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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: DECEMBER 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
SIX FLAGS, INC.
(formerly Premier Parks Inc.)
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3995059
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
11501 NORTHEAST EXPRESSWAY, OKLAHOMA CITY, OKLAHOMA 73131
(Address of principal executive offices)
Registrant's telephone number, including area code: (405) 475-2500
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Securities registered pursuant to Sec. 12(b) of the Act:
TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH
REGISTERED
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Shares of common stock, par value New York Stock Exchange
$.025 per share, with Rights to
Purchase Series A Junior Preferred
Stock
Preferred Income Equity Redeemable New York Stock Exchange
Shares, representing 1/100 of a share
of 7 1/4% Convertible Preferred Stock
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Securities registered pursuant to Sec. 12(g) of the Act: NONE
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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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
State the aggregate market value of the voting stock held by non-affiliates
(assuming, solely for the purposes of this Form, that all the directors of the
Registrant are affiliates) of the Registrant:
Approximately $1,355,678,869 as of March 1, 2002 (based on the last sales
price on such date as reported on the New York Stock Exchange). See "Item 5. --
Market for the Registrant's Common Equity and Related Stockholder Matters."
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Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest most practicable date:
The number of shares of Common Stock of the Registrant outstanding as of
March 1, 2002 was 92,444,959 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The information required in Part III by Item 10, as to directors, and by
Items 11, 12 and 13 is incorporated by reference to the Registrant's proxy
statement in connection with the annual meeting of stockholders to be held in
June 2002, which will be filed by the Registrant within 120 days after the close
of its 2001 fiscal year. Registrant is also incorporating by reference herein
the information contained in Registrant's Form 8-K, dated January 31, 2002.
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SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Some of the statements contained in or incorporated by reference in this
Annual Report on Form 10-K constitute forward-looking statements, as this term
is defined in the Private Securities Litigation Reform Act. The words
"anticipates," "believes," "estimates," "expects," "plans," "intends" and
similar expressions are intended to identify these forward-looking statements,
but are not the exclusive means of identifying them. These forward-looking
statements reflect the current views of our management; however, various risks,
uncertainties and contingencies could cause our actual results, performance or
achievements to differ materially from those expressed in, or implied by, these
statements, including the following:
- Factors impacting attendance, such as local conditions, events, natural
disasters, disturbances and terrorist activities;
- The risk of accidents occurring at our parks;
- Our ability to manage growth or integrate acquisitions;
- Adverse weather conditions;
- Competition with other theme parks and other recreational alternatives;
- General economic conditions;
- The loss of the services of our key personnel;
- Changes in foreign currency rates and other factors impacting our
international operations; and
- Impact of pending or threatened litigation.
We caution the reader that these risks may not be exhaustive. We operate in
a continually changing business environment, and new risks emerge from time to
time. We cannot predict such risks nor can we assess the impact, if any, of such
risks on our business or the extent to which any risk, or combination of risks,
may cause actual results to differ from those projected in any forward-looking
statements. Accordingly, forward-looking statements should not be relied upon as
a prediction of actual results. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
We(1) are the largest regional theme park operator in the world. The 37
parks we now operate had attendance of approximately 46.6 million in 2001. These
parks include 16 of the 50 highest attendance theme parks in North America, the
largest paid admission theme park in Mexico and seven theme parks in Europe. We
are also managing the development and construction of a new theme park in Spain.
Our theme parks serve each of the 10 largest metropolitan areas in the United
States. We estimate that approximately two-thirds of the population of the
continental United States live within a 150-mile radius of one of our parks.
For the year ended December 31, 2001, our consolidated total revenue was
approximately $1,046.0 million and our consolidated earnings before interest,
taxes, depreciation and amortization and non-cash compensation ("EBITDA") were
approximately $358.1 million(2). Adjusted EBITDA for the year was $402.5
million. Adjusted EBITDA includes our proportionate share of the EBITDA for the
parks that are less than wholly-owned by us and accounted for by the equity
method, I.E., Six Flags Over Georgia (including Six Flags White Water Atlanta),
Six Flags Over Texas and Six Flags Marine World (the "Partnership Parks").
Aggregate combined revenues and EBITDA for us and the Partnership Parks for 2001
were $1,263.9 million and $447.9 million, respectively.
In 1998, we acquired the former Six Flags, which had operated regional
theme parks under the Six Flags name for nearly forty years and established a
nationally recognized brand name. We have worldwide ownership of the "Six Flags"
brand name. To capitalize on this name recognition, since the commencement of
the 1998 season, we have rebranded eleven of our parks as "Six Flags" parks,
including three of our international parks.
We hold exclusive long-term licenses for theme park usage throughout the
United States (except the Las Vegas metropolitan area), Canada, Europe and Latin
and South America (including Mexico) of certain Warner Bros. and DC Comics
characters. These characters include BUGS BUNNY, DAFFY DUCK, TWEETY BIRD,
YOSEMITE SAM, BATMAN, SUPERMAN and others. In addition, our European and Latin
and South American licenses with Warner Bros. include the Hanna-Barbera and
Cartoon Network characters, including YOGI BEAR, SCOOBY-DOO, FLINTSTONES(3) and
others. We use these characters to market our parks and to provide an enhanced
family entertainment experience. Our licenses include the right to sell
merchandise featuring the
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(1) As used in this Report, unless the context requires otherwise, the terms
"We" or "Six Flags" refer to Six Flags, Inc. and its consolidated
subsidiaries.
(2) EBITDA is defined as income before extraordinary loss, before interest
expense, net, income tax expense (benefit), noncash compensation,
depreciation and amortization and other expenses, including minority
interest and gain or loss on sale of assets. We have included information
concerning EBITDA because it is used by certain investors as a measure of a
company's ability to service and/or incur debt. EBITDA is not required by
accounting principles generally accepted in the United States ("GAAP") and
should not be considered in isolation or as an alternative to net income
(loss), net cash provided by operating, investing and financing activities
or other financial data prepared in accordance with GAAP or as an indicator
of our operating performance. This information should be read in
conjunction with the statements of cash flows contained in the consolidated
financial statements contained elsewhere in this report.
(3) LOONEY TUNES, Characters, names and all related indicia are trademarks of
Warner Bros. (C) 2002, a division of Time Warner Entertainment Company,
L.P.("TWE"). BATMAN and SUPERMAN and all related characters, names and
indicia are copyrights and trademarks of DC Comics (C) 2002, CARTOON
NETWORK and logo are trademarks of Cartoon Network (C) 2002, SIX FLAGS and
all related indicia are federally registered trademarks of Six Flags Theme
Parks Inc. (C) 2002, a subsidiary of Six Flags. FIESTA TEXAS and all
related indicia are trademarks of Fiesta Texas, Inc. (C) 2002, a subsidiary
of Six Flags.
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characters at the parks, and to use the characters in our advertising, as
walk-around characters and in theming for rides, attractions and retail outlets.
We believe using these characters promotes increased attendance, supports higher
ticket prices, increases lengths-of-stay and enhances in-park spending.
Our 37 parks are located in geographically diverse markets across North
America and Europe. Our theme parks offer a complete family-oriented
entertainment experience. Our theme parks generally offer a broad selection of
state-of-the-art and traditional thrill rides, water attractions, themed areas,
concerts and shows, restaurants, game venues and merchandise outlets. In the
aggregate, our theme parks offer more than 1,430 rides, including over 185
roller coasters, making us the leading provider of "thrill rides" in the
industry.
We believe that our parks benefit from limited direct competition, since
the combination of a limited supply of real estate appropriate for theme park
development, high initial capital investment, long development lead-time and
zoning restrictions provides our parks with a significant degree of protection
from competitive new theme park openings. Based on our knowledge of the
development of other theme parks in the United States, we estimate that it would
cost at least $200 million and would take a minimum of two years to construct a
new regional theme park comparable to one of our Six Flags theme parks.
DESCRIPTION OF RECENT FINANCINGS
In February 2002, we consummated an offering of $480.0 million principal
amount of our 8 7/8% Senior Notes due 2010. The net proceeds of this offering
(approximately $467.7 million) will be used to redeem on April 1, 2002 (the
first date redemption is permitted) all $280.0 million aggregate principal
amount of our 9 1/4% Senior Notes due 2006 and all $170.0 million aggregate
principal amount of the 8 7/8% Senior Notes due 2006 issued by our principal
operating subsidiary ("Six Flags Operations"). See "Item 7. Management's
Discussion and Analysis of Results of Financial Condition and Results of
Operations - Liquidity, Capital Commitments and Resources."
DESCRIPTION OF DOMESTIC PARKS
SIX FLAGS AMERICA
Six Flags America, a combination theme and water park located in Largo,
Maryland (approximately 15 miles east of Washington, D.C. and 30 miles southwest
of Baltimore, Maryland) is the 42nd largest theme park in North America. The
park's primary market includes Maryland, northern Virginia, Washington, D.C. and
parts of Pennsylvania and Delaware. This market provides the park with a
permanent resident population base of approximately 6.7 million people within 50
miles and 11.4 million people within 100 miles. Based on a 2001 survey of
television households within designated market areas ("DMAs") published by A.C.
Nielsen Media Research, the Washington, D.C. and Baltimore markets are the
number 8 and number 24 DMAs in the United States, respectively.(4)
We own a site of 515 acres, with 131 acres currently used for park
operations. The remaining 384 acres, which are zoned for entertainment and
recreational uses, provide us with ample expansion opportunity, as well as the
potential to develop complementary operations.
Six Flags America's principal competitors are King's Dominion Park, located
in Doswell, Virginia (near Richmond); Hershey Park, located in Hershey,
Pennsylvania; and Busch Gardens, located in Williamsburg, Virginia. These parks
are located approximately 120, 125 and 175 miles, respectively, from Six Flags
America.
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(4) Park rankings are based on 2001 attendance as published in AMUSEMENT
BUSINESS, an industry trade publication. All DMA rankings are based on the
referenced survey.
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SIX FLAGS ASTROWORLD AND SPLASHTOWN
Six Flags AstroWorld, the 38th largest theme park in North America is a
combination theme and water park located in Houston, Texas. In May 1999, we
acquired Splashtown, a water park located approximately 30 miles from Six Flags
AstroWorld. Splashtown is the 14th largest water park in the United States. The
Houston, Texas market provides the parks with a permanent resident population of
4.4 million people within 50 miles and 5.4 million people within 100 miles. The
Houston market is the number 11 DMA in the United States.
We own sites of approximately 100 acres used for the theme and water park
and approximately 60 acres for Splashtown. Splashtown competes with the water
park at Six Flags AstroWorld. Six Flags AstroWorld primarily competes with Sea
World of Texas and our Six Flags Fiesta Texas park, both located in San Antonio,
Texas, approximately 200 miles from the park. In addition, the park primarily
competes with Six Flags Over Texas, our park located in Arlington, Texas,
approximately 250 miles from the park.
SIX FLAGS DARIEN LAKE & CAMPING RESORT
Six Flags Darien Lake, a combination theme and water park, is the largest
theme park in the State of New York and the 41st largest theme park in North
America. Six Flags Darien Lake is located off Interstate 90 in Darien Center,
New York, approximately 30, 40 and 120 miles from Buffalo, Rochester and
Syracuse, New York, respectively. The park's primary market includes upstate New
York, western and northern Pennsylvania and southern Ontario, Canada. This
market provides the park with a permanent resident population base of
approximately 2.1 million people within 50 miles of the park and 3.2 million
within 100 miles. The Buffalo, Rochester and Syracuse markets are the number 47,
number 71 and number 81 DMAs in the United States, respectively.
The Six Flags Darien Lake property consists of approximately 988 acres,
including 144 acres for the theme park, 242 acres of campgrounds and 593 acres
of agricultural, undeveloped and water areas. Six Flags Darien Lake also has a
20,000 seat amphitheater. We have a long-term arrangement with an independent
concert promoter to lease and operate the amphitheater.
Adjacent to the Six Flags Darien Lake theme park are a 163 room hotel and a
camping resort, each owned and operated by us. The campgrounds include 1,180
developed campsites, including 395 recreational vehicles (RV's) available for
daily and weekly rental. The campground is one of the largest in the United
States. In 2001, approximately 391,000 people used the Six Flags Darien Lake
hotel and campgrounds. Substantially all of the hotel and camping visitors visit
the theme park.
Six Flags Darien Lake's principal competitor is Paramount Canada's
Wonderland Park located in Toronto, Canada, approximately 125 miles from Six
Flags Darien Lake. In addition, Six Flags Darien Lake competes to a lesser
degree with three smaller amusement parks located within 50 miles of the park.
Six Flags Darien Lake is significantly larger with a more diverse complement of
entertainment than any of these three smaller facilities.
SIX FLAGS ELITCH GARDENS
Six Flags Elitch Gardens is a combination theme and water park located on
approximately 67 acres in the downtown area of Denver, Colorado, next to Invesco
Field at Mile High Stadium and the Pepsi Center Arena, and close to Coors Field.
Six Flags Elitch Gardens is the 44th largest theme park in North America. The
park's primary market includes the greater Denver area, as well as most of
central Colorado. This market provides the park with a permanent resident
population base of approximately 2.5 million people within 50 miles of the park
and approximately 3.4 million people within 100 miles. The Denver area is the
number 18 DMA in the United States. Six Flags Elitch Gardens has no significant
direct competitors.
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SIX FLAGS FIESTA TEXAS
Six Flags Fiesta Texas, the 32nd largest theme park in North America, is a
combination theme and water park located on approximately 206 acres in San
Antonio, Texas. The San Antonio, Texas market provides the park with a permanent
resident population of approximately 1.8 million people within 50 miles and
approximately 3.1 million people within 100 miles. The San Antonio market is the
number 37 DMA in the United States.
Six Flags Fiesta Texas' principal competitor is Sea World of Texas, also
located in San Antonio. In addition, the park competes to a lesser degree with
two of our parks: Six Flags AstroWorld, located in Houston, Texas, and Six Flags
Over Texas located in Arlington, Texas.
SIX FLAGS GREAT ADVENTURE, SIX FLAGS HURRICANE HARBOR AND SIX FLAGS WILD
SAFARI
Six Flags Great Adventure, the 14th largest theme park in North America,
the separately gated adjacent Six Flags Hurricane Harbor, the 11th largest water
park in the United States, and Six Flags Wild Safari are each located in
Jackson, New Jersey, approximately 70 miles south of New York City and 50 miles
east of Philadelphia. The New York and Philadelphia markets provide the parks
with a permanent resident population of approximately 13.3 million people within
50 miles and approximately 26.2 million people within 100 miles. The New York
and Philadelphia markets are the number 1 and number 4 DMAs in the United
States, respectively.
We own a site of approximately 2,200 acres, of which approximately 240
acres are currently used for the theme park operations, approximately 45 acres
are used for the water park and approximately 350 adjacent acres are used for
the wildlife safari park. Most of the balance of the site is available for
future development. The animal park is home to over 1,200 animals representing
more than 58 species, which can be seen over a four and one-half mile drive. Six
Flags Great Adventure's principal competitors are Hershey Park, located in
Hershey, Pennsylvania, approximately 150 miles from the park; and Dorney Park,
located in Allentown, Pennsylvania, approximately 75 miles from the park. The
water park competes with several other water parks in the market.
SIX FLAGS GREAT AMERICA
Six Flags Great America, the 23rd largest theme park in North America, is
located in Gurnee, Illinois, between Chicago, Illinois and Milwaukee, Wisconsin.
The Chicago and Milwaukee markets provide the park with a permanent resident
population of approximately 8.3 million people within 50 miles and approximately
12.8 million people within 100 miles. The Chicago and Milwaukee markets are the
number 3 and number 33 DMAs in the United States, respectively.
We own a site of approximately 440 acres of which 92 are used for the theme
park operations, and approximately 106 usable acres are located in a separate
parcel available for expansion and complementary uses. Six Flags Great America
currently has no direct theme park competitors in the region, but does compete
to some extent with Kings Island, located near Cincinnati, Ohio, approximately
350 miles from the park; Cedar Point, located in Sandusky, Ohio, approximately
340 miles from the park; and Six Flags St. Louis, our park located outside St.
Louis, Missouri, approximately 320 miles from the park.
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SIX FLAGS KENTUCKY KINGDOM
Six Flags Kentucky Kingdom is a combination theme and water park, located
on approximately 58 acres on and adjacent to the grounds of the Kentucky Fair
and Exposition Center in Louisville, Kentucky. Of the 58 acres, approximately 38
acres are leased under ground leases with terms (including renewal options)
expiring between 2021 and 2049, with the balance owned by us. Six Flags Kentucky
Kingdom is the 49th largest theme park in North America. The park's primary
market includes Louisville and Lexington, Kentucky, Evansville and Indianapolis,
Indiana and Nashville, Tennessee. This market provides the park with a permanent
resident population of approximately 1.5 million people within 50 miles and
approximately 4.7 million people within 100 miles. The Louisville and Lexington
markets are the number 50 and number 66 DMAs in the United States.
Six Flags Kentucky Kingdom's only significant direct competitor is Kings
Island, located near Cincinnati, Ohio, approximately 100 miles from the park.
SIX FLAGS MAGIC MOUNTAIN AND SIX FLAGS HURRICANE HARBOR
Six Flags Magic Mountain, the 18th largest theme park in North America, and
the separately gated adjacent Six Flags Hurricane Harbor are located in
Valencia, California, 30 miles north of Los Angeles. The Los Angeles, California
market provides the parks with a permanent resident population of approximately
9.7 million people within 50 miles and approximately 16 million people within
100 miles. The Los Angeles market is the number 2 DMA in the United States.
We own a site of approximately 260 acres with 160 acres used for the theme
park, and approximately 12 acres used for the pirate-themed water park. Six
Flags Magic Mountain's principal competitors include Disneyland and Disney's
California Adventure, each in Anaheim, California, located approximately 60
miles from the park, Universal Studios Hollywood in Universal City, California,
located approximately 20 miles from the park, Knott's Berry Farm in Buena Park,
California, located approximately 50 miles from the park, Sea World of
California in San Diego, California, located approximately 150 miles from the
park and Legoland in Carlsbad, California, located approximately 120 miles from
the park.
Six Flags Hurricane Harbor's competitors include the new Soak City USA
Waterpark and Raging Waters, each located approximately 50 miles from the water
park.
SIX FLAGS MARINE WORLD
Six Flags Marine World, a theme park which also features marine mammals and
exotic land animals, is the 30th largest theme park in North America. Six Flags
Marine World is located in Vallejo, California, approximately 30 miles from San
Francisco, 20 miles from Oakland and 60 miles from Sacramento. This market
provides the park with a permanent resident population base of approximately 5.5
million people within 50 miles and approximately 10 million people within 100
miles. The San Francisco/Oakland and Sacramento areas are the number 5 and
number 19 DMAs in the United States, respectively.
We manage a portion of the operations of Six Flags Marine World under a
management agreement, pursuant to which we are entitled to receive an annual
base management fee of $250,000 and up to $250,000 annually in additional fees
based on park performance. In addition, we operate the rest of the park pursuant
to our lease of approximately 55 acres of land at the site on a long-term basis
and at nominal rent, which entitles us to receive, in addition to the management
fee, 80% of the cash flow generated by the combined operations of the park after
operating expenses and debt service. Finally, we have the option to purchase the
entire park between February 2002 and February 2007.
Six Flags Marine World is located on approximately 136 acres and offers
various rides and other traditional theme park attractions, as well as
presentation stadiums, animal habitats and picnic areas,
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bordering a 55-acre man-made lake. The park provides for the shelter and care
for marine mammals, land animals, sharks, birds and reptiles, tropical and cold
water fish and marine invertebrates, all featured in a variety of exhibits and
participatory attractions.
Six Flags Marine World's principal competitors are Underwater World at Pier
39 in San Francisco, Great America in Santa Clara and Outer Bay at Monterey Bay
Aquarium. These attractions are located approximately 30, 60 and 130 miles from
Six Flags Marine World, respectively.
We account for our interest in Six Flags Marine World under the equity
method of accounting. See Note 4 to Notes to Consolidated Financial Statements.
SIX FLAGS NEW ENGLAND
Six Flags New England is a combination theme and water park, located off
Interstate 91 near Springfield, Massachusetts, approximately 90 miles west of
Boston. Six Flags New England is the 34th largest theme park in North America
with a primary market that includes Springfield and western Massachusetts,
Hartford and western Connecticut, as well as portions of eastern Massachusetts
(including Boston) and eastern New York. This market provides the park with a
permanent resident population base of approximately 3.1 million people within 50
miles and 15.2 million people within 100 miles. Springfield, Providence,
Hartford/New Haven and Boston are the number 105, number 49, number 28 and
number 6 DMAs in the United States. Six Flags New England is comprised of
approximately 230 acres, with 90 acres currently used for park operations, 12
acres for a picnic grove and approximately 128 undeveloped acres.
Six Flags New England's only significant competitor is Lake Compounce
located in Bristol, Connecticut, approximately 50 miles from Six Flags New
England. To a lesser extent, Six Flags New England competes with The Great
Escape, our park located in Lake George, New York, approximately 150 miles from
Six Flags New England.
SIX FLAGS OVER GEORGIA AND SIX FLAGS WHITE WATER ATLANTA
Six Flags Over Georgia, the 28th largest theme park in North America is
located on approximately 280 acres, 10 miles outside of Atlanta, Georgia. The
Atlanta, Georgia market provides the park with a permanent resident population
of approximately 4.0 million people within 50 miles and approximately 6.7
million people within 100 miles. The Atlanta market is the number 9 DMA in the
United States.
In May 1999, the partnership that owns Six Flags Over Georgia purchased
White Water Atlanta, a water park and related entertainment park located
approximately 20 miles from the theme park. Six Flags White Water Atlanta, which
is the 11th largest water park in the United States, is located on approximately
69 acres. Approximately 12 acres remain undeveloped.
Six Flags Over Georgia's primary competitors include Carowinds in
Charlotte, North Carolina, located approximately 250 miles from the park,
Visionland in Birmingham, Alabama, located approximately 160 miles from the
park, and Dollywood in Pigeon Forge, Tennessee, located approximately 200 miles
from the park. Six Flags White Water's primary competitors include Sun Valley
Beach, Atlanta Beach and Lake Lanier Islands. These competitors are located
approximately 15, 40 and 45 miles away from the water park, respectively. The
Georgia Limited Partner (as defined below) owns the theme park site of
approximately 280 acres, including approximately 85 acres of undeveloped land,
all of which is leased to Six Flags Over Georgia II, L.P. (the "Georgia
Partnership").
PARTNERSHIP STRUCTURE. On March 18, 1997, Six Flags completed arrangements
pursuant to which we will manage the Georgia park through 2026. Under the
agreements governing the arrangements, the Georgia park is owned (excluding real
property) by the Georgia Partnership of which our subsidiary is the managing
general partner. In the second quarter of 1997, two subsidiaries of Six Flags
made a tender offer for partnership interests ("LP Units") in the 99% limited
partner of the Georgia Partnership (the "Georgia
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Limited Partner"), that valued the Georgia park at $250 million (the "Georgia
Tender Offer Price"). Six Flags purchased approximately 25% of the LP Units in
the 1997 tender offer at an aggregate price of $62.7 million.
The key elements of the arrangements are as follows: (i) the Georgia
Limited Partner (which is not affiliated with us except for our ownership of
certain LP Units) receives minimum annual distributions (including rent on the
real estate) of $20.3 million in 2001, increasing each subsequent year in
proportion to increases in the cost of living; (ii) thereafter, we are entitled
to receive from available cash (after provision for reasonable reserves and
after capital expenditures per annum of approximately 6% of prior year's
revenues) a management fee equal to 3% of the prior year's gross revenues, and,
thereafter, any additional available cash is distributed 95% to us and 5% to the
Georgia Limited Partner; (iii) on an annual basis, we are required to offer to
purchase an additional 5% of the LP Units (accumulating to the extent not
purchased in any given year) at a price based on a valuation for the park equal
to the greater of $250.0 million or a value derived by multiplying the
weighted-average four year EBITDA of the park and, to the extent positive, Six
Flags White Water Atlanta, by 8.0; (iv) in 2027, we have the option to acquire
all remaining interests in the Georgia park at a price based on the Georgia
Tender Offer Price, increased in proportion to the increase in the cost of
living between December 1996 and December 2026; and (v) we are required to make
minimum capital expenditures at the Georgia park during rolling five-year
periods, based generally on 6% of the park's revenues. We were not required to
purchase a material number of LP Units in the 1998, 1999, 2000 and 2001 offers
to purchase. Cash flow from operations at the Georgia park is used to satisfy
these requirements first, before any funds are required from us. In addition, we
are entitled to retain our proportionate share (based on our holdings of LP
Units) of distributions made to the Georgia Limited Partner. In connection with
our acquisition of the former Six Flags, we entered into a Subordinated
Indemnity Agreement (the "Subordinated Indemnity Agreement") with certain Six
Flags entities, Time Warner Inc. ("Time Warner") and an affiliate of Time
Warner, pursuant to which, among other things, we transferred to Time Warner
(which has guaranteed the Six Flags obligations under these arrangements) record
title to the corporations which own the entities that have purchased and will
purchase LP Units, and we received an assignment from Time Warner of all cash
flow received on such LP Units and we otherwise control such entities. In
addition, we issued preferred stock of the managing partner of the Georgia
Partnership to Time Warner. In the event of a default by us of our obligations
described in this paragraph, these arrangements would permit Time Warner to take
full control of both the entities that own LP Units and the managing partner.
After all such obligations have been satisfied, Time Warner is required to
retransfer to us the entire equity interests of these entities.
We account for our interests in the Georgia parks under the equity method
of accounting. See Notes 4 and 12 to Notes to Consolidated Financial Statements.
SIX FLAGS OVER TEXAS AND SIX FLAGS HURRICANE HARBOR
Six Flags Over Texas, the 20th largest theme park in North America, and the
separately gated Six Flags Hurricane Harbor, the 7th largest water park in the
United States, are located across Interstate 30 from each other in Arlington,
Texas, between Dallas and Fort Worth, Texas. The Dallas/Fort Worth market
provides the parks with a permanent resident population of approximately 4.8
million people within 50 miles and approximately 5.9 million people within 100
miles. The Dallas/Fort Worth market is the number 7 DMA in the United States.
The Texas Limited Partner (as defined below) owns a site of approximately
200 acres used for the theme park. Six Flags Over Texas' principal competitors
include Sea World of Texas and our Six Flags Fiesta Texas park, both located in
San Antonio, Texas, approximately 285 miles from the park and Six Flags
AstroWorld, approximately 250 miles from the park. We own directly approximately
47 acres, of which approximately 17 acres are currently used for Hurricane
Harbor and 30 acres remain undeveloped. Six Flags Hurricane Harbor has no direct
competitors in the area other than a municipal water park.
PARTNERSHIP STRUCTURE. Six Flags Over Texas is owned (excluding real
property) by Texas Flags,
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Ltd. (the "Texas Partnership"), a Texas limited partnership of which the 1%
general partner is our wholly-owned subsidiary, and the 99% limited partner is
Six Flags Fund II, Ltd., a Texas limited partnership (the "Texas Limited
Partner") which is unaffiliated with us except that we own certain limited
partnership units in the Texas Limited Partner as described below. Six Flags
Hurricane Harbor is 100% owned by us and is not included in these partnership
arrangements.
In December 1997, Six Flags completed arrangements pursuant to which we
will manage Six Flags Over Texas through 2027. The key elements of the
arrangements are as follows: (i) the Texas Limited Partner receives minimum
annual distribution (including rent on the real estate) of $29.9 million in
2001, increasing each year thereafter in proportion to increases in the cost of
living; (ii) thereafter, we are entitled to receive from available cash (after
provision for reasonable reserves and after capital expenditures per annum of
approximately 6.0% of prior year's revenues) a management fee equal to 3% of the
prior year's gross revenues, and, thereafter, any additional available cash will
be distributed 92.5% to us and 7.5% to the Texas Limited Partner; (iii) in the
first quarter of 1998, we made a tender offer for partnership units ("LP Units")
in the Texas Limited Partner that valued the park at approximately $374.8
million (the "Texas Tender Offer Price"); (iv) commencing in 1999, and on an
annual basis thereafter, we are required to offer to purchase an additional 5%
of the LP Units (accumulating to the extent not purchased in any given year) at
a price based on a valuation for the park equal to the greater of $374.8 million
or a value derived by multiplying the weighted-average four year EBITDA of the
park by 8.5; (v) in 2028 we have the option to acquire all remaining interests
in the park at a price based on the Texas Tender Offer Price, increased in
proportion to the increase in the cost of living between December 1997 and
December 2027; and (vi) we are required to make minimum capital expenditures at
the Texas park during rolling five-year periods, based generally on 6% of such
park's revenues. Cash flow from operations at the Texas park is used to satisfy
these requirements first, before any funds are required from us. In addition, we
are entitled to retain our proportionate share (based on our holdings of LP
Units) of distributions made to the Texas Limited Partner. Pursuant to the
tender offer and the 1999, 2000 and 2001 offers to purchase, we have purchased
approximately 36% of the LP Units at an aggregate price of $133.9 million. In
connection with the Subordinated Indemnity Agreement, we transferred to Time
Warner (which has guaranteed the Six Flags obligations under these arrangements)
record title to the corporations which own the entities that have purchased and
will purchase LP Units and we received an assignment from Time Warner of all
cash flow received on such LP Units and we otherwise control such entities. In
addition, we issued preferred stock of the managing general partner of the Texas
Partnership to Time Warner. In the event of a default by us of our obligations
described in this paragraph, these arrangements would permit Time Warner to take
full control of both the entities that own LP Units and the managing partner.
After all such obligations have been satisfied, Time Warner is required to
retransfer to us the entire equity interests of these entities.
We account for our interests in Six Flags Over Texas under the equity
method of accounting. See Notes 4 and 12 to Notes to Consolidated Financial
Statements.
SIX FLAGS ST. LOUIS
Six Flags St. Louis, the 35th largest theme park in North America, is a
combination theme and water park located in Eureka, Missouri, about 35 miles
west of St. Louis, Missouri. The St. Louis market provides the park with a
permanent resident population of approximately 2.6 million people within 50
miles and approximately 3.8 million people within 100 miles. The St. Louis
market is the number 22 DMA in the United States.
We own a site of approximately 497 acres of which approximately 132 are
used for park operations. Six Flags St. Louis competes with Kings Island,
located near Cincinnati, Ohio, approximately 350 miles from the park; Worlds of
Fun in Kansas City, Missouri, located approximately 250 miles from the park;
Cedar Point, located in Sandusky, Ohio, approximately 515 miles from the park;
Silver Dollar City, located in Branson, Missouri, approximately 250 miles from
the park; and Six Flags Great America, our park located near Chicago, Illinois,
approximately 320 miles from the park.
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SIX FLAGS WORLDS OF ADVENTURE
Six Flags Worlds of Adventure, the 24th largest theme park in North
America, a combination theme, water and marine wildlife park, represents the
consolidation of the former Six Flags of Ohio and the adjacent park formerly
known as Sea World of Ohio. The park is located in Aurora, Ohio, 20 miles
southeast of Cleveland and approximately 30, 60 and 120 miles, respectively,
from Akron and Youngstown, Ohio and Pittsburgh, Pennsylvania. This market
provides the park with a permanent resident population base of approximately 4.0
million people within 50 miles of the park and approximately 7.0 million within
100 miles. The Cleveland/Akron, Youngstown and Pittsburgh markets are the number
17, number 98 and number 21 DMAs in the United States, respectively.
Adjacent to Six Flags Worlds of Adventure are a 145 room hotel and a
camping resort each owned and operated by us. The campgrounds include 300
developed campsites, including 24 recreational vehicles (RV's) available for
daily and weekly rental. In 2001, approximately 37,000 people used the Six Flags
Ohio hotel and campgrounds.
The 690-acre property on which Six Flags Worlds of Adventure is situated
includes a 50-acre spring-fed lake. The theme park and the water park presently
occupy approximately 45 acres and the marine wildlife park is located on
approximately 113 acres. There are approximately 110 acres of undeveloped land
that have the potential for further development.
Six Flags Worlds of Adventure's principal competitors are Cedar Point in
Sandusky, Ohio and Kennywood in Pittsburgh, Pennsylvania. These parks are
located approximately 90 miles and 120 miles, respectively, from the park. There
are also three small water parks within a 50-mile radius of Six Flags Worlds of
Adventure.
ENCHANTED VILLAGE AND WILD WAVES
Enchanted Village and Wild Waves is a water and rides park located in
Seattle, Washington. The facility is located on approximately 65 acres. The
Seattle-Tacoma market provides the park with a permanent resident population of
approximately 3.4 million people within 50 miles and approximately 4.3 million
people within 100 miles. The Seattle-Tacoma market is the number 12 DMA in the
United States. The park is primarily a water park and currently lacks a full
complement of rides and revenue outlets. As a result, we believe that there is
an opportunity over the next several years to increase this park's revenue,
attendance and cash flow, with relatively modest capital expenditures,
commencing with the 2002 season. The park does not have any significant direct
competitors.
FRONTIER CITY
Frontier City is a western theme park located along Interstate 35 in
northeast Oklahoma City, Oklahoma, approximately 100 miles from Tulsa. The
park's market includes nearly all of Oklahoma and certain parts of Texas and
Kansas, with its primary market in Oklahoma City and Tulsa. This market provides
the park with a permanent resident population base of approximately 1.2 million
people within 50 miles of the park and 2.5 million people within 100 miles. The
Oklahoma City and Tulsa markets are the number 45 and number 59 DMAs in the
United States, respectively
We own a site of approximately 109 acres, with 55 acres currently used for
park operations. Frontier City's only significant competitor is Six Flags Over
Texas, located in Arlington, Texas, approximately 225 miles from Frontier City.
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THE GREAT ESCAPE
The Great Escape, which opened in 1954, is a combination theme and water
park located off Interstate 87 in the Lake George, New York resort area, 180
miles north of New York City and 40 miles north of Albany. The park's primary
market includes the Lake George tourist population and the upstate New York and
western New England resident population. This market provides the park with a
permanent resident population base of approximately 0.9 million people within 50
miles of the park and 2.8 million people within 100 miles. According to
information released by local governmental agencies, approximately 3.7 million
tourists visited the Lake George area in 2001. The Albany market is the number
57 DMA in the United States
The Great Escape is located on a site of approximately 368 acres, with 143
acres currently used for park operations. Approximately 43 of the undeveloped
acres are suitable for park expansion. The Great Escape's only significant
direct competitor is Six Flags New England, our park located in Springfield,
Massachusetts, approximately 150 miles from The Great Escape. In addition, there
is a smaller water park located in Lake George.
WATERWORLD PARKS
The Waterworld Parks consist of two water parks (Waterworld USA/Concord and
Waterworld USA/Sacramento).
Waterworld USA/Concord is located in Concord, California, in the East Bay
area of San Francisco. The park's primary market includes nearly all of the San
Francisco Bay area. This market provides the park with a permanent resident
population base of approximately 7.1 million people within 50 miles of the park
and 10.6 million people within 100 miles. The San Francisco Bay market is the
number 5 DMA in the United States.
Waterworld USA/Sacramento is located on the grounds of the California State
Fair in Sacramento, California. The facility's primary market includes
Sacramento and the immediate surrounding area. This market provides the park
with a permanent resident population base of approximately 2.9 million people
within 50 miles of the park and 10.2 million people within 100 miles. The
Sacramento market is the number 19 DMA in the United States.
Both facilities are leased under long-term ground leases. The Concord site
includes approximately 21 acres. The Sacramento facility is located on
approximately 14 acres. Concord's only significant direct competitor is Raging
Waters located in San Jose, approximately 50 miles from that facility.
Sacramento's only significant competitor is Sunsplash located in northeast
Sacramento, approximately 20 miles from that facility.
WHITE WATER BAY
White Water Bay is a tropical themed water park situated on approximately
22 acres located along Interstate 40 in southwest Oklahoma City, Oklahoma. The
park's primary market includes the greater Oklahoma City metropolitan area.
Oklahoma City is the number 45 DMA in the United States. This market provides
the park with a permanent resident population base of approximately 1.2 million
people within 50 miles of the park and 2.5 million people within 100 miles.
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WYANDOT LAKE
Wyandot Lake is mainly a water park, but also offers traditional amusement
park attractions with 15 "dry" rides, games, shows and a large catering
facility. It is located just outside of Columbus, Ohio, adjacent to the Columbus
Zoo on property subleased from the Columbus Zoo. The park's primary market
includes the Columbus metropolitan area and other central Ohio towns. This
market provides the park with a permanent resident population base of
approximately 2.1 million people within 50 miles of the park and approximately
6.5 million people within 100 miles. The Columbus market is the number 34 DMA in
the United States.
We lease from the Columbus Zoo the land, the buildings and several rides
which existed on the property at the time the lease was entered into in 1983.
The current lease expires in 2002, but we expect to exercise our available
options through 2008. The land leased by Wyandot Lake consists of approximately
18 acres. The park shares parking facilities with the Columbus Zoo.
Wyandot Lake's direct competitors are Kings Island, located near
Cincinnati, Ohio, and Cedar Point, located in Sandusky, Ohio. Each of these
parks is located approximately 100 miles from Wyandot Lake. Although the
Columbus Zoo is located adjacent to the park, it is a complementary attraction,
with many patrons visiting both facilities.
DESCRIPTION OF INTERNATIONAL PARKS
SIX FLAGS BELGIUM
Six Flags Belgium is a combination theme park and year-round indoor water
park - called Aqualibi - near Brussels. The park is located on 120 acres. We
estimate that approximately 11.4 million people live within a 50 mile radius of
the park and approximately 51.0 million people live within 100 miles. The park's
primary competitors are Bobbejaanland in Belgium, Efteling in Holland and Parc
Asterix in France. These parks are located approximately 70, 100 and 200 miles
from Six Flags Belgium, respectively. The park also competes with our
Bellewaerde park, approximately 100 miles from Six Flags Belgium.
SIX FLAGS HOLLAND
Six Flags Holland is a theme park located on 390 acres that features over
40 rides and numerous shows, games and food venues. The park also operates the
adjacent bungalow park with 142 bungalows and the largest events ground in the
country. The park is located in the heart of the Netherlands, just west of
Amsterdam. This market provides the park with a permanent resident population
base of approximately 8.9 million people within a 50 mile radius of the park and
approximately 56.8 million people within 100 miles. The park's primary
competitor is Efteling in Holland, approximately 100 miles from the park. The
park also competes with Warner Bros. Movie World Germany, which is approximately
100 miles from Six Flags Holland.
SIX FLAGS MEXICO
In May 1999, we acquired Reino Aventura, the largest paid admission theme
park in Mexico, which was rebranded as Six Flags Mexico in the 2000 season. The
park first opened in 1982 and is located on approximately 107 acres in Mexico
City, which are leased on a long-term basis from the Federal District of Mexico.
More than 22 million people live within 50 miles of Six Flags Mexico. Six Flags
Mexico's principal competitors are Chapultepec and Divertido, both amusement
parks located in Mexico City.
BELLEWAERDE
Bellewaerde is a combination animal and theme park in Ieper, Belgium. It
lies in Flanders, the
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northern area of Belgium and is situated on 130 acres. We estimate that
approximately 5.3 million people live within a 50 mile radius of the park and
approximately 32.5 million people live within 100 miles. The park's primary
competitors are Plopsaland and Bobbejaanland, each located in Belgium. These
parks are located approximately 125 and 120 miles from Bellewaerde,
respectively. The park also competes with Six Flags Belgium, approximately 100
miles from Bellewaerde.
LA RONDE
La Ronde, is the 48th largest theme park in North America, a theme park
located in the City of Montreal. The park is located on the 146 acre site of the
1967 Montreal Worlds Fair. Montreal has a metropolitan population of
approximately 3.3 million and is a major tourist destination. This market
provides the park with a permanent resident population base of approximately 4.0
million people within 50 miles of the park and 5.0 million people within 100
miles. The park competes with Paramount Canada's Wonderland, approximately 370
miles from La Ronde.
WALIBI AQUITAINE
Walibi Aquitaine is a theme park located in Southwestern France between
Bordeaux and Toulouse. The park is located on approximately 74 acres.
Approximately 5.0 million people live within a 50 mile radius of the park and
approximately 10.0 million people live within 100 miles. The park's nearest
competitor is Futuroscope in Poitiers, France which is located 250 miles from
Walibi Aquitaine.
WALIBI RHONE-ALPES
Walibi Rhone-Alpes is a combination theme and water park located in eastern
France in the heart of the Lyon-Geneva-Grenoble triangle. The park is located on
approximately 86 acres. Approximately 4.8 million people live within a 50 mile
radius of the park and approximately 21.5 million people live within 100 miles.
The park's primary competitor is Parc Asterix in France which is located
approximately 310 miles away.
WALIBI SCHTROUMPF
Walibi Schtroumpf is a Smurf-themed park located near Metz in northeastern
France. The park is located on approximately 375 acres which are leased on a
long-term basis. The park's main markets include parts of France, Belgium,
Luxembourg and Germany. These markets provide the park with a permanent resident
population base of approximately 3.6 million people within a 50 mile radius of
the park and approximately 16.4 million people within 100 miles. The park's
primary competitors are Europa Park in Germany and Parc Asterix in France. These
parks are located approximately 150 and 220 miles from the park, respectively.
WARNER BROS. MOVIE WORLD GERMANY
Warner Bros. Movie World Germany is a "Hollywood" themed park located near
Dusseldorf, Germany. The park is located on approximately 148 acres of land,
most of which is leased on a long-term basis with the balance owned.
Approximately 21.4 million people live within 50 miles of the park and 81.2
million people within 100 miles. The park's primary competitors are
Phantasialand Park, located approximately 75 miles from the park, and Efteling,
located approximately 110 miles from the park. The park also competes with Six
Flags Holland which is approximately 100 miles away from the park.
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WARNER BROS. MOVIE WORLD MADRID
We are managing the development of a new park to be known as Warner Bros.
Movie World Madrid, near Madrid, Spain. The park, which is scheduled to open in
April, 2002, is located on approximately 150 acres with room for expansion.
The park's primary market includes the metropolitan Madrid area. This
market provides the park with a permanent resident population base of
approximately 10.7 million people within a 50 mile radius of the park and
approximately 23.4 million people within 100 miles. The park's primary
competitors are Parque de Atracciones in Madrid, Terra Mitica in Valencia and
Port Aventura in Barcelona. These parks are located approximately 20, 230 and
350 miles from the park, respectively.
We are paid a development fee from the owner and will manage the park for a
management fee equal to 2 1/2% of revenues on a long-term basis following its
opening. We also hold a 5% minority interest in the park's ownership.
For additional financial and other information concerning our international
operations, see Note 13 to Notes to Consolidated Financial Statements.
MARKETING AND PROMOTION
We attract visitors through national and local multi-media marketing and
promotional programs for each of our parks. The national programs are designed
to market and enhance the Six Flags brand name. Local programs are tailored to
address the different characteristics of their respective markets and to
maximize the impact of specific park attractions and product introductions. All
marketing and promotional programs are updated or completely changed each year
to address new developments. Marketing programs are supervised by our Senior
Vice President for Marketing, with the assistance of our senior management and a
national advertising agency.
We also develop partnership relationships with well-known national and
regional consumer goods companies and retailers to supplement our advertising
efforts and to provide attendance incentives in the form of discounts and/or
premiums. We also arrange for popular local radio and television programs to be
filmed or broadcast live from our parks.
Group sales and pre-sold tickets provide us with a consistent and stable
base of attendance, representing approximately 34.5% of aggregate attendance in
2001 at the parks which we owned or operated during that season. Each park has a
group sales and pre-sold ticket manager and a sales staff dedicated to selling
multiple group sales and pre-sold ticket programs through a variety of methods,
including direct mail, telemarketing and personal sales calls.
We have also developed effective programs for marketing season pass
tickets. Season pass sales establish a solid attendance base in advance of the
season, thus reducing exposure to inclement weather. Additionally, season pass
holders often bring paying guests and generate "word-of-mouth" advertising for
the parks. During 2001, 27.8% of visitors to the parks we owned or operated
during that season utilized season passes. A significant portion of our
attendance is attributable to the sale of discount admission tickets. We offer
discounts on season and multi-visit tickets, tickets for specific dates and
tickets to affiliated groups such as businesses, schools and religious,
fraternal and similar organizations. The increased in-park spending which
results from such attendance is not offset by incremental operating expenses,
because such expenses are relatively fixed during the operating season.
We also implement promotional programs as a means of targeting specific
market segments and geographic locations not generally reached through group or
retail sales efforts. The promotional programs utilize coupons, sweepstakes,
reward incentives and rebates to attract additional visitors. These programs are
implemented through direct mail, telemarketing, direct response media,
sponsorship marketing and
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targeted multi-media programs. The special promotional offers are usually for a
limited time and offer a reduced admission price or provide some additional
incentive to purchase a ticket, such as combination tickets with a complementary
location.
LICENSES
We have the exclusive right on a long-term basis to theme park usage of the
Warner Bros. and DC Comics animated characters throughout the United States
(except the Las Vegas metropolitan area), Canada, Europe and Latin and South
America (including Mexico). In particular, our license agreements entitle us to
use, subject to customary approval rights of Warner Bros., and in limited
circumstances, approval rights of certain third parties, all animated cartoon
and comic book characters that Warner Bros. and DC Comics have the right to
license, including BATMAN, SUPERMAN, BUGS BUNNY, DAFFY DUCK, TWEETY BIRD and
YOSEMITE SAM, and include the right to sell merchandise using the characters. In
addition, the Cartoon Network and Hanna-Barbera characters including YOGI BEAR,
SCOOBY-DOO and THE FLINTSTONES are available for our use at theme parks
throughout Europe and Latin and South America. In addition to basic license
fees, we are required to pay a royalty fee on merchandise manufactured by or for
us and sold that uses the licensed characters. Warner Bros. has the right to
terminate the license agreements under certain circumstances including if any
persons involved in the movie or television industries obtain control of us and
upon a default under the subordinated indemnity agreement between us and Time
Warner Inc. entered into in connection with the our acquisition of the former
Six Flags.
PARK OPERATIONS
We currently operate in geographically diverse markets in the United
States, Canada, Mexico and Europe. Each of our parks is operated to the extent
practicable as a separate operating division in order to maximize local
marketing opportunities and to provide flexibility in meeting local needs. Each
park is managed by a general manager who reports to one of our regional
Executive Vice Presidents (each of whom reports to our Chief Operating Officer).
The general manager is responsible for all operations and management of the
individual park. We also have an Executive Vice President responsible for retail
and in-park spending at all of our parks. Local advertising, ticket sales,
community relations and hiring and training of personnel are the responsibility
of individual park management in coordination with corporate support teams.
Each of our parks is managed by a full-time, on-site management team under
the direction of the general manager. Each management team includes senior
personnel responsible for operations and maintenance, marketing and promotion,
human resources and merchandising. Park management compensation structures are
designed to provide incentives (including stock options and cash bonuses) for
individual park managers to execute our strategy and to maximize revenues and
operating cash flow.
Our parks are generally open daily from Memorial Day through Labor Day. In
addition, most of our parks are open during weekends prior to and following
their daily seasons, often in conjunction with themed events (such as
Hallowscream, Fright Fest, Oktoberfest and Holiday in the Park). Due to their
location, certain parks have longer operating seasons. Typically, the parks
charge a basic daily admission price, which allows unlimited use of all rides
and attractions, although in certain cases special rides and attractions require
the payment of an additional fee.
CAPITAL IMPROVEMENTS
We regularly make capital investments in the introduction of new rides and
attractions at our parks. We purchase both new and used rides and attractions.
In addition, we rotate rides among parks to provide fresh attractions. We
believe that the introduction of new rides and attractions is an important
factor in promoting each of the parks in order to achieve market penetration and
encourage longer visits, which lead to increased attendance and in-park
spending. In addition, we generally add theming to acquired parks and enhance
the theming and landscaping of our existing parks in order to provide a
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complete family oriented entertainment experience. Capital expenditures are
planned on a seasonal basis with most expenditures made during the off-season.
Expenditures for materials and services associated with maintaining assets, such
as painting and inspecting rides, are expensed as incurred and therefore are not
included in capital expenditures.
Our level of capital expenditures is directly related to the optimum mix of
rides and attractions given park attendance and market penetration. These
targeted expenditures are intended to drive significant attendance growth at the
parks and to provide an appropriate complement of entertainment value, depending
on the size of a particular market. As an individual park begins to reach an
appropriate attendance penetration for its market, management generally plans a
new ride or attraction every two to four years in order to enhance the park's
entertainment product.
MAINTENANCE AND INSPECTION
Our rides are inspected daily by maintenance personnel during the operating
season. These inspections include safety checks, as well as regular maintenance
and are made through both visual inspection of the ride and test operation. Our
senior management and the individual park personnel evaluate the risk aspects of
each park's operation. Potential risks to employees and staff as well as to the
public are evaluated. Contingency plans for potential emergency situations have
been developed for each facility. During the off-season, maintenance personnel
examine the rides and repair, refurbish and rebuild them where necessary. This
process includes x-raying and magnafluxing (a further examination for minute
cracks and defects) steel portions of certain rides at high-stress points. We
have approximately 1,260 full-time employees who devote substantially all of
their time to maintaining the parks and their rides and attractions.
In addition to our maintenance and inspection procedures, our liability
insurance carrier performs an annual inspection of each park and all attractions
and related maintenance procedures. The results of insurance inspections are
written evaluation and inspection reports, as well as written suggestions on
various aspects of park operations. In certain states, inspectors also conduct
annual ride inspections before the beginning of each season. Other portions of
each park are subject to inspections by local fire marshals and health and
building department officials. Furthermore, we use Ellis & Associates as water
safety consultants at our parks in order to train life guards and audit safety
procedures.
INSURANCE
We maintain insurance of the type and in amounts that we believe are
commercially reasonable and that are available to businesses in our industry. We
maintain multi-layered general liability policies that provide for excess
liability coverage of up to $100.0 million per occurrence. For incidents arising
after November 15, 2001, our self-insured retention is $1.0 million per
occurrence for our domestic parks and a nominal amount per occurrence for our
international parks. Our self-insured retention after November 15, 2001 is $0.5
million for workers compensation claims. For most incidents prior to November
15, 2001, we have no self-insured retention. We also maintain fire and extended
coverage, workers' compensation, business interruption and other forms of
insurance typical to businesses in this industry. The fire and extended coverage
policies insure our real and personal properties (other than land) against
physical damage resulting from a variety of hazards.
COMPETITION
Our parks compete directly with other theme parks, water and amusement
parks and indirectly with all other types of recreational facilities and forms
of entertainment within their market areas, including movies, sports attractions
and vacation travel. Accordingly, our business is and will continue to be
subject to factors affecting the recreation and leisure time industries
generally, such as general economic conditions and changes in discretionary
consumer spending habits. Within each park's regional market area, the principal
factors affecting competition include location, price, the uniqueness and
perceived quality of the
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rides and attractions in a particular park, the atmosphere and cleanliness of a
park and the quality of its food and entertainment. We believe our parks feature
a sufficient variety of rides and attractions, restaurants, merchandise outlets
and family orientation to enable it to compete effectively.
SEASONALITY
Our operations are highly seasonal, with more than 90% of park attendance
in 2001 occurring in the second and third calendar quarters and the most active
period falling between Memorial Day and Labor Day. More than 85% of our revenues
are earned in the second and third quarters of each year.
ENVIRONMENTAL AND OTHER REGULATION
Our operations are subject to increasingly stringent federal, state and
local environmental laws and regulations including laws and regulations
governing water discharges, air emissions, soil and groundwater contamination,
the maintenance of underground and above-ground storage tanks and the disposal
of waste and hazardous materials. In addition, our operations are subject to
other local, state and federal governmental regulations including, without
limitation, labor, health, safety, zoning and land use and minimum wage
regulations applicable to theme park operations, and local and state regulations
applicable to restaurant operations at each park. We believe that we are in
substantial compliance with applicable environmental and other laws and
regulations and, although no assurance can be given, we do not foresee the need
for any significant expenditures in this area in the near future.
In addition, portions of the undeveloped areas at certain of our parks are
classified as wetlands. Accordingly, we may need to obtain governmental permits
and other approvals prior to conducting development activities that affect these
areas, and future development may be prohibited in some or all of these areas.
EMPLOYEES
At March 1, 2002, we employed approximately 3,000 full-time employees, and
we employed over 44,000 seasonal employees during the 2001 operating season. In
this regard, we compete with other local employers for qualified student and
other candidates on a season-by-season basis. As part of the seasonal employment
program, we employ a significant number of teenagers, which subjects us to child
labor laws.
Approximately 6.9% of our full-time and approximately 4.8% of our seasonal
employees are subject to labor agreements with local chapters of national
unions. These labor agreements expire in January 2003 (Six Flags Over Texas),
December 2003 (Six Flags Over Georgia), December 2002 (Six Flags Great
Adventure), and January 2003 (Six Flags St. Louis). We have not experienced any
strikes or work stoppages by our employees, and we consider our employee
relations to be good.
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EXECUTIVE OFFICERS OF THE REGISTRANT
<Table>
<Caption>
Age as of
Name March 1, 2002 Position
- ---- ------------- --------
Kieran E. Burke (44) Director, Chairman of the Board and
Chief Executive Officer since June
1994; Director, President and Chief
Executive Officer from October 1989
through June 1994.
Gary Story (46) Director, President and Chief
Operating Officer since June 1994;
Executive Vice President and Chief
Operating Officer from February
1992 through June 1994; prior to
such period, general manager of
Frontier City theme park for more
than five years.
James F. Dannhauser (49) Chief Financial Officer since
October 1, 1995; Director since
October 1992; prior to June 1996,
Managing Director of Lepercq, de
Neuflize & Co. Incorporated for
more than five years.
John E. Bement (49) Executive Vice President since May
1998; General Manager of Six Flags
Over Georgia from January 1993 to
May 1998.
Hue W. Eichelberger (43) Executive Vice President since
February 1, 1997; General Manager
of Six Flags America from May 1992
to 1998; Park Manager of White
Water Bay from February 1991 to May
1992.
Thomas Iven (43) Executive Vice President since
November, 2000; General Manager of
Six Flags St. Louis since August
1998; Regional Director of Retail
Operations of the Six Flags Texas
region from 1996 to August 1998;
Vice President of Retail Operations
at Six Flags Over Texas from 1992
to 1996.
William Muirhead (46) Executive Vice President since
September 2001; General Manager of
Six Flags Great Adventure since
1998; General Manager of Riverside
Park (now Six Flags New England) in
1997 and 1998; worked on various
projects in Asia, including Ocean
Park in Hong Kong from 1992 to
1997; Director of retail operations
at Dorney Park and Wildwater
Kingdom from 1987-1992.
Brian Jenkins (40) Senior Vice President of Finance
since April, 2000; Vice President
of Finance since April 1998;
Regional Vice President of Finance
for the former Six Flags from 1996
to 1998; Served in various
financial positions with FoxMeyer
Health Corporation from 1990 to
1996 most recently as Vice
President of Business Development
and Corporate Planning.
</Table>
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<Page>
<Table>
<Caption>
Age as of
Name March 1, 2002 Position
- ---- ------------- --------
Charles Salemi (37) Senior Vice President of Marketing
since September 2001; Regional Vice
President of Marketing from January
2000 to September 2001; Director of
Marketing for Six Flags Great
America and Six Flags St. Louis
from April 1997 to January 2000.
Prior to that, Mr. Salemi worked in
marketing for Ogden Entertainment
Services and Ringling Bros. and
Barnum and Bailey Circus.
Walter S. Hawrylak (54) Secretary since June 2001; Vice
President since June 2000; prior to
that he served as our Director of
Administration since September
1999; served as Executive Vice
President and Chief Financial
Officer of Entercitement from May
1997 to September 1999; served as
Vice President and Chief Financial
Officer of Callaway Gardens from
October 1995 to May 1997; served as
Vice President and Chief Financial
Officer at Universal Studios
Hollywood from March 1994 to
October 1995.
James M. Coughlin (50) General Counsel since May 1998;
partner, Baer Marks & Upham LLP,
from 1991 to 1998.
</Table>
Each of the above executive officers has been elected to serve in the
position indicated until the next annual meeting of directors which will follow
the annual meeting of our stockholders to be held in June 2002.
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<Page>
ITEM 2. PROPERTIES
Set forth below is a brief description of our material real estate at March 1,
2002:
Six Flags America, Largo, Maryland -- 515 acres (fee ownership)
Six Flags AstroWorld, Houston, Texas -- 99 acres (fee ownership)
Six Flags Belgium, Brussels, Belgium -- 120 acres (fee ownership)
Six Flags Darien Lake, Darien Center, New York -- 988 acres (fee ownership)
Six Flags Elitch Gardens, Denver, Colorado -- 67 acres (fee ownership)
Six Flags Fiesta Texas, San Antonio, Texas -- 206 acres (fee ownership)
Six Flags Great Adventure, Hurricane Harbor & Wild Safari, Jackson, New Jersey -
2,200 acres (fee ownership)
Six Flags Great America, Gurnee, Illinois -- 440 acres (fee ownership)
Six Flags Holland, Biddinghuizen, The Netherlands -- 390 acres (fee ownership
and leasehold interest) (1)
Six Flags Hurricane Harbor, Arlington, Texas -- 47 acres (fee ownership)
Six Flags Hurricane Harbor, Valencia, California -- 12 acres (fee ownership)
Six Flags Kentucky Kingdom, Louisville, Kentucky -- 58 acres (fee ownership and
leasehold interest) (2)
Six Flags Magic Mountain, Valencia, California -- 260 acres (fee ownership)
Six Flags Marine World, Vallejo, California -- 136 acres (long-term leasehold
interest at nominal rent)
Six Flags Mexico, Mexico City, Mexico - 107 acres (leasehold interest) (3)
Six Flags New England, Agawam, Massachusetts -- 230 acres (substantially all fee
ownership)
Six Flags Over Georgia, Atlanta, Georgia -- 280 acres (leasehold interest) (4)
Six Flags Over Texas, Arlington, Texas -- 200 acres (leasehold interest)(4)
Six Flags St. Louis, Eureka, Missouri -- 497 acres (fee ownership)
Six Flags White Water Atlanta, Marietta, Georgia - 69 acres (fee ownership)(5)
Six Flags Worlds of Adventure, Aurora, Ohio -- 690 acres (fee ownership)
Bellewaerde, Ieper, Belgium -- 130 acres (fee ownership)
Enchanted Village and Wild Waves, Seattle, Washington -- 65 acres (leasehold
interest)(6)
Frontier City, Oklahoma City, Oklahoma -- 109 acres (fee ownership)
La Ronde, Montreal, Canada - 146 acres (leasehold interest)(7)
The Great Escape, Lake George, New York -- 368 acres (fee ownership)
Splashtown, Spring, Texas - 60 acres (fee ownership)
Walibi Aquitaine, Roquefort, France -- 74 acres (fee ownership)
Walibi Rhone-Alpes, Les Avenieres, France -- 86 acres (fee ownership)
Walibi Schtroumpf, Metz, France -- 375 acres (leasehold interest)(8)
Warner Bros. Movie World Germany, Bottrop, Germany - 148 acres (fee ownership
and leasehold interest)(9)
Waterworld/Concord, Concord, California -- 21 acres (leasehold interest) (10)
Waterworld/Sacramento, Sacramento, California -- 14 acres
(leasehold interest)(11)
White Water Bay, Oklahoma City, Oklahoma -- 22 acres (fee ownership)
Wyandot Lake, Columbus, Ohio -- 18 acres (leasehold interest)(12)
- ----------
(1) A substantial portion of the land is leased from a governmental agency with
a term expiring in 2018. An undeveloped portion of the land is also leased
on a year-to-year basis. The balance is owned.
(2) Approximately 38 acres are leased under ground leases with terms (including
renewal options) expiring between 2021 and 2049, with the balance owned by
us.
(3) The site is leased from the Federal District of Mexico City. The lease
expires in 2017.
(4) Lessor is the limited partner of the partnership that owns the park. The
leases expire in 2027 and 2028, respectively, at which time we have the
option to acquire all of the interests in the respective lessor not
previously acquired.
(5) Owned by the partnership that operates Six Flags Over Georgia.
(6) The site is leased from the prior owner. The base term of the lease expires
in 2030 and we have renewal options covering an additional 46 years.
(7) The site is leased from the City of Montreal. The lease expires in 2065.
(8) The site is leased from a public authority. The lease expires in 2086.
(9) Approximately 7% of the site is owned. The balance is leased from multiple
landlords with lease terms in most cases ranging between 60 and 99 years.
(10) The site is leased from the City of Concord. The lease expires in 2025 and
we have five five-year renewal options.
(11) The site is leased from the California Exposition and State Fair. The lease
expires in 2015 and, subject to the satisfaction of certain conditions, may
be renewed by us for an additional ten-year term.
(12) The site is subleased from the Columbus Zoo. The lease expires in 2002 and
we have two renewal options with an aggregate 6 year term. Acreage for this
site does not include approximately 30 acres of parking which is shared
with the Columbus Zoo.
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<Page>
We have granted to our lenders under our $1.2 billion credit agreement a
mortgage on substantially all of our United States properties.
In addition to the foregoing, we lease office space and a limited number of
rides and attractions at our parks. See Note 12 to Notes to Consolidated
Financial Statements.
We consider our properties to be well-maintained, in good condition and
adequate for their present uses and business requirements.
ITEM 3. LEGAL PROCEEDINGS
The nature of the industry in which we operate tends to expose us to claims
by visitors, generally for injuries. Historically, the great majority of these
claims have been minor. While we believe that we are adequately insured against
customers' claims, if we become subject to damages that cannot by law be insured
against, such as punitive damages or certain intentional misconduct by
employees, there may be a material adverse effect on our operations.
In December 1998, a final judgment of $197.3 million in compensatory
damages was entered against Six Flags Entertainment Corporation, Six Flags Theme
Parks Inc., Six Flags Over Georgia, Inc. and TWE, and a final judgment of $245.0
million in punitive damages was entered against TWE and of $12.0 million in
punitive damages was entered against the referenced Six Flags entities. The
compensatory damages judgment has been paid and, in October 2001, the order of
the Georgia Court of Appeals affirming the punitive damages judgment was vacated
by the United States Supreme Court. In February 2002, the parties reargued the
appeal of the punitive damages judgment before the Georgia Court of Appeals. 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 our 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 us from
any and all liabilities arising out of this litigation.
We are a defendant in a purported class action litigation pending in
California Superior Court for Los Angeles County. The master complaint,
AMENDAREZ V. SIX FLAGS THEME PARKS, INC., was filed on November 27, 2001,
combining five previously filed complaints. The plaintiffs allege that security
and other practices at our park in Valencia, California, discriminate against
visitors on the basis of race, color, ethnicity, national origin and/or physical
appearance, and assert claims under California statutes and common law. They
seek compensatory and punitive damages in unspecified amounts, and injunctive
and other relief. The named plaintiffs purport to represent seven "subclasses"
of visitors to the Valencia park. We have objected to the class allegations,
arguing that the lawsuit cannot appropriately be maintained as a class action,
and intend to vigorously defend this case. The case is in an early stage and
consequently we cannot predict the outcome, however, we do not believe it will
have a material adverse effect on our consolidated financial position, or
results of operation or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<Page>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Our Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "PKS." Set forth below are the high and low sales prices for
the Common Stock as reported by the NYSE since January 1, 2000.
<Table>
<Caption>
Year Quarter High Low
---- ------- ---- ---
2002 First (through 16 1/2 12 1/2
March 1, 2002)
2001 Fourth 16 11 1/2
Third 23 5/8 10 5/16
Second 23 3/4 17 13/16
First 23 1/16 16 3/8
2000 Fourth 17 3/16 14 3/16
Third 24 13 1/2
Second 28 1/8 20
First 28 5/16 19 1/2
</Table>
As of March 1, 2002, there were 790 holders of record of our Common Stock.
We paid no cash dividends on our Common Stock during the three years ended
December 31, 2001. We do not anticipate paying any cash dividends on our Common
Stock during the foreseeable future. The indentures relating to our 8 7/8%
Senior Notes due 2010, 9 1/2% Senior Notes Due 2009, 10% Senior Discount Notes
Due 2008 and 9 3/4% Senior Notes due 2007 limit the payment of cash dividends to
common stockholders. See Note 6 to Notes to Consolidated Financial Statements.
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<Page>
ITEM 6. SELECTED FINANCIAL DATA
In February and November 1997, respectively, we acquired Six Flags New
England (formerly Riverside Park) and Six Flags Kentucky Kingdom (formerly
Kentucky Kingdom). In 1998, we acquired the former Six Flags and substantially
all of the capital stock of Walibi. In May 1999, we acquired Six Flags Mexico
(formerly Reino Aventura) and two water parks, one of which is owned by a
Partnership Park and not consolidated. In November 1999, we acquired Warner
Bros. Movie World Germany, the operating season of which ended prior to the
acquisition. In December 2000, we acquired Enchanted Village. In February and
May 2001, respectively, we acquired the former Sea World of Ohio and La Ronde.
In each case the operations of acquired parks are reflected only for the periods
subsequent to their respective acquisition dates. See Note 2 to Notes to
Consolidated Financial Statements.
<Table>
<Caption>
(In thousands, except per share data)
-------------------------------------
2001 2000 1999 1998(1) 1997
---- ---- ---- ------- ----
Revenue.............................................. $ 1,045,964 $ 1,006,981 $ 926,984 $ 792,703 $ 193,904
Depreciation and amortization........................ 199,800 179,989 154,264 109,841 19,792
Equity in operations of theme park partnerships...... 21,512 11,833 26,180 24,054 --
Interest expense, net................................ 223,394 224,767 169,441 115,849 17,775
Income tax expense (benefit) ........................ (7,195) 5,622 24,460 40,716 9,615
Income (loss) before extraordinary loss.............. (49,573) (51,959) (19,230) 35,628 14,099
Extraordinary loss on extinguishment of debt,
net of tax effect.................................. (8,529) -- (11,296) (788) --
Net income (loss).................................... (58,102) (51,959) (30,526) 34,840 14,099
Net loss - pro forma ................................ N/A N/A N/A (51,160) N/A
Net income (loss) applicable to common stock......... (84,617) (75,247) (53,814) 17,374 14,099(2)
Per Share(3):
Income (loss) before extraordinary loss:
Basic............................................ (.85) (.96) (.55) .27 .39
Diluted.......................................... (.85) (.96) (.55) .26 .38
Proforma(4)...................................... N/A N/A N/A (.98) N/A
Extraordinary loss, net of tax effect:
Basic............................................ (.10) -- (.14) (.01)
Diluted.......................................... (.10) -- (.14) (.01) --
Proforma(4)...................................... N/A N/A N/A (.01) N/A
Net income (loss):
Basic............................................ (.95) (.96) (.69) .26 .39
Diluted.......................................... (.95) (.96) (.69) .25 .38
Proforma(4)...................................... N/A N/A N/A (.99) N/A
Cash Dividends -- Common Stock..................... -- -- -- -- --
Net cash provided by operating activities............ 183,291 176,161 197,349 119,010 47,150
Net cash used in investing activities................ (284,041) (337,063) (506,178) (1,664,883) (217,070)
Net cash provided by financing activities............ 111,415 66,949 49,488 1,861,098 250,165
Total assets......................................... 4,246,142 4,191,339 4,161,572 4,052,465 611,321
Long-term debt(5).................................... 2,247,069 2,322,313 2,204,988 2,064,189 217,026
EBITDA(6)............................................ 358,132 369,289 319,031 235,240 54,101
Adjusted EBITDA(7)................................... 402,521 402,496 363,219 258,943 N/A
</Table>
- ----------
(1) Our reported results in 1998 were materially affected by two significant
acquisitions. In March 1998, we acquired a controlling interest in Walibi
S.A. and on April 1 of that year we acquired former Six Flags. The timing of
these acquisitions, when coupled with the seasonality of our business,
resulted in our recognizing substantially all of the revenues of the
acquired parks (which represented 61.2% of our revenues for the year ended
December 31, 1998) while excluding almost all of their pre-season expenses.
Had the Walibi and Six Flags acquisitions and the related financings
occurred on January 1, 1998, pro forma revenues for 1998 would have been
$817,049,000; pro forma income from operations would have been $91,754,000;
pro forma loss before extraordinary loss would have been $51,160,000; and
pro forma Adjusted EBITDA would have been
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<Page>
$258,943,000. Reported results for 1999 were also affected by the
acquisition of three parks in May of that year. See Note 2 to our Notes to
Consolidated Financial Statements. In December 2000, we acquired Enchanted
Village, which was not material to our 1999 or 2000 results of operations.
In February 2001 and May 2001, we acquired the former Sea World of Ohio and
La Ronde, respectively, which were not material to our 2001 results of
operations.
(2) Included in determining net income for 1997 is an $8.4 million ($5.1
million after tax effect) termination fee, net of expenses.
(3) All per share data has been retroactively adjusted to give effect to a
two-for-one stock split consummated in July 1998.
(4) Includes results of operations of the former Six Flags and Walibi as if
the acquisitions and associated financings had occurred on January 1, 1998.
See Note 1.
(5) Includes current portion. Does not give effect at December 31, 2001 to
the February 2002 debt offering and the use of proceeds. See "Business -
General - Description of Recent Financings."
(6) EBITDA is defined as income before extraordinary loss, before interest
expense, net, income tax expense (benefit), noncash compensation,
depreciation and amortization and other expenses, including minority
interest and gain or loss on sale of assets. We have included information
concerning EBITDA because it is used by certain investors as a measure of a
company's ability to service and/or incur debt. EBITDA is not required by
GAAP and should not be considered in isolation or as an alternative to net
income (loss), net cash provided by operating, investing and financing
activities or other financial data prepared in accordance with GAAP or as an
indicator of our operating performance. This information should be read in
conjunction with the Statements of Cash Flows contained in the Consolidated
Financial Statements. For 1998 only, EBITDA is shown on a pro forma basis as
if the former Six Flags and Walibi had been acquired on January 1, 1998.
(7) Adjusted EBITDA is defined as our EBITDA plus our share (based on our
ownership interests) of the EBITDA of the Partnership Parks. This is
calculated by adding the interest and depreciation and amortization
expense associated with those parks to our equity in operations of theme
park partnerships. For 1998 only Adjusted EBITDA is determined on a pro
forma basis as if the former Six Flags, Walibi and our interests in the
Partnership Parks had been acquired on January 1, 1998.
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<Page>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Our revenue is derived from the sale of tickets for entrance to our parks
(approximately 54.6%, 54.1% and 54.0% in 2001, 2000 and 1999, respectively) and
the sale of food, merchandise, games and attractions inside our parks, as well
as sponsorship and other income (approximately 45.4%, 45.9% and 46.0% in 2001,
2000 and 1999, respectively). Our principal costs of operations include salaries
and wages, employee benefits, advertising, outside services, maintenance,
utilities and insurance. Our expenses are relatively fixed. Costs for full-time
employees, maintenance, utilities, advertising and insurance do not vary
significantly with attendance, thereby providing us with a significant degree of
operating leverage as attendance increases and fixed costs per visitor decrease.
The comparability of our results between periods is impacted by the timing
of the acquisitions we make. Results of operations for 2001 include the results
of the former Sea World of Ohio from February 9, 2001, and of La Ronde from May
2, 2001, their respective acquisition dates. Results of operations for 2000
include the results of Enchanted Village and Wild Waves from December 2000, its
acquisition date. Results of operations for 1999 include the results of Six
Flags Mexico, White Water Atlanta and Splashtown from May 1999, their
acquisition date, and include the results of Warner Bros. Movie World Germany
from November 1999, its acquisition date.
We believe that significant opportunities exist to acquire additional theme
parks. We also intend to continue the addition of the rides and attractions and
overall improvement of our parks to maintain and enhance their appeal, although
the level of our expenditure in this respect is expected to be lower in the next
several years than had previously been the case. We believe this strategy has
contributed to increased attendance, lengths of stay and in-park spending and,
therefore, profitability.
CRITICAL ACCOUNTING POLICIES
In the ordinary course of business, we make a number of estimates and
assumptions relating to the reporting of results of operations and financial
condition in the preparation of our consolidated financial statements in
conformity with accounting principles generally accepted in the United
States. Results could differ significantly from those estimates under
different assumptions and conditions. We believe that the following
discussion addresses our most critical accounting policies, which are those
that are most important to the portrayal of our consolidated financial
condition and results and require management's most difficult, subjective and
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and is depreciated on a
straight-line basis over the estimated useful lives of those assets. Changes
in circumstances such as technological advances, changes to our business
model or changes in our capital strategy could result in the actual useful
lives differing from our estimates. In those cases in which we determine that
the useful life of property and equipment should be shortened, we would
depreciate the net book value in excess of the salvage value, over the
revised remaining useful life, thereby increasing depreciation expense. A
reduction in the useful life of the property and equipment utilized in the
operations of our theme park partnerships would similarly increase
depreciation expense related to such investments and thereby reduce equity in
operations of theme park partnerships.
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<Page>
ACCOUNTING FOR INCOME TAXES
As part of the process of preparing our consolidated financial statements
we are required to estimate our income taxes in each of the jurisdictions in
which we operate. This process involves us estimating our actual current tax
exposure together with assessing temporary differences resulting from differing
treatment of items, such as differing depreciation periods for our property and
equipment and deferred revenue, for tax and financial accounting purposes.
These differences result in deferred tax assets and liabilities, which are
included within our consolidated balance sheet. We must then assess the
likelihood that our deferred tax assets will be recovered from future taxable
income. To the extent we believe that recovery is not likely, we must
establish a valuation allowance. To the extent we establish a valuation
allowance or increase this allowance in a period, we must include an expense
within the tax provision in the consolidated statement of operations.
Significant management judgment is required in determining our provision
or benefit for income taxes, our deferred tax assets and liabilities and any
valuation allowance recorded against our net deferred tax assets. We have
recorded a valuation allowance of $1.2 million as of December 31, 2001, due
to uncertainties related to our ability to utilize some of our deferred tax
assets, primarily consisting of certain net operating losses carried forward
and tax credits, before they expire. The valuation allowance is based on our
estimates of taxable income by jurisdiction in which we operate and the
period over which our deferred tax assets will be recoverable. In the event
that actual results differ from these estimates or we adjust these estimates
in future periods we may need to establish an additional valuation allowance
which could materially impact our consolidated financial position and results
of operations.
VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS AND GOODWILL
Through December 31, 2001, we assessed the impairment of long-lived assets
and goodwill whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Factors we consider important which could
trigger an impairment review include the following:
- significant underperformance relative to expected historical or
projected future operating results;
- significant changes in the manner of our use of the acquired assets or
the strategy for our overall business;
- significant negative industry or economic trends;
- significant decline in our stock price for a sustained period; and
- our market capitalization relative to net book value.
When we determine that the carrying value of long-lived assets and related
goodwill may not be recoverable based upon the existence of one or more of the
above indicators of impairment, we measure any impairment based on a projected
discounted cash flow method using a discount rate determined by our management
to be commensurate with the risk inherent in our current business model.
Long-lived assets amounted to $2,741.6 million and goodwill amounted to $1,196.1
million as of December 31, 2001.
In 2002, Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets" became effective and as a result, as of
January 1, 2002, we will cease to amortize approximately $1.2 billion of
goodwill. We recorded approximately $56.7 million of amortization on these
amounts during 2001 and would have recorded a comparable amount of
amortization during 2002. In lieu of amortization, we are required to perform
an initial impairment review of our goodwill in 2002 and an annual impairment
review thereafter. We expect to complete our initial review during the first
six
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<Page>
months of 2002. Because of the extensive effort needed to comply with adopting
Statement 142, it is not practicable to reasonably estimate the impact of
adopting this Statement on our 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.
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<Page>
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001 AND 2000
REVENUE. Revenue in 2001 totaled $1,046.0 million compared to $1,007.0
million for 2000. This 3.9% increase resulted from the inclusion of the
performance of three parks acquired after the 2000 season. One of the acquired
parks, the former Sea World of Ohio, operated in 2001 together with our
previously owned adjacent facility as a single gate, Six Flags Worlds of
Adventure. Excluding the results of the acquired parks in Montreal and Seattle
and excluding the increase in revenues at the combined Ohio facility, revenues
in 2001 on a constant currency basis decreased approximately 1.1% over the prior
year. Domestic revenues from consolidated parks in 2001 increased by 4.6% over
2000 and increased by 0.1% on a same park basis. Growth in domestic revenues was
constrained by a lower than expected increase in per capita spending reflecting
the impact of difficult economic conditions (per capita spending grew by 3.6%),
and by a sharp drop-off in performance in the weekend operations immediately
following the September 11, 2001 terrorist activities. International park
revenues were down approximately 7.8% from 2000 on a same park basis in constant
currencies, reflecting particularly the performance of our European parks. The
performance of those parks was adversely affected by a number of factors,
including difficult economic conditions and challenging weather in a number of
markets.
OPERATING EXPENSES. Operating expenses for 2001 increased $32.3 million
compared to expenses for 2000. Excluding the acquired parks in Montreal and
Seattle and excluding the increase in expenses at the combined Ohio facility,
operating expenses in 2001 decreased $1.1 million (or 0.3%) as compared to the
prior-year.
SELLING, GENERAL AND ADMINISTRATIVE; NONCASH COMPENSATION. Selling, general
and administrative expenses for 2001 increased $22.5 million compared to
comparable expenses for 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 $11.2 million (or 6.8%)
as compared to the prior-year, primarily due to increases in advertising and
insurance expenses and increased real estate and other taxes. Noncash
compensation expense was $4.0 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. Costs of products sold in 2001 decreased $4.6
million compared to costs for 2000, and decreased $7.6 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 2001 were 19.2%, compared to 20.7%
in the prior-year period, reflecting in part our increased use of games and
other concession arrangements in which we receive revenues from third party
operators without incurring the associated costs, as well as increased
efficiencies.
DEPRECIATION AND AMORTIZATION; INTEREST EXPENSE, NET; OTHER INCOME
(EXPENSE). Depreciation and amortization expense for 2001 increased $19.8
million compared to 2000. The increase compared to the prior-year level was
attributable to additional expense associated with the acquired parks, including
the former Sea World of Ohio and our on-going capital program. Interest expense,
net decreased $1.4 million compared to 2000. The decrease compared to interest
expense, net for the prior-year resulted from lower average interest rates and
lower average debt balances. Other expense decreased in 2001 by $5.5 million
compared to 2000 due to a reduced level of asset dispositions in 2001.
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<Page>
EQUITY IN OPERATIONS OF THEME PARKS. Equity in operations of theme park
partnerships reflects our share of the income or loss of Six Flags Over Texas
(we have a 36% effective ownership) and Six Flags Over Georgia, including White
Water Atlanta (we have a 25% effective ownership), and the lease of Six Flags
Marine World. During 2001, equity in operations of theme park partnerships
increased $9.7 million compared to 2000, primarily as a result of improved
attendance and revenue performance at Six Flags Over Texas and Six Flags Marine
World over the prior year.
INCOME TAX BENEFIT (EXPENSE). Income tax benefit was $7.2 million for 2001
compared to a $5.6 million expense for 2000. Our effective tax rate is adversely
affected from the result of permanent differences associated with goodwill
amortization for financial purposes, the lesser amount of amortization that is
deductible for tax purposes and from nondeductible compensation expense
associated with conditional stock options and restricted stock grants.
Additionally during 2001, we reorganized our European organizational structure
which reduced the effective tax rate in Europe.
At December 31, 2001, we estimated that we had approximately $903.5 million
of net operating losses ("NOLs") carryforwards for Federal income tax purposes.
The NOLs are subject to review and potential disallowance by the Internal
Revenue Service upon audit of our Federal income tax returns and those of our
subsidiaries. In addition, the use of such NOLs is subject to limitations on the
amount of taxable income that can be offset with such NOLs. Some of such NOLs
also are subject to a limitation as to which of the subsidiaries' income such
NOLs are permitted to offset. Although no assurance can be given as to the
timing or amount of the availability of such NOLs to us and our subsidiaries, we
anticipate that it is more likely than not that virtually all of the NOLs will
be utilized prior to their expiration. See Note 8 to Notes to Consolidated
Financial Statements.
YEARS ENDED DECEMBER 31, 2000 AND 1999
REVENUE. Revenue in 2000 totaled $1,007.0 million compared to $927.0
million for 1999, representing an 8.6% increase. The increase over the prior
year was primarily due to increased per capita spending at our domestic parks
and the inclusion for the entire 2000 year of the revenues of Movie World
Germany acquired in November 1999. We believe that revenues in 2000 were
adversely affected by unusually difficult weather, particularly in June and
July, in a large number of our major markets. Reported revenues from our
European parks as translated into U.S. dollars were adversely impacted by a
decline in European currencies during 2000. Revenue growth in 2000 would have
been approximately $20.0 million higher had European currency exchange rates
remained at 1999 levels.
OPERATING EXPENSES. Operating expenses for 2000 increased $22.3 million
compared to actual expenses for 1999 but decreased $14.0 million from the prior
year on a same park basis (including the pre-acquisition results for 1999 of the
parks acquired in that year). The 6.3% increase in actual expenses is
exclusively attributable to the inclusion for the entire year ended December 31,
2000 of the two parks we acquired in May 1999 and the one park we acquired in
November 1999 (the "1999 Acquired Parks"). If the full year results of the 1999
Acquired Parks were included in both periods, as a percentage of revenues
operating expenses would have been 37.4% in 2000 and 39.5% in 1999.
SELLING, GENERAL AND ADMINISTRATIVE; NONCASH COMPENSATION. Selling, general
and administrative expenses (excluding noncash compensation) for 2000 increased
$2.5 million compared to expenses for 1999 but decreased $12.6 million from the
prior year on a same park basis. As a percentage of revenue (including the 1999
Acquired Parks for both years), selling, general and administrative expenses
(excluding noncash compensation) would have been 16.5% in 2000 and 18.1% in
1999. Noncash compensation was essentially level in both years.
-29-
<Page>
COSTS OF PRODUCTS SOLD. Costs of products sold in 2000 increased $5.0
million compared to 1999 actual but decreased $3.8 million on a same park basis.
As a percentage of theme park food, merchandise and other revenues, including
the 1999 Acquired Parks in both years, costs of products sold would have been
20.7% in 2000 compared to 21.8% in 1999.
DEPRECIATION AND AMORTIZATION EXPENSE; INTEREST EXPENSE, NET; OTHER INCOME
(EXPENSE). Depreciation and amortization expense for 2000 increased $25.7
million compared to 1999. The increase compared to the 1999 level was
attributable to our on-going capital program at the previously owned parks and
from the additional expense associated with the 1999 Acquired Parks. Exclusive
of the 1999 Acquired Parks, 2000 depreciation and amortization expense increased
$14.8 million compared to 1999. Interest expense, net increased $55.3 million
compared to the 1999 level. The increase resulted from higher average interest
rates on a higher average debt and reduced interest income from lower average
cash and cash equivalent balances during 2000. The $6.6 million increase in
other expense in 2000 was related to the removal and disposal of rides,
buildings and other assets at two parks that were substantially improved and
rebranded as "Six Flags" theme parks.
EQUITY IN OPERATIONS OF THEME PARKS. Equity in operations of theme park
partnerships reflects our share of the income or loss of Six Flags Over Texas
and Six Flags Over Georgia (including Six Flags White Water Atlanta) and the
lease of Six Flags Marine World. Our ownership interests in Six Flags Over Texas
(we had a 35% effective ownership) and Six Flags Over Georgia (we had a 25%
effective ownership) commenced on April 1, 1998, the date of the acquisition of
the former Six Flags. We became entitled to a share of the cash flows from the
lease and management of Six Flags Marine World in 1998. Our interests in Six
Flags White Water Atlanta commenced with its acquisition in May 1999. The $14.3
million decrease in 2000 in the equity in operations of theme park partnerships
compared to 1999 was attributable to weakened performance at certain of these
parks in 2000 and the absence in the 1999 results of Six Flags White Water
Atlanta's pre-acquisition off-season operating expenses for the first four
months of that year. See Notes 2 and 4 to Notes to our Consolidated Financial
Statements.
INCOME TAX EXPENSE. Income tax expense was $5.6 million for 2000 compared
to a $24.5 million expense for 1999. Our effective tax rate is adversely
affected from permanent differences associated with goodwill amortization for
financial purposes and the lesser amount of amortization that is deductible for
tax purposes and from nondeductible compensation expense associated with
conditional stock options and restricted stock grants.
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<Page>
LIQUIDITY, CAPITAL COMMITMENTS AND RESOURCES
At December 31, 2001, our total debt aggregated $2,247.1 million, of which
approximately $24.6 million was scheduled to mature prior to December 31, 2002.
After giving effect to the February 2002 debt offering and the use of proceeds
therefrom, total debt at December 31, 2001 would have been $2,275.4 million.
Based on interest rates at December 31, 2001 for floating rate debt and after
giving effect to the 2002 offering and the use of proceeds and the interest rate
swaps described below, annual cash interest payments for 2002 on total debt at
December 31, 2001 will aggregate approximately $170.2 million. In addition,
annual dividend payments on our outstanding preferred stock are $20.8 million,
payable at our option in cash or shares of Common Stock.
After giving effect to the 2002 debt refinancing, our debt at December 31,
2001 included $1,643.6 million of fixed-rate senior notes, with staggered
maturities ranging from 2007 to 2010, $613.5 million under our credit facility
and $18.5 million of other indebtedness. Our credit facility includes a $600.0
million term loan ($598.5 million outstanding at December 31, 2001); a $292.5
million multicurrency reducing revolver facility (none outstanding at that date)
and a $300.0 million working capital revolver ($15.0 million outstanding at that
date). The working capital revolving credit facility must be repaid in full for
30 consecutive days during each year and this facility terminates on November 4,
2004. The multicurrency reducing revolving credit facility, which permits
optional prepayments and reborrowings, requires quarterly mandatory reductions
in the initial commitment (together with repayments, to the extent that the
outstanding borrowings thereunder would exceed the reduced commitment) of 2.5%
of the committed amount thereof commencing on December 31, 2001, 5.0% commencing
on December 31, 2002, 7.5% commencing on December 31, 2003 and 20.0% commencing
on December 31, 2004 and this facility terminates on May 4, 2005. 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. All of our outstanding preferred stock ($287.5 million liquidation
preference) must be redeemed on August 15, 2009 (to the extent not previously
converted into common stock). See Notes 6 and 9 to Notes to Consolidated
Financial Statements for additional information regarding our indebtedness and
preferred stock.
At December 31, 2001, we had approximately $53.5 million of unrestricted
cash, $75.2 million of restricted cash (available to fund obligations relating
to the Partnership Parks described below) and $577.5 million available under our
credit facility.
Due to the seasonal nature of our business, we are largely dependent
upon our $300.0 million working capital revolving credit portion of our
credit agreement in order to fund off season expenses. Our ability to borrow
under the working capital revolver is dependent upon compliance with certain
conditions, including financial ratios and the absence of any material
adverse change. We are currently in compliance with all of these conditions.
If we were to become unable to borrow under the facility, we would likely be
unable to pay in full our off season obligations. The working capital
facility expires in November 2004. The terms and availability of our credit
facility and other indebtedness would not be affected by a change in the
ratings issued by rating agencies in respect of our indebtedness.
During the year ended December 31, 2001, net cash provided by operating
activities was $183.3 million. Net cash used in investing activities in 2001
totaled $284.0 million, consisting primarily of our acquisitions of the former
Sea World of Ohio and La Ronde and capital expenditures for the 2001 and 2002
seasons. Net cash provided by financing activities in 2001 was $111.4 million,
representing proceeds of the
-31-
<Page>
2001 offerings of preferred stock and senior notes, offset in part by the
related retirement of senior notes and repayment of borrowings under our credit
agreement.
As more fully described in "Business -- Six Flags Over Georgia and Six
Flags White Water Atlanta" and "-- Six Flags Over Texas and Six Flags Hurricane
Harbor," in connection with our 1998 acquisition of the former Six Flags, we
guaranteed certain obligations relating to Six Flags Over Georgia and Six Flags
Over Texas. These obligations continue until 2026, in the case of the Georgia
park and 2027, in the case of the Texas park. Among such obligations are (i)
minimum annual distributions (including rent) of approximately $51.0 million in
2002 (subject to cost of living adjustments in subsequent years) to partners in
these two Partnerships Parks (of which we will be entitled to receive in 2002
approximately $16.1 million based on our present ownership of 25.3% of the
Georgia partnership and 35.7% of the Texas partnership), (ii) minimum capital
expenditures at each park during rolling five-year periods based generally on 6%
of park revenues, and (iii) an annual offer to purchase a maximum number of 5%
per year (accumulating to the extent not purchased in any given year) of limited
partnership units at specified prices.
We plan to make approximately $19.8 million of capital expenditures at
these parks for the 2002 season, an amount in excess of the minimum required
expenditure. Because we have not been required since 1998 to purchase a material
amount of units, our maximum unit purchase obligation for both parks in 2002 is
an aggregate of approximately $128.9 million, representing approximately 25.0%
of the outstanding units of the Georgia park and 17.9% of the outstanding units
of the Texas park. The annual unit purchase obligation (without taking into
account accumulation from prior years) aggregates approximately $30.1 million
for both parks based on current purchase prices. As we purchase additional
units, we are entitled to a proportionate increase in our share of the minimum
annual distributions.
Cash flows from operations at the partnership parks will be used to satisfy
the annual distribution and capital expenditure requirements, before any funds
are required from us. The two partnerships generated approximately $69.5 million
of aggregate EBITDA during 2001. In addition, we had $75.2 million in a
dedicated escrow account at December 31, 2001 (classified as a restricted-use
investment) available to fund these obligations and the obligation to purchase
units. At December 31, 2001, we had total loans outstanding of $92.1 million to
the partnerships that own these parks, primarily to fund the acquisition of Six
Flags White Water Atlanta and to make capital improvements, which loans are
included in our investment in theme park partnerships. The balance of these
loans at December 31, 2000 was $91.1 million.
By virtue of its acting as the managing general partner of the partnerships
that own Six Flags Over Texas and Six Flags Over Georgia, one of our
subsidiaries is legally liable for the obligations of each of those parks,
including their indebtedness. Because we are required to account for our
interests in those parks by the equity method of accounting, the obligations of
the partnerships are not reflected as liabilities on our consolidated balance
sheet. At December 31, 2001, these partnerships had outstanding $35.7 million of
third-party indebtedness (including $10.5 million of borrowings under working
capital revolving facilities at that date), of which $17.2 million (including
the working capital facilities' borrowings) matures prior to December 31, 2002.
We expect that cash flow from operations at each of the partnership parks will
be adequate to satisfy its debt obligations.
Our current property and liability insurance policies expire in September
and November 2002, respectively. Due in large part to the effects of the
September 11, 2001 terrorist attack upon the insurance industry, we cannot
predict the level of the premiums that we may be required to pay for subsequent
insurance coverage, the level of any self insurance retention applicable
thereto, the level of aggregate coverage available or the availability of
coverage for specific risks, such as terrorism.
-32-
<Page>
Set forth below is certain information regarding our debt, preferred stock
and lease obligations at December 31, 2001 (in thousands and after
consideration of the February 2002 debt issuance and the use of proceeds):
<Table>
<Caption>
PAYMENT DUE BY PERIOD
2009 AND
CONTRACTUAL OBLIGATION 2002 2003-2005 2006-2008 BEYOND TOTAL
Long term debt(1) $ 9,627 606,840 840,437 855,088 2,311,992
PIERS(2) 20,844 62,531 62,531 303,133 449,039
Real estate and operating leases(3) 5,414 15,169 14,442 99,029 134,054
------- -------- -------- ---------- ----------
Total $35,885 684,540 917,410 1,257,250 2,895,085
======= ======== ======== ========== ==========
</Table>
In addition to the debt, preferred stock and lease obligations set forth
above and our commitments to the partnerships that own Six Flags Over Texas
and Six Flags Over Georgia discussed above, our contractual commitments
include commitments for license fees to Warner Bros. and commitments relating
to capital expenditures. License fees to Warner Bros. for our domestic parks
aggregate $2.5 million annually through 2005. After that season, the license
fee is payable based upon the number of domestic parks utilizing the licensed
characters. The license fee relating to our international parks is based on
percentages of the revenues of the international parks utilizing the
characters. For 2001, license fees for our international parks aggregated
$1.8 million. We have prepaid approximately $8.0 million of the international
license fees.
Although we are contractually committed to make specified levels of capital
expenditures at selected parks for the next several years, the vast majority of
our capital expenditures in 2002 and beyond will be made on a discretionary
basis. We plan on spending approximately $140.0 million on capital expenditures
for the 2002 season, including the expenditures at the Partnership Parks and Six
Flags Marine World.
The degree to which we are leveraged could adversely affect our liquidity.
Our 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 reduces paid attendance
and, therefore, revenue at any of our theme parks.
We believe that, based on historical and anticipated operating results,
cash flows from operations, available cash and available amounts under the
credit agreement will be adequate to meet our future liquidity needs, including
anticipated requirements for working capital, capital expenditures, scheduled
debt and preferred stock requirements and obligations under arrangements
relating to the Partnership Parks, for at least the next several years. We may,
however, need to refinance all or a portion of our existing debt on or prior to
maturity or to seek additional financing. In addition, our anticipated cash
flows could be materially adversely affected by the occurrence of certain of the
risks described in the risk factors incorporated by reference herein from our
report on Form 8-K, dated January 31, 2002. In that case, we would need to seek
additional financing.
- ----------
(1) Includes capital lease obligations. Payments shown at face amount. Payments
shown do not include payments on our working capital revolver, borrowings
under which aggregated $15.0 million at December 31, 2001. The $300.0
million working capital revolver must be repaid in full each year to the
extent drawn.
(2) Amount shown includes dividends, which we are permitted to pay in either
cash or common stock and the 2009 cash redemption obligation (assuming no
conversion of PIERS prior thereto).
(3) Assumes for lease payments based on a percentage of revenues, future
payments at 2001 revenue levels. Also does not give effect to cost of
living adjustments.
-33-
<Page>
MARKET RISKS AND SENSITIVITY ANALYSES
Like other global companies, we are exposed to market risks relating to
fluctuations in interest rates and currency exchange rates. The objective of our
financial risk management is to minimize the negative impact of interest rate
and foreign currency exchange rate fluctuations on our operations, cash flows
and equity. We do not acquire market risk sensitive instruments for trading
purposes.
To manage foreign currency exchange rate risks, on a limited basis we have
used derivative financial instruments, exclusively foreign exchange forward
contracts. These derivative financial instruments have been held to maturity and
we have used non-leveraged instruments. These contracts have been entered into
with major financial institutions, thereby minimizing the risk of credit loss.
We have used forward contracts to "lock-in" the U.S. dollar cost of equipment to
be purchased from foreign vendors or manufacturers where the contracts related
thereto are denominated in foreign currency. At December 31, 2001, no such
contracts were outstanding. See Note 5 to Notes to Consolidated Financial
Statements for a more complete description of our accounting policies and use of
such instruments.
We are party to three interest rate swap agreements that for the term of
the applicable agreements (ranging from March 2003 to December 2003) effectively
convert our $600.0 million term loan into a fixed rate obligation. Our term loan
borrowings bear interest at 3.00% above the LIBOR rate. Our interest rate swap
agreements effectively "lock-in" the LIBOR component at rates ranging from 5.13%
to 6.07% and average 5.46%. The counterparties to these agreements are major
financial institutions, which minimizes the credit risk.
INTEREST RATE AND DEBT SENSITIVITY ANALYSIS
The following analysis presents the sensitivity of the market value,
operations and cash flows of our market-risk financial instruments to
hypothetical changes in interest rates as if these changes occurred at December
31, 2001. The range of changes chosen for this analysis reflect our view of
changes which are reasonably possible over a one-year period. Market values are
the present values of projected future cash flows based on the interest rate
assumptions. These forward looking disclosures are selective in nature and only
address the potential impacts from financial instruments. They do not include
other potential effects which could impact our business as a result of these
changes in interest and exchange rates.
At December 31, 2001, we had debt totaling $2,247.1 million, of which
$1,630.1 million represents fixed-rate debt and the balance represents
floating-rate debt. After giving effect to the February 2002 debt offering and
the use of proceeds therefrom, total debt at that date would have been $2,275.4
million, of which $1,658.4 million would have represented fixed-rate debt. For
fixed-rate debt, interest rate changes affect the fair market value but do not
impact book value, operations or cash flows. Conversely, for floating-rate debt,
interest rate changes generally do not affect the fair market value but do
impact future operations and cash flows, assuming other factors remain constant.
Additionally, increases and decreases in interest rates impact the fair
value of the interest rate swap agreements. A decrease in thirty and ninety-day
LIBOR interest rates increases the fair value liability of the interest rate
swap agreements. However, over the term of the interest rate swap agreements,
the economic effect of changes in interest rates is fixed as we will pay a fixed
amount and are not subject to changes in interest rates.
Assuming other variables remain constant (such as foreign exchange rates
and debt levels), after giving effect to our interest rate swap agreements and
the 2002 debt offering and assuming an average annual balance on our working
capital revolver, the pre-tax operations and cash flows impact resulting from a
one percentage point increase in interest rates would be less than $5.0 million.
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<Page>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED
In August 2001, the Financial Accounting Standards Board ("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 APB 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 and was adopted by us on January 1, 2002. The adoption of Statement 144
will not have a material impact on our 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
believes that the impact of Statement 143 on January 1, 2002 did not have a
material impact on our consolidated financial statements.
In June 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 requires 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 also requires 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.
We were required to adopt the provisions of Statement 141 in 2001 and
Statement 142 effective January 1, 2002. Goodwill and intangible assets acquired
in business combinations completed before July 1, 2001 were required to be
amortized until the adoption of Statement 142.
Statement 141 requires that we evaluate our 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, we are 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
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<Page>
the end of June 2002. In addition, to the extent an intangible asset is
identified as having an indefinite useful life, we are 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 six months of 2002.
In connection with the transitional goodwill impairment evaluation,
Statement 142 will require us to perform an assessment of whether there is an
indication that goodwill, including goodwill included in our investment in theme
park partnerships, is impaired as of the date of adoption. To accomplish this we
must identify our 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. We 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 we must perform the second step of the transitional impairment
test. In the second step, we must compare the implied fair value of the
reporting unit's goodwill, determined by allocating the reporting unit's fair
value to all of our 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 2002. Any transitional impairment loss will be
recognized as the cumulative effect of a change in accounting principle in our
consolidated statement of operations.
As of the date of adoption, we had unamortized goodwill of approximately
$1.2 billion and unamortized identifiable intangible assets of less than
$20.0 million, all of which will be subject to the transition provisions of
Statements 141 and 142. Amortization expense related to goodwill was $56.7
million and $53.7 million for each of the years ended December 31, 2001 and
2000, 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 our 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Reference is made to the information appearing under the subheading "Market
Risks and Sensitivity Analyses" under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 34-35 of
this Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules listed in Item 14(a)(1) and (2) are
included in this Report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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<Page>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors
Incorporated by reference from the information captioned "Proposal 1:
Election of Directors" included in our Proxy Statement in connection with the
annual meeting of stockholders to be held in June 2002.
(b) Identification of Executive Officers
Information regarding executive officers is included in Item 1 of
Part I herein.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information captioned "Executive
Compensation" included in our Proxy Statement in connection with the annual
meeting of stockholders to be held in June 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
(a), (b) Incorporated by reference from the information captioned "Stock
Ownership of Management and Certain Beneficial Holders" included in our Proxy
Statement in connection with the annual meeting of stockholders to be held in
June 2002.
(c) Changes in Control
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the information captioned "Certain
Transactions" included in our Proxy Statement in connection with the annual
meeting of stockholders to be held in June 2002.
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<Page>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a)(1) and (2) Financial Statements and Financial Statement Schedules
The following consolidated financial statements of Six Flags, Inc. and
subsidiaries, the notes thereto, the related report thereon of independent
auditors, and financial statement schedules are filed under Item 8 of this
Report:
<Table>
<Caption>
PAGE
----
Independent Auditors' Report F-2
Consolidated Balance Sheets-- December 31, 2001 and 2000 F-3
Consolidated Statements of Operations
Years ended December 31, 2001, 2000 and 1999 F-4
Consolidated Statements of Stockholders' Equity and Other Comprehensive Income (Loss)
Years ended December 31, 2001, 2000 and 1999 F-5
Consolidated Statements of Cash Flows
Years ended December 31, 2001, 2000 and 1999 F-6
Notes to Consolidated Financial Statements F-8
</Table>
Schedules for which provision is made in the applicable accounting regulations
of the Securities and Exchange Commission are omitted because they either are
not required under the related instructions, are inapplicable, or the required
information is shown in the financial statements or notes thereto.
(a)(3) See Exhibit Index.
(b) REPORTS ON FORM 8-K
None.
(c) Exhibits
See Item 14(a)(3) above.
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<Page>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: March 27, 2002
SIX FLAGS, INC.
By: /s/ Kieran E. Burke
---------------------------
Kieran E. Burke
Chairman of the Board
and Chief Executive Officer
<Page>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the following capacities on the dates indicated.
<Table>
<Caption>
Signature Title Date
- --------- ----- ----
/s/ Kieran E. Burke Chairman of the Board, March 27, 2002
- ---------------------------------------------- Chief Executive
Kieran E. Burke Officer (Principal Executive Officer) and
Director
/s/ Gary Story President, Chief Operating March 27, 2002
- ---------------------------------------------- Officer and Director
Gary Story
/s/ James F. Dannhauser Chief Financial Officer March 27, 2002
- ---------------------------------------------- (Principal Financial and Accounting
James F. Dannhauser Officer) and Director
/s/ Paul A. Biddelman Director March 27, 2002
- ----------------------------------------------
Paul A. Biddelman
/s/ Michael E. Gellert Director March 27, 2002
- ----------------------------------------------
Michael E. Gellert
/s/ Francois Letaconnoux Director March 27, 2002
- ----------------------------------------------
Francois Letaconnoux
/s/ Stanley S. Shuman Director March 27, 2002
- ----------------------------------------------
Stanley S. Shuman
</Table>
<Page>
SIX FLAGS, INC.
Index to Consolidated Financial Statements
<Table>
<Caption>
PAGE
Independent Auditors' Report F-2
Consolidated Balance Sheets - December 31, 2001 and 2000 F-3
Consolidated Statements of Operations - Years ended
December 31, 2001, 2000 and 1999 F-4
Consolidated Statements of Stockholders' Equity and Other
Comprehensive Income (Loss) - Years ended
December 31, 2001, 2000 and 1999 F-5
Consolidated Statements of Cash Flows - Years ended
December 31, 2001, 2000 and 1999 F-6
Notes to Consolidated Financial Statements F-8
</Table>
<Page>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Six Flags, Inc.:
We have audited the accompanying consolidated balance sheets of Six Flags, Inc.
and subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of operations, stockholders' equity and other comprehensive income
(loss), and cash flows for each of the years in the three-year period ended
December 31, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Six Flags, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 5 to the consolidated financial statements, the Company
changed its method of accounting for derivative instruments and hedging
activities in 2001.
KPMG LLP
Oklahoma City, Oklahoma
March 5, 2002
F-2
<Page>
SIX FLAGS, INC.
Consolidated Balance Sheets
December 31, 2001 and 2000
<Table>
<Caption>
ASSETS 2001 2000
---------------- ----------------
Current assets:
Cash and cash equivalents $ 53,534,000 42,978,000
Accounts receivable 35,470,000 40,771,000
Inventories 26,275,000 28,588,000
Prepaid expenses and other current assets 40,455,000 35,855,000
Restricted-use investment securities - 12,773,000
---------------- ----------------
Total current assets 155,734,000 160,965,000
---------------- ----------------
Other assets:
Debt issuance costs 45,490,000 46,967,000
Restricted-use investment securities 75,169,000 75,376,000
Deposits and other assets 32,110,000 56,884,000
---------------- ----------------
Total other assets 152,769,000 179,227,000
---------------- ----------------
Property and equipment, at cost 2,801,356,000 2,585,927,000
Less accumulated depreciation 465,656,000 328,027,000
---------------- ----------------
2,335,700,000 2,257,900,000
Investment in theme park partnerships 388,273,000 386,638,000
Intangible assets, principally goodwill 1,418,889,000 1,354,289,000
Less accumulated amortization 205,223,000 147,680,000
---------------- ----------------
1,213,666,000 1,206,609,000
---------------- ----------------
Total assets $ 4,246,142,000 4,191,339,000
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,056,000 45,315,000
Accrued interest payable 30,674,000 24,353,000
Deferred revenue 15,237,000 19,014,000
Accrued compensation, payroll taxes and benefits 12,647,000 6,963,000
Other accrued liabilities 38,548,000 45,538,000
Current portion of long-term debt 24,627,000 2,401,000
---------------- ----------------
Total current liabilities 154,789,000 143,584,000
Long-term debt 2,222,442,000 2,319,912,000
Other long-term liabilities 33,496,000 37,937,000
Deferred income taxes 109,926,000 144,919,000
Mandatorily redeemable preferred stock (redemption value of
$287,500,000) 278,867,000 -
Stockholders' equity:
Preferred stock, $1.00 par value, 5,000,000 shares authorized;
11,500 shares issued and outstanding at December 31, 2000 - 12,000
Common stock, $.025 par value, 150,000,000 shares authorized;
92,417,713 and 80,068,826 shares issued and outstanding
at December 31, 2001 and 2000, respectively 2,310,000 2,001,000
Capital in excess of par value 1,744,134,000 1,725,890,000
Accumulated deficit (211,006,000) (128,928,000)
Deferred compensation (6,950,000) (5,399,000)
Accumulated other comprehensive income (loss) (81,866,000) (48,589,000)
---------------- ----------------
Total stockholders' equity 1,446,622,000 1,544,987,000
---------------- ----------------
Total liabilities and stockholders' equity $ 4,246,142,000 4,191,339,000
================ ================
</Table>
See accompanying notes to consolidated financial statements.
F-3
<Page>
SIX FLAGS, INC.
Consolidated Statements of Operations
Years ended December 31, 2001, 2000 and 1999
<Table>
<Caption>
2001 2000 1999
--------------- --------------- -------------
Revenues:
Theme park admissions $ 571,008,000 544,809,000 500,417,000
Theme park food, merchandise and other 474,956,000 462,172,000 426,567,000
---------------- --------------- --------------
Total revenue 1,045,964,000 1,006,981,000 926,984,000
---------------- --------------- --------------
Operating costs and expenses:
Operating expenses 408,324,000 376,060,000 353,728,000
Selling, general and administrative 188,504,000 165,980,000 163,526,000
Noncash compensation (primarily selling, general
and administrative) 8,616,000 12,584,000 12,725,000
Costs of products sold 91,004,000 95,652,000 90,699,000
Depreciation and amortization 199,800,000 179,989,000 154,264,000
---------------- --------------- --------------
Total operating costs and expenses 896,248,000 830,265,000 774,942,000
---------------- --------------- --------------
Income from operations 149,716,000 176,716,000 152,042,000
---------------- --------------- --------------
Other income (expense):
Interest expense (230,033,000) (232,336,000) (193,965,000)
Interest income 6,639,000 7,569,000 24,524,000
Equity in operations of theme park partnerships 21,512,000 11,833,000 26,180,000
Other expense (4,602,000) (10,119,000) (3,551,000)
---------------- --------------- --------------
Total other income (expense) (206,484,000) (223,053,000) (146,812,000)
---------------- --------------- --------------
Income (loss) before income taxes (56,768,000) (46,337,000) 5,230,000
Income tax expense (benefit) (7,195,000) 5,622,000 24,460,000
---------------- --------------- --------------
Loss before extraordinary loss (49,573,000) (51,959,000) (19,230,000)
Extraordinary loss on extinguishment of debt,
net of income tax benefit of $5,227,000 in 2001
and $7,530,000 in 1999 (8,529,000) (11,296,000)
---------------- --------------- --------------
Net loss $ (58,102,000) (51,959,000) (30,526,000)
================ =============== ==============
Net loss applicable to common stock $ (84,617,000) (75,247,000) (53,814,000)
================ =============== ==============
Weighted average number of common shares
outstanding - basic and diluted 89,221,000 78,735,000 77,656,000
================ =============== ==============
Net income (loss) per average common share
outstanding - basic and diluted
Loss before extraordinary loss $ (0.85) (0.96) (0.55)
Extraordinary loss (0.10) -- (0.14)
---------------- --------------- --------------
Net loss $ (0.95) (0.96) (0.69)
================ =============== ==============
</Table>
See accompanying notes to consolidated financial statements.
F-4
<Page>
SIX FLAGS INC.
Consolidated Statements of Stockholders' Equity and Other
Comprehensive Income (Loss)
Years ended December 31, 2001, 2000 and 1999
<Table>
<Caption>
PREFERRED STOCK COMMON STOCK RETAINED
----------------------------- ----------------------------- CAPITAL IN EARNINGS
SHARES SHARES EXCESS OF (ACCUMULATED
ISSUED AMOUNT ISSUED AMOUNT PAR VALUE DEFICIT)
-------------- -------------- -------------- -------------- ----------------- -----------------
Balances at December 31, 1998 11,500 12,000 76,488,661 1,912,000 1,640,532,000 133,000
Issuance of common stock -- -- 1,862,110 46,000 53,853,000 --
Amortization of deferred
compensation -- -- -- -- -- --
Stock option compensation -- -- -- -- 4,742,000 --
Tax benefit from stock options
and warrants -- -- -- -- 1,178,000 --
Net loss -- -- -- -- -- (30,526,000)
Other comprehensive loss -
Foreign currency translation
adjustment -- -- -- -- -- --
Comprehensive loss
Preferred stock dividends -- -- -- -- -- (23,288,000)
-------------- -------------- -------------- -------------- ----------------- -----------------
Balances at December 31, 1999 11,500 12,000 78,350,771 1,958,000 1,700,305,000 (53,681,000)
Issuance of common stock -- -- 1,718,055 43,000 22,857,000 --
Amortization of deferred
compensation -- -- -- -- -- --
Stock option compensation -- -- -- -- 2,728,000 --
Net loss -- -- -- -- -- (51,959,000)
Other comprehensive loss - Foreign
currency translation adjustment -- -- -- -- -- --
Comprehensive loss
Preferred stock dividends -- -- -- -- -- (23,288,000)
-------------- -------------- -------------- -------------- ----------------- -----------------
Balances at December 31, 2000 11,500 12,000 80,068,826 2,001,000 1,725,890,000 (128,928,000)
Issuance of common stock -- -- 12,069,975 302,000 9,547,000 --
Amortization of deferred
compensation -- -- -- -- -- --
Retirement of preferred stock (11,500) (12,000) -- -- 12,000 --
Stock option compensation -- -- -- -- 2,772,000 --
Net loss -- -- -- -- -- (58,102,000)
Other comprehensive loss - Foreign
currency translation adjustment -- -- -- -- -- --
Cash flow hedging derivatives,
net of tax -- -- -- -- -- --
Comprehensive loss
Preferred stock dividends -- -- 278,912 7,000 5,913,000 (23,976,000)
-------------- -------------- -------------- -------------- ----------------- -----------------
Balances at December 31, 2001 -- -- 92,417,713 2,310,000 1,744,134,000 (211,006,000)
============== ============== ============== ============== ================= =================
<Caption>
ACCUMULATED
OTHER
DEFERRED COMPREHENSIVE
COMPENSATION INCOME (LOSS) TOTAL
-------------- ---------------- -----------------
Balances at December 31, 1998 (25,111,000) 9,087,000 1,626,565,000
Issuance of common stock -- -- 53,899,000
Amortization of deferred
compensation 9,856,000 -- 9,856,000
Stock option compensation -- -- 4,742,000
Tax benefit from stock options
and warrants -- -- 1,178,000
Net loss -- -- (30,526,000)
Other comprehensive loss -
foreign currency translation
adjustment -- (26,810,000) (26,810,000)
-----------------
Comprehensive loss (57,336,000)
-----------------
Preferred stock dividends -- -- (23,288,000)
-------------- ---------------- -----------------
Balances at December 31, 1999 (15,255,000) (17,723,000) 1,615,616,000
Issuance of common stock -- -- 22,900,000
Amortization of deferred
compensation 9,856,000 -- 9,856,000
Stock option compensation -- -- 2,728,000
Net loss -- -- (51,959,000)
Other comprehensive loss - foreign
currency translation adjustment -- (30,866,000) (30,866,000)
-----------------
Comprehensive loss (82,825,000)
Preferred stock dividends -- -- (23,288,000)
-------------- ---------------- -----------------
Balances at December 31, 2000 (5,399,000) (48,589,000) 1,544,987,000
Issuance of common stock (7,439,000) -- 2,410,000
Amortization of deferred
compensation 5,888,000 -- 5,888,000
Retirement of preferred stock -- -- --
Stock option compensation -- -- 2,772,000
Net loss -- -- (58,102,000)
Other comprehensive loss - Foreign
currency translation adjustment -- (19,062,000) (19,062,000)
Cash flow hedging derivatives -- (14,215,000) (14,215,000)
-----------------
Comprehensive loss (91,379,000)
-----------------
Preferred stock dividends -- -- (18,056,000)
-------------- ---------------- -----------------
Balances at December 31, 2001 (6,950,000) (81,866,000) 1,446,622,000
============== ================ ==================
</Table>
See accompanying notes to consolidated financial statements.
F-5
<Page>
SIX FLAGS, INC.
Consolidated Statements of Cash Flows
Years ended December 31, 2001, 2000 and 1999
<Table>
<Caption>
2001 2000 1999
--------------- ------------- -------------
Cash flows from operating activities:
Net loss $ (58,102,000) (51,959,000) (30,526,000)
Adjustments to reconcile net loss to net
cash provided by operating activities (net
of effects of acquisitions):
Depreciation and amortization 199,800,000 179,989,000 154,264,000
Equity in operations of theme park partnerships (21,512,000) (11,833,000) (26,180,000)
Cash received from theme park partnerships 26,973,000 33,531,000 17,656,000
Minority interest in (earnings) loss -- 132,000 (6,000)
Noncash compensation 8,616,000 12,584,000 12,725,000
Interest accretion on notes payable 34,168,000 30,733,000 34,402,000
Interest accretion on restricted-use
investments -- -- (6,182,000)
Extraordinary loss on early extinguishment
of debt 13,756,000 -- 18,826,000
Amortization of debt issuance costs 9,370,000 8,573,000 6,755,000
Loss on disposal of assets 4,203,000 9,987,000 3,557,000
Deferred income tax expense (benefit) (14,667,000) 2,217,000 17,146,000
(Increase) decrease in accounts receivable 5,350,000 (11,558,000) 5,359,000
Increase in inventories and prepaid
expenses and other current assets (1,596,000) (8,011,000) (2,191,000)
Decrease in deposits and other assets 3,912,000 7,588,000 9,416,000
Decrease in accounts payable, accrued
expenses and other liabilities (33,301,000) (26,599,000) (7,966,000)
Increase (decrease) in accrued interest payable 6,321,000 787,000 (9,706,000)
--------------- ------------- -------------
Total adjustments 241,393,000 228,120,000 227,875,000
--------------- ------------- -------------
Net cash provided by operating activities 183,291,000 176,161,000 197,349,000
--------------- ------------- -------------
Cash flows from investing activities:
Additions to property and equipment (160,265,000) (334,226,000) (391,655,000)
Investment in theme park partnerships (7,096,000) (23,699,000) (51,931,000)
Acquisition of theme park assets (132,165,000) -- (34,578,000)
Acquisition of theme park companies, net
of cash acquired -- 117,000 (242,954,000)
Purchase of restricted-use investments (7,120,000) (18,214,000) --
Maturities of restricted-use investments 20,100,000 38,959,000 214,940,000
Proceeds from sale of assets 2,505,000 -- --
--------------- ------------- -------------
Net cash used in investing activities (284,041,000) (337,063,000) (506,178,000)
--------------- ------------- -------------
Cash flows from financing activities:
Repayment of long-term debt (708,684,000) (316,408,000) (1,291,910,000)
Proceeds from borrowings 574,426,000 403,000,000 1,391,024,000
Net cash proceeds from issuance of preferred stock 277,834,000 -- --
Net cash proceeds from issuance of common stock 1,348,000 3,645,000 2,801,000
Payment of cash dividends (22,845,000) (23,288,000) (23,288,000)
Payment of debt issuance costs (10,664,000) -- (29,139,000)
--------------- ------------- -------------
Net cash provided by financing activities 111,415,000 66,949,000 49,488,000
--------------- ------------- -------------
</Table>
F-6 (Continued)
<Page>
SIX FLAGS, INC.
Consolidated Statements of Cash Flows
Years ended December 31, 2001, 2000 and 1999
<Table>
<Caption>
2001 2000 1999
-------------- -------------- --------------
Effect of exchange rate changes on cash
and cash equivalents $ (109,000) (1,200,000) (3,106,000)
-------------- -------------- --------------
Increase (decrease) in cash and cash
equivalents 10,556,000 (95,153,000) (262,447,000)
Cash and cash equivalents at beginning of year 42,978,000 138,131,000 400,578,000
-------------- -------------- --------------
Cash and cash equivalents at end of year $ 53,534,000 42,978,000 138,131,000
============== ============== ==============
Supplementary cash flow information:
Cash paid for interest $ 180,174,000 192,247,000 162,511,000
============== ============== ==============
Cash paid for income taxes $ 2,546,000 66,000 220,000
============== ============== ==============
</Table>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
2001
- Issued $1,062,000 of common stock (86,824 shares) as additional
consideration for a theme park acquisition.
- Converted 5,750,000 shares of PIES into 11,500,000 shares of common
stock.
- Acquired approximately $13,861,000 of assets through capital leases.
- Issued 278,912 shares of common stock as PIES dividends
2000
- Issued $19,255,000 of common stock (1,339,223 shares) as consideration
for a water and children's ride park acquisition.
1999
- Issued a $40,700,000 note convertible into 1,080,000 common shares as
consideration for a theme park acquisition made by a limited partnership
for which we are the managing general partner.
- Issued a $10,435,000 of common stock (337,467 shares) as additional
consideration for a theme park acquisition.
See accompanying notes to consolidated financial statements.
F-7
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
We own and operate regional theme amusement and water parks. As of
December 31, 2001, we own or operate 37 parks, including 28 domestic
parks, one park in Mexico, seven parks in Europe and one in Canada. We
are also managing the construction and development of a theme park in
Europe.
Unless otherwise indicated, references herein to "we" or "Six Flags"
means Six Flags, Inc. (or its predecessor) and our subsidiaries, and
references to "Holdings" only to Six Flags, Inc., without regard to
our subsidiaries.
In February 2001, we purchased substantially all of the assets used in
the operation of Sea World of Ohio, a marine wildlife park located
adjacent to our Six Flags Ohio theme park. In May 2001, we acquired
substantially all of the assets of La Ronde, a theme park located in
Montreal, Canada. See Note 2.
During December 2000, we purchased 100% of the capital stock of the
company that owns Enchanted Village and Wild Waves, a water and rides
park located near Seattle, Washington. See Note 2.
During May 1999, in separate transactions, we purchased 100% of the
capital stock of the companies that own Reino Aventura, a theme park
located in Mexico City, and purchased the assets used in the operation
of Splashtown, a water park near Houston. In addition, during May
1999, the limited partnership that owns Six Flags Over Georgia
purchased the assets used in the operation of White Water Atlanta, a
water park and related entertainment facility near Atlanta. The
consideration for this purchase was advanced to the partnership by Six
Flags through a convertible promissory note. We are the managing
general partner of the limited partnership and own approximately 25%
of the limited partnership units. On November 15, 1999, we purchased
the partnership that owns Warner Bros. Movie World Germany, near
Dusseldorf, Germany, and entered into a joint venture with Warner
Bros. to develop and manage a new Warner Bros. Movie World theme park
scheduled to open in Madrid, Spain in 2002. See Note 2.
The accompanying consolidated financial statements for the year ended
December 31, 2001, reflect the results of the former Sea World of Ohio
and La Ronde only from their acquisition dates of February 2001 and
May 2001, respectively. The accompanying consolidated financial
statements for the year ended December 31, 2000, reflect the results
of Enchanted Village and Wild Waves only from its acquisition date,
December 6, 2000. The accompanying consolidated financial statements
for the year ended December 31, 1999 reflect the results of Reino
Aventura, Splashtown, White Water Atlanta, and Movie World Germany
only from their acquisition dates, May 4, 1999, May 13, 1999, May 25,
1999 and November 15, 1999, respectively.
F-8 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(b) BASIS OF PRESENTATION
Our accounting policies reflect industry practices and conform to
accounting principles generally accepted in the United States of
America.
The consolidated financial statements include our accounts, our
majority and wholly owned subsidiaries, and limited partnerships and
limited liability companies in which we beneficially own 100% of the
interests. Intercompany transactions and balances have been eliminated
in consolidation.
Our investments in partnerships and joint ventures in which we do not
own controlling interests are accounted for using the equity method.
(c) CASH EQUIVALENTS
Cash equivalents of $9,553,000 and $17,347,000 at December 31, 2001
and 2000, respectively, consist of short-term highly liquid
investments with a remaining maturity as of purchase date of three
months or less, which are readily convertible into cash. For purposes
of the consolidated statements of cash flows, we consider all highly
liquid debt instruments with remaining maturities as of their purchase
date of three months or less to be cash equivalents.
(d) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market value and primarily consist of products for resale including
merchandise and food and miscellaneous supplies.
F-9 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(e) ADVERTISING COSTS
Production costs of commercials and programming are charged to
operations in the year first aired. The costs of other advertising,
promotion, and marketing programs are charged to operations when
incurred. The amounts capitalized at year end are included in prepaid
expenses.
Advertising and promotions expense was $115,124,000, $105,640,000 and
$100,175,000 during the years ended December 31, 2001, 2000 and 1999,
respectively.
(f) DEBT ISSUANCE COSTS
We capitalize costs related to the issuance of debt. The amortization
of such costs is recognized as interest expense under a method
approximating the interest method over the term of the respective debt
issue.
(g) PROPERTY AND EQUIPMENT
Rides and attractions are depreciated using the straight-line method
over 5-25 years. Land improvements are depreciated using the
straight-line method over 10-15 years. Buildings and improvements are
depreciated over their estimated useful lives of approximately 30
years by use of the straight-line method. Furniture and equipment are
depreciated using the straight-line method over 5-10 years.
Maintenance and repairs are charged directly to expense as incurred,
while betterments and renewals are generally capitalized as property
and equipment. When an item is retired or otherwise disposed of, the
cost and applicable accumulated depreciation are removed and the
resulting gain or loss is recognized.
(h) INVESTMENT IN THEME PARK PARTNERSHIPS
We manage five parks in which we do not currently own a controlling
interest. We account for our investment in four of the parks using the
equity method of accounting. The equity method of accounting
recognizes our share of the activity of Six Flags Over Texas, Six
Flags Over Georgia, Six Flags White Water Atlanta, and Six Flags
Marine World in the accompanying consolidated statements of operations
in the caption "equity in operations of theme park partnerships." The
equity method of accounting differs from the consolidation method of
accounting used for the theme parks in which we own a controlling
interest. In the consolidation method of accounting, the activities of
the controlled parks are reflected in each revenue and expense caption
rather than aggregated into one caption. The Warner Bros. Movie World
theme park being constructed in Spain is not yet in operation. We
account for our investment in this park at cost.
F-10 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(i) INTANGIBLE ASSETS
For periods through December 31, 2001, goodwill, which represents the
excess of purchase price over fair value of net assets acquired, has
been amortized on a straight-line basis over the expected period to be
benefited, generally 18 to 25 years. Other intangible assets have been
amortized over the period to be benefited, generally up to 25 years.
We assess the recoverability of intangible assets by determining
whether the amortization of the intangible asset balance over its
remaining life can be recovered through undiscounted future operating
cash flows from the acquisition. The amount of goodwill impairment, if
any, is measured based on projected discounted future operating cash
flows using a discount rate reflecting our average borrowing rate. The
assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
For periods beginning on January 1, 2002, we adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill
and Other Intangible Assets." As a result, goodwill and intangible
assets with indefinite useful lives no longer will be amortized, but
instead will be tested for impairment at least annually.
In connection with SFAS No. 142's transitional goodwill impairment
evaluation, we will perform an assessment of whether there is an
indication that goodwill (including goodwill included in our
investment in theme park partnerships) is impaired as of the date of
adoption. To accomplish this, we must identify our 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 January 1, 2002. We will then
have up to six months from January 1, 2002 to determine the fair value
of each reporting unit and compare it to the carrying amount of the
reporting unit. To the extent the carrying amount of a reporting unit
exceeds the fair value of the reporting unit, an indication exists
that the reporting unit goodwill may be impaired and we must perform
the second step of the transitional impairment test. The second step
is required to be completed as soon as possible, but no later than the
end of 2002. In the second step, we must compare the implied fair
value of the reporting unit goodwill with the carrying amount of the
reporting unit goodwill, both of which would be measured as of the
date of adoption. The implied fair value of goodwill is determined by
allocating the fair value of the reporting unit to all of the assets
(recognized and unrecognized) and liabilities of the reporting unit in
a manner similar to a purchase price allocation. The residual fair
value after this allocation is the implied fair value of the reporting
unit goodwill. Any transitional impairment loss will be recognized as
the cumulative effect of a change in accounting principle in our
consolidated statements of operations.
As of the date of adoption of SFAS No. 142, our unamortized goodwill
was $1,196,139,000. Amortization expense related to goodwill was
$56,712,000 and $53,749,000 for the years ended December 31, 2001, and
2000, respectively. Because of the extensive effort needed to comply
with adopting SFAS No. 142, it is not practicable to reasonably
estimate the impact of adopting SFAS No. 142 on our consolidated
financial statements at the date of these consolidated financial
statements, including whether we will be required to recognize any
transitional impairment losses as the cumulative effect of a change in
accounting principle.
F-11 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(j) LONG-LIVED ASSETS
We review long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset or group
of assets to future net cash flows expected to be generated by the
asset or group of assets. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
In August 2001, the Financial Accounting Standards Board ("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 APB 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 and was adopted by us on January 1, 2002. The
adoption of Statement 144 will not have a material impact on our
consolidated financial statements.
(k) REVENUE RECOGNITION
We recognize revenue upon admission into our parks, provision of our
services, or when products are delivered to our customer. For season
pass and other multi-use admissions, we recognize a pro-rata portion
of the revenue as the customer attends our parks.
(l) INTEREST EXPENSE
Interest on notes payable is generally recognized as expense on the
basis of stated interest rates. Notes payable assumed in an
acquisition are carried at amounts adjusted to impute a market rate of
interest cost (when the obligations were assumed).
(m) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date. United States deferred income taxes have not been provided on
foreign earnings which are being permanently reinvested.
F-12 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(n) LOSS PER COMMON SHARE
Basic loss per share is computed by dividing net loss applicable to
common stock by the weighted average number of common shares
outstanding for the period. No adjustments for stock options were
included in the 2001, 2000 and 1999 computations of diluted loss per
share because the effect would have been antidilutive. Additionally,
the weighted average number of shares for each of the years ended
December 31, 2001, 2000 and 1999 does not include the impact of the
conversion of outstanding convertible preferred stock into shares of
common stock as the effect of the conversion and resulting decrease in
preferred stock dividends would be antidilutive. Our Preferred Income
Equity Redeemable Shares (PIERS), which are shown as mandatorily
redeemable preferred stock on our balance sheet, were issued in
January 2001 and are convertible into 13,789,000 shares of common
stock. On April 2, 2001, our Premium Income Equity Securities (PIES)
automatically converted into a total of 11,500,000 common shares.
Preferred stock dividends of $26,515,000, $23,288,000 and $23,288,000
were considered in determining net loss applicable to common stock in
2001, 2000 and 1999, respectively.
(o) STOCK OPTIONS
For unconditional employee stock options, we recognize compensation
expense over the service period, only if the current market price of
the underlying stock exceeds the exercise price on the date of the
grant. For employee stock options that are conditioned upon the
achievement of performance goals, compensation expense, as determined
by the extent that the quoted market price of the underlying stock at
the time that the condition for exercise is achieved exceeds the stock
option exercise price, is recognized over the service period. For
stock options issued to nonemployees, we recognize compensation
expense at the time of issuance based upon the fair value of the
options issued.
Pro forma net loss and net loss per share for employee stock option
grants as if the fair-value-based method had been applied are provided
in Note 9(b).
(p) INVESTMENT SECURITIES
Restricted-use investment securities at December 31, 2001 and 2000
consist of U.S. Treasury securities. The securities are restricted to
provide funds to satisfy our obligations under certain guarantees of
partnership arrangements described in Note 12 and, prior to April 1,
2001, to provide for interest payments on certain debt issued in 1998.
We classify our investment securities in one of two categories:
available-for-sale or held-to-maturity. Held-to-maturity securities
are those securities in which we have the ability and intent to hold
the security until maturity. All other securities held by us are
classified as available-for-sale. We do not purchase investment
securities principally for the purpose of selling them in the near
term and thus have no securities classified as trading.
Available-for-sale securities are recorded at fair value. As of
December 31, 2001 and 2000, the fair value of the restricted-use
investments classified as available-for-sale was $75,169,000 and
$75,376,000 which approximated the amortized cost of the securities.
Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from
F-13 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
operations and are reported as a separate component of other
comprehensive income (loss) until realized. Realized gains and losses
from the sale of available-for-sale securities are determined on a
specific identification basis. Held-to-maturity securities are
recorded at amortized cost, adjusted for the amortization or accretion
of premiums or discounts. As of December 31, 2001 and 2000, all of our
restricted-use investment securities classified as available-for-sale
had remaining maturities of less than one year; however, these
securities are reflected as noncurrent assets as they are restricted
for future use.
As of December 31, 2000, $12,773,000 of restricted-use investment
securities classified as held-to-maturity had maturities and
restrictions of less than one year and were reflected as current
assets.
Premiums and discounts are amortized or accreted over the life of the
related held-to-maturity security as an adjustment to yield using the
effective interest method. Interest income is recognized when earned.
(q) COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) consists of net income (loss), changes in
the foreign currency translation adjustment and changes in the fair
value of derivatives that are designated as hedges, and is presented
in the 2001, 2000 and 1999 consolidated statements of stockholders'
equity and other comprehensive income (loss) as accumulated other
comprehensive income (loss).
(r) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(s) RECLASSIFICATIONS
Reclassifications have been made to certain amounts reported in 2000
and 1999 to conform with the 2001 presentation.
(2) ACQUISITION OF THEME PARKS
On February 9, 2001, we 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. We funded the acquisition from a portion of the proceeds of
the PIERS offering. See Note 9. Approximately $57,834,000 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, we 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 U.S. $19,600,000 at
F-14 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
the exchange rate on such date). We have agreed to invest in the park Can.
$90,000,000 (approximately U.S. $58,700,000 at that exchange rate) over
four seasons commencing in 2002. We lease the land on which the park is
located on a long-term basis. Approximately U.S. $7,378,000 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 December 6, 2000, we acquired all of the capital stock of the company
operating as Enchanted Village and Wild Waves (Enchanted Village), a water
and rides park located near Seattle, Washington, for a purchase price of
$19,255,000 paid through issuance of 1,339,223 shares of our 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 May 4, 1999, we acquired all of the capital stock of the companies that
own and operate Reino Aventura (subsequently renamed Six Flags Mexico), a
theme park located in Mexico City, for a cash purchase price of
approximately $59,600,000. We funded the acquisition from existing cash.
Approximately $14,575,000 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 13, 1999, we acquired the assets of Splashtown water park located in
Houston, Texas for a cash purchase price of approximately $20,400,000. We
funded the acquisition from existing cash. Approximately $10,530,000 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 25, 1999, the limited partnership that owns Six Flags Over Georgia
acquired the assets of White Water Atlanta water park, and adjacent
American Adventures entertainment facility located near Atlanta, Georgia.
In connection with the acquisition, Six Flags issued a $40,700,000 note
that was converted into 1,080,000 shares of common stock. The transaction
was accounted for by the limited partnership as a purchase. We have
reflected the additional investment in the limited partnership as an
investment in theme park partnerships.
On November 15, 1999, we purchased the partnership that owns Warner Bros.
Movie World Germany, near Dusseldorf, Germany, and entered into a joint
venture with Warner Bros. to design, develop and manage a new Warner Bros.
Movie World theme park scheduled to open in Madrid, Spain in 2002. At the
same time, we entered into a long-term license agreement for exclusive
theme park usage in Europe, Mexico, South America and Central America of
the Looney Tunes, Hanna-Barbera, Cartoon Network and D.C. Comics
characters. The aggregate cost of the transactions was $180,269,000, which
was funded by borrowings under our 1999 credit facility (the Credit
Facility). See Note 6(d). Approximately $42,800,000 of the aggregate costs
were allocated to goodwill and intangible assets. The transaction was
accounted for as a purchase.
The 2000 and 2001 acquisitions did not materially impact our 2000 and 2001
results of operations. As such, no pro forma information has been
presented.
F-15 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(3) PROPERTY AND EQUIPMENT
Property and equipment, at cost, are classified as follows:
<Table>
<Caption>
2001 2000
------------------ ------------------
Land $ 300,353,000 294,215,000
Land improvements 326,821,000 299,261,000
Buildings and improvements 583,156,000 540,349,000
Rides and attractions 1,283,467,000 1,202,149,000
Equipment 307,559,000 249,953,000
------------------ ------------------
Total 2,801,356,000 2,585,927,000
Less accumulated depreciation 465,656,000 328,027,000
------------------ ------------------
$ 2,335,700,000 2,257,900,000
================== ==================
</Table>
F-16 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(4) INVESTMENT IN THEME PARK PARTNERSHIPS
The following reflects the summarized assets, liabilities, and equity as of
December 31, 2001 and 2000, and the results of the four parks managed by us
for the years ended December 31, 2001, 2000 and 1999. Results for 1999
include results of Six Flags White Water Atlanta only subsequent to May 25,
1999 (the date of its acquisition).
<Table>
<Caption>
2001 2000
------------- -------------
Assets:
Current assets $ 25,139,000 26,530,000
Property and equipment, net 270,081,000 254,263,000
Other assets 33,052,000 35,676,000
------------- -------------
Total assets $ 328,272,000 316,469,000
Liabilities and equity:
Current liabilities $ 50,953,000 47,685,000
Affiliate loans 92,107,000 91,107,000
Long-term debt 78,826,000 66,305,000
Equity 106,386,000 111,372,000
------------- -------------
Total liabilities and equity $ 328,272,000 316,469,000
============= =============
</Table>
Pursuant to the applicable partnership agreements, we, as managing general
partner of the Six Flags Over Texas and Six Flags Over Georgia (the
Partnership Parks), can make affiliate loans to the Partnership Parks.
These loans are reflected in our consolidated balance sheets as an
investment in theme park partnerships. We provided the consideration for
the Georgia Partnership Park to acquire White Water Atlanta. The resulting
note from the Georgia Partnership Park to us is in the form of an affiliate
loan. Included in long-term debt above as of December 31, 2001 and 2000 is
$60,340,000 and $61,185,000, respectively, of long-term debt that is not
guaranteed by us. That long-term debt is an obligation of the other parties
that have an interest in Six Flags Marine World. The remaining long-term
debt shown above consists primarily of term loan debt and capitalized lease
obligations associated with rides and equipment.
<Table>
<Caption>
2001 2000 1999
------------- ------------- -------------
Revenue $ 217,949,000 208,196,000 225,274,000
------------- ------------- -------------
Expenses:
Operating expenses 81,529,000 84,379,000 88,901,000
Selling, general and administrative 31,040,000 29,911,000 27,957,000
Costs of products sold 15,660,000 17,921,000 21,241,000
Depreciation and amortization 21,516,000 20,145,000 16,724,000
Interest expense, net 13,234,000 14,259,000 11,545,000
Other expense 819,000 841,000 532,000
------------- ------------- -------------
Total 163,798,000 167,456,000 166,900,000
------------- ------------- -------------
Net income $ 54,151,000 40,740,000 58,374,000
============= ============= =============
</Table>
F-17 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Our share of operations of the four theme parks for the years ended
December 31, 2001, 2000 and 1999 was $44,389,000, $33,205,000 and
$44,187,000, prior to depreciation and amortization charges of $20,989,000,
$20,370,000 and $15,826,000, and third-party interest expense and other
non-operating expenses of $1,888,000, $1,002,000 and $2,181,000,
respectively.
The following information reflects the reconciliation between the results
of the four theme parks and our share of the results:
<Table>
<Caption>
2001 2000 1999
------------ ------------ ------------
Theme park partnership net income. $ 54,151,000 40,740,000 58,374,000
Third party share of net income .. (29,021,000) (23,675,000) (28,279,000)
Amortization of Company's
investment in theme park
partnerships in excess of share
of net assets ................. (3,618,000) (5,232,000) (3,915,000)
------------ ------------ ------------
Equity in operations of theme park
partnerships ................. $ 21,512,000 11,833,000 26,180,000
============ ============ ============
</Table>
A substantial difference exists between the carrying value of our
investment in the theme parks and our share of the net book value of the
theme parks. Through December 31, 2001, 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 us at Six Flags Marine World.
The following information reconciles our share of the net assets of the
theme parks partnerships and our investment in the partnerships.
<Table>
<Caption>
DECEMBER 31, 2001 DECEMBER 31, 2000
------------------- --------------------
Our share of net assets of $ 107,322,000 107,717,000
theme park partnerships........................
Our investment in theme park
partnerships in excess of share of net assets... 188,844,000 187,814,000
Advances made to theme park partnerships .......... 92,107,000 91,107,000
------------------- --------------------
Investments in theme park partnerships............. $ 388,273,000 386,638,000
=================== ====================
</Table>
See Note 12 for a discussion of certain obligations relating to the
Partnership Parks. In April 1997, we became manager of Marine World
(subsequently renamed Six Flags Marine World), then a marine and exotic
wildlife park located in Vallejo, California, pursuant to a contract with
an agency of the City of Vallejo under which we are entitled to receive an
annual base management fee of $250,000 and up to $250,000 annually in
additional management fees based on park revenues. In November 1997, we
exercised our option to lease approximately 40 acres of land within the
site for nominal rent and an initial term of 55 years (plus four ten-year
and one four-year renewal options). We have added theme park rides and
attractions on the leased land, which is located within the existing park,
in order to create one fully-integrated regional theme park at the site. We
are entitled
F-18 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
to receive, in addition to the management fee, 80% of the cash flow
generated by the combined operations at the park, after combined operating
expenses and debt service on outstanding debt obligations relating to the
park. We also have an option to purchase the entire site commencing in
February 2002 at a purchase price equal to the greater of the then
principal amount of certain debt obligations of the seller (expected to
aggregate $52,000,000) or the then fair market value of the seller's
interest in the park (based on a formula relating to the seller's 20% share
of Marine World's cash flow).
(5) DERIVATIVE FINANCIAL INSTRUMENTS
Prior to 2000, we had only limited involvement with derivative financial
instruments, entering into contracts to manage the variability of
foreign-currency exchange rates in connection with the purchase of rides
from foreign vendors. No such contracts were in effect at December 31, 2001
or December 31, 2000.
In February 2000, we entered into three interest rate swap agreements that
effectively convert our $600,000,000 term loan component of the Credit
Facility (see Note 6(d)) into a fixed rate obligation. The terms of the
agreements, as subsequently extended, each of which has a notional amount
of $200,000,000, began in March 2000 and expire from March 2003 to December
2003. Our term loan borrowings bear interest based upon LIBOR plus a fixed
margin. Our interest rate swap arrangements were designed to "lock-in" the
LIBOR component at rates, prior to a February 2001 amendment, ranging from
6.615% to 6.780% and, subsequent to that date, 5.13% to 6.07% (with an
average of 5.46%). The counterparties to these transactions are major
financial institutions, which minimizes the credit risk.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS
No. 138, 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. We adopted the provisions of SFAS No. 133 as of January 1,
2001. As a result of the adoption, we recognized a 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 is being amortized into operations over
the original term of the interest rate swap agreements. See Note 9(e).
As of January 1, 2001, 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 No.
133. From January 1, 2001 to February 23, 2001, we 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 December 31, 2001, we have designated all of the
interest rate swap agreements as cash-flow hedges.
F-19 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
We formally document 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. We also assess, both at the hedge's inception and on an
ongoing basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in cash flows of
hedged items.
Changes in the fair value of a derivative that is effective and that is
designated and qualifies as a cash-flow hedge are recorded in other
comprehensive income (loss), until operations are affected by the
variability in cash flows of the designated hedged item. Changes in fair
value of a derivative that is not designated as a hedge are recorded in
operations on a current basis.
During 2001, there were no gains or losses reclassified into operations as
a result of the discontinuance of hedge accounting treatment for any of our
derivatives.
By using derivative instruments to hedge exposures to changes in interest
rates, we are exposed 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 placed with
counterparties that we believe 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.
We do 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.
From February 2001 through December 2001, the critical terms, such as the
index, settlement dates, and notional amounts, of the derivative
instruments were the same as the provisions of our hedged borrowings under
the Credit Facility. As a result, no ineffectiveness of the cash-flow
hedges was recorded in the consolidated statements of operations.
As of December 31, 2001, approximately $8,500,000 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 we are hedging
exposures to the variability of cash flows for commodity price risk is 18
months.
F-20 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(6) LONG-TERM DEBT
At December 31, 2001 and 2000, long-term debt consists of:
<Table>
<Caption>
2001 2000
-------------- --------------
Long-term debt:
9 3/4% Notes due 2007 (a) $ 269,000 125,000,000
10% Senior Discount Notes due 2008 (b) 363,026,000 329,275,000
9 1/4%Senior Notes due 2006 (b) 280,000,000 280,000,000
8 7/8% Notes due 2006 of Six Flags Operations (c) 170,000,000 170,000,000
Credit Facility (d) 613,500,000 981,000,000
9 3/4%Senior Notes due 2007 (e) 429,329,000 429,207,000
9 1/2% Senior Notes due 2009 (f) 372,722,000 --
Other 18,223,000 7,831,000
-------------- --------------
2,247,069,000 2,322,313,000
Less current portion 24,627,000 2,401,000
-------------- --------------
$2,222,442,000 2,319,912,000
============== ==============
</Table>
(a) Represents senior notes of our principal subsidiary, Six Flags
Operations Inc. (Six Flags Operations) which were redeemed in full in
January 2002. In 2001, we purchased 99.8% of the notes pursuant to a
tender offer. As a result of the early extinguishment of debt in 2001,
we recognized an extraordinary loss of $8,529,000, net of tax benefit
of $5,227,000.
(b) On April 1, 1998, Holdings issued at a discount $410,000,000 principal
amount at maturity ($363,026,000 and $329,275,000 carrying value as of
December 31, 2001 and 2000, respectively) of 10% Senior Discount Notes
due 2008 (the Senior Discount Notes) and $280,000,000 principal amount
of 9 1/4% Senior Notes due 2006 (the 1998 Senior Notes). In February
2002, we called the 1998 Senior Notes for redemption in full on April
1, 2002. The redemption price will be funded from a portion of the net
proceeds of an offering by Holdings of $480,000,000 principal amount
of 8 7/8% Senior Notes due 2010 (the 2002 Senior Notes). An
extraordinary loss of $11,809,000, net of a tax benefit of $7,238,000,
will be recognized from this early extinguishment.
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 Holdings 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
Senior Discount Notes are redeemable, at our option, in whole or in
part, at any time on or after April 1, 2003, at varying redemption
prices beginning at 105% and reducing annually until maturity.
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 to pay certain of our obligations to the limited
partners of the Partnership Parks. See Note 12.
F-21 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
The indenture under which the Senior Discount Notes were issued limits
our ability to dispose of assets; incur additional indebtedness or
liens; pay dividends; engage in mergers or consolidations; and engage
in certain transactions with affiliates.
(c) Represents senior notes of Six Flags Operations which we have called
for redemption in full on April 1, 2002. The redemption price will be
funded from a portion of the proceeds of the offering of the 2002
Senior Notes. An extraordinary loss of $6,726,000 net of tax benefit
of $4,123,000, will be recognized for this early extinguishment.
(d) On November 5, 1999, Six Flags Theme Parks Inc., a direct wholly owned
subsidiary of Six Flags Operations ("SFTP") entered into the Credit
Facility. The Credit Facility includes a $300,000,000 five-year
revolving credit facility ($15,000,000 was outstanding on December 31,
2001 and $90,000,000 was outstanding at December 31, 2000), a
$300,000,000 five-and-one-half-year multicurrency reducing revolver
facility (of which none and $291,000,000 was outstanding at December
31, 2001 and 2000, respectively) and a $600,000,000 six-year term loan
($598,500,000 of which was outstanding at December 31, 2001 and all of
which was outstanding at December 31, 2000). Borrowings under the
five-year revolving credit facility (US Revolver) 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 our option the interest rate is based upon
specified levels in excess of the applicable base rate or LIBOR. At
December 31, 2001, the weighted average interest rates for borrowings
under the US Revolver and term loan were 3.9% and 8.47%, respectively.
At December 31, 2000, the weighted average interest rates for
borrowings under the US Revolver, multicurrency revolver, and term
loan were 9.22%, 9.19% and 9.97%, 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
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. See Note 5 regarding interest rate hedging activities.
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 Senior Notes, cash dividend
payments on our PIERS and our 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.
F-22 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
On November 5, 1999, we borrowed $892,000,000 under the Credit
Facility principally to repay all amounts outstanding under previously
existing credit facilities and to provide funds to consummate the
November 1999 transactions with Warner Bros. described in Note 2. The
termination of previously existing credit facilities resulted in an
extraordinary loss in respect of the debt issuance costs related
thereto of $5,214,000, net of tax benefit of $3,476,000.
(e) On June 30, 1999, Holdings issued $430,000,000 principal amount of 9
3/4% Senior Notes due 2007 (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 Senior Notes of Holdings.
The 1999 Senior Notes require annual interest payments of
approximately $41,925,000 (9 3/4% per annum) and, except in the event
of a change in control of Holdings and certain other circumstances, do
not require any principal payments prior to their maturity in 2007.
The 1999 Senior Notes are redeemable, at Holdings' option, in whole or
in part, at any time on or after June 15, 2003, at varying redemption
prices beginning at 104.875% and reducing annually until maturity. The
indenture under which the 1999 Senior Notes were issued contains
covenants substantially similar to those relating to the Senior
Discount Notes.
The net proceeds of the 1999 Senior Notes were used to fund the
purchase in a tender offer of $87,500,000 of previously outstanding
Six Flags Operations' 1995 Senior Notes and the entire $285,000,000
principal amount of SFTP Senior Subordinated Notes. The remaining
$2,500,000 balance of the 1995 Senior Notes was redeemed in August
1999. An extraordinary loss of $6,082,000, net of tax benefit of
$4,054,000 was recognized from these early extinguishments.
(f) On February 2, 2001, Holdings issued $375,000,000 principal amount of
9 1/2% Senior Notes due 2009 (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 Senior Notes of Holdings.
The 2001 Senior Notes require annual interest payments of
approximately $35,625,000 (9 1/2% per annum) and, except in the event
of a change in control of Holdings 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 beginning at 104.75% and reducing annually until
maturity. The indenture under which the 2001 Senior Notes were issued
contains covenants substantially similar to those relating to the
other Senior Notes of Holdings. The net proceeds of the 2001 Senior
Notes were used to fund the tender offer relating to senior notes of
Six Flags Operations (see Note 6(a)) and to repay borrowings under the
multicurrency revolving portion of the Credit Facility (see Note
6(d)).
F-23 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Annual maturities of long-term debt during the five years subsequent to
December 31, 2001, are as follows (after giving effect to the issuance of
the 2002 Senior Notes in February 2002 and the use of proceeds and
including borrowings under the working capital revolver at December 31,
2001):
<Table>
<Caption>
2002 $ 24,627,000
2003 9,449,000
2004 153,441,000
2005 443,950,000
2006 56,000
Thereafter 1,643,837,000
---------------
$ 2,275,360,000
===============
</Table>
F-24 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
The Credit Facility and, prior to the April 1, 2002 redemption of the
existing Six Flags Operations senior notes, the indenture relating
thereto restrict the ability of Six Flags Operations to distribute
assets to Holdings, and the indentures relating to Holdings' Senior
Notes restrict the ability of Holdings to distribute assets to its
shareholders. The Credit Facility restricts distributions by Six Flags
Operations to amounts required to pay interest on Holdings' senior
notes, dividends on Holdings' outstanding preferred stock, required
payments under the agreements relating to the Partnership Parks and
certain tax and shared services arrangements. The following table
discloses the amounts available for distribution (other than permitted
payments in respect to shared administrative and other corporate
expenses and tax sharing payments) at December 31, 2001 by each debt
group based upon the most restrictive applicable indenture limitation.
<Table>
<Caption>
AMOUNT
AVAILABLE
--------------
(IN THOUSANDS)
Holdings $ 581,995
Six Flags Operations 1,624,444
</Table>
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table and accompanying information present the carrying
amounts and estimated fair values of our financial instruments at December
31, 2001 and 2000. The fair value of a financial instrument is the amount
at which the instrument could be exchanged in a current transaction between
willing parties.
<Table>
<Caption>
2001 2000
---------------------------------- ----------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------------- --------------- --------------- ---------------
Financial assets
(liabilities):
Restricted-use
investment
securities $ 75,169,000 75,169,000 88,149,000 88,138,000
Long-term debt (2,247,069,000) (2,261,081,000) (2,322,313,000) (2,271,779,000)
Interest rate swap
Agreements 23,296,000 (23,296,000) -- (4,996,000)
PIERS (278,867,000) (253,000,000) -- --
</Table>
The carrying amounts shown in the table are included in the consolidated
balance sheets under the indicated captions, except for the interest rate
swap agreements (Note 5) which for December 31, 2000 are not reflected in
the consolidated balance sheets.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
- The fair values of cash and cash equivalents, accounts receivable,
accounts payable, and accrued liabilities approximate fair value
because of the short maturity of these instruments.
F-25 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
- Restricted-use investment securities: The fair values of debt
securities (both available-for-sale and held-to-maturity investments)
are based on quoted market prices at the reporting date for those or
similar investments.
- Long-term debt: The fair value of our long-term debt is estimated by
discounting the future cash flows of each instrument at rates
currently offered to us for similar debt instruments of comparable
maturities by our investment bankers or based upon quoted market
prices.
- Derivative financial instruments: The fair value of our derivative
financial instruments is determined by the counterparty financial
institution.
- PIERS: The fair value of our mandatorily redeemable preferred stock is
based upon quoted market prices.
(8) INCOME TAXES
Income tax expense (benefit) allocated to operations for 2001, 2000 and
1999 consists of the following:
<Table>
<Caption>
CURRENT DEFERRED TOTAL
============ ============= =============
2001:
U.S. federal $ -- (2,465,000) (2,465,000)
Foreign 1,818,000 (6,175,000) (4,357,000)
State and local 427,000 (800,000) (373,000)
------------ ------------- -------------
$ 2,245,000 (9,440,000) (7,195,000)
============ ============= =============
2000:
U.S. federal $ (10,000) (2,211,000) (2,221,000)
Foreign 3,792,000 4,388,000 8,180,000
State and local (377,000) 40,000 (337,000)
------------ ------------- -------------
$ 3,405,000 2,217,000 5,622,000
============ ============= =============
1999:
U.S. federal $ (683,000) 18,338,000 17,655,000
Foreign 1,058,000 3,072,000 4,130,000
State and local (591,000) 3,266,000 2,675,000
------------ ------------- -------------
$ (216,000) 24,676,000 24,460,000
============ ============= =============
</Table>
F-26 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Recorded income tax expense allocated to operations differed from amounts
computed by applying the U.S. federal income tax rate of 35% in 2001, 2000
and 1999 to income (loss) before income taxes as follows:
<Table>
<Caption>
2001 2000 1999
-------------- ------------- -------------
Computed "expected" federal income
tax expense (benefit) $ (19,869,000) (16,218,000) 1,830,000
Amortization of goodwill 13,794,000 13,643,000 11,973,000
Nondeductible compensation 3,767,000 3,779,000 6,786,000
Other, net (51,000) 499,000 864,000
Effect of foreign income taxes (4,586,000) 4,145,000 1,215,000
Effect of state and local income taxes,
net of federal tax benefit (250,000) (226,000) 1,792,000
-------------- ------------- -------------
$ (7,195,000) 5,622,000 24,460,000
============== ============= =============
</Table>
An income tax benefit of $5,227,000 was allocated to extraordinary loss for
2001. The U.S. federal benefit component was $4,539,000 and the state and
local benefit component was $688,000. There were no extraordinary losses in
2000. An income tax benefit of $7,530,000 was allocated to extraordinary
loss for 1999. The U.S. federal benefit component was $6,539,000 and the
state and local benefit component was $991,000. There were no foreign
extraordinary losses in 2001 or 1999.
Substantially all of our future taxable temporary differences (deferred tax
liabilities) relate to the different financial accounting and tax
depreciation methods and periods for property and equipment. Our net
operating loss carryforwards, alternative minimum tax credits, accrued
insurance expenses, and deferred compensation amounts represent future
income tax deductions (deferred tax assets). The tax effects of these
temporary differences as of December 31, 2001, 2000 and 1999 are
presented below:
<Table>
<Caption>
2001 2000 1999
------------- ------------- -------------
Deferred tax assets before valuation
allowance $ 356,806,000 286,098,000 213,244,000
Less valuation allowance 1,196,000 1,196,000 1,196,000
------------- ------------- -------------
Net deferred tax assets 355,610,000 284,902,000 212,048,000
Deferred tax liabilities 465,536,000 429,821,000 354,008,000
------------- ------------- -------------
Net deferred tax liability $ 109,926,000 144,919,000 141,960,000
============= ============= =============
</Table>
Our deferred tax liability results from the financial carrying amounts for
property and equipment being substantially in excess of our tax basis in
the corresponding assets. The majority of our property and equipment is
depreciated over a 7-year period for tax reporting purposes and a longer
20-to-25 year period for financial purposes. The faster tax depreciation
has resulted in tax losses which can be carried forward to future years to
offset future taxable income. Because most of our depreciable assets'
financial carrying amounts and tax basis difference will reverse before the
expiration of our net operating loss carryforwards and taking into account
our projections of future
F-27 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
taxable income over the same period, management believes that we will more
likely than not realize the benefits of these net future deductions.
As of December 31, 2001, we have approximately $903,533,000 of net
operating loss carryforwards available for U.S. federal income tax purposes
which expire through 2020. Included are net operating loss carryforwards of
$3,400,000 which are not expected to be utilized as a result of an
ownership change that occurred on October 30, 1992. A valuation allowance
for the pre-October 1992 net operating loss carryforwards has been
established. Additionally at December 31, 2001, we had approximately
$6,949,000 of alternative minimum tax credits which have no expiration
date.
We have experienced ownership changes within the meaning of the Internal
Revenue Code Section 382 and the regulations thereunder. We experienced an
ownership change on June 4, 1996, as a result of the issuance of shares of
common stock and the conversion of preferred stock into additional shares
of common stock. This ownership change limits the amount of our
post-October 1992 through June 1996 net operating loss carryforwards that
can be used in any year.
Included in our tax net operating loss carryforward amounts are
approximately $249,353,000 of net operating loss carryforwards of Six Flags
Entertainment Corporation ("SFEC") generated prior to its acquisition by
us. SFEC experienced an ownership change on April 1, 1998 as a result of
its acquisition. Due to this ownership change, no more than $49,200,000 of
pre-acquisition net operating loss carryforwards may be used to offset
taxable income in any year; however, it is more likely than not that all of
our carryforwards generated subsequent to October 1992 and all of the
SFEC's pre-acquisition carryfowards will be fully utilized by us before
their expiration.
(9) PREFERRED STOCK, COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
(a) PREFERRED STOCK
We have authorized 5,000,000 shares of preferred stock, $1.00 par
value per share. All shares of preferred stock rank senior and prior
in right to all of our now or hereafter issued common stock with
respect to dividend payments and distribution of assets upon our
liquidation or dissolution.
PIERS
In January 2001, we issued 11,500,000 PIERS, for proceeds of
$277,834,000, net of the underwriting discount and offering expenses
of $9,666,000. We used a portion of the proceeds to acquire
substantially all of the assets of the former Sea World of Ohio. See
Note 2. Each PIERS represents one one-hundredth of a share of our
7 1/4% mandatorily redeemable preferred stock (an aggregate of 115,000
shares of preferred stock). The PIERS accrue cumulative dividends
(payable, at our option, in cash or shares of common stock) at 7 1/4%
per annum (approximately $20,844,000 per annum). Holders can
voluntarily convert the PIERS into shares of common stock at any time
prior to August 15, 2009.
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
F-28 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
to adjustment in certain circumstances (the Conversion Price). At any
time on or after February 15, 2004 and at the then applicable
conversion rate, we 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 our 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.
PIES
Prior to April 2, 2001, we also had outstanding 5,750,000 PIES which
automatically converted into 11,500,000 shares of common stock on that
date. In addition, on that date we issued to holders of the PIES
278,912 shares of common stock, representing the final quarterly
dividend payment on the PIES. The PIES accrued cumulative dividends at
7 1/2% per annum ($23,288,000 per annum). Each of the PIES represented
one five-hundredth of a share of our mandatorily convertible preferred
stock and is included as preferred stock in our December 31, 2000
consolidated balance sheet. The PIES were issued on April 1, 1998 for
gross proceeds of $310,500,000.
F-29 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(b) STOCK OPTIONS AND WARRANTS
Certain members of our management and professional staff have been
issued seven-year options to purchase common shares under our 2001,
1998, 1996, 1995 and 1993 Stock Option and Incentive Plans
(collectively, the Option Plans). Through December 31, 2001 all stock
options granted under the Option Plans, have been granted with an
exercise price equal to the underlying stock's fair value at the date
of grant. Except for conditional options issued in 1998, options may
be exercised on a cumulative basis with 20% of the total exercisable
on the date of issuance and with an additional 20% being available for
exercise on each of the succeeding anniversary dates. Any unexercised
portion of the options will automatically terminate upon the seventh
anniversary of the issuance date or following termination of
employment. There were 1,531,000 conditional stock options granted in
1998. These options have the same vesting schedule as the
unconditional stock options, except that no conditional option could
be exercised until after the conditions of the stock option were met.
The conditions related to the exercise of these stock options were met
during December 1999.
In 1999 and 1998, we also issued to certain consultants options to
purchase 40,000 and 70,000 common shares, respectively. The options
have substantially the same terms and conditions as the options
granted under the Option Plans. We have recognized the fair value of
the options issued to the consultants as an expense in the
accompanying 1999 consolidated statements of operations.
In June 2001, our shareholders approved a stock option plan for
independent directors providing for options with respect to an
aggregate of 250,000 shares. Options with respect to 80,000 shares,
which had been previously granted became effective upon shareholder
approval. The exercise price of the options granted is $15.06 per
share and the other terms of these options are comparable to
options issued under the Option Plans.
At December 31, 2001, there were 5,224,073 additional shares available
for grant under the Option Plans. The per share weighted-average fair
value of stock options granted during 2001, 2000 and 1999 was $12.72,
$13.65 and $17.43, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: 2001 - expected dividend yield 0%, risk-free interest
rate of 4.65%, expected volatility of 76%, and an expected life of 5
years. 2000 - expected dividend yield 0%, risk-free interest rate of
6.28%, expected volatility of 80%, and an expected life of 5 years.
1999 - expected dividend yield 0%, risk-free interest rate of 5.5%,
expected volatility of 84%, and an expected life of 5 years.
F-30 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
No compensation cost has been recognized for the unconditional stock
options in the consolidated financial statements. Had we determined
compensation cost based on the fair value at the grant date for all
our unconditional stock options, our net loss would have been as
indicated below:
<Table>
<Caption>
2001 2000 1999
--------------- ------------- -------------
Net loss applicable to common stock:
As reported $ (84,617,000) (75,247,000) (53,814,000)
Pro forma (103,605,000) (97,049,000) (74,617,000)
Net loss per weighted average
common share outstanding - basic:
As reported (0.95) (0.96) (0.69)
Pro forma (1.16) (1.23) (0.96)
</Table>
Stock option activity during the years indicated is as follows:
<Table>
<Caption>
WEIGHTED-
AVERAGE
EXERCISE
NUMBER OF SHARES PRICE
---------------- -------------
Balance at December 31, 1998 4,849,916 $ 14.72
Granted 3,440,000 25.00
Exercised (354,565) 7.30
Forfeited (93,600) 17.50
Expired -- --
----------------
Balance at December 31, 1999
7,841,751 19.55
Granted 151,000 20.00
Exercised (377,501) 9.70
Forfeited (183,400) 21.52
Expired -- --
----------------
Balance at December 31, 2000
7,431,850 20.11
Granted 88,000 15.47
Exercised (113,025) 11.92
Forfeited -- --
Expired -- --
----------------
Balance at December 31, 2001
7,406,825 $ 20.01
================ =============
</Table>
At December 31, 2001, the range of exercise prices and
weighted-average remaining contractual life of outstanding options was
$4.125 to $25.00 and 4.09 years, respectively.
F-31 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
At December 31, 2001, 2000 and 1999, options exercisable were
5,323,905, 4,101,500, and 3,245,800, respectively, and
weighted-average exercise price of those options was $19.13, $18.25
and $15.23, respectively.
In 1989, our current chairman was issued a ten-year warrant to
purchase 52,692 common shares at an exercise price of $.50 per share
and a ten-year warrant to purchase 37,386 common shares at an exercise
price of $.50 per share. The warrants were exercised during 1999 prior
to their expiration.
(c) SHARE RIGHTS PLAN
On December 10, 1997, our board of directors authorized a share rights
plan. The plan was subsequently amended on February 4, 1998. Under the
plan, stockholders have one right for each share of common stock held.
The rights become exercisable ten business days after (a) an
announcement that a person or group of affiliated or associated
persons has acquired beneficial ownership of 15% or more of our voting
shares outstanding, or (b) the commencement or announcement of a
person's or group's intention to commence a tender or exchange offer
that could result in a person or group owning 15% or more of the
voting shares outstanding.
Each right entitles our holder (except a holder who is the acquiring
person) to purchase 1/1000 of a share of a junior participating series
of preferred stock designated to have economic and voting terms
similar to those of one share of common stock for $250.00, subject to
adjustment. In the event of certain merger or asset sale transactions
with another party or transactions which would increase the equity
ownership of a stockholder who then owned 15% or more of the voting
shares of Six Flags, each right will entitle our holder to purchase
securities of the merging or acquiring party with a value equal to
twice the exercise price of the right.
The rights, which have no voting power, expire in 2008. The rights may
be redeemed by us for $.01 per right until the rights become
exercisable.
(d) RESTRICTED STOCK GRANTS
We issued 900,000 restricted common shares with an estimated aggregate
value of $14,625,000 to members of our senior management in July 1997.
We issued an additional 920,000 restricted common shares with an
estimated aggregate value of $16,100,000 to members of our senior
management in October 1998. We also issued an additional 370,126
restricted common shares with an estimated aggregate value of
$7,439,000 to members of our senior management in April 2001. The
restrictions on the stock issued lapse ratably over various terms,
generally based on continued employment. The restrictions also lapse
upon termination of the executive without cause or if a change in
control of Six Flags occurs. Compensation expense equal to the
aggregate value of the shares is being recognized as an expense over
the respective vesting period.
F-32 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(e) OTHER COMPREHENSIVE INCOME (LOSS)
The accumulated balances for each classification of comprehensive
income (loss) are as follows:
<Table>
<Caption>
ACCUMULATED OTHER
FOREIGN CURRENCY COMPREHENSIVE
ITEMS CASH FLOW HEDGES INCOME (LOSS)
------------------- ------------------- --------------------
Beginning balance $ (48,589,000) -- (48,589,000)
Cumulative effect of change in
accounting principle -- (3,098,000) (3,098,000)
Net current period change (19,062,000) (17,843,000) (36,905,000)
Reclassification adjustments for
losses reclassified
into operations -- 6,726,000 6,726,000
------------------- ------------------- --------------------
Ending balance $ (67,651,000) (14,215,000) (81,866,000)
=================== =================== ====================
</Table>
The cash flow hedge amounts presented above are reflected net of tax,
calculated at a rate of approximately 38%.
F-33 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(10) PENSION BENEFITS
As part of the acquisition of the former Six Flags, we assumed the
obligations related to the SFTP Defined Benefit Plan (the Benefit Plan).
The Benefit Plan covered substantially all of SFTP's full-time employees.
During 1999 the Benefit Plan was extended to cover substantially all of our
domestic full-time employees. The Benefit Plan permits normal retirement at
age 65, with early retirement at ages 55 through 64 upon attainment of ten
years of credited service. The early retirement benefit is reduced for
benefits commencing before age 62. Benefit Plan benefits are calculated
according to a benefit formula based on age, average compensation over the
highest consecutive five-year period during the employee's last ten years
of employment and years of service. Benefit Plan assets are invested
primarily in common stock and mutual funds. The Benefit Plan does not have
significant liabilities other than benefit obligations. Under our funding
policy, contributions to the Benefit Plan are determined using the
projected unit credit cost method. This funding policy meets the
requirements under the Employee Retirement Income Security Act of 1974.
The following table sets forth the aggregate funded status of the Benefit
Plan and the related amounts recognized in our consolidated balance sheets:
<Table>
<Caption>
2001 2000
------------- -------------
Change in benefit obligation:
Benefit obligation, January 1 $ 84,313,000 72,189,000
Service cost 3,745,000 3,309,000
Interest cost 6,739,000 5,952,000
Actuarial (gain) loss 5,912,000 4,872,000
Benefits paid (2,141,000) (2,009,000)
------------- -------------
Benefit obligation at December 31 98,568,000 84,313,000
------------- -------------
Change in plan assets:
Fair value of assets, January 1 88,261,000 89,958,000
Employer contributions 20,000 --
Actual return on plan assets (3,161,000) 312,000
Benefits paid (2,140,000) (2,009,000)
------------- -------------
Fair value of assets at December 31 82,980,000 88,261,000
------------- -------------
Plan assets greater than (less than) benefit obligations (15,589,000) 3,948,000
Unrecognized net actuarial (gain) loss 23,492,000 6,668,000
Unrecognized prior service cost 1,943,000 2,203,000
------------- -------------
Prepaid benefit cost (included in deposits and
other assets) $ 9,846,000 12,819,000
============= =============
</Table>
F-34 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Net pension expense of the Benefit Plan for each of the years ended
December 31, 2001, 2000 and 1999, included the following components:
<Table>
<Caption>
2001 2000 1999
------------- -------------- -------------
Service cost $ 3,745,000 3,309,000 3,644,000
Interest cost 6,739,000 5,952,000 5,459,000
Expected return on plan assets (7,837,000) (7,999,000) (7,774,000)
Amortization of prior service cost 260,000 260,000 260,000
Amortization of actuarial loss 86,000 -- --
------------- -------------- -------------
Net pension expense $ 2,993,000 1,522,000 1,589,000
============= ============== =============
</Table>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation in 2001, 2000 and 1999
was 7.25%, 7.50% and 7.75%, respectively. The rate of increase in future
compensation levels was 4.25%, 4.50% and 4.75% in 2001, 2000 and 1999,
respectively. The expected long-term rate of return on assets was 9% in
each year.
(11) 401(k) PLAN
We have a qualified, contributory 401(k) plan (the 401(k) Plan). All
regular employees are eligible to participate in the 401(k) Plan if they
have completed one full year of service and are at least 21 years old. We
match 100% of the first 2% and 25% of the next 6% of salary contributions
made by employees. The accounts of all participating employees are fully
vested upon completion of four years of service. We recognized
approximately $1,743,000, $1,730,000 and $1,874,000 of related expense in
the years ended December 31, 2001, 2000 and 1999, respectively.
(12) COMMITMENTS AND CONTINGENCIES
On April 1, 1998 we acquired all of the capital stock of Six Flags
Entertainment Corporation for $976,000,000, paid in cash. In addition to
our obligations under outstanding indebtedness and other securities issued
or assumed in the Six Flags acquisition, we also guaranteed in connection
therewith certain contractual obligations relating to the partnerships that
own two Six Flags parks, Six Flags Over Texas and Six Flags Over Georgia
(the Partnership Parks). Specifically, we guaranteed the obligations of the
general partners of those partnerships to (i) make minimum annual
distributions of approximately $50,211,000 (as of 2001 and subject to
annual cost of living adjustments thereafter) to the limited partners in
the Partnership Parks and (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. Cash flow from operations at the Partnership
Parks is used to satisfy these requirements first, before any funds are
required from us. We also guaranteed the obligation of our subsidiaries to
purchase a maximum number of 5% per year (accumulating to the extent not
purchased in any given year) of the total limited partnership units
outstanding as of the date of the agreements (the Partnership Agreements)
that govern the partnerships (to the extent tendered by the unit holders).
The agreed price for these purchases is based on a valuation for each
respective Partnership Park equal to the greater of (i) a value derived by
multiplying such park's weighted-average four-year EBITDA (as defined in
the Partnership Agreements) by a specified multiple (8.0 in the case of the
Georgia park and 8.5 in the case of the Texas park) or (ii) $250,000,000 in
the case of the Georgia
F-35 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
park and $374,800,000 in the case of the Texas park. Our obligations with
respect to Six Flags Over Georgia and Six Flags Over Texas will continue
until 2027 and 2028, respectively.
As we purchase units relating to either Partnership Park, we are entitled
to the minimum distribution and other distributions attributable to such
units, unless we are then in default under the applicable agreements with
our partners at such Partnership Park. On December 31, 2001, we owned
approximately 25% and 36%, respectively, of the limited partnership units
in the Georgia and Texas partnerships. The maximum unit purchase
obligations for 2002 at both parks will aggregate approximately
$128,900,000. We can utilize the $75,169,000 of restricted use investment
securities to fund any required unit purchases.
We lease the sites of Wyandot Lake, Enchanted Village, Six Flags Mexico, La
Ronde, Walibi Schtroumpf and each of the two Waterworld/USA locations. We
also lease portions of the sites of Six Flags Kentucky Kingdom, Six Flags
New England and Warner Bros. Movie World Germany. In certain cases rent is
based upon percentage of the revenues earned by the applicable park. During
2001, 2000 and 1999, we recognized approximately $5,509,000, $3,883,000 and
$2,045,000, respectively, of rental expense under these rent agreements.
Total rental expense, including office space and park sites, was
approximately $11,452,000, $9,274,000 and $7,352,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.
Future obligations under noncancellable operating leases, including site
leases, at December 31, 2001, are summarized as follows (in thousands):
<Table>
<Caption>
YEAR ENDING
DECEMBER 31,
--------------------
2002 $ 5,414
2003 5,270
2004 5,095
2005 4,804
2006 4,838
2007 and thereafter 108,633
------------
$ 134,054
============
</Table>
We are party to a license agreement (the U.S. License Agreement) pursuant
to which we have the exclusive right on a long term basis to theme park use
in the United States and Canada (excluding the Las Vegas, Nevada
metropolitan area) of all animated, cartoon and comic book characters that
Warner Bros. and DC Comics have the right to license for such use. Under
the U.S. License Agreement, we pay an annual license fee of $2,500,000
through 2005. Thereafter, the license fee will be subject to periodic
scheduled increases and will be payable on a per-theme park basis.
In November 1999, we entered into license agreements (collectively the
International License Agreement) pursuant to which we have the exclusive
right on a long term basis to theme parks use in Europe, Central and South
America of all animated, cartoon and comic book characters that Warner
Bros., DC Comics and the Cartoon Network have the right to license for such
use. Under
F-36 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
the International License Agreement, the license fee is based on specified
percentages of the gross revenues of the applicable parks. We have prepaid
approximately $8.0 million of international license fees.
In December 1998, a final judgment of $197.3 million in compensatory
damages was entered against Six Flags Entertainment Corporation, Six Flags
Theme Parks Inc., Six Flags Over Georgia, Inc. and TWE, and a final
judgment of $245.0 million in punitive damages was entered against TWE and
of $12.0 million in punitive damages was entered against the referenced Six
Flags entities. The compensatory damages judgment has been paid and, in
October 2001, the order of the Georgia Court of Appeals affirming the
punitive damages judgment was vacated by the United States Supreme Court.
In February 2002, the parties reargued the appeal of the punitive damages
judgment before the Georgia Court of Appeals. 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 our 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 us from any and all liabilities arising out of this litigation.
We are a defendant in a purported class action litigation pending in
California Superior Court for Los Angeles County. The master complaint,
Amendarez v. Six Flags Theme Parks, Inc., was filed on November 27, 2001,
combining five previously filed complaints. The plaintiffs allege that
security and other practices at our park in Valencia, California,
discriminate against visitors on the basis of race, color, ethnicity,
national origin and/or physical appearance, and assert claims under
California statutes and common law. They seek compensatory and punitive
damages in unspecified amounts, and injunctive and other relief. The named
plaintiffs purport to represent seven "subclasses" of visitors to the
Valencia park. We have objected to the class allegations, arguing that the
lawsuit cannot appropriately be maintained as a class action, and intend to
vigorously defend this case. The case is in an early stage and consequently
we cannot predict the outcome, however, we do not believe it will have a
material adverse effect on our consolidated financial position, results of
operations, or liquidity.
We are party to various other legal actions arising in the normal course of
business. Matters that are probable of unfavorable outcome to us and which
can be reasonably estimated are accrued. Such accruals are based on
information known about the matters, we estimate of the outcomes of such
matters and our experience in contesting, litigating and settling similar
matters. None of the actions are believed by management to involve amounts
that would be material to our consolidated financial position, results of
operations, or liquidity after consideration of recorded accruals.
(13) BUSINESS SEGMENTS
We manage our operations on an individual park location basis. Discrete
financial information is maintained for each park and provided to our
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 our parks
provide similar products and services through a similar process to the same
class of customer through a consistent method. As such, we have 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 (loss) before income taxes and a
reconciliation of theme park revenues to consolidated total
F-37 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
revenues. Park level expenses exclude all non-cash operating expenses,
principally depreciation and amortization and all non-operating expenses.
<Table>
<Caption>
2001 2000 1999
-------------- -------------- -------------
(IN THOUSANDS)
Theme park revenues $ 1,263,913 1,215,177 1,152,258
Theme park cash expenses (789,269) (746,841) (712,111)
-------------- -------------- -------------
Aggregate park EBITDA 474,644 468,336 440,147
Third-party share of EBITDA from parks
accounted for under the equity method (42,635) (41,827) (40,761)
Amortization of investment in theme park
partnerships (20,989) (20,370) (15,826)
Unallocated net expenses, including
corporate and expenses from parks acquired
after completion of the operating season (44,594) (47,720) (54,625)
Depreciation and amortization (199,800) (179,989) (154,264)
Interest expense (230,033) (232,336) (193,965)
Interest income 6,639 7,569 24,524
-------------- -------------- -------------
Income (loss) before income taxes $ (56,768) (46,337) 5,230
============== ============== =============
Theme park revenues $ 1,263,913 1,215,177 1,152,258
Theme park revenues from parks accounted
for under the equity method (217,949) (208,196) (225,274)
-------------- -------------- -------------
Consolidated total revenues $ 1,045,964 1,006,981 926,984
============== ============== =============
</Table>
F-38 (Continued)
<Page>
SIX FLAGS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Seven of our parks are located in Europe, one is located in Mexico and one
is located in Canada. The Canadian park was acquired in May 2001, the
Mexico park was acquired in May 1999 and one of the European parks was
acquired in November 1999. The following information reflects our
long-lived assets and revenues by domestic and foreign categories for 2001,
2000 and 1999:
<Table>
<Caption>
DOMESTIC FOREIGN TOTAL
------------ -------------- -----------
(IN THOUSANDS)
2001:
Long-lived assets $ 3,411,429 526,210 3,937,639
Revenues 877,820 168,144 1,045,964
2000:
Long-lived assets $ 3,346,733 504,414 3,851,147
Revenues 839,251 167,730 1,006,981
1999:
Long-lived assets $ 3,267,019 441,925 3,708,944
Revenues 830,578 96,406 926,984
</Table>
Long-lived assets include property and equipment, investment in theme park
partnerships and intangible assets.
(14) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Following is a summary of the unaudited interim results of operations for
the years ended December 31, 2001 and 2000:
<Table>
<Caption>
2001
---------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
-------------- -------------- -------------- -------------- ---------------
Total revenue $ 35,169,000 356,458,000 571,784,000 82,553,000 1,045,964,000
Net income (loss)
applicable to common
stock (140,602,000) 7,749,000 142,483,000 (94,247,000) (84,617,000)
Net income (loss) per
weighted average common
share outstanding:
Basic (1.76) 0.08 1.54 (1.02) (0.95)
Diluted (1.76) 0.08 1.39 (1.02) (0.95)
</Table>
<Table>
<Caption>
2000
---------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
-------------- -------------- -------------- -------------- ---------------
Total revenue $ 30,893,000 341,079,000 547,439,000 87,570,000 1,006,981,000
Net income (loss)
applicable to
common stock (119,714,000) 9,932,000 128,828,000 (94,293,000) (75,247,000)
Net income (loss) per
weighted
average common share
outstanding:
Basic (1.53) 0.13 1.64 (1.19) (0.96)
Diluted (1.53) 0.12 1.49 (1.19) (0.96)
</Table>
We operate a seasonal business. In particular, our theme park operations
contribute most of their annual revenue during the period from Memorial Day
to Labor Day each year. Also, on April 1, 2001, 11,500,000 common shares were
issued as a result of the conversion of the PIES.
F-39
<Page>
EXHIBIT INDEX PAGE
------------- ----
(3) Articles of Incorporation and By-Laws:
(a) Certificate of Designation of Series A Junior Preferred Stock of
Registrant -- incorporated by reference from Exhibit 2(1.C) to
Registrant's Form 8-A dated January 21, 1998.
(b) Restated Certificate of Incorporation of Registrant dated March 25,
1998 -- incorporated by reference from Exhibit 3 to Registrant's
Current Report on Form 8-K filed on March 26, 1998.
(c) Certificate of Designation, Rights and Preferences for 7 1/2%
Mandatorily Convertible Preferred Stock of Registrant -- incorporated
by reference from Exhibit 4(s) to Registrant's Registration Statement
on Form S-3 (No. 333-45859) declared effective on March 26, 1998.
(d) Certificate of Amendment of Certificate of Incorporation of Registrant
dated July 24, 1998 -- incorporated by reference from Exhibit 3(p) to
Registrant's Form 10-K for the year ended December 31, 1998.
(e) Certificate of Amendment of Certificate of Incorporation of Registrant
dated June 30, 2000 -- incorporated by reference from Exhibit 3.1 to
Registrant's Form 10-Q for the quarter ended June 30, 2000.
(f) Certificate of Designation, Rights and Preferences for 7 1/4%
Convertible Preferred Stock of Registrant -- incorporated by reference
from Exhibit 5 to Registrant's Current Report on Form 8-K filed on
January 23, 2001.
(g) Amended and Restated By-laws of Registrant -- incorporated by
reference from Exhibit 3.2 to Registrant's Form 10-Q for the quarter
ended June 30, 2000.
(4) Instruments Defining the Rights of Security Holders, Including Indentures:
(a) Form of Subscription Agreement between the Registrant and each of the
purchasers of shares of Preferred Stock -- incorporated by reference
from Exhibit 4(10) to the Registration Statement.
(b) Form of Subscription Agreement, dated October 1992, between the
Registrant and certain investors -- incorporated by reference from
Exhibit 4(a) to the Registrant's Current Report on Form 8-K dated
October 30, 1992.
(c) Form of Common Stock Certificate-- incorporated by reference from
Exhibit 4(l) to Registrant's Registration Statement on Form S-2 (Reg.
No. 333-08281) declared effective on May 28, 1996.
<Page>
(d) Form of Depository Receipt evidencing ownership of Registrant's
Premium Income Equity Securities-- incorporated by reference from
Exhibit 4(k) to Registrant's Registration Statement on Form S-3 (Reg.
No. 333-45859) declared effective on March 26, 1998.
(e) Indenture dated as of April 1, 1998 between Registrant and The Bank of
New York, as Trustee, with respect to Registrant's 10% Senior Discount
Notes due 2008 -- incorporated by reference from Exhibit 4(o) to
Registrant's Registration Statement on Form S-3 (Reg. No. 333-45859)
declared effective on March 26, 1998.
(f) Indenture dated as of April 1, 1998 between Registrant and The Bank of
New York, as Trustee, with respect to Registrant's 9 1/4% Senior
Discount Notes due 2006 -- incorporated by reference from Exhibit 4(p)
to Registrant's Registration Statement on Form S-3 (Reg. No.
333-45859) declared effective on March 26, 1998.
(g) Indenture dated as of April 1, 1998 between Registrant and The Bank of
New York, as Trustee, with respect to Registrant's 8 7/8% Senior
Discount Notes due 2006 -- incorporated by reference from Exhibit 4(q)
to Registrant's Registration Statement on Form S-3 (Reg. No.
333-45859) declared effective on March 26, 1998.
(h) Deposit Agreement dated as of April 1, 1998 among Registrant, The Bank
of New York and the holder from time to time of depositary receipts
executed and delivered thereunder -- incorporated by reference from
Exhibit 4(u) to Registrant's Registration Statement on Form S-3 (Reg.
No. 333-45859) declared effective on March 26, 1998.
(i) Indenture and First Supplemental Indenture dated as of June 30, 1999
between Registrant and The Bank of New York with respect to
Registrant's 9 3/4% Senior Notes due 2007 -- incorporated by reference
from Exhibits 4.1 and 4.2 to Registrant's Current Report on Form 8-K
dated July 2, 1999.
(j) Indenture dated as of February 2, 2001 between Registrant and The Bank
of New York with respect to Registrant's 9 1/2% Senior Notes due 2009
-- incorporated by reference from Exhibit 4(j) to Registrant's Form
10-K for the year ended December 31, 2000.
(k) Form of Deposit Agreement dated as of January 23, 2001 among
Registrant, The Bank of New York, as Depositary, and owners and
holders of depositary receipts -- incorporated by reference from
Exhibit 12 to Registrant's Form 8-A12B filed on January 23, 2001.
(l) Form of Depository Receipt evidencing ownership of Registrant's
Preferred Income Equity Redeemable Securities -- incorporated by
reference from Exhibit 13 to Registrant's Form 8-A12B filed on January
23, 2001. (m) Form of 7 1/4% Convertible Preferred Stock Certificate
-- incorporated by reference from Exhibit 14 to Registrant's Form
8-A12B filed on January 23, 2001.
<Page>
(m) Form of 7 1/4% Convertible Preferred Stock Certificate -- incorporated
by reference from Exhibit 14 to Registrant's Form 8-A12B filed on
January 23, 2001.
*(n) Indenture dated as of February 11, 2002 between Registrant and The
Bank of New York with respect to Registrant's 8 7/8% Senior Notes due
2010.
*(o) Registration Rights Agreement dated as of February 11, 2002 between
Registrant and the parties named therein with respect to Registrant's
8 7/8% Senior Notes due 2010.
(10) Material Contracts:
(a) Agreement of Limited Partnership of 229 East 79th Street Associates LP
dated July 24, 1987, together with amendments thereto dated,
respectively, August 31, 1987, October 21, 1987, and December 21, 1987
-- incorporated by reference from Exhibit 10(i) to Form 10-K of
Registrant for year ended December 31, 1987.
(b) Agreement of Limited Partnership of Frontier City Partners Limited
Partnership, dated October 18, 1989, between Frontier City Properties,
Inc. as general partner, and the Registrant and Frontier City
Properties, Inc. as limited partners -- incorporated by reference from
Exhibit 10(g) to the Registrant's Current Report on Form 8-K dated
October 18, 1989.
(c) Lease Agreement dated December 22, 1995 between Darien Lake Theme Park
and Camping Resort, Inc. and The Metropolitan Entertainment Co.,
Inc.-- incorporated by reference from Exhibit 10(o) to Registrant's
Form 10-K for the year ended December 31, 1995.
(d) Consulting and Non-Competition Agreement, dated October 30, 1996,
between Registrant and Arnold S. Gurtler-- incorporated by reference
from Exhibit 10(u) to Registrant's Registration Statement on Form S-2
(Reg. No. 333-16573) declared effective on January 27, 1997.
(e) Non-Competition Agreement, dated as of October 30, 1996 between
Registrant and Ascent Entertainment Group, Inc.-- incorporated by
reference from Exhibit 10(s) to Registrant's Registration Statement on
Form S-2 (Reg. No. 333-16573) declared effective on January 27, 1997.
(f) Consulting Agreement, dated December 4, 1996, between Registrant and
Charles R. Wood -- incorporated by reference from Exhibit 10(b) to
Registrant's Current Report on Form 8-K, dated December 13, 1996.
(g) Non-Competition Agreement dated as of December 4, 1996 between
Registrant and Charles R. Wood -- incorporated by reference from
Exhibit 10(c) of Registrant's Current Report on Form 8-K, dated
December 13, 1996.
<Page>
(h) Registrant's 1996 Stock Option and Incentive Plan -- incorporated by
reference from Exhibit 10(z) to Registrant's Form 10-K for the year
ended December 31, 1997.
(i) 1997 Management Agreement Relating to Marine World, by and between the
Marine World Joint Powers Authority and Park Management Corp, dated as
of the 1st day of February, 1997 -- incorporated by reference from
Exhibit 10(aa) to Registrant's Form 10-K for the year ended December
31, 1997.
(j) Purchase Option Agreement among City of Vallejo, Marine World Joint
Powers Authority and Redevelopment Agency of the City of Vallejo, and
Park Management Corp., dated as of August 29, 1997 -- incorporated by
reference from Exhibit 10(ab) to Registrant's Form 10-K for the year
ended December 31, 1997.
(k) Letter Agreement, dated November 7, 1997, amending 1997 Management
Agreement Relating to Marine World, by and between the Marine World
Joint Powers Authority and Park Management Corp., dated as of the 1st
day of February, 1997 -- incorporated by reference from Exhibit 10(ac)
to Registrant's Form 10-K for the year ended December 31, 1997.
(l) Reciprocal Easement Agreement between Marine World Joint Powers
Authority and Park Management Corp., dated as of November 7, 1997--
incorporated by reference from Exhibit 10(ad) to Registrant's Form
10-K for the year ended December 31, 1997.
(m) Parcel Lease between Marine World Joint Powers Authority and Park
Management Corp., dated as of November 7, 1997-- incorporated by
reference from Exhibit 10(ae) to Registrant's Form 10-K for the year
ended December 31, 1997.
(n) Employment Agreement, dated as of July 31, 1997, between Premier Parks
Inc. and Kieran E. Burke -- incorporated by reference from Exhibit
10(af) to Registrant's Form 10-K for the year ended December 31, 1997.
(o) Employment Agreement, dated as of July 31, 1997, between Premier Parks
Inc. and Gary Story -- incorporated by reference from Exhibit 10(ag)
to Registrant's Form 10-K for the year ended December 31, 1997.
(p) Employment Agreement, dated as of July 31, 1997, between Premier Parks
Inc. and James F. Dannhauser -- incorporated by reference from Exhibit
10(ah) to Registrant's Form 10-K for the year ended December 31, 1997.
(q) Rights Agreement dated as of January 12, 1998 between Premier Parks
Inc. and Bank One Trust Company, N.A., as Rights Agent-- incorporated
by reference from Exhibit 4.1 to Registrant's Current Report on Form
8-K dated December 15, 1997.
<Page>
(r) Stock Purchase Agreement dated as of December 15, 1997, between the
Registrant and Centrag S.A., Karaba N.V. and Westkoi N.V.--
incorporated by reference from Exhibit 10.1 to Registrant's Current
Report on Form 8-K dated December 15, 1997.
(s) Agreement and Plan of Merger dated as of February 9, 1998, by and
among the Registrant, Six Flags Entertainment Corporation and others
-- incorporated by reference from Exhibit 10(a) to Registrant's
Current Report on Form 8-K dated February 9, 1998.
(t) Agreement and Plan of Merger dated as of February 9, 1998, by and
among Premier Parks Inc., Premier Parks Holdings Corporation and
Premier Parks Merger Corporation -- incorporated by reference from
Exhibit 2.1 to Registrant's Current Report on Form 8-K dated March 25,
1998.
(u) Amended and Restated Rights Agreement between Premier Parks Inc. and
Bank One Trust Company, as Rights Agent -- incorporated by reference
from Exhibit 4.1 to Registrant's Current Report on Form 8-K dated
December 15, 1997, as amended.
(v) Registrant's 1998 Stock Option and Incentive Plan -- incorporated by
reference from Exhibit 10(ap) to Registrant's Form 10-K for the year
ended December 31, 1998.
(w) Subordinated Indemnity Agreement dated February 9, 1998 among
Registrant, the subsidiaries of Registrant named therein, Time Warner
Inc., the subsidiaries of Time Warner Inc. named therein, Six Flags
Entertainment Corporation and the subsidiaries of Six Flags
Entertainment Corporation named therein -- incorporated by reference
from Exhibit 2(b) to Registrant's Registration Statement on Form S-3
(No. 333-45859) declared effective on March 26, 1998.
(x) Sale and Purchase Agreement dated as of October , 1998 by and between
Registrant and Fiesta Texas Theme Park, Ltd. -- incorporated by
reference from Exhibit 10(at) to Registrant's Form 10-K for the year
ended December 31, 1998.
(y) Overall Agreement dated as of February 15, 1997 among Six Flags Fund,
Ltd. (L.P.), Salkin II Inc., SFOG II Employee, Inc., SFOG Acquisition
A, Inc., SFOG Acquisition B, Inc., Six Flags Over Georgia, Inc., Six
Flags Series of Georgia, Inc., Six Flags Theme Parks Inc. and Six
Flags Entertainment Corporation-- incorporated by reference from
Exhibit 10(au) to Registrant's Form 10-K for the year ended December
31, 1998.
<Page>
(z) Overall Agreement dated as of November 24, 1997 among Six Flags Over
Texas Fund, Ltd., Flags' Directors LLC, FD-II, LLC, Texas Flags Ltd.,
SFOT Employee, Inc., SFOT Parks Inc. and Six Flags Entertainment
Corporation-- incorporated by reference from Exhibit 10(av) to
Registrant's Form 10-K for the year ended December 31, 1998.
(aa) Credit Agreement dated as of November 5, 1999 among Registrant,
certain subsidiaries named therein, the Lenders from time to time
party thereto, The Bank of New York, as Syndicate Agent, Bank of
America, N.A. and The Bank of Nova Scotia, as Documentation Agents,
Lehman Brothers Inc. and Lehman Brothers International (Europe) Inc.,
as Advisors, Lead Arrangers and Bank Managers, and Lehman Commercial
Paper Inc., as Administrative Agent-- incorporated by reference from
Exhibit 10.1 to Registrant's Form 10-Q for the quarter ended September
30, 1999.
(bb) Stock Purchase Agreement dated as of December 6, 2000 among
Registrant, EPI Realty Holdings, Inc., Enchanted Parks, Inc., and
Jeffrey Stock-- incorporated by reference from Exhibit 10(bb) to
Registrant's Form 10-K for the year ended December 31, 2000.
(cc) Asset Purchase Agreement dated as of January 8, 2001 between
Registrant and Sea World, Inc. -- incorporated by reference from
Exhibit 10(cc) to Registrant's Form 10-K for the year ended December
31, 2000.
(dd) Amendment to Employment Agreement dated as of January 1, 2000 between
Registrant and Kieran E. Burke -- incorporated by reference from
Exhibit 10(dd) to Registrant's Form 10-K for the year ended December
31, 2000.
(ee) Amendment to Employment Agreement dated as of January 1, 2000 between
Registrant and Gary Story -- incorporated by reference from Exhibit
10(ee) to Registrant's Form 10-K for the year ended December 31, 2000.
(ff) Amendment to Employment Agreement dated as of January 1, 2000 between
Registrant and James F. Dannhauser -- incorporated by reference from
Exhibit 10(ff) to Registrant's Form 10-K for the year ended December
31, 2000.
*(gg) Emphyteutic Lease dated May 2, 2001 between Ville de Montreal and
Parc Six Flags Montreal, S.E.C.
*(21) Subsidiaries of the Registrant.
*(23.1) Consent of KPMG LLP.
- ----------
*Filed herewith.