SIX FLAGS ENTERTAINMENT CORPORATION The following discussion and analysis contains forward-looking statements relating to future events or our future financial performance, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements. Please see the discussion regarding forward-looking statements included under the caption "Cautionary Note Regarding Forward-Looking Statements" included elsewhere in this Quarterly Report and "Item 1A. Risk Factors" in the 2020 Annual Report and in this Quarterly Report for further discussion of the uncertainties, risks and assumptions associated with these statements. The following discussion and analysis presents information that we believe is relevant to an assessment and understanding of our condensed consolidated balance sheets and results of operations. This information should be read in conjunction with the condensed consolidated financial statements, and the notes thereto, and other financial data included elsewhere in this Quarterly Report. The following information should also be read in conjunction with our audited consolidated financial statements, and the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2020 Annual Report. Overview General 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 27 regional theme parks and waterparks, 24 are located inthe United States , two are located inMexico and one is located inMontreal, Canada . Our waterpark at Six Flags Great America, inGurnee, Illinois , opened as a separate gate in 2021 as Hurricane Harbor Chicago, creating our 27th park. 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, providing a complete family-oriented entertainment experience. We work continuously to improve our parks and our guests' experiences and to meet our guests' evolving needs and preferences. The results of operations for the three and nine months endedOctober 3, 2021 ,September 30, 2020 , andSeptember 30, 2019 , are not indicative of the results expected for the full year. Typically, our park operations generate more than half of their annual revenue during the period fromMemorial Day toLabor Day each year while expenses are incurred year-round. Due to the COVID-19 pandemic, we temporarily suspended operations at our parks beginningMarch 13, 2020 . As ofMay 29, 2021 , we had opened all of our parks, and, as ofJune 15, 2021 , none of our parks were subject to mandated capacity constraints, with the exception of our theme park inMontreal and our two parks inMexico . As ofOctober 18, 2021 , all capacity constraints were lifted on the twoMexico parks. Attendance trends continued to improve throughout 2020 and the first nine months of 2021. Our revenue is primarily derived from (i) the sale of tickets (including season passes and memberships) for entrance to our parks (which accounted for approximately 54%, 58% and 55% of total revenues during the nine months endedOctober 3, 2021 ,September 30, 2020 , andSeptember 30, 2019 , respectively), (ii) the sale of food and beverages, merchandise, games and attractions, parking and other services inside our parks, and (iii) sponsorship, international agreements and accommodations, including revenue earned under international development contracts. 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 quarter to quarter and year to year. During the first nine months of 2021, our park earnings before interest, taxes, depreciation and amortization ("Park EBITDA") increased relative to the comparable period in the prior year, as a result of the re-opening of all of our parks and the related increase in operating days. Our attendance trends continue to improve when compared to 2019, which offers a better comparison than to 2020 because, due to the COVID-19 pandemic, we closed all of our parks inMarch 2020 , and many of our parks remained closed or had curtailed operations through the third quarter of 2020. 27 Table of Contents Our principal costs of operations include salaries and wages, employee benefits, advertising, third party services, repairs and maintenance, utilities, rent and insurance. A large portion of our expenses is relatively fixed when our parks are operating, as our costs for full-time employees, maintenance, utilities, rent, advertising and insurance do not vary significantly with attendance. During 2020, while all of our parks were temporarily closed due to the COVID-19 pandemic, we reduced a significant portion of these expenses, including eliminating the majority of our seasonal labor and advertising expense. These cost-savings were partially offset by the increased costs related to enhanced sanitization and preventative measures implemented when the parks reopened to help minimize the spread of COVID-19. We may face additional costs in the future in complying with any new federal, state or local regulations or industry best practices established in response to the COVID-19 pandemic, as well as from general wage rate pressure.
Transformation Plan
Prior to the COVID-19 pandemic, we initiated a transformation plan. The transformation plan consists of both revenue and cost initiatives designed to improve our core operational effectiveness and to support our strategy, delivering sustainable value creation over time. Our strategy is to create thrilling, memorable experiences at our regional parks, delivered by a diverse and empowered team, through industry-leading innovation and technology. The strategy is driven by three focus areas: (i) modernizing the guest experience through technology, (ii) continuously improving operational efficiency, and (iii) driving financial excellence. We plan to focus on our core business over the next two to three years; during this time, we will be cautious about expanding into adjacent domestic markets or entering into new international agreements. Due to the outbreak of the COVID-19 pandemic in early 2020 and the resulting park closures, management redirected its focus on steering us through this crisis, causing a delay in our transformation plan. However, in the latter half of 2020, we made significant progress on our transformation plan. For example, inOctober 2020 , we reduced our full-time headcount costs by approximately 10%. From a cost perspective, we closed two satellite offices, initiated centralized negotiations with several vendors to reduce procurement costs, and piloted a program to use our variable labor more efficiently and effectively. From a revenue perspective, we improved our menu assortment, pricing and merchandizing strategy, developed a new tool to optimize media spending, improved our website, and made progress on optimizing our ticket revenue by adjusting the relative prices of our tickets, allowing us to attract incremental single-day guests and increasing park utilization. As part of the transformation plan, in the third quarter of 2021, we enhanced our guests' experience during our annual Fright FestHalloween event by offering electronic Fright Passes, we expanded the number of locations that offer mobile dining across our parks, and we launched a new culinary partnership with Starbucks in two of our parks. We continue to unlock efficiencies through our transition to a shared services model with a technology-enabled redesign of our operational processes, and we are continuing to explore opportunities to automate labor. Executing the transformation plan will require charges of approximately$70 million , of which$60 million will be cash and$10 million will be non-cash write-offs of ride assets. Approximately$46 million has been incurred through the third quarter of 2021, including all of the non-cash write-offs of ride assets. We expect the remaining charges to be incurred in 2021 and 2022. The majority of the remaining investments will be made on our information technology infrastructure, mainly directed towards modernizing the guest experience.
Critical Accounting Policies and Estimates
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 28
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estimates. Changes in these estimates resulting from the continuing changes in
the economic environment will be reflected in the financial statements in future
periods. With respect to our critical accounting policies and estimates, there
have been no material developments or changes from the policies and estimates
discussed in the 2020 Annual Report.
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Results of Operations
Three Months Ended
The following table sets forth summary financial information for the three
months ended
Three Months Ended Percentage Change (%)
(Amounts in thousands, except
percentage and per capita data)
$ 638,284 $ 126,327 $ 621,180 N/M 3 %
Operating expenses 228,119 113,833 189,820 N/M 20 %
Selling, general and administrative
expenses 64,356 41,568 55,144 55 % 17 %
Cost of products sold 54,100 12,980 53,508 N/M 1 %
Other net periodic pension benefit (76) (995) (1,038) (92) % (93) % Depreciation and amortization 28,053 28,785 30,685 (3) % (9) % Loss on disposal of assets 624 10,065 2,659 NM N/M Interest expense, net 38,095 38,392 28,336 (1) % 34 % Other expense, net 346 13,470 231 (97) % N/M Income (loss) before income taxes 224,667 (131,771) 261,835 N/M (14) % Income tax expense (benefit) 46,543 (36,243) 61,626 N/M (24) % Net income (loss) 178,124 (95,528) 200,209 N/M (11) % Less: Net income attributable to noncontrolling interests (20,883) (20,644) (20,376) 1 % 2 % Net income (loss) attributable to Six Flags Entertainment Corporation $ 157,241 $ (116,172) $ 179,833 N/M (13) % Other Data: Attendance 12,029 2,611 14,012 N/M (14) % Revenue
Revenue for the three months endedOctober 3, 2021 , totaled$638.3 million , an increase of$512.0 million compared to$126.3 million for the three months endedSeptember 30, 2020 . Due to the COVID-19 pandemic, we suspended operations at all of our parks inMarch 2020 . The increase in operating days in the three months endedOctober 3, 2021 , compared to the three months endedSeptember 30, 2020 , drove the majority of the revenue increase compared to the prior year period. The change, in the first quarter of 2021, to the method we use to determine our fiscal periods resulted in four fewer calendar days in July for third quarter 2021 that were included in the third quarter for both 2020 and 2019, including most of theJuly 4th holiday weekend. This was offset by three additional days in October that were included in third quarter 2021 results. The net impact was a reduction of 437,000 of attendance and$16.8 million of revenue in third quarter 2021. Revenue for the three months endedOctober 3, 2021 , totaled$638.3 million , an increase of$17.1 million , or 3%, compared to the$621.2 million for the three months endedSeptember 30, 2019 . The increase in revenue was driven by higher guest spending per capita, partially offset by lower attendance and a$13.9 million reduction in sponsorship, international agreements and accommodations revenue, primarily related to the termination of our international agreements inChina andDubai during 2020 and 2019, respectively, and a reduction in sponsorship revenue and accommodations operations due to the COVID-19 pandemic. The decrease in attendance was due to the temporary COVID-19 pandemic-related limitations on park operations, a reduction in pre-booked groups due to the COVID-19 pandemic and the change in our fiscal reporting calendar. Total guest spending per capita, which excludes sponsorship, international agreements and accommodations revenue, for the three months endedOctober 3, 2021 , increased by$5.20 , to$52.02 compared to the three months endedSeptember 30, 2020 , primarily as a result of a$0.78 , or 3%, increase in admissions revenue per capita and a$4.42 , or 23%, increase in non-admissions revenue
per
capita.
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Total guest spending per capita improved by $9.58 during the three months ended
October 3, 2021 , compared to the three months ended September 30, 2019 ,
primarily as a result of a $6.05 , or 35%, increase in non-admissions revenue per
capita driven by strong consumer spending trends and early progress on several
of our transformation initiatives, and a $3.53 , or 14%, increase in admissions
revenue per capita as a result of our revenue management initiatives and a
shorter average season for 2021 season passes compared to 2019, resulting in
fewer assumed visits per pass. Most 2021 season passes were sold later in the
season than in 2019, resulting in season pass revenue being recognized over a
shorter period allowing for fewer visits which results in higher admissions
revenue per capita.
Since the beginning of the membership program, we have allocated a portion of
the membership revenue to "Non-admissions revenue." Beginning with memberships
in October 2020 , we prospectively began allocating an incremental portion of
revenue between "Park admissions" and "Park food, merchandise and other." This
resulted in a reduction in admissions revenue per capita and an increase in
non-admissions revenue per capita compared to what previously would have been
reported, but the allocation has no impact on "Total guest spending per capita."
Operating expenses
Operating expenses for the three months ended October 3, 2021 , increased $114.3
million compared to the three months ended September 30, 2020 , primarily as a
result of the re-opening of all of our 27 parks and as a result of higher wage
rates and incentive costs to attract and retain team members, increased security
in our parks, and increased repair and maintenance projects due to our cautious
approach to spending earlier in the year, and investments to improve the guest
experience. The increase in operating expenses was also attributable to an
approximately $10.6 million increase in litigation related to an increased
estimate of the probable outcome of a legacy class action suit, which was
partially offset by cost savings during the quarter driven by our transformation
plan.
Operating expenses for the three months ended October 3, 2021 , increased $38.3
million , or 20%, compared to the period ended September 30, 2019 , primarily as a
result of higher wage rates and incentive costs to attract and retain team
members, increased security in our parks, and increased repair and maintenance
projects due to our cautious approach to spending earlier in the year and
investments to improve the guest experience. The increase in operating expenses
was also attributable to an approximately $10.6 million increase in litigation
related to an increased estimate of the probable outcome of a legacy class
action suit which was partially offset by cost savings measures driven by our
transformation plan.
Selling, general and administrative expenses
Selling, general and administrative expenses for the three months endedOctober 3, 2021 , increased$22.8 million , or 55%, compared to the three months endedSeptember 30, 2020 . The increase was primarily related to the expenses that we were able to reduce during the three months endedSeptember 30, 2020 related to the pandemic. During 2020, we temporarily reduced executive officer salaries and the salaries of many other corporate employees by 25% due to uncertainty with the pandemic and we eliminated the majority of our advertising costs. A portion of the increased expenses for the three months endedOctober 3, 2021 were reduced by savings measures from our transformation plan. Selling, general and administrative expenses for the three months endedOctober 3, 2021 increased$9.2 million , or 17%, compared to the three months endedSeptember 30, 2019 . The increase in selling, general and administrative costs compared to 2019 were related to the centralization initiative from our transformation plan, which shifted a portion of costs from operating expenses to selling, general and administrative expenses. All corporate expenses are included in selling, general and administrative expenses rather than operating expenses. Cost of products sold
Cost of products sold in the three months endedOctober 3, 2021 , increased$41.1 million compared to the three months endedSeptember 30, 2020 , primarily due to the reduced operations and temporary suspension of operations at our parks during 2020 due to the COVID-19 pandemic. 31
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Cost of products sold in three months endedOctober 3, 2021 , increased$0.6 million , or 1%, compared to the three months endedSeptember 30, 2019 , primarily as a result of increased spending in our parks during the three months endedOctober 3, 2021 compared to the three months endedSeptember 30, 2019 .
Depreciation and amortization
Depreciation and amortization expense for the three months endedOctober 3, 2021 , decreased$0.7 million , or 3%, compared to the three months endedSeptember 30, 2020 . The decrease in depreciation and amortization expense is primarily the result of asset retirements, and reduced capital expenditures due to the reductions implemented in 2020 due to the COVID-19 pandemic. Depreciation and amortization expense for the three months endedOctober 3, 2021 , decreased$2.6 million , or 9%, compared to the three months endedSeptember 30, 2019 . The decrease in depreciation and amortization expense is primarily the result of asset retirements, and reduced capital expenditures due the reductions implemented in 2020 due to the COVID-19 pandemic.
Loss on disposal of assets
We recognized a$0.6 million loss on disposal of assets for the three months endedOctober 3, 2021 , compared to a loss on disposal of assets of$10.1 million for the three months endedSeptember 30, 2020 . We recognized a loss on disposal of assets of$2.7 million for the three months endedSeptember 30, 2019 . These losses on disposal of assets were primarily driven by the write-off of assets in conjunction with our ongoing capital plan.
Interest expense, net
Interest expense, net decreased
Interest expense, net increased$9.8 million , or 34%, compared to the three months endedSeptember 30, 2019 . The increase was primarily as a result of increased interest expense related to the 2025 Notes issued inApril 2020 . This increase was partially offset by lower borrowings under the Second Amended and Restated Revolving Loan and the Second Amended and Restated Term Loan B, and the interest savings related to the prepayment of$50.5 million of the outstanding 2024 Notes inMarch 2020 . Income tax expense (benefit) Income tax expense for the three months endedOctober 3, 2021 was$46.5 million reflecting an effective tax rate of 22%. The difference between our effective tax rate and the federal statutory rate primarily results from state and foreign income taxes and certain nondeductible expenses, including nondeductible executive compensation. 32 Table of Contents Results of Operations
Nine Months Ended
The following table sets forth summary financial information for the nine months
ended
Percentage Change (%)
Nine Months Ended 2021 to 2021 to
(Amounts in thousands, except per
capita data) October 3, 2021 September 30, 2020 September 30, 2019 2020 2019
Total revenue $ 1,180,095 $ 247,973 $ 1,226,583 N/M (4) %
Operating expenses 504,530 282,378 482,690 79 % 5 %
Selling, general and administrative
expenses 150,687 114,578 154,977 32 % (3) %
Costs of products sold 100,509 22,954 107,296 N/M (6) %
Other net periodic pension benefit (3,409) (2,985) (3,148) 14 % 8 %
Depreciation and amortization 84,938 88,883 89,033 (4) % (5) %
Loss on disposal of assets 1,863 10,458 3,105 (1) % N/M
Interest expense, net 114,563 116,596 86,256 (2) % 33 %
Loss on debt extinguishment - 6,106 6,231 N/M N/M
Other expense (income), net 8,796 19,282 (1,474) (54) % N/M
Income (loss) before income taxes 217,618 (410,277) 301,617 N/M (28) %
Income tax (benefit) expense 43,930 (113,953) 70,644 N/M (38) %
Net income (loss) 173,688 (296,324) 230,973 N/M (25) %
Less: Net income attributable to
noncontrolling interests (41,766) (41,288) (40,753) 1 % 2 %
Net income (loss) attributable to
Six Flags Entertainment Corporation $ 131,922 $ (337,612) $ 190,220 N/M N/M
Other Data:
Attendance 21,924 4,628 26,688 N/M (18) %
Revenue
Revenue for the nine months ended October 3, 2021 , totaled $1,180.1 million , an
increase of $932.1 million compared to $248.0 million for the nine months ended
September 30, 2020 . In March 2020 , we suspended operations at all of our parks
due to the COVID-19 pandemic and many parks remained closed or had reduced
operations through September 30, 2020 . The increase in operating days during the
nine months ended October 3, 2021 , compared to the nine months ended September
30, 2020 , drove the majority of the revenue increase compared to the prior year
period. The change, in the first quarter of 2021, to the method we use to
determine our fiscal periods resulted in (i) the addition of three calendar days
in the first nine months of 2021 compared to both 2020 and 2019, and (a) a shift
of 470,000 of attendance, and $32.0 million of revenue, from the fourth quarter
to the first nine months of 2021.
Revenue for the nine months ended October 3, 2021 , totaled $1,180.1 million , a
decrease of $46.5 million , or 4%, compared to $1,226.6 million for the nine
months ended September 30, 2019 . The decrease in revenue was primarily
attributable to fewer operating days during the first quarter of the year due to
pandemic-related park closures and a reduction in sponsorship, international
agreements and accommodations revenue compared to 2019, due primarily to the
termination of our international agreements in China and Dubai in 2020 and 2019,
respectively, and lower accommodations and sponsorship revenue due to COVID-19.
The decreases were partially offset by stronger guest spending per capita and
the revenue attributable to the additional three operating days as a result of
the change in our fiscal reporting year and a settlement payment relating to our
terminated China project of which $6.7 million was recognized as revenue.
Total guest spending per capita, which excludes sponsorship, international
agreements and accommodations revenue, for the nine months ended October 3,
2021 , increased by $3.11 , or 6%, to $52.24 , compared to the nine months ended
September 30, 2020 , primarily as a result of a $5.21 , or 29%, increase in
non-admissions revenue per capita which was offset by a decrease of $2.10 , or
7%, in admissions revenue per capita. The decrease in admissions revenue per
capita was primarily due to recurring monthly membership revenue in first
quarter 2020 from memberships that continued on a monthly basis past the initial
twelve-month commitment period. Prior to the temporary suspension of
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park operations, these monthly payments were recognized as received and spread over a lower attendance base. The increase in non-admissions revenue per capita was primarily driven by strong consumer spending trends and early progress on several of our transformation initiatives and by guest opportunities to spend inside of the parks during 2021, while during 2020, a large percentage of our guests visited our drive-through safari at Six Flags Great Adventure, which did not provide an opportunity for in-park spending. Total guest spending per capita improved by$9.38 , or 22%, compared to the nine months endedSeptember 30, 2019 , primarily as a result of a$5.58 , or 31%, increase in non-admissions revenue per capita, driven by early progress on several of our transformation initiatives and strong consumer spending trends, and a$3.80 , or 15%, increase in admissions revenue per capita driven by our revenue management initiatives and a shorter average season for 2021 season passes compared to 2019, resulting in fewer assumed visits per pass. Most 2021 season passes were sold later in the season than in 2019, resulting in season pass revenue being recognized over a shorter period allowing for fewer visits which results in higher admissions revenue per capita. Since the beginning of the membership program, we have allocated a portion of the membership revenue to "Non-admissions revenue." Beginning with memberships inOctober 2020 , we prospectively began allocating an incremental portion of revenue between "Park admissions" and "Park food, merchandise and other." This resulted in a reduction in admissions revenue per capita and an increase in non-admissions revenue per capita compared to what previously would have been reported, but the increased allocation has no impact on "Total guest spending per capita." Operating expenses Operating expenses for the nine months endedOctober 3, 2021 , increased$222.2 million , or 79%, compared to the same period in the prior year primarily as a result of the re-opening of all of our 27 parks in 2021, while many were closed or operating at reduced capacity in 2020. The increase in operating expenses was also attributable to an increase by approximately$10.6 million in litigation related to an increased estimate of the probable outcome of a legacy class action suit. Operating expenses increased$21.8 million , or 5%, compared to the period endedSeptember 30, 2019 . The increase in operating expenses was also attributable to an approximately$10.6 million increase in litigation related to an increased estimate of the probable outcome of a legacy class action suit. During the second and third quarters, wage rate increases and higher incentive accruals were partially offset by fewer total employee hours worked as a result of the national labor shortage.
Selling, general and administrative expenses
Selling, general and administrative expenses for the nine months endedOctober 3, 2021 , increased$36.1 million , or 32%, compared to the nine months endedSeptember 30, 2020 , primarily due to a temporary 25% reduction in executive officer salaries and the salaries of many other corporate employees during 2020 and the elimination of the majority of our advertising expenses in 2020 due to uncertainty with the COVID-19 pandemic. Selling, general and administrative expenses for the nine months endedOctober 3, 2021 , decreased$4.3 million , or 3%, compared to the nine months endedSeptember 30, 2019 . During 2021, the reduction in expenses reflected savings measures from our transformation plan and lower advertising costs compared to 2019. The selling, general and administrative costs would have further decreased compared to 2019 if not for our centralization initiative from our transformation plan, which shifted a portion of costs from operating expenses to selling, general and administrative expenses. All corporate expenses are included in selling, general and administrative expenses rather than operating expenses. Cost of products sold Cost of products sold in the nine months endedOctober 3, 2021 , increased$77.6 million compared to the nine months endedSeptember 30, 2020 , primarily due to the COVID-19 related suspension of operations at each of our parks during 2020 and many of our parks operating under restricted capacities after they reopened in 2020. 34 Table of Contents
Cost of products sold in nine months endedOctober 3, 2021 , decreased$6.8 million , or 6%, for the nine months endedSeptember 30, 2019 , primarily as a result of lower in-park sales due to lower attendance related to many of our parks being closed or operating at reduced capacities in the first half of 2021 due to the COVID-19 pandemic and a higher mix of rental and parking revenue which have no lower cost of goods sold.
Depreciation and amortization expense
Depreciation and amortization expense for the nine months endedOctober 3, 2021 , decreased$3.9 million , or 4%, compared to the nine months endedSeptember 30, 2020 primarily as a result of asset retirements, and reduced capital expenditures due to COVID-19 reductions implemented in 2020. Depreciation and amortization expense for the nine months endedOctober 3, 2021 , decreased$4.1 million , or 5%, compared to the nine months endedSeptember 30, 2019 . The decrease in depreciation and amortization expense is primarily the result of asset retirements, and reduced capital expenditures due to the COVID-19 reductions implemented in 2020.
Loss on disposal of assets
We recognized a$1.9 million loss on disposal of assets for the nine months endedOctober 3, 2021 compared to a loss on disposal of assets of$10.5 million and$3.1 million for the nine months endedSeptember 30, 2020 andSeptember 30, 2019 , respectively. These losses on disposal of assets were primarily driven by the write-off of assets in conjunction with our transformation plan and our ongoing capital expenditure plan.
Interest expense, net
Interest expense, net decreased$2.0 million , or 2%, for the nine months endedOctober 3, 2021 , compared to the nine months endedSeptember 30, 2020 , primarily due to the discontinuance of hedge accounting on a portion of our swap agreements inApril 2020 . This resulted in a$14.9 million reclassification from accumulated other comprehensive loss to interest expense in the unaudited consolidated statement of operations, increasing interest expense in 2020, partially offset by additional interest in 2021 related to the 2025 Notes that were issued inApril 2020 . Interest expense, net increased$28.3 million , or 33%, compared to the nine months endedSeptember 30, 2019 . The increase was primarily as a result of increased interest expense related to the 2025 Notes issued inApril 2020 . This increase was partially offset by lower borrowings under the Second Amended and Restated Revolving Loan and the Second Amended and Restated Term Loan B, and the interest savings related to the prepayment of$50.5 million of the outstanding 2024 Notes inMarch 2020 . Income tax expense (benefit) Income tax expense for the nine months endedOctober 3, 2021 was$43.9 million for an effective tax rate of 21%. The difference between our effective tax rate and the federal statutory rate primarily results from state and foreign income taxes and nondeductible expenses, including certain nondeductible executive
compensation.
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Liquidity, Capital Commitments and Resources
On an annual basis, our principal sources of liquidity are cash generated from operations, funds from borrowings and existing cash on hand. Our principal uses of cash typically include the funding of working capital obligations, debt service, investments in parks (including capital projects), common stock dividends, payments to our partners in the Partnership Parks, and common stock repurchases. Holdings did not pay any dividends during the nine months endedOctober 3, 2021 . During the nine months endedSeptember 30, 2020 , Holdings paid$22.5 million in cash dividends on its common stock. During the nine months endedOctober 3, 2021 andSeptember 30, 2020 , we paid$0.2 million to employees with dividend equivalent rights for previously declared dividends due upon the vesting of the related shares. These dividends were declared prior to the suspension of dividend payments in connection with the increase in the Second Amended and Restated Revolving Loan inApril 2020 . As ofOctober 22, 2021 , Holdings has repurchased 4,607,000 shares of common stock at a cumulative cost of approximately$268.3 million and an average cost per share of$58.25 under its approved stock repurchase program, leaving approximately$231.7 million available for permitted repurchases. Pursuant to amendments to the Second Amended and Restated Credit Facility in April andAugust 2020 , we agreed to temporarily suspend the payment of dividends and the repurchase of common stock until the earlier ofDecember 31, 2022 , or such time as SFTP reduces the incremental revolving credit commitments by$131 million and begins using actual results to test compliance with the senior secured leverage ratio financial maintenance covenant. However, given the present uncertainty associated with the ultimate impact of COVID-19 on our business and operations, we may determine that it is prudent to continue these suspensions for a longer duration. Certain investors may have an expectation that we will resume our dividend at a certain time and at certain levels or repurchase shares available under Holdings' repurchase program. The stock price of Holdings' common stock could be adversely affected if our cash dividend rate or common stock repurchase activity differs from investors' expectations. Based on historical and anticipated operating results, we believe cash flow from operations, available cash and amounts available under the Second Amended and Restated Credit Facility will be adequate to meet our liquidity needs for at least the next twelve months, including any anticipated requirements for working capital, capital expenditures, scheduled debt service and obligations under arrangements relating to the Partnership Parks. Additionally, we expect to be able to use federal net operating loss carryforwards to reduce our federal income tax liability for several years. For the years 2019 through 2024, we have significant federal net operating loss carryforwards subject to an annual limitation that will offset approximately$32.5 million of taxable income per year. We expect taxable income in excess of the annual limitation in those years will be offset by net operating losses generated during 2020. In accordance with the CARES Act, net operating loss carryforwards generated in 2020 are not subject to expiration and will carryforward indefinitely. Our current and future liquidity is greatly dependent upon our operating results, which are driven largely by overall economic conditions as well as the price and perceived quality of the entertainment experience at our parks. Our liquidity could also be adversely affected by a disruption in the availability of credit as well as unfavorable weather; natural disasters; contagious diseases, such as Ebola, Zika, swine flu, COVID-19 or other diseases; accidents or the occurrence of an event or condition at our parks, including terrorist acts or threats inside or outside of our parks; negative publicity; or significant local competitive events, which could materially reduce paid attendance and revenue related to that attendance at any of our parks. While we work with local police authorities on security-related precautions to prevent certain types of disturbances, we can make no assurance that these precautions will be able to prevent these types of occurrences. However, we believe our ownership of many parks in different geographic locations reduces the effects of adverse weather and these other types of occurrences on our consolidated results. If such an adverse event were to occur, we may be unable to borrow under the Second Amended and Restated Revolving Loan or may be required to repay amounts outstanding under the Second Amended and Restated Credit Facility and/or may need to seek additional financing. In addition, we expect we may be required to seek additional financing to refinance all or a significant portion of our existing debt on or prior to maturity. The degree to which we are leveraged could adversely affect our ability to obtain any additional financing. See "Cautionary Note Regarding Forward-Looking Statements" and "Item 1A. Risk Factors" in the 2020 Annual Report and in this Quarterly Report. 36
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As ofOctober 3, 2021 , our total indebtedness, net of discount and deferred financing costs, was approximately$2,627.8 million . As ofOctober 3, 2021 , based on (i) non-revolving credit debt outstanding on that date, (ii) estimated interest rates for floating-rate debt, and (iii) the 2024 Notes, the 2025 Notes and the 2027 Notes, we anticipate annual cash interest payments of approximately$160 million and$150 million during 2021 and 2022, respectively. As ofOctober 3, 2021 , we had approximately$389.9 million of unrestricted cash and$460.8 million available for borrowing under the Second Amended and Restated Revolving Loan. Our ability to borrow under the Second Amended and Restated Revolving Loan depends on compliance with certain conditions, including a maximum senior secured net leverage maintenance covenant, a minimum liquidity covenant, and the absence of any material adverse change in our business or financial condition. If we were to become unable to borrow under the Second Amended and Restated Revolving Loan, and we failed to meet our projected results from operations significantly, we might be unable to pay in full our off-season obligations. A default under the Second Amended and Restated Revolving Loan could permit the lenders under the Second Amended and Restated Credit Facility to accelerate the obligations thereunder. The Second Amended and Restated Revolving Loan expires 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 3 to the unaudited condensed consolidated financial statements included in this Quarterly Report. We regularly make capital investments for new rides and attractions in our parks. In addition, each year we make capital investments in the food, retail, games and other in-park areas to increase guest spending per capita. We also make annual enhancements to theming and landscaping of our parks in order to provide a more complete family-oriented entertainment experience; and invest in our information technology infrastructure to attain operational efficiencies. We regularly perform maintenance capital enhancements, with most expenditures made during the off-season. Repairs and maintenance costs for materials and services associated with maintaining assets, such as painting and inspecting existing rides, are expensed as incurred and are not included in capital expenditures. During the nine months endedOctober 3, 2021 , net cash provided by operating activities was$305.9 million , compared to net cash used in operating activities of$154.0 million in the prior year period. The significant increase in net cash provided by operating activities was due to an increase in operations during 2021 as we have been able to re-open and operate all of our parks following the temporary COVID-19 suspension of operations at all locations in 2020. Net cash used in investing activities during the nine months endedOctober 3, 2021 , andSeptember 30, 2020 , was$61.8 million and$90.4 million , respectively, consisting primarily of capital expenditures, net of property insurance recoveries. The decrease is attributable to the reduction in spending on capital expenditures due to uncertainty with the ongoing COVID-19 pandemic. Net cash used in financing activities during the nine months endedOctober 3, 2021 , was$11.9 million and was primarily due to the issuance of common stock related to the exercise of stock options. Net cash provided by financing activities was$288.5 million during the nine months endedSeptember 30, 2020 , primarily due to the issuance of the 2025 Notes, partially offset by the$315.0 repayment of the Second Amended and Restated Term Loan B, the$50.5 million of the outstanding 2024 Notes principal we prepaid inMarch 2020 , and the payment of$22.5 million in cash dividends. Since our business is both seasonal in nature and involves significant levels of guest transactions, our net operating cash flows are largely driven by attendance and guest spending per capita levels. Our revenues fluctuate with changes in park attendance resulting from the seasonal nature of our park operations, which generally results in higher revenues during our second and third quarters. Most of our cash-based expenses are relatively fixed and do not vary significantly with either attendance or spending per capita assuming that the parks are operational. During 2020, we had significant cash savings due to the temporary suspension of park operations at our properties. These cash-based operating expenses include salaries and wages, employee benefits, advertising, third party services, repairs and maintenance, utilities and insurance.
Contractual Obligations
Since
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