting claims arising from an alleged chemical vapor release on July 17, 2021 at Six Flags Splashtown. A third party equipment installer is also named as a defendant in the litigation. The consolidated multidistrict litigation is captioned In re Six Flags Splashtown Litigation (Master File No. 2021-77214), and is pending in the 295th Judicial District. Plaintiffs are seeking compensatory and punitive damages.  We intend to defend this litigation vigorously. The outcome of this litigation is currently not determinable and we cannot reasonably estimate any loss or range of loss that may arise from these matters in excess of the amount that we have recorded for this litigation, which amount is not material to our consolidated financial statements.

7.  Business Segments

We have only 1 reportable segment - parks. All of our owned or managed parks are located in the United States with the exception of 2 parks in Mexico and 1 park in Montreal, Canada. We also have revenue and expenses

23

related to the development of a Six Flags-branded park outside of North America. The following information reflects our goodwill and long-lived assets (which consists of property and equipment, right-of-use operating leases and intangible assets) as of July 3, 2022, January 2, 2022, and July 4, 2021:

As of

(Amounts in thousands)

   

July 3, 2022

   

January 2, 2022

   

July 4, 2021

Domestic

$

2,322,514

$

2,324,420

$

2,304,446

Foreign

116,550

117,066

132,116

Total

$

2,439,064

$

2,441,486

$

2,436,562

The following information reflects our revenues and (loss) income before income taxes by domestic and foreign categories for the six months ended July 3, 2022, and July 4, 2021:

    

Domestic

    

Foreign

    

Total

2022

(Amounts in thousands)

Revenues

$

531,041

$

42,488

$

573,529

(Loss) income before income taxes

 

(1,063)

 

8,721

 

7,658

2021

Revenues

$

521,346

$

20,465

$

541,811

Loss before income taxes

 

(1,753)

 

(5,296)

 

(7,049)

8.  Pension Benefits

We froze our pension plan effective March 31, 2006, and 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 six months ended July 3, 2022, and July 4, 2021:

Three Months Ended

Six Months Ended

(Amounts in thousands)

July 3, 2022

July 4, 2021

    

July 3, 2022

July 4, 2021

Service cost

$

300

$

275

$

600

$

550

Interest cost

 

1,384

 

1,275

 

2,768

 

2,550

Expected return on plan assets

 

(3,060)

 

(3,069)

 

(6,119)

 

(6,138)

Amortization of net actuarial loss

 

229

 

340

 

458

 

680

Total net periodic benefit

$

(1,147)

$

(1,179)

$

(2,293)

$

(2,358)

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

Six Months Ended

July 3, 2022

July 4, 2021

July 3, 2022

July 4, 2021

Discount rate

 

2.60

%  

2.20

%

2.60

%  

2.20

%

Rate of compensation increase

 

N/A

 

N/A

 

N/A

 

N/A

 

Expected return on plan assets

 

5.75

%  

5.75

%

5.75

%  

5.75

%

Employer Contributions

We did 0t make any pension contributions during the six month periods ended July 3, 2022 and July 4, 2021.

24

9. Stock Repurchase Plans and Shareholder Rights Plan

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’ common stock (the "March 2017 Stock Repurchase Plan"). As of July 3, 2022, Holdings had repurchased 8,071,000 shares at a cumulative cost of approximately $365.1 million and an average price per share of $45.24 under the March 2017 Stock Repurchase Plan, leaving approximately $134.9 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 2025 Notes and the 2027 Notes.

25

ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis contains forward-looking statements relating to future events or our future financial performance, which involve risks and uncertainties. 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 the 2021 Annual Report and in this Quarterly 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 condensed consolidated balance sheets and results of operations. This information should be read in conjunction with the 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 Discussion and Analysis of Financial Condition and Results of Operations" in the 2021 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 27 regional theme parks and waterparks, 24 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 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, providing a complete family-oriented entertainment experience. We work continuously to improve our parks and our guests’ experiences and to meet our guests’ evolving needs and preferences.

The results of operations for the three and six months ended July 3, 2022 and July 4, 2021, are not indicative of the results expected for the full year. Typically, our park operations generate more than half of their annual revenue during the period from Memorial Day to Labor Day each year while expenses are incurred year-round. During the first quarter of 2021, many of our parks remained closed or had capacity limits or other restrictions affecting attendance; however, we had a lesser amount of COVID-19 related impact to the second quarter of 2021.

Our revenue is derived from (i) the sale of tickets (including season passes, summer passes, annual passes and memberships) for entrance to our parks (which accounted for approximately 55% and 53% of total revenue during the six months ended July 3, 2022 and July 4, 2021, respectively), (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. Revenue from ticket sales and in-park sales are primarily impacted by park attendance and guest spending. Revenue 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 six months ended July 3, 2022, our earnings before interest, taxes, depreciation and amortization increased $15.0 million compared to the prior year. The increase was driven by increased guest spending per capita and cost savings in both operating expenses and sales, general and administrative expenses.

Our principal costs of operations include salaries and wages, employee benefits, advertising, third party services, repairs and maintenance, utilities, rent and insurance. A large portion of our expenses is relatively fixed when our parks are operating, as our costs for full-time employees, maintenance, utilities, rent, and insurance do not vary significantly with attendance.

26

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 the 2021 Annual Report.

Recent Events

On June 20, 2022, Justin Hunt, Vice President, Controller and Principal Accounting Officer of Six Flags Entertainment Corporation resigned from the Company effective July 15, 2022. 

 

Effective July 16, 2022, the Company’s Chief Financial Officer, Mr. Gary Mick assumed the roles of Controller and Principal Accounting Officer on an interim basis while the Company conducts a search process to identify its next Controller and Principal Accounting Officer.

27

Results of Operations

Three Months Ended July 3, 2022 Compared to Three Months Ended July 4, 2021

The following table sets forth summary financial information for the three months ended July 3, 2022 and July 4, 2021:

Three Months Ended

Percentage Change (%)

(Amounts in thousands, except percentage and per capita data)

    

July 3, 2022

    

July 4, 2021

    

2022 to 2021

Total revenue

    

$

435,422

   

$

459,787

(5)

%

Operating expenses

 

173,582

 

183,768

(6)

%

Selling, general and administrative expenses

 

53,573

 

50,205

7

%

Cost of products sold

 

35,710

 

39,194

(9)

%

Other net periodic pension benefit

 

(1,920)

 

(1,690)

14

%

Depreciation and amortization

 

27,537

 

28,052

(2)

%

Loss on disposal of assets

 

98

 

719

NM

Interest expense, net

 

35,978

 

38,048

(5)

%

Loss on extinguishment of debt

17,533

N/M

Other expense, net

 

898

 

831

8

%

Income before income taxes

 

92,433

 

120,660

(23)

%

Income tax expense

 

24,716

 

29,257

(16)

%

Net income

67,717

91,403

(26)

%

Less: Net income attributable to noncontrolling interests

 

(22,325)

 

(20,883)

7

%

Net income attributable to Six Flags Entertainment Corporation

$

45,392

$

70,520

(36)

%

Other Data:

 

  

 

  

  

Attendance

 

6,652

 

8,550

(22)

%

Revenue

Revenue recognized for the three months ended July 3, 2022, totaled $435.4 million, a decrease of $24.4 million, or 5%, compared to the $459.8 million recognized for the three months ended July 4, 2021. The decrease was attributable to an attendance decrease of 22% and a $5.0 million decrease in “Sponsorship, international agreements and accommodations” revenue. The decrease in attendance was net of a favorable visitation shift of approximately 200 thousand guests from the first quarter to the second quarter of 2022 due to the later timing of the Easter holiday in 2022, which caused some schools to schedule spring-break vacations in the second quarter of 2022 versus the first quarter in 2021.

Total guest spending per capita, which excludes sponsorship, international agreements and accommodations revenue, for the three months ended July 3, 2022, increased by $11.93, to $63.87, compared to the three months ended July 4, 2021, driven by a $7.67, or 27%, increase in admissions revenue per capita and a $4.26, or 18%, increase in In-park spending per capita. The higher admissions per capita reflects higher realized ticket pricing and a higher mix of single day guests. The increase in In-park spending per capita reflects the benefits of our revenue management initiatives related to our premiumization strategy and in-park initiatives.

Operating expenses

Operating expenses for the three months ended July 3, 2022, decreased $10.2 million, or 6%, compared to the three months ended July 4, 2021, primarily as a result of lower labor expenditures at the parks due to a reduction in operating hours and more efficient labor scheduling, which offset higher wage rates, as well as the moving of some back-office functions to a shared-services center, which shifted some operating costs to selling, general and administrative expenses.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended July 3, 2022, increased $3.4 million, or 7%, compared to the three months ended July 4, 2021. The increase was primarily related to the moving of some back-office functions to a shared-services center, which shifted a portion of costs from operating expenses to selling, general and

28

administrative expenses, offset by lower advertising costs. All corporate expenses are included within selling, general and administrative expenses rather than operating expenses.

Cost of products sold

Cost of products sold in the three months ended July 3, 2022, decreased $3.5 million, or 9%, compared to the three months ended July 4, 2021, primarily as a result of a decrease in total sales. Costs of products sold as a percentage of in-park revenue for the three months ended July 3, 2022 decreased slightly relative to the prior year period, primarily as a result of the mix of in-park revenue, an increase in retail prices, and a reduction in membership discounts, offset by higher unit costs for food and retail items.

Depreciation and amortization

Depreciation and amortization expense for the three months ended July 3, 2022, decreased $0.5 million, or 2%, compared to the three months ended July 4, 2021. The decrease in depreciation and amortization expense is primarily the result of decreased capital expenditures during 2020 due to the COVID-19 pandemic.

Loss on disposal of assets

We recognized a $0.1 million loss on disposal of assets for the three months ended July 3, 2022, compared to a loss on disposal of assets of $0.7 million for the three months ended July 4, 2021. These losses on disposal of assets were primarily driven by the write-off of assets in conjunction with our ongoing capital plan.

Interest expense, net

Interest expense, net decreased $2.1 million, or 5%, for the three months ended July 3, 2022. The decrease is primarily attributable to lower effective interest rates on the unhedged portion of our Second Amended and Restated Term Loan B due to the termination of the August 2019 Swap Agreements on March 24, 2022.

Loss on debt extinguishment

Loss on debt extinguishment was $17.5 million for the six months ended July 3, 2022. We incurred a $17.5 million charge upon the repayment of $360.0 million of the 2025 Notes containing $12.6 million for the premium paid above par and $5.0 million for the write-off of deferred financing costs related to the transaction.

Income tax expense (benefit)

Income tax expense for the three months ended July 3, 2022 was $24.7 million reflecting an effective tax rate of 27%. The difference between our effective tax rate and the federal statutory rate primarily results from state and foreign income taxes and certain nondeductible expenses, including nondeductible executive compensation and a $4.0 million discrete tax assessment in Mexico.

29

Results of Operations

Six Months Ended July 3, 2022 Compared to Six Months Ended July 4, 2021

The following table sets forth summary financial information for the six months ended July 3, 2022 and July 4, 2021:

Six Months Ended

Percentage Change (%)

(Amounts in thousands, except per capita data)

    

July 3, 2022

    

July 4, 2021

    

2022 to 2021

Total revenue

    

$

573,529

    

$

541,811

6

%

Operating expenses

 

283,526

 

276,411

3

%

Selling, general and administrative expenses

 

92,905

 

86,331

8

%

Costs of products sold

 

45,825

 

46,409

(1)

%

Other net periodic pension benefit

 

(3,371)

 

(3,333)

1

%

Depreciation and amortization

 

56,586

 

56,885

(1)

%

(Gain) loss on disposal of assets

 

(2,002)

 

1,239

(1)

%

Interest expense, net

 

73,508

 

76,468

(4)

%

Loss on debt extinguishment

 

17,533

 

N/M

Other expense, net

 

1,361

 

8,450

(84)

%

Income (loss) before income taxes

 

7,658

 

(7,049)

N/M

Income tax expense (benefit)

 

5,603

 

(2,613)

N/M

Net income (loss)

2,055

(4,436)

N/M

Less: Net income attributable to noncontrolling interests

(22,325)

(20,883)

7

%

Net loss attributable to Six Flags Entertainment Corporation

$

(20,270)

$

(25,319)

(20)

%

Other Data:

 

  

 

  

  

Attendance

 

8,339

 

9,895

(16)

%

Revenue

Revenue recognized for the six months ended July 3, 2022, totaled $573.5 million, an increase of $31.7 million, or 6%, compared to the $541.8 million recognized for the six months ended July 4, 2021. The increase was attributable to an increase in operating days in the first quarter of 2022 compared to the first quarter of 2021, which was negatively impacted by pandemic-related closures and restrictions.

Total guest spending per capita, which excludes sponsorship, international agreements and accommodations revenue, for the six months ended July 3, 2022, increased by $13.70, to $66.21, compared to the six months ended July 4, 2021, driven by a $8.49, or 29%, increase in admissions revenue per capita and a $5.21, or 22%, increase in In-park spending per capita. The higher admissions per capita reflects higher realized ticket pricing and a higher mix of single day guests. The increase in In-park spending per capita reflects the benefits of our revenue management initiatives related to our premiumization strategy and in-park initiatives.

Operating expenses

Operating expenses for the six months ended July 3, 2022, increased $7.1 million, or 3%, compared to the six months ended July 4, 2021. These increases were primarily a result of increased operating days at our California and Mexico parks in the first quarter of 2022, as these parks were closed due to COVID-19 during the first quarter of 2021. The additional operating days in the first quarter and impacts from inflation drove the increase in salaries, wages, utilities and maintenance. This increase was partially offset by a decrease in operating days and operating hours in the second quarter, which was the result of park optimization initiatives.

Selling, general and administrative expenses

Selling, general and administrative expenses for the six months ended July 3, 2022, increased $6.6 million, or 8%, compared to the six months ended July 4, 2021. The increase was primarily related to the moving of some back-office functions to a shared-services center which shifted a portion of costs from operating expenses to selling, general and

30

administrative expenses, offset by lower advertising costs. All corporate expenses are included within selling, general and administrative expenses rather than operating expenses.

Cost of products sold

Cost of products sold in the six months ended July 3, 2022, decreased $0.6 million, or 1%, compared to the six months ended July 4, 2021, primarily as a result of a decrease in total items sold. Costs of products sold as a percentage of in-park revenue for the six months ended July 3, 2022 decreased slightly relative to the prior year period, primarily as a result of the mix of in-park revenue, an increase in retail prices, and a reduction in membership discounts, offset by higher unit costs of food and retail items

Depreciation and amortization

Depreciation and amortization expense for the six months ended July 3, 2022, decreased $0.3 million, or 1%, compared to the six months ended July 4, 2021. The decrease in depreciation and amortization expense is primarily the result of decreased capital expenditures during 2020 due to the COVID-19 pandemic.

(Gain) loss on disposal of assets

We recognized a $2.0 million gain on disposal of assets for the six months ended July 3, 2022, compared to a loss on disposal of assets of $1.2 million for the six months ended July 4, 2021. The $2.0 million gain on disposal of assets for the six months ended July 3, 2022 was driven by insurance proceeds reimbursing for prior year losses at multiple parks.

Interest expense, net

Interest expense, net decreased $3.0 million, or 4%, for the six months ended July 3, 2022. The decrease is primarily attributable to lower interest rates on the unhedged portion of our Second Amended and Restated Term Loan B.

Loss on debt extinguishment

Loss on debt extinguishment was $17.5 million for the six months ended July 3, 2022. We incurred a $17.5 million charge upon the repayment of $360.0 million of the 2025 Notes containing $12.6 million for the premium paid above par and $5.0 million for the write-off of deferred financing costs related to the transaction.

Income tax expense (benefit)

Income tax expense for the six months ended July 3, 2022, was $5.6 million. The difference between the federal statuatory rate and our effective tax rate was driven by a $4.0 million discrete tax assessment in Mexico. Our income tax expense was also driven by state and foreign income taxes and nondeductible expenses, including certain nondeductible executive compensation.

31

Calculation of EBITDA for the three and six months ended July 3, 2022 and July 4, 2021

We manage our business primarily with three different metrics; Modified EBITDA, Adjusted EBITDA and Adjusted EBITDA minus capex.

“Modified EBITDA,” a non-GAAP measure, is defined as our consolidated income (loss) from continuing operations: excluding the following: 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. Modified EBITDA, as defined herein, may differ from similarly titled measures presented by other companies. Management uses non-GAAP measures for budgeting purposes, measuring actual results, allocating resources and in determining employee incentive compensation. We believe that Modified EBITDA provides relevant and useful information for investors because it assists in comparing our operating performance on a consistent basis, makes it easier to compare our results with those of other companies in our industry as it most closely ties our performance to that of our competitors from a park-level perspective and allows investors to review performance in the same manner as our management.

"Adjusted EBITDA," a non-GAAP measure, is defined as Modified EBITDA minus the interests of third parties in the Modified EBITDA of properties that are less than wholly owned (consisting of Six Flags Over Georgia, Six Flags White Water Atlanta and Six Flags Over Texas). Adjusted EBITDA is approximately equal to “Parent Consolidated Adjusted EBITDA” as defined in our secured credit agreement, except that Parent Consolidated Adjusted EBITDA excludes Adjusted EBITDA from equity investees that is not distributed to us in cash on a net basis and has limitations on the amounts of certain expenses that are excluded from the calculation. Adjusted EBITDA as defined herein may differ from similarly titled measures presented by other companies. Our board of directors and management use Adjusted EBITDA to measure our performance and our current management incentive compensation plans are based largely on Adjusted EBITDA. We believe that Adjusted EBITDA is frequently used by all our sell-side analysts and most investors as their primary measure of our performance in the evaluation of companies in our industry. In addition, the instruments governing our indebtedness use Adjusted EBITDA to measure our compliance with certain covenants and, in certain circumstances, our ability to make certain borrowings. Adjusted EBITDA, as computed by us, may not be comparable to similar metrics used by other companies in our industry.

“Adjusted EBITDA minus capex,” a non-GAAP measure, is defined as Modified EBITDA minus capital expenditures net of property insurance recoveries. Our board of directors and management use Adjusted EBITDA to measure our performance and our current management incentive compensation plans are based largely on Adjusted EBITDA minus capex. Adjusted EBITDA minus capex as defined herein may differ from similarly titled measures presented by other companies.

Modified EBITDA, Adjusted EBITDA and Adjusted EBITDA minus capex are not recognized terms under US GAAP and should not be considered in isolation or as a substitute for a measure of our financial performance prepared in accordance with US GAAP. These metrics are not indicative of income or loss as determined under US GAAP. Modified EBITDA, Adjusted EBITDA and Adjusted EBITDA minus capex as presented may not be comparable to similarly titled measures of other companies due to varying methods of calculation.

The following tables set forth a reconciliation of net income (loss) to Modified EBITDA, Adjusted EBITDA and Adjusted EBITDA minus capex for the three and six month periods ended July 3, 2022 and July 4, 2021:

32

Three Months Ended

Six Months Ended

(Amounts in thousands, except per share data)

    

July 3, 2022

    

July 4, 2021

    

July 3, 2022

    

July 4, 2021

Net income (loss)

$

67,717

$

91,403

$

2,055

$

(4,436)

Income tax expense (benefit)

24,716

29,257

5,603

(2,613)

Other expense, net

898

831

1,361

8,450

Loss on debt extinguishment

17,533

17,533

Interest expense, net

35,978

38,048

73,508

76,468

Loss (gain) on disposal of assets

98

719

(2,002)

1,239

Amortization

5

5

11

11

Depreciation

27,532

28,047

56,575

56,874

Stock-based compensation

3,223

3,001

7,448

9,638

Modified EBITDA

177,700

191,311

162,092

145,631

Third party interest in EBITDA of certain operations

(22,325)

(20,883)

(22,325)

(20,883)

Adjusted EBITDA

$

155,375

$

170,428

$

139,767

$

124,748

Capital expenditures, net of property insurance recovery

(26,352)

(19,117)

(55,342)

(42,250)

Adjusted EBITDA minus capex

$

129,023

$

151,311

$

84,425

$

82,498

Adjusted EBITDA for the three months ended July 3, 2022, decreased $15.1 million compared to the three months ended July 4, 2021. This was primarily driven by a $24.3 million decrease in revenue for the period. This decrease was partially offset by cost savings in both operating expenses and sales, general and administrative expenses. Capital expenditures, net of property insurance recovery, increased by $40.9 million due to decreased spending in the prior year period when COVID-19 created economic uncertainty.

Adjusted EBITDA for the six months ended July 3, 2022, increased $15.0 million compared to the six months ended July 4, 2021. This was primarily driven by a $31.7 million increase in revenue due to the resumption of operations at our parks in California and Mexico, which were not open during the first quarter 2021 due to the COVID-19 pandemic. Revenue gains were partially offset by higher operating costs due to the increase in overall operating days. Capital expenditures, net of property insurance recovery, increased by $46.7 million due decreased spending in the prior year period when COVID-19 led to more uncertainty and decreased capital spending during the first and second quarters.

33

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 typically include the funding of working capital obligations, debt service, investments in parks (including capital projects), common stock dividends, payments to our partners in the Partnership Parks, and common stock repurchases.

Holdings did not pay any dividends during the six months ended July 3, 2022 and July 4, 2021. During the six months ended July 4, 2021, we paid $0.2 million to employees with dividend equivalent rights for previously declared dividends due upon the vesting of the related shares. These dividends were declared prior to the suspension of dividend payments in connection with the increase in the Second Amended and Restated Revolving Loan in April 2020.

As of August 8, 2022, Holdings has repurchased 8,071,000 shares of common stock at a cumulative cost of approximately $365.1 million and an average cost per share of $45.24 under its approved stock repurchase program, leaving approximately $134.9 million available for permitted repurchases. The stock price of Holdings’ common stock could be adversely affected if our cash dividend rate or common stock repurchase activity differs from investors’ expectations.

Based on historical and anticipated operating results, we believe cash flow from operations, available cash and amounts available under the Second Amended and Restated Credit Facility will be adequate to meet our liquidity needs for at least the next twelve months, including any anticipated requirements for working capital, capital expenditures, scheduled debt service and obligations under arrangements relating to the Partnership Parks. Additionally, we expect to be able to use federal net operating loss carryforwards to reduce our federal income tax liability for several years. For the years 2022 through 2024, we have significant federal net operating loss carryforwards subject to an annual limitation that will offset approximately $32.5 million of taxable income per year. We expect taxable income in excess of the annual limitation in those years will be offset by net operating losses generated during 2020. In accordance with the CARES Act, net operating loss carryforwards generated in 2020 are not subject to expiration and will carryforward indefinitely.

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, swine flu, COVID-19, Monkeypox or other diseases; 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 materially 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 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 we may be required to seek additional financing to refinance all or a significant portion of our existing debt on or prior to maturity. 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 2021 Annual Report and in this Quarterly Report.

On July 1, 2022, we redeemed $360.0 million in aggregate principal amount of our senior secured 7.000% Notes due 2025 at a redemption price of 103.5%. We recorded a loss on debt extinguishment of $17.5 million in connection with the redemption. As of July 3, 2022, our total indebtedness, net of discount and deferred financing costs, was approximately $2,477.9 million. As of July 3, 2022, based on (i) non-revolving credit debt outstanding on that date, (ii) estimated interest rates for floating-rate debt, and (iii) the 2024 Notes, the 2025 Notes and the 2027 Notes, we anticipate annual cash interest payments of approximately $150 million and $130 million during 2022 and 2023, respectively.

34

As of July 3, 2022, we had approximately $74.8 million of unrestricted cash and $129.0 million available for borrowing under the Second Amended and Restated Revolving Loan. Our ability to borrow under the Second Amended and Restated Revolving Loan depends on compliance with certain conditions, including a maximum senior secured net leverage maintenance covenant, a minimum liquidity covenant, and the absence of any material adverse change in our business or financial condition. If we were to become unable to borrow under the Second Amended and Restated Revolving Loan, and we failed to meet our projected results from operations significantly, we might be unable to pay in full our off-season obligations. A default under the Second Amended and Restated Revolving Loan could permit the lenders under the Second Amended and Restated Credit Facility to accelerate the obligations thereunder. The Second Amended and Restated Revolving Loan expires on April 17, 2024. The terms and availability of the Second Amended and Restated Credit Facility and other indebtedness are not affected by changes in the ratings issued by rating agencies in respect of our indebtedness. For a more detailed description of our indebtedness, see Note 3 to the unaudited condensed consolidated financial statements included in this Quarterly Report.

We regularly make capital investments for new rides and attractions in our parks. In addition, each year we make capital investments in the food, retail, games and other in-park areas to increase guest spending per capita. We also make annual enhancements to theming and landscaping of our parks in order to provide a more complete family-oriented entertainment experience; and invest in our information technology infrastructure to attain operational efficiencies. We regularly perform maintenance capital enhancements, with most expenditures made during the off-season. Repairs and maintenance costs for materials and services associated with maintaining assets, such as painting and inspecting existing rides, are expensed as incurred and are not included in capital expenditures.

During the six months ended July 3, 2022, net cash provided by operating activities was $63.2 million, compared to net cash provided by operating activities of $129.3 million in the prior year period. Net cash used in investing activities during the six months ended July 3, 2022, and July 4, 2021, was $55.3 million and $42.2 million, respectively, consisting primarily of capital expenditures, net of property insurance recoveries. The additional investment spending in during the six months ended July 3, 2022 reflects the reduction in the effects of COVID-19 on our capital budget. Net cash used in financing activities during the six months ended July 3, 2022, was $269.0 million and was primarily due to the repayment of $360.0 million repayment on the 2025 Notes and $96.8 million in stock repurchases, which was partially offset by borrowing of $200.0 million on the Second Amended and Restated Revolving Loan. Net cash provided by financing activities was $7.9 million during the six months ended July 4, 2021, primarily due to the exercise of stock options.

Since our business is both seasonal in nature and involves significant levels of cash transactions, our net operating cash flows are largely driven by attendance and guest spending per capita levels. Most of our cash-based expenses are relatively fixed and do not vary significantly with either attendance or spending per capita assuming that the parks are operating in the normal course.

As the war in Ukraine has continued and sanctions, export controls and other measures are imposed against Russia, Belarus and specific areas of Ukraine, the war is increasingly affecting the global economy and financial markets, as well as exacerbating ongoing economic challenges, including rising inflation and global supply-chain disruption. We will continue to monitor the impacts of the Russia-Ukraine war on macroeconomic conditions and continually assess the effect these matters may have on consumer demand, our suppliers’ ability to deliver products, cybersecurity risks and our liquidity and access to capital.

35

Contractual Obligations

Since January 2, 2022, there have been no material changes to the contractual obligations of the Company outside the ordinary course of the Company’s business outside of the early paydown of $360 million on the 2025 Notes.

 

Payment Due by Period

(Amounts in thousands)

    

2022

    

2023 - 2024

    

2025 - 2026

    

2027 and beyond

    

Total

Long-term debt including current portion (2025 Notes and Second Amended and Restated Revolving Loan) (1)

$

 

$

200,000

 

$

365,000

$

$

565,000

Interest on 2025 Notes (1)

11,803

46,583

6,951

65,337

(1) See Note 3 to the condensed consolidated financial statements included elsewhere in this Quarterly Report for further discussion on long-term debt.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of July 3, 2022, there were no material changes in our market risk exposure from that disclosed in the 2021 Annual Report.

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 July 3, 2022, of the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of such period, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

There were no 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 July 3, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

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’ 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.

For information regarding legal proceedings, see Note 15, Commitments and Contingencies, to the consolidated financial statements in the 2021 Annual Report, and Note 6, Commitments and Contingencies, to the unaudited condensed consolidated financial statements in this Quarterly Report.

36

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 disclosed in the 2021 Annual Report. For a discussion of these risk factors, please see “Item 1A. Risk Factors” contained in the 2021 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’ common stock (the "March 2017 Stock Repurchase Plan"). As of August 8, 2022, Holdings has repurchased 8,071,000 shares of common stock at a cumulative cost of approximately $365.1 million and an average cost per share of $45.24 under its approved stock repurchase program, leaving approximately $134.9 million available for permitted repurchases.

    

    

    

    

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

 

April 4 - May 1

 

 

$

 

$

231,673,000

Month 2

 

May 2 - May 29

 

2,174,781

$

27.76

 

2,174,781

$

171,299,000

Month 3

 

May 30 - July 3

 

1,289,604

$

28.23

 

1,289,604

$

134,899,000

 

3,464,385

$

27.76

 

3,464,385

$

134,899,000

37

ITEM 6.   EXHIBITS

Exhibit 10.1

Employment Agreement, dated as of June 13, 2022, by and between Aimee Williams-Ramey and Six Flags Entertainment Corporation --incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K (File No. 001-13703) filed on June 14, 2022.

Exhibit 10.2

Employment Agreement, dated as of May 31, 2022, by and between Gary Mick and Six Flags Entertainment Corporation -- incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K (File No. 001-13703) filed on May 31, 2022.

Exhibit 31.1*

Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2*

Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1*

Certification of Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2*

Certification of Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 101*

The following financial statements and footnotes from the Company’s Quarterly Report on Form 10-Q for the quarter ended July 3, 2022 formatted in Inline XBRL: (i) the Unaudited Condensed Consolidated Balance Sheets, (ii) the Unaudited Condensed Consolidated Statements of Operations, (iii) the Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Unaudited 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 104*

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended July 3, 2022, formatted in Inline XBRL

*     Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SIX FLAGS ENTERTAINMENT CORPORATION

(Registrant)

Date:

August 11, 2022

/s/ Selim Bassoul

Selim Bassoul

President and Chief Executive Officer

Date:

August 11, 2022

/s/ Gary Mick

Gary Mick

Chief Financial Officer and Interim Principal Accounting Officer

39