Six Flags Entertainment Corporation Operations and Financial Performance Evaluation

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Introduction

Amusement parks in the United States represent a place were the youth and families can go to have fun in a safe and controlled environment. The industry leader in amusement parks is Disney whose brand is recognized worldwide. High capital is a barrier of entry into this industry since upwards of $500 million dollars is needed to build a theme park with single rides costing over $40 million each (Referenceforbusiness). To succeed in this industry it takes innovation, technology, and great marketing to attract customers to your facilities. The industrial revolution accelerated the popularity of amusement parks due to the creation of mechanized rides such as the ferris wheel. A company that successfully penetrated the marketplace 50 years ago is Six Flags Entertainment Corporation. The purpose of this paper is to evaluate the operations and financial performance of Six Flags.

Company Background

Six Flags Entertainment Corporation was founded in 1961 by Angus Wynne (Sixflags). The first Six Flags theme park was opened in Texas. The company operates in the amusement park industry under SIC code 7996 (Marigoldtech). Today Six Flags is the world’s largest regional theme park with 18 facilities of which 16 are located in the United States, one in Mexico, and one in Canada. The company is a public firm whose stocks are traded in the New York Stock Exchange (NYSE) under the symbol SIX. The price of Six Flags common stocks as of February 5, 2014 was $33.99 (Yahoo). The market capitalization of Six Flags is $3.23 billion. The Chairman, President and Chief Executive Officer (CEO) of the company is Jim Reid-Anderson. The organization a few years back filed for Chapter 11 bankruptcy protection. “Six Flags and certain of its domestic subsidiaries filed Chapter 11 bankruptcy on June 13, 2009 and emerged from Chapter 11 on April 30, 2010” (Sixflags). The firm’s accounting books are prepared using the U.S. generally accepted accounting principles (GAAP). Six Flags receives over 26 million visitors each year. The company faces a variety of business risks. The general state of the economy is a business risk because entertainment is a luxury item in the personal budgets of people. A second major business risk the firm faces is competition. Bad weather is another risk that affects attendance to the parks. A fourth risk is changes in consumer taste and preferences.

Six Flags Entertainment Corporation Operations and Financial Performance Evaluation

Common Size Financial Statements

The common size financial statements of Six Flags Entertainment Corporation for the last five years are illustrated below. A trend analysis of the year to year changes within the accounts of the income statement and balance sheet is also included.

Six Flags Entertainment Corporation Income Statement (000)

2012Change2011Change2010Change2009Change2008
Total revenues10703325.64%101317419.50%847812-7.13%912861-10.62%1021298
Operating expenses4116793.47%39787436.00%292550-31.22%4253671.46%419250
Selling, general, and administrative2258755.03%21505951.37%142079-27.83%196874-8.15%214340
Cost of product sold801693.73%7728615.41%66965-12.93%76907-11.05%86457
Depreciation132397-12.29%15095241.99%106315-26.64%1449194.71%138406
Amortization15648-13.29%1804749.97%120341138.07%972-19.20%1203
Loss on disposal of assets81056.43%7615-35.06%11727-5.13%12361-30.13%17692
Gain on sale of investee-67319
Interest expense47444-28.35%6621421.59%54455-48.78%106313-42.65%185370
Interest income-820-17.75%-99762.64%-613-30.18%-878-62.51%-2342
equity in loss of investee2222-28.58%3111126.75%1372-143.95%-3122-487.34%806
Loss on debt extinguishment587-98.74%46520151.55%18493-100.00%-107743
Other expense612738.36%73-92.36%956-94.48%1730418.30%14627
Restructure costs-47-100.19%25086-32.96%37417
Income from continuing operations before reorg. items, taxes and discontinued operations2137803275.12%6334-93.91%10406262.20%6415620.52%53232
Reorganization items2168-11.69%2455-67.17%7479-94.61%138864
Income from continuing operations before taxes and discontinued operations2116125355.32%3879-95.98%96583-147.57%-203020-481.39%53232
Income tax-1722282035.50%-8065-172.16%11177285.15%2902-97.51%116630
Income from continued operations before discontinued operations3838403113.66%11944-86.02%85406-141.47%-205922224.81%-63398
Income from discontinued operations7273505.58%1201-312.57%-565-104.78%11827-175.37%-15691
Net income3911132875.37%13145-84.51%84841-143.71%-194095145.41%-79089
Less: Net income attributable to non-controlling interests-371043.63%-358052.92%-34788-0.81%-35072-13.89%-40728
Net (loss) income354009-1662.26%-22660-145.27%50053-121.84%-22916791.26%-119817

 

Six Flags Entertainment Corporation Balance Sheet (000)
2012Change2011Change2010Change2009Change2008
Assets
Current assets
Cash and cash equivalents629208171.88%23142723.72%18706113.49%164830-21.63%210332
Account receivables2952359.92%18461-8.86%202551.98%19862-0.97%20057
Inventories222806.23%20973-10.91%235427.95%21809-12.45%24909
Prepaid expenses37490-3.05%386687.25%36055-25.88%4864617.36%41450
Deferred income taxes449730000
Total current assets763474146.66%30952915.97%2669134.61%255147-14.02%296748
Other assets
Debt issuance costs2604399.93%13026-67.98%40675225.97%12478-60.00%31194
Restricted-use investment securities1218137.43%513-82.54%293823.08%2387-85.14%16061
Deposits and other assets4214-59.78%10477-37.03%16639-83.12%9858348.99%66167
Total other assets3147531.06%24016-60.14%60252-46.89%1134480.02%113422
Property and equipment16351905.88%15443514.99%1470986-44.61%26556360.03%2654939
Accumulated depreciation-38056150.71%-252514138.44%-105901-91.01%-1178404-207.67%1094466
Total property and equipment1254629-2.88%1291837-5.37%1365085-7.59%1477232-5.33%1560473
Assets held for sale0-100.00%12000
Goodwill6302480.00%6302480.00%630248-39.98%10501250
Intangible assets376565-4.07%392548-4.43%4107553811.95%10500-99.01%1059486
Total assets305639115.41%2648178-3.11%2733253-6.00%2907652-4.04%3030129
Liabilities and equity
Current liabilities
Account payable23580-1.02%23823-28.55%33342-25.85%4496579.43%25060
Accrued compensation, payroll taxes and benefits35949-39.52%5944171.98%34563100.03%17279-24.66%22934
Accrued insurance reserve353693.64%34128-6.62%36546-4.38%3822212.65%33929
Accrued interest payable2359120.26%1071-68.62%3413-94.68%6420949.47%42957
Other accrued liabilities25663-13.98%29834-23.84%39175-15.55%463883.08%45001
Deferred income5270338.13%3815651.11%2525126.86%1990413.13%17594
Liabilities from discontinued operations0000-100.00%1400
Current portion of long term debt6240-82.32%352967.09%32959-92.51%43982673.18%253970
Mandatory redeemable preferred stock0-100.00%3066500
Total current liabilities181863-17.99%2217498.04%205249-79.00%977443120.72%442845
Long term debt139896651.74%921940-1.73%938195-52.30%1966754-3.79%2044230
Liabilities from discontinued operations0000-100.00%6730
Other long term liabilities763980.29%7618079.32%42482-40.25%71094-4.36%74337
Deferred income taxes65070-70.52%220734-7.06%23750996.94%120602-0.91%121710
Total liabilities216023814.86%188070032.12%1423435-54.61%313589316.67%2687852
Redeemable non controlling interests437941-0.68%440927-0.16%44165524.08%355933-14.11%414394
Stockholders equity
Mandatory redeemable preferred stock-100.00%302382
Preferred stock00000
Common stock1345-1.54%136695.98%697-71.64%24580.61%2443
Capital in excess par value9047138.72%8321121.63%818799-45.64%15061520.98%1491494
Retained earnings15849-178.90%-20088-141.50%48404-102.35%-20594870
Accumulated other comprehensive loss-29688-40.52%-499121090.65%-4192-87.41%-33297-41.02%-56458
Total equity89221916.86%763478-11.60%863708-247.85%-58417455.16%-376499
Non-controlling interests39347.19%3670-17.62%4455#DIV/0!00
Total equity89615316.77%767478-11.60%868163-248.61%-58417455.16%-376499
Total liabilities and equity305639115.41%2648178-3.11%2733253-6.00%2907652-4.04%3030129

Six Flags generated $1.07 billion in sales in 2012. The revenues of the company increased by 5.64% in comparison with the previous year and it rose by 26.24% since it got out of chapter 11 bankruptcy in 2010. The organization had a net income of $354 million in 2012. In comparison with 2008 the net income of the firm has risen by $474 million. The account receivables of Six Flags increased by 59.92% in 2012, while its accounts payables decreased by 1.02%. The total assets of Six Flags amounted to $3.06 billion as of December 31, 2012. Its total assets increased by 15.41% in comparison with the previous year. The cash reserves of the company at the end of 2012 were $629 million. During the last five the cash balance of the organization has nearly tripled. The statement of cash flow of the firm reflects that the company obtained $373 million from operating activities, $51.68 million from financing activities, and an outflow of $27.66 million from investing activities in 2012. The inventory of the company in 2012 was $22.28 million which is a 6.23% increase from 2011. The total liabilities of Six Flags are $2.16 billion. The firm has done a good job of lowering its debt. Its total debt has decreased by 31.11% since 2009.

Ratio Analysis

A ratio analysis of Six Flags for the last five years is illustrated below;

Ratio Analysis20122011201020092008
Net Margin33.07%-2.24%5.90%-25.10%-11.73%
Return on assets (ROA)11.58%-0.86%1.83%-7.88%-3.95%
Return on equity (ROE)39.50%-2.95%5.77%-7.88%31.82%
Earnings per share  (EPS)$6.38$-0.41$1.81$-2.51$-1.46
Current ratio4.201.401.300.260.67
Acid test ratio4.081.301.190.240.61
Debt ratio0.710.710.521.080.89
Dividends per share$2.70$0.18$0.03$0.00$0.00

The net margin of Six Flags in 2012 was 33.07%. Net margin measures the absolute profitability of a company (Loth). Six Flags net margin is 44.8% better than in 2008. The return on assets of Six Flags was 11.58% in 2012. ROA measures how effective a company has been at generating profits from its assets (Ccdconsultants). The return on assets results of Six Flags in 2012 is its best number during the past five years. In 2012 the return on equity of the firm was 39.50%. The company’s return on equity was 42.45% better than the previous year. “ROE encompasses the three pillars of corporate management — profitability, asset management, and financial leverage” (Fool). Six Flags had earnings per share in 2012 of $6.38 which is great considering the fact that three of the four previous years its EPS was negative.  EPS can be defined as the portion of a company’s profit allocated to each outstanding share of common stock (Investopedia). Six Flags current ratio in 2012 was 4.20. The figure is outstanding since a current ratio is considered good if is above the 1.0 threshold. The current ratio shows the ability of a company to pay off its short term debt (Accounting-simplified). The acid test ratio is another short term liquidity ratio. The firm’s acid test ratio has been steadily climbing during the past four years. In 2012 Six Flags had a debt ratio of 0.71 which implies the firm is not too highly leveraged. Six Flags paid a dividend per share of $2.70 in 2012.

Conclusion

Six Flags Entertainment Corporation faced some tough times in the aftermath of the global recession of 2008-2009 which led them to file chapter 11 bankruptcy. The management of the firm did a great job of reorganizing the company. The financial performance of the enterprise was outstanding in 2012. Its profitability, liquidity, and asset management were very good. A 33.07% net margin in any industry is tremendous. I would recommend an investor purchase Six Flags common stocks.

Works Cited
  • Accounting-simplified.com. 2013. “Current Ratio – Liquidity Ratio – Working Capital Ratio.” 6 February 2014. <http://accounting-simplified.com/financial/ratio-analysis/current.html>
  • Ccdconsultants.com. 2009. “Return on Assets Interpretation.” 6 February 2014. <http://www.ccdconsultants.com/documentation/financial-ratios/return-on-assets-interpretation.html>
  • Fool.com. 2008. “Return on Equity: An Introduction.” 6 February 2014. <http://www.fool.com/investing/beginning/return-on-equity-an-introduction.aspx>
  • Investopedia.com. 2014. “Definition of Earnings Per Share – EPS. 6 February 2014. <http://www.investopedia.com/terms/e/eps.asp>
  • Loth, R. 2014. “Profitability Indicator Ratios: Profit Margin Analysis.” 6 February 2014. <http://www.investopedia.com/university/ratios/profitability-indicator/ratio1.asp>
  • Marigoldtech.com. “SIC Code 7996 – Amusement Parks Mailing List.” 6 February 2014. <http://www.marigoldtech.com/lists/sic.php?sic-code=7996>
  • Referenceforbusiness.com. 2014. “SIC 7996 – Amusement Park.” 6 February 2014. <http://www.referenceforbusiness.com/industries/Service/Amusement-Parks.html>
  • Sixflags.com. 2014. “History.” 6 February 2014. <http://investors.sixflags.com/phoenix.zhtml?c=61629&p=irol-homeprofile>
  • Sixflags.com. 2014. “Investor Q&A.” 6 February 2014. <http://investors.sixflags.com/phoenix.zhtml?c=61629&p=irol-faq#42766>
  • Yahoo.com. 5 February. “Six Flags. Entertainment Corporation.” Yahoo Finance. 5 February 2014. <http://finance.yahoo.com/q?s=six&ql=1>

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