<Page>
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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 QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 November 1, 2001, Six Flags, Inc. had outstanding
92,398,713 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
<Table>
<Caption>
SEPTEMBER 30, 2001 DECEMBER 31, 2000
------------------ -----------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 123,547,000 $ 42,978,000
Accounts receivable 96,157,000 40,771,000
Inventories 30,469,000 28,588,000
Prepaid expenses and other current assets 24,304,000 35,855,000
Restricted-use investment securities -- 12,773,000
-------------- --------------
Total current assets 274,477,000 160,965,000
Other assets:
Debt issuance costs 47,788,000 46,967,000
Restricted-use investment securities 75,378,000 75,376,000
Deposits and other assets 55,380,000 56,884,000
-------------- --------------
Total other assets 178,546,000 179,227,000
Property and equipment, at cost 2,789,823,000 2,585,927,000
Less accumulated depreciation 431,914,000 328,027,000
-------------- --------------
Total property and equipment 2,357,909,000 2,257,900,000
Investment in theme park partnerships 406,479,000 386,638,000
Intangible assets, principally goodwill 1,415,633,000 1,354,289,000
Less accumulated amortization 190,732,000 147,680,000
-------------- --------------
Total intangible assets 1,224,901,000 1,206,609,000
-------------- --------------
Total assets $4,442,312,000 $4,191,339,000
============== ==============
</Table>
-2-
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ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS, INC.
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
SEPTEMBER 30, 2001 DECEMBER 31, 2000
------------------ -----------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 49,282,000 $ 45,315,000
Accrued liabilities 60,958,000 62,727,000
Accrued interest payable 43,040,000 24,353,000
Deferred income 29,084,000 8,788,000
Current portion of long-term debt 5,225,000 2,401,000
--------------- ---------------
Total current liabilities 187,589,000 143,584,000
Long-term debt 2,221,042,000 2,319,912,000
Other long-term liabilities 55,148,000 37,937,000
Deferred income taxes 153,747,000 144,919,000
Mandatorily redeemable preferred stock (redemption
value of $287,500,000) 278,585,000 --
Stockholders' equity:
Preferred stock of $1.00 par value -- 12,000
Common stock of $.025 par value 2,309,000 2,001,000
Capital in excess of par value 1,743,374,000 1,725,890,000
Accumulated deficit (116,700,000) (128,928,000)
Deferred compensation (8,688,000) (5,399,000)
Accumulated other comprehensive income (loss) (74,094,000) (48,589,000)
--------------- ---------------
Total stockholders' equity 1,546,201,000 1,544,987,000
--------------- ---------------
Total liabilities and stockholders' equity $ 4,442,312,000 $ 4,191,339,000
=============== ===============
</Table>
See accompanying notes to consolidated financial statements
-3-
<Page>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
<Table>
<Caption>
2001 2000
------------- -------------
Revenue:
Theme park admissions $ 317,717,000 $ 296,411,000
Theme park food, merchandise and other 254,067,000 251,028,000
------------- -------------
Total revenue 571,784,000 547,439,000
------------- -------------
Operating costs and expenses:
Operating expenses 146,917,000 137,154,000
Selling, general and administrative 52,824,000 46,719,000
Non-cash compensation (primarily selling, general, and
administrative) 2,420,000 3,147,000
Costs of products sold 48,520,000 51,829,000
Depreciation and amortization 49,701,000 46,320,000
------------- -------------
Total operating costs and expenses 300,382,000 285,169,000
------------- -------------
Income from operations 271,402,000 262,270,000
------------- -------------
Other income (expense):
Interest expense (56,905,000) (58,797,000)
Interest income 1,606,000 2,492,000
Equity in operations of theme park partnerships 26,467,000 16,519,000
Other income (expense) 461,000 (629,000)
------------- -------------
Total other income (expense) (28,371,000) (40,415,000)
------------- -------------
Income before income taxes 243,031,000 221,855,000
Income tax expense 94,987,000 87,205,000
------------- -------------
Net income $ 148,044,000 $ 134,650,000
============= =============
Net income applicable to common stock $ 142,483,000 $ 128,828,000
============= =============
Per share amounts:
Income per average share - basic $ 1.54 $ 1.64
============= =============
Income per average share - diluted $ 1.39 $ 1.49
============= =============
Weighted average number of shares outstanding - basic 92,314,000 78,701,000
============= =============
Weighted average number of shares outstanding - diluted 106,453,000 90,597,000
============= =============
</Table>
See accompanying notes to consolidated financial statements
-4-
<Page>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
<Table>
<Caption>
2001 2000
------------- -------------
Revenue:
Theme park admissions $ 527,382,000 $ 497,286,000
Theme park food, merchandise and other 436,029,000 422,125,000
------------- -------------
Total revenue 963,411,000 919,411,000
------------- -------------
Operating costs and expenses:
Operating expenses 341,876,000 314,222,000
Selling, general and administrative 163,745,000 142,713,000
Noncash compensation (primarily selling, general and
administrative) 6,196,000 9,439,000
Costs of products sold 83,026,000 86,652,000
Depreciation and amortization 147,643,000 133,079,000
------------- -------------
Total operating costs and expenses 742,486,000 686,105,000
------------- -------------
Income from operations 220,925,000 233,306,000
------------- -------------
Other income (expense):
Interest expense (173,714,000) (174,948,000)
Interest income 5,785,000 6,601,000
Equity in operations of theme park partnerships 26,390,000 11,439,000
Other income (expense) (1,714,000) (494,000)
------------- -------------
Total other income (expense) (143,253,000) (157,402,000)
------------- -------------
Income before income taxes 77,672,000 75,904,000
Income tax expense 38,431,000 39,392,000
------------- -------------
Income before extraordinary loss 39,241,000 36,512,000
Extraordinary loss on extinguishment of debt, net of
income tax benefit of $5,227,000 in 2001 (8,529,000) --
------------- -------------
Net income $ 30,712,000 $ 36,512,000
============= =============
Net income applicable to common stock $ 9,630,000 $ 19,046,000
============= =============
Per share amounts: Income per average share - basic:
Income before extraordinary loss $ 0.21 $ 0.24
Extraordinary loss (0.10) --
------------- -------------
Net income $ 0.11 $ 0.24
============= =============
Income per average share - diluted:
Income before extraordinary loss $ 0.20 $ 0.24
Extraordinary loss (0.09) --
------------- -------------
Net income $ 0.11 $ 0.24
============= =============
Weighted average number of common shares outstanding - basic 88,149,000 78,622,000
============= =============
Weighted average number of common shares outstanding - diluted 88,872,000 79,707,000
============= =============
</Table>
See accompanying notes to consolidated financial statements
-5-
<Page>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
Net income $ 148,044,000 $ 134,650,000 $ 30,712,000 $ 36,512,000
Other comprehensive income (loss):
Foreign currency translation adjustment 20,158,000 (17,650,000) (11,182,000) (34,315,000)
Cumulative effect of change in accounting principle -- -- (3,098,000) --
Net change in fair value of derivative instruments (8,140,000) -- (14,079,000) --
Reclassifications of amounts taken to operations 1,455,000 -- 2,854,000 --
------------- ------------- ------------- -------------
Comprehensive income $ 161,517,000 $ 117,000,000 $ 5,207,000 $ 2,197,000
============= ============= ============= =============
</Table>
See accompanying notes to consolidated financial statements
-6-
<Page>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
<Table>
<Caption>
2001 2000
------------- -------------
Cash flow from operating activities:
Net income $ 30,712,000 $ 36,512,000
Adjustments to reconcile net income to net cash provided
by operating activities (net of effects of acquisitions):
Depreciation and amortization 147,643,000 133,079,000
Equity in operations of theme park partnerships (26,390,000) (11,439,000)
Cash received from theme park partnerships 12,093,000 22,083,000
Noncash compensation 6,196,000 9,439,000
Interest accretion on notes payable 25,202,000 22,671,000
Interest accretion on restricted-use investments -- (2,982,000)
Extraordinary loss on early extinguishment of debt 13,756,000 --
Amortization of debt issuance costs 7,004,000 6,467,000
Loss on sale of fixed assets 258,000 --
Deferred income tax expense 31,086,000 40,078,000
Increase in accounts receivable (53,422,000) (46,900,000)
Decrease in inventories, prepaid expenses and other current assets 10,361,000 3,905,000
Decrease in deposits and other assets 1,504,000 4,641,000
Increase in accounts payable, accrued liabilities and other
liabilities 10,107,000 9,816,000
Increase in accrued interest payable 18,687,000 18,040,000
------------- -------------
Total adjustments 204,085,000 208,898,000
------------- -------------
Net cash provided by operating activities 234,797,000 245,410,000
------------- -------------
Cash flow from investing activities:
Additions to property and equipment (136,395,000) (301,083,000)
Investment in theme park partnerships (5,544,000) (19,267,000)
Acquisition of theme park assets (132,165,000) --
Purchase of restricted-use investments (7,120,000) (4,500,000)
Maturities of restricted-use investments 19,889,000 26,782,000
Proceeds from sale of assets 2,455,000 --
------------- -------------
Net cash used in investing activities (258,880,000) (298,068,000)
------------- -------------
Cash flow from financing activities:
Repayment of debt (705,155,000) (306,473,000)
Proceeds from borrowings 559,428,000 303,000,000
Net cash proceeds from issuance of preferred stock 277,834,000 --
Net cash proceeds from issuance of common stock 1,267,000 3,498,000
Payment of cash dividends (17,634,000) (17,466,000)
Payment of debt issuance costs (10,963,000) --
------------- -------------
Net cash provided by (used in) financing activities 104,777,000 (17,441,000)
------------- -------------
Effect of exchange rate changes on cash (125,000) (2,288,000)
------------- -------------
Increase (decrease) in cash and cash equivalents 80,569,000 (72,387,000)
Cash and cash equivalents at beginning of period 42,978,000 138,131,000
------------- -------------
Cash and cash equivalents at end of period $ 123,547,000 $ 65,744,000
============= =============
Supplementary cash flow information: $ 129,842,000 $ 127,903,000
============= =============
Cash paid for income taxes $ 2,189,000 $ --
============= =============
Assets acquired through capital leases $ 13,869,000 $ --
============= =============
</Table>
See accompanying notes to consolidated financial statements
-7-
<Page>
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 September 30, 2001, the Company and its subsidiaries owned or operated 38
parks, including 29 domestic parks, one park in Canada, one 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. In May 2001, the Company acquired substantially all of the assets of La
Ronde, a theme park located in Montreal, Canada. See Note 3.
The accompanying financial statements for the three and nine months
ended September 30, 2001 include the results of Enchanted Village for the entire
periods, of the former Sea World of Ohio only subsequent to its acquisition
date, February 9, 2001, and of La Ronde only subsequent to its acquisition date,
May 2, 2001. The accompanying consolidated financial statements for the three
and nine months ended September 30, 2000 do not include the results of these
parks.
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 and nine month periods ended
September 30, 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 ("FASB") 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
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 (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 liability of approximately $4,996,000 and recorded in other
comprehensive income (loss)
-8-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$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 23, 2001, the Company recognized in other
income (expense) 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 September 30, 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 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 nine months 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 consolidated balance sheet in "Accumulated other
comprehensive income (loss)" ("AOCL"). These amounts are reclassified to
interest expense when the forecasted transaction takes place.
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 consolidated statements of operations.
As of September 30, 2001, approximately $10,700,000 of net deferred
losses on derivative instruments, including the transition adjustment,
accumulated in AOCL are expected to be reclassified to
-9-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
18 months.
INCOME PER SHARE
The following table reconciles the weighted average number of common
shares outstanding used in the calculations of basic and diluted income per
share for the three and nine month periods ended September 30, 2001 and 2000,
respectively. For the three months ended September 30, 2001 and 2000, diluted
income per average share is calculated usng net income. The effect of potential
common shares issuable upon the exercise of employee stock options on the
weighted average number of shares on a diluted basis for the three and nine
months ended September 30, 2001 did not include the effects of the potential
exercise of 6,563,000 and 3,463,000 options, respectively, as the option
price was in excess of the average common stock price for the period.
Additionally, the weighted average number of shares of Common Stock for the
nine month periods does not include the effect of the potential conversion of
the Company's convertible preferred stock (represented by the Company's
Premier Income Equity Securities ("PIES") which automatically converted into
11,500,000 shares of Common Stock on April 2, 2001 and the Company's
Preferred Income Equity Redeemable Shares ("PIERS") which are convertible
into 13,789,000 shares of Common Stock) as the effects of such conversion and
the resulting decrease in preferred stock dividends is antidilutive.
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Weighted average number of common shares
outstanding - basic ........................ 92,314,000 78,701,000 88,149,000 78,622,000
Effect of potential common shares issuable upon
the exercise of employee stock options ..... 350,000 396,000 723,000 1,085,000
Effect of potential common shares issuable
upon conversion of preferred stock ........ 13,789,000 11,500,000 -- --
----------- ----------- ----------- -----------
Weighted average number of common shares
outstanding - diluted ...................... 106,453,000 90,597,000 88,872,000 79,707,000
=========== =========== =========== ===========
</Table>
2. PREFERRED STOCK
In January 2001, the Company issued 11,500,000 PIERS, for proceeds of
$277,835,000, net of the underwriting discount and offering expenses of
$9,666,000. 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
-10-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 2001, the Company's 5,750,000 shares of 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.
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 $4,296,000 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 $56,807,000 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 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. Approximately U.S. $6,889,000 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 principal amount 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
-11-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
$8,529,000, 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 ($354,172,000 and $329,275,000 carrying value as of
September 30, 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 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 $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, if necessary, 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 (none of which was outstanding at September 30, 2001), a
$300,000,000 five-and-one-half-year
-12-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
multicurrency reducing revolver facility (none of which was outstanding at
September 30, 2001) and a $600,000,000 six-year term loan (all of which was
outstanding at September 30, 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 March 2003
to December 2003. At September 30, 2001, the weighted average interest rate for
borrowings under the term loan was 8.47%.
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 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
-13-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, in October 2001, the punitive damages judgment was vacated
and remanded by 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.
-14-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENT IN THEME PARK PARTNERSHIPS
The following reflects the summarized results of the four parks managed
by the Company during the three and nine months ended September 30, 2001 and
2000.
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- ------------------------
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(In Thousands)
Revenue .............................. $ 93,841 $ 91,449 $ 199,190 $ 186,304
Expenses:
Operating expenses ................ 23,386 24,980 67,778 68,033
Selling, general and administrative 7,565 7,922 31,363 29,411
Costs of products sold ............ 6,890 7,310 13,948 15,508
Depreciation and amortization ..... 6,867 4,280 22,173 11,742
Interest expense, net ............. 3,511 3,276 11,091 10,489
Other expense ..................... 2 125 (22) 518
--------- --------- --------- ---------
Total .......................... 48,221 47,893 146,331 135,701
--------- --------- --------- ---------
Net income ........................... $ 45,620 $ 43,556 $ 52,859 $ 50,603
========= ========= ========= =========
</Table>
The Company's share of income from operations of the four theme parks
for the three and nine months ended September 30, 2001 was $32,588,000 and
$43,584,000, respectively, prior to depreciation and amortization charges of
$5,297,000 and $15,693,000, respectively, and third-party interest and other
non-operating expenses of $824,000 and $1,501,000, respectively. The Company's
share of income from operations of the four theme parks for the three and nine
months ended September 30, 2000 was $22,684,000 and $27,478,000, respectively,
prior to depreciation and amortization charges of $5,736,000 and $15,270,000,
respectively, and third-party interest and other non-operating expenses $429,000
and $769,000, respectively. The following information reflects the
reconciliation between the results of the four theme parks and the Company's
share of the results:
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ ------------------------
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
2001 2000 2001 2000
-------- -------- -------- --------
(In Thousands)
Theme park partnership net income $ 45,620 $ 43,556 $ 52,859 $ 50,603
Third party share of net income .. (17,984) (26,823) (22,957) (35,614)
Amortization of Company's
investment in theme park
partnerships in excess of share
of net assets ................. (1,169) (214) (3,512) (3,550)
-------- -------- -------- --------
Equity in operations of theme park
partnerships ................. $ 26,467 $ 16,519 $ 26,390 $ 11,439
======== ======== ======== ========
</Table>
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
-15-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company at Six Flags Marine World. The following information reconciles the
Company's share of the net assets of the theme parks partnerships and its
investment in the partnership.
<Table>
<Caption>
SEPTEMBER 30, 2001 DECEMBER 31, 2000
------------------ -----------------
Company's share of net assets of
theme park partnerships .................... $119,771,000 $107,717,000
Company's investment in theme park
partnerships in excess of share of net assets 195,601,000 187,814,000
Advances made to theme park partnerships ....... 91,107,000 91,107,000
------------ ------------
Investments in theme park partnerships ......... $406,479,000 $386,638,000
============ ============
</Table>
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 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 income before income taxes and a reconciliation of theme
park revenue to consolidated total revenue. Park level cash expenses exclude
all noncash operating expenses, principally depreciation and amortization,
and all non-operating expenses.
<Table>
<Caption>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 30, September 30,
---------------------------- ----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
(in thousands)
Theme park revenues ............... $ 665,625 $ 638,888 $ 1,162,601 $ 1,105,715
Theme park cash expenses .......... 281,360 270,450 686,861 640,870
----------- ----------- ----------- -----------
Aggregate park EBITDA ............. 384,265 368,438 475,740 464,845
Third-party share of EBITDA
from parks accounted for
under the equity method ........ (23,328) (24,111) (44,247) (41,737)
Amortization of investment in
theme park partnerships ........ (5,297) (5,736) (15,693) (15,270)
Unallocated net expenses, including
corporate and other expenses ... (7,609) (14,111) (22,556) (30,508)
Depreciation and amortization ..... (49,701) (46,320) (147,643) (133,079)
Interest expense .................. (56,905) (58,797) (173,714) (174,948)
Interest income ................... 1,606 2,492 5,785 6,601
----------- ----------- ----------- -----------
Income before income taxes ........ $ 243,031 $ 221,855 $ 77,672 $ 75,904
=========== =========== =========== ===========
Theme park revenues ............... $ 665,625 $ 638,888 $ 1,162,601 $ 1,105,715
Theme park revenue from parks
accounted for under the
equity method .................. (93,841) (91,449) (199,190) (186,304)
----------- ----------- ----------- -----------
Consolidated total revenues ....... $ 571,784 $ 547,439 $ 963,411 $ 919,411
=========== =========== =========== ===========
</Table>
-16-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Seven of the Company's parks are located in Europe, one is located in
Canada and one is located in Mexico. The following information reflects the
Company's long-lived assets and revenue by domestic and international categories
for the first nine months of 2001 and 2000.
<Table>
<Caption>
2001: (In thousands)
---- ----------------------------------------------
Domestic International Total
---------- ---------- ----------
Long-lived assets $3,459,492 $ 529,797 $3,989,289
Revenue 817,688 145,723 963,411
<Caption>
2000: (In thousands)
---- ----------------------------------------------
Domestic International Total
---------- ---------- ----------
Long-lived assets $3,357,846 $ 488,214 $3,846,060
Revenue 772,363 147,048 919,411
</Table>
8. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued FASB Statement No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While Statement No. 144 supersedes FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," it
retains many of the fundamental provisions of that Statement. Statement No. 144
also supersedes the accounting and reporting provisions of AFP Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," for the disposal of a segment of a business. However,
it retains the requirement in Opinion No. 30 to report separately discontinued
operations and extends that reporting to a component of an entity that either
has been disposed of by sale, abandonment, or in a distribution to owners or is
classified as held for sale. Statement No. 144 is effective for fiscal years
beginning after December 15, 2001. Management has determined the impact of
Statement 144 will not have a material impact on the Company's consolidated
financial statements.
In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations." This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. Statement No. 143 requires an
enterprise to record the fair value of an asset retirement obligation as a
liability in the period in which it incurs a legal obligation associated with
the retirement of a tangible long-lived asset. Statement No. 143 also requires
the enterprise to record the initial obligation as an increase to the carrying
amount of the related long-lived asset and to depreciate that cost over the
remaining useful life of the asset. The liability is changed at the end of each
period to reflect the passage of time and changes in the estimated future cash
flows underlying the initial fair value measurement, Statement No. 143 is
effective for fiscal years beginning after June 15, 2002. Management has
determined the impact of Statement 143 will not have a material impact on the
Company's consolidated financial statements.
-17-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In July 2001, the FASB issued Statement No. 141, "Business
Combinations," and Statement No. 142, "Goodwill and Other Intangible Assets."
Statement 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001 as well as all purchase
method business combinations completed after June 30, 2001. Statement 141 also
specifies criteria which intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" or Statement 144 upon adoption.
The Company is required to adopt the provisions of Statement 141
immediately and Statement 142 effective January 1, 2002. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized prior to the adoption of Statement 142.
Statement 141 will require upon adoption of Statement 142 that the
Company evaluate its existing intangible assets and goodwill that were acquired
in a prior purchase business combination, and to make any necessary
reclassifications in order to conform with the new criteria in Statement 141 for
recognition apart from goodwill. Upon adoption of Statement 142, the Company
will be required to reassess the useful lives and residual values of all
intangible assets acquired in purchase business combinations, and make any
necessary amortization period adjustments by the end of the first interim period
after adoption. In addition, to the extent an intangible asset is identified as
having an indefinite useful life, the Company will be required to test the
intangible asset for impairment in accordance with the provisions of Statement
142 within the first interim period. Any impairment loss will be measured as of
the date of adoption and recognized as the cumulative effect of a change in
accounting principle in the first interim period.
In connection with the transitional goodwill impairment evaluation,
Statement 142 will require the Company to perform an assessment of whether there
is an indication that goodwill, including investment in theme park partnership
goodwill, is impaired as of the date of adoption. To accomplish this the Company
must identify its reporting units and determine the carrying value of each
reporting unit by assigning the assets and liabilities, including the existing
goodwill and intangible assets, to those reporting units as of the date of
adoption. The Company will then have up to six months from the date of adoption
to determine the fair value of each reporting unit and compare it to the
reporting unit's carrying amount. To the extent a reporting unit's carrying
amount exceeds its fair value, an indication exists that the reporting unit's
goodwill may be impaired and the Company must perform the second step of the
transitional impairment test. In the second step, the Company must compare the
implied fair value of the reporting unit's goodwill, determined by allocating
the reporting unit's fair value to all of its assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with Statement 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's consolidated
statement of operations.
As of the date of adoption, the Company expects to have unamortized
goodwill of approximately $1.2 billion and unamortized identifiable intangible
assets not to exceed $10.0 million, all of which will be subject to the
transition provisions of Statements 141 and 142. Amortization expense related to
goodwill was $54.5 million and $43.3 million for the year ended December 31,
2000 and the nine months ended
-18-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2001, respectively. Because of the extensive effort needed to
comply with adopting Statements 141 and 142, it is not practicable to reasonably
estimate the impact of adopting these Statements on the Company's consolidated
financial statements at the date of this report, including whether any
transitional impairment losses will be required to be recognized as the
cumulative effect of a change in accounting principle.
-19-
<Page>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
Results of operations for the three and nine month periods ended
September 30, 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 and nine months ended September 30,
2001 include the results of Enchanted Village for the entire periods, of the
former Sea World of Ohio only subsequent to its acquisition date, February 9,
2001, and of La Ronde only subsequent to its acquisition date, May 2, 2001.
Results for the three and nine months ended September 30, 2000 do not include
the results of the acquired parks.
THREE MONTHS ENDED SEPTEMBER 30, 2001 VS. THREE MONTHS ENDED
SEPTEMBER 30, 2000
Revenue from consolidated parks in the third quarter of 2001 totaled
$571.8 million compared to $547.4 million for the third quarter of 2000,
representing a 4.4% increase as a result of the inclusion of the three parks
acquired after the 2000 season. One of the acquired parks, the former Sea World
of Ohio, now operates together with the pre-existing adjacent Six Flags facility
as a single gate. Excluding the results of the acquired parks in Montreal and
Seattle and excluding the increase in revenues at the combined Ohio facility,
revenues in the third quarter of 2001 from consolidated parks decreased
approximately 2.6% over the prior-year period (with international revenues
translated on a constant currency basis).
Operating expenses for the third quarter of 2001 increased $9.7 million
compared to expenses for the third quarter of 2000. Excluding the acquired parks
in Montreal and Seattle and excluding the increase in expenses at the combined
Ohio facility, operating expenses in the 2001 period decreased $3.5 million (or
2.6%) as compared to the prior-year period.
Selling, general and administrative expenses for the third quarter of
2001 increased $6.1 million compared to comparable expenses for the third
quarter of 2000. Excluding the acquired parks in Montreal and Seattle and
excluding the increase in expenses at the combined Ohio facility, selling,
general and administrative expenses increased $3.7 million (or 7.9%) as compared
to the prior-year period, primarily due to increases in advertising and
insurance expenses and increased real estate taxes. Noncash compensation expense
was $0.7 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 decreased $3.3 million
compared to costs for the third quarter of 2000, and decreased $5.4 million
excluding the acquired parks in Montreal and Seattle and excluding the increase
in costs of products sold at the combined Ohio facility. As a percentage of
theme park food, merchandise and other revenue, costs of products sold in the
2001 period were 19.1%, compared to 20.6% in the prior-year period, reflecting
in part the Company's increased use of games and other concession arrangements.
Depreciation and amortization expense for the third quarter of 2001
increased $3.4 million compared to the third quarter of 2000. The increase
compared to the 2000 level was attributable to additional expense associated
with the acquired parks, including the former Sea World of Ohio and, to a lesser
extent, the Company's on-going capital program. Interest expense, net decreased
$1.0 million
-20-
<Page>
compared to the third quarter of 2000. The decrease compared to interest
expense, net for the 2000 quarter resulted from lower average interest rates and
lower average debt balances.
Equity in operations of theme park partnerships reflects the Company's
share of the income or loss of Six Flags Over Texas (36% 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 third quarter of 2001, equity in
operations of theme park partnerships increased $9.9 million compared to the
third quarter of 2000, primarily as a result of improved attendance and revenue
performance at certain of these parks in the 2001 period.
Income tax expense was $95.0 million for the third quarter of 2001
compared to a $87.2 million expense for the third quarter of 2000. The effective
tax rate for the third quarter of 2001 was 39.1%, compared to 39.3% for the
third quarter of 2000. 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.
NINE MONTHS ENDED SEPTEMBER 30, 2001 VS. NINE MONTHS ENDED
SEPTEMBER 30, 2000
Revenue in the first nine months of 2001 totaled $963.4 million
compared to $919.4 million for the first nine months of 2000, representing a
4.8% increase as a result of the inclusion of the three parks acquired after the
2000 season. Excluding the results of the acquired parks in Montreal and Seattle
and excluding the increase in revenues at the combined Ohio facility, revenues
in the first nine months of 2001 on a constant currency basis decreased
approximately 0.6% over the prior-year period.
Operating expenses for the first nine months of 2001 increased $27.7
million compared to expenses for the first nine months of 2000. Excluding the
acquired parks in Montreal and Seattle and excluding the increase in expenses at
the combined Ohio facility, operating expenses in the 2001 period decreased $0.4
million (or 0.1%) as compared to the prior-year period.
Selling, general and administrative expenses for the first nine months
of 2001 increased $21.0 million compared to comparable expenses for the first
nine months of 2000. Excluding the acquired parks in Montreal and Seattle and
excluding the increase in expenses at the combined Ohio facility, selling,
general and administrative expenses increased $10.8 million (or 7.6%) as
compared to the prior-year period, primarily due to increases in advertising and
insurance expenses and increased real estate taxes. Noncash compensation expense
was $3.2 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 decreased $3.6 million
compared to costs for the first nine months of 2000, and decreased $6.4 million
excluding the acquired parks in Montreal and Seattle and excluding the increases
in expenses at the combined Ohio facility. As a percentage of theme park food,
merchandise and other revenue, costs of products sold in the 2001 period were
19.0%, compared to 20.5% in the prior-year period, reflecting in part the
Company's increased use of games and other concession arrangements.
Depreciation and amortization expense for the first nine months of 2001
increased $14.6 million compared to the first nine months of 2000. The increase
compared to the 2000 level was attributable to additional expense associated
with the acquired parks, including the former Sea World of Ohio and, to a lesser
extent, the Company's on-going capital program. Interest expense, net decreased
$0.4 million compared to the first nine months of 2000. The decrease compared to
interest expense, net for the 2000 period resulted from lower average interest
rates and lower average debt balances.
-21-
<Page>
Other income (expense) primarily reflects $1.2 million of net 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 (36% 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 nine months of 2001, equity in
operations of theme park partnerships increased $15.0 million compared to the
first nine months of 2000, primarily as a result of improved attendance and
revenue performance at certain of these parks in the 2001 period.
Income tax expense was $38.4 million for the first nine months of 2001
compared to a $39.4 million expense for the first nine months of 2000. The
effective tax rate for the first nine months of 2001 was 49.5% compared to 51.9%
for 2000. 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 September 30, 2001, the Company's indebtedness aggregated $2,266.3
million, of which approximately $5.2 million matures prior to September 30,
2002. See Note 4 to the Company's Consolidated Financial Statements for
additional information regarding the Company's indebtedness.
During the nine months ended September 30, 2001, net cash provided by
operating activities was $234.8 million. Net cash used in investing activities
in the first nine months of 2001 totaled $258.9 million, consisting of the
Company's acquisition of the former Sea World of Ohio and La Ronde (a total of
$132.2 million) and capital expenditures. Net cash provided by financing
activities in the first nine months of 2001 was $104.8 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 of which the Company is currently entitled to receive approximately $15.9
million by virtue of its ownership of limited partnership units, (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 September 30, 2001, the Company had $75.4 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.
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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, 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.
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 3.2% from January 1, 2001 to September 30, 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 September 30, 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) Report on Form 8-K
Current Report on 8-K, dated July 19, 2001. Current Report on
8-K, dated August 15, 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: November 13, 2001
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