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SIX > SEC Filings for SIX > Form 10-Q on 25-Jul-2014All Recent SEC Filings

Show all filings for SIX FLAGS ENTERTAINMENT CORP

Form 10-Q for SIX FLAGS ENTERTAINMENT CORP


25-Jul-2014

Quarterly Report


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

The following discussion and analysis contains forward-looking statements that are based on our current beliefs, expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are, by their nature, subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results could differ materially from those anticipated in these forward-looking statements. Please see the discussion regarding forward-looking statements included under the caption "Cautionary Note Regarding Forward-Looking Statements" included elsewhere in this Quarterly Report on Form 10-Q (the "Quarterly Report") and "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2013 (the "2013 Annual Report") for further discussion of the uncertainties, risks and assumptions associated with these statements.
The following discussion and analysis presents information that we believe is relevant to an assessment and understanding of our consolidated financial position and results of operations. This information should be read in conjunction with our unaudited condensed consolidated financial statements, and the notes thereto, and other financial data included elsewhere in this Quarterly Report. The following information should also be read in conjunction with our audited consolidated financial statements, and the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2013 Annual Report.
Overview
General
We are the largest regional theme park operator in the world based on the number of parks we operate. Of our 18 regional theme and water parks, 16 are located in the United States, one is located in Mexico City, Mexico and one is located in Montreal, Canada. Our parks are located in geographically diverse markets across North America and they generally offer a broad selection of state-of-the-art and traditional thrill rides, water attractions, themed areas, concerts and shows, restaurants, game venues and retail outlets, thereby providing a complete family-oriented entertainment experience. We work continuously to improve our parks and our guests' experiences and to meet our guests' evolving needs and preferences.
The results of operations for the six months ended June 30, 2014 and June 30, 2013 are not indicative of the results expected for the full year. In particular, our park operations generate a significant majority of their annual revenue during the period from Memorial Day to Labor Day each year while expenses are incurred year round.
Our revenue is primarily derived from (i) the sale of tickets for entrance to our parks (which accounted for approximately 53% of total revenues during the six months ended June 30, 2014 and June 30, 2013), (ii) the sale of food and beverages, merchandise, games and attractions, parking and other services inside our parks and (iii) sponsorship, licensing and other fees. Revenues from ticket sales and in park sales are primarily impacted by park attendance. Revenues from sponsorship, licensing and other fees 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 the first six months of 2014, our park earnings before interest, taxes, depreciation and amortization ("Park EBITDA") increased as a result of a gain related to release of sale proceeds from the sale of dick clark production, inc ("DCP") that were held in escrow pending settlement of certain items (See Note 7 to the unaudited condensed consolidated financial statements included in this Quarterly Report) and decreased cash operating costs partially offset by a slight decrease in revenues. The decrease in revenue was driven by a 10% decrease in attendance primarily as a result of the lingering effects of the long, harsh winter that extended school calendars and slowed early-season attendance, especially among season pass holders and guests enrolled in the membership program, partially offset by an 11% increase in total revenue per capita (representing total revenue divided by total attendance). Our cash operating costs decreased primarily as a result of (i) reduced salary, wage and benefit expense, (ii) attendance volume related expense reductions in cost of products sold and operating supply expenses, and (iii) reduced advertising expenses related to the delayed opening of a few of our new attractions partially offset by increased utility expenses primarily related to increased heating fuel expense from heating our parks during the long, harsh winter and an increase in operating taxes related to a refund received in the prior year six month period.
Our principal costs of operations include salaries and wages, employee benefits, advertising, third party services, repairs and maintenance, utilities and insurance. A large portion of our expenses is relatively fixed as our costs for full-time employees, maintenance, utilities, advertising and insurance do not vary significantly with attendance.
Recent Events
We have signed agreements to help third parties develop Six Flags-branded theme parks in the United Arab Emirates and China. The agreements do not require us to make any capital investments in the parks. As compensation for our design and


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management services, the exclusivity rights granted, and the rights to use our brand, Six Flags will receive fees over the design and development period as well as an ongoing remuneration once the parks open to the public. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date the financial statements and the reported amounts of revenues and expenses earned and incurred during the reporting period. 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 continuing changes in the economic environment will be reflected in the financial statements in future periods. With respect to our critical accounting policies and estimates, there have been no material developments or changes from the policies and estimates discussed in our 2013 Annual Report.


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Results of Operations
Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013
The following table sets forth summary financial information for the three
months ended June 30, 2014 and June 30, 2013:
                                                   Three Months Ended
(Amounts in thousands, except per capita                                            Percentage
data)                                       June 30, 2014      June 30, 2013        Change (%)
Total revenue                              $      376,551     $      363,701               4  %
Operating expenses                                126,531            122,312               3  %
Selling, general and administrative                60,160             60,241               -  %
Costs of products sold                             31,348             31,000               1  %
Depreciation and amortization                      26,176             31,163             (16 )%
Loss on disposal of assets                            781              1,564             (50 )%
Gain on sale of investee                          (10,031 )                -             N/M
Interest expense, net                              17,787             18,580              (4 )%
Other (income) expense, net                           (64 )              426            (115 )%
Income before income taxes                        123,863             98,415              26  %
Income tax expense                                 38,551             32,355              19  %
Net income                                         85,312             66,060              29  %
Less: Net income attributable to                  (19,006 )          (18,699 )             2  %
noncontrolling interests
Net income attributable to Six Flags       $       66,306     $       47,361              40  %
Entertainment Corporation

Other Data:
Attendance                                          8,167              8,840              (8 )%
Total revenue per capita                   $        46.10     $        41.14              12  %

Revenue
Revenue for the three months ended June 30, 2014 totaled $376.6 million, a 4% increase compared to $363.7 million for the three months ended June 30, 2013. Total revenue per capita, calculated as total revenue divided by total attendance, increased $4.96, or 12%, for the three months ended June 30, 2014 relative to the comparable period in the prior year. The increase in revenue and total revenue per capita was primarily attributable to continued growth in per capita guest spending, which excludes sponsorship, licensing, Six Flags Great Escape Lodge & Indoor Waterpark accommodations and other fees. Per capita guest spending increased $4.21, or 11%, to $43.73 during the three months ended June 30, 2014 from $39.52 during the three months ended June 30, 2013. The increased per capita guest spending related primarily to continued improvements in admissions pricing and the success of our All-Season Dining Pass. The increase in per capita guest spending was partially offset by an 8% decrease in attendance. The decrease in attendance was primarily driven by the lingering effects of the long, harsh winter that extended school calendars and slowed early-season attendance, especially among season pass holders and guests enrolled in the membership program.
Admissions revenue per capita increased $2.56, or 11%, during the three months ended June 30, 2014 relative to the comparable period in the prior year. The increase in admissions revenue per capita was primarily driven by (i) continued improvements in pricing, including the reduction of discounts, (ii) a greater mix of single day visitors, which have a higher revenue per capita than season pass and membership visitors, and (iii) a greater number of guests on membership plans who have stayed on beyond their initial twelve-month commitment and continue to pay on a month-to-month basis, which allows us to record their revenue on the lower attendance base. Non-admissions per capita guest spending increased $1.65, or 10%, during the three months ended June 30, 2014 relative to the comparable period in the prior year primarily as a result of the success of our All-Season Dining Pass and other product offerings. Operating Expenses
Operating expenses for the three months ended June 30, 2014 increased $4.2 million, or 3%, relative to the comparable period in the prior year primarily as a result of a $2.9 million increase in salaries, wages and benefits related to the increased number of operating days in the quarter and to a lesser extent increases in minimum wage rates at several of our parks, a $1.0 million increase in operating tax expenses related to a refund received in the prior year period and a $0.5 million increase in


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repairs and maintenance spending related to the later opening of several of our parks because of the spring break and Easter holiday shift into the second quarter.
Selling, general and administrative expenses Selling, general and administrative expenses for the three months ended June 30, 2014 decreased $0.1 million compared to the three months ended June 30, 2013 primarily as a result of a $2.8 million reduction in salaries, wages and benefits primarily related to a reduction in stock- and incentive-based compensation expenses and a $0.5 million reduction in accrued property taxes partially offset by (i) a $1.5 million shift of advertising expenses from the first quarter to the second quarter due to the timing of the spring break and Easter holiday, (ii) a $1.1 million increase in insurance costs primarily related to reserve reductions in the prior year period and (iii) a $0.8 million increase in legal expenses associated with ongoing litigation and the agreements for the development of the Six Flags-branded theme parks outside of North America.
Cost of products sold
Cost of products sold in the three months ended June 30, 2014 increased $0.3 million, or 1%, compared to the three months ended June 30, 2013. The increase in cost of products sold was primarily volume related and was consistent with the growth in food and beverage sales. Cost of products sold as a percentage of non-admission revenue for the three months ended June 30, 2014 decreased slightly relative to the comparable period in the prior year. Depreciation and amortization expense
Depreciation and amortization expense for the three months ended June 30, 2014 decreased $5.0 million, or 16%, compared to the three months ended June 30, 2013. The reduction in depreciation and amortization expense is primarily due to certain property, equipment and identifiable intangibles that became fully depreciated and amortized during 2013 and 2014. Additionally, depreciation expense has exceeded capital expenditures on an annual basis each year since we adopted fresh start accounting in 2010.
Loss on disposal of assets
Loss on disposal of assets decreased by $0.8 million, or 50%, for the three months ended June 30, 2014 relative to the comparable period in the prior year primarily as a result of the disposal of fewer assets in conjunction with the implementation of our ongoing capital program during the current year relative to the prior year.
Gain on sale of investee
During the three months ended June 30, 2014, the favorable resolution of certain items pertaining to the sale of our interest in DCP in September 2012 resulted in the recognition of a $10.0 million gain on sale of investee for amounts previously held in escrow. See Note 7 to the unaudited condensed consolidated financial statements included in this Quarterly Report for further discussion. Interest expense, net
Interest expense, net decreased $0.8 million, or 4%, for the three months ended June 30, 2014 relative to the comparable period in the prior year as a result of a lower debt balance outstanding throughout the three months ended June 30, 2014 compared to the three months ended June 30, 2013. Income Tax Expense
Income tax expense was $38.6 million for the three months ended June 30, 2014 compared to $32.4 million for the three months ended June 30, 2013. The increase in income tax expense was primarily the result of increased taxable income for the three months ended June 30, 3014 compared to the three months ended June 30, 2013 partially offset by an immaterial reduction in the effective tax rate.


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Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013 The following table sets forth summary financial information for the six months ended June 30, 2014 and June 30, 2013:

                                                    Six Months Ended
(Amounts in thousands, except per capita                                            Percentage
data)                                       June 30, 2014      June 30, 2013        Change (%)
Total revenue                              $      450,269     $      451,222               -
Operating expenses                                208,159            206,531               1  %
Selling, general and administrative                94,494             99,939              (5 )%
Costs of products sold                             37,591             38,925              (3 )%
Depreciation and amortization                      53,870             66,309             (19 )%
Loss on disposal of assets                          2,573              2,634              (2 )%
Gain on sale of investee                          (10,031 )                -             N/M
Interest expense, net                              35,816             36,977              (3 )%
Other (income) expense, net                          (254 )                4             N/M
Income (loss) before income taxes                  28,051                (97 )           N/M
Income tax benefit                                  3,940             (4,044 )           N/M
Net income                                         24,111              3,947             511  %
Less: Net income attributable to                  (19,006 )          (19,113 )            (1 )%
noncontrolling interests
Net income (loss) attributable to Six      $        5,105     $      (15,166 )           134  %
Flags Entertainment Corporation

Other Data:
Attendance                                          9,555             10,662             (10 )%
Total revenue per capita                   $        47.12     $        42.32              11  %

Revenue
Revenue for the six months ended June 30, 2014 totaled $450.3 million, a slight decrease compared to $451.2 million for the six months ended June 30, 2013. The decrease in revenue is primarily attributable to a 10% decrease in attendance partially offset by a $4.80, or 11%, increase in total revenue per capita, calculated as total revenue divided by total attendance. The decrease in attendance was primarily driven by the lingering effects of the long, harsh winter that extended school calendars and slowed early-season attendance, especially among season pass holders and guests enrolled in the membership program. Per capita guest spending, which excludes sponsorship, licensing, Six Flags Great Escape Lodge & Indoor Waterpark accommodations and other fees, increased $4.01, or 10%, to $43.75 during the six months ended June 30, 2014 from $39.74 during the six months ended June 30, 2013.
Admissions revenue per capita increased $2.51, or 11%, during the six months ended June 30, 2014 relative to the comparable period in the prior year. The increase in admissions revenue per capita was primarily driven by (i) continued improvements in pricing, including the reduction of discounts, (ii) a greater mix of single day visitors, which have a higher per cap than season pass and membership visitors, and (iii) a greater number of guests on membership plans who have stayed on beyond their initial twelve-month commitment and continue to pay us on a month-to-month basis, which allows us to record their revenue on the lower attendance base. Non-admissions per capita guest spending increased $1.50, or 9%, during the six months ended June 30, 2014 relative to the comparable period in the prior year primarily as a result of food and beverage sales growth driven by the success of our All-Season Dining Pass and other product offerings. Operating Expenses
Operating expenses for the six months ended June 30, 2014 increased $1.6 million, or 1%, relative to the comparable period in the prior year primarily as a result of (i) a $0.9 million increase in operating tax expenses related to a refund received in the prior year period, (ii) a $0.8 million increase in salaries, wages and benefits partially related to increases in minimum wage rates at several of our parks, and (iii) a $0.8 million increase in utility costs resulting from the impact of higher heating fuel costs and usage related to cooler temperatures at the majority of our parks during the first three months of 2014. These increases were partially offset by a $0.7 million reduction in operating supplies expense partially driven by reduced attendance volumes.
Selling, general and administrative expenses


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Selling, general and administrative expenses for the six months ended June 30, 2014 decreased $5.4 million, or 5%, compared to the six months ended June 30, 2013 primarily as a result of (i) a $5.0 million reduction in salaries, wages and benefits primarily related to a reduction in stock- and incentive-based compensation expenses, (ii) a $0.6 million savings in advertising expenses related to the delayed opening of a few of our new attractions and (iii) a $0.8 million reduction in costs associated with consulting services, insurance and property taxes. These reductions were partially offset by a $0.9 million increase in legal expenses associated with ongoing litigation and the agreements for the development of the Six Flags-branded theme parks outside of North America, and a $0.3 million increase in repairs and maintenance costs. Cost of products sold
Cost of products sold in the six months ended June 30, 2014 decreased $1.3 million, or 3%, compared to the six months ended June 30, 2013. The decrease in cost of products sold was primarily due to a lower volume of games and retail sales. Additionally, cost of products sold as a percentage of non-admission revenue for the six months ended June 30, 2014 decreased slightly relative to the comparable period in the prior year. Depreciation and amortization expense
Depreciation and amortization expense for the six months ended June 30, 2014 decreased $12.4 million, or 19%, compared to the six months ended June 30, 2013. The reduction in depreciation and amortization expense is primarily due to certain property, equipment and identifiable intangibles that became fully depreciated and amortized during 2013 and 2014. Additionally, depreciation expense has exceeded capital expenditures on an annual basis each year since we adopted fresh start accounting in 2010.
Loss on disposal of assets
Loss on disposal of assets is primarily comprised of the disposal of certain assets during the current year in conjunction with the implementation of our ongoing capital program. Loss on disposal of assets for the six months ended June 30, 2014 was relatively flat compared to the same period in the prior year. Gain on sale of investee
During the six months ended June 30, 2014, the favorable resolution of certain items pertaining to the sale of our interest in DCP in September 2012 resulted in the recognition of a $10.0 million gain on sale of investee for amounts previously held in escrow. See Note 7 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for further discussion.
Interest expense, net
Interest expense, net decreased $1.2 million, or 3%, for the six months ended June 30, 2014 relative to the comparable period in the prior year as a result of a lower debt balance outstanding throughout the current period due to quarterly principal payments made on the Term Loan B that began in March 2013. Income Tax Benefit
Income tax expense was $3.9 million for the six months ended June 30, 2014 compared to a $4.0 million income tax benefit for the six months ended June 30, 2013. The increase in income tax expense was primarily the result of taxable income in the six months ended June 30, 2014 compared to a taxable loss in the six months ended June 30, 2013 partially offset by an immaterial reduction in the effective tax rate.
Liquidity, Capital Commitments and Resources On an annual basis, our principal sources of liquidity are cash generated from operations, funds from borrowings and existing cash on hand. Our principal uses of cash include 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. In November 2013, Holdings' Board of Directors increased the quarterly cash dividend from $0.45 per share of common stock to $0.47 per share of common stock. During the six months ended June 30, 2014 and June 30, 2013, Holdings paid $89.5 million and $88.0 million, respectively, in cash dividends on its common stock. The amount and timing of any future dividends payable on Holdings' common stock are within the sole discretion of Holdings' Board of Directors. Based on (i) our current number of shares outstanding and (ii) estimates of share repurchases, restricted stock vesting and option exercises, we currently anticipate paying approximately $185.0 million in total cash dividends on our common stock for the 2014 calendar year.


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On January 3, 2012, Holdings' Board of Directors approved a new stock repurchase program that permitted Holdings to repurchase up to $250.0 million in shares of Holdings' common stock over a four-year period (the "January 2012 Stock Repurchase Plan"). During the year ended December 31, 2012, Holding repurchased an aggregate of 8,499,000 shares at a cumulative price of approximately $232.0 million under the January 2012 Stock Repurchase Plan. As of January 4, 2013, Holdings had repurchased an additional 578,000 shares at a cumulative price of approximately $18.0 million and an average price per share of $31.16 to complete the permitted repurchases under the January 2012 Stock Repurchase Plan. On December 11, 2012, Holdings' Board of Directors approved a new stock repurchase program that permitted Holdings to repurchase up to $500.0 million in shares of Holdings' common stock over a three-year period (the "December 2012 Stock Repurchase Plan"). As of December 31, 2013, Holdings had repurchased 14,775,000 shares at a cumulative price of approximately $500.0 million and an average price per share of $33.84 to complete the permitted repurchases under the December 2012 Stock Repurchase Plan.
On November 20, 2013, Holdings announced that its Board of Directors approved a new stock repurchase program that permits Holdings to repurchase up to $500.0 million in shares of Holdings' common stock over a four-year period (the "November 2013 Stock Repurchase Plan"). As of July 23, 2014, Holdings had repurchased 490,000 shares at a cumulative price of approximately $19.3 million and an average price per share of $39.26 under the November 2013 Stock Repurchase Plan leaving approximately $480.7 million for permitted repurchases. All of the foregoing share and per share amounts have been adjusted to reflect the 2013 Stock Split.
Based on historical and anticipated operating results, we believe that cash flows from operations, available unrestricted cash, and amounts available under the 2011 Credit Facility will be adequate to meet our liquidity needs, including any anticipated requirements for working capital, capital expenditures, common stock dividends, scheduled debt service, obligations under arrangements relating to the Partnership Parks and discretionary common stock repurchases. Additionally, based on our current federal net operating loss carryforwards, we believe we will continue to pay minimal United States cash taxes for the next three to four years.
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, contagious diseases, such as swine or avian flu, accidents or the occurrence of an event or condition at our parks, including terrorist acts or threats inside or outside of our parks, negative publicity or significant local competitive events, which could significantly . . .

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