SIX FLAGS ENTERTAINMENT CORPORATION 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
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
ended
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
existing as of
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.
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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 included elsewhere in this Annual Report. Overview We are the largest regional theme park operator in the world and the largest operator of waterparks inNorth America based on the number of parks we operate. Of our 26 regional theme and waterparks, 23 are located inthe United States , two parks are located inMexico and one is located inMontreal, Canada . Our parks are located in geographically diverse markets acrossNorth 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. Our revenue is derived from (i) the sale of tickets for entrance to our parks (which accounted for approximately 55% of total revenue during the years endedDecember 31, 2019 , 2018 and 2017), (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. Revenues from ticket sales and in-park sales are primarily impacted by park attendance. Revenues from sponsorship, international agreements and accommodations can be impacted by the term, timing and extent of services and fees under these arrangements, which can result in fluctuations from year to year. During 2019, our earnings from park operations excluding the impact of interest, taxes, depreciation, amortization and any other non-cash income or expenditures ("Park EBITDA") decreased primarily as a result of increased cash operating costs resulting from (i) expenses related to the full year operation of the five new parks we began operating inJune 2018 and our new waterpark inRockford, IL that we began operating inApril 2019 , (ii) increased labor costs driven by competitive labor markets and statutory minimum wage increases, (iii) charges for litigation matters recorded in the fourth quarter of 2019, and (iv) the write-off of costs related to the default of our partner inChina . These expense increases were partially offset by an increase in revenue primarily driven by the full year operation of the five new parks we began operating inJune 2018 and our new waterpark inRockford, IL that we began operating inApril 2019 . 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 inthe 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 theFinancial Accounting Standards Board ("FASB"). See Note 2 to the consolidated financial statements included elsewhere in this Annual Report for further discussion of these and other accounting policies. 35 Table of Contents
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 be impaired. We identify our reporting unit and determine the carrying value of the reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to the reporting unit. We then determine the fair value of the reporting unit and compare it to the carrying amount of the reporting unit. All of our parks are operated in a similar manner and have comparable characteristics in that they produce and distribute similar services and products using similar processes, have similar types of customers, are subject to similar regulations and exhibit similar economic characteristics. As such, we are a single reporting unit. 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). InSeptember 2012 , the FASB amended Accounting Standards Update ("ASU") Topic 350, Intangibles -Goodwill and Other, which permits entities to perform a qualitative analysis on indefinite-lived intangible assets to determine if it is more likely than not that the fair value of the intangible asset was less than its carrying amount as a basis for determining whether it was necessary to perform a quantitative impairment test. We adopted this amendment inSeptember 2012 and 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 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.
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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 included elsewhere in this Annual Report for further discussion.
Revenue Recognition
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 included elsewhere in 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. 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 regularly and on an ongoing
basis and revise it as necessary throughout the year. 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.
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We have entered into international agreements to assist third parties in the planning, design, development and operation of Six Flags-branded parks outside ofNorth America . These agreements typically consist of a brand licensing agreement, project services agreement, and management services agreement. Under Topic 606, we treat these agreements as one contract because they were negotiated with a single commercial objective. We have identified three distinct promises within the agreement with each third-party partner as brand licensing, project services and management services. Each of these promises is its own performance obligation and distinct as the third party could benefit from each service on its own with other readily available resources and each service is separately identifiable from other services in the context of the contract. We recognize revenue under our international agreements over the relevant service period of each performance obligation based on its relative stand-alone selling price, as determined by our best estimate of selling price. We review the service period of each performance obligation on an ongoing basis and revise it as necessary throughout the year. Revisions to the relevant service periods of the performance obligations may result in revisions to revenue in future periods and are recognized in the period in which the change is identified. OnJanuary 1, 2018 , we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as ofJanuary 1, 2018 . Results for reporting periods beginning afterJanuary 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under FASB ASC 605, Revenue Recognition ("Topic 605"). See Note 3 to the consolidated financial statements included elsewhere in this Annual Report for additional information.
Recent Events
OnApril 17, 2019 , we amended and restated the 2015 Credit Facility (as defined in Note 8 to the consolidated financial statements included elsewhere in this Annual Report). The refinancing increased the 2015 Term Loan B (as defined in Note 8 to the consolidated financial statements included elsewhere in this Annual Report) to$800.0 million and extended its term throughApril 17, 2026 , and increased the 2015 Revolving Loan to$350.0 million and extended its term throughApril 17, 2024 . See Note 8 to the consolidated financial statements included elsewhere in this Annual Report for more information.
On
OnOctober 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 reduces interest expense by approximately$2.0 million annually.
On
OnNovember 18, 2019 ,James Reid-Anderson , the Company's Chairman, President and Chief Executive Officer, retired.Michael Spanos was appointed as President and Chief Executive Officer effectiveNovember 18, 2019 , and was appointed as a member of Holdings' Board of Directors effectiveOctober 24, 2019 . Also effectiveNovember 18, 2019 ,Richard Roedel became the Non-Executive Chairman of the Board of Directors of Holdings. OnJanuary 10, 2020 , we announced that our development of Six Flags-branded parks inChina encountered continued challenges. The Company's partner inChina ,Riverside Investment Group ("Riverside") faces severe challenges due to the macroeconomic environment and the declining real estate market inChina . This led Riverside to default on its payment obligations to the Company, and the Company delivered formal notices of default under its agreements with Riverside. Since that time, Riverside has been unable to cure these payment defaults. As a result, onFebruary 14, 2020 , we terminated our agreements with them. It is therefore unlikely that we will recognize any revenue or profit in 2020 related to the development of parks inChina . 38
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OnJanuary 31, 2020 , we announced our entry into a Cooperation Agreement withH Partners Management, LLC and certain of its affiliates regarding the membership and composition of Holdings' Board of Directors and related matters. Pursuant to the Cooperation Agreement, Holdings appointedArik Ruchim to the Board of Directors, andMr. Ruchim was appointed to theNominating and Corporate Governance Committee and the Compensation Committee of Holdings' Board of Directors effectiveJanuary 30, 2020 .
On
OnFebruary 20, 2020 , we announced thatMarshall Barber intends to retire as Executive Vice President and Chief Financial Officer effectiveAugust 31, 2020 .Mr. Barber will continue to serve as Executive Vice President and Chief Financial Officer throughFebruary 24, 2020 , and will remain with the Company untilAugust 31, 2020 , assisting with the transition of a new chief financial officer.Leonard Russ , Senior Vice President of Strategic Planning and Analysis, will assume the role of interim chief financial officer effective February
24,
2020.
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Results of Operations
The following table sets forth summary financial information for the years ended
Year Ended Percentage
(Amounts in thousands, except per capita data) December 31, 2019 December 31, 2018 Change (%)
Total revenue $ 1,487,583 $ 1,463,707 2 %
Operating expenses 607,791 574,724 6 %Selling, general and administrative expenses 199,194 132,168 51 % Costs of products sold 130,304 121,803 7 % Other net periodic pension benefit (4,186) (5,169) (19) % Depreciation and amortization 118,230 115,693 2 % Loss on disposal of assets 2,162 1,879 15 % Interest expense, net 113,302 107,243 6 % Loss on debt extinguishment 6,484 - N/M Other expense, net 2,542 3,508 (28) % Income before income taxes 311,760
411,858 (24) %
Income tax expense 91,942 95,855 (4) %
Net income 219,818 316,003 (30) %
Less: Net income attributable to noncontrolling
interests (40,753) (40,007) 2 %
Net income attributable to Six Flags
Entertainment Corporation $ 179,065 $
275,996 (35) %
Other Data:
Attendance 32,811 32,024 2 %Total revenue per capita $ 45.34 $
45.71 (1) %
Year Ended
Revenue
Revenue for the year endedDecember 31, 2019 , totaled$1,487.6 million , a 2% increase compared to$1,463.7 million for the year endedDecember 31, 2018 . The increase in revenue was driven by a 2% increase in attendance, primarily attributable to the full year of operation of our five new parks acquired inJune 2018 andMagic Waters waterpark inRockford, Illinois , which we began operating inApril 2019 . The growth in revenue attributable to the increase in attendance was partially offset by a 3% decrease in sponsorship, international agreements and accommodations revenue and a decrease of$0.21 , or less than 1%, in guest spending per capita. Admissions revenue per capita decreased$0.44 , or 2%, during the year endedDecember 31, 2019 , compared to the year endedDecember 31, 2018 . The decrease in admissions revenue per capita was primarily driven by (i) the majority of our attendance growth being driven by our new parks, which have significantly lower admissions revenue per capita compared to our legacy parks, and (ii) targeted promotions to drive membership penetration. Non-admissions revenue per capita increased$0.23 , or 1%, during the year endedDecember 31, 2019 , compared to the year endedDecember 31, 2018 , primarily as a result of the continued success in selling our all season dining and flash pass products partially offset by the lower in-park spending at our new parks.
Operating expenses
Operating expenses for the year endedDecember 31, 2019 , increased$33.1 million , or 6%, compared to the year endedDecember 31, 2018 , primarily as a result of (i) incremental operating costs in the first five months of 2019, including lease expense, to operate and rebrand our five new domestic parks we began operating inJune 2018 ; (ii) increased costs from statutory minimum wage rate increases and competitive market rate increases at many of our parks; (iii) incremental costs to lease and operateMagic Waters , a waterpark inRockford, Illinois that we began operating inApril 2019 ; and (iv) an increase in expenses related to charges for litigation matters recorded in the fourth quarter of
2019.
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Selling, general and administrative expenses
Selling, general and administrative expenses for the year endedDecember 31, 2019 , increased$67.0 million , or 51%, compared to the year endedDecember 31, 2018 , primarily as a result of the reversal of all stock-based compensation related to the 2017 Performance Award (as defined in Note 8 to the consolidated financial statements included elsewhere in this Annual Report) during the year endedDecember 31, 2018 , as late achievement of the 2017 Performance Award did not occur, and charges related to the default of our partner inChina in 2019.
Cost of products sold
Cost of products sold for the year endedDecember 31, 2019 , increased$8.5 million , or 7%, compared to the year endedDecember 31, 2018 , primarily as a result of increased food and merchandise sales driven by the continued growth of our all season dining pass program and operations at our new properties. Cost of products sold as a percentage of non-admissions revenue for the year endedDecember 31, 2019 , increased slightly as compared to the year endedDecember 31, 2018 , primarily due to the significant portion of our revenue growth being driven by our new parks that currently have lower gross margins.
Depreciation and amortization expense
Depreciation and amortization expense for the year endedDecember 31, 2019 , increased$2.5 million , or 2%, compared to the year endedDecember 31, 2018 . The increase in depreciation and amortization expense is primarily the result of new asset additions related to our ongoing capital investments, partially offset by asset retirements. Loss on disposal of assets
Loss on disposal of assets increased by$0.3 million , or 15%, for the year endedDecember 31, 2019 , compared to the year endedDecember 31, 2018 , primarily as a result of increased asset disposals in conjunction with the execution of our ongoing capital program during the current year relative to the prior year.
Interest expense, net
Interest expense, net increased$6.1 million , or 6%, for the year endedDecember 31, 2019 , compared to the year endedDecember 31, 2018 , primarily as a result of incremental borrowings under the Second Amended and Restated Credit Facility, partially offset by lower interest rates.
Loss on debt extinguishment
In conjunction with the amendments to the Second Amended and Restated Credit Facility entered into inApril 2019 andOctober 2019 , we recognized a loss on debt extinguishment of$6.2 million and$0.3 million , respectively. See Note 8 to the consolidated financial statements included elsewhere in this Annual Report for further discussion.
Income tax expense
Income tax expense was$91.9 million for the year endedDecember 31, 2019 , compared to$95.9 million for the year endedDecember 31, 2018 . Income taxes decreased primarily due to lower earnings before taxes for the year ended inDecember 31, 2019 compared to the year endedDecember 31, 2018 partially offset by the recognition of a valuation allowance against foreign tax credit 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 inChina .
See Note 11 to the consolidated financial statements included elsewhere in this Annual Report for further discussion.
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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 endedDecember 31, 2019 , 2018 and 2017, Holdings paid$279.0 million ,$267.0 million and$227.1 million , respectively, in cash dividends on its common stock. One of our fundamental business goals is to generate superior total stockholder returns 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. OnNovember 18, 2019 , Holdings' Board of Directors declared a quarterly cash dividend of$0.83 payableDecember 9, 2019 to stockholders of record as ofNovember 29, 2019 . 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$85 million in total cash dividends on Holdings' common stock during the 2020 calendar year. OnMarch 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 ofFebruary 18, 2020 , Holdings had repurchased 4,604,000 shares at a cumulative cost of approximately$268.3 million and an average price per share of$58.27 under theMarch 2017 Stock Repurchase Plan, leaving approximately$231.7 million available for permitted repurchases.
The repurchase of common stock and the payment of cash dividends are reflected in our consolidated financial statements as a reduction of stockholders' equity.
OnJune 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. OnApril 13, 2017 , we 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 included elsewhere in 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. OnMarch 26, 2018 , we entered into an amendment to the 2015 Credit Facility 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 issuance of this amendment. OnApril 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 issuance of this amendment. The proceeds of the additional borrowings were used for general corporate purposes, including repurchases of our common stock. 42
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OnApril 17, 2019 , we amended and restated the 2015 Credit Facility (as previously amended). The Second Amended and Restated Credit Facility is comprised of a$350.0 million revolving credit loan facility and an$800.0 million Tranche B term loan facility. In connection with entering into the Second Amended and Restated Credit Facility, we repaid the amounts outstanding on the 2015 Revolving Loan and the outstanding 2015 Term Loan B and we recognized a loss on debt extinguishment of$6.2 million . The remaining proceeds from the Second Amended and Restated Credit Facility will be used for general corporate purposes, including payment of refinancing fees. We capitalized$8.9 million of debt issuance costs directly associated with the issuance of the Second Amended and Restated Credit Facility. OnOctober 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 reduces interest expense by approximately$2.0 million annually. Based on historical and anticipated operating results, we believe cash flows from operations, available cash and amounts available under the Second Amended and Restated Credit Facility will be adequate to meet our liquidity needs, including any anticipated requirements for working capital, capital expenditures, common stock dividends, scheduled debt service, obligations under arrangements relating to the Partnership Parks and discretionary common stock repurchases. Additionally, we expect to be able to use our current federal net operating loss carryforwards to reduce our federal income tax liability until 2024. For the years 2019 through 2024, we have significant federal net operating loss carryforwards subject to an annual limitation that we expect will offset approximately$32.5 million of taxable income per year. 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 or coronavirus; 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 refinance all or a significant portion of our existing debt on or prior to maturity, requiring us to potentially seek additional financing. The degree to which we are leveraged could adversely affect our ability to obtain any additional financing. See "Cautionary Note Regarding Forward-Looking Statements" and "Item 1A. Risk Factors" included elsewhere in this Annual Report. As ofDecember 31, 2019 , our total indebtedness, net of discount and deferred financing costs, was$2,274.9 million which included$498.1 million of the 2024 Notes,$990.6 million of the 2027 Notes, and$786.2 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 2020 and 2021, (iii) estimated interest rates for floating-rate debt and (iv) the 2024 Notes and the 2027 Notes, we anticipate annual cash interest payments of approximately$105 million during both 2020 and 2021. 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 onApril 17, 2026 . 43 Table of Contents As ofDecember 31, 2019 , we had approximately$174.2 million unrestricted cash and$329.2 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 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 onApril 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 included elsewhere in 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 endedDecember 31, 2019 , net cash provided by operating activities decreased by$2.5 million to$410.6 million from$413.1 million in 2018. The decrease is attributable to a decrease in working capital. Net cash used in investing activities during the year endedDecember 31, 2019 decreased$13.0 million to$139.1 million from$152.1 million , consisting primarily of capital expenditures, net of insurance proceeds, and partially offset by proceeds received from the disposal of assets. Net cash used in financing activities during the year endedDecember 31, 2019 decreased$150.5 million to$143.0 million from$293.5 million , primarily attributable to the payment of cash dividends, distributions to our noncontrolling interests and the payment of debt issuance costs in connection with the repayment of the 2015 Credit Facility and our entry into the Second Amended and Restated Credit Facility onApril 17, 2019 . These uses of cash were partially offset by proceeds from the exercise of stock options and borrowings under the Second Amended and Restated Term Loan B. 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 spending per capita levels because most of our cash-based expenses are relatively fixed and do not vary significantly with either attendance or spending per capita. 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$74.2 million in 2020 (subject to cost of living adjustments in subsequent years) to the limited partners in the Partnerships Parks (based on our ownership of units as ofDecember 31, 2019 , our share of the distribution will be approximately$32.5 million ), (ii) minimum capital expenditures at each of the Partnership Parks during rolling five-year periods, based generally on 6% of thePartnership 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 fromMarch 31 through late April of each year, and any limited partnership interest tendered during such time period must be fully paid for no later thanMay 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 ofGeorgia ) and 2028 (in the case ofTexas ), 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 included elsewhere in 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. 44
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Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of
Contractual Obligations
Set forth below is certain information regarding our debt, lease and purchase
obligations as of
(Amounts in thousands) 2020 2021 - 2022 2023 - 2024 2025 and beyond Total Long term debt - including current portion (1)$ 8,000 $ 16,000 $ 1,016,000 $ 1,256,000 $ 2,296,000 Interest on long-term debt (2) 104,532 206,367 204,346 102,134 617,380 Operating leases (3) 23,802 44,296 40,712 269,055 377,865 Purchase obligations (4) 176,942 13,511
8,000 112,000 310,453 Total$ 313,276 $ 280,174 $ 1,269,058 $ 1,739,189 $ 3,601,698
Payments are shown at principal amount. See Note 8 to the consolidated (1) financial statements included elsewhere in this Annual Report for further
discussion on long-term debt.
See Note 8 to the consolidated financial statements included elsewhere in (2) this Annual Report for further discussion on long-term debt. Amounts shown
reflect variable interest rates in effect at
Does not give effect to cost of living adjustments. Obligations not
(3) denominated in
existing on
Represents obligations as of
inventory, media and advertising commitments, license fees, computer systems
and hardware, and new rides and attractions. Of the amount shown for 2020,
approximately
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 (4) therefore subject to change. Amounts for new rides and attractions are
computed as of
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
Amounts do not include purchase obligations existing at the individual
park-level for supplies and other miscellaneous items, none of which are
individually material.
Other Obligations
During each of the years ended December 31, 2019 , 2018 and 2017, 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 included elsewhere in this Annual Report for more
information on our pension benefit plan.
We expect to make contributions of approximately $6.0 million in 2020 to our
pension plan based on the 2019 actuarial valuation. We plan to make a
contribution to our 401(k) Plan in 2020, and our estimated expense for employee
health insurance for 2020 is $18.5 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,
2019 . 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 "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.
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The vast majority of our capital expenditures in 2020 and beyond are expected to be made on a discretionary basis.
Recently Issued Accounting Pronouncements
InJune 2016 , FASB issued Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments, ("Topic 326"). The standard requires the immediate recognition of estimated credit losses expected to occur over the life of financial assets rather than the current incurred loss impairment model that recognizes losses when a probably threshold is met. Topic 326 is effective for annual periods beginning afterDecember 15, 2019 and interim periods within those fiscal years. We do not expect the adoption of Topic 326 to have a material impact on our consolidated balance sheets, statements of operations and financial disclosures. InDecember 2019 , 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 afterDecember 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. InAugust 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 afterJanuary 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.
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