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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 


 

FORM 10-Q

 

x                Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

for the quarterly period ended June 30, 2010

 

OR

 

o                   Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

for the transition period from                 to              

 

Commission file number: 1-13703

 


 

SIX FLAGS ENTERTAINMENT CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)

 

13-3995059
(I.R.S. Employer Identification No.)

 

924 Avenue J East, Grand Prairie, TX 75050

(Address of Principal Executive Offices, Including Zip Code)

 

(972) 595-5000

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x
(Do not check if a smaller reporting company)

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange  Act). Yes o  No x

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed under Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes x  No o

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  At August 5, 2010, Six Flags Entertainment Corporation had 27,388,889 outstanding shares of common stock, par value $0.025 per share.

 

 

 



Table of Contents

 

SIX FLAGS ENTERTAINMENT CORPORATION

FORM 10-Q

 

INDEX

 

Cautionary Note Regarding Forward-Looking Statements

1

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2010 (unaudited) and December 31, 2009

3

 

 

 

 

Condensed Consolidated Statements of Operations (unaudited)

5

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)

7

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited)

9

 

 

 

 

Notes to Condensed Consolidated Financial Statements

11

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

49

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

56

 

 

 

Item 4T.

Controls and Procedures

56

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

57

 

 

 

Item 1A.

Risk Factors

57

 

 

 

Item 6.

Exhibits

58

 

 

 

Signatures

 

 



Table of Contents

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This document and the documents incorporated herein by reference contain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods.

 

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions.  Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict.  Our actual results may differ materially from those contemplated by the forward-looking statements.  We caution you therefore that you should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance.  These risks and uncertainties include, but are not limited to, statements we make regarding: (i) the potential adverse impact of the Chapter 11 Filing (as defined herein) on our operations, management and employees (See “Chapter 11 Reorganization” herein), (ii) customer response to the Chapter 11 Filing, (iii) the adequacy of cash flows from operations, available cash and available amounts under our credit facilities to meet our future liquidity needs, (iv) our ability to improve operating results by implementing strategic cost reductions, and organizational and personnel changes without adversely affecting our business, or (v) our operations and results of operations.  Additional important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions and include the following:

 

·                                    factors impacting attendance, such as local conditions, contagious diseases, events, disturbances and terrorist activities;

·                                    accidents occurring at our parks;

·                                    adverse weather conditions;

·                                    competition with other theme parks and other entertainment alternatives;

·                                    changes in consumer spending patterns;

·                                    pending, threatened or future legal proceedings; and

·                                    other factors that are described in “Risk Factors.”

 

A more complete discussion of these factors and other risks applicable to our business is contained in Part II, Item 1A of this Quarterly Report on Form 10-Q (this “Quarterly Report”), Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2009 (the “2009 Annual Report”) and Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (the “First Quarter 2010 Quarterly Report”) filed with the Securities and Exchange Commission (the “SEC”).

 

Any forward-looking statement made by us in this document, or on our behalf by our directors, officers or employees related to the information contained herein, speaks only as of the date of this Quarterly Report.  Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them.  We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

 

1



Table of Contents

 

Available Information

 

Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, if applicable, are available free of charge through our website at www.sixflags.com.  References to our website in this Quarterly Report are provided as a convenience and do not constitute an incorporation by reference of the information contained on, or accessible through, the website.  Therefore, such information should not be considered part of this Quarterly Report.  These reports, and any amendments to these reports, are made available on our website as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the SEC.  Copies are also available, without charge, by sending a written request to Six Flags Entertainment Corporation, 924 Avenue J East, Grand Prairie, TX 75050, Attn:  Secretary.

 

2



Table of Contents

 

PART I — FINANCIAL INFORMATION

 

Item 1.        Financial Statements

 

SIX FLAGS ENTERTAINMENT CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

Successor

 

 

Predecessor

 

 

 

June 30,
2010

 

 

December 31,
2009

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

 122,049,000

 

 

$

 164,830,000

 

Accounts receivable

 

56,585,000

 

 

19,862,000

 

Inventories

 

41,106,000

 

 

21,809,000

 

Prepaid expenses and other current assets

 

47,054,000

 

 

48,646,000

 

Assets held for sale

 

681,000

 

 

 

Total current assets

 

267,475,000

 

 

255,147,000

 

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

Debt issuance costs

 

40,765,000

 

 

12,478,000

 

Restricted-use investment securities

 

2,626,000

 

 

2,387,000

 

Deposits and other assets

 

98,209,000

 

 

98,583,000

 

Total other assets

 

141,600,000

 

 

113,448,000

 

 

 

 

 

 

 

 

Property and equipment, at cost

 

1,443,259,000

 

 

2,655,636,000

 

Less accumulated depreciation

 

27,072,000

 

 

1,178,404,000

 

Total property and equipment

 

1,416,187,000

 

 

1,477,232,000

 

 

 

 

 

 

 

 

Assets held for sale

 

6,978,000

 

 

1,200,000

 

Intangible assets, net of accumulated amortization

 

419,677,000

 

 

10,500,000

 

Goodwill

 

582,800,000

 

 

1,050,125,000

 

Total assets

 

$

 2,834,717,000

 

 

$

2,907,652,000

 

 

See accompanying notes to condensed consolidated financial statements.

 

3



Table of Contents

 

Item 1.    Financial Statements (Continued)

 

SIX FLAGS ENTERTAINMENT CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

 

 

 

Successor

 

 

Predecessor

 

 

 

June 30, 2010

 

 

December 31, 2009

 

 

 

(Unaudited)

 

 

 

 

LIABILITIES and STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

83,090,000

 

 

$

44,965,000

 

Accrued compensation, payroll taxes and benefits

 

21,159,000

 

 

17,279,000

 

Accrued insurance reserves

 

34,637,000

 

 

38,222,000

 

Accrued interest payable

 

11,428,000

 

 

64,209,000

 

Other accrued liabilities

 

63,780,000

 

 

46,388,000

 

Deferred income

 

80,327,000

 

 

19,904,000

 

Liabilities from discontinued operations

 

5,409,000

 

 

 

Current portion of long-term debt

 

33,642,000

 

 

439,826,000

 

Mandatory redeemable preferred stock (redemption value of $275,426,000 plus accrued and unpaid dividends of $31,224,000)

 

 

 

306,650,000

 

Total current liabilities

 

333,472,000

 

 

977,443,000

 

 

 

 

 

 

 

 

Long-term debt

 

1,009,186,000

 

 

1,966,754,000

 

 

 

 

 

 

 

 

Other long-term liabilities

 

37,456,000

 

 

71,094,000

 

 

 

 

 

 

 

 

Deferred income taxes

 

176,213,000

 

 

120,602,000

 

 

 

 

 

 

 

 

Total liabilities

 

1,556,327,000

 

 

3,135,893,000

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

459,430,000

 

 

355,933,000

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

Preferred stock, $1.00 par value

 

 

 

 

New common stock, $0.025 par value, 60,000,000 shares authorized and 27,388,889 shares issued and outstanding at June 30, 2010

 

685,000

 

 

 

Old common stock, $0.025 par value, 210,000,000 shares authorized and 98,325,936 shares issued and outstanding at December 31, 2009

 

 

 

2,458,000

 

Capital in excess of par value

 

805,106,000

 

 

1,506,152,000

 

Retained earnings (accumulated deficit)

 

11,026,000

 

 

(2,059,487,000

)

Accumulated other comprehensive loss

 

(2,837,000

)

 

(33,297,000

)

Total Six Flags Entertainment Corporation stockholders’ equity (deficit)

 

813,980,000

 

 

(584,174,000

)

Noncontrolling interests

 

4,980,000

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity (deficit)

 

818,960,000

 

 

(584,174,000

)

Total liabilities and stockholders’ equity (deficit)

 

$

2,834,717,000

 

 

$

2,907,652,000

 

 

See accompanying notes to condensed consolidated financial statements.

 

4



Table of Contents

 

Item 1.    Financial Statements (Continued)

 

SIX FLAGS ENTERTAINMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

Successor

 

 

Predecessor

 

 

 

Period from
May 1 through
June 30, 2010

 

 

Period from
April 1 through
April 30, 2010

 

Three
Months
Ended June
30, 2009

 

Theme park admissions

 

$

132,626,000

 

 

$

35,439,000

 

$

159,953,000

 

Theme park food, merchandise and other

 

104,308,000

 

 

31,211,000

 

127,268,000

 

Sponsorship, licensing and other fees

 

11,309,000

 

 

2,966,000

 

9,560,000

 

Accommodations revenue

 

2,193,000

 

 

1,198,000

 

 

Total revenue

 

250,436,000

 

 

70,814,000

 

296,781,000

 

Operating expenses (excluding depreciation and amortization shown separately below)

 

89,205,000

 

 

35,891,000

 

122,812,000

 

Selling, general and administrative (including stock-based compensation of $718,000 in 2010 and $602,000 in 2009, respectively, and excluding depreciation and amortization shown separately below)

 

46,836,000

 

 

13,538,000

 

77,150,000

 

Costs of products sold

 

21,304,000

 

 

6,636,000

 

25,802,000

 

Depreciation

 

27,089,000

 

 

8,852,000

 

34,332,000

 

Amortization

 

3,011,000

 

 

75,000

 

234,000

 

Loss on disposal of assets

 

124,000

 

 

1,353,000

 

3,124,000

 

Interest expense (contractual interest expense was $19,445,000 for the one month ended April 30, 2010 and $41,530,000 for the three months ended June 30, 2009)

 

14,149,000

 

 

13,743,000

 

35,659,000

 

Interest income

 

(74,000

)

 

(44,000

)

(118,000

)

Equity in (income) loss of partnerships

 

308,000

 

 

(777,000

)

(460,000

)

Other (income) expense, net

 

1,193,000

 

 

(163,000

)

16,275,000

 

Restructure costs

 

16,472,000

 

 

 

 

Income (loss) from continuing operations before reorganization items, income taxes and discontinued operations

 

30,819,000

 

 

(8,290,000

)

(18,029,000

)

Reorganization items, net

 

977,000

 

 

(787,906,000

)

78,725,000

 

Income (loss) from continuing operations before income taxes and discontinued operations

 

29,842,000

 

 

779,616,000

 

(96,754,000

)

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

509,000

 

 

59,707,000

 

(234,000

)

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before discontinued operations

 

29,333,000

 

 

719,909,000

 

(96,520,000

)

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations

 

(771,000

)

 

12,532,000

 

(2,124,000

)

 

 

 

 

 

 

 

 

 

Net income (loss)

 

28,562,000

 

 

732,441,000

 

(98,644,000

)

 

 

 

 

 

 

 

 

 

Less: Net (income) loss attributable to noncontrolling interests

 

(17,536,000

)

 

8,000

 

(17,536,000

)

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Six Flags Entertainment Corporation

 

$

11,026,000

 

 

$

732,449,000

 

$

(116,180,000

)

Net income (loss) applicable to Six Flags Entertainment Corporation common stockholders

 

$

11,026,000

 

 

$

732,449,000

 

$

(121,616,000

)

Weighted average number of common shares outstanding — basic and diluted:

 

27,389,000

 

 

98,054,000

 

97,483,000

 

 

 

 

 

 

 

 

 

 

Net income (loss) per average common share outstanding — basic and diluted:

 

 

 

 

 

 

 

 

Income (loss) from continuing operations applicable to Six Flags Entertainment Corporation common stockholders

 

$

0.43

 

 

$

7.34

 

$

(1.23

)

Income (loss) from discontinued operations applicable to Six Flags Entertainment Corporation common stockholders

 

(0.03

)

 

0.13

 

(0.02

)

Net income (loss) applicable to Six Flags Entertainment Corporation common stockholders

 

$

0.40

 

 

$

7.47

 

$

(1.25

)

 

 

 

 

 

 

 

 

 

Amounts attributable to Six Flags Entertainment Corporation:

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

11,797,000

 

 

$

719,917,000

 

$

(114,056,000

)

Income (loss) from discontinued operations

 

(771,000

)

 

12,532,000

 

(2,124,000

)

Net income (loss)

 

$

11,026,000

 

 

$

732,449,000

 

$

( 116,180,000

)

 

See accompanying notes to condensed consolidated financial statements.

 

5



Table of Contents

 

Item 1.    Financial Statements (Continued)

 

SIX FLAGS ENTERTAINMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

Successor

 

 

Predecessor

 

 

 

Period from
May 1 through
June 30, 2010

 

 

Period from
January 1
through April 30,
2010

 

Six Months
Ended June 30,
2009

 

Theme park admissions

 

$

132,626,000

 

 

$

59,270,000

 

$

183,173,000

 

Theme park food, merchandise and other

 

104,308,000

 

 

52,054,000

 

145,988,000

 

Sponsorship, licensing and other fees

 

11,309,000

 

 

11,259,000

 

18,722,000

 

Accommodations revenue

 

2,193,000

 

 

5,494,000

 

 

Total revenue

 

250,436,000

 

 

128,077,000

 

347,883,000

 

 

 

 

 

 

 

 

 

 

Operating expenses (excluding depreciation and amortization shown separately below)

 

89,205,000

 

 

115,636,000

 

196,932,000

 

Selling, general and administrative (including stock-based compensation of $718,000 in the four-months ended April 30, 2010 and $1,441,000 in 2009, respectively, and excluding depreciation and amortization shown separately below)

 

46,836,000

 

 

47,608,000

 

111,843,000

 

Costs of products sold

 

21,304,000

 

 

12,132,000

 

30,500,000

 

Depreciation

 

27,089,000

 

 

45,373,000

 

68,213,000

 

Amortization

 

3,011,000

 

 

302,000

 

458,000

 

Loss on disposal of assets

 

124,000

 

 

1,923,000

 

6,178,000

 

Interest expense (contractual interest expense was $65,820,000 for the four months ended April 30, 2010 and $80,867,000 for the six months ended June 30, 2009)

 

14,149,000

 

 

74,375,000

 

74,996,000

 

Interest income

 

(74,000

)

 

(241,000

)

(539,000

)

Equity in (income) loss of partnerships

 

308,000

 

 

(594,000

)

(649,000

)

Other (income) expense, net

 

1,193,000

 

 

(802,000

)

17,944,000

 

Restructure costs

 

16,472,000

 

 

 

 

Income (loss) from continuing operations before reorganization items, income taxes and discontinued operations

 

30,819,000

 

 

(167,635,000

)

(157,993,000

)

Reorganization items, net

 

977,000

 

 

(767,445,000

)

78,725,000

 

Income (loss) from continuing operations before income taxes and discontinued operations

 

29,842,000

 

 

599,810,000

 

(236,718,000

)

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

509,000

 

 

60,620,000

 

(3,164,000

)

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before discontinued operations

 

29,333,000

 

 

539,190,000

 

(233,554,000

)

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations

 

(771,000

)

 

9,759,000

 

(5,888,000

)

 

 

 

 

 

 

 

 

 

Net income (loss)

 

28,562,000

 

 

548,949,000

 

(239,442,000

)

 

 

 

 

 

 

 

 

 

Less: Net income attributable to noncontrolling interests

 

(17,536,000

)

 

(76,000

)

(17,536,000

)

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Six Flags Entertainment Corporation

 

$

11,026,000

 

 

$

548,873,000

 

$

(256,978,000

)

 

 

 

 

 

 

 

 

 

Net income (loss) applicable to Six Flags Entertainment Corporation common stockholders

 

$

11,026,000

 

 

$

548,873,000

 

$

(267,907,000

)

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding — basic and diluted

 

27,389,000

 

 

98,054,000

 

97,477,000

 

 

 

 

 

 

 

 

 

 

Net income (loss) per average common share outstanding — basic and diluted:

 

 

 

 

 

 

 

 

Income (loss) from continuing operations applicable to Six Flags Entertainment Corporation common stockholders

 

$

0.43

 

 

$

5.50

 

$

(2.69

)

Income (loss) from discontinued operations applicable to Six Flags Entertainment Corporation common stockholders

 

(0.03

)

 

0.10

 

(0.06

)

Net income (loss) applicable to Six Flags Entertainment Corporation common stockholders

 

$

0.40

 

 

$

5.60

 

$

(2.75

)

 

 

 

 

 

 

 

 

 

Amounts attributable to Six Flags Entertainment Corporation:

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

11,797,000

 

 

$

539,114,000

 

$

(251,090,000

)

Income (loss) from discontinued operations

 

(771,000

)

 

9,759,000

 

(5,888,000

)

Net income (loss)

 

$

11,026,000

 

 

$

548,873,000

 

$

( 256,978,000

)

 

See accompanying notes to condensed consolidated financial statements.

 

6



Table of Contents

 

Item 1.        Financial Statements (Continued)

 

SIX FLAGS ENTERTAINMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

 

 

Successor

 

 

Predecessor

 

 

 

Period from
May 1
through June 30,
2010

 

 

Period from
April 1
through April 30,
2010

 

Three months
ended June 30,
2009

 

Net income (loss)

 

$

28,562,000

 

 

$

732,441,000

 

$

(98,644,000

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(2,837,000

)

 

547,000

 

8,651,000

 

Defined benefit retirement plan

 

 

 

1,699,000

 

1,380,000

 

Change in cash flow hedging

 

 

 

(63,000

)

(646,000

)

Comprehensive income (loss)

 

25,725,000

 

 

734,624,000

 

(89,259,000

)

 

 

 

 

 

 

 

 

 

Comprehensive (income) loss attributable to noncontrolling interests

 

(17,536,000

)

 

8,000

 

(17,536,000

)

Comprehensive income (loss) attributable to Six Flags Entertainment Corporation

 

$

8,189,000

 

 

$

734,632,000

 

$

(106,795,000

)

 

See accompanying notes to condensed consolidated financial statements.

 

7



Table of Contents

 

Item 1.    Financial Statements (Continued)

 

SIX FLAGS ENTERTAINMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

 

 

Successor

 

 

Predecessor

 

 

 

Period from
May 1
through June 30,
2010

 

 

Period from
January 1
through April 30,
2010

 

Six months
ended June 30,
2009

 

Net income (loss)

 

$

28,562,000

 

 

$

548,949,000

 

$

(239,442,000

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(2,837,000

)

 

5,419,000

 

5,511,000

 

Defined benefit retirement plan

 

 

 

1,902,000

 

3,745,000

 

Change in cash flow hedging

 

 

 

(559,000

)

(2,234,000

)

Comprehensive income (loss)

 

25,725,000

 

 

555,711,000

 

(232,420,000

)

 

 

 

 

 

 

 

 

 

Comprehensive (income) loss attributable to noncontrolling interests

 

(17,536,000

)

 

(76,000

)

(17,536,000

)

Comprehensive income (loss) attributable to Six Flags Entertainment Corporation

 

$

8,189,000

 

 

$

555,635,000

 

$

(249,956,000

)

 

See accompanying notes to condensed consolidated financial statements.

 

8



Table of Contents

 

Item 1.    Financial Statements (Continued)

 

SIX FLAGS ENTERTAINMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Successor

 

 

Predecessor

 

 

 

Period from
May 1 through
June 30, 2010

 

 

Period from
January 1
through
April 30, 2010

 

Six months
ended
June 30, 2009

 

Cash flow from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

28,562,000

 

 

$

548,949,000

 

$

(239,442,000

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities before reorganization activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

30,100,000

 

 

45,675,000

 

68,671,000

 

Stock-based compensation

 

 

 

718,000

 

1,441,000

 

Interest accretion on notes payable

 

309,000

 

 

 

2,785,000

 

Reorganization items, net

 

977,000

 

 

(767,445,000

)

78,725,000

 

Loss on discontinued operations

 

 

 

10,101,000

 

2,582,000

 

Amortization of debt issuance costs

 

1,184,000

 

 

962,000

 

2,567,000

 

Other, including loss on disposal of assets

 

4,565,000

 

 

1,830,000

 

15,101,000

 

Increase in accounts receivable

 

(15,609,000

)

 

(26,597,000

)

(25,925,000

)

Increase in inventories, prepaid expenses and other current assets

 

(11,324,000

)

 

(6,483,000

)

(16,356,000

)

(Increase) decrease in deposits and other assets

 

1,528,000

 

 

232,000

 

(1,680,000

)

Increase in accounts payable, deferred income, accrued liabilities and other long-term liabilities

 

67,423,000

 

 

24,067,000

 

75,682,000

 

Increase (decrease) in accrued interest payable

 

11,219,000

 

 

(34,132,000

)

13,856,000

 

Deferred income tax expense (benefit)

 

(1,088,000

)

 

56,528,000

 

(5,867,000

)

 

 

 

 

 

 

 

 

 

Total adjustments

 

89,284,000

 

 

(694,544,000

)

211,582,000

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities before reorganization activities

 

117,846,000

 

 

(145,595,000

)

(27,860,000

)

 

 

 

 

 

 

 

 

 

Cash flow from reorganization activities:

 

 

 

 

 

 

 

 

Cash used in reorganization activities

 

(20,546,000

)

 

(62,325,000

)

(10,840,000

)

 

 

 

 

 

 

 

 

 

Total net cash provided by (used in) operating activities

 

97,300,000

 

 

(207,920,000

)

(38,700,000

)

 

 

 

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

 

 

 

Additions to property and equipment

 

(21,117,000

)

 

(42,956,000

)

(68,511,000

)

Property insurance recovery

 

 

 

5,831,000

 

2,133,000

 

Capital expenditures of discontinued operations

 

 

 

(110,000

)

(536,000

)

Acquisition of theme park assets

 

 

 

(48,000

)

 

Cash from the consolidation of HWP Development, LLC

 

 

 

462,000

 

 

Maturities of restricted-use investments

 

98,000

 

 

25,000

 

15,274,000

 

Purchase of restricted-use investments

 

 

 

(17,000

)

(1,859,000

)

Gross proceeds from sale of assets

 

5,000

 

 

12,000

 

387,000

 

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

(21,014,000

)

 

(36,801,000

)

(53,112,000

)

 

See accompanying notes to condensed consolidated financial statements.

 

9



Table of Contents

 

Item 1.    Financial Statements (Continued)

 

SIX FLAGS ENTERTAINMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(UNAUDITED)

 

 

 

Successor

 

 

Predecessor

 

 

 

Period from
May 1 through
June 30, 2010

 

 

Period from
January 1
through
April 30, 2010

 

Six months
ended
June 30, 2009

 

Cash flow from financing activities:

 

 

 

 

 

 

 

 

Repayment of borrowings

 

$

(1,391,000

)

 

$

(1,470,255,000

)

$

(4,156,000

)

Proceeds from borrowings

 

 

 

1,013,050,000

 

73,007,000

 

Proceeds from issuance of common stock

 

 

 

630,500,000

 

 

Purchase of redeemable minority interests

 

(4,795,000

)

 

 

(58,461,000

)

Payment of debt issuance costs

 

(1,698,000

)

 

(40,001,000

)

(489,000

)

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

(7,884,000

)

 

133,294,000

 

9,901,000

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

(863,000

)

 

1,107,000

 

417,000

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

67,539,000

 

 

(110,320,000

)

(81,494,000

)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

54,510,000

 

 

164,830,000

 

210,332,000

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

122,049,000

 

 

$

54,510,000

 

$

128,838,000

 

 

 

 

 

 

 

 

 

 

Successor

 

 

Predecessor

 

 

 

Period from
May 1 through
June 30, 2010

 

 

Period from
January 1
through
April 30, 2010

 

Six months
ended
June 30, 2009

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,437,000

 

 

$

106,954,000

 

$

64,512,000

 

 

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

1,279,000

 

 

$

4,005,000

 

$

2,920,000

 

 

See accompanying notes to condensed consolidated financial statements.

 

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SIX FLAGS ENTERTAINMENT CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.             Chapter 11 Reorganization

 

On June 13, 2009 (the “Petition Date”), Six Flags, Inc. (“SFI”), Six Flags Operations Inc. (“SFO”) and Six Flags Theme Parks Inc. (“SFTP”) and certain of SFTP’s domestic subsidiaries (the “SFTP Subsidiaries” and, collectively with SFI, SFO and SFTP, the “Debtors”) filed voluntary petitions for relief under Chapter 11 (the “Chapter 11 Filing”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) (Case No. 09-12019).  SFI’s subsidiaries that own interests in Six Flags Over Texas (“SFOT”) and Six Flags Over Georgia (including Six Flags White Water Atlanta) (“SFOG” and together with SFOT, the “Partnership Parks”) and the parks in Canada and Mexico were not debtors in the Chapter 11 Filing.

 

On April 1, 2010, the Debtors filed with the Bankruptcy Court their Modified Fourth Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the “Plan”).  On April 30, 2010, the Bankruptcy Court entered an Order Confirming Debtors’ Modified Fourth Amended Joint Plan of Reorganization Under Chapter 11 (“Chapter 11”) of the Bankruptcy Code (the “Confirmation Order”), dated April 29, 2010, which approved and confirmed the Plan.  The Plan and the Confirmation Order have been filed as Exhibits 2.1 and 99.1, respectively, to the Current Report on Form 8-K filed with the SEC on May 4, 2010.

 

Pursuant to the Plan, on the Effective Date, but after the Plan became effective and prior to the distribution of securities under the Plan, SFI filed with the Secretary of State of the State of Delaware a Restated Certificate of Incorporation (the “Certificate of Incorporation”) which, among other things, changed SFI’s corporate name to “Six Flags Entertainment Corporation.”  As used herein, “SFI” means Six Flags, Inc. as a Debtor or prior to its name change to Six Flags Entertainment Corporation, references to “Holdings” or “SFEC” mean Six Flags Entertainment Corporation following the filing of the Certificate of Incorporation with the Secretary of State of the State of Delaware, and the terms “we,” “our” or “Company” refer collectively to SFI or SFEC, as the case may be, and its consolidated subsidiaries.

 

On April 30, 2010 (the “Effective Date”), the Debtors emerged from Chapter 11 by consummating their restructuring through a series of transactions contemplated by the Plan and the Plan became effective pursuant to its terms.  On May 3, 2010, the Debtors filed a notice of the occurrence of the Effective Date with the Bankruptcy Court.  The implementation of the Plan and the application of fresh start accounting as discussed in Note 1(g) results in financial statements that are not comparable to financial statements in periods prior to emergence.

 

(a)    Plan of Reorganization

 

General

 

The Plan included (i) the Exit Facilities (as defined below) of $1.140 billion; (ii) the assignment to SFI of SFO’s 12-1/4% Notes due 2016 (the “2016 Notes”) held by certain holders of Prepetition Notes (the “SFO Equity Conversion”) in an aggregate amount of $69.5 million in exchange for a number of shares of common stock of SFEC (the “Common Stock”), representing 8.625% of the equity of SFEC on the Effective Date, in full satisfaction of their claims arising under such assigned 2016 Notes; (iii) a $505.5 million rights offering (the “Offering”), which represented 62.733% of the Common Stock on the Effective Date, to the holders of certain unsecured claims (“Allowed Unsecured Claims”) specified in the Plan, that were “Accredited Investors,” as defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (“Eligible Holders”); except that if the net proceeds from the Offering were less than $505.5 million, the parties who agreed to backstop the Offering (the “Backstop Purchasers”)

 

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Table of Contents

 

pursuant to the terms and conditions set forth in the commitment agreement executed by the Debtors and the Backstop Purchasers (the “Equity Commitment Agreement”), agreed to subscribe for any amount of Common Stock offered but not purchased pursuant to the Offering; (iv) an offering (the “Direct Equity Purchase”) to the Backstop Purchasers for an aggregate purchase price of $75.0 million (the “Direct Purchase Amount”) of a number of shares of Common Stock on the Effective Date, representing 12.410% of the Common Stock; and (v) an offering (the “Additional Equity Purchase”) to certain Backstop Purchasers for an aggregate purchase price of $50.0 million (the “Additional Purchase Amount”), on the same pricing terms as the Offering, a number of shares of Common Stock, representing 6.205% of the Common Stock on the Effective Date.  The Plan also contemplated the New TW Loan (as defined below) and the Delayed Draw Equity Purchase (as defined below).  In addition, as required by the Plan, on June 3, 2010 the Company paid $295,718 to holders of unsecured claims against SFI who certified to the Company that they were not accredited investors as of April 7, 2010.

 

Summary of Classification and Treatment of Claims and Preconfirmation Equity Interests

 

Pursuant to the Plan, the Preconfirmation SFTP Equity Interests (as such term is defined in the Plan) were unimpaired by the Plan, and each holder of a Preconfirmation SFTP Equity Interest was conclusively presumed to accept the Plan and was not entitled to vote to accept or reject the Plan.  On the Effective Date, Preconfirmation SFTP Equity Interests were reinstated and rendered unimpaired in accordance with the Bankruptcy Code.

 

The classification and treatment of all Claims (as such term is defined in the Plan) against the Debtors is more fully described in Article III of the Plan.

 

Assets and Liabilities

 

Information as to the assets and liabilities of SFI as of the most recent practicable date is contained in the consolidated financial statements filed with the 2009 Annual Report and should be referred to in conjunction with this Quarterly Report.

 

(b)    New Indebtedness

 

On the Effective Date, SFEC, SFO and SFTP entered into a First Lien Credit Agreement (the “First Lien Credit Agreement”) with several lenders including JPMorgan Chase Bank N.A., as administrative agent, and related loan and security documentation (the “Exit First Lien Facility”).  The Exit First Lien Facility consists of an $890,000,000 senior secured credit facility comprised of a $120,000,000 revolving loan facility (none of which was outstanding as of June 30, 2010 (excluding letters of credit in the amount of $1,739,000)) (the “Exit Revolving Loan”), which may be increased to up to $150,000,000 in certain circumstances, and a $770,000,000 term loan facility (all of which was outstanding as of June 30, 2010) (the “Exit Facility First Lien Term Loan” and, together with the Exit Revolving Loan, the “Exit Facility First Lien Loans”).  Interest on the Exit First Lien Facility accrues at an annual rate equal to the London Interbank Offered Rate (“LIBOR”) + 4.25% in the case of the Exit Revolving Loan and LIBOR + 4.00% in the case of the Exit Facility First Lien Term Loan, with a 2.00% LIBOR floor and a 1.50% commitment fee on the average daily unused portion of the Exit Revolving Loan.  The principal amount of the Exit Revolving Loan is due and payable on June 30, 2015.  The First Lien Credit Agreement requires quarterly repayments of principal on the Exit Facility First Lien Term Loan beginning in March 2013 in an amount equal to 0.25% of the initial aggregate principal amount of the Exit Facility First Lien Term Loan and all remaining outstanding principal is due and payable on June 30, 2016.

 

On the Effective Date, SFEC, SFO and SFTP entered into a Second Lien Credit Agreement (the “Second Lien Credit Agreement” and, together with the First Lien Credit Agreement, the “Exit Facility Credit Agreements”) with several lenders including Goldman Sachs Lending Partners LLC, as administrative agent, and related loan and security documentation (the “Exit Second Lien Facility” and,

 

12



Table of Contents

 

together with the Exit First Lien Facility, the “Exit Facilities”).  The Exit Second Lien Facility consists of a $250,000,000 senior secured term loan facility (all of which was outstanding as of June 30, 2010) (the “Exit Facility Second Lien Loan” and, together with the Exit Facility First Lien Loans, the “Exit Facility Loans”).  Interest on the Exit Facility Second Lien Loan accrues at an annual rate equal to LIBOR + 7.25% with a 2.00% LIBOR floor.  The Second Lien Credit Agreement does not require any amortization of principal and the entire outstanding principal amount of the Exit Facility Second Lien Loan is due and payable on December 31, 2016.

 

Pursuant to the First Lien Guarantee and Collateral Agreement and the Second Lien Guarantee and Collateral Agreement, amounts outstanding on the Exit First Lien Facility and the Exit Second Lien Facility, respectively, are guaranteed by SFEC, SFO and each of the current and future direct and indirect domestic subsidiaries of SFTP; provided that to the extent SFTP acquires any non-wholly owned direct or indirect subsidiary after the Effective Date, such subsidiary will not be required to be a guarantor and/or pledgor of the Exit Facilities (together with SFTP, collectively, the “Exit Financing Loan Parties”).  The Exit First Lien Facility is secured by first priority liens upon substantially all existing and after-acquired assets of the Exit Financing Loan Parties and the Exit Second Lien Facility is secured by second priority liens upon substantially all existing and after-acquired assets of the Exit Financing Loan Parties.  The Exit Facility Credit Agreements contain certain representations, warranties and affirmative covenants, including minimum interest coverage and maximum senior leverage maintenance covenants and, with respect to the First Lien Credit Agreement, a maximum first lien leverage maintenance covenant.  In addition, the Exit Facility Credit Agreements contain restrictive covenants that, subject to certain exceptions, limit or restrict, among other things, the ability of the Exit Financing Loan Parties to incur indebtedness, create liens, engage in mergers, consolidations and other fundamental changes, make investments or loans, engage in transactions with affiliates, pay dividends, make capital expenditures and repurchase capital stock.  The Exit Facility Credit Agreements contain certain events of default, including payment, breaches of covenants and representations, cross defaults to other material indebtedness, judgment, and changes of control and bankruptcy events of default.

 

On the Effective Date, SFOG Acquisition A, Inc., SFOG Acquisition B, L.L.C., SFOT Acquisition I, Inc. and SFOT Acquisition II, Inc. (collectively, the “Acquisition Parties”) entered into the Multiple Draw Term Credit Agreement (the “New TW Loan Agreement”) with TW-SF, LLC (the “New TW Lender”).  The New TW Loan Agreement provided the Acquisition Parties with a $150,000,000 multi-draw term loan facility (the “New TW Loan”).  Interest on the New TW Loan accrues at a rate equal to (i) the greater of (a) LIBOR and (b) 2.50% (or to the extent that any LIBOR or similar rate floor under the Exit Facility First Lien Loans (or under any senior term credit facility that amends, restates, amends and restates, refinances, modifies or extends the Exit First Lien Term Loan) is higher than 2.50%, such higher floor) plus (ii) the then “Applicable Margin” under the Exit First Lien Term Loan (or, if higher under any successor term facility) plus (iii) 1.00%.  In the event that any of the loan parties issue corporate bonds or other public debt, and the then applicable credit default swap spread is higher than the “Applicable Margin” referenced in the foregoing sentence, such “Applicable Margin” will be increased based on the applicable default swap spread then in effect, subject to a fixed cap.  Funding during the availability period under the New TW Loan will occur only on May 14th (or the immediately preceding business day) of each fiscal year (each a “Funding Date”) in which amounts required to satisfy the “put” obligations exceeds (a) for the fiscal year ending December 31, 2010, $10,000,000, (b) for the fiscal year ending December 31, 2011, $12,500,000 and (c) for each subsequent fiscal year, $15,000,000.  The principal amount of the New TW Loan borrowed on each Funding Date will be due and payable five years from such Funding Date.  The New TW Loan Agreement requires prepayments with any cash of the Acquisition Parties (other than up to $50,000 per year) including the proceeds received by the Acquisition Parties from the limited partnership interests in the Partnership Parks and is prepayable at any time at the option of the Acquisition Parties.  The New TW Loan is unconditionally guaranteed on a joint and several and senior unsecured basis by SFEC, SFO, SFTP and each of the current direct and indirect domestic

 

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Table of Contents

 

subsidiaries of SFEC who are or in the future become guarantors under the Exit Facilities (collectively, the “New TW Guarantors”) under the terms of the Guarantee Agreement (the “New TW Guarantee Agreement”) entered into by the New TW Guarantors in favor of the New TW Lender on the Effective Date.  The New TW Loan Agreement and New TW Guarantee Agreement contain representations, warranties, covenants and events of default on substantially similar terms as those contained in the First Lien Credit Agreement.  No borrowing occurred during 2010 under the New TW Loan with respect to the 2010 “put” obligations.

 

(c)    New Common Stock

 

Pursuant to the Plan, on the Effective Date, SFEC issued an aggregate of 27,388,889 shares of Common Stock at $0.025 par value.  SFEC has reserved approximately 5,000,000 shares of Common Stock for issuance pursuant to the Long-Term Incentive Plan in accordance with the Plan.  SFEC has also reserved 500,000 shares of Common Stock in the event the board of directors determines to pay up to 50% of the annual director fees payable to non-employee members of the board of directors in shares of Common Stock.

 

Under the Plan, 2,601,944 shares of Common Stock, which represents 9.5% of the Common Stock,  were issued to the holders of unsecured claims against SFI pursuant to Section 1145(a)(1) of the Bankruptcy Code, which exempts the offer and sale of securities under a plan of reorganization from registration under Section 5 of the Securities Act in certain circumstances.  On the Effective Date and pursuant to the Plan, the Company relied upon the exemption from registration pursuant to Section 4(2) of the Securities Act, and Rule 506 promulgated thereunder, to affect the following sales and issuance of Common Stock:

 

·      The SFO Equity Conversion resulted in certain holders of the 2016 Notes in the aggregate amount of $69.5 million exchanging such 2016 Notes for 2,362,309 shares of Common Stock, which represented 8.625% of the Common Stock on the Effective Date;

 

·      Eligible Holders that subscribed for Common Stock in the Offering purchased 17,181,975 shares of Common Stock, which represented 62.733% of the Common Stock on the Effective Date;

 

·      The Direct Equity Purchase by the Backstop Purchasers for the Direct Purchase Amount resulted in the sale and issuance of 3,399,006 shares of Common Stock, which represented 12.410% of the Common Stock on the Effective Date;

 

·      The Additional Equity Purchase by certain Backstop Purchasers for the Additional Purchase Amount resulted in the sale and issuance of 1,699,503 shares of Common Stock, which represented 6.205% of the Common Stock on the Effective Date; and

 

·      144,152 shares of Common Stock, which represented 0.526% of the Common Stock on the Effective Date, were issued to certain delayed draw equity purchasers as consideration for their commitment to purchase an additional $25.0 million of Common Stock (the “Delayed Draw Shares”) on or before June 1, 2011, following approval by a majority of the members of SFEC’s board of directors (the “Delayed Draw Equity Purchase”).

 

(d)    Preconfirmation Equity Interests

 

Upon the Effective Date, by operation of the Plan, all of SFI’s common stock, preferred stock purchase rights, preferred income equity redeemable shares (“PIERS”) and any other ownership interest in SFI, whether or not transferable, and all options, warrants or rights, contractual or otherwise (including, but not limited to, stockholders agreements, registration rights agreements, rights agreements, repurchase agreements and arrangements, or other similar instruments or documents), (collectively, the “SFI

 

14



Table of Contents

 

Preconfirmation Equity Interests”) were cancelled as of the Effective Date.  Included in the SFI Preconfirmation Equity Interests were (i) SFI’s 2001 Stock Option and Incentive Plan, which was filed as Exhibit 4(dd) to SFI’s Annual Report on Form 10-K for the year ended December 31, 2002; (ii) the SFI Stock Option Plan for Directors, which was filed as Exhibit 4(ee) to SFI’s Annual Report on Form 10-K for the year ended December 31, 2002; (iii) SFI’s 2004 Stock Option and Incentive Plan, which was filed as Exhibit 10.1 to SFI’s Registration Statement on Form S-8 (Reg. No. 333-131831), filed on February 14, 2006; (iv) the SFI’s 2006 Stock Option and Incentive Plan, which was filed as Exhibit 10.1 to SFI’s Current Report on Form 8-K, filed on May 30, 2006; (v) SFI’s 2006 Employee Stock Purchase Plan, which was filed as Exhibit 10.2 to SFI’s Current Report on Form 8-K, filed on May 30, 2006; (vi) the SFI 2007 Stock Option and Incentive Plan, which was filed as Exhibit 10.1 to SFI’s Current Report on Form 8-K filed on May 24, 2007; (vii) the SFI 2008 Stock Option and Incentive Plan, which was filed as Exhibit 10.1 to SFI’s Current Report on Form 8-K, filed on May 28, 2008; and (viii) all outstanding awards and grants thereunder.  Former stockholders of SFI and holders of other SFI Preconfirmation Equity Interests received no distributions or other consideration under the Plan.

 

(e)    Prepetition Debt Securities

 

On the Effective Date, by operation of the Plan, all outstanding obligations under the following notes issued by SFI and SFO (collectively, the “Prepetition Notes”) were cancelled and the indentures governing such obligations were cancelled, except to the extent to allow the Debtors, Reorganized Debtors (as such term is defined in the Plan) or the relevant Prepetition Notes indenture trustee, as applicable, to make distributions pursuant to the Plan on account of claims related to such Prepetition Notes:

 

·      SFI’s 8-7/8% Senior Notes due 2010 (the “2010 Notes”), which were issued pursuant to the Indenture, dated as of February 11, 2002, between the Company and The Bank of New York Mellon (“BONY”), as trustee;

 

·      SFI’s 9-3/4% Senior Notes due 2013 (the “2013 Notes”), which were issued pursuant to the Indenture, dated as of April 16, 2003, between the Company and BONY, as trustee;

 

·      SFI’s 9-5/8% Senior Notes due 2014 (the “2014 Notes”), which were issued pursuant to the Indenture, dated as of December 5, 2003, between the Company and BONY, as trustee;

 

·      SFI’s 4.50% Convertible Senior Notes due 2015 (the “2015 Notes”), which were issued pursuant to the Indenture, dated as of June 30, 1999, between the Company and BONY, as trustee, and the Second Supplemental Indenture, dated as of November 19, 2004, between the Company and BONY, as trustee; and

 

·      the 2016 Notes, which were issued pursuant to the Indenture, dated as of June 16, 2008, among SFO, as issuer, the Company, as parent guarantor, and HSBC Bank USA, National Association, as trustee.

 

(f)    Prepetition Credit Agreement

 

On the Effective Date, pursuant to the Plan and the Confirmation Order, the Second Amended and Restated Credit Agreement, dated as of May 25, 2007 (as amended, modified or otherwise supplemented from time to time, the “Prepetition Credit Agreement”), among SFI, SFO, SFTP (as the primary borrower), certain of SFTP’s foreign subsidiaries party thereto, the lenders thereto, the agent banks party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (in such capacity, the “Administrative Agent”), was cancelled (except that the Prepetition Credit Agreement continued in effect solely for the purposes of allowing creditors under the Prepetition Credit Agreement to receive distributions under the Plan and allowing the Administrative Agent to exercise certain rights).

 

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(g)    Fresh Start Accounting and Effects of the Plan

 

As required by generally accepted accounting principles in the United States (“GAAP”), effective as of May 1, 2010, we adopted fresh start accounting following the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 852, Reorganizations (“FASB ASC 852”).  Fresh start accounting results in a new basis of accounting and reflects the allocation of the Company’s estimated fair value to its underlying assets and liabilities.  The Company’s estimates of fair value are inherently subject to significant uncertainties and contingencies beyond the Company’s reasonable control. Accordingly, there can be no assurance that the estimates, assumptions, valuations, appraisals and financial projections will be realized, and actual results could vary materially.  In addition, the cancellation of debt income amount and the allocation of the attribute reduction is an estimate and will not be finalized until the end of the 2010 tax year.  Any change resulting from this could impact deferred taxes and goodwill.

 

Fresh start accounting provides, among other things, for a determination of the value to be assigned to the equity of the emerging company as of a date selected for financial reporting purposes, which for the Company is April 30, 2010, the date that the Debtors emerged from Chapter 11.  The Plan required the contribution of equity from the creditors representing the unsecured senior noteholders of SFI, of which $555.5 million was raised at a price of $29.42 per share.  SFEC also issued stock at $29.42 per share to pay $146.1 million of SFO and SFI claims.  The Company’s reorganization value reflects the fair value of the new equity and the new debt, the conditions of which were determined after extensive arms-length negotiations between the Debtors’ creditors, which included the input of several independent valuation experts representing different creditor interests, who used discounted cash flow, comparable company and precedent transaction analyses.

 

The analysis supporting the final reorganization value was based upon expected future cash flows of the business after emergence from Chapter 11, discounted at a rate of 11.5% and assuming a perpetuity growth rate of 3.0%.  The reorganization value and the equity value are highly dependent on the achievement of the future financial results contemplated in the projections that were set forth in the Plan.  The estimates and assumptions made in the valuation are inherently subject to significant uncertainties.  The primary assumptions for which there is a reasonable possibility of the occurrence of a variation that would have significantly affected the reorganization value include the assumptions regarding revenue growth, operating expense growth rates, the amount and timing of capital expenditures and the discount rate utilized.

 

The four-column consolidated statement of financial position as of April 30, 2010 reflects the implementation of the Plan.  Reorganization adjustments have been recorded within the condensed consolidated balance sheets as of April 30, 2010 to reflect effects of the Plan, including discharge of liabilities subject to compromise and the adoption of fresh start reporting in accordance with FASB ASC 852.  The reorganization value of the Company of approximately $2.3 billion was based on the equity value of equity raised plus new indebtedness and fair value of Partnership Parks “put” obligations as follows (in thousands):

 

Equity value based on equity raised (1)

 

$

805,791

 

Add: Redeemable noncontrolling interests (2)

 

446,449

 

Add: Exit First Lien Facility

 

770,000

 

Add: Exit Second Lien Facility

 

250,000

 

Add: Other debt (3)

 

35,360

 

Add: Noncontrolling interests

 

5,219

 

Less: Net discounts on Exit Facilities

 

(11,450

)

Total emergence enterprise value

 

$

2,301,369

 

 

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Table of Contents

 


(1) Equity balance is calculated based on 27,388,889 shares of Common Stock at the price of $29.42 per share pursuant to the Plan.

 

(2) Redeemable noncontrolling interests are stated at fair value determined using the discounted cash flow methodology.  The valuation was performed based on multiple scenarios with a certain number of “put” obligations assumed to be put each year.  The analysis used a 9.8% rate of return adjusted for annual inflation for the annual guaranteed minimum distributions to the holders of the “put” rights and a discount rate of 7%.

 

(3) Other debt includes a $33.0 million refinance loan (the “Refinance Loan”) with Deutsche Bank Mortgage Capital, L.L.C. for HWP Development, LLC (“HWP”), related to a hotel and indoor waterpark venture in Lake George, New York, in which we own an approximate 41% interest, $32.2 million of which was outstanding as of April 30, 2010, as well as capitalized leases of approximately $2.1 million and short-term bank borrowings of $1.0 million.

 

Under fresh start accounting, the total Company value is adjusted to reorganization value and is allocated to our assets and liabilities based on their respective fair values in conformity with the purchase method of accounting for business combinations in FASB ASC Topic 805, Business Combination (“FASB ASC 805”).  The excess of reorganization value over the fair value of tangible and identifiable intangible assets and liabilities is recorded as goodwill.  Liabilities existing as of the Effective Date, other than deferred taxes, were recorded at the present value of amounts expected to be paid using appropriate risk adjusted interest rates.  Deferred taxes were determined in conformity with applicable income tax accounting standards.  Predecessor accumulated depreciation, accumulated amortization, retained deficit, common stock and accumulated other comprehensive loss were eliminated.

 

The valuations required to determine the fair value of the Company’s assets as presented below represent the results of valuation procedures performed by independent valuation specialists.  The estimates of fair values of assets and liabilities have been reflected in the consolidated balance sheet of the Company as of the Effective Date (“Successor Company”) as of April 30, 2010.

 

The adjustments below are to our April 30, 2010 balance sheet. The balance sheet reorganization adjustments presented below summarize the impact of the Plan and the adoption of fresh start accounting as of the Effective Date.

 

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Table of Contents

 

SIX FLAGS ENTERTAINMENT CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

 

 

 

April 30, 2010

 

 

 

SFI

 

Reorganization Adjustments
(1)

 

Fresh Start
Adjustments
(2)

 

SFEC

 

 

 

(Unaudited)

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

75,836,000

 

$

(21,326,000

)

$

 

$

54,510,000

 

Accounts receivable

 

36,288,000

 

 

4,876,000

 

41,164,000

 

Inventories

 

37,811,000

 

 

(193,000

)

37,618,000

 

Prepaid expenses and other current assets

 

49,671,000

 

(9,750,000

)

(456,000

)

39,465,000

 

Assets held for sale

 

681,000

 

 

 

681,000

 

Total current assets

 

200,287,000

 

(31,076,000

)

4,227,000

 

173,438,000

 

 

 

 

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

 

 

 

Debt issuance costs

 

11,817,000

 

28,184,000

 

 

40,001,000

 

Restricted-use investment securities

 

2,753,000

 

 

 

2,753,000

 

Deposits and other assets

 

97,677,000

 

 

2,063,000

 

99,740,000

 

Total other assets

 

112,247,000

 

28,184,000

 

2,063,000

 

142,494,000

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, at cost, net

 

1,507,677,000

 

 

(78,304,000

)

1,429,373,000

 

 

 

 

 

 

 

 

 

 

 

Assets held for sale

 

6,978,000

 

 

 

6,978,000

 

Intangible assets, net of accumulated amortization (4)

 

10,164,000

 

 

412,591,000

 

422,755,000

 

Goodwill (3)

 

1,051,089,000

 

 

(468,289,000

)

582,800,000

 

Total assets

 

$

2,888,442,000

 

$

(2,892,000

)

$

(127,712,000

)

$

2,757,838,000

 

 

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Table of Contents

 

 

 

April 30, 2010

 

 

 

SFI

 

Reorganization
Adjustments
(1)

 

Fresh Start
Adjustments
(2)

 

SFEC

 

 

 

(Unaudited)

 

LIABILITIES and STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities not subject to compromise:

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

92,198,000

 

$

(20,272,000

)

$

 

$

71,926,000

 

Accrued compensation, payroll taxes and benefits

 

15,019,000

 

1,442,000

 

 

16,461,000

 

Accrued insurance reserves

 

16,492,000

 

19,074,000

 

(5,118,000

)

30,448,000

 

Accrued interest payable

 

26,839,000

 

(26,630,000

)

 

209,000

 

Other accrued liabilities

 

52,753,000

 

2,883,000

 

1,438,000

 

57,074,000

 

Deferred income

 

61,033,000

 

 

(1,324,000

)

59,709,000

 

Liabilities from discontinued operations

 

5,409,000

 

 

 

5,409,000

 

Current portion of long-term debt

 

352,623,000

 

(317,946,000

)

 

34,677,000

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities not subject to compromise

 

622,366,000

 

(341,449,000

)

(5,004

)

275,913,000

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

818,808,000

 

190,425,000

 

 

1,009,233,000

 

 

 

 

 

 

 

 

 

 

 

Other long-term liabilities

 

46,868,000

 

 

(9,383,000

)

37,485,000

 

 

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

118,821,000

 

 

58,927,000

 

177,748,000

 

Total liabilities not subject to compromise

 

1,606,863,000

 

(151,024,000

)

44,540,000

 

1,500,379,000

 

 

 

 

 

 

 

 

 

 

 

Liabilities subject to compromise

 

1,745,175,000

 

(1,745,175,000

)

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

3,352,038,000

 

(1,896,199,000

)

44,540,000

 

1,500,379,000

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

355,933,000

 

 

90,516,000

 

446,449,000

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

 

Preferred stock, $1.00 par value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New common stock, $0.025 par value, 60,000,000 shares authorized and 27,388,889 shares issued and outstanding at June 30, 2010

 

 

685,000

 

 

685,000

 

Old common stock, $0.025 par value, 210,000,000 shares authorized and 98,325,936 shares issued and outstanding at April 30, 2010 and December 31, 2009

 

2,458,000

 

(2,458,000

)

 

 

Capital in excess of par value

 

1,508,155,000

 

(703,049,000

)

 

805,106,000

 

Accumulated deficit

 

(2,308,699,000

)

2,598,129,000

 

(289,430,000

)

 

Accumulated other comprehensive loss

 

(26,535,000

)

 

26,535,000

 

 

Total Six Flags Entertainment Corporation stockholders’ equity (deficit)

 

(824,621,000

)

1,893,307,000

 

(262,895,000

)

805,791,000

 

Noncontrolling interests

 

5,092,000

 

 

127,000

 

5,219,000

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity (deficit)

 

(819,529,000

)

1,893,307,000

 

(262,768,000

)

811,010,000

 

Total liabilities and stockholders’ equity (deficit)

 

$

2,888,442,000

 

$

(2,892,000

)

$

(127,712,000

)

$

2,757,838,000

 

 

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Table of Contents

 


(1)          Represents amounts recorded on the Effective Date for the implementation of the Plan, including the settlement of liabilities subject to compromise and related payments, the incurrence of new indebtedness under the Exit Facilities and repayment of the Prepetition Credit Agreement and Prepetition Notes, distributions of cash and Common Stock and the cancellation of SFI common stock.

 

The Plan’s impact resulted in a net decrease of $21,326,000 on cash and cash equivalents.  The significant sources and uses of cash were as follows:

 

Sources:

 

 

 

Net amount borrowed under the Exit Facility First Lien Term Loan

 

$

762,300,000

 

Net amount borrowed under the Exit Facility Second Lien Loan

 

246,250,000

 

Proceeds from the Equity Offering

 

630,500,000

 

Total sources

 

$

1,639,050,000

 

 

 

 

 

Uses:

 

 

 

Repayment of amounts owed under the term loan portion of the Prepetition Credit Facility — long term portion

 

$

818,125,000

 

Repayment of amounts owed under the 2016 Notes

 

330,500,000

 

Repayment of amounts owed under the revolving portion of the Prepetition Credit Agreement

 

270,269,000

 

Repayment of amounts owed under the Prepetition TW Promissory Note

 

30,677,000

 

Repayment of amounts owed under the prepetition interest rate hedging derivatives

 

19,992,000

 

Repayment of amounts owed under the term loan portion of the Prepetition Credit Agreement — current portion

 

17,000,000

 

Payment of debt issuance costs on exit financings

 

29,700,000

 

Payment of accrued interest

 

96,950,000

 

Payment of professional fees and other accrued liabilities

 

47,163,000

 

Total uses

 

 

1,660,376,000

 

 

 

 

 

Net cash uses

 

$

(21,326,000

)

 

 

 

 

The gain on the cancellation of liabilities subject to compromise, before income taxes, was calculated as follows:

 

 

 

Extinguishment of SFI senior notes (2010 Notes, 2013 Notes, 2014 Notes and the 2015 Notes)

 

$

868,305,000

 

Extinguishment of the PIERS

 

306,650,000

 

Write-off of the accrued interest on the SFI Notes

 

29,868,000

 

Write-off debt issuance costs on the Prepetition Credit Facility and the Prepetition TW Promissory Note

 

(11,516,000

)

Issuance of SFEC common stock

 

(105,791,000

)

Gain on the cancellation of liabilities subject to compromise, before income taxes

 

$

1,087,516,000

 

 

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Table of Contents

 

(2)             Reflects the adjustments to assets and liabilities to estimated fair value, or other measurements specified by FASB ASC 805, in conjunction with the adoption of fresh start reporting. Significant adjustments are summarized as follows:

 

·                  Property and equipment, at cost — an adjustment of approximately $78.3 million was recorded to adjust the net book value of property, plant and equipment to fair value based on the new replacement cost less depreciation valuation methodology.  Key assumptions used in the valuation of the Company’s property, plant and equipment were based on a combination of the cost or market approach adjusted for economic obsolescence where appropriate.  The land value was obtained using a sales comparison approach.

 

·                  General liability and workers compensation — an adjustment of approximately $5.1 million was recorded to adjust the value of the general liability and workers compensation accruals for future receipts from deposits and payments for claims discounted at the weighted average debt rate upon emergence from Chapter 11 of 7%.

 

·                  Pension — this adjustment primarily reflects differences in assumptions, such as the expected return on plan assets and the weighted average discount rate related to the payment of benefit obligations, between the prior measurement date of March 31, 2010 and the Effective Date. For additional information on the Company’s pension, see Note 10, Pension Benefits.

 

·                  Deferred revenue — an adjustment of approximately $1.3 million was recorded to adjust the book value of deferred revenue attributable to season pass and other advance ticket sales to the fair value using appropriate profit margins and cost of service associated with related guest visitation.

 

·                  Deposits and other assets — note receivable — an adjustment of approximately $7.4 million was recorded to the book value of a note receivable to its $8.4 million estimated fair value, which was determined based on the discounted cash flow method over the life of the note.

 

·                  Deposits and other assets — investment in nonconsolidated joint venture — this account was adjusted to its estimated fair values based on customary valuation methodologies, including comparable earnings multiples, discounted cash flows and negotiated transaction values.

 

·                  Redeemable noncontrolling interests — These are stated at fair value determined using the discounted cash flow methodology.  The valuation was performed based on multiple scenarios with a certain number of “puts” assumed to be put each year.  The analysis used a 9.8% rate of return adjusted for annual inflation for the annual guaranteed minimum distributions to the holders of the put rights and a discount rate of 7%.

 

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The Predecessor Company recognized a loss of $230,503,000, before income taxes, related to the fresh start accounting adjustments as follows:

 

 

 

Loss on fresh
start accounting
adjustments

 

Establishment of SFEC’s goodwill

 

$

582,800,000

 

Elimination of SFI’s goodwill

 

(1,051,089,000

)

Establishment of SFEC’s intangible assets

 

421,510,000

 

Elimination of SFI’s intangible assets

 

(8,919,000

)

Notes receivable fair value adjustment

 

7,389,000

 

Dick Clark Productions fair value adjustment

 

7,400,000

 

Deposit fair value adjustment

 

(12,726,000

)

Property and equipment fair value adjustment

 

(78,304,000

)

Deferred income fair value adjustment

 

1,324,000

 

Accrued insurance reserves fair value adjustment

 

5,118,000

 

Redeemable noncontrolling interests fair value adjustment

 

(90,516,000

)

Other fair value adjustments, net

 

(14,490,000

)

 

 

$

(230,503,000

)

 

(3)   Fresh start accounting eliminated the balance of goodwill and other unamortized intangible assets of the Company prior to the Effective Date (“Predecessor Company”) and records Successor Company intangible assets, including reorganization value in excess of amounts allocated to identified tangible and intangible assets, also referred to as Successor Company goodwill.  The Successor Company’s April 30, 2010 consolidated balance sheet reflects the allocation of the business enterprise value to assets and liabilities immediately following emergence as follows:

 

Enterprise value

 

$

2,301,369,000

 

Add: Fair value of non-interest bearing liabilities (non-debt liabilities)

 

456,469,000

 

Less: Fair value of tangible assets

 

(1,752,283,000

)

Less: Fair value of identified intangible assets

 

(422,755,000

)

Reorganization value of assets in excess of amounts allocated to identified tangible and intangible assets (Successor Company goodwill)

 

$

582,800,000

 

 

(4) The following represent the methodologies and significant assumptions used in determining the fair value of the significant intangible assets, other than goodwill:

 

Certain long-lived intangible assets which include trade names, trademarks and licensing agreements were valued using a relief from royalty methodology.  Group-sales customer relationships were valued using a multi-period excess earnings method.  Sponsorship agreements were valued using the lost profits method. Certain intangible assets are subject to sensitive business factors of which only a portion are within control of the Company’s management.  A summary of the key inputs used in the valuation of these assets are as follows:

 

·      The Company valued trade names, trademarks and its third party licensing rights using the income approach, specifically the relief from royalty method.  Under this method, the asset values were determined by estimating the hypothetical royalties that would have to be paid if the trade name was not owned or the third-party rights not currently licensed.  Royalty rates

 

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Table of Contents

 

were selected based on consideration of several factors, including industry practices, the existence of licensing agreements, and the importance of the trademark, trade name and licensed rights and profit levels, among other considerations. The royalty rate of 4% of expected adjusted net sales related to the respective trade names and trademarks was used in the determination of their fair values, and a rate of 1.5% was used for the third party license agreement. The expected net sales were adjusted for certain international revenues, retail, licensing and management fees, as well as certain direct costs related to the licensing agreement.  The Company anticipates using the majority of the trade names and trademarks for an indefinite period, while the license agreement intangible asset will be amortized through 2020.  Income taxes were estimated at a rate of 39.5% and amounts were discounted using a 12% discount rate for trade names and trademarks and 15% for the third party license agreement.  Trade name and trademarks were valued at approximately $344 million and the third party license agreement at approximately $24 million.

 

·      Sponsorship agreements were valued using the lost profits method, also referred to as the “with or without” method.  Under this method, the fair value of the sponsorship agreements was estimated by assessing the loss of economic profits under a hypothetical condition where such agreements would not be in place and would need to be recreated.  The projected revenues, expenses and cash flows were calculated under each scenario and the difference in the annual cash flows was then discounted to the present value to derive at an indication of the value of the sponsorship agreements.  Income taxes were estimated at a rate of 39.5% and amounts were discounted using a 12% discount rate, resulting in approximately $43 million of value allocated to sponsorship agreements.

 

·      The Company valued group sales customer relationships using the income approach, specifically the multi-period excess earnings method.  In determining the fair value of the group-sales customer relationships, the multi-period excess earnings approach values the intangible asset at the present value of the incremental after-tax cash flows attributable only to the customer relationship after deducting contributory asset charges.  The incremental after-tax cash flows attributable to the subject intangible asset are then discounted to their present value.  Only expected sales from current group sales customers were used which was calculated based on a two year life.  The Company assumed a retention rate of 50% which was supported by historical retention rates.  Income taxes were estimated at a rate 39.5% and amounts were discounted using a 12% discount rate. The group-sales customer relationships were valued at approximately $7 million under this approach.

 

(h)  Impact on Net Operating Loss Carryforwards (“NOLs”)

 

Holdings is the common parent of an affiliated group of corporations (the “Six Flags Group”) that join in filing a consolidated federal income tax return.  We estimate that as of June 30, 2010, the Six Flags Group has consolidated federal income tax NOLs of approximately $1.3 billion.

 

Pursuant to the Plan, Holdings’ aggregate debt was substantially reduced.  In general, the discharge of debt for cash and property (including stock) having a value less than the amount owed is taxable as cancellation of debt income (“CODI”).  However, an exception is made for CODI arising in a bankruptcy proceeding.  Under this exception, Holdings’ CODI is not taxable income.  Instead, the Internal Revenue Code of 1986, as amended (“IRC”), requires that, after determining our 2010 federal income tax, Holdings reduce its remaining NOLs (first 2010 NOLs, then its oldest and then next-to-oldest NOLs, and so on) and then certain other tax benefits by the amount of CODI.  Because Holdings’ CODI exceeded its NOLs and other relevant tax benefits, the remaining CODI reduces SFO’s NOLs (in the same order), and then basis in SFI’s assets.

 

The issuance of Common Stock to creditors pursuant to the Plan caused an “ownership change”

 

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Table of Contents

 

under section 382 of the IRC.  As a result, the NOLs we had on the Effective Date of the Plan became subject to an annual “Section 382 limitation” on the amount of such NOLs that could be used each year after the ownership change.  NOLs not utilized in a given year because of this limitation are carried forward until their normal expiration date, subject to the Section 382 limitation in the carryforward years.  If the limitation exceeds taxable income in a given year, the excess limitation is carried forward and increases the limitation in succeeding years.  Under a special rule for ownership changes pursuant to a bankruptcy proceeding, our Section 382 limitation is equal to the lesser of the value of our common stock immediately after the Effective Date or the value of our assets immediately before the Effective Date, multiplied by 4.03%, which is the rate published by the Internal Revenue Service for ownership changes in April 2010.

 

Our Section 382 limitation will be increased by built-in income and gain recognized (or treated as recognized) during the five years following the Effective Date (up to our total built-in income and gain on the Effective Date).  Built-in income, for this purpose, includes the amount that our tax depreciation and amortization expense during a 5-year period is less than it would have been if our assets had a tax basis on the Effective Date equal to their value.  Because most of our assets are theme park assets, depreciated on an accelerated basis over a 7-year period, our NOL limitation during this 5-year period will be substantially increased by built-in income.

 

Alternative minimum tax (“AMT”), at a 20% rate, is owed on AMT income to the extent AMT exceeds regular federal income tax in a given year.  For AMT purposes, no more than 90% of AMT income can be offset with NOLs (as recomputed for AMT purposes).  Therefore, AMT will be owed in years that we have positive AMT income, even if our regular taxable income is fully offset with NOLs.  As a result, AMT income (before NOLs) will be taxed at a 2% effective U.S. federal income tax rate (i.e., 10% of AMT income that cannot be offset with NOLs, multiplied by 20% AMT rate).  The AMT that we pay is allowed as a nonrefundable credit against regular federal income tax in future years to the extent regular tax (before AMT credits) exceeds AMT in such years.

 

2.             General — Basis of Presentation

 

We own and operate regional theme, water and zoological parks.  Of the 19 parks we own or operate, 17 are located in the United States.  Of the other two parks, one is located in Mexico City, Mexico and the other is located in Montreal, Canada.  During the second quarter of 2008, we decided that we would not re-open our New Orleans park, which sustained very extensive damage during Hurricane Katrina in late August 2005.  During the third quarter of 2009, the Company and the City of New Orleans mutually agreed to terminate the Company’s lease with the City of New Orleans and to settle the related litigation, pursuant to which the Company agreed, among other things, to pay $3 million and to transfer title to the Company’s property and equipment at the site to the City of New Orleans, including land owned by the Company adjacent to the leased site.  We recorded appropriate provisions for impairment and liabilities related to discontinuing the operations at the New Orleans park.  The condensed consolidated financial statements as of and for all periods presented reflect the assets, liabilities and results of the facilities sold and held for sale as discontinued operations.  See Notes 3 and 7.

 

In February 2010, in connection with the Chapter 11 Filing, the Company decided to reject the lease with the Kentucky State Fair Board relating to our Louisville park and we no longer operate the park.  The condensed consolidated financial statements as of and for all periods presented, reflect the assets, liabilities and results of operations for our Louisville park as discontinued operations.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations, which follows these Notes, contains additional information on our results of operations and our financial position. That discussion should be read in conjunction with the condensed consolidated financial statements and these notes.  Our 2009 Annual Report includes additional information about us, our operations and our financial position, and should be referred to in conjunction with this Quarterly Report.

 

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The information furnished in this report reflects all adjustments (which are normal and recurring) that are, in the opinion of management, necessary to present a fair statement of the results for the periods presented.

 

Results of operations for the six-month period ended June 30, 2010 are not indicative of the results expected for the full year.  In particular, our park operations contribute a substantial majority of their annual revenue during the period from Memorial Day to Labor Day each year, while expenses are incurred year round.

 

We evaluated subsequent events through the date the financial statements were issued.  No reportable subsequent events were identified as a result of our evaluation.

 

a.     Consolidated GAAP Presentation

 

Our accounting policies reflect industry practices and conform to GAAP.

 

The condensed consolidated financial statements include our accounts and the accounts of our wholly owned subsidiaries.   We also consolidate the partnerships that own the Partnership Parks, as we have determined that we have the power to direct the activities of those entities that most significantly impact the entities’ economic performance and we have the obligation to absorb losses and receive benefits from the entities that can be potentially significant to these entities.  Furthermore, as a result of adopting FASB ASC Topic 810, Consolidation (“FASB ASC 810”) on January 1, 2010, we consolidated HWP as a subsidiary in our condensed consolidated financial statements beginning with the first quarter of 2010.  The equity interests owned by non-affiliated parties in the Partnership Parks are reflected in the accompanying condensed consolidated balance sheets as redeemable noncontrolling interests.  The equity interests owned by non-affiliated parties in HWP are reflected in the accompanying June 30, 2010 condensed consolidated balance sheet as noncontrolling interests.  The portion of earnings or loss from each of the entities attributable to non-affiliated parties is reflected as net income (loss) attributable to noncontrolling interests in the accompanying condensed consolidated statements of operations.  See further discussion in Note 2(k) and Note 8.

 

b.     Accounting for the Chapter 11 Filing

 

We follow the accounting prescribed by FASB ASC 852.  This accounting literature provides guidance for periods subsequent to a Chapter 11 filing regarding the presentation of liabilities that are and are not subject to compromise by the bankruptcy court proceedings, as well as the treatment of interest expense and presentation of costs associated with the proceedings.

 

In accordance with FASB ASC 852, debt discounts or premiums as well as debt issuance costs should be viewed as valuations of the related debt.  When the debt has become an allowed claim and the allowed claim differs from the carrying amount of the debt, the recorded amount should be adjusted to the allowed claim.  During the second quarter of 2009, we wrote off costs that were associated with unsecured debt that is included in liabilities subject to compromise at April 30, 2010.  Premiums and discounts as well as debt issuance cost on debt that is not subject to compromise, such as fully secured claims, were not adjusted.

 

Because the former stockholders of SFI owned less than 50% of the voting shares after Holdings emerged from bankruptcy, we applied fresh start reporting, in which our assets and liabilities will be recorded at their estimated fair value using the principles of purchase accounting contained in FASB ASC 805.  The difference between our estimated fair value and our identifiable assets and liabilities was recognized as goodwill.  See Note 1(g) for discussion of application of fresh start accounting and effects of the Plan.  The implementation of the Plan and the application of fresh start accounting as discussed in Note 1(g) results in financial statements that are not comparable to financial statements in periods prior to emergence.

 

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c.     Reorganization Items

 

FASB ASC 852 requires separate disclosure of reorganization items such as realized gains and losses from the settlement of liabilities subject to compromise, provisions for losses resulting from the reorganization of the business, as well as professional fees directly related to the process of reorganizing the Debtors under the Bankruptcy Code.  The Debtors’ reorganization items consist of the following (in thousands):

 

 

 

Successor

 

 

Predecessor

 

 

 

Period from
May 1 through
June 30, 2010

 

 

Period from
January 1
through
April 30, 2010

 

Six months
ended
June 30, 2009

 

 

 

 

 

 

 

 

 

 

Write-off of unamortized debt issuance costs, premiums and discounts associated with unsecured debt subject to compromise

 

 

 

 

67,581

 

Gain on settlement of liabilities subject to compromise

 

 

 

(1,087,516

)

 

Fresh start reporting adjustments

 

 

 

230,503

 

 

Costs and expenses directly related to the reorganization

 

977

 

 

89,568

 

11,144

 

Total reorganization items

 

$

977

 

 

(767,445

)

78,725

 

 

Costs and expenses directly related to the reorganization primarily include fees associated with advisors to the Debtors, certain creditors and the Creditors’ Committee (as such term is defined in the Plan).

 

Net cash paid for reorganization items, constituting professional fees and finance fees, as of June 30, 2010 totaled $82,871,000.

 

Liabilities Subject to Compromise

 

Liabilities subject to compromise refers to unsecured obligations that were accounted for under a plan of reorganization.  Generally, actions to enforce or otherwise effect payment of liabilities arising before the date of filing of the plan of reorganization are stayed.  FASB ASC 852 requires liabilities that are subject to compromise to be reported at the claim amounts expected to be allowed, even if they may be settled for lesser amounts.  These liabilities represent the estimated amount of claims expected to be allowed on known or potential claims to be resolved through the bankruptcy process, and remain subject to future adjustments arising from negotiated settlements, actions of the Bankruptcy Court, rejection of executory contracts and unexpired leases, the determination as to the value of collateral securing the claims, proofs of claim or other events.  Liabilities subject to compromise also include certain items that may be assumed under the plan of reorganization, and as such, may be subsequently reclassified to liabilities not subject to compromise.  The Company did not include the Prepetition Credit Agreement obligations, and swap obligations secured ratably therewith, as liabilities subject to compromise as these secured liabilities were fully recovered by the lenders under the Prepetition Credit Agreement.  The Bankruptcy Court granted final approval of the Debtors’ “first day” motions covering, among other things, human resource obligations, supplier relations, insurance, customer relations, business operations, certain tax matters, cash management, post-petition utilities, case management and retention of professionals.  Obligations associated with these matters were not classified as liabilities subject to compromise.

 

The Debtors were permitted to reject prepetition executory contracts and unexpired leases with respect to the Debtors’ operations, with the approval of the Bankruptcy Court.  Damages resulting from

 

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rejection of executory contracts and unexpired leases are generally treated as general unsecured claims and are classified as liabilities subject to compromise.  Holders of such prepetition claims were required to file proofs of claims by a bar date set by the Bankruptcy Court.  A bar date is the date by which claims against the Debtors must be filed if the claimants wish to receive any distribution in the Chapter 11 Filing.  The Debtors notified all known claimants subject to the bar date of their need to file a proof of claim with the Bankruptcy Court.  Differences between liability amounts estimated by the Debtors and claims filed by creditors were investigated and, if necessary, the Bankruptcy Court will make a final determination of the allowable claim.

 

Liabilities subject to compromise for the Predecessor Company consist of the following (in thousands):

 

 

 

December 31, 2009

 

 

 

 

 

Accounts payable and other accrued expenses

 

$

66,392

 

Accrued interest payable

 

49,877

 

Unsecured debt

 

988,305

 

Unsecured convertible notes

 

280,000

 

PIERS

 

306,650

 

Total liabilities subject to compromise

 

$

1,691,224

 

 

In accordance with the guidance provided in FASB ASC Topic 480, Distinguishing Liabilities from Equity, and FASB ASC 852, during the third quarter of 2009 we reclassified the $275.4 million redemption value of PIERS plus accrued and unpaid dividends of approximately $31.2 million from mezzanine equity to liabilities subject to compromise, as the PIERS became an unconditional obligation as of August 15, 2009.  On the Effective Date, by operation of the Plan, the PIERS were cancelled.

 

On the Effective Date, the Plan required that all liabilities subject to compromise, except those relating to unsecured debt and the PIERS, be retained by SFEC. Therefore, at April 30, 2010 we reclassified $170,220 of liabilities, including $70,031 of accounts payable and other accrued liabilities, and $100,189 of accrued interest payable from liabilities subject to compromise to current or long-term liabilities of SFEC, as appropriate.  All liabilities subject to compromise were discharged at April 30, 2010 or were retained by us under the terms of the Plan.

 

d.     Note Receivable

 

We originally recorded the $37.0 million note that we received pursuant to the sale of seven parks in April 2007 at an estimated fair value of $11.4 million, reflecting the risk of collectability due to the note’s subordination to other obligations.  Since it was recorded, we have received $10.4 million, which was applied against the recorded principal amount.  As a result of adopting fresh start accounting, the note receivable was revalued using discounted cash flow methodology over the remaining life of the note resulting in an $8.4 million estimated fair value (see Note 1(g)).  We will not recognize interest income from the note until the entire carrying amount has been recovered, in accordance with the guidance of FASB ASC Topic 310, Receivables.  As of June 30, 2010, we have collected payments in the amount of $0.7 million leaving the note receivable balance at $7.7 million.

 

e.     Income Taxes

 

Income taxes are accounted for under the asset and liability method.

 

We classify interest and penalties attributable to income taxes as part of income tax expense.  As of June 30, 2010, we have a liability of approximately $1.2 million accrued for interest and penalties.

 

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f.      Long-Lived Assets

 

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or group of assets to future net cash flows expected to be generated by the asset or group of assets.  If such assets are not considered to be fully recoverable, any impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.  Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

 

With our adoption of fresh start accounting upon emergence, assets have been revalued based on the fair values of long-lived assets.

 

g.     Derivative Instruments and Hedging Activities

 

We account for derivatives and hedging activities in accordance with FASB ASC Topic 815, Derivatives and Hedging (“FASB ASC 815”).  This accounting guidance establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities.  It requires an entity to recognize all derivatives as either assets or liabilities in the consolidated balance sheet and measure those instruments at fair value.  If certain conditions are met, a derivative may be specifically designated as a hedge for accounting purposes.  The accounting for changes in the fair value of a derivative (e.g., gains and losses) depends on the intended use of the derivative and the resulting designation.

 

We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and our strategy for undertaking various hedge transactions.  This process includes linking all derivatives that are designated as cash-flow hedges to forecasted transactions. We also assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.

 

Changes in the fair value of a derivative that is effective and that is designated and qualifies as a cash-flow hedge are recorded in other comprehensive income (loss), until operations are affected by the variability in cash flows of the designated hedged item.  Changes in fair value of a derivative that is not designated as a hedge are recorded in other expense in our condensed consolidated statements of operations on a current basis.

 

During the fourth quarter of 2008, we discontinued hedge accounting treatment for the interest rate swaps, as they no longer met the probability test as detailed in FASB ASC 815.  On the Effective Date, all liabilities under the derivative instruments were settled.  See Note 4.

 

h.     Income Per Common Share

 

Basic income per share is computed by dividing net income (loss) applicable to common stock by the weighted average number of common shares outstanding for the period.

 

As discussed in Note 1, all SFI common stock was cancelled as a result of the Company’s emergence from Chapter 11 on the Effective Date.  SFEC’s Common Stock began trading on the New York Stock Exchange on June 21, 2010.  As such, the earnings per share information for the Predecessor Company is not meaningful to shareholders of the Successor Company’s common stock, or to potential investors in such common stock.

 

i.      Reclassifications

 

Reclassifications have been made to certain amounts reported in 2009 to conform to the 2010 presentation.

 

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j.      Stock Benefit Plans

 

Successor

 

Pursuant to the Plan, on the Effective Date, the Six Flags Entertainment Corporation Long-Term Incentive Plan became effective (the “Long-Term Incentive Plan”).  Pursuant to the Long-Term Incentive Plan, SFEC may grant stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, deferred stock units, performance and cash-settled awards and dividend equivalents (collectively, “Awards”) to select employees, officers, directors and consultants of SFEC and its affiliates (collectively, “Eligible Persons”).  The Long-Term Incentive Plan provides that no more than 4,833,333 shares of Common Stock may be issued pursuant to Awards under the Long-Term Incentive Plan as of the Effective Date, and if and to the extent the Delayed Draw Equity Purchase is consummated, up to 149,956 additional shares of Common Stock will be available for issuance under the Long-Term Incentive Plan.  At least one-third of the total shares available for issuance under the Long-Term Incentive Plan are available for grants of restricted stock or restricted stock units.  As of June 30, 2010, no Awards were issued under the Long-Term Incentive Plan.

 

Predecessor

 

Pursuant to the Plan, all stock-based compensation arrangements and awards were cancelled including, without limitation, the following: (i) SFI’s 2001 Stock Option and Incentive Plan; (ii) the SFI Stock Option Plan for Directors; (iii) SFI’s 2004 Stock Option and Incentive Plan; (iv) SFI’s 2006 Stock Option and Incentive Plan; (v) SFI’s 2006 Employee Stock Purchase Plan; (vi) SFI’s 2007 Stock Option and Incentive Plan; (vii) the SFI 2008 Stock Option and Incentive Plan; and (viii) all outstanding awards and grants thereunder (collectively, the “Preconfirmation Stock Incentive Plans”).

 

During the six months ended June 30, 2010 and 2009, stock-based compensation expense related to the Preconfirmation Stock Incentive Plans was $2,004,000 ($1,286,000 of which was recorded in reorganization items as the grants were canceled as a result of the Plan) and $1,441,000, respectively.

 

Under the Preconfirmation Stock Incentive Plans, our officers and non-employee directors were awarded stock options, restricted stock and other stock-based awards.  As of June 30, 2009, options to purchase 6,580,000 shares of SFI’s common stock and approximately 1,769,000 shares of restricted stock were outstanding under the Preconfirmation S