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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED JUNE 30 , 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER: 0-9789
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SIX FLAGS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3995059
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11501 NORTHEAST EXPRESSWAY, OKLAHOMA CITY, OKLAHOMA 73131
(Address of principal executive offices, including zip code)
(405) 475-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
At August 1, 2001, Six Flags, Inc. had outstanding 92,311,889 shares
of Common Stock, par value $.025 per share.
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<Page>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
SIX FLAGS, INC.
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
JUNE 30, 2001 DECEMBER 31, 2000
------------- -----------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 76,822,000 $ 42,978,000
Accounts receivable 87,635,000 40,771,000
Inventories 40,830,000 28,588,000
Prepaid expenses and other current assets 39,974,000 35,855,000
Restricted-use investment securities -- 12,773,000
-------------- --------------
Total current assets 245,261,000 160,965,000
Other assets:
Debt issuance costs 49,952,000 46,967,000
Restricted-use investment securities 69,962,000 75,376,000
Deposits and other assets 55,962,000 56,884,000
-------------- --------------
Total other assets 175,876,000 179,227,000
Property and equipment, at cost 2,740,188,000 2,585,927,000
Less accumulated depreciation 392,955,000 328,027,000
-------------- --------------
Total property and equipment 2,347,233,000 2,257,900,000
Investment in theme park partnerships 387,347,000 386,638,000
Intangible assets, principally goodwill 1,413,016,000 1,354,289,000
Less accumulated amortization 175,908,000 147,680,000
-------------- --------------
Total intangible assets 1,237,108,000 1,206,609,000
-------------- --------------
Total assets $4,392,825,000 $4,191,339,000
============== ==============
</Table>
-2-
<Page>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS, INC.
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
JUNE 30, 2001 DECEMBER 31, 2000
------------- -----------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 94,989,000 $ 45,315,000
Accrued liabilities 60,488,000 62,727,000
Accrued interest payable 31,367,000 24,353,000
Deferred income 69,071,000 8,788,000
Current portion of long-term debt 79,923,000 2,401,000
--------------- ---------------
Total current liabilities 335,838,000 143,584,000
Long-term debt 2,281,538,000 2,319,912,000
Other long-term liabilities 47,923,000 37,937,000
Deferred income taxes 62,507,000 144,919,000
Mandatorily redeemable preferred stock (redemption
value of $287,500,000) 278,390,000 --
Stockholders' equity:
Preferred stock of $1.00 par value -- 12,000
Common stock of $.025 par value 2,308,000 2,001,000
Capital in excess of par value 1,741,555,000 1,725,890,000
Accumulated deficit (259,241,000) (128,928,000)
Deferred compensation (10,426,000) (5,399,000)
Accumulated other comprehensive income (loss) (87,567,000) (48,589,000)
--------------- ---------------
Total stockholders' equity 1,386,629,000 1,544,987,000
--------------- ---------------
Total liabilities and stockholders' equity $ 4,392,825,000 $ 4,191,339,000
=============== ===============
</Table>
See accompanying notes to consolidated financial statements
-3-
<Page>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
<Table>
<Caption>
2001 2000
------------- -------------
Revenue:
Theme park admissions $ 195,246,000 $ 188,526,000
Theme park food, merchandise and other 161,212,000 152,553,000
------------- -------------
Total revenue 356,458,000 341,079,000
------------- -------------
Operating costs and expenses:
Operating expenses 130,441,000 117,875,000
Selling, general and administrative 75,999,000 61,986,000
Noncash compensation (primarily selling, general and administrative) 2,419,000 3,145,000
Costs of products sold 31,519,000 32,355,000
Depreciation and amortization 49,679,000 44,627,000
------------- -------------
Total operating costs and expenses 290,057,000 259,988,000
------------- -------------
Income from operations 66,401,000 81,091,000
------------- -------------
Other income (expense):
Interest expense (57,836,000) (60,791,000)
Interest income 1,220,000 1,804,000
Equity in operations of theme park partnerships 14,299,000 9,075,000
Other income (expense) 984,000 (122,000)
------------- -------------
Total other income (expense) (41,333,000) (50,034,000)
------------- -------------
Income before income taxes 25,068,000 31,057,000
Income tax expense 11,420,000 15,303,000
------------- -------------
Income before extraordinary loss 13,648,000 15,754,000
Extraordinary loss on extinguishment of debt, net of
income tax benefit of $139,000 in 2001 (228,000) --
------------- -------------
Net income $ 13,420,000 $ 15,754,000
============= =============
Net income applicable to common stock $ 7,749,000 $ 9,932,000
============= =============
Per share amounts:
Income per average share - basic:
Income before extraordinary loss $ 0.09 $ 0.13
Extraordinary loss (0.01) --
------------- -------------
Net income $ 0.08 $ 0.13
============= =============
Income per average share - diluted:
Income before extraordinary loss $ 0.09 $ 0.12
Extraordinary loss (0.01) --
------------- -------------
Net income $ 0.08 $ 0.12
============= =============
Weighted average number of shares outstanding - basic 91,919,000 78,677,000
============= =============
Weighted average number of shares outstanding - diluted 92,934,000 79,849,000
============= =============
</Table>
See accompanying notes to consolidated financial statements
-4-
<Page>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
<Table>
<Caption>
2001 2000
------------- -------------
Revenue:
Theme park admissions $ 209,665,000 $ 200,875,000
Theme park food, merchandise and other 181,962,000 171,097,000
------------- -------------
Total revenue 391,627,000 371,972,000
------------- -------------
Operating costs and expenses:
Operating expenses 194,959,000 177,068,000
Selling, general and administrative 110,921,000 95,994,000
Noncash compensation (primarily selling, general and
administrative) 3,776,000 6,292,000
Costs of products sold 34,506,000 34,823,000
Depreciation and amortization 97,942,000 86,759,000
------------- -------------
Total operating costs and expenses 442,104,000 400,936,000
------------- -------------
Loss from operations (50,477,000) (28,964,000)
------------- -------------
Other income (expense):
Interest expense (116,809,000) (116,151,000)
Interest income 4,179,000 4,109,000
Equity in operations of theme park partnerships (77,000) (5,080,000)
Other income (expense) (2,175,000) 135,000
------------- -------------
Total other income (expense) (114,882,000) (116,987,000)
------------- -------------
Loss before income taxes (165,359,000) (145,951,000)
Income tax benefit 56,556,000 47,813,000
------------- -------------
Loss before extraordinary loss (108,803,000) (98,138,000)
Extraordinary loss on extinguishment of debt, net of
income tax benefit of $5,227,000 in 2001 (8,529,000) --
------------- -------------
Net loss $(117,332,000) $ (98,138,000)
============= =============
Net loss applicable to common stock $(132,853,000) $(109,782,000)
============= =============
Per share amounts:
Loss per average share - basic and diluted:
Loss before extraordinary loss $ (1.45) $ (1.40)
Extraordinary loss (0.09) --
------------- -------------
Net loss $ (1.54) $ (1.40)
============= =============
Weighted average number of common shares outstanding -
basic and diluted 86,033,000 78,583,000
============= =============
</Table>
See accompanying notes to consolidated financial statements
-5-
<Page>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ---------------------------------
2001 2000 2001 2000
------------ ----------- ------------- -------------
Net income (loss) $ 13,420,000 $15,754,000 $(117,332,000) $ (98,138,000)
Other comprehensive income (loss):
Foreign currency translation adjustment (9,059,000) (6,194,000) (31,340,000) (16,665,000)
Cumulative effect of change in accounting principle -- -- (3,098,000) --
Net change in fair value of derivative instruments (1,564,000) -- (5,939,000) --
Reclassifications of amounts taken to operations 622,000 -- 1,399,000 --
------------ ----------- ------------- -------------
Comprehensive income (loss) $ 3,419,000 $ 9,560,000 $(156,310,000) $(114,803,000)
============ =========== ============= =============
</Table>
See accompanying notes to consolidated financial statements
-6-
<Page>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
<Table>
<Caption>
2001 2000
------------- -------------
Cash flow from operating activities:
Net loss $(117,332,000) $ (98,138,000)
Adjustments to reconcile net loss to net cash provided
by operating activities (net of effects of acquisitions):
Depreciation and amortization 97,942,000 86,759,000
Equity in operations of theme park partnerships 77,000 5,080,000
Cash received from theme park partnerships 4,413,000 8,375,000
Noncash compensation 3,776,000 6,292,000
Interest accretion on notes payable 16,659,000 14,992,000
Interest accretion on restricted-use investments -- (1,656,000)
Extraordinary loss on early extinguishment of debt 13,756,000 --
Amortization of debt issuance costs 4,637,000 4,392,000
Loss on sale of fixed assets 127,000 --
Increase in accounts receivable (44,679,000) (45,012,000)
Increase in inventories, prepaid expenses and other
current assets (15,670,000) (19,702,000)
Decrease in deposits and other assets 922,000 4,074,000
Increase in accounts payable, accrued liabilities and other
liabilities 95,300,000 83,614,000
Increase in accrued interest payable 7,014,000 2,845,000
Decrease in deferred income taxes (63,348,000) (48,156,000)
------------- -------------
Total adjustments 120,926,000 101,897,000
------------- -------------
Net cash provided by operating activities 3,594,000 3,759,000
------------- -------------
Cash flow from investing activities:
Additions to property and equipment (107,429,000) (250,121,000)
Investment in theme park partnerships (5,199,000) (17,539,000)
Acquisition of theme park assets (131,864,000) --
Purchase of restricted-use investments (1,041,000) --
Maturities of restricted-use investments 19,498,000 15,138,000
Proceeds from sale of assets 2,420,000 --
------------- -------------
Net cash used in investing activities (223,615,000) (252,522,000)
------------- -------------
Cash flow from financing activities:
Repayment of debt (561,416,000) (92,542,000)
Proceeds from borrowings 559,427,000 301,000,000
Net cash proceeds from issuance of preferred stock 277,934,000 --
Net cash proceeds from issuance of common stock 1,234,000 3,498,000
Payment of cash dividends (12,423,000) (11,644,000)
Payment of debt issuance costs (10,760,000) --
------------- -------------
Net cash provided by financing activities 253,996,000 200,312,000
------------- -------------
Effect of exchange rate changes on cash (131,000) (1,060,000)
------------- -------------
Increase (decrease) in cash and cash equivalents 33,844,000 (49,511,000)
Cash and cash equivalents at beginning of period 42,978,000 138,131,000
------------- -------------
Cash and cash equivalents at end of period $ 76,822,000 $ 88,620,000
============= =============
Supplementary cash flow information:
Cash paid for interest $ 88,499,000 $ 93,922,000
============= =============
Cash paid for income taxes $ 2,189,000 $ --
============= =============
Assets acquired through capital leases $ 13,869,000 $ --
============= =============
</Table>
See accompanying notes to consolidated financial statements
-7-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL -- BASIS OF PRESENTATION
Six Flags owns and operates regional theme amusement and water parks. As
of June 30, 2001, the Company and its subsidiaries owned or operated 38 parks,
including 29 domestic parks, one park in Canada, one in Mexico and seven parks
in Europe. Six Flags is also managing the construction and development of a
theme park in Europe. As used herein, Holdings refers only to Six Flags, Inc.,
without regard to its subsidiaries.
In December 2000, the Company purchased all of the capital stock of the
company that owns Enchanted Village and Wild Waves, a water and children's ride
park located near Seattle, Washington. In February 2001, the Company purchased
substantially all of the assets used in the operation of Sea World of Ohio, a
marine wildlife park located adjacent to the Company's Six Flags Ohio theme
park. In May 2001, the Company acquired substantially all of the assets of La
Ronde, a theme park located in Montreal, Canada. See Note 3.
The accompanying financial statements for the three and six months ended
June 30, 2001 include the results of Enchanted Village for the entire periods,
of the former Sea World of Ohio only subsequent to its acquisition date,
February 9, 2001, and of La Ronde only subsequent to its acquisition date, May
2, 2001. The accompanying consolidated financial statements for the three and
six months ended June 30, 2000 do not include the results of these parks.
Management's Discussion and Analysis of Financial Condition and Results of
Operations which follows these notes contains additional information on the
results of operations and the financial position of the Company. Those comments
should be read in conjunction with these notes. The Company's annual report on
Form 10-K for the year ended December 31, 2000 includes additional information
about the Company, its operations and its financial position, and should be
referred to in conjunction with this quarterly report on Form 10-Q. The
information furnished in this report reflects all adjustments (all of which are
normal and recurring, except for the change in accounting principle) which are,
in the opinion of management, necessary to present a fair statement of the
results for the periods presented.
Results of operations for the three and six month periods ended June 30,
2001 are not indicative of the results expected for the full year. In
particular, the Company's theme park operations contribute a significant
majority of their annual revenue during the period from Memorial Day to Labor
Day each year.
DERIVATIVE INSTRUMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
an entity to recognize all derivatives as either assets or liabilities in the
consolidated balance sheet and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge for accounting purposes. The accounting for changes in the fair value of a
derivative (that is gains and losses) depends on the intended use of the
derivative and the resulting designation. The Company adopted the provisions of
SFAS No. 133 as of January 1, 2001. As a result of the adoption, the Company
recognized a liability of approximately $4,996,000 and recorded in other
comprehensive income (loss) $3,098,000 (net of
-8-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
tax effect) as a cumulative effect of a change in accounting principle, which
will be amortized into operations over the original term of the interest rate
swap agreements.
As of January 1, 2001, the Company was a party to three interest swap
agreements related to $600,000,000 of term debt that was outstanding under the
Company's credit facility. Two of the three interest rate swap agreements
contained "knock-out" provisions that did not meet the definition of a
derivative instrument that could be designated as a hedge under SFAS 133 or SFAS
138. From January 1, 2001 to February 23, 2001, the Company recognized in other
income (expense) a $3,200,000 expense related to the change in fair value of
these two hedges. As of February 23, 2001, the interest rate swap agreements
were amended and the knock-out provisions were removed. As of that date and
through June 30, 2001, the Company has designated all of the interest rate swap
agreements as cash-flow hedges.
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. This process includes
linking all derivatives that are designated as cash-flow hedges to forecasted
transactions. The Company also assesses, both at the hedge's inception and on an
ongoing basis, whether the derivatives that are used in hedging transactions are
highly effective in offsetting changes in cash flows of hedged items.
Changes in the fair value of a derivative that is effective and that is
designated and qualifies as a cash-flow hedge are recorded in other
comprehensive income (loss), until operations are affected by the variability in
cash flows of the designated hedged item. Changes in fair value of a derivative
that is not designated as a hedge are recorded in operations on a current basis.
During the first six months of 2001, there were no gains or losses
reclassified into operations as a result of the discontinuance of hedge
accounting treatment for any of the Company's derivatives.
By using derivative instruments to hedge exposures to changes in interest
rates, the Company exposes itself to credit risk and market risk. Credit risk is
the failure of the counterparty to perform under the terms of the derivative
contract. To mitigate this risk, the hedging instruments are usually placed with
counterparties that the Company believes are minimal credit risks.
Market risk is the adverse effect on the value of a financial instrument
that results from a change in interest rates, commodity prices, or currency
exchange rates. The market risk associated with interest rate swap agreements is
managed by establishing and monitoring parameters that limit the types and
degree of market risk that may be undertaken.
The Company does not hold or issue derivative instruments for trading
purposes. Changes in the fair value of derivatives that are designated as hedges
are reported on the balance sheet in "Accumulated other comprehensive loss"
("AOCL"). These amounts are reclassified to interest expense when the forecasted
transaction takes place.
Since the critical terms, such as the index, settlement dates, and
notional amounts, of the derivative instruments are the same as the terms of the
Company's hedged borrowings under the credit facility, no ineffectiveness of the
cash-flow hedges was recorded in the consolidated statements of operations.
As of June 30, 2001, approximately $5,700,000 of net deferred losses on
derivative instruments, including the transition adjustment, accumulated in AOCL
are expected to be reclassified to operations
-9-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
during the next 12 months. Transactions and events expected to occur over the
next twelve months that will necessitate reclassifying these derivatives' losses
to operations are the periodic payments that are required to be made on
outstanding borrowings. The maximum term over which the Company is hedging
exposures to the variability of cash flows for commodity price risk is 21
months.
INCOME (LOSS) PER SHARE
The following table reconciles the weighted average number of common
shares outstanding used in the calculations of basic and diluted income (loss)
per share for the three and six month periods ended June 30, 2001 and 2000,
respectively. The effect of potential common shares issuable upon the exercise
of employee stock options on the weighted average number of shares on a diluted
basis was antidilutive to the diluted loss per share calculation for each
six-month period. Additionally, the weighted average number of shares of Common
Stock for each period does not include the effect of the potential conversion of
the Company's convertible preferred stock (represented by the Company's Premier
Income Equity Securities ("PIES") which automatically converted into 11,500,000
shares of Common Stock on April 2, 2001, and Preferred Income Equity Redeemable
Shares ("PIERS") which are convertible into 13,789,000 shares of Common Stock)
as the effects of such conversion and the resulting decrease in preferred stock
dividends is antidilutive.
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Weighted average number of common shares
outstanding - basic ......................... 91,919,00 78,677,000 86,033,000 78,583,000
Effect of potential common shares issuable upon
the exercise of employee stock options ...... 1,015,000 1,172,000 -- --
---------- ---------- ---------- ----------
Weighted average number of common shares
outstanding - diluted ....................... 92,934,000 79,849,000 86,033,000 78,583,000
========== ========== ========== ==========
</Table>
2. PREFERRED STOCK
In January 2001, the Company issued 11,500,000 PIERS, for proceeds of
$277,934,000, net of the underwriting discount and offering expenses of
$9,566,000. The Company used the net proceeds of the offering to fund its
acquisition of the former Sea World of Ohio (see Note 3), to repay borrowings
under the working capital revolving credit portion of the Company's senior
credit facility (see Note 4(d)) and for working capital. Each PIERS represents
one one-hundredth of a share of the Company's 7 1/4% mandatorily redeemable
preferred stock (an aggregate of 115,000 shares of preferred stock). The PIERS
accrue cumulative dividends (payable, at the Company's option, in cash or shares
of common stock) at 7 1/4% per annum (approximately $20,844,000 per annum).
-10-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Prior to August 15, 2009, each of the PIERS is convertible at the option
of the holder into 1.1990 common shares (equivalent to a conversion price of
$20.85 per common share), subject to adjustment in certain circumstances (the
"Conversion Price"). At any time on or after February 15, 2004 and at the then
applicable conversion rate, the Company may cause the PIERS, in whole or in
part, to be automatically converted if for 20 trading days within any period of
30 consecutive trading days, including the last day of such period, the closing
price of the Company's common stock exceeds 120% of the then prevailing
Conversion Price. On August 15, 2009, the PIERS are mandatorily redeemable in
cash equal to 100% of the liquidation preference (initially $25.00 per PIERS),
plus any accrued and unpaid dividends.
On April 2, 2001, the Company's 5,750,000 shares of PIES automatically
converted into 11,500,000 shares of the Company's common stock. In addition, on
that date the Company issued to the holders of the PIES 278,912 shares of common
stock, representing the final quarterly dividend payment on the PIES.
3. ACQUISITION OF THEME PARKS
On December 6, 2000, the Company acquired all of the capital stock of the
company that owns Enchanted Village and Wild Waves ("Enchanted Village"), a
water park and children's ride park located near Seattle, Washington, for a
purchase price of $19,255,000 paid through issuance of 1,339,223 shares of the
Company's common stock. As of the acquisition date, $4,471,000 of deferred tax
liabilities were recognized for the tax consequences attributable to the
differences between the financial carrying amounts and the tax basis of
Enchanted Village's assets and liabilities. Approximately $4,235,000 of costs in
excess of the fair value of the net assets acquired were recorded as goodwill.
The transaction was accounted for as a purchase.
On February 9, 2001, the Company acquired substantially all of the assets
used in the operation of Sea World of Ohio, a marine wildlife park located
adjacent to the Company's Six Flags Ohio theme park, for a cash purchase price
of $110,000,000. The Company funded the acquisition from a portion of the
proceeds of the PIERS offering. See Note 2. Approximately $57,785,000 of costs
in excess of the fair value of the net assets acquired were recorded as
goodwill. The transaction was accounted for as a purchase.
On May 2, 2001, the Company acquired substantially all of the assets of La
Ronde, a theme park located in the City of Montreal for a cash purchase price of
Can. $30,000,000 (approximately US $19,600,000 at the exchange rate on such
date). The Company has agreed to invest in the park Can. $90,000,000
(approximately US $58,700,000 at that exchange rate) over four seasons
commencing in 2002. The Company leased the land on which the park is located on
a long-term basis. Approximately U.S. $6,648,000 of costs in excess of the fair
value of the net assets acquired were recorded as goodwill. The transaction was
accounted for as a purchase.
4. LONG-TERM INDEBTEDNESS
(a) On January 31, 1997, Six Flags Operations Inc., the predecessor to and
currently a wholly-owned subsidiary of Holdings ("Six Flags Operations"), issued
$125,000,000 principal amount of senior notes due January 2007 (the "1997
Notes"). The 1997 Notes are senior unsecured obligations of Six Flags
Operations. The 1997 Notes bear interest at 9 3/4% per annum payable
semiannually and are redeemable, at Six Flags Operations' option, in whole or in
part, at any time on or after January 15, 2002, at varying redemption prices.
The 1997 Notes are guaranteed on a senior, unsecured, joint and several basis by
all of Six Flags Operations' principal domestic subsidiaries.
-11-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On January 29, 2001, Six Flags Operations commenced a tender offer for all
of the aggregate principal amount of the 1997 Notes. In conjunction with the
tender offer, noteholder consents were solicited to effect certain amendments to
the indenture governing the 1997 Notes. Six Flags Operations received tenders of
notes and related consents from holders of $124,731,000 principal amount (99.8%)
of the outstanding notes. The tendered notes were purchased and the indenture
amendments became effective on March 2, 2001. The purchase price (including
consent fee) paid was approximately $1,085 for each $1,000 principal amount of
notes plus accrued and unpaid interest up to, but not including, the payment
date. As a result of the early extinguishment of debt, the Company recognized a
loss of approximately $8,529,000, net of tax effect. On February 2, 2001,
Holdings completed an offering of $375,000,000 principal amount of 9 1/2% Senior
Notes (the "2001 Senior Notes") due 2009. A portion of the proceeds of the 2001
Senior Notes was used to finance the tender offer and consent solicitation. See
Note 4(f).
(b) On April 1, 1998, Holdings issued at a discount $410,000,000 principal
amount at maturity ($345,739,000 and $329,275,000 carrying value as of June 30,
2001 and December 31, 2000, respectively) of Senior Discount Notes and
$280,000,000 principal amount of 9 1/4% Senior Notes (the "1998 Senior Notes").
The notes are senior unsecured obligations of Holdings, and are not guaranteed
by Holdings' subsidiaries. The Senior Discount Notes do not require any interest
payments prior to October 1, 2003 and, except in the event of a change of
control of the Company and certain other circumstances, any principal payments
prior to their maturity in 2008. The Senior Discount Notes have an interest rate
of 10% per annum. The 1998 Senior Notes require annual interest payments of
approximately $25,900,000 (9 1/4% per annum) and, except in the event of a
change of control of the Company and certain other circumstances, do not require
any principal payments prior to their maturity in 2006. The notes are
redeemable, at the Company's option, in whole or in part, at any time on or
after April 1, 2002 (in the case of the 1998 Senior Notes) and April 1, 2003 (in
the case of the Senior Discount Notes), at varying redemption prices.
Approximately $75,000,000 of the net proceeds of the Senior Discount Notes
were invested in restricted-use securities, until April 1, 2003, to provide
funds to pay certain of Six Flags' obligations to the limited partners of Six
Flags Over Georgia and Six Flags Over Texas (the "Partnership Parks").
The indentures under which the Senior Discount Notes and the 1998 Senior
Notes were issued limit the ability of Holdings and its subsidiaries to dispose
of assets; incur additional indebtedness or liens; pay dividends; engage in
mergers or consolidations; and engage in certain transactions with affiliates.
(c) On April 1, 1998, Six Flags Entertainment Corporation ("SFEC"), which
was subsequently merged into Six Flags Operations, issued $170,000,000 principal
amount of 8 7/8% Senior Notes (the "SFO Notes"). The SFO Notes are guaranteed on
a fully subordinated basis by Holdings. The SFO Notes require annual interest
payments of approximately $15,100,000 (8 7/8% per annum) and, except in the
event of a change of control of Six Flags Operations and certain other
circumstances, do not require any principal payments prior to their maturity in
2006. The SFO Notes are redeemable, at the Company's option, in whole or in
part, at any time on or after April 1, 2002, at varying redemption prices.
The indenture under which the SFO Notes were issued limits the ability of
Six Flags Operations and its subsidiaries to dispose of assets; incur additional
indebtedness or liens; pay dividends; engage in mergers or consolidations; and
engage in certain transactions with affiliates.
(d) On November 5, 1999, Six Flags Theme Parks Inc., an indirect
wholly-owned subsidiary of the Company ("SFTP"), entered into a senior credit
facility (the "Credit Facility") and, in connection
-12-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
therewith, SFEC merged into Six Flags Operations and SFTP became a subsidiary of
Six Flags Operations. The Credit Facility includes a $300,000,000 five-year
working capital revolving credit facility ($75,000,000 of which was outstanding
at June 30, 2001), a $300,000,000 five-and-one-half-year multicurrency reducing
revolver facility ($68,000,000 of which was outstanding at June 30, 2001) and a
$600,000,000 six-year term loan (all of which was outstanding at June 30, 2001).
Borrowings under the five-year revolving credit facility must be repaid in full
for thirty consecutive days each year. The interest rate on borrowings under the
Credit Facility can be fixed for periods ranging from one to six months. At the
Company's option the interest rate is based upon specified levels in excess of
the applicable base rate or LIBOR. The Company has entered into interest rate
swap agreements that effectively convert the term loan component of the Credit
Facility into a fixed rate obligation through the term of the swap agreements,
ranging from December 2002 to March 2003. At June 30, 2001, the weighted average
interest rates for borrowings under the working capital revolver, multicurrency
revolver and term loan were 7.27%, 5.94% and 8.99%, 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.
The Credit Facility contains restrictive covenants that, among other
things, limit the ability of Six Flags Operations and its subsidiaries to
dispose of assets; incur additional indebtedness or liens; repurchase stock;
make investments; engage in mergers or consolidations; pay dividends (except
that (subject to covenant compliance) dividends will be permitted to allow
Holdings to meet cash interest obligations with respect to its 1998 Senior
Notes, Senior Discount Notes, 1999 Senior Notes and 2001 Senior Notes
(collectively, the "SFI Senior Notes"), cash dividend payments on the PIERS and
obligations to the limited partners in the Partnership Parks) and engage in
certain transactions with subsidiaries and affiliates. In addition, the Credit
Facility requires that Six Flags Operations comply with certain specified
financial ratios and tests.
(e) On June 30, 1999, Holdings issued $430,000,000 principal amount of 9
3/4% Senior Notes (the "1999 Senior Notes"). The 1999 Senior Notes are senior
unsecured obligations of Holdings, are not guaranteed by subsidiaries and rank
equal to the other SFI Senior Notes. The 1999 Senior Notes require annual
interest payments of approximately $41,900,000 (9 3/4% per annum) and, except in
the event of a change in control of the Company and certain other circumstances,
do not require any principal payments prior to their maturity in 2007. The 1999
Senior Notes are redeemable, at Holding's option, in whole or in part, at any
time on or after June 15, 2003, at varying redemption prices. The indenture
under which the 1999 Senior Notes were issued contains covenants substantially
similar to those relating to the other SFI Senior Notes. The net proceeds of the
1999 Senior Notes were used to retire notes of Six Flags Operations and SFTP.
(f) On February 2, 2001, Holdings issued $375,000,000 principal amount of
the 2001 Senior Notes. The 2001 Senior Notes are senior unsecured obligations of
Holdings, are not guaranteed by subsidiaries and rank equal to the other SFI
Senior Notes. The 2001 Senior Notes require annual interest payments of
approximately $35,600,000 (9 1/2% per annum) and, except in the event of a
change in control of the Company and certain other circumstances, do not require
any principal payments prior to
-13-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
their maturity in 2009. The 2001 Senior Notes are redeemable, at Holding's
option, in whole or in part, at any time on or after February 1, 2005, at
varying redemption prices. The indenture under which the 2001 Senior Notes were
issued contains covenants substantially similar to those relating to the other
SFI Senior Notes. The net proceeds of the 2001 Senior Notes were used to fund
the tender offer and consent solicitation relating to the 1997 Notes (see Note
4(a)) and to repay borrowings under the multicurrency revolving portion of the
Credit Facility (see Note 4(d)).
5. COMMITMENTS AND CONTINGENCIES
On March 21, 1999, a raft capsized in the river rapids ride at Six Flags
Over Texas, one of the Company's Partnership Parks, resulting in one fatality
and injuries to ten others. As a result of the fatality, a case entitled JERRY
L. CARTWRIGHT, ET AL VS. PREMIER PARKS, INC. D/B/A SIX FLAGS OVER TEXAS, INC.
was commenced seeking unspecified damages. The Partnership Park is covered by
the Company's multi-layered general liability insurance coverage of up to
$100,000,000 per occurrence, with no self-insured retention. The Company does
not believe that the impact of this incident or the resulting lawsuit will have
a material adverse effect on the Company's consolidated financial position,
operations, or liquidity.
In December 1998, a final judgment of $197,300,000 in compensatory damages
was entered against SFEC, SFTP, Six Flags Over Georgia, Inc. and Time Warner
Entertainment Company, L.P. ("TWE"), and a final judgment of $245,000,000 in
punitive damages was entered against TWE and $12,000,000 in punitive damages was
entered against the Six Flags entities. The compensatory damages judgment has
been paid and the Company has been advised that TWE is appealing the punitive
damages judgment to the United States Supreme Court. The judgments arose out of
a case entitled SIX FLAGS OVER GEORGIA, LLC ET AL V. TIME WARNER ENTERTAINMENT
COMPANY, LP ET AL based on certain disputed partnership affairs prior to the
Company's acquisition of the former Six Flags at Six Flags Over Georgia,
including alleged breaches of fiduciary duty. The sellers in the Six Flags
acquisition, including Time Warner, Inc., have agreed to indemnify the Company
from any and all liabilities arising out of this litigation.
The Company is party to various legal actions arising in the normal course
of business. Matters that are probable of unfavorable outcome to the Company and
which can be reasonably estimated are accrued. Such accruals are based on
information known about the matters, the Company's estimates of the outcomes of
such matters and its experience in contesting, litigating and settling similar
matters. None of the actions are believed by management to involve amounts that
would be material to consolidated financial position, operations, or liquidity
after consideration of recorded accruals.
-14-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENT IN THEME PARK PARTNERSHIPS
The following reflects the summarized results of the four parks managed by
the Company during the three and six months ended June 30, 2001 and 2000.
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ -------------------------------
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------- ------------- ------------- -------------
(In Thousands)
Revenue ................................... $93,145 $83,105 $ 105,349 $94,855
Expenses:
Operating expenses ..................... 25,385 23,576 44,392 43,053
Selling, general and administrative .... 13,996 12,930 23,798 21,489
Costs of products sold ................. 6,293 6,766 7,058 8,198
Depreciation and amortization .......... 6,431 3,082 15,306 7,462
Interest expense, net .................. 3,408 4,429 7,580 7,213
Other expense .......................... -- 171 (24) 393
------- ------- --------- -------
Total ............................... 55,514 50,954 98,110 87,808
------- ------- --------- -------
Net income ................................ $37,632 $32,151 $ 7,239 $ 7,047
======= ======= ========= =======
</Table>
The Company's share of income from operations of the four theme parks for
the three and six months ended June 30, 2001 was $19,834,000 and $10,996,000,
respectively, prior to depreciation and amortization charges of $5,197,000 and
$10,396,000, respectively, and third-party interest and other non-operating
expenses $337,000 and $676,000, respectively. The Company's share of income from
operations of the four theme parks for the three and six months ended June 30,
2000 was $14,076,000 and $4,795,000, respectively, prior to depreciation and
amortization charges of $4,767,000 and $9,534,000, respectively, and third-party
interest and other non-operating expenses $234,000 and $341,000, respectively.
The following information reflects the reconciliation between the results of the
four theme parks and the Company's share of the results:
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- -------------------------------
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------- ------------- ------------- -------------
(In Thousands)
Theme park partnership net income ...... $ 37,632 $ 32,151 $ 7,239 $ 7,047
Third party share of net income ........ (21,845) (21,195) (4,973) (8,791)
Amortization of Company's
investment in theme park
partnerships in excess of share
of net assets ...................... (1,488) (1,881) (2,343) (3,336)
-------- -------- ------- -------
Equity in operations of theme park
partnerships ...................... 14,299 $ 9,075 $ (77) $(5,080)
======== ======== ======= =======
</Table>
There is a substantial difference between the carrying value of the
Company's investment in the theme parks and the net book value of the theme
parks. The difference is being amortized over 20 years for the Partnership Parks
and over the expected useful life of the rides and equipment installed by the
Company at Six Flags Marine World. The following information reconciles the
Company's share of the net assets of the theme parks partnerships and its
investment in the partnership.
-15-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<Table>
<Caption>
JUNE 30, 2001 DECEMBER 31, 2000
------------- -----------------
Company's share of net assets of
theme park partnerships ........................... $105,213,000 $107,717,000
Company's investment in theme park
partnerships in excess of share of net assets ..... 191,028,000 187,814,000
Advances made to theme park partnerships ............. 91,107,000 91,107,000
------------ ------------
Investments in theme park partnerships ............... $387,348,000 $386,638,000
============ ============
</Table>
7. BUSINESS SEGMENTS
The Company manages its operations on an individual park location basis.
Discrete financial information is maintained for each park and provided to the
Company's management for review and as a basis for decision making. The primary
performance measure used to allocate resources is earnings before interest, tax
expense, depreciation and amortization ("EBITDA"). All of the Company's parks
provide similar products and services through a similar process to the same
class of customer through a consistent method. As such, the Company has only one
reportable segment - operation of theme parks. The following tables present
segment financial information, a reconciliation of the primary segment
performance measure to income (loss) before income taxes and a reconciliation of
theme park revenue to consolidated total revenue. Park level expenses exclude
all noncash operating expenses, principally depreciation and amortization, and
all non-operating expenses.
<Table>
<Caption>
Three Months Ended Six Months Ended
--------------------------------- ---------------------------------
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------- ------------- ------------- -------------
Theme park revenue ...................... $ 449,603 $ 424,184 $ 496,976 $ 466,827
Theme park cash expenses ................ 279,167 252,636 405,501 370,420
--------- --------- --------- ---------
Aggregate park EBITDA ................... 170,436 171,548 91,475 96,407
Third-party share of EBITDA
from parks accounted for
under the equity method .............. (28,544) (24,804) (20,919) (17,626)
Amortization of investment in
theme park partnerships .............. (5,197) (4,767) (10,396) (9,534)
Unallocated net expenses, including
corporate and other expenses ......... (5,332) (7,306) (14,947) (16,397)
Depreciation and amortization ........... (49,679) (44,627) (97,942) (86,759)
Interest expense ........................ (57,836) (60,791) (116,809) (116,151)
Interest income ......................... 1,220 1,804 4,179 4,109
--------- --------- --------- ---------
Income (loss) before income taxes ....... $ 25,068 $ 31,057 $(165,359) $(145,951)
========= ========= ========= =========
Theme park revenue ...................... $ 449,603 $ 424,184 $ 496,976 $ 466,827
Theme park revenue from parks
accounted for under the
equity method ........................ (93,145) (83,105) (105,349) (94,855)
--------- --------- --------- ---------
Consolidated total revenue .............. $ 356,458 $ 341,079 $ 391,627 $ 371,972
========= ========= ========= =========
</Table>
-16-
<Page>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Seven of the Company's parks are located in Europe, one is located in
Canada and one is located in Mexico. The following information reflects the
Company's long-lived assets and revenue by domestic and foreign categories for
the second quarter of 2001 and 2000.
<Table>
<Caption>
2001: (In thousands)
---- ----------------------------------------------
Domestic International Total
---------- ------------- ----------
Long-lived assets .......... $3,469,297 $502,391 $3,971,688
Revenue .................... 332,736 58,891 391,627
<Caption>
2000: (In thousands)
---- ----------------------------------------------
Domestic International Total
---------- ------------- ----------
Long-lived assets .......... $3,361,733 $502,758 $3,864,491
Revenue .................... 313,466 58,506 371,972
</Table>
8. Recently Issued Accounting Pronouncements
In July 2001, the FASB issued Statement No. 141, "Business Combinations",
and Statement No. 142, "Goodwill and Other Intangible Assets." Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. Statement 141 also
specifies criteria which intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of".
The Company is required to adopt the provisions of Statement 141
immediately and Statement 142 effective January 1, 2002. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized prior to the adoption of Statement 142.
Statement 141 will require upon adoption of Statement 142 that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of Statement 142 within the first interim
period. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period.
In connection with the transitional goodwill impairment evaluation,
Statement 142 will require the Company to perform an assessment of whether there
is an indication that goodwill, including equity-method goodwill, is impaired as
of the date of adoption. To accomplish this the Company must identify its
reporting units and determine the carrying value of each reporting unit by
assigning the assets and liabilities, including the existing goodwill and
intangible assets, to those reporting units as of the date of adoption. The
Company will then have up to six months from the date of adoption to determine
the fair value of each reporting unit and compare it to the reporting unit's
carrying amount. To the extent a reporting unit's carrying amount exceeds its
fair value, an indication exists that the reporting unit's goodwill may be
impaired and the Company must perform the second step of the transitional
impairment test. In the second step, the Company must compare the implied fair
value of the reporting unit's goodwill, determined by allocating the reporting
unit's fair value to all of its assets (recognized and unrecognized) and
liabilities in a manner similar to a purchase price allocation in accordance
with Statement 141, to its carrying amount, both of which would be measured as
of the date of adoption. This second step is required to be completed as soon as
possible, but no later than the end of the year of adoption. Any transitional
impairment loss will be recognized as the cumulative effect of a change in
accounting principle in the Company's consolidated statement of operations.
As of the date of adoption, the Company expects to have unamortized
goodwill of approximately $1,200.0 million and unamortized identifiable
intangible assets not to exceed $10.0 million, all of which will be subject to
the transition provisions of Statements 141 and 142. Amortization expense
related to goodwill was $54.5 million and $28.7 million for the year ended
December 31, 2000 and the six months ended June 30, 2001, respectively. Because
of the extensive effort needed to comply with adopting Statements 141 and 142,
it is not practicable to reasonably estimate the impact of adopting these
Statements on the Company's consolidated financial statements at the date of
this report, including whether any transitional impairment losses will be
required to be recognized as the cumulative effect of a change in accounting
principle.
-17-
<Page>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
Results of operations for the three and six month periods ended June 30,
2001 are not indicative of the results expected for the full year. In
particular, the Company's theme park operations contribute a significant
majority of their annual revenue during the period from Memorial Day to Labor
Day each year.
Results of operations for the three and six months ended June 30, 2001
include the results of Enchanted Village for the entire periods, of the former
Sea World of Ohio only subsequent to its acquisition date, February 9, 2001, and
of La Ronde only subsequent to its acquisition date, May 2, 2001. Results for
the three and six months ended June 30, 2000 do not include the results of the
acquired parks.
THREE MONTHS ENDED JUNE 30, 2001 VS. THREE MONTHS ENDED JUNE 30, 2000
Revenue in the second quarter of 2001 totaled $356.5 million compared to
$341.1 million for the second quarter of 2000, representing a 4.5% increase,
primarily as a result of the inclusion of the three parks acquired after the
2000 season as well as an increase in per capita spending. One of the acquired
parks, the former Sea World of Ohio, now operates together with the pre-existing
adjacent Six Flags facility as a single gate. Excluding the results of the
acquired parks in Montreal and Seattle and excluding the increase in revenues at
the combined Ohio facility, revenues in the second quarter of 2001 increased
approximately 0.7% over the prior-year period.
Operating expenses for the second quarter of 2001 increased $12.6 million
compared to expenses for the second quarter of 2000. Excluding the acquired
parks in Montreal and Seattle and excluding the increase in expenses at the
combined Ohio facility, operating expenses in the 2001 period decreased $0.3
million (or 0.3%) as compared to the prior-year period.
Selling, general and administrative expenses for the second quarter of
2001 increased $14.0 million compared to comparable expenses for the second
quarter of 2000. Excluding the acquired parks in Montreal and Seattle and
excluding the increase in expenses at the combined Ohio facility, selling,
general and administrative expenses increased $8.7 million (or 14.1%) as
compared to the prior-year period. This increase was primarily due to increases
in advertising and insurance expenses and increased real estate taxes. Noncash
compensation expense was $0.7 million less than the prior-year period,
reflecting the decreased amortization associated with prior year restricted
stock awards and conditional option grants.
Costs of products sold in the 2001 period decreased $0.8 million compared
to costs for the second quarter of 2000. As a percentage of theme park food,
merchandise and other revenue, costs of products sold in the 2001 period were
19.6%, compared to 21.2% in the prior-year period, reflecting in part the
Company's increased use of games and other concession arrangements.
Depreciation and amortization expense for the second quarter of 2001
increased $5.1 million compared to the second quarter of 2000. The increase
compared to the 2000 level was attributable to additional expense associated
with the acquired parks, including the former Sea World of Ohio and, to a lesser
extent, the Company's on-going capital program. Interest expense, net decreased
$2.4 million compared to the second quarter of 2000. The decrease compared to
interest expense, net for the 2000 quarter resulted from lower average interest
rates and, to a lesser extent, lower average debt balances.
-18-
<Page>
Equity in operations of theme park partnerships reflects the Company's
share of the income or loss of Six Flags Over Texas (36% effective Company
ownership) and Six Flags Over Georgia, including White Water Atlanta (25%
effective Company ownership), the lease of Six Flags Marine World and the
management of all four parks. During the second quarter of 2001, equity in
operations of theme park partnerships increased $5.2 million compared to the
second quarter of 2000, primarily as a result of improved performance at certain
of these parks in the 2001 period.
Income tax expense was $11.4 million for the second quarter of 2001
compared to a $15.3 million expense for the second quarter of 2000. The
effective tax rate for the second quarter of 2001 was 45.6%, compared to 49.3%
for the second quarter of 2000. The Company's quarterly effective tax rate will
vary from period-to-period based upon the inherent seasonal nature of the theme
park business, as a result of permanent differences associated with goodwill
amortization for financial purposes and the deductible portion of the
amortization for tax purposes.
SIX MONTHS ENDED JUNE 30, 2001 VS. SIX MONTHS ENDED JUNE 30, 2000
Revenue in the first six months of 2001 totaled $391.6 million compared to
$372.0 million for the first six months of 2000, representing a 5.3% increase,
primarily as a result of the inclusion of the three parks acquired after the
2000 season as well as an increase in per capita spending. Excluding the results
of the acquired parks in Montreal and Seattle and excluding the increase in
revenues at the combined Ohio facility, revenues in the first six months of 2001
increased approximately 1.6% over the prior-year period.
Operating expenses for the first six months of 2001 increased $17.9
million compared to expenses for the first six months of 2000. Excluding the
acquired parks in Montreal and Seattle and excluding the increase in expenses at
the combined Ohio facility, operating expenses in the 2001 period increased $3.1
million (or 1.7%) as compared to the prior-year period.
Selling, general and administrative expenses for the first six months of
2001 increased $14.9 million compared to comparable expenses for the first six
months of 2000. Excluding the acquired parks in Montreal and Seattle and
excluding the increase in expenses at the combined Ohio facility, selling,
general and administrative expenses increased $7.1 million (or 7.4%) as compared
to the prior-year period. This increase was primarily due to increases in
advertising and insurance expenses and increased real estate taxes. Noncash
compensation expense was $2.5 million less than the prior-year period,
reflecting the decreased amortization associated with prior year restricted
stock awards and conditional option grants.
Costs of products sold in the 2001 period decreased $0.3 million compared
to costs for the first six months of 2000. As a percentage of theme park food,
merchandise and other revenue, costs of products sold in the 2001 period were
19.0%, compared to 20.4% in the prior-year period, reflecting in part the
Company's increased use of games and other concession arrangements.
Depreciation and amortization expense for the first six months of 2001
increased $11.2 million compared to the first six months of 2000. The increase
compared to the 2000 level was attributable to additional expense associated
with the acquired parks, including the former Sea World of Ohio and, to a lesser
extent, the Company's on-going capital program. Interest expense, net increased
$0.6 million compared to the first six months of 2000. The increase compared to
interest expense, net for the 2000 period resulted from higher average amounts
outstanding in the first quarter of the year.
Other income (expense) primarily reflects $2.2 million of expense
recognized in the first quarter related to the change in fair value of two of
the Company's interest rate swap agreements from January 1, 2001 to February 23,
2001 (the date that the interest rate swap agreements were designated as hedging
instruments).
-19-
<Page>
Equity in operations of theme park partnerships reflects the Company's
share of the income or loss of Six Flags Over Texas (36% effective Company
ownership) and Six Flags Over Georgia, including White Water Atlanta (25%
effective Company ownership), the lease of Six Flags Marine World and the
management of all four parks. During the first six months of 2001, the loss from
equity in operations of theme park partnerships decreased $5.0 million compared
to the first six months of 2000, primarily as a result of improved performance
at certain of these parks in the 2001 period.
Income tax benefit before extraordinary loss was $56.6 million for the
first six months of 2001 compared to a $47.8 million benefit for the first six
months of 2000. The effective tax rate for the first six months of 2001 was
34.2% compared to 32.8% for 2000. The Company's quarterly effective tax rate
will vary from period-to-period based upon the inherent seasonal nature of the
theme park business, as a result of permanent differences associated with
goodwill amortization for financial purposes and the deductible portion of the
amortization for tax purposes.
LIQUIDITY, CAPITAL COMMITMENTS AND RESOURCES
At June 30, 2001, the Company's indebtedness aggregated $2,361.5 million,
of which approximately $79.9 million matures prior to June 30, 2002.
Substantially all of the current portion of long-term debt represents borrowings
under the working capital revolving credit component of the Credit Facility,
which have been repaid in full since the close of the quarter. See Note 4 to the
Company's Consolidated Financial Statements for additional information regarding
the Company's indebtedness.
During the six months ended June 30, 2001, net cash provided by operating
activities was $3.6 million. Net cash used in investing activities in the first
six months of 2001 totaled $223.6 million, consisting primarily of the Company's
acquisition of the former Sea World of Ohio, La Ronde and, to a lesser extent,
capital expenditures. Net cash provided by financing activities in the first six
months of 2001 was $254.0 million, representing proceeds of the 2001 offerings
of the PIERS and the 2001 Senior Notes, offset in part by the tender offer for
the 1997 Notes and the repayment of borrowings under the Credit Facility.
In addition to its obligations under its outstanding indebtedness, the
Company has guaranteed the obligations of certain of its subsidiaries to (i)
make minimum annual distributions of approximately $50.2 million (subject to
annual cost of living adjustments) to the limited partners in the Partnership
Parks, (ii) make minimum capital expenditures at each of the Partnership Parks
during rolling five-year periods, based generally on 6% of such park's revenues,
and (iii) purchase at specified prices a maximum number of 5% per year
(accumulating to the extent not purchased in any given year) of limited
partnership units outstanding (to the extent tendered by the unit holders). Cash
flows from operations at the parks will be used to satisfy the annual
distribution and capital expenditure requirements, before any funds are required
from the Company. At June 30, 2001, the Company had $70.0 million in a dedicated
escrow account available to fund those obligations.
The degree to which the Company is leveraged could adversely affect its
liquidity. The Company's liquidity could also be adversely affected by
unfavorable weather, accidents or the occurrence of an event or condition,
including negative publicity or significant local competitive events, that
significantly reduce paid attendance and, therefore, revenue at any of its theme
parks.
The Company believes that, based on historical and anticipated operating
results, cash flows from operations, available cash and available amounts under
the Credit Facility will be adequate to meet the Company's future liquidity
needs, including anticipated requirements for working capital, capital
expenditures, scheduled debt and PIERS requirements and obligations under
arrangements relating to the
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<Page>
Partnership Parks, for at least the next several years. The Company may,
however, need to refinance all or a portion of its existing debt on or prior to
maturity or to seek additional financing.
To minimize the Company's exposure to changing foreign currency rates on
ride purchases, in the past the Company has entered into foreign exchange
forward contracts. The Company has not entered into any new foreign exchange
forward contracts in 2001 related to ride purchase contracts from foreign
vendors. Additionally, the Company has not hedged its exposure to changes in
foreign currency rates related to its international parks.
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<Page>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information included in "Quantitative and Qualitative Disclosures
About Market Risk" in Item 7A of the Company's 2000 Annual Report on Form 10-K
is incorporated herein by reference. Such information includes a description of
the Company's potential exposure to market risks, including interest rate risk
and foreign currency risk. Interest rates, as measured by 90-day LIBOR, have
decreased 2.6% from January 1, 2001 to June 30, 2001. However due to the
Company's use of interest rate swap agreements, the Company's cash interest
obligations have not substantially changed. As of June 30, 2001, there have been
no material changes in the Company's market risk exposure from that disclosed in
the 2000 Form 10-K.
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PART II -- OTHER INFORMATION
ITEMS 1 - 3 AND 5
Not applicable.
ITEMS 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
On June 5, 2001, the Company held its Annual Meeting of Stockholders. The
number of shares of Common Stock represented at the Meeting either in person or
by proxy, was 83,940,278 shares (91.3% of the outstanding shares of common
stock). Four proposals were voted upon at the Meeting. The proposals and voting
results were as follows:
1. Proposal 1 - Election of Directors
The following persons were elected as directors as follows:
<Table>
<Caption>
NAME FOR AGAINST
---- --- -------
Paul A. Biddelman ...... 83,356,330 583,948
Kieran E. Burke ........ 77,623,853 6,316,425
James F. Dannhauser .... 77,663,346 6,276,932
Michael E. Gellert ..... 82,795,414 1,144,864
Francois Letaconnoux.... 83,353,995 586,283
Stanley S. Shuman ...... 82,835,079 1,105,199
Gary Story ............. 78,144,027 5,796,251
</Table>
2. Proposal 2 - Approval of the Company's 2001 Stock Option and
Incentive Plan.
<Table>
<Caption>
FOR AGAINST WITHHELD
--- ------- --------
64,061,227 19,795,707 83,344
</Table>
3. Proposal 3 - Approval of Company's Stock Option Plan for Directors.
<Table>
<Caption>
FOR AGAINST WITHHELD
--- ------- --------
69,039,946 14,769,379 130,953
</Table>
4. Proposal 5 - Ratification of selection by the Company's Board of
Directors of KPMG LLP as independent public accountants of the
Company for the year ending December 31, 2001.
<Table>
<Caption>
FOR AGAINST WITHHELD
--- ------- --------
83,282,614 601,013 56,651
</Table>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Report on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIX FLAGS, INC.
(Registrant)
/s/ Kieran E. Burke
------------------------------------
Kieran E. Burke
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
/s/ James F. Dannhauser
------------------------------------
James F. Dannhauser
CHIEF FINANCIAL OFFICER
Date: August 13, 2001
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