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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED MARCH 31 , 2001
OR
|_| 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: 0-9789
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SIX FLAGS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3995059
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11501 NORTHEAST EXPRESSWAY, OKLAHOMA CITY, OKLAHOMA 73131
(Address of principal executive offices, including zip code)
(405) 475-2500
(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 |_|
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
At May 7, 2001, Six Flags, Inc. had outstanding 91,889,363 shares of
Common Stock, par value $.025 per share.
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PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
SIX FLAGS, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2001 2000
-------------- --------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 71,885,000 $ 42,978,000
Accounts receivable 48,611,000 40,771,000
Inventories 36,401,000 28,588,000
Prepaid expenses and other current assets 40,112,000 35,855,000
Restricted-use investment securities 12,950,000 12,773,000
-------------- --------------
Total current assets 209,959,000 160,965,000
Other assets:
Debt issuance costs 51,929,000 46,967,000
Restricted-use investment securities 70,418,000 75,376,000
Deposits and other assets 56,930,000 56,884,000
-------------- --------------
Total other assets 179,277,000 179,227,000
Property and equipment, at cost 2,653,921,000 2,585,927,000
Less accumulated depreciation 360,440,000 328,027,000
-------------- --------------
Total property and equipment 2,293,481,000 2,257,900,000
Investment in theme park partnerships 369,534,000 386,638,000
Intangible assets, principally goodwill 1,419,802,000 1,354,289,000
Less accumulated amortization 161,475,000 147,680,000
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Total intangible assets 1,258,327,000 1,206,609,000
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Total assets $4,310,578,000 $4,191,339,000
============== ==============
See accompanying notes to consolidated financial statements
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ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 DECEMBER 31, 2000
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(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 55,756,000 $ 45,315,000
Accrued liabilities 52,044,000 62,727,000
Accrued interest payable 43,344,000 24,353,000
Deferred income 31,920,000 8,788,000
Current portion of long-term debt 102,340,000 2,401,000
--------------- ---------------
Total current liabilities 285,404,000 143,584,000
Long-term debt 2,262,498,000 2,319,912,000
Other long-term liabilities 47,718,000 37,937,000
Deferred income taxes 49,930,000 144,919,000
Manditorily redeemable preferred stock (redemption
value of $287,500,000) 278,312,000 --
Stockholders' equity:
Preferred stock of $1.00 par value 12,000 12,000
Common stock of $.025 par value 2,002,000 2,001,000
Capital in excess of par value 1,726,854,000 1,725,890,000
Accumulated deficit (259,862,000) (128,928,000)
Deferred compensation (4,724,000) (5,399,000)
Accumulated other comprehensive income (loss) (77,566,000) (48,589,000)
--------------- ---------------
Total stockholders' equity 1,386,716,000 1,544,987,000
--------------- ---------------
Total liabilities and stockholders' equity $ 4,310,578,000 $ 4,191,339,000
=============== ===============
See accompanying notes to consolidated financial statements
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ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
2001 2000
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Revenue:
Theme park admissions $ 14,419,000 $ 12,349,000
Theme park food, merchandise and other 20,750,000 18,544,000
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Total revenue 35,169,000 30,893,000
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Operating costs and expenses:
Operating expenses 64,518,000 59,193,000
Selling, general and administrative 34,922,000 34,008,000
Noncash compensation (primarily selling,
general and administrative) 1,357,000 3,147,000
Costs of products sold 2,987,000 2,468,000
Depreciation and amortization 48,263,000 42,132,000
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Total operating costs and expenses 152,047,000 140,948,000
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Loss from operations (116,878,000) (110,055,000)
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Other income (expense):
Interest expense (58,973,000) (55,360,000)
Interest income 2,959,000 2,305,000
Equity in operations of theme park partnerships (14,376,000) (14,155,000)
Other income (expense) (3,159,000) 257,000
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Total other income (expense) (73,549,000) (66,953,000)
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Loss before income taxes and
extraordinary loss (190,427,000) (177,008,000)
Income tax benefit 67,976,000 63,116,000
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Loss before extraordinary loss (122,451,000) (113,892,000)
Extraordinary loss on extinguishment of debt, net
of income tax benefit of $5,088,000 in 2001 (8,301,000) --
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Net loss $(130,752,000) $(113,892,000)
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Net loss applicable to common stock $(140,602,000) $(119,714,000)
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Per share amounts:
Loss per average share - basic and diluted:
Loss before extraordinary loss $ (1.65) $ (1.53)
Extraordinary loss (0.11) --
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Net loss $ (1.76) $ (1.53)
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Weighted average number of common shares
outstanding - basic and diluted 80,081,000 78,489,000
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See accompanying notes to consolidated financial statements
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ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
2001 2000
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Net loss $(130,752,000) $(113,892,000)
Other comprehensive income (loss):
Foreign currency translation adjustment (22,281,000) (10,471,000)
Cumulative effect of change in accounting principle (3,098,000) --
Net change in fair value of derivative instruments (4,375,000) --
Reclassifications of amounts taken to operations 777,000 --
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Comprehensive loss $(159,729,000) $(124,363,000)
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See accompanying notes to consolidated financial statements
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ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
2001 2000
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Cash flow from operating activities:
Net loss $(130,752,000) $(113,892,000)
Adjustments to reconcile net loss
to net cash used in operating activities
(net of effects of acquisitions):
Depreciation and amortization 48,263,000 42,132,000
Equity in operations of theme park partnerships,
net of cash received 18,796,000 14,155,000
Minority interest in loss -- 207,000
Noncash compensation 1,357,000 3,147,000
Interest accretion on notes payable 8,116,000 7,318,000
Interest accretion on restricted-use investments -- (1,438,000)
Extraordinary loss on early extinguishment of debt 13,389,000 --
Amortization of debt issuance costs 2,279,000 2,397,000
Gain on sale of fixed assets (41,000) --
Increase in accounts receivable (7,840,000) (9,637,000)
Increase in inventories and prepaid expenses and other
current assets (11,379,000) (10,296,000)
(Increase) decrease in deposits and other assets (46,000) 2,959,000
Increase in accounts payable, accrued expenses
and other liabilities 13,530,000 46,584,000
Increase in accrued interest payable 18,991,000 18,707,000
Deferred income taxes (73,064,000) (63,406,000)
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Total adjustments 32,351,000 52,829,000
Net cash used in operating activities (98,401,000) (61,063,000)
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Cash flow from investing activities:
Additions to property and equipment (52,951,000) (117,985,000)
Investment in theme park partnerships (1,692,000) (12,752,000)
Acquisition of theme park assets (111,416,000) --
Purchase of restricted-use investments (1,041,000) --
Maturities of restricted-use investments 5,822,000 --
Proceeds from sale of assets 2,420,000 --
------------- -------------
Net cash used in investing activities (158,858,000) (130,737,000)
Cash flow from financing activities:
Repayment of long-term debt (480,636,000) (42,242,000)
Proceeds from borrowings 504,427,000 161,000,000
Net cash proceeds from issuance of preferred stock 278,130,000 --
Net cash proceeds from issuance of common stock 282,000 2,221,000
Payment of cash dividends (5,822,000) (5,822,000)
Payment of debt issuance costs (10,012,000) --
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Net cash provided by financing activities 286,369,000 115,157,000
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Effect of exchange rate changes on cash (203,000) (4,311,000)
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Increase (decrease) in cash and cash equivalents 28,907,000 (80,954,000)
Cash and cash equivalents at beginning of period 42,978,000 138,131,000
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Cash and cash equivalents at end of period $ 71,885,000 $ 57,177,000
============= =============
Supplementary Cash Flow Information:
Cash paid for interest $ 29,587,000 $ 26,897,000
============= =============
See accompanying notes to consolidated financial statements
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SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL -- BASIS OF PRESENTATION
Six Flags owns and operates regional theme amusement and water parks. As
of March 31, 2001, the Company and its subsidiaries owned or operated 38 parks,
including 30 domestic parks, one park in Mexico and seven parks in Europe. Six
Flags is also managing the construction and development of a theme park in
Europe. As used herein, Holdings refers only to Six Flags, Inc., without regard
to its subsidiaries.
In December 2000, the Company purchased all of the capital stock of the
company that owns Enchanted Village and Wild Waves, a water and children's ride
park located near Seattle, Washington. In February 2001, the Company purchased
substantially all of the assets used in the operation of Sea World of Ohio, a
marine wildlife park located adjacent to the Company's Six Flags Ohio theme
park. See Note 3.
The accompanying financial statements for the three months ended March 31,
2001 include the results of Enchanted Village for the entire quarter and of the
former Sea World of Ohio only subsequent to its acquisition date, February 9,
2001. The accompanying consolidated financial statements for the three months
ended March 31, 2000 do not include the results of these two parks.
In May 2001, the Company acquired substantially all of the assets of La
Ronde, a theme park located in Montreal, Canada. The accompanying financial
statements do not include the results of La Ronde for either period presented as
the acquisition occurred subsequent to March 31, 2001. See Note 8.
Management's Discussion and Analysis of Financial Condition and Results
of Operations which follows these notes contains additional information on
the results of operations and the financial position of the Company. Those
comments should be read in conjunction with these notes. The Company's annual
report on Form 10-K for the year ended December 31, 2000 includes additional
information about the Company, its operations and its financial position, and
should be referred to in conjunction with this quarterly report on Form 10-Q.
The information furnished in this report reflects all adjustments (all of
which are normal and recurring, except for the change in accounting
principle) which are, in the opinion of management, necessary to present a
fair statement of the results for the periods presented.
Results of operations for the three-month period ended March 31, 2001 are
not indicative of the results expected for the full year. In particular, the
Company's theme park operations contribute a significant majority of their
annual revenue during the period from Memorial Day to Labor Day each year.
DERIVATIVE INSTRUMENTS
In June, 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 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
statement of financial position 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 (that is gains and losses) depends on the intended use of the
derivative and the resulting designation. The Company adopted the provisions of
SFAS No. 133 as of January 1, 2001. As a result of the adoption, the Company
recognized a
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liability of approximately $4,996,000 and recorded in other comprehensive income
(loss) $3,098,000 (net of tax effect) as a cumulative effect of a change in
accounting principle, which will be amortized into operations over the
original term of the interest rate swap agreements.
As of January 1, 2001, the Company was a party to three interest swap
agreements related to $600,000,000 of term debt that was outstanding under
the Company's credit facility. Two of the three interest rate swap agreements
contained "knock-out" provisions that did not meet the definition of a
derivative instrument that could be designated as a hedge under SFAS 133 or
SFAS 138. From January 1, 2001 to February 1, 2001, the Company recognized a
$3,200,000 expense related to the change in fair value of these two hedges.
As of February 23, 2001, the interest rate swap agreements were amended and
the knock-out provisions were removed. As of that date and through March 31,
2001, the Company has designated all of the interest rate swap agreements as
cash-flow hedges.
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. This process includes
linking all derivatives that are designated as cash-flow hedges to specific firm
commitments or forecasted transactions. The Company also assesses, 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 operations on a
current basis.
During the first quarter of 2001, there were no gains or losses
reclassified into operations as a result of the discontinuance of hedge
accounting treatment for any of the Company's derivatives.
By using derivative instruments to hedge exposures to changes in interest
rates, the Company exposes itself to credit risk and market risk. Credit risk is
the failure of the counterparty to perform under the terms of the derivative
contract. To mitigate this risk, the hedging instruments are usually placed with
counterparties that the Company believes are minimal credit risks.
Market risk is the adverse effect on the value of a financial instrument
that results from a change in interest rates, commodity prices, or currency
exchange rates. The market risk associated with interest rate swap agreements is
managed by establishing and monitoring parameters that limit the types and
degree of market risk that may be undertaken.
The Company does not hold or issue derivative instruments for trading
purposes. Changes in the fair value of derivatives that are designated as hedges
are reported on the balance sheet in "Accumulated other comprehensive loss"
("AOCL"). These amounts are reclassified to interest expense when the forecasted
transaction takes place.
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Since the critical terms, such as the index, settlement dates, and
notional amounts, of the derivative instruments are the same as the terms of the
Company's hedged borrowings under the credit facility, no ineffectiveness of the
cash-flow hedges was recorded in the statements of operations.
As of March 31, 2001, $4,500,000 of net deferred losses on derivative
instruments, including the transition adjustment, accumulated in AOCL are
expected to be reclassified to operations during the next 12 months.
Transactions and events expected to occur over the next twelve months that
will necessitate reclassifying these derivatives' losses to operations are
the periodic payments that are required to be made on outstanding borrowings.
The maximum term over which the Company is hedging exposures to the
variability of cash flows for commodity price risk is 24 months.
LOSS PER SHARE
The weighted average number of shares of Common Stock used in the
calculations of diluted loss per share for the three-month periods ended March
31, 2001 and 2000 does not include the effect of potential common shares
issuable upon the exercise of employee stock options of 891,000 in 2001 and
1,264,000 in 2000 or the impact in either period of the potential conversion of
the Company's outstanding convertible preferred stock into a maximum of
25,288,500 shares of common stock (11,500,000 shares in the 2000 period) and a
minimum of 23,342,700 shares of common stock (9,554,200 shares in the 2000
period) as the effects of the exercise of such options and such conversion and
resulting decrease in preferred stock dividends is antidilutive.
2. PREFERRED STOCK
In January 2001, the Company issued 11,500,000 Preferred Income Equity
Redeemable Shares ("PIERS"), for proceeds of $278,130,000, net of the
underwriting discount and offering expenses of $9,370,000. The Company used the
net proceeds of the offering to fund its acquisition of the former Sea World of
Ohio (see Note 3), to repay borrowings under the working capital revolving
credit portion of the Company's senior credit facility (see Note 4(d)) and for
working capital. Each PIERS represents one one-hundredth of a share of the
Company's 7 1/4% mandatorily redeemable preferred stock (an aggregate of 115,000
shares of preferred stock). The PIERS accrue cumulative dividends (payable, at
the Company's option, in cash or shares of common stock) at 7 1/4% per annum
(approximately $20,844,000 per annum).
Prior to August 15, 2009, each of the PIERS is convertible at the
option of the holder into 1.1990 common shares (equivalent to a conversion
price of $20.85 per common share), subject to adjustment in certain
circumstances (the "Conversion Price"). At any time on or after February 15,
2004 and at the then applicable conversion rate, the Company may cause the
PIERS, in whole or in part, to be automatically converted if for 20 trading
days within any period of 30 consecutive trading days, including the last day
of such period, the closing price of the Company's common stock exceeds 120%
of the then prevailing Conversion Price. On August 15, 2009, the PIERS are
mandatorily redeemable in cash equal to 100% of the liquidation preference
(initially $25.00 per PIERS), plus any accrued and unpaid dividends.
On April 2, 2000, the Company's 5,750,000 shares of Premium Income Equity
Securities ("PIES") automatically converted into 11,500,000 shares of the
Company's common stock. In addition, on that date the Company issued to the
holders of the PIES 278,912 shares of common stock, representing the final
quarterly dividend payment on the PIES.
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3. ACQUISITION OF THEME PARKS
On December 6, 2000, the Company acquired all of the capital stock of the
company that owns Enchanted Village and Wild Waves ("Enchanted Village"), a
water park and children's ride park located near Seattle, Washington, for a
purchase price of $19,255,000 paid through issuance of 1,339,223 shares of the
Company's common stock. As of the acquisition date, $4,471,000 of deferred tax
liabilities were recognized for the tax consequences attributable to the
differences between the financial carrying amounts and the tax basis of
Enchanted Village's assets and liabilities. Approximately $4,235,000 of costs in
excess of the fair value of the net assets acquired were recorded as goodwill.
The transaction was accounted for as a purchase.
On February 9, 2001, the Company acquired substantially all of the assets
used in the operation of Sea World of Ohio, a marine wildlife park located
adjacent to the Company's Six Flags Ohio theme park, for a cash purchase price
of $110,000,000. The Company funded the acquisition from a portion of the
proceeds of the PIERS offering. See Note 2. Approximately $69,784,000 of costs
in excess of the fair value of the net assets acquired were recorded as
goodwill. The transaction was accounted for as a purchase.
4. LONG-TERM INDEBTEDNESS
(a) On January 31, 1997, Six Flags Operations Inc., the predecessor to and
currently a wholly-owned subsidiary of Holdings ("Six Flags Operations"), issued
$125,000,000 of senior notes due January 2007 (the "1997 Notes"). The 1997 Notes
are senior unsecured obligations of Six Flags Operations. The 1997 Notes bear
interest at 9 3/4% per annum payable semiannually and are redeemable, at Six
Flags Operations' option, in whole or in part, at any time on or after January
15, 2002, at varying redemption prices. The 1997 Notes are guaranteed on a
senior, unsecured, joint and several basis by all of Six Flags Operations'
principal domestic subsidiaries.
On January 29, 2001, Six Flags Operations commenced a tender offer for all
of the aggregate principal amount of the 1997 Notes. In conjunction with the
tender offer, noteholder consents were solicited to effect certain amendments to
the indenture governing the 1997 Notes. Six Flags Operations received tenders of
notes and related consents from holders of $124,731,000 principal amount (99.8%)
of the outstanding notes. The tendered notes were purchased and the indenture
amendments became effective on March 2, 2001. The purchase price (including
consent fee) paid was approximately $1,085 for each $1,000 principal amount of
notes plus accrued and unpaid interest up to, but not including, the payment
date. As a result of the early extinguishment of debt, the Company recognized a
loss of approximately $8,301,000, net of tax effect. On February 2, 2001,
Holdings completed an offering of $375,000,000 principal amount of 9 1/2% Senior
Notes (the "2001 Senior Notes") due 2009. A portion of the proceeds of the 2001
Senior Notes was used to finance the tender offer and consent solicitation. See
Note 4(f).
(b) On April 1, 1998, Holdings issued at a discount $410,000,000 principal
amount at maturity ($337,306,000 and $329,275,000 carrying value as of March 31,
2001 and December 31, 2000, respectively) of Senior Discount Notes and
$280,000,000 principal amount of 9 1/4% Senior Notes (the "1998 Senior Notes").
The notes are senior unsecured obligations of Holdings, and are not guaranteed
by Holdings' subsidiaries. The Senior Discount Notes do not require any interest
payments prior to October 1, 2003 and, except in the event of a change of
control of the Company and certain other circumstances, any principal payments
prior to their maturity in 2008. The Senior Discount Notes have an interest rate
of 10% per annum. The 1998 Senior Notes require annual interest payments of
approximately $25,900,000 (9 1/4% per annum) and, except in the event of a
change of control of the Company and certain other circumstances, do not require
any principal payments prior to their maturity
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in 2006. The notes are redeemable, at the Company's option, in whole or in part,
at any time on or after April 1, 2002 (in the case of the 1998 Senior Notes) and
April 1, 2003 (in the case of the Senior Discount Notes), at varying redemption
prices.
Approximately $70,700,000 of the net proceeds of the 1998 Senior Notes
were deposited in escrow to prefund the first six semi-annual interest payments
thereon, and $75,000,000 of the net proceeds of the Senior Discount Notes were
invested in restricted-use securities, until April 1, 2003, to provide funds to
pay certain of Six Flags' obligations to the limited partners of Six Flags Over
Georgia and Six Flags Over Texas (the "Partnership Parks").
The indentures under which the Senior Discount Notes and the 1998 Senior
Notes were issued limit the ability of Holdings and its subsidiaries to dispose
of assets; incur additional indebtedness or liens; pay dividends; engage in
mergers or consolidations; and engage in certain transactions with affiliates.
(c) On April 1, 1998, Six Flags Entertainment Corporation ("SFEC"), which
was subsequently merged into Six Flags Operations, issued $170,000,000 principal
amount of 8 7/8% Senior Notes (the "SFO Notes"). The SFO Notes are guaranteed on
a fully subordinated basis by Holdings. The SFO Notes require annual interest
payments of approximately $15,100,000 (8 7/8% per annum) and, except in the
event of a change of control of Six Flags Operations and certain other
circumstances, do not require any principal payments prior to their maturity in
2006. The SFO Notes are redeemable, at the Company's option, in whole or in
part, at any time on or after April 1, 2002, at varying redemption prices.
The indenture under which the SFO Notes were issued limits the ability of
Six Flags Operations and its subsidiaries to dispose of assets; incur additional
indebtedness or liens; pay dividends; engage in mergers or consolidations; and
engage in certain transactions with affiliates.
(d) On November 5, 1999, Six Flags Theme Parks Inc., an indirect
wholly-owned subsidiary of the Company ("SFTP"), entered into a senior credit
facility (the "Credit Facility") and, in connection therewith, SFEC merged into
Six Flags Operations and SFTP became a subsidiary of Six Flags Operations. The
Credit Facility includes a $300,000,000 five-year working capital revolving
credit facility ($100,000,000 of which was outstanding at March 31, 2001), a
$300,000,000 five-and-one-half-year multicurrency reducing revolver facility
($68,000,000 of which was outstanding at March 31, 2001) and a $600,000,000
six-year term loan (all of which was outstanding at March 31, 2001). Borrowings
under the five-year revolving credit facility must be repaid in full for thirty
consecutive days each year. The interest rate on borrowings under the Credit
Facility can be fixed for periods ranging from one to six months. At the
Company's option the interest rate is based upon specified levels in excess of
the applicable base rate or LIBOR. The Company has entered into interest rate
swap agreements that effectively convert the term loan component of the Credit
Facility into a fixed rate obligation through the term of the swap agreements,
ranging from December 2002 to March 2003. At March 31, 2001, the weighted
average interest rates for borrowings under the working capital revolver,
multicurrency revolver and term loan were 7.77%, 7.59% and 9.24%, respectively.
The multicurrency facility permits optional prepayments and reborrowings.
The committed amount reduces quarterly by 2.5% commencing on December 31, 2001,
by 5.0% commencing on December 31, 2002, by 7.5% commencing on December 31, 2003
and by 20.0% commencing on December 31, 2004. Mandatory repayments are required
if amounts outstanding exceed the reduced commitment amount. The term loan
facility requires quarterly repayments of 0.25% of the outstanding amount
thereof commencing on December 31, 2001 and 24.25% commencing on December 31,
2004. A commitment fee of .50% of the unused credit of the facility is due
quarterly in arrears. The principal borrower under the facility is SFTP, and
borrowings under the Credit Facility are guaranteed by
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Holdings, Six Flags Operations and all of Six Flags Operations' domestic
subsidiaries and are secured by substantially all of Six Flags Operations'
domestic assets and a pledge of Six Flags Operations' capital stock.
The Credit Facility contains restrictive covenants that, among other
things, limit the ability of Six Flags Operations and its subsidiaries to
dispose of assets; incur additional indebtedness or liens; repurchase stock;
make investments; engage in mergers or consolidations; pay dividends (except
that (subject to covenant compliance) dividends will be permitted to allow
Holdings to meet cash interest obligations with respect to its 1998 Senior
Notes, Senior Discount Notes, 1999 Senior Notes and 2001 Senior Notes
(collectively, the "SFI Senior Notes"), cash dividend payments on the PIERS and
obligations to the limited partners in the Partnership Parks) and engage in
certain transactions with subsidiaries and affiliates. In addition, the Credit
Facility requires that Six Flags Operations comply with certain specified
financial ratios and tests.
(e) On June 30, 1999, Holdings issued $430,000,000 principal amount of 9
3/4% Senior Notes (the "1999 Senior Notes"). The 1999 Senior Notes are senior
unsecured obligations of Holdings, are not guaranteed by subsidiaries and rank
equal to the other SFI Senior Notes. The 1999 Senior Notes require annual
interest payments of approximately $41,900,000 (9 3/4% per annum) and, except in
the event of a change in control of the Company and certain other circumstances,
do not require any principal payments prior to their maturity in 2007. The 1999
Senior Notes are redeemable, at Holding's option, in whole or in part, at any
time on or after June 15, 2003, at varying redemption prices. The indenture
under which the 1999 Senior Notes were issued contains covenants substantially
similar to those relating to the other SFI Senior Notes. The net proceeds of the
1999 Senior Notes were used to retire notes of Six Flags Operations and SFTP.
(f) On February 2, 2001, Holdings issued $375,000,000 principal amount of
the 2001 Senior Notes. The 2001 Senior Notes are senior unsecured obligations of
Holdings, are not guaranteed by subsidiaries and rank equal to the other SFI
Senior Notes. The 2001 Senior Notes require annual interest payments of
approximately $35,600,000 (9 1/2% per annum) and, except in the event of a
change in control of the Company and certain other circumstances, do not require
any principal payments prior to their maturity in 2009. The 2001 Senior Notes
are redeemable, at Holding's option, in whole or in part, at any time on or
after February 1, 2005, at varying redemption prices. The indenture under which
the 2001 Senior Notes were issued contains covenants substantially similar to
those relating to the other SFI Senior Notes. The net proceeds of the 2001
Senior Notes were used to fund the tender offer and consent solicitation
relating to the 1997 Notes (see Note 4(a)) and to repay borrowings under the
multicurrency revolving portion of the Credit Facility (see Note 4(d)).
5. COMMITMENTS AND CONTINGENCIES
On March 21, 1999, a raft capsized in the river rapids ride at Six Flags
Over Texas, one of the Company's Partnership Parks, resulting in one fatality
and injuries to ten others. As a result of the fatality, a case entitled JERRY
L. CARTWRIGHT, ET AL VS. PREMIER PARKS, INC. D/B/A SIX FLAGS OVER TEXAS, INC.
was commenced seeking unspecified damages. The Partnership Park is covered by
the Company's multi-layered general liability insurance coverage of up to
$100,000,000 per occurrence, with no self-insured retention. The Company does
not believe that the impact of this incident or the resulting lawsuit will have
a material adverse effect on the Company's consolidated financial position,
operations, or liquidity.
In December 1998, a final judgment of $197,300,000 in compensatory damages
was entered against SFEC, SFTP, Six Flags Over Georgia, Inc. and Time Warner
Entertainment Company, L.P. ("TWE"), and a final judgment of $245,000,000 in
punitive damages was entered against TWE and $12,000,000 in punitive damages was
entered against the Six Flags entities. The compensatory damages judgment has
been paid and the Company has been advised that TWE is appealing the punitive
damages
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judgment to the United States Supreme Court. The judgments arose out of a case
entitled SIX FLAGS OVER GEORGIA, LLC ET AL V. TIME WARNER ENTERTAINMENT COMPANY,
LP ET AL based on certain disputed partnership affairs prior to the Company's
acquisition of the former Six Flags at Six Flags Over Georgia, including alleged
breaches of fiduciary duty. The sellers in the Six Flags acquisition, including
Time Warner, Inc., have agreed to indemnify the Company from any and all
liabilities arising out of this litigation.
The Company is party to various legal actions arising in the normal course
of business. Matters that are probable of unfavorable outcome to the Company and
which can be reasonably estimated are accrued. Such accruals are based on
information known about the matters, the Company's estimates of the outcomes of
such matters and its experience in contesting, litigating and settling similar
matters. None of the actions are believed by management to involve amounts that
would be material to consolidated financial position, operations, or liquidity
after consideration of recorded accruals.
6. INVESTMENT IN THEME PARK PARTNERSHIPS
The following reflects the summarized results of the four parks managed by
the Company during the three months ended March 31, 2001 and 2000.
(IN THOUSANDS)
----------------------
2001 2000
-------- --------
Revenue $ 12,203 $ 11,750
Expenses:
Operating expenses 19,006 19,477
Selling, general and administrative 9,802 8,559
Costs of products sold 765 1,432
Depreciation and amortization 8,875 4,380
Interest expense, net 4,172 2,784
Other expense (22) 222
-------- --------
Total 42,598 36,854
-------- --------
Net loss $(30,394) $(25,104)
-------- --------
The Company's share of loss from operations of the three theme parks
for the three months ended March 31, 2001 was $8,838,000 prior to
depreciation and amortization charges of $5,199,000 and $339,000 of
third-party interest expense and other non-operating expenses. The Company's
share of loss from operations of the four theme parks for the three months
ended March 31, 2000 was $9,281,000, prior to depreciation and amortization
charges of $4,767,000 and $107,000 of third-party interest expense. There is
a substantial difference between the carrying value of the Company's
investment in the theme parks and the net book value of the theme parks. The
difference is being amortized over 20 years for the Partnership Parks and
over the expected useful life of the rides and equipment installed by the
Company at Six Flags Marine World.
7. BUSINESS SEGMENTS
The Company manages its operations on an individual park location basis.
Discrete financial information is maintained for each park and provided to the
Company's management for review and as a basis for decision making. The primary
performance measure used to allocate resources is earnings before interest, tax
expense, depreciation and amortization ("EBITDA"). All of the Company's parks
provide
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similar products and services through a similar process to the same class of
customer through a consistent method. As such, the Company has only one
reportable segment - operation of theme parks. The following tables present
segment financial information, a reconciliation of the primary segment
performance measure to loss before income taxes and a reconciliation of theme
park revenues to consolidated total revenues. Park level expenses exclude all
noncash operating expenses, principally depreciation and amortization, and all
non-operating expenses.
Three Months Ended
-------------------------------
March 31, 2001 March 31, 2000
-------------- --------------
(In thousands)
Theme park revenue ............................................. $ 47,372 $ 42,643
Theme park cash expenses ....................................... 126,334 117,784
--------- ---------
Aggregate park EBITDA .......................................... (78,962) (75,141)
Third-party share of EBITDA from parks
accounted for under the equity method........................ 7,625 7,178
Amortization of investment in theme park
partnerships ................................................ (5,199) (4,767)
Unallocated net expenses, including corporate and other expenses (9,614) (9,091)
Depreciation and amortization .................................. (48,263) (42,132)
Interest expense ............................................... (58,973) (55,360)
Interest income ................................................ 2,959 2,305
--------- ---------
Loss before income taxes ....................................... $(190,427) $(177,008)
========= =========
Theme park revenue ............................................. $ 47,372 $ 42,643
Theme park revenue from parks accounted
for under the equity method ................................. (12,203) (11,750)
--------- ---------
Consolidated total revenue ..................................... $ 35,169 $ 30,893
========= =========
Seven of the Company's parks are located in Europe and one is located in
Mexico. The following information reflects the Company's long-lived assets and
revenue by domestic and foreign categories for the first quarter of 2001 and
2000. This information does not include assets and revenue for La Ronde, a park
located in Canada, since it was acquired subsequent to March 31, 2001. See Note
8.
2001: (In thousands)
- ---- --------------------------------------------------------------
Domestic International Total
-------- ------------- -----
Long-lived assets................................ $3,439,573 $481,769 $3,921,342
Revenue.......................................... 27,285 7,884 35,169
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2000: (In thousands)
- ---- --------------------------------------------------------------
Domestic International Total
-------- ------------- -----
Long-lived assets................................ $3,311,318 $464,637 $3,775,955
Revenue.......................................... 24,278 6,615 30,893
8. SUBSEQUENT EVENTS
On April 2, 2001, the Company issued 11,500,000 shares of Common Stock
upon the automatic conversion of the 5,750,000 shares of PIES and issued 278,912
shares of Common Stock as payment of the final quarterly dividend on the PIES.
On May 2, 2001, the Company acquired substantially all of the assets of La
Ronde, a theme park located in the City of Montreal for a cash purchase price of
Can. $30,000,000 (approximately US $ 19,600,000 at the exchange rate on such
date). The Company has agreed to invest in the park Can. $90,000,000
(approximately US $58,700,000 at that exchange rate) over four seasons
commencing in 2002. The Company leased the land on which the park is located on
a long-term basis. The transaction will be accounted for as a purchase.
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ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
Results of operations for the three-month period ended March 31, 2001 are
not indicative of the results expected for the full year. In particular, the
Company's theme park operations contribute a significant majority of their
annual revenue during the period from Memorial Day to Labor Day each year.
Results of operations for the three months ended March 31, 2001 include
the results of the two parks acquired subsequent to March 31, 2000 and prior to
March 31, 2001. Results for the three months ended March 31, 2000 do not include
the results of the acquired parks.
THREE MONTHS ENDED MARCH 31, 2001 VS. THREE MONTHS ENDED MARCH 31, 2000
Revenue in the first quarter of 2001 totaled $35.2 million compared to
$30.9 million for the first quarter of 2000, representing a 13.8% increase.
Operating expenses for the first quarter of 2001 increased $5.3 million
compared to expenses for the first quarter of 1999. The increase resulted almost
exclusively from the inclusion in the 2001 period of the two parks acquired
subsequent to the end of the first quarter of 2000. Excluding the acquired
parks, operating expenses in the 2001 period increased $0.2 million as compared
to the prior-year period.
Selling, general and administrative expenses for the first quarter of 2001
increased $0.9 million compared to comparable expenses for the first quarter of
2000. Excluding the acquired parks, selling, general and administrative expenses
decreased $0.1 million as compared to the prior-year period. Noncash
compensation expense was $1.8 million less than the prior-year period,
reflecting the decreased amortization associated with prior year restricted
stock awards and conditional option grants.
Costs of products sold in the 2001 period increased $0.5 million compared
to costs for the first quarter of 2000, reflecting the increase in theme park
food, merchandise and other revenue in the 2001 period and to a lesser extent
certain price increases.
Depreciation and amortization expense for the first quarter of 2001
increased $6.1 million compared to the first quarter of 2000. The increase
compared to the 2000 level was attributable to the Company's on-going capital
program and from additional expense associated with the acquired parks. Interest
expense, net increased $3.0 million compared to the first quarter of 2000. The
increase compared to interest expense, net for the 2000 quarter resulted from
higher average interest rates.
Other income (expense) includes $3.2 million of expense related to the
change in fair value of two of the Company's interest rate swap agreements from
January 1, 2001 to February 23, 2001 (the date that the interest rate swap
agreements were designated as hedging instruments).
Equity in operations of theme park partnerships reflects the Company's
share of the income or loss of Six Flags Over Texas (35% effective Company
ownership) and Six Flags Over Georgia, including White Water Atlanta (25%
effective Company ownership), the lease of Six Flags Marine World and the
management of all four parks. During the first quarter of 2001, the loss from
equity in operations of theme park partnerships increased $0.2 million compared
to the first quarter of 2000.
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Income tax benefit was $68.0 million for the first quarter of 2001
compared to a $63.1 million benefit for the first quarter of 2000. The effective
tax rate for the first quarter of each year was 35.7%. The Company's quarterly
effective tax rate will vary from period-to-period based upon the inherent
seasonal nature of the theme park business, as a result of permanent differences
associated with goodwill amortization for financial purposes and the deductible
portion of the amortization for tax purposes.
LIQUIDITY, CAPITAL COMMITMENTS AND RESOURCES
At March 31, 2001, the Company's indebtedness aggregated $2,364.8 million,
of which approximately $102.3 million matures prior to March 31, 2002.
Substantially all of the current portion of long-term debt represents borrowings
under the working capital revolving credit component of the Credit Facility. See
Note 4 to the Company's Consolidated Financial Statements for additional
information regarding the Company's indebtedness.
During the three months ended March 31, 2001, net cash used in operating
activities was $98.4 million. Net cash used in investing activities in the first
three months of 2001 totaled $158.9 million, consisting primarily of the
Company's acquisition of the former Sea World of Ohio and, to a lesser extent,
capital expenditures. Net cash provided by financing activities in the first
three months of 2001 was $286.4 million, representing proceeds of the 2001
offerings of the PIERS and the 2001 Senior Notes, offset in part by the tender
offer for the 1997 Notes and the repayment of borrowings under the Credit
Facility.
In addition to its obligations under its outstanding indebtedness, the
Company has guaranteed the obligations of certain of its subsidiaries to (i)
make minimum annual distributions of approximately $50.2 million (subject to
annual cost of living adjustments) to the limited partners in the Partnership
Parks, (ii) make minimum capital expenditures at each of the Partnership Parks
during rolling five-year periods, based generally on 6% of such park's revenues,
and (iii) purchase at specified prices a maximum number of 5% per year
(accumulating to the extent not purchased in any given year) of limited
partnership units outstanding (to the extent tendered by the unit holders). Cash
flows from operations at the parks will be used to satisfy the annual
distribution and capital expenditure requirements, before any funds are required
from the Company. At March 31, 2001, the Company had $70.4 million in a
dedicated escrow account available to fund those obligations.
The degree to which the Company is leveraged could adversely affect its
liquidity. The Company's liquidity could also be adversely affected by
unfavorable weather, accidents or the occurrence of an event or condition,
including negative publicity or significant local competitive events, that
significantly reduce paid attendance and, therefore, revenue at any of its theme
parks.
The Company believes that, based on historical and anticipated operating
results, cash flows from operations, available cash and available amounts under
the Credit Facility will be adequate to meet the Company's future liquidity
needs, including anticipated requirements for working capital, capital
expenditures, scheduled debt and PIERS requirements and obligations under
arrangements relating to the Partnership Parks, for at least the next several
years. The Company may, however, need to refinance all or a portion of its
existing debt on or prior to maturity or to seek additional financing.
To minimize the Company's exposure to changing foreign currency rates on
ride purchases, in the past the Company has entered into foreign exchange
forward contracts. The Company has not entered into any new foreign exchange
forward contracts in 2001 related to ride purchase contracts from foreign
vendors. Additionally, the Company has not hedged its exposure to changes in
foreign currency rates related to its international parks.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information included in "Quantitative and Qualitative Disclosures
About Market Risk" in Item 7A of the Company's 2000 Annual Report on Form 10-K
is incorporated herein by reference. Such information includes a description of
the Company's potential exposure to market risks, including interest rate risk
and foreign currency risk. Interest rates, as measured by 90-day LIBOR, have
decreased 1.60% from January 1, 2001 to March 31, 2001. However due to the
Company's use of interest rate swap agreements, the Company's cash interest
obligations have not substantially changed. As of March 31, 2001, there have
been no material changes in the Company's market risk exposure from that
disclosed in the 2000 Form 10-K.
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PART II -- OTHER INFORMATION
ITEMS 1 - 5
Not applicable.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
Current Report on 8-K, dated January 11, 2001.
Current Report on 8-K, dated January 23, 2001.
Current Report on 8-K, dated January 29, 2001.
Current Report on 8-K, dated February 7, 2001.
Current Report on 8-K, dated February 14, 2001.
Current Report on 8-K, dated February 26, 2001.
Current Report on 8-K, dated March 1, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIX FLAGS, INC.
(Registrant)
/s/ Kieran E. Burke
---------------------------------------
Kieran E. Burke
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
/s/ James F. Dannhauser
---------------------------------------
James F. Dannhauser
CHIEF FINANCIAL OFFICER
Date: May 14, 2001
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