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
developments at the Company.
Results of Operations. The results of operations section provides an analysis
of our results for the years ended
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
our results for the years ended
items affecting the comparability of our financial statements for those years.
Liquidity, Capital Commitments and Resources. The liquidity, capital
? commitments and resources section provides a discussion of our cash flows for
the year endedJanuary 2, 2022 , and our outstanding debt and commitments existing as ofJanuary 2, 2022 .
Market Risks and Security Analyses. We are principally exposed to market risk
? related to interest rates and foreign currency exchange rates, which are
described in the market risks and security analyses section.
Recently Issued Accounting Pronouncements. This section provides a discussion
? of recently issued accounting pronouncements applicable to Six Flags, including
a discussion of the impact or potential impact of such standards on our
financial statements when applicable.
The following discussion and analysis contains forward-looking statements relating to future events or our future financial performance, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements. Please see the discussion regarding forward-looking statements included under the caption "Cautionary Note Regarding Forward-Looking Statements" and "Item 1A. Risk Factors" for a discussion of some of the uncertainties, risks and assumptions associated with these statements. The following discussion and analysis presents information that we believe is relevant to an assessment and understanding of our consolidated balance sheets and results of operations. This information should be read in conjunction with the consolidated financial statements and the notes thereto in Item 8 of this Annual Report. 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 27 regional theme and waterparks, 24 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. 34
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Our revenue is derived from (i) the sale of tickets for entrance to our parks (which accounted for approximately 53% of total revenue for the year endedJanuary 2, 2022 , approximately 57% of total revenue during the year endedDecember 31, 2020 , and approximately 55% of total revenue during the years endedDecember 31, 2019 ), (ii) the sale of food and beverages, merchandise, games and attractions, parking and other services inside our parks (which accounted for approximately 44%, 35% and 39% in total revenue for the years endedJanuary 2, 2022 ,December 31, 2020 andDecember 31, 2019 , respectively), and (iii) sponsorship, international agreements and accommodations (which accounted for approximately 3%, 8% and 7% for the years endedJanuary 2, 2022 ,December 31, 2020 andDecember 31, 2019 , respectively). Revenue from ticket sales and in-park sales are primarily impacted by park attendance and, as anticipated, we sold significantly more season passes and memberships during 2021 than in the prior year in which many of our parks were closed due to the COVID-19 pandemic. We had 2.1 million members, and 6.1 million season pass holders as ofJanuary 2, 2022 compared to 1.7 million members and 2.1 million season pass holders as ofDecember 31, 2020 . The increase in in-park spending per capita was due to a higher mix of single-day ticket guests, who tend to spend more than season pass holders and members on a per day basis, enhanced in-park offerings, and strong consumer spending trends. 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 the year endedJanuary 2, 2022 , our earnings from park operations excluding the impact of interest, taxes, depreciation, amortization and any other non-cash income or expenditures increased relative to the prior year, as a result of significant increases in operating days and attendance following the temporary suspension of park operations related to the COVID-19 pandemic outbreak during the year endedDecember 31, 2020 . 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. We anticipate that the tight labor market and recent increases to the minimum wage rates will increase our salary, wage and benefit expenses in 2022 and future years. Further legislative changes and competitive wage rate pressure could cause these expenses to continue to increase in the future. 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, Summary of Significant Accounting Policies, to the consolidated financial statements in Item 8 of this Annual Report for further discussion of these and other accounting policies. 35
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Valuation of Long-Lived Assets
Goodwill and intangible assets with indefinite useful lives are tested for impairment annually, or more frequently if events or circumstances indicate that the assets may not be recoverable. We identify our reporting unit and determine the carrying value of the reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to the reporting unit. We then determine the fair value of the reporting unit and compare it to the carrying amount of the reporting unit. All of our parks are operated in a similar manner and have comparable characteristics in that they produce and distribute similar services and products using similar processes, have similar types of customers, are subject to similar regulations and exhibit similar economic characteristics. As such, we are a single reporting unit. For each year, the fair value of the single reporting unit exceeded our carrying amount (provided that we have one reporting unit at the same level for which Holdings' common stock is traded, we believe our market capitalization is the best indicator of our reporting unit's fair value). We have performed a qualitative analysis on our indefinite-lived intangible assets during the fourth quarter of each year. The fair value of indefinite-lived intangible assets is generally determined based on a discounted cash flow analysis. An impairment loss occurs to the extent that the carrying value exceeds the fair value. For goodwill, if the fair value of the reporting unit were to be less than the carrying amount, an impairment loss would be recognized to the extent that the carrying amount of the reporting unit exceeds its fair value. We review long-lived assets, including finite-lived intangible assets subject to amortization, for impairment upon the occurrence of events or changes in circumstances that would indicate that the carrying value of an asset or groups of assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or group of assets to the future undiscounted net cash flows expected to be generated by the asset or group of assets. If such assets are not considered to be fully recoverable, any impairment to be recognized is measured by the amount by which the carrying amount of the asset or group of assets exceeds its respective fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Revenue Recognition
FASB Accounting Standards Codification ("ASC") 606, Revenue from Contracts with
Customers ("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. For any bundled products with multiple performance
obligations, revenue is allocated using the retail price of each distinct
performance obligation and products that are not sold on a stand-alone basis are
treated as residual. In contrast to our season pass and other multi-use
offerings (such as our all season dining pass program, which enables season pass
holders and members to eat meals and snacks any day they visit the park
for one upfront payment) that expire at the end of each operating season, the
membership program continues on a month-to-month basis after the
initial twelve-month membership term and can be canceled any time after the
initial term pursuant to the terms of the membership program. Guests enrolled in
the membership program can visit our parks an unlimited number of times anytime
the parks are open as long as the guest remains enrolled in the membership
program. We review the estimated redemption rate on an ongoing basis and revise
it as necessary throughout the year, including impact of changes to our season
pass and memberships described above. Amounts owed or received for multi-use
admissions in excess of redemptions are recognized in deferred revenue. For
active memberships after the initial twelve-month term, we recognize
revenue monthly as payments are received.
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Recent Events
COVID-19 Pandemic
Since early 2020, the world has been, and continues to be, impacted by COVID-19
and its variants. COVID-19 and measures to prevent its spread has impacted our
business especially when we were required to temporarily suspend operations at
our theme parks and waterparks in March 2020 . Many of our parks resumed
operations, generally at reduced capacity, at various points beginning in June
2020 . As of June 15, 2021 , all of our U.S. parks were open and operating without
any capacity constraints. To successfully navigate through the ongoing pandemic
during 2021, we remained focused on the following key priorities:
? Ensuring the health and safety of our employees and guests visiting our parks;
? Maintaining ongoing operations at our parks with flexibility to adjust to
changing local conditions and government mandates; and
? Serving the communities in which we operate to help mitigate the impact of the
pandemic.
We have taken a number of mitigation efforts in response to the impacts of the pandemic on our business. We reduced seasonal labor during the period that our parks were closed or operating under capacity restrictions and extended the benefits of 2020 season passes through 2021. During 2020, we increased the available borrowings under the Second Amended and Restated Credit Facility, issued additional senior secured notes, deferred or eliminated certain capital projects, reduced certain discretionary spending (such as spending on marketing), temporarily reduced salaries for full-time employees, and did not pay a dividend on Holdings' common stock. Future developments relating to COVID-19, including severity, rate of transmission, variants, treatment, testing and vaccinations, are uncertain and difficult to predict. The impacts of the ongoing pandemic on our business will continue for an unknown length of time. Additionally, COVID-19 impacts that have subsided (such as temporary park closures, operating at reduced capacity and requiring advanced reservations) may again impact our business in the future and new impacts may emerge from COVID-19 developments or other pandemics. The ongoing pandemic continues to present material uncertainty and risk with respect to our operations, financial performance and condition, liquidity and cash flows. For additional discussion of the adverse impact of COVID-19 on our business, see "Item 1A. Risk Factors" of this Annual Report.
Leadership Changes
We experienced a number of leadership changes in 2021:
? In November,
resigned as a member of Holdings' board of directors.
Holdings' board of directors appointed
? in November.
Chairperson of the board of directors since
? Also in November,
Holdings' board of directors.
In December, we eliminated the role Chief Administrative Officer and in
? connection with the eliminated role,
General Counsel and Chief Administrative Officer.
? In
directors when
Also inDecember 2021 , we made additional changes to our organizational structure, including to the leadership team, by reducing layers of management, to more effectively align resources to business priorities and empower the
park
employees.
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Fiscal Year Change
Holdings' Board of Directors determined that it is in the best interests of the Company to change its fiscal year end fromDecember 31 to a 52-53 week fiscal year ending on the Sunday closest toDecember 31 , effective as of the commencement of the Company's fiscal year onJanuary 1, 2021 , to align the Company's reporting calendar with how the Company operates its business and improve comparability across periods. The Company's 2021 fiscal year ended onJanuary 2, 2022 . The 2022 fiscal year began onJanuary 3, 2022 and will end
onJanuary 1, 2023 . 38 Table of Contents Results of Operations
The following table sets forth summary financial information for the years ended
Year Ended Percentage Change
(Amounts in thousands, except per December 31, December 31,
capita data) January 2, 2022 2020 2019 2021 to 2020 2021 to 2019
Total revenue $ 1,496,905 $ 356,575 $ 1,487,583 N/M 1 %
Operating expenses 647,250 389,726 607,791 66 % 6 %
Selling, general and
administrative expenses 211,381 147,295 199,194 44 % 6 %
Costs of products sold 125,728 34,119 130,304 N/M (4) %Other net periodic pension benefit (5,894) (5,190)
(4,186) 14 % 41 % Depreciation and amortization 114,434 120,173 118,230 (5) % (3) % Loss on disposal of assets 12,137 7,689 2,162 1 % N/M Interest expense, net 152,436 154,723 113,302 (1) % 35 % Loss on debt extinguishment - 6,106 6,484 N/M N/M Other expense, net 18,122 24,993 2,542 (27) % N/M
Income (loss) before income taxes 221,311 (523,059) 311,760 N/M (29) % Income tax expense (benefit) 49,622 (140,967) 91,942 N/M (46) % Net income (loss) 171,689 (382,092) 219,818 N/M (22) % Less: Net income attributable to noncontrolling interests (41,766) (41,288) (40,753) 1 % 2 % Net income (loss) attributable toSix Flags Entertainment Corporation $ 129,923$ (423,380) $ 179,065 N/M (27) % Other Data: Attendance 27,693 6,789 32,811 N/M % (16) %
Total guest spending per capita $ 52.40$ 48.45 $ 42.37 8 % 24 %
Year Ended
Revenue
Revenue for the year endedJanuary 2, 2022 , totaled$1,496.9 million , an increase of$1,140.3 million compared to$356.6 million for the year endedDecember 31, 2020 . InMarch 2020 , we suspended operations at all of our parks due to the COVID-19 pandemic and many parks remained closed or had reduced operations throughDecember 31, 2020 . The increase in operating days during the year endedJanuary 2, 2022 , compared to the year endedDecember 31, 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 two calendar days to the 2021 fiscal year compared to both 2020 and 2019, and a shift of 107,000 of attendance, and$6.0 million of revenue to the year endedJanuary 2, 2022 . Revenue for the year endedJanuary 2, 2022 , totaled$1,496.9 million , an increase of$9.3 million , or 1%, compared to$1,487.6 million for the year endedDecember 31, 2019 . The increase was primarily attributable to stronger guest spending per capita and receipt of a settlement payment relating to our formerChina project, of which$6.7 million was recognized as revenue. The increase was partially offset by (i) fewer operating days during the first quarter of 2021 due to pandemic-related park closures and (ii) a reduction in sponsorship, international agreements and accommodations revenue compared to 2019, due primarily to the termination of our international agreements inChina andDubai in 2020 and 2019, respectively, and lower accommodations and sponsorship revenue due to the COVID-19 pandemic. Total guest spending per capita, which excludes sponsorship, international agreements and accommodations revenue, for the year endedJanuary 2, 2022 , increased by$3.95 , or 8%, to$52.40 , compared to the year endedDecember 31, 2020 , primarily as a result of a$5.06 , or 27%, increase in non-admissions revenue per capita, offset by a decrease of$1.11 , or 4%, in admissions revenue per capita. Admissions revenue per capita was higher in 2020 due to recurring monthly membership revenue that was recognized during the first quarter from memberships that continued on a monthly basis past the initial twelve-month commitment period. Prior to the temporary suspension of park operations in 2020, these monthly payments were recognized as received and spread over a lower attendance base during the offseason for many of our parks. The increase in non-admissions revenue per capita was primarily driven by strong 39
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consumer spending trends and early progress on several of our in-park spending initiatives, 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$10.03 , or 24%, compared to the year endedDecember 31, 2019 , primarily as a result of a$6.16 , or 35%, increase in non-admissions revenue per capita, driven by early progress on several of our in-park spending initiatives and strong consumer spending trends, and a$3.87 , or 16%, 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 visits per pass. Most 2021 season passes were sold later in the season than in 2019, resulting in recognition of season pass revenue 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 year endedJanuary 2, 2022 , increased$257.0 million , or 66%, compared to the year endedDecember 31, 2020 , 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$38.9 million , or 6%, compared to the year endedDecember 31, 2019 . The increase is driven by wage rate increases and higher incentive accruals, partially offset by fewer total employee hours worked as a result of the national labor shortage. 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.
Selling, general and administrative expenses
Selling, general and administrative expenses for the year endedJanuary 2, 2022 , increased$64.6 million , or 44%, compared to the year endedDecember 31, 2020 , primarily due to the cessation of a temporary 25% reduction in salaries of most of our full-time employees and a return to historical advertising levels following 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 year endedJanuary 2, 2022 , increased$12.7 million , or 6%, compared to the year endedDecember 31, 2019 . During 2021, the increase was attributable to an increase in stock compensation and to our centralization initiative, 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 during the year ended
Cost of products sold during the year ended
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Depreciation and amortization expense
Depreciation and amortization expense for the year endedJanuary 2, 2022 , decreased$5.8 million , or 5%, compared to the year endedDecember 31, 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 year endedJanuary 2, 2022 , decreased$3.8 million , or 3%, compared to the year endedDecember 31, 2019 . The decrease in depreciation and amortization expense was 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$12.1 million loss on disposal of assets for the year endedJanuary 2, 2022 , compared to a loss on disposal of assets of$7.7 million and$2.2 million for the years endedDecember 31, 2020 andDecember 31, 2019 , respectively. These losses on disposal of assets were primarily driven by the write-off of decommissioned rides and our ongoing capital expenditures.
Interest expense, net
Interest expense, net decreased$2.3 million , or 2%, for the year endedJanuary 2, 2022 , compared to the year endedDecember 31, 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 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$39.1 million , or 35%, compared to the year endedDecember 31, 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 year endedJanuary 2, 2022 , was$49.6 million for an effective tax rate of 22.4%. 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.
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 infrastructure and capital projects), payments to our partners in the
Partnership Parks, and could include payment of dividends on Holdings' common
stock and stock repurchases, when permitted.
Based on historical and anticipated operating results, we believe cash flows
from operations, available cash and amounts available under the Second Amended
and Restated Credit Facility will be adequate to meet our liquidity needs for at
least the next twelve months, including any anticipated requirements for working
capital, capital expenditures, scheduled debt service and obligations under
arrangements relating to the Partnership Parks. Additionally, we believe we have
sufficient liquidity to meet our cash obligations through the end of 2022, even
if we are required to suspend operations due to the COVID-19 pandemic.
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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 2022 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 partially offset by net operating losses generated during 2020. In accordance with the CARES Act, any net operating loss carryforwards generated in 2020 are not subject to expiration and will carryforward indefinitely. Our current and future liquidity is greatly dependent upon our operating results, which are driven largely by overall economic conditions as well as the price and perceived quality of the entertainment experience at our parks. Our liquidity could also be adversely affected by a disruption in the availability of credit as well as unfavorable weather; natural disasters; contagious diseases, such as COVID-19 or other variants; accidents or the occurrence of an event or condition at our parks. If such a material adverse event were to occur, we may be unable to borrow under the Second Amended and Restated Revolving Loan or may be required to repay amounts outstanding under the Second Amended and Restated Credit Facility and/or may need to seek additional financing. In addition, we expect we may be required to seek additional financing to refinance all or a significant portion of our existing debt on or prior to maturity. The degree to which we are leveraged could adversely affect our ability to obtain any additional financing. See "Cautionary Note Regarding Forward-Looking Statements" and "Item 1A. Risk Factors" of this Annual Report.
Cash Flows
Our net operating cash flows are largely driven by attendance and guest spending per capita levels, which vary based on the seasonality of our business. 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. As ofJanuary 2, 2022 , we had approximately$335.6 million unrestricted cash and$460.8 million available for borrowing under the Second Amended and Restated Revolving Loan. We plan to strategically reinvest in our parks to improve the guest experience. For more information about our planned capital expenditures, see "Capital Improvements and Other Initiatives" under Item 1. Business. Year
Ended
(Amounts in thousands) January 2, 2022 December 31, 2020 Net cash provided by (used in) operating activities $ 334,905 $
(190,880)
Net cash used in investing activities (121,701)
(90,894)
Net cash (used in) provided by financing activities (35,144)
266,721
During the year endedJanuary 2, 2022 , net cash provided by operating activities was$344.9 million , compared to net cash used in operating activities of$190.9 million during the period endedDecember 31, 2020 . The significant increase in net cash provided by operating activities was due to the increase in operating days resulting in higher revenues during 2021. The 2020 season had a significant amount of cash used in operations attributable to our temporary suspension of park operations due to the COVID-19 pandemic. Net cash used in investing activities during the year endedJanuary 2, 2022 , increased$30.8 million to$121.7 million from$90.9 million , consisting primarily of capital expenditures, net of insurance proceeds, and partially offset by proceeds received from the disposal of assets. The increase is attributable to an increase in our capital spending closer to historical levels after the decrease in 2020 related to COVID-19 uncertainty. Net cash used in financing activities during the year endedJanuary 2, 2022 was$35.1 million , mostly attributable to$41.8 million in distributions to noncontrolling interests in the Partnership Parks. Net cash provided by financing activities during the year endedDecember 31, 2020 , was$266.7 million , primarily due to the issuance of the 2025 Notes, partially offset by the$315.0 million repayment of the Second Amended and Restated Term Loan B, the$50.5 million of the outstanding 2024 Notes principal we prepaid inMarch 2020 , and the payment of$22.5 million in cash dividends.
Dividends and Stock Repurchases
See Note 12, Preferred Stock, Common Stock and Other Stockholders' Equity, to the consolidated financial statements in Item 8 of this Annual Report for information on payment of dividends on Holdings' common stock and stock repurchases.
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Indebtedness
As of
Credit Facility
SFTP is the borrower under the Second Amended and Restated Credit Facility, as amended from time to time, pursuant to the Second Amended and Restated Credit Agreement, dated as ofApril 17, 2019 , as amended, restated, or modified from time to time ("Credit Agreement"). As ofJanuary 2, 2022 , the Second Amended and Restated Credit Facility consisted of a$481.0 million revolving credit loan facility, which had no amounts outstanding as ofJanuary 2, 2022 and expires onApril 17, 2024 , and a$479.0 million Tranche B Term Loan facility, which will mature onApril 17, 2026 . Our ability to borrow under the revolving credit loan facility requires 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 revolving credit loan facility, 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 credit loan facility could permit the lenders under the Credit Agreement to accelerate the obligations thereunder. As ofJanuary 2, 2022 , we had approximately$20.2 million of outstanding letters of credit, leaving approximately$460.8 million available for borrowing under the revolving credit loan facility. See "Covenant Compliance" discussion below for information regarding our maximum net leverage maintenance covenant and liquidity covenant, which could impact amounts available for borrowing.
2024 Notes, 2024 Add-on Notes, 2025 Notes and 2027 Notes
OnJune 16, 2016 , Holdings issued$300.0 million of 4.875% senior unsecured notes dueJuly 31, 2024 (the "2024 Notes"). OnApril 13, 2017 , Holdings issued an additional$700.0 million of 4.875% Senior Notes dueJuly 31, 2024 (the "2024 Notes Add-on"). Interest payments of$23.1 million for the 2024 Notes and the 2024 Notes Add-on are due semi-annually onJanuary 31 andJuly 31 of each year.
On
OnApril 22, 2020 , SFTP completed the private sale of$725.0 million in aggregate principal amount of 7.00% senior secured notes due 2025 (the "2025 Notes"). Interest payments of$25.4 million are due semi-annually onJanuary 1 andJuly 1 of each year. As ofJanuary 2, 2022 ,$949.5 million ,$725.0 million , and$500.0 million , was outstanding under the 2024 Notes and 2024 Notes Add-on, the 2025 Notes, and
the 2027 Notes, respectively. Covenant Compliance
As ofJanuary 2, 2022 , we were in compliance with all applicable covenants in the Credit Agreement governing the Second Amended and Restated Credit Facility and expect to be in compliance for the next twelve months. The Credit Agreement requires that, as of the end of each fiscal quarter, our senior secured leverage ratio, which is the ratio of our Senior Secured Debt to our Borrower Consolidated Adjusted EBITDA for the preceding four fiscal quarters, not exceed 4.25 to 1.0 (as each such term is defined in the Credit Agreement). The maximum senior secured leverage ratio will step down to 4.0 to 1.0 beginning with the first fiscal quarter end of 2023, and then down to 3.75 to 1.0 from the third fiscal quarter of 2023. 43
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In 2020, we entered into amendments to the Credit Agreement which, among other things, allowed us to use our Borrower Consolidated Adjusted EBITDA from 2019 rather than actual Borrower Consolidated Adjusted EBITDA for the corresponding quarters in 2021 when testing of our senior secured leverage ratio throughout 2022. In connection with these amendments, we agreed to various restrictions, including the suspension of dividend payments on Holdings common stock and stock repurchases, a prohibition from prepaying debt, and a requirement that we maintain minimum liquidity (defined as unrestricted cash and cash equivalents and available commitments under the Second Amended and Restated Revolving Loan) of at least$150 million for a specified period. The restriction on prepaying debt and the minimum liquidity requirement end on the earlier ofDecember 31, 2022 or such time that we demonstrate compliance with our senior secured leverage ratio using actual results. Based on our improved liquidity position and financial outlook, and in order to be permitted to begin prepaying our debt and increase flexibility with respect to liquidity, we voluntarily tested our senior secured leverage ratio based on actual results beginning with the fourth of quarter 2021 and we were in compliance.
Partnership Park Obligations
We guarantee certain obligations relating to the Partnership Parks. These obligations include (i) minimum annual distributions (including rent) of approximately$80.5 million in 2022 (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, 2020 , our share of the distribution will be approximately$35.8 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, Commitments and Contingencies, to the consolidated financial statements in Item 8 of this Annual Report for additional information. After payment of the minimum distribution, we are entitled to a management fee equal to 3% of prior year gross revenues and, thereafter, any additional cash will be distributed first to management fee in arrears and then towards the repayment of any interest and principal on intercompany loans. Any additional cash, to the extent available, is distributed 95% to us, in the case of SFOG, and 92.5% to us, in the case of SFOT.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of
Contractual Obligations
Set forth below is certain information regarding our debt and purchase
obligations as of
2027 and
(Amounts in thousands) 2022 2023 - 2024 2025 - 2026 beyond Total
Interest on long-term debt (1) $ 146,897 $ 264,902 $ 85,087$ 13,750 $ 510,636 Purchase obligations (2) 152,356 10,755 8,000 104,000 275,111 Total$ 299,253 $ 275,657 $ 93,087 $ 117,750 $ 785,747
See Note 8 to the consolidated financial statements in Item 8 of this Annual (1) Report for further discussion on long-term debt. Amounts shown reflect
variable interest rates in effect at January 2, 2022 .
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Represents obligations as of January 2, 2022 with respect to insurance,inventory, media and advertising commitments, license fees, computer systems
and hardware, and new rides and attractions. Of the amount shown for 2022,
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 (2) 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 the year endedJanuary 2, 2022 , we did not make any contributions to our defined benefit pension plan. During the year endedDecember 31, 2020 andDecember 31, 2019 , we made contributions to our defined benefit pension plan of$1.5 million and$6.0 million , respectively. To control increases in costs, our pension plan was "frozen" effectiveMarch 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. EffectiveFebruary 16, 2009 , the remaining participants in the pension plan no longer earned future benefits. See Note 13, Pension Benefits, to the consolidated financial statements in Item 8 of this Annual Report for more information on our pension benefit plan. We are currently assessing making a contribution in 2022 to our pension plan based on our operating results during 2022. We plan to contribute to our 401(k) Plan in 2022, and our estimated expense for employee health insurance for 2022 is approximately$16 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" of this Annual Report. Our insurance premiums and retention levels have remained relatively constant during the three-year period endedJanuary 2, 2022 . We cannot predict the level of the premiums that we may be required to pay for subsequent insurance coverage, the level of any retention applicable thereto, the level of aggregate coverage available or the availability of coverage for specific risks. We are party to various legal actions arising in the normal course of business. See "Item 3. Legal Proceedings" of this Annual Report and Note 15, Commitments and Contingencies, to the consolidated financial statements in Item 8 of this Annual Report for information on certain significant litigation. We may from time to time seek to retire our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on the prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. 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 vast majority of our capital expenditures in 2022 and beyond are expected to be made on a discretionary basis.
Recently Issued Accounting Pronouncements
InMarch 2020 , FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("Update 2020-04"), which provides optional expedients and exceptions for applyingU.S. GAAP principles to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments in Update 2020-04 apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated afterDecember 31, 2022 , except for hedging relationships existing as ofDecember 31, 2022 , that an entity has elected optional expedients for and that are retained through the end of the hedging relationship. The provisions in Update 2020-04 are effective upon issuance and can be applied prospectively throughDecember 31, 2022 . Our adoption of ASU 2020-04 did not have a material impact on our consolidated financial statements and related disclosures. 45
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