News Column

SIX FLAGS ENTERTAINMENT CORP - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

February 20, 2014

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 events occurring in our business.

Results of Operations. The results of operations section provides an

analysis of our results for the years ended December 31, 2013, 2012 and

2011 and a discussion of items affecting the comparability of our financial statements.



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, 2013 and our outstanding debt and

commitments existing as of December 31, 2013. 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 financial position and results of operations. This information should be read in conjunction with the Consolidated Financial Statements and the notes thereto included elsewhere in this Annual Report. Overview 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. Our revenue is primarily derived from (i) the sale of tickets for entrance to our parks (which accounted for 54.3% of total revenues during the year ended December 31, 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 2013, our park earnings before interest, tax expense, depreciation and amortization ("Park EBITDA") improved as a result of increased revenues due to growth of approximately 1.6% in attendance and 2.1% in total revenue per capita (representing total revenue divided by total attendance). Our cash operating costs increased primarily as a result of (i) increases in salaries, wages and benefits resulting from an increase in operating days during the year ended December 31, 2013 relative to the year ended December 31, 2012, (ii) our assumption of the operations of many in-park concessions that were previously operated by third parties and (iii) the increase in the costs associated with ongoing litigation, including the $3.0 million reserve for estimated litigation costs, net of expected insurance recoveries, related to the accident at our park in Arlington, Texas. These 27



--------------------------------------------------------------------------------

Table of Contents

cost increases were partially offset by (i) reduced employee incentive and benefit costs, (ii) reduced operating tax expenses and (iii) reduced worker's compensation claims. 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. Critical Accounting Policies The process of preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. 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. These estimates and judgments are based on historical experience, future expectations and other factors and assumptions we believe to be reasonable under the circumstances. Results may differ significantly from these estimates. The most significant estimates and judgments are reviewed on an ongoing basis and revised when necessary. The following discussion addresses the items we have identified as our critical accounting estimates. See Note 3 to the Consolidated Financial Statements included elsewhere in this Annual Report for further discussion of these and other accounting policies. Property and Equipment Property and equipment additions are recorded at cost and the carrying value is depreciated on a straight-line basis over the estimated useful lives of those assets. Changes in circumstances such as technological advances, changes to our business model or changes in our capital strategy could result in the actual useful lives differing from our estimates. In those cases in which we determine that the useful life of property and equipment should be shortened, we depreciate the remaining net book value in excess of the salvage value over the revised remaining useful life, thereby increasing depreciation expense evenly through the remaining expected life. Valuation of Long-Lived Assets Long-lived assets totaled $2,224.0 million as of December 31, 2013, consisting of property and equipment ($1,231.7 million), goodwill ($630.2 million) and other intangible assets ($362.1 million). Goodwill and intangible assets with indefinite useful lives are tested for impairment annually, or more frequently if indicators are identified that an asset may be impaired. We identify our reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. We then determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit. We are a single reporting unit. For each year, the fair value of the single reporting unit exceeded our carrying amount (based on a comparison of the market price of our common stock to the carrying amount of our stockholders' equity (deficit)). Accordingly, no impairment has been required. If the fair value of the reporting unit were to be less than the carrying amount, we would compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset 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, generally at the park level, to future net cash flows expected to be generated by the asset or group of assets. If such assets are not considered to be fully recoverable, any impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. 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 28



--------------------------------------------------------------------------------

Table of Contents

deferred tax assets and liabilities, which are included in our consolidated balance sheet. 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. Significant 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. We have recorded a valuation allowance of $190.3 million and $177.4 million as of December 31, 2013 and 2012, respectively, due to uncertainties related to our ability to utilize some of our deferred tax assets, primarily consisting of certain net operating loss carryforwards and tax credits, before they expire. The valuation allowance as of December 31, 2013 and 2012 is primarily related to state net operating loss carryforwards that cannot be used because we no longer have operations in the states where they were generated. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to increase or decrease our valuation allowance which could materially impact our consolidated financial position and results of operations. Variables that will impact whether our deferred tax assets will be utilized prior to their expiration include, among other things, attendance, per capita spending and other revenues, 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 would decrease as the debt balances are reduced by cash flow that previously would have been utilized for capital expenditures. 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 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. See Note 3(p) to the Consolidated Financial Statements included elsewhere in this Annual Report. Due to an increase in our profitability, we are able to project future taxable income and further assess our valuation allowance. Revenue Recognition We recognize revenue upon admission into our parks, provision of our services, or when products are delivered to our guests. Revenues are presented in the accompanying consolidated statements of operations net of sales taxes collected from our guests and remitted to government taxing authorities. During 2013, we launched a membership program. In contrast to our season pass and other multi-use offerings that expire at the end of each operating season, the membership program does not expire. It automatically renews on a month-to-month basis after the initial twelve-month membership term, and can be canceled anytime after the initial term. Guests enrolled in the membership program can visit our parks an unlimited number of times anytime they are open as long as the guest remains enrolled in the membership program. For season pass, membership 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. We review the estimated redemption rate regularly and on an ongoing basis and revise it as necessary throughout the year. Amounts received for multi-use admissions in excess of redemptions are recognized in deferred revenue. As of December 31, 2013, deferred revenue was primarily comprised of (i) advance sales of season pass and other admissions for the 2014 operating season, (ii) the unredeemed portion of the initial term of the membership program that will be recognized in 2014, (iii) sponsorship revenue that will be recognized in 2014 and (iv) a nominal amount for the remaining unredeemed season pass revenue and pre-sold single-day admissions revenue for the 2013 operating season that was redeemed through the completion of the 2013 operating season, which ended the first week of 2014. Recent Events On December 21, 2012, Holdings issued $800.0 million of 5.25% senior unsecured notes due January 15, 2021 (the "2021 Notes"). Also, on December 21, 2012, we entered into an amendment to the 2011 Credit Facility (the "2012 Credit Facility Amendment") that among other things, permitted us to (i) issue the 2021 Notes, (ii) use $350.0 million of the proceeds of the 2021 Notes issuance to repay the $72.2 million that was outstanding under the Tranche A Term Loan facility (the "Term Loan A") and $277.8 million of the outstanding balance of the Tranche B Term Loan facility (the "Term Loan B"), (iii) use the remaining $450.0 million of proceeds from the 2021 Notes issuance for share repurchases and other corporate matters, and (iv) reduce the interest rate payable on the Term Loan B by 25 basis points. In connection with the 2012 Credit Facility 29



--------------------------------------------------------------------------------

Table of Contents

Amendment, the issuance of the 2021 Notes and the repayment of the Term Loan A and a portion of the Term Loan B, we recorded a $0.6 million loss on debt extinguishment for the year ended December 31, 2012. On May 8, 2013, Holdings' Board of Directors approved a two-for-one stock split of Holdings' common stock effective in the form of a stock dividend of one share of common stock for each outstanding share of common stock. The record date for the stock split was June 12, 2013. The additional shares of common stock in connection with the stock split were distributed on June 26, 2013. In accordance with the provisions of our stock benefit plans and as determined by Holdings' Board of Directors, the number of shares available for issuance, the number of shares subject to outstanding equity awards and the exercise prices of outstanding stock option awards were adjusted to equitably reflect the effect of the two-for-one stock split. On December 23, 2013, we entered into an amendment to the 2011 Credit Facility (the "2013 Credit Facility Amendment") that reduced the overall borrowing rate on the Term Loan B by 50 basis points through (i) a 25 basis point reduction in the applicable margin from 3.00% plus LIBOR to 2.75% plus LIBOR and (ii) a 25 basis point reduction in the minimum LIBOR rate from 1.00% to 0.75%. Additionally, the 2013 Credit Facility Amendment permits us to use up to $200.0 million of our excess cash on hand, over time, for general corporate purposes, including potential share repurchases. In connection with this amendment, we capitalized $2.4 million of debt issuance costs directly associated with the issuance of the amendment and recorded a $0.8 million loss on debt extinguishment as portions of the Term Loan B were retired and subsequently repurchased by certain lenders. During the year ended December 31, 2013, we acquired the noncontrolling equity interests held by non-affiliated parties in HWP Development, LLC ("HWP"). Prior to the acquisition, our ownership interest in the HWP joint venture was approximately 49%. See Notes 3(a) and 6 to the Consolidated Financial Statements included elsewhere in this Annual Report for further discussion. One of our fundamental business goals is to generate superior returns for our stockholders over the long term. As part of our strategy to achieve this goal, we have declared and paid quarterly cash dividends each quarter beginning with the fourth quarter of 2010. Holdings' Board of Directors has since increased the quarterly cash dividend multiple times. In February 2012, the quarterly cash dividend was raised from $0.03 per share of common stock to $0.30 per share of common stock. In October 2012, the quarterly cash dividend was raised from $0.30 per share of common stock to $0.45 per share of common stock. In November 2013, the quarterly cash dividend was further raised from $0.45 per share of common stock to $0.47 per share of common stock. On December 11, 2012, Holdings' Board of Directors approved the Third Stock Repurchase Plan, which permitted Holdings to repurchase up to $500.0 million in shares of Holdings' common stock over a three-year period. 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 Third Stock Repurchase Plan. On November 20, 2013, Holdings' Board of Directors approved the Fourth Stock Repurchase Plan, which permits Holdings to repurchase up to $500.0 million in shares of Holdings' common stock. As of February 18, 2014, Holdings has repurchased 154,000 shares at a cumulative price of approximately $5.6 million and an average price per share of $36.10 under the Fourth Stock Repurchase Plan. 30



--------------------------------------------------------------------------------

Table of Contents

Results of Operations The following table sets forth summary financial information for the years ended December 31, 2013, 2012 and 2011: Year Ended December 31,



Percentage Changes

2013 2012 (Amounts in thousands, except per vs vs capita data) 2013 2012 2011 2012 2011 Total revenue $ 1,109,930$ 1,070,332$ 1,013,174 4 % 6 % Operating expenses 417,482 411,679 397,874 1 % 3 % Selling, general and administrative 189,218 225,875 215,059 (16 )% 5 % Cost of products sold 86,663 80,169 77,286 8 % 4 % Depreciation and amortization 128,075 148,045 168,999 (13 )% (12 )% Loss on disposal of assets 8,579 8,105 7,615 6 % 6 % Gain on sale of investee - (67,319 ) - N/M N/M Interest expense, net 74,145 46,624 65,217 59 % (29 )% Equity in loss of investee - 2,222 3,111 N/M (29 )% Loss on debt extinguishment 789 587 46,520 34 % N/M Other expense, net 1,234 612 73 102 % N/M Restructure (recovery) costs, net - (47 ) 25,086 N/M N/M Income from continuing operations before reorganization items and income taxes 203,745 213,780 6,334 (5 )% 3,275 % Reorganization items, net (180 ) 2,168 2,455 (108 )% (12 )% Income from continuing operations before income taxes 203,925 211,612 3,879 (4 )% 5,355 % Income tax expense (benefit) 47,601 (184,154 ) (8,065 ) (126 )% N/M Income from continuing operations $ 156,324$ 395,766$ 11,944 (61 )% 3,214 % Other Data: Attendance 26,149 25,735 24,295 2 % 6 % Total revenue per capita $ 42.45$ 41.59$ 41.70 2 % - % Year Ended December 31, 2013 vs. Year Ended December 31, 2012 Revenue Revenue for the year ended December 31, 2013 totaled $1,109.9 million, a 4% increase compared to $1,070.3 million for the year ended December 31, 2012. The increase in revenue was primarily attributable to an $0.86, or 2%, increase in total revenue per capita, which is calculated as total revenue divided by total attendance, as well as a 2% increase in attendance. The increase in attendance was primarily driven by increased season pass unit sales and sales of our new membership program, which was launched in 2013, as well as the successful introduction and marketing of our strong 2013 lineup of new rides and attractions. The increase in attendance includes the adverse impact of cooler temperatures and increased precipitation, and the accident that occurred at our park in Arlington, Texas. Total per capita guest spending, which excludes sponsorships, licensing, Six Flags Great Escape Lodge & Indoor Waterpark accommodations and other fees, increased $0.77, or 2%, to $40.18 during the year ended December 31, 2013 from $39.41 during the year ended December 31, 2012. During the year ended December 31, 2012, we received business interruption insurance proceeds from a claim relating to Hurricane Irene totaling $3.0 million. Excluding the insurance proceeds benefit, total guest spending per capita increased $0.89, or 2%, during the year ended December 31, 2013. Admissions revenue per capita increased $0.62, or 3%, during the year ended December 31, 2013 relative to the year ended December 31, 2012. The increase in admissions revenue per capita was primarily driven by higher pricing, including reduced discounts and strong sales of our premium-priced gold season passes and memberships, partially offset by (i) continued increases in the season pass and membership attendance mix, which lowers admission revenue per capita but increases overall admissions revenue and (ii) the ticket-related portion of the Hurricane Irene insurance proceeds received in the prior year. Non-admissions per capita guest spending increased $0.15, or 1%, during the year ended December 31, 2013 relative to the year ended December 31, 2012, primarily as a result of increased food, beverage and Flash Pass sales partially offset by the increase in season pass and membership attendance mix, a reduction in parking revenue due to the strong sales of our premium-priced gold season passes and memberships, which include parking, as well as the non-admissions related portion of the Hurricane Irene insurance proceeds received in the prior year. Excluding the insurance proceeds benefit, admissions revenue per capita increased $0.68, or 3%, and non-admissions revenue per capita guest spending increased $0.21, or 1%. 31



--------------------------------------------------------------------------------

Table of Contents

Operating expenses Operating expenses for the year ended December 31, 2013 increased $5.8 million, or 1%, relative to the year ended December 31, 2012. The increase in operating expenses was primarily driven by (i) a $3.0 million increase in repair and maintenance, utility and rent costs, (ii) a $2.7 million increase in salaries, wages and benefits resulting from an increase in operating days during the year ended December 31, 2013 relative to the year ended December 31, 2012 and our assumption of the operations of many in-park concessions that were previously operated by third parties and (iii) an expense reduction of $1.0 million in the prior year related to the favorable settlement of potential claims at two of our parks. These increases were partially offset by a $1.3 million reduction in operating tax expenses. Selling, general and administrative expenses Selling, general and administrative expenses for the year ended December 31, 2013 decreased $36.7 million, or 16%, compared to the year ended December 31, 2012, primarily as a result of a $42.2 million reduction in salaries, wages and benefits, primarily related to reduced stock-based compensation as well as a $1.4 million reduction in consulting services. These reductions were partially offset by a $4.5 million increase in our reserves for ongoing litigation, which includes the $3.0 million reserve related to the accident that occurred at our park in Arlington, Texas, and a $2.2 million decrease resulting from the favorable settlement of an old property claim and proceeds received from a class action settlement, both of which occurred in the prior year. Cost of products sold Cost of products sold for the year ended December 31, 2013 increased $6.5 million, or 8%, compared to the year ended December 31, 2012, primarily as a result of the increased costs related to our assumption of operations of many in-park concessions that were previously operated by third parties as well as increased food, beverage, retail and games sales. Depreciation and amortization expense Depreciation and amortization expense for the year ended December 31, 2013 decreased $20.0 million, or 13%, compared to the year ended December 21, 2012. The continued reduction in depreciation and amortization expense is primarily the result of annual depreciation expense outpacing annual capital expenditures in recent years. Additionally, certain property and equipment became fully amortized or depreciated during 2012, which also contributed to the reduction in depreciation and amortization expense during the year ended December 31, 2013. Loss on disposal of assets Loss on disposal of assets increased by $0.5 million, or 6%, for the year ended December 31, 2013 relative to the year ended December 31, 2012, as a result of the disposal of assets during the current year in conjunction with the implementation of our ongoing capital program. Gain on sale of investee We recognized a $67.3 million gain on the sale of an investee in conjunction with the sale of our interest in dick clark productions, inc. ("DCP") in September 2012. The $2.2 million equity in loss of investee for the year ended December 31, 2012 included our portion of the loss of DCP prior to the sale of our interest. See Note 6 to the Consolidated Financial Statements included elsewhere in this Annual Report for further discussion. Interest expense, net Interest expense, net increased $27.5 million, or 59%, for the year ended December 31, 2013 relative to the year ended December 31, 2012 as a result of the incremental interest on a higher debt balance outstanding as a result of the 2021 Notes that were issued in December 2012. Loss on debt extinguishment The $0.8 million loss on debt extinguishment for the year ended December 31, 2013 was recognized in conjunction with the 2013 Credit Facility Amendment. The $0.6 million loss on debt extinguishment for the year ended December 31, 2012 was recognized on the repayment in full and termination of the $72.2 million Term Loan A and the partial repayment of $277.8 million of the Term Loan B in conjunction with the 2012 Credit Facility Amendment. See Note 8 to the Consolidated Financial Statements included elsewhere in this Annual Report for further discussion. 32



--------------------------------------------------------------------------------

Table of Contents

Income tax expense (benefit) Income tax expense increased $231.8 million, or 126%, for the year ended December 31, 2013 compared to the year ended December 31, 2012 primarily as a result of the release of our valuation allowance that we had on certain of our deferred tax assets prior to 2012. We released the valuation allowance in 2012 because the taxable income generated in 2012 and our future taxable income projections showed utilization of the majority of our federal net operating loss ("NOL") carryforwards and partial utilization of our state NOL carryforwards before they expired. As a result, we believed that it was more likely than not that we would utilize our deferred tax assets prior to their expiration. As of December 31, 2013, we estimate we had approximately $0.8 billion of NOL carryforwards for federal income tax purposes and $5.0 billion of NOL carryforwards for state income tax purposes. Year Ended December 31, 2012 vs. Year Ended December 31, 2011 Revenue Revenue in 2012 totaled $1,070.3 million compared to $1,013.2 million in 2011, representing a 6% increase. The increase in revenues is attributable to a 1.4 million (6%) increase in attendance, partially offset by an $0.11 (0%) decrease in total revenue per capita primarily related to a significantly higher mix of season pass attendance, the negative exchange rate impact on revenue at our parks located in Mexico City and Montreal and decreased sponsorship revenues. The increase in attendance was driven by our strategy to increase season pass sales and the successful marketing of our new rides and attractions. Per capita guest spending increased $0.08 (0%) to $39.41 in 2012 from $39.33 in the prior year. In the first quarter of 2012, we received business interruption insurance proceeds from a claim relating to Hurricane Irene totaling $3.0 million. Excluding the insurance proceeds benefit and the unfavorable foreign currency exchange rate impacts, total guest spending per capita increased $0.16 (0%). Admissions revenue per capita increased $0.11 (0%) in 2012 compared to the prior year, and primarily reflects a 6% increase in attendance (largely due to season pass visitation, which lowers per capita spending but increases overall admissions revenue), that was partially offset by (i) increased prices and reduced discounts and (ii) the ticket-related portion of the Hurricane Irene insurance proceeds in the prior year period. The increase in attendance drove increased revenues from food and beverage, rentals, retail, parking and other guest services, but the increased mix of season pass attendance and the negative foreign currency exchange rate impact related to our parks in Mexico City and Montreal resulted in a $0.04 (0%) decrease in non-admissions per capita guest spending in 2012, including the non-admission portion of the insurance proceeds. The non-admissions per capita spending was negatively impacted by $0.10 of foreign currency exchange fluctuation at our parks in Mexico City and Montreal. Operating expenses Operating expenses for 2012 increased $13.8 million (3%) compared to operating expenses in 2011. This increase was primarily driven by increases in (i) salaries, wages and benefits ($13.8 million), and (ii) an increase in operating tax expense primarily related to a refund that was received in 2011 ($1.6 million), offset by a favorable exchange rate impact at our parks in Mexico City and Montreal ($1.6 million). Selling, general and administrative expenses Selling, general and administrative expenses for 2012 increased $10.8 million (5%) compared to 2011. The increase primarily reflects an increase in salaries, wages and benefits ($16.0 million) primarily related to an ($8.6 million) increase in stock-based compensation, partially offset by (i) reduced insurance costs ($2.2 million), (ii) the favorable settlement of an old property claim ($1.3 million), (iii) a decrease in advertising expense ($0.7 million) and (iv) a favorable exchange rate impact at our parks in Mexico City and Montreal ($0.6 million). Costs of products sold Costs of products sold in 2012 increased $2.9 million (4%) compared to 2011, primarily due to increased revenues in food and beverage and retail partially offset by a favorable exchange rate impact at our parks in Mexico City and Montreal. As a percentage of our in-park guest spending (excluding the Six Flags Great Escape Lodge and Indoor Waterpark), cost of products sold decreased in 2012 compared to 2011. 33



--------------------------------------------------------------------------------

Table of Contents

Depreciation and amortization expense Depreciation and amortization expense for 2012 decreased $21.0 million (12%) compared to 2011. The decrease in depreciation and amortization expense is attributable to assets that were fully depreciated and amortized in 2012 as compared to 2011. Loss on disposal of assets Loss on disposal of assets increased by $0.5 million in 2012 compared to 2011 primarily related to the loss associated with the transfer to an unrelated third party of our killer whale formerly located at Six Flags Discovery Kingdom, partially offset by a gain recognized from insurance proceeds received in the first quarter of 2012 for certain assets at our East Coast parks damaged by Hurricane Irene during the third quarter of 2011. Gain on sale of investee Gain on sale of investee for 2012 of $67.3 million was related to the sale of our interest in DCP. Interest expense, net Interest expense, net, for 2012 decreased $18.6 million (29%) compared to 2011, primarily reflecting reduced interest rates resulting from the December 2011 debt refinancing transaction, partially offset by increased interest expense resulting from the 2021 Notes issuance that closed in December 2012. Equity in loss of investee The $0.9 million decrease in equity in loss of investee in 2012 compared to 2011 is attributable to selling our interest in DCP in September 2012. Loss on debt extinguishment The $0.6 million loss on debt extinguishment in 2012 was recognized on the repayment in full and termination of the $72.2 million Term Loan A and the partial repayment of $277.8 million of the Term Loan B during the 2012 Credit Facility Amendment. The $46.5 million loss on debt extinguishment in 2011 was primarily the result of the repayment in full and termination of the $950.0 million senior term loan from the prior facility and the termination of the TW Loan in December 2011 in conjunction with the 2011 Credit Facility. Restructure recovery (costs) During 2012 we recovered the remaining restructure costs that were accrued in 2011. During 2011, restructure costs incurred were attributable to a $23.7 million settlement reached with our former Executive Vice President and Chief Financial Officer in May 2011. During 2011, we recorded $25.1 million of restructuring charges for the aforementioned settlement and related costs after consideration of amounts previously accrued. Reorganization items, net During 2012 and 2011, we incurred $2.2 million and $2.5 million, respectively, of reorganization items for costs and expenses directly related to the reorganization including fees associated with advisors to the Debtors, certain creditors and the creditors' committee. As of December 31, 2012 all of our Chapter 11 cases are closed and there should be minimal reorganization costs, if any, in future periods. Income tax (benefit) expense Income tax benefit was $184.2 million in 2012 and $8.1 million for 2011. The 2012 benefit was the result of the release of our valuation allowance that we had on certain of our deferred tax assets. We released the valuation allowance because of our 2012 taxable income generated and our future taxable income projections showed utilization of the majority of our federal net operating loss ("NOL") carryforwards and partial utilization of our state NOL carryforwards before they expired. As a result, we believe that it is more likely than not that we will utilize our deferred tax assets prior to their expiration. The benefit in 2011 was primarily related to reflecting the utilization of NOL carryforwards during 2011. At December 31, 2012, we estimate we had approximately $0.9 billion of NOL carryforwards for federal income tax purposes and $4.7 billion of NOL carryforwards for state income tax purposes. 34



--------------------------------------------------------------------------------

Table of Contents

Liquidity, Capital Commitments and Resources General 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, 2013, 2012 and 2011, Holdings paid $176.2 million, $148.3 million and $9.8 million, respectively, in cash dividends on its common stock. In February 2012, Holdings' Board of Directors increased the quarterly cash dividend from $0.03 per share of common stock to $0.30 per share. In October 2012, Holdings' Board of Directors further increased the quarterly cash dividend from $0.30 per share of common stock to $0.45 per share. In November 2013, Holdings' Board of Directors again increased the quarterly cash dividend from $0.45 per share of common stock to $0.47 per share of 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 cash dividends on our common stock during the 2014 calendar year. In February 2011, we initiated a stock repurchase program that permitted Holdings to repurchase up to $60 million in shares of Holdings' common stock over a three-year period (the "First Stock Repurchase Plan"). Under the First Stock Repurchase Plan, during the twelve months ended December 31, 2011, Holdings repurchased an aggregate of 3,235,000 shares at a cumulative price of approximately $60.0 million. The small amount of remaining shares that were permitted to be repurchased under the First Stock Repurchase Plan were repurchased in January 2012. 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 "Second Stock Repurchase Plan"). During the twelve months ended December 31, 2012, Holdings repurchased an aggregate of 8,499,000 shares at a cumulative price of approximately $232.0 million under the Second 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 Second 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 "Third Stock Repurchase Plan"). As of December 31, 2013, Holdings has 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 Third Stock Repurchase Plan. On November 20, 2013, Holdings' 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 (the "Fourth Stock Repurchase Plan"). As of February 14, 2014, Holdings has repurchased 154,000 shares at a cumulative price of approximately $5.6 million and an average price per share of $36.10 under the Fourth Stock Repurchase Plan. All of the foregoing share and per share amounts have been adjusted to reflect the 2011 Stock Split and 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 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, that could significantly reduce paid attendance and, therefore, revenue at any of our parks. While we work with local police authorities on security-related precautions to prevent certain types of disturbances, we can make no assurance that these precautions will be able to prevent these types of occurrences. However, we believe that our ownership of many parks in different geographic locations reduces the effects of adverse weather and these other types of occurrences on our consolidated results. If such an adverse event were to 35



--------------------------------------------------------------------------------

Table of Contents

occur, we may be unable to borrow under the $200.0 million revolving loan facility (the "Revolving Loan") portion of the 2011 Credit Facility or be required to repay amounts outstanding under the 2011 Credit Facility and/or may need to seek additional financing. In addition, we expect that we may be required to refinance all or a significant portion of our existing debt on or prior to maturity and potentially seek additional financing. The degree to which we are leveraged could adversely affect our ability to obtain any additional financing. See "Cautionary Note Regarding Forward-Looking Statements" and "Item 1A. Risk Factors" included elsewhere in this Annual Report. As of December 31, 2013, our total indebtedness, net of discount, was approximately $1,400.6 million. Based on (i) non-revolving credit debt outstanding on that date, (ii) anticipated levels of working capital revolving borrowings during 2014, (iii) estimated interest rates for floating-rate debt, and (iv) the 2021 Notes, we anticipate annual cash interest payments of approximately $65.0 million during both 2014 and 2015. Under the 2011 Credit Facility, approximately 96% of the amount outstanding under the Term Loan B is not due until 2018. As of December 31, 2013, we had approximately $169.3 million of unrestricted cash and $181.2 million available for borrowing under the Revolving Loan. Our ability to borrow under the Revolving Loan is dependent upon compliance with certain conditions, including a maximum senior leverage maintenance covenant, a minimum interest coverage 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 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 Revolving Loan could permit the lenders under the 2011 Credit Facility to accelerate the obligations thereunder. The Revolving Loan expires on December 20, 2016. The terms and availability of the 2011 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 included elsewhere in this Annual Report. We currently plan on spending approximately 9% of revenues on capital expenditures during the 2014 calendar year. During the year ended December 31, 2013, net cash provided by operating activities before reorganization items was $369.0 million. Net cash used in investing activities during the year ended December 31, 2013 was $102.3 million, consisting primarily of capital expenditures. Net cash used in financing activities during the year ended December 31, 2013 was $725.1 million, primarily attributable to stock repurchases totaling $523.6 million, the payment of $176.2 million in cash dividends and distributions of $37.5 million to our noncontrolling interests. These uses of cash were partially offset by $30.9 million in proceeds from the exercise of stock options. The source of the funds for the majority of the stock repurchases was from the issuance of the 2021 Notes. 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 per capita spending levels because much of our cash-based expenses are relatively fixed and do not vary significantly with either attendance or per capita spending. These cash-based operating expenses include salaries and wages, employee benefits, advertising, third party services, repairs and maintenance, utilities and insurance. Long-Term Debt Our total debt as of December 31, 2013 was $1,400.6 million, which included $800.0 million of the 2021 Notes, $569.9 million outstanding under the 2011 Credit Facility and $30.7 million outstanding under the HWP Refinance Loan. See Note 8 to the Consolidated Financial Statements included elsewhere in this Annual Report for further information on our debt obligations. Partnership Park Obligations We guarantee certain obligations relating to the Partnership Parks. These obligations include (i) minimum annual distributions (including rent) of approximately $67.3 million in 2014 (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, 2013, our share of the distribution will be approximately $29.2 million), (ii) minimum capital expenditures at each park during rolling five-year periods based generally on 6% of park 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 Consolidated Financial Statements included elsewhere in this Annual Report for additional information. 36



--------------------------------------------------------------------------------

Table of Contents

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, 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. Off-Balance Sheet Arrangements and Aggregate Contractual Obligations We had guaranteed the payment of a $32.2 million construction term loan incurred by HWP Development LLC ("HWP") for the purpose of financing the construction and development of a hotel and indoor water park located adjacent to The Great Escape theme park in Queensbury, New York, which opened in February 2006. On November 5, 2007, we refinanced the loan with a $33.0 million term loan (the "Refinance Loan") ($30.7 million and $31.1 million of which was outstanding as of December 31, 2013 and 2012, respectively), the proceeds of which were used to repay the existing loan. In connection with the refinancing, we provided a limited guarantee of the loan, which would become operative under certain limited circumstances, including the voluntary bankruptcy of HWP or its managing member. As additional security for the Refinance Loan, we provided a $1.0 million letter of credit. During the year ended December 31, 2013, we acquired the minority equity interests held by non-affiliated parties in HWP. Contractual Obligations Set forth below is certain information regarding our debt, lease and purchase obligations as of December 31, 2013: Payment Due by



Period

(Amounts in thousands) 2014 2015 - 2016 2017 - 2018

2019 and beyond Total Long term debt - including current portion (1) $ 6,269$ 12,709$ 588,061 $ 800,000 $ 1,407,039 Interest on long-term debt (2) 65,283 129,719 124,735 105,000 424,737 Real estate and operating leases (3) 6,141 12,116 9,704 151,286 179,247 Purchase obligations (4) 126,312 8,600 8,300 8,000 151,212 Total $ 204,005$ 163,144$ 730,800$ 1,064,286$ 2,162,235



________________________________________

(1) Payments are shown at principal amount. See Note 8 to the Consolidated

Financial Statements included elsewhere in this Annual Report for further

discussion on long-term debt.

(2) See Note 8 to the Consolidated Financial Statements included elsewhere in

this Annual Report for further discussion on long-term debt. Amounts shown

reflect variable interest rates in effect at December 31, 2013.

(3) Assumes for lease payments based on a percentage of revenues, future payments

at 2013 revenue levels. Also 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, 2013.

(4) Represents obligations as of December 31, 2013 with respect to insurance,

inventory, media and advertising commitments, computer systems and hardware,

estimated annual license fees to Warner Bros. (through 2020) and new rides

and attractions. Of the amount shown for 2014, approximately $76.1 million

represents capital items. The amounts in respect of new rides and attractions

were computed as of December 31, 2013 and include estimates by us of costs

needed to complete such improvements that, in certain cases, were not legally

committed at that date. Amounts shown do not include obligations to employees

that cannot be quantified as of December 31, 2013, which are discussed below.

Amounts shown also do not include purchase obligations existing at the

individual park-level for supplies and other miscellaneous items. None of the

park-level obligations are individually material.

Other Obligations During the years ended December 31, 2013, 2012 and 2011, we made contributions to our defined benefit pension plan of $6.0 million, $6.1 million and $3.7 million, respectively. To control increases in costs, our pension plan was "frozen" effective March 31, 2006, pursuant to which participants (excluding certain union employees whose benefits have subsequently been frozen) no longer continue to earn future pension benefits. We expect to make contributions of approximately $6.0 million in 2014 to our pension plan based on the 2013 actuarial valuation. We plan to make a contribution to our 401(k) plan in 2014, and our estimated expense for employee health insurance for 2014 is $13.8 million. See Note 13 to the Consolidated Financial Statements included elsewhere in this Annual Report for more information on our pension benefit plan. The vast majority of our capital expenditures in 2014 and beyond will be made on a discretionary basis. We plan on spending approximately 9% of revenues on capital expenditures during the 2014 calendar year. 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 self-insurance retention levels have remained relatively constant during the three-year period ending December 31, 2013. We cannot predict the level of the premiums that we may be required to pay for subsequent insurance coverage, the level of any self-insurance retention applicable thereto, the level of aggregate coverage available or the availability of coverage for specific risks. 37



--------------------------------------------------------------------------------

Table of Contents

We are party to various legal actions arising in the normal course of business. See "Legal Proceedings" and Note 15 to the Consolidated Financial Statements included elsewhere in 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. Market Risks and Sensitivity Analyses Like other companies, 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. In March 2012, we entered into a floating-to-fixed interest rate agreement with a notional amount of $470.0 million in order to limit exposure to an increase in the LIBOR interest rate of the Term Loan B (see Note 8 to the Consolidated Financial Statements included elsewhere in this Annual Report). Our Term Loan B borrowings bear interest on LIBOR plus an applicable margin. The interest rate agreement capped the LIBOR component of the interest rate at 1.00%. The term of the agreement began in March 2012 and expires in March 2014. Upon executing the agreement, we designated and documented the interest rate agreement as a cash flow hedge. The following analysis presents 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, 2013. 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, 2013, we had total debt of $1,400.6 million, of which $1,300.7 million represents fixed-rate debt, after giving effect to the floating-to-fixed interest rate agreement that we put in place in March 2012 (see Note 7 to the Consolidated Financial Statements included elsewhere in this Annual Report). The remaining $99.9 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 $1.1 million. See Note 8 to the Consolidated Financial Statements included elsewhere in this Annual Report for information on interest rates under our debt agreements. Recently Issued Accounting Pronouncements In January 2013, the FASB issued Accounting Standards Update No. 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities ("ASU 2013-01"). The amendments in ASU 2013-01 clarify that the disclosure requirements of ASU 2011-11 are limited to derivatives, including bifurcated embedded derivatives, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions that are either offset in the statement of financial position or subject to an enforceable master netting arrangement or similar agreement. ASU 2013-01 is effective retrospectively for annual periods beginning on or after January 1, 2013. The adoption of these new accounting rules did not have a material effect on our financial condition, results of operations or cash flows. In February 2013, the FASB issued Accounting Standards Update No. 2013-02, Comprehensive Income - Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU 2013-02"). The amendments in ASU 2013-02 require that entities report, either on their income statement or in a footnote to their financial statements, the effects on earnings from items that are reclassified out of other comprehensive income. The new accounting rules were effective beginning in the first quarter of 2013. The adoption of these new accounting rules did not have a material effect on our financial condition, results of operations or cash flows. 38



--------------------------------------------------------------------------------

Table of Contents

In February 2013, the FASB issued Accounting Standards Update No. 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation Is Fixed at the Reporting Date ("ASU 2013-04"). The amendments in ASU 2013-04 provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements from which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. ASU 2013-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. We do not anticipate a material impact to our financial position, results of operations or cash flows as a result of this change. In March 2013, the FASB issued Accounting Standards Update No. 2013-05, Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity ("ASU 2013-05"). The amendments in ASU 2013-05 address the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a foreign subsidiary or group of assets. ASU 2013-05 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We do not anticipate a material impact to our financial position, results of operations or cash flows as a result of this change. In July 2013, the FASB issued Accounting Standards Update No. 2013-10, Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes ("ASU 2013-10"). The amendments in ASU 2013-10 permit the Fed Funds Effective Swap Rate to be used as a U.S. benchmark interest rate for hedge accounting purposes under U.S. GAAP. ASU 2013-10 is effective prospectively for qualifying new or redesigned hedging relationships entered into on or after July 17, 2013. We do not anticipate a material impact to our financial position, results of operations or cash flows as a result of this change. In July 2013, the FASB issued Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11"). The amendments in ASU 2013-11 provide guidance on the financial statement presentation of unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. We will reflect the impact of these amendments beginning with our Quarterly Report on Form 10-Q for the period ending March 31, 2014. We do not anticipate that the adoption of this pronouncement will result in a material impact to our financial position, results of operations or cash flows.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Edgar Glimpses


Story Tools