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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the information required in Part III by Items 10, 11, 12, 13 and 14 are incorporated by reference to the registrant’s proxy statement for the 2021 annual meeting of stockholders, which will be filed by the registrant within 120 days after the close of its 2020 fiscal year.
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (the "Annual 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, including statements regarding (i) the effect, impact, potential duration or other implications of the COVID-19 pandemic and any expectations we may have with respect thereto including efficacy and deployment of the COVID-19 vaccines, (ii) the timing and conditions under which we may open our parks and our expectations regarding the continued operations of our parks, (iii) the operation of our parks in light of the COVID-19 pandemic including, among other things, the effectiveness of cost-saving and health and safety measures implemented in response to the COVID-19 pandemic, (iv) the adequacy of our cash flows from operations, available cash and available amounts under our credit facilities to meet our liquidity needs, including in the event of a prolonged closure of one or more of our parks, (v) our ability to improve operating results, profitability and resilience by adopting and implementing a new strategic plan, including strategic cost reductions and organizational and personnel changes, without adversely affecting our business, (vi) our plans and ability to roll out our capital enhancements and planned initiatives in a timely and cost effective manner, and our expectations regarding the anticipated timing, costs, benefits and results of such enhancements and initiatives, (vii) our plans and expectations regarding future actions and initiatives to increase profitability, including expectations regarding the anticipated focus, timing, costs, benefits and results of our transformation plan, as well as our incremental annual run-rate Adjusted EBITDA and anticipated earnings baseline resulting from the plan; (viii) the extent to which having parks in many geographical locations protects our consolidated results against the effects of adverse weather and other events, (ix) our ongoing compliance with laws and regulations, and the effect of and cost and timing of compliance with newly enacted laws, regulations and accounting policies, (x) our ability to obtain additional financing, (xi) our expectations regarding future interest payments, (xii) our expectations regarding the effect of certain accounting pronouncements, (xiii) our expectations regarding the cost or outcome of any litigation or other disputes, (xiv) our annual income tax liability and the availability of net operating loss carryforwards and other tax benefits, (xv) our expectations regarding uncertain tax positions, (xvi) our expectations regarding our deferred revenue growth, and (xvii) our expectations regarding our employee recruitment, development, engagement or retention programs and initiatives. Forward-looking statements include all statements that are not historical facts and can be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects," "may," "should," "could" and variations of such words or similar expressions.
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are by their nature, subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. Therefore, we caution you that you should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance. These statements may involve risks and uncertainties that could cause actual results to differ materially from those described in such statements. These risks and uncertainties include, among others, the following:
factors impacting attendance, such as local conditions, contagious diseases, including the COVID-19 pandemic, 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, 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);
political or military events;
recall of food, toys and other retail products sold at our parks;
accidents or contagious disease outbreaks occurring at our parks or other parks in the industry and adverse publicity concerning our parks or other parks in the industry;
availability of commercially reasonable insurance policies at reasonable rates;
inability to achieve desired improvements and financial performance targets set forth in our aspirational goals;
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;
economic conditions (including customer spending patterns);
changes in public and consumer tastes;
construction delays in capital improvements or ride downtime;
competition with other theme parks, waterparks 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;
cyber security risks; and
other factors or uncertainties described in "Item 1A. Risk Factors" of this Annual Report.
A more complete discussion of these factors and other risks applicable to our business is contained in "Item 1A. Risk Factors" of this Annual Report. All forward-looking statements in this 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 report or as of the date they were made. While we believe that the expectations reflected in such forward-looking statements are reasonable, we make 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 the COVID-19 pandemic could heighten many of the risk factors described herein.
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As used in this Annual Report, unless the context requires otherwise, the terms "we," "our," "Six Flags," "the Company" and "SFEC" 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.
Looney Tunes characters, names and all related indicia are trademarks of Warner Bros., a division of WarnerMedia owned by AT&T Inc. Batman, Superman and Wonder Woman and all related characters, names and indicia are copyrights and trademarks of DC Comics. Six Flags and all related indicia are registered trademarks of Six Flags Theme Parks Inc.
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 26 regional theme parks and waterparks, 23 are located in the United States, two are located in Mexico and one is located in Montreal, Canada. Our U.S. parks serve each of the top 11 designated market areas, as determined by a survey of television households within designated market areas published by A.C. Nielsen Media Research in September 2019. Our diversified portfolio of North American parks serves an aggregate population of approximately 145 million people and 250 million people within a radius of 50 miles and 100 miles, respectively, with some of the highest per capita gross domestic product in the U.S.
Our parks occupy approximately 6,000 acres of land, and we own approximately 700 additional acres of land with development potential. Our parks are located in geographically diverse markets across North America. Our parks 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, and thereby provide a complete family-oriented entertainment experience. In the aggregate, during 2020, our parks contained approximately 940 rides, including over 150 roller coasters, making us the leading provider of "thrill rides" in the industry.
In 1998, we acquired the former Six Flags Entertainment Corporation ("Former SFEC", a corporation that has been merged out of existence and that had always been a separate corporation from Holdings), which had operated regional theme parks and waterparks under the Six Flags name for nearly forty years and established an internationally recognized brand name. We own the "Six Flags" brand name in the U.S. and foreign countries throughout the world. To capitalize on this name recognition, 22 of our parks are branded as "Six Flags" or "Hurricane Harbor" parks, and we also began the development, with a third party partner, of a Six Flags-branded theme park in Saudi Arabia.
We hold exclusive long-term licenses for theme park usage of certain Warner Bros. and DC Comics characters throughout the U.S. (except the Las Vegas metropolitan area), Canada, Mexico and other countries. These characters include Bugs Bunny, Daffy Duck, Tweety Bird, Yosemite Sam, Batman, Superman, The Joker, Wonder Woman, The Flash, Green Lantern, Harley Quinn, Aquaman, and others. We use these characters to provide an enhanced family entertainment experience. Our licenses include the right to sell merchandise featuring the characters at the parks, and to use the characters in our advertising, as walk-around characters and in theming for rides, attractions and retail outlets.
We believe our parks benefit from limited direct theme park competition. A limited supply of real estate appropriate for theme park development, substantial initial capital investment requirements, long development lead-time, and zoning restrictions provide each of our parks with a significant degree of protection from competitive new theme park openings. Based on our knowledge of the development of our own and other regional theme parks, we estimate it would cost $500 million to $700 million and would take a minimum of four years to construct a new regional theme park comparable to one of our major Six Flags-branded theme parks.
The impact of the COVID-19 pandemic on our business has been more substantial than any other event throughout our history. In response to the COVID-19 pandemic, federal, state and local governments implemented significant restrictions on travel, social conduct and business operations, including mass quarantine and social distancing mandates and orders. The pandemic and these containment measures have had, and may continue to have, a material negative impact on our business and financial performance. On March 13, 2020, we temporarily suspended operations at all our theme parks and waterparks due to the COVID-19 pandemic. Through concerted action, we quickly implemented plans to mitigate the crisis and position us for future success while ensuring the health and safety of our employees and guests. As a result of these actions, all of our theme parks and some of our waterparks operated in at least some capacity for a portion of the season, albeit pursuant to reduced capacity and other operating limitations. Highlights included (i) implementation of cost controls, including company-wide salary reductions, and curtailed advertising, marketing and capital expenditures, (ii) strengthening of liquidity, including increased revolving credit, suspended testing of certain covenants in our credit facility, and raising of additional debt, (iii) development of industry-leading safety measures, including a reservation system to control park capacity, protocols to ensure proper social distancing, contactless security, and enhanced sanitization measures, (iv) development of measures to retain our season pass holders and members, including extending all 2020 season passes through the end of 2021, offering members the option to pause payments, and offering higher-tiered benefits to members who maintain their payment schedule, and (v) creation of new sources of revenue including the Six Flags Wild Safari Drive-Through Adventure, Six Flags Discovery Kingdom Marine World Experience and Holiday in the Park Drive-Through and Walk-Through Experiences.
Prior to the pandemic, we initiated a transformation plan. The transformation plan consists of five revenue initiatives and three cost initiatives designed to improve our core operational effectiveness and to support our strategy, delivering sustainable value creation over time. Our strategy is to create thrilling, memorable experiences at our regional parks, delivered by a diverse and empowered team, through industry-leading innovation and technology. The strategy is driven by three focus areas: (i) modernizing the guest experience through technology, (ii) continuously improving operational efficiency, and (iii) driving financial excellence. We plan to focus on our core business over the next two to three years; during this time, we will be cautious about expanding into adjacent domestic markets or entering into new international agreements.
Due to the outbreak of the COVID-19 pandemic in early 2020 and the resulting park closures, management redirected its focus on steering us through this crisis, causing a delay in our transformation plan. However, in the latter half of 2020, we made significant progress on each of the initiatives. For example, in October 2020, we reduced our full-time headcount costs by approximately 10%. We closed two satellite offices; initiated centralized negotiations with several vendors to reduce procurement costs; and piloted a model to optimize park level variable labor. From a revenue perspective, we improved our menu assortment, pricing and merchandizing strategy; developed a new tool to optimize media spending; improved our website; and made progress on our initiative to attract more single day visitors.
We expect the transformation plan to generate an incremental $80 to $110 million in annual run-rate Adjusted EBITDA. We expect to realize $30 to $35 million of benefits in 2021, independent of attendance levels, and to achieve the remaining benefits through incremental revenue opportunities and lower variable costs once the plan is fully implemented and the Company is operating in a normal business environment. Relative to the mid-point of the Company’s pre-pandemic guidance range of $450 million, this implies a new earnings baseline of $530 to $560 million once the plan is fully implemented and the Company is operating in a normal business environment.
Description of Parks and Segment Information
Our parks provide similar products and services through a similar process to the same class of customer through a consistent method. We also believe our parks share common economic characteristics. Based on these factors, we have only one reportable segment—theme parks. The following chart summarizes key business and geographical information about our parks.
Name of Park and Location
External Park Competition / Location /
Oklahoma City (45)
1.6 million—50 miles
Andy Alligator’s Water Park /
4.3 million—50 miles
Quebec City Water Park /
Six Flags Hurricane Harbor Rockford
2.7 million—50 miles
Several waterparks /
Six Flags America
515 acres—combination theme park and waterpark and approximately 300 acres of potentially developable land
Washington, D.C. (6)
8.5 million—50 miles
Kings Dominion /
Six Flags Darien Lake
982 acres— combination theme park and waterpark, hotel and campground
2.6 million—50 miles
Six Flags Discovery
159 acres— separately gated theme park with marine and land animal exhibits, and waterpark on 135 acres and 24 acres, respectively
San Francisco / Oakland (8)
6.4 million—50 miles
Aquarium of the Bay at Pier 39 /
Six Flags Fiesta Texas
220 acres—combination theme park and waterpark
2.8 million—50 miles
Sea World of Texas /
Six Flags Great Adventure &
2,111 acres—separately gated theme park/safari and waterpark and approximately 367 acres of potentially developable land
New York City (1)
14.5 million—50 miles
Hershey Park /
American Dream Park
East Rutherford, NJ / 70 miles
Six Flags Great America
304 acres—combination theme park and waterpark and approximately 30 acres of potentially developable land
9.0 million—50 miles
Kings Island /
Six Flags Hurricane Harbor
22.6 million—50 miles
El Rollo /
Six Flags Hurricane Harbor Phoenix
4.9 million—50 miles
Big Surf /
Name of Park and Location
External Park Competition / Location /
Six Flags Hurricane Harbor
7.1 million—50 miles
Big Rivers Waterpark /
Six Flags Magic Mountain /
262 acres—separately gated theme park and waterpark on 250 acres and 12 acres, respectively
Los Angeles (2)
10.2 million—50 miles
Disneyland Resort /
Six Flags Mexico
110 acres—theme park
24.5 million—50 miles
Mexico City Zoo /
Six Flags New England
262 acres—combination theme park and waterpark
3.2 million—50 miles
Lake Compounce /
Six Flags Over Georgia
352 acres—separately gated theme park and waterpark on 283 acres and waterpark on 69 acres, respectively
6.2 million—50 miles
Georgia Aquarium /
Six Flags Over Texas /
264 acres—separately gated theme park and waterpark on 217 and 47 acres, respectively
Dallas/Fort Worth (5)
7.4 million—50 miles
Sea World of Texas /
Six Flags St. Louis
320 acres—combination theme park and waterpark and approximately 17 acres of potentially developable land
St. Louis (21)
2.8 million—50 miles
Worlds of Fun /
The Great Escape and Hurricane Harbor /
345 acres—combination theme park and waterpark, plus 200 room hotel and 38,000 square foot indoor waterpark
1.1 million—50 miles
Huck Finn’s Playland /
Based on a September 28, 2019 survey of television households within designated market areas published by A.C. Nielsen Media Research.
Partnership Park Arrangements
In connection with our 1998 acquisition of Former SFEC, we guaranteed certain obligations relating to Six Flags Over Texas ("SFOT") and Six Flags Over Georgia, including Six Flags White Water Atlanta ("SFOG", and together with SFOT, the "Partnership Parks"). These obligations continue until 2027, in the case of SFOG, and 2028, in the case of SFOT. Such obligations include (i) minimum annual distributions (including rent) of approximately $75.2 million in 2021 (subject to cost of living adjustments in subsequent years) to the limited partners in the Partnerships Parks (based on our ownership of units as of December 31, 2020, our share of the distribution will be approximately $33.3 million) and (ii) minimum capital expenditures at each park during rolling five-year periods based generally on 6% of Partnership Park revenues. Cash flow from operations at the Partnership Parks is used to satisfy these requirements before any funds are required from us. We also guaranteed the obligation of our subsidiaries to annually purchase all outstanding limited partnership units to the extent tendered by the unit holders (the "Partnership Park Put").
After payment of the minimum distribution, we are entitled to a management fee equal to 3% of prior year gross revenues and, thereafter, any additional cash will be distributed first to management fee in arrears, then repayment of any interest and principal on intercompany loans, with any additional cash being distributed 95% to us, in the case of SFOG, and 92.5% to us, in the case 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 (i) 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 (ii) a valuation derived from the highest prices previously paid for the units of the Partnership Parks by certain entities. In light of the temporary suspension of operations of the Partnership Parks due to the COVID-19 pandemic in March 2020, which would cause the value of the limited partnership units of the Partnership Parks 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 valuation methodologies described in the preceding sentence, the Specified Price for the Partnership Parks, if determined as of December 31, 2020, is $409.7 million in the case of SFOG, and $527.4 million in the case of SFOT. As of December 31, 2020, we owned approximately 31.4% and 53.9% of the Georgia limited partner interests and Texas limited partner interests, respectively. The remaining redeemable units of approximately 68.6% and 46.1% of the Georgia limited partner and Texas limited partner, respectively, represent a current redemption value for the limited partnership units of approximately $523.4 million.
Pursuant to the 2020 annual offer, we purchased 0.375 units from the Georgia partnership for approximately $1.5 million and we purchased 1.5675 units from the Texas partnership for approximately $3.4 million in May 2020. The $350 million accordion feature on the Second Amended and Restated Term Loan B under the Second Amended and Restated Credit Facility (as defined in Note 8 to the consolidated financial statements included elsewhere in this Annual Report) is available for borrowing for future "put" obligations if necessary.
In connection with our acquisition of the Former SFEC, we entered into the Subordinated Indemnity Agreement with certain of the Company’s entities, Time Warner, and an affiliate of Time Warner (an indirect subsidiary of AT&T Inc. as a result of a merger in 2018), pursuant to which, among other things, we transferred to Time Warner (which has guaranteed all of our obligations under the Partnership Park arrangements) record title to the corporations that own the entities that have purchased and will purchase limited partnership units of the Partnership Parks, and we received an assignment from Time Warner of all cash flow received on such limited partnership units, and we otherwise control such entities. In addition, we issued preferred stock of the managing partner of the partnerships to Time Warner. In the event of a default by us under the Subordinated Indemnity Agreement or of our obligations to our partners in the Partnership Parks, these arrangements would permit Time Warner to take full control of both the entities that own limited partnership units and the managing partner. If we satisfy all such obligations, Time Warner is required to transfer to us the entire equity interests of these entities. The 2018 merger of Time Warner and AT&T Inc. did not affect the Time Warner guarantee of our obligations under the Subordinated Indemnity Agreement.
We incurred $9.1 million of capital expenditures at these parks during the 2020 season, and intend to incur an amount in excess of the minimum required expenditure in 2021. 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 two partnerships used approximately $8.4 million of cash in 2020 in operating activities after deduction of capital expenditures and excluding the impact of short-term intercompany advances from or payments to Holdings, as the case may be. As of December 31, 2020 and 2019, we had total loans receivable outstanding of $288.3 million and $239.3 million, respectively, from the partnerships that own the Partnership Parks. The proceeds from these loans were primarily used to fund the acquisition of Six Flags White Water Atlanta and to make capital improvements and distributions to the limited partners.
Marketing and Promotion
We attract visitors through multichannel marketing and promotional programs for each of our parks. The programs are designed to attract guests and enhance the Six Flags brand name and are tailored to address the different characteristics of our various markets and to maximize the impact of specific park attractions and product introductions. Marketing and promotional programs are updated or replaced each year to address new developments. These initiatives are supervised by our senior marketing and sales leadership teams, with the assistance of our senior management and advertising and promotion agencies.
We also develop alliance, sponsorship and co-marketing relationships with well-known national, regional and local consumer goods companies and retailers to supplement our advertising efforts and to provide attendance incentives in the form of discounts.
We offer a monthly membership program with four premium priced tiers and a membership loyalty program, which entitles certain members to earn points that may be redeemed for park-related rewards. Membership and season pass sales establish an attendance base in advance of the season, reducing exposure to inclement weather and providing other benefits. In general, a season pass holder or member contributes higher aggregate revenue and profitability to the Company over the course of a year compared to a single day ticket guest because a season pass holder or member pays a higher ticket price and contributes to in-park guest spending over multiple visits. Additionally, guests enrolled in our membership program and season pass holders often bring paying guests and generate "word-of-mouth" advertising for the parks. Season pass and membership attendance constituted approximately 56% of the total attendance at our parks in 2020 and 63% of the total attendance at our parks in both 2019 and 2018.
Our season pass holders and members are among our most valuable customers. To incentivize members to maintain their patronage and loyalty during the pandemic, we offered one bonus month for each month that they paid while their home park was closed. Members that continued to make their monthly membership payments also received a free upgrade to the next tier of membership valid until the end of 2022. In recognition of the unique challenges many of our guests faced due to the pandemic, we offered all of them the opportunity to pause their memberships (and payments) until their home park opens in 2021. All 2020 season pass holders received a free extension of their pass until the end of the 2021 season, along with a variety of in-park benefits to recognize their loyalty and continued commitment to the Company.
Our Group Sales team offers discounted tickets and catered meals for specific dates and tickets to large groups such as businesses, schools, and religious, fraternal and similar organizations.
We use promotional programs as a means of targeting specific market segments and locations not generally reached through group or retail sales efforts. The promotional programs utilize coupons, sweepstakes, reward incentives and rebates to attract additional visitors. These programs are implemented through online promotions, digital and social marketing activities, search engine marketing, radio and television advertising, direct mail, and sponsorship marketing. The special promotional offers are usually available for a limited time and offer a reduced admission price or provide some additional incentive to purchase a ticket.
We have the exclusive right on a long-term basis to theme park usage of the Warner Bros. and DC Comics animated characters throughout the U.S. (except for the Las Vegas metropolitan area), Canada, Mexico and certain other countries. In particular, our license agreements entitle us to use, subject to customary approval rights of Warner Bros. and, in limited circumstances, approval rights of certain third parties, all animated, cartoon and comic book characters that Warner Bros. and DC Comics have the right to license, including Batman, The Joker, Superman, Wonder Woman, The Flash, Green Lantern, Harley Quinn, Aquaman, Bugs Bunny, Daffy Duck, Tweety Bird and Yosemite Sam. They also include the right to sell merchandise using the characters. In addition to annual license fees, we are required to pay a royalty fee on any merchandise manufactured by or for us and sold that use the licensed characters. Warner Bros. has the right to terminate the license agreements under certain circumstances, including if any persons involved in the movie or television industries obtain control of us or, in the case of Warner Bros., upon a default under the Subordinated Indemnity Agreement.
We currently operate in geographically diverse markets in North America. Each park is managed by a park president who is responsible for all operations and management of the individual park. Each park president directs a full-time, on-site management team. Local advertising, ticket sales, community relations and hiring and training of personnel are the responsibility of individual park management in coordination with corporate support teams.
Each park management team includes senior personnel responsible for operations and maintenance; in-park food, beverage, merchandising and games; marketing and sales; human resources and finance. Park management compensation structures are designed to provide financial incentives for individual park managers to execute our strategy and to maximize revenue and free cash flow.
Our parks are generally open daily from Memorial Day through Labor Day. In addition, most of our parks are open weekends prior to and following their daily seasons, often in conjunction with themed events such as Fright Fest® and Holiday in the Park®. Due to their location, certain parks have longer operating seasons. Six Flags Magic Mountain operates year-round, and our parks in Mexico, Six Flags Fiesta Texas and Six Flags Over Texas operate weekends year-round outside of their traditional operating season. Typically, the parks charge a basic daily admission price that allows unlimited use of all rides and attractions, although in certain cases special rides and attractions require the payment of an additional fee.
We suspended operations of our parks beginning on March 13, 2020, due to the spread of COVID-19 and local government mandates, which had a significant negative impact on the Company’s financial performance. We resumed partial operations at many of our parks on a staggered basis near the end of the second quarter using a cautious and phased approach, including limiting attendance, in accordance with local conditions and government guidelines. Attendance trends in 2020 continued to improve throughout the year, increasing from 35% of prior year levels in the third quarter to 51% in the fourth quarter, for the parks that were open. Several of our parks modified their operations by providing drive-through or walk-through experiences for the holiday season, and our parks in Mexico were able to operate for a portion of the fourth quarter. As a result, all of the Company’s theme parks and some of its water parks operated in at least some capacity for a portion of the season, albeit pursuant to reduced capacity and other operating limitations. Comparisons of open parks to prior year in the third quarter exclude attendance from Six Flags Discovery Kingdom and Six Flags Great America, as these parks had modified operations with minimal attendance in the third quarter of 2020.
See Note 17 to the consolidated financial statements included elsewhere in this Annual Report for information concerning revenues and long-lived assets by domestic and international categories.
Capital Improvements and Other Initiatives
We regularly make capital investments for new rides and attractions in our parks. We purchase both new and used rides and attractions. On occasion, we also relocate rides among parks to provide fresh attractions. 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.
In response to curtailed operations, and to preserve our liquidity position and prepare for multiple contingencies, we took actions to reduce operating expenses and defer or eliminate certain discretionary capital projects planned for 2020 and 2021. We deferred or eliminated $50 to $60 million of our discretionary capital improvement projects planned for 2020. We are currently planning to complete the installation of many of the rides and attractions planned for 2020 during the 2021 season, but will remain flexible regarding the completion of these projects.
We believe the selective introduction of new rides and attractions, including family entertainment attractions, together with making general investments in the appearance and infrastructure of our parks, are important factors in promoting each of the parks to draw higher attendance and encourage longer visits, which can lead to higher in-park sales. We opened one of the world’s tallest pendulum rides at Six Flags Mexico (Mexico City, Mexico) during 2020. All other previously announced rides and attractions had openings deferred until 2021 or later.
Planned initiatives for 2021 include (i) the tallest, fastest and longest single rail coaster at Six Flags Great Adventure (Jackson, NJ); (ii) a record breaking water coaster at Six Flags Hurricane Harbor Gurnee (Gurnee, IL); (iii) a pendulum ride at Six Flags America (Largo, MD); (iv) a high-flying 360-degree rotating ride that stands 16 stories high at The Great Escape (Queensbury, NY); (v) a new seven-story spinning ride at Six Flags New England (Agawam, MA); (vi) the Midwest’s first tailspin waterslide at Six Flags Hurricane Harbor Rockford (Rockford, IL); (vii) a new 12,000 square-foot activity pool at Six Flags Hurricane Harbor Phoenix (Glendale, AZ); (viii) a four-story slide complex featuring three new waterslides at Six Flags Hurricane Harbor Arlington (Arlington, TX); (ix) a six-story waterslide complex at Six Flags Hurricane Harbor Splashtown (Houston, TX); (x) the tallest ride-of-its-kind aerial flying machine ride at Six Flags Fiesta Texas, (San Antonio, TX); (xi) rebranding Magic Waters and White Water Bay to Six Flags Hurricane Harbor Rockford and Six Flags Hurricane Harbor Oklahoma City, respectively; and (xii) the new Six Flags Hurricane Oklahoma City will also debut a high speed multi-lane racing water complex.
During 2021, we also plan to continue (i) our targeted marketing strategies to attract guests, including focusing on our breadth of product and value offerings; (ii) improving and expanding upon our branded product offerings and guest-focused initiatives to continue driving guest spending growth, including membership and our associated loyalty reward programs, and the all season dining pass program, which enables season pass holders and members to eat meals and snacks any day they visit the park for one upfront payment; (iii) focusing efforts to increase single-day attendance visitation including targeted discount strategies; and (iv) growing sponsorship revenue opportunities.
We have signed agreements to assist third parties in the development and management of Six Flags-branded parks outside of our core markets. As compensation for exclusivity, brand licensing rights, and design, development and management services, we receive fees during the design and development period as well as ongoing remuneration after the parks open to the public. The agreements do not require us to make any capital investments in the parks.
We currently have agreements to develop a Six Flags-branded park in Saudi Arabia. As previously reported, our partner in China had well publicized liquidity challenges and defaulted on its payment obligations to us. During 2020, we terminated our agreement with our partner in China to discontinue the development of Six Flags-branded parks in China.
We will be cautious about signing new international agreements outside of Saudi Arabia for the next several years as we focus our resources on strengthening our core business.
Maintenance and Inspection
Rides are inspected at various levels and frequencies in accordance with manufacturer specifications. Our rides are inspected daily during the operating season by our maintenance personnel. These inspections include safety checks, as well as regular maintenance, and are made through both visual inspection and test operations of the rides. Our senior management and the individual park personnel evaluate the risk aspects of each park’s operations, potential risks to employees and staff as well as to the public. In addition, contingency response plans for potential emergency situations have been developed for each facility. During the off-season, maintenance personnel examine the rides and repair, refurbish and rebuild them when necessary. This process includes x-raying and magnafluxing (a further examination for minute cracks and defects) steel portions of certain rides at high-stress points. A large portion of our full-time workforce devotes substantially all of its time to maintaining the parks and our rides and attractions. We use a computerized maintenance-management system across all of our domestic parks to assist us in executing our maintenance programs. For parks that have remained closed since we suspended operations in March 2020 due to the COVID-19 pandemic, we have continued our off-season maintenance program in order to ensure the parks’ safety and operational readiness for when they are cleared to open by state and local governments.
In addition to the performance of our internal maintenance and inspection procedures, third-party consultants are retained by us or our insurance carriers to perform an annual inspection of each park and all attractions. The results of these inspections are reported in written evaluation and inspection reports and include suggestions on various aspects of park operations. In certain states, state inspectors conduct additional annual ride inspections before the beginning of each season. Other portions of each park are subject to inspections by local fire marshals and health and building department officials. Furthermore, we use Ellis & Associates as water safety consultants at all of our waterparks to train lifeguards and audit safety procedures.
We maintain insurance of the types and in amounts we believe are commercially reasonable and are available to businesses in our industry. We maintain multi-layered general liability policies that provide for excess liability coverage of up to $100.0 million per occurrence. For incidents arising on or after December 31, 2008, our self-insured retention is $2.0 million, followed by a $0.5 million deductible per occurrence applicable to all claims in the policy year for our domestic parks and our park in Canada and a nominal amount per occurrence for our parks in Mexico. Defense costs are in addition to these retentions. Our general liability policies cover the cost of punitive damages only in certain jurisdictions. Based upon reported claims and an estimate for incurred, but not reported claims, we accrue a liability for our retention contingencies. For workers’ compensation claims arising after November 15, 2003, our deductible is $0.75 million. We also maintain fire and extended coverage, business interruption, terrorism and other forms of insurance typical to businesses in this industry. The all peril property coverage policies insure our real and personal properties (other than land) against physical damage resulting from a variety of hazards. Additionally, we maintain information security and privacy liability insurance in the amount of $10.0 million with a $0.25 million retention per event.
We generally renegotiate our insurance policies on an annual basis. The majority of our current insurance policies expire on December 31, 2021. We cannot predict the level of the premiums that we may be required to pay for subsequent insurance coverage, the level of any retention applicable thereto, the level of aggregate coverage available or the availability of coverage for specific risks.
Our parks compete directly with other theme parks, waterparks and amusement parks and indirectly with other types of recreational facilities and forms of out of home entertainment within their market areas, including movies, sporting events, home entertainment options, restaurants and vacation travel. Principal direct competitors of our parks include SeaWorld Entertainment, Inc. and Cedar Fair, L.P. In addition, our business is subject to various factors affecting the recreation and leisure time industries generally, such as general economic conditions and changes in discretionary consumer spending habits. See "Item 1A. Risk Factors." Within each park’s regional market area, the principal factors affecting direct theme park competition include location, price, the uniqueness and perceived safety and quality of the rides and attractions in the park, the atmosphere and cleanliness of the park, the quality of park food and entertainment, and ease of travel to the park. Our theme parks have several advantages over other forms of entertainment. We believe that our parks offer a sufficient quality and variety of rides and attractions, culinary offerings, retail locations, and interactive and family experiences to make them highly competitive with other parks and forms of entertainment. They are outdoor venues spread over hundreds of acres, making them naturally conducive to social distancing. They are open many hours throughout the day, reducing the need for guests to arrive or leave at the same time. Finally, the vast majority of our guests live within a day’s drive, so a visit to one of our parks does not require air travel or a stay at a hotel. However, the COVID-19 pandemic could have longer-term impacts on consumer tastes and preferences and could shift consumer entertainment and recreation behaviors toward digital entertainment experiences and other off-premises experiences and technologies.
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.
Environmental and Other Regulations
Our operations are subject to federal, state and local environmental laws and regulations including laws and regulations governing water and sewer discharges, air emissions, soil and groundwater contamination, the maintenance of underground and aboveground storage tanks and the disposal of waste and hazardous materials. In addition, our operations are subject to other local, state and federal governmental regulations including, without limitation, labor, health, safety, zoning and land use and minimum wage regulations applicable to theme park and waterpark operations, and local and state regulations applicable to restaurant operations at each park. Finally, certain of our facilities are subject to laws and regulations relating to the care of animals. We believe that we are in compliance with applicable environmental and other laws and regulations and, although no assurance can be given, we do not foresee the need for any significant expenditures in this area in the near future.
Portions of the undeveloped areas at certain of our parks are classified as wetlands. Accordingly, we may need to obtain governmental permits and other approvals prior to conducting development activities that affect these areas and future development may be prohibited in some or all of these areas. Additionally, the presence of wetlands in portions of our undeveloped land could adversely affect our ability to dispose of such land and/or the price we receive in any such disposition.
As of December 31, 2020, we employed approximately 1,950 full-time employees, and over the course of the 2020 operating season we employed approximately 29,000 seasonal employees. In this regard, we compete with other local employers for qualified students and other candidates on a season-by-season basis. As part of the seasonal employment program, we employ a significant number of teenagers, which subjects us to child labor laws.
Approximately 12% of our full-time and approximately 11% of our seasonal employees are subject to labor agreements with local chapters of national unions. These labor agreements expire in January, May and December 2021 (Six Flags Great Adventure), December 2021 (Six Flags Magic Mountain), January 2024 (Six Flags Over Texas), December 2024 (Six Flags Over Georgia) and January 2025 (Six Flags St. Louis). The labor agreements for La Ronde expire in various years ranging from December 2021 through December 2024. We consider our employee relations to be good.
Diversity and Inclusion
We are committed to creating an inclusive environment that fully embraces the diversity of our employees and guests, regardless of ethnicity, gender, age, disability, cultural background, sexual orientation, or religious beliefs. In that regard, we are focused on the following:
to team members and other stakeholders about how we can become more diverse and inclusive through our Diversity and Inclusion Council, and through regular team member surveys, which provide feedback directly to senior management, including the CEO
leaders on how to embrace inclusion, creating awareness, understanding and recognizing explicit and implicit bias including by providing instruction on how to lead open and honest conversations with team members
Address Unconscious Biases
by updating our grooming, social media, and hiring policies, and changing any ride or attraction names that could be viewed as offensive
Build a Diverse Team
with a leadership team that represents the diversity of our marketplace and through updating recruiting, people planning, and talent management programs to foster more objective processes for all team members
Partner with Communities
by proactively working with minority suppliers to develop long-term alliances
We seek to continuously elevate employee development and training through a variety of different programs, opportunities, and resources. In 2020, we launched a partnership with the International Board of Credentialing and Continuing Education Standards to provide our guest-facing team members with specialized training to earn a Certificate in Autism Competency to further our commitment to better serve the special needs community, provide a more inclusive environment in our parks and continue our efforts in educating our team members on diversity and inclusion. In 2021, we will enhance our talent development program by providing our employees with access to virtual classrooms and online courses on topics including general safety, Office 365, harassment, and discrimination. Also in 2021, we plan to augment our succession planning process by establishing programs to better support the development of our talent bench for roles in management, maintenance and operations. Our senior leadership team reviews our talent development program annually with a particular focus on our top 20% of high performing, high potential talent including a focus on diversity. We are committed to identifying and developing the talents of our future leaders.
Employee Engagement and Recruitment
We conduct ongoing employee satisfaction surveys that provide actionable feedback from employees to management. The survey responses are anonymous and measure employee satisfaction and solicit honest feedback. Management from both corporate and the parks meet routinely to review the survey results and develop action plans in response to the employee feedback.
We work diligently to attract the best talent from a diverse range of sources in order to meet the current and future demands of our business. We have established relationships with high schools, trade schools, universities, professional associations and industry partners to proactively attract new talent.
Our recruiting practices and candidate selection are among our most important activities. In a year with unprecedented business disruption, we prioritized filling open positions with active team members to minimize layoffs and remained focus on retaining and recalling talent to select our most experienced people for park positions. In addition, we utilize social media, virtual job fairs and organizations across the United States to find diverse, enthusiastic and qualified employees.
Attracting, motivating, developing and retaining the best people is crucial to all aspects of our business and long-term success, and is central to our mission, vision and values. Our compensation programs are designed to align the compensation of our employees with our performance and to provide the proper incentives to attract, motivate and retain employees to achieve superior results. The structure of our compensation programs includes incentives based on both short-term and long-term performance. Specifically:
|●||We provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location.|
|●||We engage nationally recognized outside compensation and benefits consulting firms to independently evaluate the effectiveness of our executive compensation and benefit programs.|
|●||We align our executives’ long-term equity compensation with our stockholders’ interests by linking a significant portion of total compensation opportunity to business and individual performance. All full-time employees (other than participants in a collective bargaining agreement) have the opportunity to participate in our long-term equity incentive program.|
|●||All full-time employees are eligible for health insurance, paid and unpaid leaves, and life and disability/accident coverage. We also offer a variety of voluntary benefits that allow employees to select the options that meet their needs, including telemedicine, paid parental leave, prescription savings solutions, an educational assistance program, health savings accounts, flexible spending accounts, legal insurance, identity theft insurance, pet insurance and a wellness program.|
|●||A unique Six Flags perquisite offers full-time employees a Diamond Elite membership, our highest membership tier of benefits that includes free admission to any of our parks and discounts on in-park products. Full-time employees are also provided complimentary tickets.|
The health and safety of our employees is our highest priority. It is the shared responsibility of every employee to actively participate in creating a safe and secure environment and to minimize injuries. The hallmarks of the Company’s safety and security programs are:
|●||Resources and education to ensure safe and secure operating environments at the parks, including compliance with Occupational Safety and Health Administration (OSHA) standards, as well as to improve overall workplace safety and health. This includes regular and ongoing safety training and assessments as well as annual safety audits.|
|●||A highly trained workforce that proactively assesses risks, strives to eliminate unsafe conditions, and integrates learning from incidents to prevent future occurrences.|
|●||Dedicated leadership, accountability, and employee empowerment.|
During 2020, we acted quickly to implement extensive measures to proactively mitigate the spread of COVID-19 and provide a safe working environment for our employees. We consulted with an epidemiologist and a viral expert, and
relied on recommendations from the Centers for Disease Control and Prevention and other governmental agencies to develop core strategies to enhance the safety of our employees and guests. To support these strategies we:
|●||implemented daily health screenings of employees,|
|●||distributed a personal protective equipment pack to all employees,|
|●||significantly enhanced sanitization measures,|
|●||enforced social distance requirements,|
|●||added training to ensure compliance with the additional health and safety protocols,|
|●||implemented procedures to address actual and suspected COVID-19 cases and potential exposure,|
|●||required masks to be worn in all locations (with limited exceptions pursuant to applicable law), and|
|●||rolled out contactless recruiting and hiring to reduce potential COVID-19 exposure.|
We received favorable responses from our employees as evidenced by our team member voice survey scores. In addition, we offered guests the ability to obtain cash cards from kiosks throughout the parks to facilitate electronic transactions as an option in lieu of using cash, and implemented mobile food ordering at all of our domestic parks during 2020. These innovations added contactless means to enhance our guests’ experience through faster, more convenient transactions while elevating our enhanced safety guidelines.
Information about our Executive Officers and Certain Significant Employees
The following table sets forth the name of the members of the Company’s senior leadership team and executive officers, the position held by such person and the age of such person as of the date of this report. The officers of the Company are generally elected each year at a meeting of Holdings’ Board of Directors at the time of Holdings’ annual meeting of stockholders, and at other Board of Directors meetings, as appropriate.
President and Chief Executive Officer
Laura W. Doerre*
Executive Vice President, General Counsel and Chief Administrative Officer
Executive Vice President and Chief Financial Officer
Senior Vice President, Consumer and Guest Experience
Stephen R. Purtell
Senior Vice President, Investor Relations, Treasury and Strategy
Leonard A. Russ
Senior Vice President, Operations Services
Rafael A. Sanchez
Senior Vice President, Information Systems and Chief Information Officer
Bonnie Sherman Weber
Senior Vice President, Park Operations
Vice President and Chief Accounting Officer
Michael Spanos was appointed as a member of Holdings’ Board of Directors in October 2019. Mr. Spanos was named President and Chief Executive Officer of Six Flags in November 2019. Prior to joining Six Flags, he served as Chief Executive Officer, Asia, Middle East and North Africa, of PepsiCo, Inc., a leading global food and beverage company, from January 2018 to November 2019. Mr. Spanos previously served as interim head of PepsiCo, Inc.’s Asia, Middle East and North Africa division from October 2017 to January 2018 and as President and Chief Executive Officer, PepsiCo Greater China Region, from September 2014 to January 2018. Prior to that, Mr. Spanos served as Senior Vice President and Chief Customer Officer, PepsiCo North America Beverages from October 2011 to September 2014. Mr. Spanos previously held management roles of increasing responsibility at PepsiCo, Inc. since 1993 in North America, Europe, Asia, and the Middle East. Before joining PepsiCo, Inc. Mr. Spanos served in the United States Marines Corps from 1987 to 1993. Mr. Spanos holds a B.S. degree from the U.S. Naval Academy and he received a Master’s degree in Organizational Behavior from the University of Pennsylvania.
Laura W. Doerre was named General Counsel of Six Flags in March 2020 and Chief Administrative Officer in October 2020. Ms. Doerre previously served as Executive Vice President, General Counsel and Chief Compliance Officer of JELD-WEN Holding, Inc., a window and door manufacturer, from September 2016 to March 2020. Prior to joining JELD-WEN Holding, Inc., Ms. Doerre served as Vice President and General Counsel for Nabors Industries Ltd. from 2008 to August 2016. Prior to joining Nabors in 1996, Ms. Doerre practiced commercial litigation with the law firm Mayor, Day, Caldwell & Keeton LLP. Ms. Doerre holds a B.S. in Business Administration from the University of North Carolina at Chapel Hill, and a J.D. from the University of Texas School of Law.
Sandeep Reddy was named Executive Vice President and Chief Financial Officer of Six Flags in July 2020. Mr. Reddy previously served as Chief Financial Officer of Guess?, Inc., a contemporary clothing and accessories retailer, from July 2013 through December 2019. Prior to that role, since 2010, he served as Vice President and European Chief Financial Officer of Guess, where he was responsible for all aspects of Guess’ European finance functions, including financial planning, treasury, accounting, and tax. From 1997 to 2010, Mr. Reddy served in a number of positions of increasing responsibility for Mattel Inc., a leading global toy manufacturer, ultimately serving as Vice President Finance and Supply Chain for the SEUR (France, Spain, Portugal, Italy) cluster. Mr. Reddy has a BA (Honors) in Economics from Delhi University and an M.B.A. from Cornell University.
Mark Kupferman was named Senior Vice President, Consumer and Guest Experience of Six Flags in August 2020 and is responsible for consumer insights, consumer strategy, and architecting the guest end-to-end experience. He also oversees Six Flags’ customer relationship management, website, revenue management, and guest-facing innovation initiatives. Mr. Kupferman previously served as Vice President, Insights and Interactive Marketing of Six Flags since April 2011. Prior to that, Mr. Kupferman oversaw Consumer Insights for Universal Orlando. Prior to joining Universal, he was Vice President, Insights and Interactive Marketing for Paramount Parks. Mr. Kupferman has an M.B.A. from Wake Forest University, an M.F.A. from Yale University and a B.S. degree from Northeastern University.
Stephen R. Purtell was named Senior Vice President, Investor Relations, Treasurer and Strategy of Six Flags in December 2020. Mr. Purtell previously served as Senior Vice President, Investor Relations and Treasurer since October 2016. Prior to that, Mr. Purtell was Vice President, Business Development and Treasurer of Six Flags from July 2012 to October 2016. Prior to joining Six Flags, Mr. Purtell served as VP, Sales Operations and Market Research for Siemens Healthcare Diagnostics after it acquired Dade Behring in 2007. Mr. Purtell joined Dade Behring in 2003 and held financial positions including Assistant Treasurer, VP Corporate Planning and Analysis, and Treasurer. Prior to joining Dade Behring, Mr. Purtell held financial and engineering positions at IMC Global and GATX Terminals Corporation, and was an officer in the U.S. Army. Mr. Purtell has a B.S. in Civil Engineering from the U.S. Military Academy at West Point and an M.B.A. from the Wharton School of the University of Pennsylvania.
Leonard A. Russ was named Senior Vice President, Operations Services of Six Flags in August 2020 and is responsible for all in-park services, including food and beverage, retail, games, rentals, parking and other services offered throughout Six Flags’ parks, along with engineering, design, maintenance, procurement, and international development. Mr. Russ previously served as Interim Chief Financial Officer since February 2020 and Senior Vice President of Strategic Planning and Analysis since February 2016. Prior to that, Mr. Russ was Vice President and Chief Accounting Officer of Six Flags since October 2010, where he was responsible for overseeing the Six Flags’ accounting function and the finance functions of the western region parks. Mr. Russ began his career at Six Flags in 1989 as a
seasonal employee and became a full-time employee in 1995. He held a number of management positions within Six Flags before being named Director of Internal Audit in 2004. In 2005, Mr. Russ was promoted to Controller, a position he held until being promoted to Chief Accounting Officer. Mr. Russ holds a B.B.A. degree in Accounting from the University of Texas at Arlington.
Rafael A. Sanchez was named Senior Vice President, Information Systems and Chief Information Officer of Six Flags in January 2021. Mr. Sanchez previously served as Chief Information Officer at Feld Entertainment from April 2013 to December 2020, where he was responsible for Feld Entertainment’s global IT function. Prior to joining Feld Entertainment, Mr. Sanchez served as Chief Information Officer of Brightstar Corporation, a global leader of end-to-end mobile device lifecycle solutions, from 2009 to 2013. From 2005 to 2009, he served as Group CIO for Carnival Corporation & plc, and prior to that as Chief Information Officer for Burger King Corporation. Mr. Sanchez holds a B.S. in Business Administration from Louisiana State University.
Bonnie Sherman Weber was named Senior Vice President, Park Operations of Six Flags in September 2020 and is responsible for the management of Six Flags’ parks. Ms. Weber had previously served as Senior Vice President, In-Park Services of Six Flags since January 2018. Prior to that, Ms. Weber served as Park President of Six Flags Magic Mountain and Hurricane Harbor since August 2010. Ms. Weber began her career at Six Flags Magic Mountain in 1985 as a food service employee. Throughout her years in L.A., she held the roles of Six Flags Park Publicist, Manager of Advertising and Promotions, and Director of Marketing. She previously worked at The Walt Disney Company and was also the Director of Worldwide Marketing at Warner Bros. Consumer Products for four years. A Southern California native, Ms. Weber holds a B.S. in Marketing from California State Northridge.
Taylor Brooks was named the Vice President and Chief Accounting Officer of Six Flags effective June 2018. Mr. Brooks is responsible for overseeing the Company’s accounting function. Mr. Brooks joined the Company in 2013 as the Financial Reporting Manager and in 2015 was named Director of Accounting and Assistant Controller. Prior to joining the Company, Mr. Brooks was the Financial Reporting and Technical Research Senior Accountant at DynCorp International, LLC, and prior to DynCorp he worked for Ernst & Young LLP. Mr. Brooks holds a Bachelor’s degree and a Master’s degree in Accounting from Abilene Christian University and is a Certified Public Accountant.
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 Annual 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 Annual 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.
Our website, investors.sixflags.com, also includes items related to corporate governance matters, including the charters of our Audit Committee, Nominating and Corporate Governance Committee and Compensation Committee, our Corporate Governance Guidelines, our Code of Business Conduct and Ethics and our Code of Ethics for Senior Management. Copies of these materials 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.
ITEM 1A.RISK FACTORS
Set forth below are the principal risks that we believe are most significant to our business and should be considered by our security holders. We operate in a continually changing business environment and, therefore, new risks emerge from time to time. This section contains forward-looking statements. For an explanation of the qualifications and limitations on forward-looking statements, see "Cautionary Note Regarding Forward-Looking Statements."
Risks Relating to Our Business
The COVID-19 pandemic has disrupted our business and will continue to adversely affect our results of operations, liquidity, cash flows and financial condition.
In response to the COVID-19 pandemic, federal, state and local governments have implemented significant restrictions on travel, social conduct and business operations, including mass quarantine and social distancing mandates and orders. These actions, in addition to concerns relating to the public health impacts of the virus, have prevented us and our employees, contractors, suppliers, and other business partners from conducting business activities at full capacity, have led to the temporary cessation of certain business activities altogether, and may continue to have an adverse impact on our business for an unknown period of time. Ongoing concern regarding the virus and its evolving impact, as well as containment actions imposed in response to the pandemic, have had, and will likely continue to have a negative effect on economies and financial markets. Future developments relating to the virus, including severity, rate of transmission, mutations, treatment and availability of a vaccine, are uncertain and difficult to predict. As a result, the extent and duration of the impacts over the longer term on our business of the COVID-19 pandemic and the measures implemented in response to the COVID-19 pandemic remain largely uncertain and cannot be accurately predicted at this time.
In accordance with government guidelines concerning the COVID-19 pandemic, we temporarily suspended operations at all of our theme parks and waterparks in March 2020. During the period of suspended operations, we experienced a significant decrease in revenues. We also implemented a number of mitigation efforts, including eliminating seasonal labor costs, effecting salary and wage reductions for our executives and employees, increasing the available borrowings under our credit facilities, issuing senior secured notes to repay certain short-term borrowings and for working capital purposes, deferring or eliminating certain discretionary capital projects, and developing incentives to maintain monthly membership commitments. These efforts may not be sufficient, however, to counteract the adverse impact the COVID-19 pandemic has had and may continue to have on our revenues or prevent any further adverse impact, and some of our mitigating actions may have an adverse impact on our business. In addition, the effect of the COVID-19 pandemic on capital markets could impact our cost of borrowing or result in reduced or delayed capital expenditures and the impairment of certain of our assets and could adversely affect our strategic plans. Even as we begin to operate our parks that had previously suspended operations, the COVID-19 pandemic could continue to have a significant adverse impact on our business including future park closures and additional costs, such as the costs associated with operating our parks and restarting business activities, and costs to implement or enhance health and safety measures. We could also suffer damage to our reputation as a result of an outbreak of COVID-19 at one of our properties or if our response is inappropriate or is perceived by our guests or other stakeholders to be inappropriate, which could significantly and adversely affect our business, results of operations, liquidity, cash flows and financial condition.
Due to the pandemic, our 2020 season pass holders received a free extension of their pass until the end of the 2021 season and we offered our members one bonus month for each month that they paid while their home park was closed, or in the alternative, we offered members the opportunity to pause their memberships (and payments) until their home park opens in 2021. As a result, our cash flows during 2021 may be reduced, and if sales of 2021 memberships and season passes are lower than prior years, it could have a negative impact on attendance, revenue and per capita spending at our theme parks and waterparks. This negative impact could materially adversely affect our business, results of operations, liquidity, cash flows, financial condition and prospects.
While governmental authorities have begun to ease restrictions, increased COVID-19 case numbers or other developments relating to the COVID-19 pandemic may result in the implementation of additional government measures, orders and mandates in some or all of the states and regions in which we operate, such as orders requiring park closures or further restrictions on travel or public gatherings. Any of these measures could further disrupt, or exacerbate the current impact of the COVID-19 pandemic on, our business, results of operations, liquidity, cash flows and financial condition. In addition, in light of certain future developments, we may determine that a voluntary temporary closure of certain properties or portions thereof is in the best interest of our guests, employees and reputation. If any of the recent disruptions to our business are prolonged or extended, or if future developments require subsequent disruptive measures
to be implemented, our business, financial condition, results of operations and reputation may be materially and adversely affected.
The COVID-19 pandemic has also significantly increased economic uncertainty. The demand for parks, entertainment, recreation activities and discretionary travel is highly sensitive to downturns in the economy and the corresponding impact on discretionary consumer spending. Any actual or perceived deterioration or weakness in general, regional or local economic conditions, unemployment levels, the job or housing markets, consumer debt levels or consumer confidence, as well as other adverse economic or market conditions due to COVID-19 or otherwise, may reduce our customers’ discretionary income to spend on parks, entertainment, recreation activities and travel. In addition, the COVID-19 pandemic could have longer-term impacts on consumer tastes and preferences and could shift consumer entertainment and recreation behaviors toward digital entertainment experiences and other off-premises experiences and technologies. As a result, attendance, revenue and per capita spending at our theme parks and waterparks could be adversely affected, which could materially adversely affect our business, results of operations, liquidity, cash flows, financial condition, and prospects.
The ultimate impact of the COVID-19 pandemic on our business and financial results is highly uncertain and subject to change. The extent and duration of the impact to our business and financial results depends on numerous factors including without limitation the efficacy and deployment of the COVID-19 vaccines and future developments that vary by market and cannot be accurately predicted at this time. The impacts could, however, have a material effect on our results, operations, financial conditions and liquidity and heighten many of our known risks contained in this Annual Report.
General economic conditions may have an adverse impact on our business, financial condition or results of operations.
Our results can be impacted by a number of macroeconomic factors, including but not limited to consumer confidence and spending levels, tax rates, unemployment, consumer credit availability, raw materials costs, pandemics (such as the ongoing COVID-19 pandemic) and natural disasters, fuel and energy costs (including oil prices), and credit market conditions. The COVID-19 pandemic has severely impacted and will likely continue to impact many of these factors. A general economic slowdown or recession resulting in a decrease in discretionary spending could adversely affect the frequency with which guests choose to visit our parks and the amount that our guests spend when they visit.
Additionally, difficult economic conditions throughout the world could impact our ability to obtain supplies, services and credit as well as the ability of third parties to meet their obligations to us, including, for example, manufacturers’ ability to supply rides, payment of claims by our insurance carriers, funding of our lines of credit, or payment by our international agreement partners. Changes in exchange rates for foreign currencies could reduce international demand for our products, increase our labor and supply costs in non-U.S. markets or reduce the U.S. dollar value of revenue we earn in other markets.
Our growth strategy and strategic plan may not achieve the anticipated results.
Our future success depends on our ability to grow and evolve our business, including through capital investments to improve existing parks, rides, attractions and other entertainment offerings, technological advancements and improvements to enhance the guest experience and to increase productivity, as well as through our food and beverage and retail offerings.
Our strategy, including the transformation plan, may not enhance guest experiences or increase productivity as planned, may not increase our revenues at the rate we expect or at all, and may require the expenditure of capital resources or operating costs in excess of what we originally budgeted and allocated for such purposes. If we are unable to achieve our strategic objectives and grow and evolve our business, our financial condition and results of operations may be adversely affected.
Bad or extreme weather conditions and forecasts of bad or mixed weather conditions can adversely impact attendance at our parks.
Because most of the attractions at our parks are outdoors, attendance at our parks is adversely affected by bad or extreme weather conditions and forecasts of bad or mixed weather conditions, which negatively affects our revenues. The effects of bad weather on attendance can be more pronounced at our waterparks. We believe our operating results in certain years were adversely affected by abnormally hot, cold and/or wet weather in a number of our major U.S. markets. In addition, since a number of our parks are geographically concentrated in the eastern portion of the United States, a weather pattern that affects that area could adversely affect a number of our parks and disproportionately impact our results of operations. In addition, our parks in California and Texas are more likely to be impacted by extreme heat, wildfires, mudslides and floods than our parks in other locations. Bad weather and forecasts of bad weather on weekends, holidays or other peak periods will typically have a greater negative impact on our revenues and could disproportionately impact our results of operations.
Conditions beyond our control could damage our properties and could adversely impact attendance at our parks and result in decreased revenues.
Natural disasters, public heath crises, epidemics, pandemics, such as the outbreak of COVID-19, terrorist activities, power outages or other events outside our control could disrupt our operations, impair critical systems, damage our properties or reduce attendance at our parks or require temporary park closures. Damage to our properties could take a long time to repair and there is no guarantee that we would have adequate insurance to cover the costs of repair or the expense of the interruption to our business. Furthermore, natural disasters such as fires, earthquakes or hurricanes may interrupt or impede access to our affected properties or require evacuations and may cause attendance at our affected properties to decrease for an indefinite period. For example, our waterpark in Oaxtepec, Mexico was closed for several months during 2017 following the earthquakes in central Mexico. The occurrence of such events could have a material adverse effect on our business, financial condition and results of operations.
In addition, since some of our parks are near major urban areas and appeal to teenagers and young adults, there may be disturbances at one or more parks that could negatively affect our reputation or brand. This may result in a decrease in attendance at the affected parks and could adversely impact our results of operations.
We cannot predict the frequency, duration or severity of these activities and the effect that they may have on our business, financial condition or results of operations.
Our operations are seasonal.
Our operations are seasonal. In a typical year, approximately 75% of our annual park attendance and revenue occurs during the second and third calendar quarters of each year. As a result, when conditions or events described in the above risk factors occur during the operating season, particularly during the peak months of July and August, there is only a limited period of time during which the impact of those conditions or events can be mitigated. Accordingly, such conditions or events may have a disproportionately adverse effect on our revenues and cash flow. In addition, most of our maintenance and capital expenses are incurred in the off-season. For this reason, a sequential quarter-to-quarter comparison is not a good indication of our performance or of how we will perform in the future.
Adverse litigation judgments or settlements resulting from legal proceedings in which we may be involved in the normal course of our business could adversely affect our financial condition or results of operations.
We are subject to allegations, claims and legal actions arising in the ordinary course of our business, which may include claims by third parties, including guests who visit our parks, our employees or regulators. The outcome of these proceedings cannot be predicted. If any of these proceedings is determined adversely to us, or if we receive a judgment, a fine or a settlement involving a payment of a material sum of money, or injunctive relief is issued against us, our business, financial condition and results of operations could be materially adversely affected. Litigation can also be expensive, lengthy and disruptive to normal business operations, including to our management due to the increased time and resources required to respond to and address the litigation.
Additionally, from time to time, animal activist and other third-party groups may make negative public statements about us or bring claims before government agencies or lawsuits against us. Such claims and lawsuits sometimes are based on allegations that we do not properly care for some of our featured animals. On other occasions, such claims and/or lawsuits are specifically designed to change existing law or enact new law in order to impede our ability to retain, exhibit, acquire or breed animals. While we seek to comply with all applicable federal and state laws and vigorously defend ourselves in any lawsuits, there are no assurances as to the outcome of future claims and lawsuits that could be brought against us. An unfavorable outcome in any legal proceeding could have a material adverse effect on our business, financial condition and results of operations. In addition, associated negative publicity could adversely affect our reputation, financial condition and results of operations.
Failures in, material damage to, or interruptions in our information technology systems, software or websites and difficulties in updating our systems or software or implementing new systems or software could adversely affect our business or operations.
We rely extensively on our information technology systems in the conduct of our business. We use software and other technology systems, among other things, to sell tickets and admit guests to our parks, to sell food, beverages and other products in our parks, to manage our workforce, to manage our inventory, and to monitor and manage our business on a day-to-day basis. We also use mobile devices, social networking and other online platforms to connect with our employees, business partners and customers. These technology systems and our uses thereof are vulnerable to damage or disruption from circumstances beyond our control including fire, natural disasters, power outages, system and equipment failures, viruses, malicious attacks, security breaches, theft, and inadvertent release of information. Damage or disruption to these technology systems may require a significant investment to update, remediate or replace with alternate systems, and we may suffer disruptions in our operations as a result.
We rely on third parties for the performance of a significant portion of our information technology functions. In particular, our ticket, season pass and membership sales system relies on data communications networks and technology systems and software operated by third parties. The success of our business depends in part on maintaining our relationships with these third parties and their continuing ability to perform these functions and services in a timely and satisfactory manner. If we experience a loss or disruption in the provision of any of these functions or services, or they are not performed in a satisfactory manner, we may have difficulty in finding alternate providers on terms favorable to us, in a timely manner or at all, and our business could be adversely affected.
Further, as we implement our strategy to pursue new initiatives that improve our operations and cost structure, we are also expanding and upgrading our information technologies. Potential problems and disruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations. Any material interruptions or failures in our systems, including those that may result from our failure to adequately develop, implement and maintain a robust disaster recovery plan and backup systems could severely affect our ability to conduct normal business operations and, as a result, could adversely affect our business operations and financial performance.
Cyber-attacks could have a disruptive effect on our business.
Our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual property, including guests’ personal information, private information about employees and financial and strategic information about the Company and our business.
We have experienced and continue to experience cybersecurity threats and vulnerabilities in our systems and those of our third party providers, including cyber-attacks targeting our information technology systems and networks, which could result in a loss of sensitive business or customer information, systems interruption or the disruption of our operations.
Further, implementing our strategy to pursue new initiatives that improve our operations and cost structure will result in a larger technological presence and corresponding exposure to cybersecurity risk. Failure to adequately assess and identify cybersecurity risks associated with new initiatives would increase our vulnerability to such risks.
Due to the increased remote workforce, we must increasingly rely on information technology systems that are outside our direct control. These systems are potentially vulnerable to cyber-based attacks and security breaches. In addition, cyber criminals are increasing their attacks on individual employees, utilizing interest in pandemic-related information to increase business email compromise scams designed to trick victims into transferring sensitive data or funds, or steal credentials that compromise information systems.
Even if we are fully compliant with legal standards and contractual or other requirements, we still may not be able to prevent security breaches involving sensitive data. We have, and require certain of our third party service providers to have, programs in place to detect, contain and respond to data security incidents. However, the actions and controls we have implemented and continue to implement, or which we seek to cause or have caused third party service providers to implement, may be insufficient to protect our systems, information or other intellectual property. In addition, the techniques used to obtain unauthorized access or interfere with systems change frequently and may be difficult to detect for long periods of time, and we may be unable to anticipate these techniques or implement adequate preventive measures. The sophistication of efforts by hackers to gain unauthorized access to information technology systems has continued to increase in recent years. Breaches, thefts, losses or fraudulent uses of customer, employee or company data could cause customers to lose confidence in the security of our websites, mobile applications, point of sale systems and other information technology systems and choose not to purchase from us. Such security breaches also could expose us to risks of data loss, business disruption, litigation and other costs or liabilities, any of which could adversely affect our business.
To date, these cybersecurity threats have not had a material impact on our business, financial condition or results of operations. However, the potential consequences of a future material cybersecurity attack on us or our third party service providers include business disruption; disruption to systems; theft, destruction, loss, corruption, misappropriation or unauthorized release of sensitive and/or confidential information or intellectual property (including personal information in violation of one or more privacy laws); reputational and brand damage; and potential liability, including litigation or other legal actions against us or the imposition by governmental authorities of penalties, fines, fees or liabilities, which, in turn, could cause us to incur significantly increased cybersecurity protection and remediation costs and the loss of customers.
Data privacy regulation and our ability to comply could harm our business.
We are subject to laws that regulate the collection, use, retention, security, and transfer of our customer’s data. Data privacy is subject to frequently changing rules and regulations, such as California’s Consumer Privacy Act (the “CCPA”) that became effective January 1, 2020, which provides a private right of action for data breaches and requires companies that process information on California residents to make certain disclosures to consumers about their data collection, use and sharing practices and allow consumers to opt out of certain data sharing with third parties. Compliance with the CCPA, and other current and future applicable privacy and related laws can be costly and time-consuming, and violations of privacy-related laws can result in significant damages and penalties. These laws continue to evolve in ways we cannot predict, both through regulatory and legislative action and judicial decisions, and that may harm our business.
Our privacy policies and practices concerning the collection, use and disclosure of user data are available on our website. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any regulatory requirements or orders or other privacy or consumer protection-related laws and regulations, including the CCPA, could result in proceedings or actions against us by governmental entities or others (e.g., class action privacy litigation), subject us to significant penalties and negative publicity, require us to change our business practices, increase our costs and adversely affect our business. Data collection, privacy and security have become the subject of increasing public concern. If internet and mobile users were to reduce their use of our websites, mobile platforms, products, and services as a result of these concerns, our business could be harmed.
Failure to keep pace with developments in technology could adversely affect our operations or competitive position.
The theme park and waterpark industry demands the use of sophisticated technology and systems for operation of our parks, ticket, membership and season pass sales and management, and labor and inventory management. Information technology systems continue to evolve and, in order to remain competitive, we must implement new technologies and systems in a timely and efficient manner. The development and maintenance of these technologies may require significant investment by us and we may not achieve the anticipated benefits from such new developments or upgrades.
There is a risk of accidents occurring at our parks or competing parks which may reduce attendance and negatively impact our operations.
Our brand and our reputation are among our most important assets. Our ability to attract and retain customers depends, in part, upon the external perceptions of the Company, the quality and safety of our parks, services and rides, and our corporate and management integrity. While we carefully maintain the safety of our rides, there are inherent risks involved with these attractions. An accident or an injury (including water- or air-borne illnesses) at any of our parks or at parks operated by competitors, particularly an accident or injury involving the safety of guests and employees, that receives media attention, could negatively impact our brand or reputation, cause loss of consumer confidence in the Company, reduce attendance at our parks, and negatively impact our results of operations. For example, in September 2019, a coaster accident at La Feria, a competing park in Mexico, resulted in two fatalities. We believe that the publicity surrounding this accident had a significant negative impact on attendance at our park in Mexico during that period. The considerable expansion in the use of social media over recent years has compounded the impact of negative publicity. If any such incident occurs during a time of high seasonal demand, the effect could disproportionately impact our results of operations for the year.
We depend on a seasonal workforce, many of whom are paid at minimum wage.
Our park operations are dependent in part on a seasonal workforce, many of whom are paid at minimum wage. We seek to manage seasonal wages and the timing of the hiring process to ensure the appropriate workforce is in place for peak and low seasons; however, we may be unable to recruit and hire sufficient personnel to meet our business needs. In addition, we cannot guarantee that material increases in the cost of securing our seasonal workforce will not occur in the future. Increased state or federal minimum wage requirements, seasonal wages or an inadequate workforce could have an adverse impact on our results of operations. We anticipate that the recent increases to the minimum wage rates will increase our salary, wage and benefit expenses in 2021 and future years and further legislative changes or competitive wage rates could continue to increase these expenses in the future.
The theme park and waterpark industry competes with numerous entertainment alternatives and such competition may have an adverse impact on our business, financial condition or results of operations.
Our parks compete with other theme parks, waterparks and amusement parks and with other types of recreational facilities and forms of entertainment, including movies, home entertainment options, sporting events, restaurants and vacation travel. Our business is also subject to factors that affect the recreation and leisure time industries generally, such as general economic conditions, including relative fuel prices, and changes in consumer spending habits. The principal competitive factors of a park include location, price, the uniqueness and perceived quality of the rides and attractions, the atmosphere and cleanliness of the park and the quality of its food and entertainment. If we are unable to compete effectively against entertainment alternatives or on the basis of principal competitive factors of the park, our business, financial condition or results of operations may be adversely affected.
We could be adversely affected by changes in consumer tastes and preferences for entertainment and consumer products.
The success of our parks depends substantially on consumer tastes and preferences that can change in often unpredictable ways and on our ability to ensure that our parks meet the changing preferences of the broad consumer market. We conduct research and analysis before acquiring new parks or opening new rides or attractions and often invest substantial amounts before we learn the extent to which these new parks and new rides or attractions will earn consumer acceptance. If visitor volumes at our parks were to decline significantly or if new rides and entertainment offerings at our parks do not achieve sufficient consumer acceptance, revenues and margins may decline. Our results of operations may also be adversely affected if we fail to retain long-term customer loyalty or provide satisfactory customer service.
Our insurance coverage may not be adequate to cover all possible losses that we could suffer, and our insurance costs may increase.
Although we maintain various safety and loss prevention programs and carry property and casualty insurance to cover certain risks, our insurance policies do not cover all types of losses and liabilities. Additionally, there can be no assurance our insurance will be sufficient to cover the full extent of all losses or liabilities for which we are insured. The majority of our current insurance policies have annual terms and expire on December 31, 2021, and we cannot guarantee we will be able to renew our current insurance policies on favorable terms, or at all. In addition, if we or other theme or waterpark operators sustain significant losses or make significant insurance claims, then our ability to obtain future insurance coverage at commercially reasonable rates could be materially adversely affected. If our insurance coverage is not adequate, or we become subject to damages that cannot by law be insured against, such as punitive damages or certain intentional misconduct by our employees, this could adversely affect our financial condition or results of operations.
If we are not able to fund capital expenditures and invest in future attractions and projects in our parks, our revenues could be negatively impacted.
Because a principal competitive factor for a theme park or a waterpark is the uniqueness and perceived quality of its rides and attractions, we need to make continued capital investments through maintenance and the regular addition of new rides and attractions. A key element for our revenue growth is strategic capital spending on such investments. Our ability to fund capital expenditures will depend on our ability to generate sufficient cash flow from operations and to raise capital from third parties. We cannot provide assurance our operations will be able to generate sufficient cash flow to fund such costs, or that we will be able to obtain sufficient financing on adequate terms, or at all, which could cause us to delay or abandon certain projects or plans. In addition, any construction delays or ride downtime can adversely affect our attendance and our ability to realize revenue growth.
Incidents involving food contamination, product recalls, product liability claims and associated costs could adversely affect our reputation and our financial condition.
The sale of food, toys and other retail products involves legal and other risks. While we dedicate substantial resources to food safety matters to enable customers to enjoy safe, quality food products, food safety events, including instances of food-borne illness (such as salmonella or E. Coli) could occur in our parks. Instances or reports, whether true or not, of food-safety issues could negatively affect our sales and reputation and could possibly lead to product liability claims, litigation (including class actions), or other damages. We may need to recall food products if they become contaminated, and we may need to recall toys, games or other retail merchandise if there is a design or product defect. Even though we are resellers of food, toys and other retail products, we may be liable if the consumption or purchase of any of the products we sell causes illness or injury. A recall could result in losses due to the cost of the recall, the destruction of product and lost sales due to the unavailability of product for a period of time. A significant food or retail product recall could also result in adverse publicity, damage to our reputation and loss of consumer confidence in our parks, which could have a material adverse effect on our business, financial condition or results of operations.
We may be unable to purchase or contract with third parties to manufacture theme park or waterpark rides and attractions.
We may be unable to purchase or contract with third parties to build high quality rides and attractions and to continue to service and maintain those rides and attractions at competitive or beneficial prices, or to provide the replacement parts needed to maintain the operation of such rides. In addition, if our third-party suppliers’ financial condition deteriorates or they go out of business, we may not be able to obtain the full benefit of manufacturer warranties or indemnities typically contained in our contracts or may need to incur greater costs for the maintenance, repair, replacement or insurance of these assets.
We may not be able to realize the benefits of our international agreements.
Various external factors, including difficult economic and political conditions throughout the world, could negatively affect the progress of our initiatives to develop new Six Flags-branded parks outside of North America. These initiatives could be delayed, and the ultimate success of such parks may be uncertain. For example, on February 14, 2020, we terminated our agreements with our partner in China to build parks as a result of its uncured payment defaults.
Some factors that will be important to the success of our international agreement initiatives are different than those affecting our existing parks. Tastes naturally vary by region, and consumers in new international markets into which we expand our brand may not embrace the parks’ offerings to the same extent as consumers in our existing markets. International agreements are also subject to additional risks, including the performance of our partners and their ability to obtain financing and government approvals; the impact of economic fluctuations in economies outside of the U.S.; difficulties and costs of staffing and managing foreign operations due to distance, language and cultural differences; changes or uncertainties in economic, legal, regulatory, social and political conditions; the enforceability of intellectual property and contract rights; and foreign currency exchange rate fluctuations, currency controls, and potentially adverse tax consequences of overseas operations. If we do not realize the benefits of such transactions, it could have an adverse effect on our financial performance.
Our leases contain default provisions that, if enforced or exercised by the landlord, could significantly impact our operations at those parks.
Of our 26 theme parks and waterparks, 12 are located on property that we lease and do not own. Certain of our leases permit the landlord to terminate the lease if there is a default under the lease, including, for example, our failure to pay rent, utilities and applicable taxes in a timely fashion or to maintain certain insurance. If a landlord were to terminate a lease, it would halt our operations at that park and, depending on the size of the park, could have a negative impact on our financial condition and results of operations. In addition, any disputes that may result from such a termination may be expensive to pursue and may divert money and management’s attention from our other operations and adversely affect our business, financial condition or results of operations.
Our intellectual property rights are valuable, and any inability or material increase in the cost to protect them could adversely affect our business.
Our intellectual property, including our trademarks and domain names and other proprietary rights, constitutes a significant part of our value. To protect our intellectual property rights, we rely upon a combination of trademark, trade secret and unfair competition laws of the United States and other countries, as well as contract provisions and third-party policies and procedures governing internet/domain name registrations. However, there can be no assurance these measures will be successful in any given case, particularly in those countries where the laws do not protect our proprietary rights as fully as in the United States. We may be unable to prevent the misappropriation, infringement or violation of our intellectual property rights, breach of any contractual obligations to us, or independent development of intellectual property that is similar to ours, any of which could reduce or eliminate any competitive advantage we have developed, adversely affect our revenues or otherwise harm our business. In addition, pursuant to our license agreements, we have exclusive theme park usage rights in the U.S. (except for the Las Vegas metropolitan area), Canada and Mexico to certain Warner Bros. and DC Comics animated characters. The license fee is subject to periodic scheduled adjustments and CPI increases, and Warner Bros. has the right to terminate the agreements under certain circumstances, such as a default under the Subordinated Indemnity Agreement. The termination of these licenses, or a material increase in the cost to retain these licenses, could have a material adverse effect on our business or financial condition.
Increased labor costs and employee health and welfare benefits may reduce our results of operations.
Labor is a primary component in the cost of operating our business. We devote significant resources to recruiting and training our employees in order to meet our guests’ high expectations for service. Our ability to control labor costs is subject to numerous external factors, including market pressures with respect to prevailing wage rates, unemployment levels, and health and other insurance costs, as well as the impact of legislation or regulations governing labor relations, minimum wage, and healthcare benefits. Our results of operations are also substantially affected by costs of retirement, including as a result of macroeconomic factors beyond our control, such as declines in investment returns on pension plan assets and changes in discount rates used to calculate pension and related liabilities.
Additionally, we contribute to multiple defined benefit multiemployer pension plans on behalf of our collectively bargained employees of Six Flags Great Adventure LLC. If we were to cease contributing to or otherwise incur a withdrawal from any such plans, we could be obligated to pay withdrawal liability assessments based on the underfunded status (if any) of such plans at the time of the withdrawal. The amount of any multiemployer pension plan underfunding can fluctuate from year to year, and thus there is a possibility that the amount of withdrawal liability that we could incur in the future could be material, which could materially adversely affect our financial condition.
Unionization activities or labor disputes may disrupt our operations and affect our profitability.
As of December 31, 2020, approximately 12% of our full-time and approximately 11% of our seasonal employees were subject to labor agreements with local chapters of national unions. We have collective bargaining agreements in place for certain employees at Six Flags Over Georgia, Six Flags Magic Mountain, Six Flags Great Adventure, Six Flags Over Texas, Six Flags St. Louis, and La Ronde. New unionization activity or a labor dispute involving our employees could disrupt our operations and reduce our revenues, and resolution of unionization activities or labor disputes could increase our costs. Litigation relating to employment and/or wage and hour disputes could also increase our operating expenses. Such disrupted operations, reduced revenues or increased costs could have a material adverse effect on our financial condition and results of operations.
Our operations and our ownership of property subject us to environmental, health and safety and other regulations, which create uncertainty regarding future expenditures and liabilities.
Our operations involve wastewater and stormwater discharges and air emissions, and as a result are subject to environmental, health and safety laws, regulations and permitting requirements. These requirements are administered by the U.S. Environmental Protection Agency and the states and localities where our parks are located (and can also often be enforced through citizen suit provisions) and include the requirements of the Clean Water Act and the Clean Air Act. Our operations also involve maintaining underground and aboveground storage tanks, and managing and disposing of hazardous substances, chemicals and materials and are subject to federal, state and local laws and regulations regarding the use, generation, manufacture, storage, handling and disposal of these substances, chemicals and materials, including the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). A portion of our capital expenditures budget is intended to ensure continued compliance with environmental, health and safety laws, regulations and permitting requirements. In the event of contamination or injury as a result of a release of or exposure to regulated materials, we could be held liable for any resulting damages. For example, pursuant to CERCLA, past and current owners and operators of facilities and persons arranging for disposal of hazardous substances may be held strictly, jointly and severally liable for costs to remediate releases and threatened releases of hazardous substances. The costs of investigation, remediation or removal of regulated materials may be substantial, and the presence of those substances, or the failure to remediate property properly, may impair our ability to use, transfer or obtain financing regarding our property. Our activities may be affected by new legislation or changes in existing environmental, health and safety laws. For example, the state or federal government having jurisdiction over a given area may enact legislation and the U.S. Environmental Protection Agency or applicable state entity may propose new regulations or change existing regulations that could require our parks to reduce certain emissions or discharges. Such action could require our parks to install costly equipment or increase operating expenses. We may be required to incur costs to remediate potential environmental hazards, mitigate environmental risks in the future, or comply with other environmental requirements.
We also are subject to federal and state laws, which prohibit discrimination and other laws regulating the design and operation of facilities, such as the Americans With Disabilities Act. Compliance with these laws and regulations can be costly and increase our exposure to litigation and governmental proceedings, and a failure or perceived failure to comply with these laws could result in negative publicity that could harm our reputation, which could adversely affect our business.
Risks Related to Our Indebtedness and Common Stock
A portion of our cash flow is required to be used to fund our substantial monetary obligations.
We have significant financial obligations under our debt instruments and the Partnership Park arrangements. See the Partnership Parks section in Note 15 (Commitments and Contingencies) to the consolidated financial statements in Item 8 for a detailed discussion of our obligations with respect to the Partnership Parks. In the event of a default by us under the Partnership Parks arrangements, Time Warner has the right to take control of the Partnership Parks. In addition, such a default could trigger an event of default under the Second Amended and Restated Credit Facility. See "Business—Partnership Park Arrangements" for additional information.
If we are unable to make payments on our debt or satisfy our other obligations, or if we fail to obtain future financing that may be necessary for working capital, capital expenditures, payment of debt, or the Partnership Park obligations, it could materially adversely affect our business, financial condition or results of operations.
We plan to strategically reinvest in our properties to improve the guest experience and our business plan includes targeted annual capital spending. However, depending on various factors including strategic initiatives, the duration of the COVID-19 pandemic, unanticipated delays in the completion of our projects, weather conditions, increased labor costs, and availability and cost of ride components, we may spend more or less than our planned target amount. In 2020, we spent $98.4 million on capital expenditures, net of property insurance recoveries, which was less than we originally planned.
We cannot be sure that cash generated from our parks will be as high as we expect or that our expenses will not be higher than we expect. Because a portion of our expenses are fixed in any given year, our operating cash flows are highly dependent on revenues, which are largely driven by attendance levels, in-park sales, accommodations and sponsorship and international agreement activity. A lower amount of cash generated from our parks or higher expenses than expected, when coupled with our debt obligations, could adversely affect our ability to fund our operations.
We may be unable to service our indebtedness.
Our ability to make scheduled payments on and to refinance our debt, including the Second Amended and Restated Credit Facility and the 2024 Notes, the 2024 Notes Add-on, the 2025 Notes and the 2027 Notes (each as defined below), depends on and is subject to our financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business and other factors beyond our control, including the availability of financing in the banking and capital markets. We cannot provide assurance our business will generate sufficient cash flow from operations or future borrowings will be available to us in an amount sufficient to enable us to service our debt, to refinance our debt or to fund our other liquidity needs. If we are unable to meet our debt obligations or to fund our other liquidity needs, we may be forced to reduce or delay scheduled expansion and capital expenditures, sell material assets or operations, obtain additional capital or restructure our debt, which could cause us to default on our debt obligations and impair our liquidity. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. If we are required to dispose of material assets or operations or restructure our debt to meet our debt service and other obligations, we cannot provide assurance the terms of any such transaction will be satisfactory to us or if, or how soon, any such transaction could be completed.
The Second Amended and Restated Term Loan B has interest payments calculated on a London Inter-Bank Offered Rate (“LIBOR”) plus an additional percentage based on credit risk. LIBOR is the subject of recent proposals for reform. On July 27, 2017, the United Kingdom’s Financial Conduct Authority announced that it intends to stop persuading and compelling banks to submit LIBOR rates after 2021. These reforms may cause LIBOR to cease to exist, new methods of calculating LIBOR to be established or the establishment of an alternative reference rate. The consequences cannot be entirely predicted and could have an adverse impact on our current interest payments. Changes in market interest rates may influence our future financing costs and could reduce our earnings and cash flows.
The stock price of Holdings’ common stock may change significantly, and you may not be able to sell shares of Holdings’ common stock at or above the price you paid or at all, and you could lose all or part of your investment as a result.
The trading price of Holdings’ common stock has been, and may continue to be, volatile. In addition to the risk factors discussed in this Annual Report, the trading price of Holdings’ common stock may be adversely affected due to a number of factors, many of which are beyond our control, including: (i) our operating and financial performance; (ii) our ability to repay our debt; (iii) our ability to refinance our debt; (iv) investor perceptions of us and the industry and markets in which we operate; (v) our dividend policy; (vi) changes in earnings estimates or recommendations by analysts; and (viii) general financial, domestic, economic and other market conditions.
In addition, our business and long-range planning process is designed to maximize our long-term strength, growth, and profitability. We believe that this longer-term focus is in the best interests of the Company and stockholders. At the same time, however, we recognize that, when possible, it is helpful to provide investors with guidance as to our forecast of EBITDA and other financial metrics or projections from time to time. We do not have any responsibility to provide guidance or to update any of our forward-looking statements at such times or otherwise. In addition, any longer-term guidance that we provide is based on goals that we believe, at the time guidance is given, are reasonably attainable for growth and performance over a number of years. However, such long-range targets are difficult to predict. For example, in 2016 we established a long-term aspirational goal to achieve Modified EBITDA of $750 million by 2020 but this goal was not ultimately achieved. If, or when, we announce actual results that differ from those that have been predicted by us, outside investment analysts, or others, our stock price could be adversely affected. Investors who rely on these stated goals
when making investment decisions with respect to our securities do so at their own risk. We take no responsibility for any losses suffered as a result of such changes in our stock price.
We periodically return value to investors through payment of quarterly dividends and common stock repurchases. In April 2020 and August 2020, in connection with amendments to the Second Amended and Restated Credit Agreement, we announced we were suspending our quarterly dividend payment and stock repurchase program due to the impact of the COVID-19 pandemic until the earlier December 31, 2022, or such time as SFTP reduces the incremental revolving credit commitments by $131 million and begins using actual results to test covenant compliance. However, given the uncertainty associated with the ultimate impact of the COVID-19 pandemic on our business and operations, we may determine that it is prudent to continue these suspensions for longer depending on any then-existing limitations on our working capital. Investors may have an expectation that we will resume our dividend at a certain time and at certain levels or repurchase shares available under Holdings’ repurchase program. 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.
The instruments governing our indebtedness include financial and other covenants that will impose restrictions on our financial and business operations.
The instruments governing our indebtedness restrict our ability to, among other things, incur additional indebtedness, incur liens, make investments, sell assets, pay dividends, repurchase stock or engage in transactions with affiliates. In addition, the Second Amended and Restated Credit Facility contains financial covenants that will require us to maintain a maximum senior secured leverage ratio. These covenants may have a material impact on our operations. If we fail to comply with the covenants in the Second Amended and Restated Credit Facility or the indentures governing Holdings’ 4.875% senior unsecured notes due 2024 (the "2024 Notes"), add-on 4.875% senior unsecured notes due 2024 (the "2024 Notes Add-on"), 7.00% senior secured notes due 2025 (the “2025 Notes”), and 5.50% senior unsecured notes due 2027 (the "2027 Notes") and are unable to obtain a waiver or amendment, an event of default would result under the applicable debt instrument.
Events beyond our control, such as weather and economic, financial and industry conditions, may affect our ability to continue meeting our financial covenant ratios under the Second Amended and Restated Credit Facility. The need to comply with these financial covenants and restrictions could limit our ability to execute our strategy and expand our business or prevent us from borrowing more money when necessary.
The Second Amended and Restated Credit Facility and the indentures governing the 2024 Notes, the 2024 Notes Add-on, the 2025 Notes and the 2027 Notes also contain other events of default customary for financings of these types, including cross defaults to certain other indebtedness, cross acceleration to other indebtedness and certain change of control events. If an event of default were to occur, the lenders under the Second Amended and Restated Credit Facility could declare outstanding borrowings under the Second Amended and Restated Credit Facility immediately due and payable and the holders of the 2024 Notes, the 2024 Notes Add-on, the 2025 Notes and the 2027 Notes could elect to declare the 2024 Notes, the 2024 Notes Add-on, the 2025 Notes and the 2027 Notes to be due and payable, together with accrued and unpaid interest. We cannot provide assurance we would have sufficient liquidity to repay or refinance such indebtedness if it was accelerated upon an event of default. In addition, an event of default or declaration of acceleration under the Second Amended and Restated Credit Facility could also result in an event of default under other indebtedness.
In connection with the amendments to the Second Amended and Restated Credit Facility, we agreed to suspend the repurchase of Holdings’ common stock and payment of dividends until the earlier of December 31, 2022, or such time as SFTP reduces the incremental revolving credit commitments by $131 million and begins using actual results to calculate covenant compliance. However, given the present uncertainty associated with the ultimate impact of COVID-19 on our business and operations, we may determine that it is prudent to continue suspending the repurchase of Holding’s common stock and payment of dividends after the restrictions under the Second Amended and Restated Credit Facility are terminated depending on any then-existing limitations on our working capital.
We can make no assurances we will be able to comply with these restrictions in the future or that our compliance would not cause us to forego opportunities that might otherwise be beneficial to us.
Changes in our credit ratings could adversely affect the price of Holdings’ common stock.
We receive debt ratings from the major credit rating agencies in the United States. Factors that may impact our credit ratings include the sizable attendance and revenue generated from our portfolio of geographically diversified regional theme parks and waterparks, vulnerability to cyclical discretionary consumer spending, and seasonality of our operations. As the result of the COVID-19 pandemic and impact of expanding restrictions and quarantines on the entertainment industry, the credit rating agencies lowered the ratings on several theme park companies. In March 2020, Standard and Poor’s lowered our issuer credit rating to B+ from BB with a “negative outlook.” Additionally, Standard and Poor’s lowered the rating on our 2024 Notes and 2027 Notes to B from BB- with a “negative outlook” and lowered the rating on our senior secured credit facility to BB from BBB- with “negative” outlook. In April 2020, Moody’s lowered our issuer credit rating to B2 from B1 with a “negative outlook.” Additionally, Moody’s lowered the rating on our 2024 Notes and 2027 Notes to B3 from B2 with a “negative outlook” and lowered the rating on our senior secured credit facility to Ba2 from Ba1 with a “negative outlook.” In April 2020, the newly issued 2025 Notes were assigned a rating of BB and Ba2 from Standard and Poor’s and Moody’s, respectively, consistent with our senior secured credit rating. In September 2020, Standard and Poor’s further lowered our issuer credit rating to B- from B+ and our issue-level ratings to B from BB- and CCC from B- on our senior secured and senior unsecured issuances, respectively, while maintaining a “negative outlook.” We cannot provide assurance our ratings will improve or remain the same. A negative change in our ratings or the perception such a change might occur could adversely affect the market price of Holdings’ common stock.
Holdings is a holding company and is dependent on dividends and other distributions from its subsidiaries.
Holdings is a holding company and substantially all of its operations are conducted through direct and indirect subsidiaries. As a holding company, it has no significant assets other than its equity interests in its subsidiaries. Accordingly, Holdings is dependent on dividends and other distributions from its subsidiaries to meet its obligations, including the obligations under the Company’s debt agreements, and, at such time as dividend payments by Holdings are no longer suspended, to pay dividends on Holdings’ common stock. If these dividends and other distributions are not sufficient for Holdings to meets its financial obligations, or not available to Holdings due to restrictions in the instruments governing our indebtedness, it could cause Holdings to default on its debt obligations, which would impair our liquidity and adversely affect our financial condition and our business. We had $157.8 million of cash and cash equivalents on a consolidated basis at December 31, 2020, of which $24.0 million was held at Holdings.
Holdings’ short-term stockholder rights plan, as well as provisions in Holdings’ charter, bylaws and Delaware law, and change of control provisions in certain of our debt and other agreements could delay or prevent an acquisition of us by a third party.
On March 31, 2020, Holdings’ Board of Directors approved the adoption of a short-term stockholder rights plan and declared a dividend distribution of one preferred share purchase right on each outstanding share of the Company’s common stock. The rights plan has a one-year term, expiring on March 30, 2021. The rights are designed to enable the Company’s stockholders to realize the long-term value of their investment, ensure that all stockholders receive fair and equal treatment in the event of any proposed takeover of the Company, and to guard against tactics to gain control of the Company without paying all stockholders an appropriate premium for that control. The stockholder rights plan would cause substantial dilution to any person or group that attempts to acquire us on terms not approved in advance by Holdings’ Board of Directors and may have the effect of delaying, discouraging or preventing a change in control that might otherwise be beneficial to stockholders and might adversely affect the market price of our common stock.
In addition, Holdings’ charter and debt agreements contain provisions that could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for Holdings’ common stock or otherwise be in the best interest of stockholders. Holdings is also subject to the anti-takeover provisions of Delaware law, which could have the effect of delaying or preventing a change of control in some circumstances.
General Risk Factors
We may not be able to attract and retain key management and other key employees.
Our employees, particularly our key management, are vital to our success and difficult to replace. We may be unable to retain them or to attract other highly qualified employees, particularly if we do not offer employment terms competitive with the rest of the market. Failure to attract and retain highly qualified employees, or failure to develop and implement a viable succession plan, could result in inadequate depth of institutional knowledge or skill sets, adversely affecting our business.
Risk related to tariffs and other duties
We source merchandise for resale and other products used in our business from entities located outside of North America. Additionally, some of our ride manufacturers may be located in foreign countries or may utilize components or materials manufactured or sourced from foreign countries. Our business exposes us to risks associated with global commerce, including changes to tariffs, quotas and other restrictions on imports. While existing tariffs and duties have not had a material impact on our business, the U.S. government may impose additional tariffs on thousands of products sourced from foreign countries and has expressed a willingness to impose additional or increased tariffs on goods imported from China, including many items that we purchase for our business. While the impact has been immaterial to date, tariffs or duties could lower our gross margin on impacted products. Additionally, even if the products that we import are not affected directly by tariffs or other duties, the imposition of such additional tariffs on goods imported into the United States could cause increased pricing of other consumer goods, which could lower the discretionary income of our potential guests and decrease attendance or in-park spending.
We may be subject to claims for infringing the intellectual property rights of others, which could be costly and result in the loss of intellectual property rights.
We cannot be certain that we do not and will not infringe the intellectual property rights of others. We have been in the past, and may be in the future, subject to litigation and other claims in the ordinary course of our business based on allegations of infringement or other violations of the intellectual property rights of others. Regardless of their merits, intellectual property claims can divert the efforts of our personnel and are often time-consuming and expensive to litigate or settle. In addition, to the extent claims against us are successful, we may have to pay substantial monetary damages or discontinue, modify, or rename certain products or services that are found to be in violation of another party’s rights. We may have to seek a license (if available on acceptable terms, or at all) to continue offering products and services, which may increase our operating expenses.
ITEM 1B.UNRESOLVED STAFF COMMENTS
We have received no written comments regarding our periodic or current reports from the staff of the SEC that were issued 180 days or more preceding the end of our 2020 fiscal year and that remain unresolved.
Set forth below is a brief description of our material real estate as of December 31, 2020. See also "Business—Description of Parks."
|●||Six Flags America, Largo, Maryland—515 acres (owned)|
|●||Six Flags Discovery Kingdom, Vallejo, California—135 acres (owned)|
|●||Six Flags Fiesta Texas, San Antonio, Texas—220 acres (owned)|
|●||Six Flags Great Adventure & Safari and Hurricane Harbor, Jackson, New Jersey—2,111 acres (owned)|
|●||Six Flags Great America, Gurnee, Illinois—304 acres (owned)|
|●||Six Flags Hurricane Harbor, Arlington, Texas—47 acres (owned)|
|●||Six Flags Hurricane Harbor, Valencia, California—12 acres (owned)|
|●||Six Flags Hurricane Harbor, Oaxtepec, Mexico—67 acres (leasehold interest)(1)|
|●||Six Flags Magic Mountain, Valencia, California—250 acres (owned)|
|●||Six Flags Mexico, Mexico City, Mexico—110 acres (occupied pursuant to a permit agreement)(2)|
|●||Six Flags New England, Agawam, Massachusetts—262 acres (substantially all owned)|
|●||Six Flags Over Georgia, Austell, Georgia—283 acres (leasehold interest)(3)|
|●||Six Flags Over Texas, Arlington, Texas—217 acres (leasehold interest)(3)|
|●||Six Flags St. Louis, Eureka, Missouri—320 acres (owned)|
|●||Six Flags White Water Atlanta, Marietta, Georgia—69 acres (owned)(4)|
|●||La Ronde, Montreal, Canada—146 acres (leasehold interest)(5)|
|●||The Great Escape and Lodge, Queensbury, New York—345 acres (owned)|
|●||Six Flags Hurricane Harbor Concord, Concord, California—24 acres (leasehold)(6)|
|●||Six Flags Darien Lake, Buffalo, New York—982 acres (leasehold)(7)|
|●||Frontier City, Oklahoma City, Oklahoma—113 acres (leasehold)(7)|
|●||Six Flags Hurricane Harbor Oklahoma City, Oklahoma City, Oklahoma—24 acres (leasehold)(7)|
|●||Six Flags Hurricane Harbor Phoenix, Glendale, Arizona—33 acres (leasehold)(8)|
|●||Six Flags Hurricane Harbor Splashtown, Spring, Texas—46 acres (leasehold)(7)|
|●||Six Flags Hurricane Harbor Rockford, Rockford, IL—43 acres (leasehold) (9)|
|(1)||The site is leased from the Mexican Social Security Institute. The lease expires in 2036. The waterpark opened to the public in 2017.|
|(2)||The permit agreement is with the Federal District of Mexico City. The agreement expires in 2024.|
|(3)||Lessor is the limited partner of the partnership that owns the park. The SFOG and SFOT leases expire in 2027 and 2028, respectively, at which time we have the option to acquire all of the interests in the respective lessor that we have not previously acquired.|
|(4)||Owned by the Georgia partnership.|
|(5)||The site is leased from the City of Montreal. The lease expires in 2065.|
|(6)||The site is leased from EPR Parks, LLC pursuant to a sublease that expires in 2035 or the earlier expiration of the ground lease. We began operating the waterpark in 2017.|
|(7)||These sites are leased from EPR Parks, LLC pursuant to a lease that expires in 2037. We began operating these parks in 2018.|
|(8)||This site is leased from EPR Parks, LLC pursuant to a lease that expires in 2033. We began operating the waterpark in 2018.|
|(9)||This site is leased from the Rockford Park District. The lease expires in 2029. We began operating the waterpark in 2019.|
In addition to the foregoing, we also lease a limited number of rides and attractions at our parks and office space. See Note 16 to the consolidated financial statements in Item 8 of this Annual Report for a discussion of lease commitments. We consider our properties to be well maintained, in good condition and adequate for their present uses and business requirements. We have granted to our lenders under the Second Amended and Restated Credit Facility agreement and the collateral agent under the indenture governing our 2025 Notes, a mortgage on substantially all of our owned United States properties.
ITEM 3.LEGAL PROCEEDINGS
Information regarding legal proceedings is included in Note 15, Commitments and Contingencies, to the consolidated financial statements in Item 8 of this Annual Report.
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Record Holders
Holdings’ common stock is listed on the New York Stock Exchange under the ticker symbol "SIX." As of February 19, 2021, there were approximately 273 stockholders of record of Holdings’ common stock. This does not reflect holders who beneficially own common stock held in nominee or street name accounts through brokers or banks.
Prior to the temporary suspension of park operations on March 13, 2020 due to the COVID-19 pandemic, Holdings announced a quarterly cash dividend of $0.25 per share of common stock, representing a 70% reduction from the dividend declared in February 2019. Holdings did not declare a dividend during the remainder of the year ended December 31, 2020. In connection with the amendment to the Second Amended and Restated Credit Facility in April 2020 and August 2020, we agreed to extend the suspension of the repurchase of Holdings’ common stock and payment of dividends until the earlier of December 31, 2022, or such time as SFTP reduces the incremental revolving credit commitments by $131 million and begins using actual results to calculate covenant compliance. However, given the present uncertainty associated with the ultimate impact of COVID-19 on our business and operations, we may determine that it is prudent to continue suspending payment of dividends after the restrictions under the Second Amended and Restated Credit Facility are terminated depending on any then-existing limitations on our working capital. For more information, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" in Item 7 of this Annual Report and Note 8 to the consolidated financial statements in Item 8 of this Annual Report.
Issuer Purchases of Equity Securities
On June 7, 2016, Holdings announced that its Board of Directors approved a new stock repurchase program that permitted Holdings to repurchase an incremental $500.0 million in shares of Holdings’ common stock (the "June 2016 Stock Repurchase Plan"). Holdings fully utilized the availability under the June 2016 Stock Repurchase Plan by May 2017. Throughout the program, Holdings repurchased 8,392,000 shares at a cumulative cost of approximately $500.0 million and an average price per share of $59.58.
On March 30, 2017, Holdings announced that its Board of Directors approved a new stock repurchase plan that permits Holdings to repurchase an incremental $500 million in shares of Holdings’ common stock (the "March 2017 Stock Repurchase Plan"). As of February 19, 2021, Holdings had repurchased 4,607,000 shares at a cumulative cost of approximately $268.3 million and an average price per share of $58.25 under the March 2017 Stock Repurchase Plan, leaving approximately $231.7 million available for permitted repurchases.
In connection with the recent amendments to the Second Amended and Restated Credit Facility in April 2020 and August 2020, we agreed to suspend the repurchase of Holdings’ common stock and payment of dividends until the earlier of December 31, 2022, or such time as SFTP reduces the incremental revolving credit commitments by $131 million and begins using actual results to calculate covenant compliance. However, given the present uncertainty associated with the ultimate impact of COVID-19 on our business and operations, we may determine that it is prudent to continue suspending the repurchase of Holdings’ common stock after the restrictions under the Second Amended and Restated Credit Facility are terminated depending on any then-existing limitations on our working capital.
The following graph shows a comparison of the five-year cumulative total stockholder return on Holdings’ common stock (assuming all dividends were reinvested), The Standard & Poor’s ("S&P") 500 Stock Index, The S&P Midcap 400 Index and The S&P Entertainment Movies & Entertainment Index. The stock price performance shown in the graph is not necessarily indicative of future price performance.
Six Flags Entertainment Corporation
S&P Midcap 400
S&P Movies & Entertainment
ITEM 6.SELECTED FINANCIAL DATA
The following financial data is derived from our audited financial statements. You should review this information in conjunction with "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Annual Report and the historical financial statements and related notes contained in this Annual Report.
Year Ended December 31,
(Amounts in thousands, except per share data)
Statement of Operations Data:
Park food, merchandise and other
Sponsorship, international agreements and accommodations
Operating expenses (excluding depreciation and amortization shown separately below)
Selling, general and administrative expenses (excluding depreciation and amortization shown separately below)
Costs of products sold
Other net periodic pension benefit
Depreciation and amortization
Loss on disposal of assets
Interest expense, net
Loss on debt extinguishment, net
Other expense, net
(Loss) income before income taxes
Income tax (benefit) expense
Net (loss) income
Net income attributable to noncontrolling interests
Net (loss) income attributable to Six Flags Entertainment Corporation
Weighted-average common shares outstanding:
Net (loss) earnings per average common share outstanding:
Cash dividends declared per common share
(Amounts in thousands)
Balance Sheet Data:
Cash and cash equivalents(1)
Total long-term debt (excluding current maturities)
Total debt, net
Redeemable noncontrolling interests
Year Ended December 31,
(Amounts in thousands)
Net cash (used in) provided by operating activities
Payment of cash dividends
|(1)||Excludes restricted cash in 2016.|
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Significant components of the Management’s Discussion and Analysis of Financial Condition and Results of Operations section include:
|●||Overview. The overview section provides a summary of Six Flags and the principal factors affecting our results of operations.|
|●||Critical Accounting Policies. The critical accounting policies section provides detail with respect to accounting policies that are considered by management to require significant judgment and use of estimates and that could have a significant impact on our financial statements.|
|●||Recent Events. The recent events section provides a brief description of recent developments at the Company.|
|●||Results of Operations. The results of operations section provides an analysis of our results for the years ended December 31, 2020 and 2019 and a discussion of items affecting the comparability of our financial statements for those years. Please refer to the results of operations section described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our Annual Report on Form 10-K for the year ended December 31, 2019, for our discussion and analysis of our results for the years ended December 31, 2019 and 2018 and a discussion of items affecting the comparability of our financial statements for those years.|
|●||Liquidity, Capital Commitments and Resources. The liquidity, capital commitments and resources section provides a discussion of our cash flows for the year ended December 31, 2020, and our outstanding debt and commitments existing as of December 31, 2020.|
|●||Market Risks and Security Analyses. We are principally exposed to market risk related to interest rates and foreign currency exchange rates, which are described in the market risks and security analyses section.|
|●||Recently Issued Accounting Pronouncements. This section provides a discussion of recently issued accounting pronouncements applicable to Six Flags, including a discussion of the impact or potential impact of such standards on our financial statements when applicable.|
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" and "Item 1A. Risk Factors" for a discussion of some of the uncertainties, risks and assumptions associated with these statements.
The following discussion and analysis presents information that we believe is relevant to an assessment and understanding of our consolidated balance sheets and results of operations. This information should be read in conjunction with the consolidated financial statements and the notes thereto in Item 8 of this Annual Report.
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 26 regional theme and waterparks, 23 are located in the United States, two parks 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, thereby 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.
During 2020, we, like many companies worldwide, experienced a significant negative impact on our business as a result of the COVID-19 pandemic. In part, our results reflect several strategic adjustments we made in response to the temporary park closures and additional health and safety requirements we experienced in our 2020 operating environment. These adjustments were precipitated by rapid changes in public health requirements and guidelines and reflected our efforts to address the significant operating challenges they presented to protect the safety of our employees and guests. Our revenue is derived from (i) the sale of tickets for entrance to our parks (which accounted for approximately 57% of total revenue during the year ended December 31, 2020, and approximately 55% of total revenue during the years ended December 31, 2019 and 2018), (ii) the sale of food and beverages, merchandise, games and attractions, parking and other services inside our parks, and (iii) sponsorship, international agreements and accommodations. Revenue from ticket sales and in-park sales are primarily impacted by park attendance and, as anticipated, we sold significantly fewer season passes and memberships while many of our parks remained closed compared to the same period in 2019. As a result, the number of all members and season pass holders, decreased 51% as of the end of the fourth quarter of 2020 compared to the fourth quarter of 2019. We had 1.7 million members, 19% of whom had paused their memberships, and 2.1 million season pass holders as of the end of 2020 compared to 2.6 million members and 5.1 million season pass holders at the end of 2019. Revenues from sponsorship, international agreements and accommodations can be impacted by the term, timing and extent of services and fees under these arrangements, which can result in fluctuations from year to year. During 2020, our earnings from park operations excluding the impact of interest, taxes, depreciation, amortization and any other non-cash income or expenditures (“Park EBITDA”) decreased relative to the prior year, as a result of the temporary suspension of park operations related to the COVID-19 pandemic outbreak and the resulting decrease in attendance related to the reduction in operating days.
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 as our costs for full-time employees, maintenance, utilities, rent, advertising and insurance do not vary significantly with attendance.
Critical Accounting Policies
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. The following discussion addresses the items we have identified as our critical accounting estimates and discusses our review of applicable accounting pronouncements that have been issued by the Financial Accounting Standards Board (“FASB”). See Note 2 to the consolidated financial statements in Item 8 of this Annual Report for further discussion of these and other accounting policies.
Valuation of Long-Lived Assets
Goodwill and intangible assets with indefinite useful lives are tested for impairment annually, or more frequently if events or circumstances indicate that the assets may not be recoverable. 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. For each year, the fair value of the single reporting unit exceeded our carrying amount (provided that we have one reporting unit at the same level for which Holdings’ common stock is traded, we believe our market capitalization is the best indicator of our reporting unit’s fair value). We have performed a qualitative analysis on our indefinite-lived intangible assets during the fourth quarter of each year.
The fair value of indefinite-lived intangible assets is generally determined based on a discounted cash flow analysis. An impairment loss occurs to the extent that the carrying value exceeds the fair value. For goodwill, if the fair value of the reporting unit were to be less than the carrying amount, an impairment loss would be recognized to the extent that the carrying amount of the reporting unit exceeds its fair value.
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 an asset or groups of assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or group of assets to the future undiscounted 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.
Accounting for Income Taxes
As part of the process of preparing consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciation periods for our property and equipment and recognition of our deferred revenue, for tax and financial accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets (primarily net operating loss carryforwards) will be recovered by way of offset against taxable income. To the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase or decrease this allowance in a period, we must reflect such amount as income tax expense or benefit in the consolidated statements of operations.
A high degree of management judgment is required in determining our provision or benefit for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. Variables that will impact whether our deferred tax assets will be utilized prior to their expiration include, among other things, attendance, spending per capita and other revenues, foreign taxable income, capital expenditures, levels of debt, interest rates, operating expenses, sales of assets, and changes in state or federal tax laws. In determining the valuation allowance, we do not consider, and under generally accepted accounting principles cannot consider, the possible changes in state or federal tax laws until the laws change. To the extent we reduce capital expenditures, our future accelerated tax deductions for our rides and equipment will be reduced, and our interest expense deductions could correspondingly decrease as cash flows that previously would have been utilized for capital expenditures could be utilized to lower our outstanding debt balances. Increases in capital expenditures without corresponding increases in net revenues would reduce short-term taxable income and increase the likelihood of additional valuation allowances being required as net operating loss carryforwards could expire prior to their utilization. Conversely, increases in revenues in excess of operating expenses would reduce the likelihood of additional valuation allowances being required as the short-term taxable income would increase the utilization of net operating loss carryforwards prior to their expiration. We utilize deferred tax assets related to foreign tax credit attributes through foreign-sourced income as well as the recapture of overall domestic loss amounts re-characterized as domestic-source income. See Note 2 and Note 11 to the consolidated financial statements in Item 8 of this Annual Report for further discussion.
FASB Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers (together with the series of Accounting Standards Updates described in the second paragraph under "Recently Adopted Accounting Pronouncements" in Note 2 to the consolidated financial statements in Item 8 of this Annual Report, "Topic 606") is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We recognize revenue upon admission into our parks, provision of our services, or when products are delivered to our guests. Revenue is presented in the accompanying consolidated statements of operations net of sales taxes collected from our guests that are remitted or payable to government taxing authorities. For season passes, memberships in the initial twelve-month term and other multi-use admissions, we estimate a redemption rate based on historical experience and other factors and assumptions we believe to be customary and reasonable and recognize a pro-rata portion of the revenue as the guest attends our parks. Due to COVID-19, we extended the expiration date by one year on our 2020 season pass product, allowed the pause of membership payments and granted additional months to membership contracts post-cancellation equal to the number of closed months at the park where the membership was purchased. For any bundled products with multiple performance obligations, revenue is allocated using the retail price of each distinct performance obligation and products that are not sold on a stand-alone basis are treated as residual. In contrast to our season pass and other multi-use offerings (such as our all season dining pass program, which enables season pass holders and members to eat meals and snacks any day they visit the park for one upfront payment) that expire at the end of each operating season, the membership program continues on a month-to-month basis after the initial twelve-month membership term and can be canceled any time after the initial term pursuant to the terms of the membership program. Guests enrolled in the membership program can visit our parks an unlimited number of times anytime the parks are open as long as the guest remains enrolled in the membership program. We review the estimated redemption rate on an ongoing basis and revise it as necessary throughout the year, including impact of changes to our season pass and memberships described above. Amounts owed or received for multi-use admissions in excess of redemptions are recognized in deferred revenue. For active memberships after the initial twelve-month term, we recognize revenue monthly as payments are received.
We began 2020 by launching a transformation plan to reinvigorate revenue growth in our business, reduce operating expenses, and focus on improving our guests’ experience in the parks. However, the COVID-19 pandemic had significant impacts on our business. As a result, while we remain confident in our long-term strategy, our short-term focus pivoted towards adapting to the operating challenges resulting from the pandemic.
In response to the COVID-19 pandemic, federal, state and local governments implemented significant restrictions on travel, social conduct and business operations, including mass quarantine and social distancing mandates and orders. On March 13, 2020, we temporarily suspended operations at all of our theme parks and waterparks due to the COVID-19 pandemic. During 2020, 20 of the Company’s 26 parks operated for portions of the season but several of our larger parks could not operate rides. Parks that did operate had capacity and other operating limitations.
We quickly implemented plans to mitigate the impact of the COVID-19 pandemic on our business and ensure the health and safety of our employees and guests. In response to the challenging environment, we focused on the following actions:
|●||Implementing immediate cost controls by right-sizing marketing and temporarily reducing salaries of all full-time employees by 25%;|
|●||Strengthening liquidity through expansion of our revolving credit facility, suspension of testing of certain maintenance covenants in our credit facility, issuance of senior secured notes and suspension of dividend payments and our stock repurchase program;|
|●||Enhancing financial flexibility by delaying or reducing capital expenses related to new rides and attractions;|
|●||Developing measures to preserve our season pass holders and members;|
|●||Opening parks as quickly as possible, while following governmental and public health guidelines; and|
|●||Creating new sources of revenue by introducing animal and holiday drive-thru experiences at many parks.|
We will continue to consider near-term exigencies and the long-term financial health of the business as clear steps are taken to mitigate the consequences of the COVID-19 pandemic.
Management and Board Changes
In March 2020, Laura W. Doerre became our Executive Vice President and General Counsel, and in October 2020, she assumed the additional duties of Chief Administrative Officer when Kathy Aslin, the Senior Vice President, Human Resources, resigned. Also in October 2020, Brett Petit, Senior Vice President, Marketing and Sales, resigned. In July 2020, Sandeep Reddy became our Executive Vice President and Chief Financial Officer. In August 2020, we enhanced the gender and ethnic diversity of Holdings’ board of directors when Esi Eggleston Bracey and Enrique Ramirez Mena joined as directors. In August 2020, Richard Roedel and Kurt Cellar, each a director since 2010, advised us of their intention to retire from Holdings’ board of directors at the end of their current term and that they will not stand for re-election at our 2021 annual meeting of stockholders. In February 2021, Holdings’ board of directors determined that Selim Bassoul would succeed Richard Roedel as Non-Executive Chairman effective immediately, and Nancy Krejsa, a director since 2017, advised us of her intention to retire from Holdings’ board of directors at the end of her current term and that she will not stand for re-election at our 2021 annual meeting of stockholders.
Amendments to Credit Facility
In April 2020, we increased the revolving credit commitments to the Second Amended and Restated Revolving Loan by $131.0 million, from $350.0 million to $481.0 million. In August 2020, we entered into another amendment to the Second Amended and Restated Credit Facility that provided us with flexibility under certain financial maintenance covenants and the liquidity covenant, and reduced the commitment fee on the revolving credit facility. In connection
with these amendments to the Second Amended and Restated Credit Facility, we agreed to suspend the repurchase of Holdings’ common stock and payment of dividends until the earlier of December 31, 2022, or such time as SFTP reduces the incremental revolving credit commitments by $131 million and begins using actual results to calculate covenant compliance. However, given the present uncertainty associated with the ultimate impact of COVID-19 on our business and operations, we may determine that it is prudent to continue suspending the repurchase of Holdings’ common stock and payment of dividends after the restrictions under the Second Amended and Restated Credit Facility are terminated depending on any then-existing limitations on our working capital.
2025 Notes Issuance
In April 2020, SFTP issued $725 million in aggregate principal amount of 7.00% senior secured notes in a private offering. The net proceeds from this offering were used to repay the outstanding balance of the Second Amended and Restated Revolving Loan, $315.0 million of the Second Amended and Restated Term Loan B and for general corporate matters and working capital purposes, including expenses relating to the offering.
Fiscal Year Change
Holdings’ Board of Directors determined that it is in the best interests of the Company to change its fiscal year end from December 31 to a 52-53 week fiscal year ending on the Sunday closest to December 31, effective as of the commencement of the Company’s fiscal year on January 1, 2021, to align the Company’s reporting calendar with how the Company operates its business and improve comparability across periods. The Company’s current fiscal year will end on January 2, 2022.
Results of Operations
The following table sets forth summary financial information for the years ended December 31, 2020 and 2019:
(Amounts in thousands, except per capita data)
December 31, 2020
December 31, 2019
Selling, general and administrative expenses
Costs of products sold
Other net periodic pension benefit
Depreciation and amortization
Loss on disposal of assets
Interest expense, net
Loss on debt extinguishment
Other expense, net
(Loss) income before income taxes
Income tax (benefit) expense
Net (loss) income
Less: Net income attributable to noncontrolling interests
Net (loss) income attributable to Six Flags Entertainment Corporation
Total revenue per capita
Year Ended December 31, 2020 vs. Year Ended December 31, 2019
Revenue for the year ended December 31, 2020, totaled $356.6 million, a 76% decrease compared to $1,487.6 million for the year ended December 31, 2019. The decrease was driven primarily by a 79% decrease in attendance due to the ongoing COVID-19 pandemic, including as a result of the temporary suspension of operations of our theme parks and waterparks on March 13, 2020, and the limited capacity at our parks that operated during 2020. The decrease in revenue was also attributable to a decrease in sponsorship, international agreements and accommodations revenue, due primarily to the termination of our contracts in China and Dubai, which generated revenue in the comparable prior year period, and reduced revenue from sponsorships and the suspension of nearly all of our accommodations operations due to the COVID-19 pandemic.
Total guest spending per capita, which excludes sponsorship, international agreements and accommodations revenue, for the year ended December 31, 2020, increased $6.08 to $48.45 compared to the prior period due to a $4.99, or 20%, increase in admissions revenue per capita and a $1.09, or 6%, increase in in-park revenue per capita. The improvement in admissions spending per capita for the year ended December 31, 2020, was primarily due to recurring monthly membership revenue from members who retained their memberships on a monthly basis following the initial 12-month commitment period. Higher guest spending per capita by single-day guests also contributed to the increase. The increase in in-park revenue per capita in the year ended December 31, 2020, was due to recurring monthly all season membership products, such as all season dining passes, from members who retained their memberships on a monthly basis following the initial 12-month commitment period and the increase in single-day attendance mix. These increases were partially offset by lower in-park revenue per capita from attendance at our drive-through Safari at our park in Jackson, New Jersey, and animal only experience at our park in Vallejo, California and drive-through Holiday in the Park events at our parks in California, Illinois and Massachusetts, which offered limited in-park spending opportunities.
Operating expenses for the year ended December 31, 2020, decreased $218.1 million, or 36%, compared to the year ended December 31, 2019, primarily as a result of fewer operating days and the cost mitigation measures introduced in response to the COVID-19 pandemic, including a 25% reduction in full-time salaries and wages for the full-time employees and the elimination of nearly all seasonal labor costs at our parks that remained closed. Salaries for full-time salaried employees at the parks were restored to 100% two weeks prior to their respective park opening date. In December 2020, we reinstated full salaries for almost all remaining employees subject to the reduction. The closure of our parks and reduced operating hours and operating days at our parks that are operating resulted in additional savings in utilities and other costs. These savings were partially offset by the increased costs related to enhanced sanitization and additional preventative measures to help minimize the spread of COVID-19 and an increase in reserves associated with several legal claims.
Selling, general and administrative expenses
Selling, general and administrative expenses for the year ended December 31, 2020, decreased $51.9 million, or 26%, compared to the same period in the prior year, driven by a reduction in advertising expense and salary, wage and benefit expense, including the reduction in executive officer salaries and the salaries of certain other corporate employees related to the cost reduction measures put in place in response to the COVID-19 pandemic. The reductions were partially offset by an increase in stock-based compensation and insurance costs.
Cost of products sold
Costs of products sold for the year ended December 31, 2020, decreased $96.2 million, or 74%, compared to the same period in the prior year, primarily as a result of reduced sales of food, merchandise and other services due to the temporary suspension of park operations at many of our parks and reduced attendance at our parks that were operating in response to the COVID-19 pandemic.
Depreciation and amortization expense
Depreciation and amortization expense for the year ended December 31, 2020, increased $1.9 million, or 2%, compared to the year ended December 31, 2019. The increase in depreciation and amortization expense is primarily the result of asset additions made in conjunction with our ongoing capital program, partially offset by asset retirements.
Loss on disposal of assets
Loss on disposal of assets for the year ended December 31, 2020 totaled $7.7 million due primarily to the write-off of $9.7 million in conjunction with our ongoing Transformation Plan which was partially offset by the sale of assets in conjunction with our ongoing capital plan. Loss on disposal of assets for the year ended December 31, 2019 totaled $2.2 million which was primarily as a result of write-offs in conjunction with our ongoing capital plan.
Interest expense, net
Interest expense, net increased $41.4 million, or 37%, for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily as a result of additional interest expense related to the 2025 Notes issued in April 2020 and the de-designation of the June 2019 Swap Agreements and the Modified June 2019 Swap Agreement, which resulted in a $14.9 million reclassification from accumulated other comprehensive loss to interest expense in the consolidated statement of operations for the period ended December 31, 2020. For a more detailed description of our interest rate swap agreements, see Note 7 to the audited consolidated financial statements included in Item 8 of this Annual Report. These increases were partially offset by lower borrowings under the Second Amended and Restated Revolving Loan and the Second Amended and Restated Term Loan B and the interest savings related to the prepayment of $50.5 million of the outstanding 2024 Notes in March 2020.
Other expense, net
Other expense, net increased $22.5 million for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily as a result of consultant and severance costs related to our transformation plan.
Income tax expense
Income tax benefit for the year ended December 31, 2020 was $141.0 million compared to income tax expense of $91.9 million for the year ended December 31, 2019. Our consolidated effective tax rate was 27.0% for the year ended December 31, 2020 compared to 29.5% for the year ended December 31, 2019. The effective tax rate exceeded the federal statutory rate of 21% due to state and foreign taxes on income as well as valuation allowances. Our effective tax rate for the year ended December 31, 2019 exceeded the federal rate due to the state and foreign taxes on income as well as a non-cash valuation allowance recognized on foreign tax credits carryforwards that we estimate will expire unutilized due to changes in estimated future foreign source income related to the termination of our agreements with our partner in China.
Liquidity, Capital Commitments and Resources
Our principal sources of liquidity are cash generated from operations, funds from borrowings and existing cash on hand. Our principal uses of cash include the funding of working capital obligations, debt service, investments in parks (including capital projects), common stock dividends, payments to our partners in the Partnership Parks and common stock repurchases.
During the years ended December 31, 2020, 2019 and 2018, Holdings paid $22.5 million, $279.0 million and $267.0 million, respectively, in cash dividends on its common stock.
On March 30, 2017, Holdings announced that its Board of Directors approved a new stock repurchase plan that permits Holdings to repurchase an incremental $500 million in shares of Holdings’ common stock (the "March 2017 Stock Repurchase Plan"). As of February 19, 2021, Holdings had repurchased 4,607,000 shares at a cumulative cost of approximately $268.3 million and an average price per share of $58.25 under the March 2017 Stock Repurchase Plan, leaving approximately $231.7 million available for permitted repurchases.
In connection with the amendments to the Second Amended and Restated Credit Facility in April and August 2020, we agreed to suspend the repurchase of Holdings’ common stock and payment of dividends until the earlier of December 31, 2022, or such time as SFTP reduces the incremental revolving credit commitments by $131 million and begins using actual results to calculate covenant compliance. However, given the present uncertainty associated with the ultimate impact of COVID-19 on our business and operations, we may determine that it is prudent to continue suspending the repurchase of Holdings’ common stock and payment of dividends after the restrictions under the Second Amended and Restated Credit Facility are terminated depending on any then-existing limitations on our working capital.
The repurchase of common stock and the payment of cash dividends are reflected in our consolidated financial statements as a reduction of stockholders’ equity.
On June 16, 2016, Holdings issued the 2024 Notes. We used $150.0 million of the proceeds from the issuance of the 2024 Notes to reduce our borrowings under the 2015 Term Loan B. The remaining net proceeds were used for general corporate and working capital purposes, which primarily included repurchases of our common stock.
On April 13, 2017, Holdings issued the 2024 Notes Add-on and the 2027 Notes. A portion of the net proceeds from the issuance of these notes was used to redeem all of the outstanding 2021 Notes (as defined in Note 8 to the consolidated financial statements in Item 8 of this Annual Report) and to satisfy and discharge the indenture governing the 2021 Notes, including to pay accrued and unpaid interest to the redemption date and the related redemption premium on the 2021 Notes, and to pay related fees and expenses.
On March 26, 2018, we entered into an amendment to the 2015 Credit Facility (as defined in Note 8 to the consolidated financial statements in Item 8 of this Annual Report) that reduced the overall borrowing rate on the 2015 Term Loan B by 25 basis points through a reduction in the applicable margin from LIBOR plus 2.00% to LIBOR plus 1.75%. We capitalized $0.5 million of debt issuance costs directly associated with the amendment.
On April 18, 2018, we entered into an amendment to the 2015 Credit Facility that increased our 2015 Term Loan B borrowings by $39.0 million. We capitalized $0.3 million of debt issuance costs directly associated with the amendment. The proceeds of the additional borrowings were used for general corporate purposes, including repurchases of our common stock.
On April 17, 2019, we amended and restated the 2015 Credit Facility (as previously amended) with a Second Amended and Restated Credit Facility comprised of a $350.0 million revolving credit loan facility and an $800.0 million Tranche B term loan facility. In connection with entering into the Second Amended and Restated Credit Facility, we repaid the amounts outstanding on the 2015 Revolving Loan and the outstanding 2015 Term Loan B and we recognized a loss on debt extinguishment of $6.2 million. The remaining proceeds from the Second Amended and Restated Credit Facility were used for general corporate purposes, including payment of refinancing fees. We capitalized $8.9 million of debt issuance costs directly associated with the issuance of the Second Amended and Restated Credit Facility.
On October 18, 2019, we entered into an amendment to the Second Amended and Restated Credit Facility, which reduced the overall borrowing rate on the Second Amended and Restated Term Loan B by 25 basis points by reducing the applicable margin from LIBOR plus 2.00% to LIBOR plus 1.75%. Excluding the cost to execute the transaction, the lower borrowing rate reduced interest expense by approximately $2.0 million annually.
During March of 2020, we prepaid $50.5 million of the outstanding 2024 Notes principal, reducing the outstanding amount to $949.5 million. We recognized a loss on debt extinguishment of $1.0 million. Interest payments of $23.1 million for the 2024 Notes and the 2024 Notes Add-on are due semi-annually on January 31 and July 31 of each year.
On April 15, 2020, we received sufficient consents from the continuing lenders under the Second Amended and Restated Credit Facility (the “Credit Agreement Amendment”) substantially concurrently with the closing of the $725 million 2025 Notes discussed below to, among other things, (i) permit the issuance of the 2025 Notes, including specifically, permitting the 2025 Notes to mature inside the Second Amended and Restated Term Loan B, (ii) suspend the testing of the senior secured leverage ratio financial maintenance covenant in the Second Amended and Restated Credit Facility through the end of 2020, (iii) re-establish the financial maintenance covenant thereafter (provided that for the first, second, and third quarters in 2021 that such covenant is tested, we will be permitted to use the quarterly Borrower Consolidated Adjusted EBITDA (as defined in the Second Amended and Restated Credit Facility) from the second, third and fourth quarters of 2019 in lieu of the actual Borrower Consolidated Adjusted EBITDA for the corresponding quarters of 2020) and (iv) add a minimum liquidity covenant that will apply from the date of the Credit Agreement Amendment through December 31, 2021. The Credit Agreement Amendment became effective on April 22, 2020, after giving effect to the repayment of a portion of the Second Amended and Restated Term Loan B with a portion of the proceeds from the 2025 Notes.
On April 22, 2020, SFTP completed the private sale of $725.0 million in aggregate principal amount of 7.00% senior secured notes due 2025 (the “2025 Notes”). The net proceeds from this offering were used to repay the outstanding balance of the Second Amended and Restated Revolving Loan and $315.0 million of the Second Amended and Restated Term Loan B and for general corporate and working capital purposes, including expenses relating to the offering. In conjunction with the $315.0 million repayment of the Second Amended and Restated Term Loan B, certain of our hedging instruments that were entered into to mitigate the risk of an increase in the LIBOR interest rate and which are discussed in Note 5, Derivative Financial Instruments, were de-designated. Consistent with policy, we hold and issue derivative instruments for risk management purposes only and do not utilize derivative instruments for trading or speculative purposes. Accordingly, in April 2020 we entered into counter-agreements designed to economically offset the impact of the de-designated swap agreements. Interest payments of $25.4 million are due semi-annually on January 1 and July 1 of each year, with the exception of January 1, 2021, which included the interest from April 22, 2020 through July 1, 2020 and totaled $35.1 million.
On August 26, 2020, we entered into an amendment to the Second Amended and Restated Credit Facility which, among other things, (i) extended the previously effectuated suspension of the senior secured leverage ratio financial maintenance covenant in the Second Amended and Restated Credit Facility through the end of 2021, (ii) re-established the senior secured leverage ratio financial maintenance covenant thereafter (provided that for each quarter in 2022 (other than the fourth quarter) that the financial maintenance covenant is tested, SFTP will be permitted to use its quarterly Borrower Consolidated Adjusted EBITDA (as defined in the credit agreement governing the Second Amended and Restated Credit Facility) from the second, third, and fourth quarters of 2019 in lieu of the actual Borrower Consolidated Adjusted EBITDA for the corresponding quarters of 2021), (iii) reduced the commitment fee on the revolving credit facility, and (iv) extended the minimum liquidity covenant that will apply through December 31, 2022. The extension of the modifications to the financial covenant and other provisions in the Second Amended and Restated Credit Facility pursuant to the August 2020 amendment will be in effect from the date of the amendment until the earlier of the delivery of the compliance certificate for the fourth quarter of 2022 and the date on which SFTP, in its sole discretion, elects to calculate its compliance with the financial maintenance covenant by using its actual Borrower Consolidated Adjusted EBITDA instead of the 2019 figures as outlined above. In addition, all of SFTP’s existing incremental revolving credit lenders agreed to extend the incremental $131 million revolving credit commitments to the Second Amended and Restated Revolving Loan by one year to December 31, 2022.
Based on historical and anticipated operating results, we believe cash flows from operations, available cash and amounts available under the Second Amended and Restated Credit Facility will be adequate to meet our liquidity needs 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 2019 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, any 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 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 significantly reduce paid attendance and revenue related to that attendance at any of our parks. While we work with local police authorities on security-related precautions to prevent certain types of disturbances, we can make no assurance that these precautions will be able to prevent these types of occurrences. However, we believe 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" of this Annual Report.
As of December 31, 2020, our total indebtedness, net of discount and deferred financing costs, was $2,622.6 million which included $942.5 million of the 2024 Notes and 2024 Notes Add-on, $710.1 million of the 2025 Notes, $498.3 million of the 2027 Notes, and $471.7 million outstanding under the Second Amended and Restated Credit Facility. Based on (i) non-revolving credit debt outstanding on that date, (ii) anticipated levels of working capital revolving borrowings during 2021 and 2022, (iii) estimated interest rates for floating-rate debt and (iv) the 2024 Notes, the 2025 Notes and the 2027 Notes, we anticipate annual cash interest payments of approximately $156.4 and $146.1 million during 2021 and 2022, respectively. Under the Second Amended and Restated Credit Facility, all remaining outstanding principal of the Second Amended and Restated Term Loan B is due and payable on April 17, 2026.
As of December 31, 2020, we had approximately $157.8 million unrestricted cash and $460.0 million available for borrowing under the Second Amended and Restated Revolving Loan. Our ability to borrow under the Second Amended and Restated Revolving Loan is dependent upon 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 8 to the consolidated financial statements in Item 8 of this Annual Report.
We plan to strategically reinvest in our properties to improve the guest experience. For more information about our planned capital expenditures, please see “Capital Improvements and Other Initiatives” under Item 1. Business.
During the year ended December 31, 2020, net cash used in operating activities was $190.9 million, compared to net cash provided by operating activities of $410.6 million during the year ended December 31, 2019. The significant decrease in net cash provided by operating activities was due to the decrease in operations during 2020 attributable to our temporary suspension of park operations due to the COVID-19 pandemic. Net cash used in investing activities during the year ended December 31, 2020, decreased $48.2 million to $90.9 million from $139.1 million, consisting primarily of capital expenditures, net of insurance proceeds, and partially offset by proceeds received from the disposal of assets. The decrease is attributable to the reduction in spending on capital expenditures due to COVID-19. Net cash provided by financing activities during the year ended December 31, 2020, was $266.7 million and was primarily due to the issuance of the 2025 Notes, partially offset by the $315.0 million repayment of the Second Amended and Restated Term Loan B, the $50.5 million of the outstanding 2024 Notes principal we prepaid in March 2020, and the payment of $22.5 million in cash dividends. Net cash used in financing activities during the year ended December 31, 2019 was $143.0 million and was mostly attributable to the payment of $279.0 million in cash dividends and $40.8 million of distributions to noncontrolling interests, offset by net proceeds from entering into the Second Amended and Restated Credit Facility after repayment of the Amended and Restated Credit Facility.
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 operational. During 2020, we had significant cash savings due to the suspension of park operations at our properties. These cash-based operating expenses include salaries and wages, employee benefits, advertising, third party services, repairs and maintenance, utilities and insurance.
Partnership Park Obligations
We guarantee certain obligations relating to the Partnership Parks. These obligations include (i) minimum annual distributions (including rent) of approximately $75.2 million in 2021 (subject to cost of living adjustments in subsequent years) to the limited partners in the Partnerships Parks (based on our ownership of units as of December 31, 2020, our share of the distribution will be approximately $33.3 million), (ii) minimum capital expenditures at each of the Partnership Parks during rolling five-year periods, based generally on 6% of the Partnership Park’s revenues, (iii) an annual offer to purchase all outstanding limited partnership units at the Specified Price to the extent tendered by the unit holders, which annual offer must remain open from March 31 through late April of each year, and any limited partnership interest tendered during such time period must be fully paid for no later than May 15th of that year, (iv) making annual ground lease payments, and (v) either (a) purchasing all of the outstanding limited partnership interests in the Partnership Parks through the exercise of a call option upon the earlier of the occurrence of certain specified events and the end of the term of the partnerships that hold the Partnership Parks in 2027 (in the case of Georgia) and 2028 (in the case of Texas), or (b) causing each of the partnerships that hold the Partnership Parks to have no indebtedness and to meet certain other financial tests as of the end of the term of such partnership. See Note 15 to the consolidated financial statements in Item 8 of this Annual Report for additional information.
After payment of the minimum distribution, we are entitled to a management fee equal to 3% of prior year gross revenues and, thereafter, any additional cash will be distributed first to management fee in arrears and then towards the repayment of any interest and principal on intercompany loans. Any additional cash, to the extent available, is distributed 95% to us, in the case of SFOG, and 92.5% to us, in the case of SFOT.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of December 31, 2020.
Set forth below is certain information regarding our debt, lease and purchase obligations as of December 31, 2020:
(Amounts in thousands)
2022 - 2023
2024 - 2025
2026 and beyond
Long term debt — including current portion (1)
Interest on long-term debt (2)
Operating and finance leases (3)
Purchase obligations (4)
|(1)||Payments are shown at principal amount. See Note 8 to the consolidated financial statements in Item 8 of this Annual Report for further discussion on long-term debt.|
|(2)||See Note 8 to the consolidated financial statements in Item 8 of this Annual Report for further discussion on long-term debt. Amounts shown reflect variable interest rates in effect at December 31, 2020.|
|(3)||Does not give effect to cost of living adjustments. Obligations not denominated in U.S. Dollars have been converted based on the exchange rates existing on December 31, 2020.|
|(4)||Represents obligations as of December 31, 2020 with respect to insurance, inventory, media and advertising commitments, license fees, computer systems and hardware, and new rides and attractions. Of the amount shown for 2021, approximately $35.5 million represents capital items. The amount for the Warner Bros. license fee is an estimate based on the current amount payable under the license agreement, which is subject to periodic adjustments, and is therefore subject to change. Amounts for new rides and attractions are computed as of December 31, 2020 and include estimates of costs needed to complete such improvements that, in certain cases, are not contractually committed at that date. Amounts do not include obligations to employees that cannot be quantified as of December 31, 2020, which are discussed below. Amounts do not include purchase obligations existing at the individual park-level for supplies and other miscellaneous items, none of which are individually material.|
During the year ended December 31, 2020, we made contributions to our defined benefit pension plan of $1.5 million. During the years ended December 31, 2019 and 2018, we made contributions to our defined benefit pension plan of $6.0 million. To control increases in costs, our pension plan was "frozen" effective March 31, 2006, pursuant to which most participants (excluding certain union employees whose benefits have subsequently been frozen) no longer continued to earn future pension benefits. Effective February 16, 2009, the remaining participants in the pension plan no longer earned future benefits. See Note 13 to the consolidated financial statements in Item 8 of this Annual Report for more information on our pension benefit plan.
We are currently assessing making a contribution in 2021 to our pension plan based on our operating results during 2021. We plan to contribute to our 401(k) Plan in 2021, and our estimated expense for employee health insurance for 2021 is $17 million.
We maintain insurance of the type and in amounts that we believe is commercially reasonable and that is available to businesses in our industry. See "Insurance" under "Item 1. Business." Our insurance premiums and retention levels have remained relatively constant during the three-year period ended December 31, 2020. We cannot predict the level of the premiums that we may be required to pay for subsequent insurance coverage, the level of any retention applicable thereto, the level of aggregate coverage available or the availability of coverage for specific risks.
We are party to various legal actions arising in the normal course of business. See "Item 3. Legal Proceedings" of this Annual Report and Note 15 to the consolidated financial statements in Item 8 of this Annual Report for information on certain significant litigation.
We may from time to time seek to retire our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on the prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
The vast majority of our capital expenditures in 2021 and beyond are expected to be made on a discretionary basis.
Recently Issued Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“Update 2019-12”), which removes certain exceptions for investments, intraperiod allocations and interim tax calculations and adds guidance to reduce complexity in accounting for income taxes. Update 2019-12 is effective for annual periods beginning after December 15, 2020, with early adoption permitted. The various amendments in Update 2019-12 are applied on a retrospective basis, modified retrospective basis and prospective basis, depending on the amendment. We are in the process of evaluating the impact of this amendment on our consolidated financial statements; however, we do not expect a material impact.
In August 2018, FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans: (“Update 2018-14”), which modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. Update 2018-14 is effective for annual periods beginning after January 1, 2021, with early adoption permitted. Adoption is required to be applied on a retrospective basis to all periods presented. We are in the process of evaluating the impact of this amendment on our consolidated financial statements; however, we do not expect a material impact.
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. Our adoption of ASU 2020-04 did not have a material impact on our consolidated financial statements and related disclosures.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks relating to fluctuations in interest rates and currency exchange rates. The objective of our financial risk management is to minimize the negative impact of interest rate and foreign currency exchange rate fluctuations on our operations, cash flows and equity. We do not acquire market risk sensitive instruments for trading purposes or speculative purposes.
In June 2019, we entered into three separate interest rate swap agreements with a notional amount of $300.0 million (the “June 2019 Swap Agreements”). In August 2019, we entered into two 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. The term of the June 2019 Swap Agreements begins in June 2019 and expires in June 2023. The term of the August 2019 Swap Agreements begins in August 2019 and expires in August 2024. Upon execution, we designated and documented both swap agreements as cash flow hedges. The swap agreements serve as economic hedges and provide protection against rising interest rates.
In March 2020, we executed a strategy commonly known as a “blend and extend” on $100.0 million of the June 2019 Swap Agreements (the “Modified June 2019 Swap Agreement”) that extended the length of one of the June 2019 Swap Agreements through April 2026. We extended the existing pay-fixed swap rate over a longer period than its original term at a lower interest rate, while maintaining the same overall value of the swap. The remaining $200.0 million of the June 2019 Swap Agreements (the “Unmodified June 2019 Swap Agreements”) did not change. Upon execution, we designated and documented the Modified June 2019 Swap Agreement as a cash flow hedge. The Modified June 2019 Swap Agreement serves as an economic hedge and provides protection against rising interest rates.
On April 22, 2020, we repaid $315.0 million of the Second Amended and Restated Term Loan B. In conjunction, the June 2019 Swap Agreements and the Modified June 2019 Swap Agreement were de-designated, since the hedged items were no longer probable to occur due to the repayment of the debt. As a result, $14.9 million was reclassified from accumulated other comprehensive loss to interest expense in the consolidated statement of operations. Consistent with company policy, we hold and issue derivative instruments for risk management purposes only and do not utilize derivative instruments for trading or speculative purposes. Accordingly, in April 2020 we entered into $300.0 million of notional amount counter-agreements (the “April 2020 Counter-agreements”) designed to economically offset the impact of the de-designated swap agreements.
The following is an analysis of the sensitivity of the market value, operations and cash flows of our market risk financial instruments to hypothetical changes in interest rates as if these changes occurred as of December 31, 2020. The range of potential change in the market chosen for this analysis reflects our view of changes that are reasonably possible over a one-year period. Market values are the present values of projected future cash flows based on the interest rate assumptions. These forward-looking disclosures are selective in nature and only address the potential impacts from financial instruments. They do not include other potential effects which could impact our business as a result of these changes in interest and foreign currency exchange rates.
As of December 31, 2020, we had total debt excluding the impact of debt issuance costs and discounts of $2,653.5 million, of which $2,574.5 million represents fixed-rate debt. The remaining $79.0 million balance represents floating-rate debt. For fixed-rate debt, interest rate changes affect the fair market value but do not impact book value, operations or cash flows. Conversely, for floating-rate debt, interest rate changes generally do not affect the fair market value but do impact future operations and cash flows, assuming other factors remain constant.
Assuming other variables remain constant (such as foreign exchange rates and debt levels), the pre-tax operating and cash flow impact resulting from a one percentage point increase in interest rates would be approximately $0.8 million. See Note 8 to the consolidated financial statements included elsewhere in this Annual Report for information on interest rates under our debt agreements.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SIX FLAGS ENTERTAINMENT CORPORATION
Index to Consolidated Financial Statements
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2020.
The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by KPMG LLP, the independent registered public accounting firm that audited our financial statements included herein, as stated in their report which is included herein.
/s/ MICHAEL SPANOS
/s/ SANDEEP REDDY
Executive Vice President and Chief Financial Officer
February 25, 2021