10-Q 1 a2049193z10-q.txt FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED MARCH 31 , 2001 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO _________ COMMISSION FILE NUMBER: 0-9789 ----------- SIX FLAGS, INC. (Exact name of Registrant as specified in its charter) DELAWARE 13-3995059 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 11501 NORTHEAST EXPRESSWAY, OKLAHOMA CITY, OKLAHOMA 73131 (Address of principal executive offices, including zip code) (405) 475-2500 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: At May 7, 2001, Six Flags, Inc. had outstanding 91,889,363 shares of Common Stock, par value $.025 per share. ================================================================================ PART I -- FINANCIAL INFORMATION ITEM 1 -- FINANCIAL STATEMENTS SIX FLAGS, INC. CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 2001 2000 -------------- -------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 71,885,000 $ 42,978,000 Accounts receivable 48,611,000 40,771,000 Inventories 36,401,000 28,588,000 Prepaid expenses and other current assets 40,112,000 35,855,000 Restricted-use investment securities 12,950,000 12,773,000 -------------- -------------- Total current assets 209,959,000 160,965,000 Other assets: Debt issuance costs 51,929,000 46,967,000 Restricted-use investment securities 70,418,000 75,376,000 Deposits and other assets 56,930,000 56,884,000 -------------- -------------- Total other assets 179,277,000 179,227,000 Property and equipment, at cost 2,653,921,000 2,585,927,000 Less accumulated depreciation 360,440,000 328,027,000 -------------- -------------- Total property and equipment 2,293,481,000 2,257,900,000 Investment in theme park partnerships 369,534,000 386,638,000 Intangible assets, principally goodwill 1,419,802,000 1,354,289,000 Less accumulated amortization 161,475,000 147,680,000 -------------- -------------- Total intangible assets 1,258,327,000 1,206,609,000 -------------- -------------- Total assets $4,310,578,000 $4,191,339,000 ============== ==============
See accompanying notes to consolidated financial statements -2- ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED) SIX FLAGS, INC. CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 DECEMBER 31, 2000 -------------- ----------------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 55,756,000 $ 45,315,000 Accrued liabilities 52,044,000 62,727,000 Accrued interest payable 43,344,000 24,353,000 Deferred income 31,920,000 8,788,000 Current portion of long-term debt 102,340,000 2,401,000 --------------- --------------- Total current liabilities 285,404,000 143,584,000 Long-term debt 2,262,498,000 2,319,912,000 Other long-term liabilities 47,718,000 37,937,000 Deferred income taxes 49,930,000 144,919,000 Manditorily redeemable preferred stock (redemption value of $287,500,000) 278,312,000 -- Stockholders' equity: Preferred stock of $1.00 par value 12,000 12,000 Common stock of $.025 par value 2,002,000 2,001,000 Capital in excess of par value 1,726,854,000 1,725,890,000 Accumulated deficit (259,862,000) (128,928,000) Deferred compensation (4,724,000) (5,399,000) Accumulated other comprehensive income (loss) (77,566,000) (48,589,000) --------------- --------------- Total stockholders' equity 1,386,716,000 1,544,987,000 --------------- --------------- Total liabilities and stockholders' equity $ 4,310,578,000 $ 4,191,339,000 =============== ===============
See accompanying notes to consolidated financial statements -3- ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED) SIX FLAGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED)
2001 2000 ------------- ------------- Revenue: Theme park admissions $ 14,419,000 $ 12,349,000 Theme park food, merchandise and other 20,750,000 18,544,000 ------------- ------------- Total revenue 35,169,000 30,893,000 ------------- ------------- Operating costs and expenses: Operating expenses 64,518,000 59,193,000 Selling, general and administrative 34,922,000 34,008,000 Noncash compensation (primarily selling, general and administrative) 1,357,000 3,147,000 Costs of products sold 2,987,000 2,468,000 Depreciation and amortization 48,263,000 42,132,000 ------------- ------------- Total operating costs and expenses 152,047,000 140,948,000 ------------- ------------- Loss from operations (116,878,000) (110,055,000) ------------- ------------- Other income (expense): Interest expense (58,973,000) (55,360,000) Interest income 2,959,000 2,305,000 Equity in operations of theme park partnerships (14,376,000) (14,155,000) Other income (expense) (3,159,000) 257,000 ------------- ------------- Total other income (expense) (73,549,000) (66,953,000) ------------- ------------- Loss before income taxes and extraordinary loss (190,427,000) (177,008,000) Income tax benefit 67,976,000 63,116,000 ------------- ------------- Loss before extraordinary loss (122,451,000) (113,892,000) Extraordinary loss on extinguishment of debt, net of income tax benefit of $5,088,000 in 2001 (8,301,000) -- ------------- ------------- Net loss $(130,752,000) $(113,892,000) ============= ============= Net loss applicable to common stock $(140,602,000) $(119,714,000) ============= ============= Per share amounts: Loss per average share - basic and diluted: Loss before extraordinary loss $ (1.65) $ (1.53) Extraordinary loss (0.11) -- ------------- ------------- Net loss $ (1.76) $ (1.53) ============= ============= Weighted average number of common shares outstanding - basic and diluted 80,081,000 78,489,000 ============= =============
See accompanying notes to consolidated financial statements -4- ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED) SIX FLAGS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED)
2001 2000 ------------- ------------ Net loss $(130,752,000) $(113,892,000) Other comprehensive income (loss): Foreign currency translation adjustment (22,281,000) (10,471,000) Cumulative effect of change in accounting principle (3,098,000) -- Net change in fair value of derivative instruments (4,375,000) -- Reclassifications of amounts taken to operations 777,000 -- ------------- ------------- Comprehensive loss $(159,729,000) $(124,363,000) ============= =============
See accompanying notes to consolidated financial statements -5- ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED) SIX FLAGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED)
2001 2000 ------------- ------------- Cash flow from operating activities: Net loss $(130,752,000) $(113,892,000) Adjustments to reconcile net loss to net cash used in operating activities (net of effects of acquisitions): Depreciation and amortization 48,263,000 42,132,000 Equity in operations of theme park partnerships, net of cash received 18,796,000 14,155,000 Minority interest in loss -- 207,000 Noncash compensation 1,357,000 3,147,000 Interest accretion on notes payable 8,116,000 7,318,000 Interest accretion on restricted-use investments -- (1,438,000) Extraordinary loss on early extinguishment of debt 13,389,000 -- Amortization of debt issuance costs 2,279,000 2,397,000 Gain on sale of fixed assets (41,000) -- Increase in accounts receivable (7,840,000) (9,637,000) Increase in inventories and prepaid expenses and other current assets (11,379,000) (10,296,000) (Increase) decrease in deposits and other assets (46,000) 2,959,000 Increase in accounts payable, accrued expenses and other liabilities 13,530,000 46,584,000 Increase in accrued interest payable 18,991,000 18,707,000 Deferred income taxes (73,064,000) (63,406,000) ------------- ------------- Total adjustments 32,351,000 52,829,000 Net cash used in operating activities (98,401,000) (61,063,000) ------------- ------------- Cash flow from investing activities: Additions to property and equipment (52,951,000) (117,985,000) Investment in theme park partnerships (1,692,000) (12,752,000) Acquisition of theme park assets (111,416,000) -- Purchase of restricted-use investments (1,041,000) -- Maturities of restricted-use investments 5,822,000 -- Proceeds from sale of assets 2,420,000 -- ------------- ------------- Net cash used in investing activities (158,858,000) (130,737,000) Cash flow from financing activities: Repayment of long-term debt (480,636,000) (42,242,000) Proceeds from borrowings 504,427,000 161,000,000 Net cash proceeds from issuance of preferred stock 278,130,000 -- Net cash proceeds from issuance of common stock 282,000 2,221,000 Payment of cash dividends (5,822,000) (5,822,000) Payment of debt issuance costs (10,012,000) -- ------------- ------------- Net cash provided by financing activities 286,369,000 115,157,000 ------------- ------------- Effect of exchange rate changes on cash (203,000) (4,311,000) ------------- ------------- Increase (decrease) in cash and cash equivalents 28,907,000 (80,954,000) Cash and cash equivalents at beginning of period 42,978,000 138,131,000 ------------- ------------- Cash and cash equivalents at end of period $ 71,885,000 $ 57,177,000 ============= ============= Supplementary Cash Flow Information: Cash paid for interest $ 29,587,000 $ 26,897,000 ============= =============
See accompanying notes to consolidated financial statements -6- SIX FLAGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL -- BASIS OF PRESENTATION Six Flags owns and operates regional theme amusement and water parks. As of March 31, 2001, the Company and its subsidiaries owned or operated 38 parks, including 30 domestic parks, one park in Mexico and seven parks in Europe. Six Flags is also managing the construction and development of a theme park in Europe. As used herein, Holdings refers only to Six Flags, Inc., without regard to its subsidiaries. In December 2000, the Company purchased all of the capital stock of the company that owns Enchanted Village and Wild Waves, a water and children's ride park located near Seattle, Washington. In February 2001, the Company purchased substantially all of the assets used in the operation of Sea World of Ohio, a marine wildlife park located adjacent to the Company's Six Flags Ohio theme park. See Note 3. The accompanying financial statements for the three months ended March 31, 2001 include the results of Enchanted Village for the entire quarter and of the former Sea World of Ohio only subsequent to its acquisition date, February 9, 2001. The accompanying consolidated financial statements for the three months ended March 31, 2000 do not include the results of these two parks. In May 2001, the Company acquired substantially all of the assets of La Ronde, a theme park located in Montreal, Canada. The accompanying financial statements do not include the results of La Ronde for either period presented as the acquisition occurred subsequent to March 31, 2001. See Note 8. Management's Discussion and Analysis of Financial Condition and Results of Operations which follows these notes contains additional information on the results of operations and the financial position of the Company. Those comments should be read in conjunction with these notes. The Company's annual report on Form 10-K for the year ended December 31, 2000 includes additional information about the Company, its operations and its financial position, and should be referred to in conjunction with this quarterly report on Form 10-Q. The information furnished in this report reflects all adjustments (all of which are normal and recurring, except for the change in accounting principle) which are, in the opinion of management, necessary to present a fair statement of the results for the periods presented. Results of operations for the three-month period ended March 31, 2001 are not indicative of the results expected for the full year. In particular, the Company's theme park operations contribute a significant majority of their annual revenue during the period from Memorial Day to Labor Day each year. DERIVATIVE INSTRUMENTS In June, 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge for accounting purposes. The accounting for changes in the fair value of a derivative (that is gains and losses) depends on the intended use of the derivative and the resulting designation. The Company adopted the provisions of SFAS No. 133 as of January 1, 2001. As a result of the adoption, the Company recognized a -7- liability of approximately $4,996,000 and recorded in other comprehensive income (loss) $3,098,000 (net of tax effect) as a cumulative effect of a change in accounting principle, which will be amortized into operations over the original term of the interest rate swap agreements. As of January 1, 2001, the Company was a party to three interest swap agreements related to $600,000,000 of term debt that was outstanding under the Company's credit facility. Two of the three interest rate swap agreements contained "knock-out" provisions that did not meet the definition of a derivative instrument that could be designated as a hedge under SFAS 133 or SFAS 138. From January 1, 2001 to February 1, 2001, the Company recognized a $3,200,000 expense related to the change in fair value of these two hedges. As of February 23, 2001, the interest rate swap agreements were amended and the knock-out provisions were removed. As of that date and through March 31, 2001, the Company has designated all of the interest rate swap agreements as cash-flow hedges. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash-flow hedges to specific firm commitments or forecasted transactions. The Company also assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. Changes in the fair value of a derivative that is effective and that is designated and qualifies as a cash-flow hedge are recorded in other comprehensive income (loss), until operations are affected by the variability in cash flows of the designated hedged item. Changes in fair value of a derivative that is not designated as a hedge are recorded in operations on a current basis. During the first quarter of 2001, there were no gains or losses reclassified into operations as a result of the discontinuance of hedge accounting treatment for any of the Company's derivatives. By using derivative instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instruments are usually placed with counterparties that the Company believes are minimal credit risks. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates, commodity prices, or currency exchange rates. The market risk associated with interest rate swap agreements is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. The Company does not hold or issue derivative instruments for trading purposes. Changes in the fair value of derivatives that are designated as hedges are reported on the balance sheet in "Accumulated other comprehensive loss" ("AOCL"). These amounts are reclassified to interest expense when the forecasted transaction takes place. -8- Since the critical terms, such as the index, settlement dates, and notional amounts, of the derivative instruments are the same as the terms of the Company's hedged borrowings under the credit facility, no ineffectiveness of the cash-flow hedges was recorded in the statements of operations. As of March 31, 2001, $4,500,000 of net deferred losses on derivative instruments, including the transition adjustment, accumulated in AOCL are expected to be reclassified to operations during the next 12 months. Transactions and events expected to occur over the next twelve months that will necessitate reclassifying these derivatives' losses to operations are the periodic payments that are required to be made on outstanding borrowings. The maximum term over which the Company is hedging exposures to the variability of cash flows for commodity price risk is 24 months. LOSS PER SHARE The weighted average number of shares of Common Stock used in the calculations of diluted loss per share for the three-month periods ended March 31, 2001 and 2000 does not include the effect of potential common shares issuable upon the exercise of employee stock options of 891,000 in 2001 and 1,264,000 in 2000 or the impact in either period of the potential conversion of the Company's outstanding convertible preferred stock into a maximum of 25,288,500 shares of common stock (11,500,000 shares in the 2000 period) and a minimum of 23,342,700 shares of common stock (9,554,200 shares in the 2000 period) as the effects of the exercise of such options and such conversion and resulting decrease in preferred stock dividends is antidilutive. 2. PREFERRED STOCK In January 2001, the Company issued 11,500,000 Preferred Income Equity Redeemable Shares ("PIERS"), for proceeds of $278,130,000, net of the underwriting discount and offering expenses of $9,370,000. The Company used the net proceeds of the offering to fund its acquisition of the former Sea World of Ohio (see Note 3), to repay borrowings under the working capital revolving credit portion of the Company's senior credit facility (see Note 4(d)) and for working capital. Each PIERS represents one one-hundredth of a share of the Company's 7 1/4% mandatorily redeemable preferred stock (an aggregate of 115,000 shares of preferred stock). The PIERS accrue cumulative dividends (payable, at the Company's option, in cash or shares of common stock) at 7 1/4% per annum (approximately $20,844,000 per annum). Prior to August 15, 2009, each of the PIERS is convertible at the option of the holder into 1.1990 common shares (equivalent to a conversion price of $20.85 per common share), subject to adjustment in certain circumstances (the "Conversion Price"). At any time on or after February 15, 2004 and at the then applicable conversion rate, the Company may cause the PIERS, in whole or in part, to be automatically converted if for 20 trading days within any period of 30 consecutive trading days, including the last day of such period, the closing price of the Company's common stock exceeds 120% of the then prevailing Conversion Price. On August 15, 2009, the PIERS are mandatorily redeemable in cash equal to 100% of the liquidation preference (initially $25.00 per PIERS), plus any accrued and unpaid dividends. On April 2, 2000, the Company's 5,750,000 shares of Premium Income Equity Securities ("PIES") automatically converted into 11,500,000 shares of the Company's common stock. In addition, on that date the Company issued to the holders of the PIES 278,912 shares of common stock, representing the final quarterly dividend payment on the PIES. -9- 3. ACQUISITION OF THEME PARKS On December 6, 2000, the Company acquired all of the capital stock of the company that owns Enchanted Village and Wild Waves ("Enchanted Village"), a water park and children's ride park located near Seattle, Washington, for a purchase price of $19,255,000 paid through issuance of 1,339,223 shares of the Company's common stock. As of the acquisition date, $4,471,000 of deferred tax liabilities were recognized for the tax consequences attributable to the differences between the financial carrying amounts and the tax basis of Enchanted Village's assets and liabilities. Approximately $4,235,000 of costs in excess of the fair value of the net assets acquired were recorded as goodwill. The transaction was accounted for as a purchase. On February 9, 2001, the Company acquired substantially all of the assets used in the operation of Sea World of Ohio, a marine wildlife park located adjacent to the Company's Six Flags Ohio theme park, for a cash purchase price of $110,000,000. The Company funded the acquisition from a portion of the proceeds of the PIERS offering. See Note 2. Approximately $69,784,000 of costs in excess of the fair value of the net assets acquired were recorded as goodwill. The transaction was accounted for as a purchase. 4. LONG-TERM INDEBTEDNESS (a) On January 31, 1997, Six Flags Operations Inc., the predecessor to and currently a wholly-owned subsidiary of Holdings ("Six Flags Operations"), issued $125,000,000 of senior notes due January 2007 (the "1997 Notes"). The 1997 Notes are senior unsecured obligations of Six Flags Operations. The 1997 Notes bear interest at 9 3/4% per annum payable semiannually and are redeemable, at Six Flags Operations' option, in whole or in part, at any time on or after January 15, 2002, at varying redemption prices. The 1997 Notes are guaranteed on a senior, unsecured, joint and several basis by all of Six Flags Operations' principal domestic subsidiaries. On January 29, 2001, Six Flags Operations commenced a tender offer for all of the aggregate principal amount of the 1997 Notes. In conjunction with the tender offer, noteholder consents were solicited to effect certain amendments to the indenture governing the 1997 Notes. Six Flags Operations received tenders of notes and related consents from holders of $124,731,000 principal amount (99.8%) of the outstanding notes. The tendered notes were purchased and the indenture amendments became effective on March 2, 2001. The purchase price (including consent fee) paid was approximately $1,085 for each $1,000 principal amount of notes plus accrued and unpaid interest up to, but not including, the payment date. As a result of the early extinguishment of debt, the Company recognized a loss of approximately $8,301,000, net of tax effect. On February 2, 2001, Holdings completed an offering of $375,000,000 principal amount of 9 1/2% Senior Notes (the "2001 Senior Notes") due 2009. A portion of the proceeds of the 2001 Senior Notes was used to finance the tender offer and consent solicitation. See Note 4(f). (b) On April 1, 1998, Holdings issued at a discount $410,000,000 principal amount at maturity ($337,306,000 and $329,275,000 carrying value as of March 31, 2001 and December 31, 2000, respectively) of Senior Discount Notes and $280,000,000 principal amount of 9 1/4% Senior Notes (the "1998 Senior Notes"). The notes are senior unsecured obligations of Holdings, and are not guaranteed by Holdings' subsidiaries. The Senior Discount Notes do not require any interest payments prior to October 1, 2003 and, except in the event of a change of control of the Company and certain other circumstances, any principal payments prior to their maturity in 2008. The Senior Discount Notes have an interest rate of 10% per annum. The 1998 Senior Notes require annual interest payments of approximately $25,900,000 (9 1/4% per annum) and, except in the event of a change of control of the Company and certain other circumstances, do not require any principal payments prior to their maturity -10- in 2006. The notes are redeemable, at the Company's option, in whole or in part, at any time on or after April 1, 2002 (in the case of the 1998 Senior Notes) and April 1, 2003 (in the case of the Senior Discount Notes), at varying redemption prices. Approximately $70,700,000 of the net proceeds of the 1998 Senior Notes were deposited in escrow to prefund the first six semi-annual interest payments thereon, and $75,000,000 of the net proceeds of the Senior Discount Notes were invested in restricted-use securities, until April 1, 2003, to provide funds to pay certain of Six Flags' obligations to the limited partners of Six Flags Over Georgia and Six Flags Over Texas (the "Partnership Parks"). The indentures under which the Senior Discount Notes and the 1998 Senior Notes were issued limit the ability of Holdings and its subsidiaries to dispose of assets; incur additional indebtedness or liens; pay dividends; engage in mergers or consolidations; and engage in certain transactions with affiliates. (c) On April 1, 1998, Six Flags Entertainment Corporation ("SFEC"), which was subsequently merged into Six Flags Operations, issued $170,000,000 principal amount of 8 7/8% Senior Notes (the "SFO Notes"). The SFO Notes are guaranteed on a fully subordinated basis by Holdings. The SFO Notes require annual interest payments of approximately $15,100,000 (8 7/8% per annum) and, except in the event of a change of control of Six Flags Operations and certain other circumstances, do not require any principal payments prior to their maturity in 2006. The SFO Notes are redeemable, at the Company's option, in whole or in part, at any time on or after April 1, 2002, at varying redemption prices. The indenture under which the SFO Notes were issued limits the ability of Six Flags Operations and its subsidiaries to dispose of assets; incur additional indebtedness or liens; pay dividends; engage in mergers or consolidations; and engage in certain transactions with affiliates. (d) On November 5, 1999, Six Flags Theme Parks Inc., an indirect wholly-owned subsidiary of the Company ("SFTP"), entered into a senior credit facility (the "Credit Facility") and, in connection therewith, SFEC merged into Six Flags Operations and SFTP became a subsidiary of Six Flags Operations. The Credit Facility includes a $300,000,000 five-year working capital revolving credit facility ($100,000,000 of which was outstanding at March 31, 2001), a $300,000,000 five-and-one-half-year multicurrency reducing revolver facility ($68,000,000 of which was outstanding at March 31, 2001) and a $600,000,000 six-year term loan (all of which was outstanding at March 31, 2001). Borrowings under the five-year revolving credit facility must be repaid in full for thirty consecutive days each year. The interest rate on borrowings under the Credit Facility can be fixed for periods ranging from one to six months. At the Company's option the interest rate is based upon specified levels in excess of the applicable base rate or LIBOR. The Company has entered into interest rate swap agreements that effectively convert the term loan component of the Credit Facility into a fixed rate obligation through the term of the swap agreements, ranging from December 2002 to March 2003. At March 31, 2001, the weighted average interest rates for borrowings under the working capital revolver, multicurrency revolver and term loan were 7.77%, 7.59% and 9.24%, respectively. The multicurrency facility permits optional prepayments and reborrowings. The committed amount reduces quarterly by 2.5% commencing on December 31, 2001, by 5.0% commencing on December 31, 2002, by 7.5% commencing on December 31, 2003 and by 20.0% commencing on December 31, 2004. Mandatory repayments are required if amounts outstanding exceed the reduced commitment amount. The term loan facility requires quarterly repayments of 0.25% of the outstanding amount thereof commencing on December 31, 2001 and 24.25% commencing on December 31, 2004. A commitment fee of .50% of the unused credit of the facility is due quarterly in arrears. The principal borrower under the facility is SFTP, and borrowings under the Credit Facility are guaranteed by -11- Holdings, Six Flags Operations and all of Six Flags Operations' domestic subsidiaries and are secured by substantially all of Six Flags Operations' domestic assets and a pledge of Six Flags Operations' capital stock. The Credit Facility contains restrictive covenants that, among other things, limit the ability of Six Flags Operations and its subsidiaries to dispose of assets; incur additional indebtedness or liens; repurchase stock; make investments; engage in mergers or consolidations; pay dividends (except that (subject to covenant compliance) dividends will be permitted to allow Holdings to meet cash interest obligations with respect to its 1998 Senior Notes, Senior Discount Notes, 1999 Senior Notes and 2001 Senior Notes (collectively, the "SFI Senior Notes"), cash dividend payments on the PIERS and obligations to the limited partners in the Partnership Parks) and engage in certain transactions with subsidiaries and affiliates. In addition, the Credit Facility requires that Six Flags Operations comply with certain specified financial ratios and tests. (e) On June 30, 1999, Holdings issued $430,000,000 principal amount of 9 3/4% Senior Notes (the "1999 Senior Notes"). The 1999 Senior Notes are senior unsecured obligations of Holdings, are not guaranteed by subsidiaries and rank equal to the other SFI Senior Notes. The 1999 Senior Notes require annual interest payments of approximately $41,900,000 (9 3/4% per annum) and, except in the event of a change in control of the Company and certain other circumstances, do not require any principal payments prior to their maturity in 2007. The 1999 Senior Notes are redeemable, at Holding's option, in whole or in part, at any time on or after June 15, 2003, at varying redemption prices. The indenture under which the 1999 Senior Notes were issued contains covenants substantially similar to those relating to the other SFI Senior Notes. The net proceeds of the 1999 Senior Notes were used to retire notes of Six Flags Operations and SFTP. (f) On February 2, 2001, Holdings issued $375,000,000 principal amount of the 2001 Senior Notes. The 2001 Senior Notes are senior unsecured obligations of Holdings, are not guaranteed by subsidiaries and rank equal to the other SFI Senior Notes. The 2001 Senior Notes require annual interest payments of approximately $35,600,000 (9 1/2% per annum) and, except in the event of a change in control of the Company and certain other circumstances, do not require any principal payments prior to their maturity in 2009. The 2001 Senior Notes are redeemable, at Holding's option, in whole or in part, at any time on or after February 1, 2005, at varying redemption prices. The indenture under which the 2001 Senior Notes were issued contains covenants substantially similar to those relating to the other SFI Senior Notes. The net proceeds of the 2001 Senior Notes were used to fund the tender offer and consent solicitation relating to the 1997 Notes (see Note 4(a)) and to repay borrowings under the multicurrency revolving portion of the Credit Facility (see Note 4(d)). 5. COMMITMENTS AND CONTINGENCIES On March 21, 1999, a raft capsized in the river rapids ride at Six Flags Over Texas, one of the Company's Partnership Parks, resulting in one fatality and injuries to ten others. As a result of the fatality, a case entitled JERRY L. CARTWRIGHT, ET AL VS. PREMIER PARKS, INC. D/B/A SIX FLAGS OVER TEXAS, INC. was commenced seeking unspecified damages. The Partnership Park is covered by the Company's multi-layered general liability insurance coverage of up to $100,000,000 per occurrence, with no self-insured retention. The Company does not believe that the impact of this incident or the resulting lawsuit will have a material adverse effect on the Company's consolidated financial position, operations, or liquidity. In December 1998, a final judgment of $197,300,000 in compensatory damages was entered against SFEC, SFTP, Six Flags Over Georgia, Inc. and Time Warner Entertainment Company, L.P. ("TWE"), and a final judgment of $245,000,000 in punitive damages was entered against TWE and $12,000,000 in punitive damages was entered against the Six Flags entities. The compensatory damages judgment has been paid and the Company has been advised that TWE is appealing the punitive damages -12- judgment to the United States Supreme Court. The judgments arose out of a case entitled SIX FLAGS OVER GEORGIA, LLC ET AL V. TIME WARNER ENTERTAINMENT COMPANY, LP ET AL based on certain disputed partnership affairs prior to the Company's acquisition of the former Six Flags at Six Flags Over Georgia, including alleged breaches of fiduciary duty. The sellers in the Six Flags acquisition, including Time Warner, Inc., have agreed to indemnify the Company from any and all liabilities arising out of this litigation. The Company is party to various legal actions arising in the normal course of business. Matters that are probable of unfavorable outcome to the Company and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, the Company's estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters. None of the actions are believed by management to involve amounts that would be material to consolidated financial position, operations, or liquidity after consideration of recorded accruals. 6. INVESTMENT IN THEME PARK PARTNERSHIPS The following reflects the summarized results of the four parks managed by the Company during the three months ended March 31, 2001 and 2000.
(IN THOUSANDS) ---------------------- 2001 2000 -------- -------- Revenue $ 12,203 $ 11,750 Expenses: Operating expenses 19,006 19,477 Selling, general and administrative 9,802 8,559 Costs of products sold 765 1,432 Depreciation and amortization 8,875 4,380 Interest expense, net 4,172 2,784 Other expense (22) 222 -------- -------- Total 42,598 36,854 -------- -------- Net loss $(30,394) $(25,104) -------- --------
The Company's share of loss from operations of the three theme parks for the three months ended March 31, 2001 was $8,838,000 prior to depreciation and amortization charges of $5,199,000 and $339,000 of third-party interest expense and other non-operating expenses. The Company's share of loss from operations of the four theme parks for the three months ended March 31, 2000 was $9,281,000, prior to depreciation and amortization charges of $4,767,000 and $107,000 of third-party interest expense. There is a substantial difference between the carrying value of the Company's investment in the theme parks and the net book value of the theme parks. The difference is being amortized over 20 years for the Partnership Parks and over the expected useful life of the rides and equipment installed by the Company at Six Flags Marine World. 7. BUSINESS SEGMENTS The Company manages its operations on an individual park location basis. Discrete financial information is maintained for each park and provided to the Company's management for review and as a basis for decision making. The primary performance measure used to allocate resources is earnings before interest, tax expense, depreciation and amortization ("EBITDA"). All of the Company's parks provide -13- similar products and services through a similar process to the same class of customer through a consistent method. As such, the Company has only one reportable segment - operation of theme parks. The following tables present segment financial information, a reconciliation of the primary segment performance measure to loss before income taxes and a reconciliation of theme park revenues to consolidated total revenues. Park level expenses exclude all noncash operating expenses, principally depreciation and amortization, and all non-operating expenses.
Three Months Ended ------------------------------- March 31, 2001 March 31, 2000 -------------- -------------- (In thousands) Theme park revenue ............................................. $ 47,372 $ 42,643 Theme park cash expenses ....................................... 126,334 117,784 --------- --------- Aggregate park EBITDA .......................................... (78,962) (75,141) Third-party share of EBITDA from parks accounted for under the equity method........................ 7,625 7,178 Amortization of investment in theme park partnerships ................................................ (5,199) (4,767) Unallocated net expenses, including corporate and other expenses (9,614) (9,091) Depreciation and amortization .................................. (48,263) (42,132) Interest expense ............................................... (58,973) (55,360) Interest income ................................................ 2,959 2,305 --------- --------- Loss before income taxes ....................................... $(190,427) $(177,008) ========= ========= Theme park revenue ............................................. $ 47,372 $ 42,643 Theme park revenue from parks accounted for under the equity method ................................. (12,203) (11,750) --------- --------- Consolidated total revenue ..................................... $ 35,169 $ 30,893 ========= =========
Seven of the Company's parks are located in Europe and one is located in Mexico. The following information reflects the Company's long-lived assets and revenue by domestic and foreign categories for the first quarter of 2001 and 2000. This information does not include assets and revenue for La Ronde, a park located in Canada, since it was acquired subsequent to March 31, 2001. See Note 8.
2001: (In thousands) ---- -------------------------------------------------------------- Domestic International Total -------- ------------- ----- Long-lived assets................................ $3,439,573 $481,769 $3,921,342 Revenue.......................................... 27,285 7,884 35,169
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2000: (In thousands) ---- -------------------------------------------------------------- Domestic International Total -------- ------------- ----- Long-lived assets................................ $3,311,318 $464,637 $3,775,955 Revenue.......................................... 24,278 6,615 30,893
8. SUBSEQUENT EVENTS On April 2, 2001, the Company issued 11,500,000 shares of Common Stock upon the automatic conversion of the 5,750,000 shares of PIES and issued 278,912 shares of Common Stock as payment of the final quarterly dividend on the PIES. On May 2, 2001, the Company acquired substantially all of the assets of La Ronde, a theme park located in the City of Montreal for a cash purchase price of Can. $30,000,000 (approximately US $ 19,600,000 at the exchange rate on such date). The Company has agreed to invest in the park Can. $90,000,000 (approximately US $58,700,000 at that exchange rate) over four seasons commencing in 2002. The Company leased the land on which the park is located on a long-term basis. The transaction will be accounted for as a purchase. -15- ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS GENERAL Results of operations for the three-month period ended March 31, 2001 are not indicative of the results expected for the full year. In particular, the Company's theme park operations contribute a significant majority of their annual revenue during the period from Memorial Day to Labor Day each year. Results of operations for the three months ended March 31, 2001 include the results of the two parks acquired subsequent to March 31, 2000 and prior to March 31, 2001. Results for the three months ended March 31, 2000 do not include the results of the acquired parks. THREE MONTHS ENDED MARCH 31, 2001 VS. THREE MONTHS ENDED MARCH 31, 2000 Revenue in the first quarter of 2001 totaled $35.2 million compared to $30.9 million for the first quarter of 2000, representing a 13.8% increase. Operating expenses for the first quarter of 2001 increased $5.3 million compared to expenses for the first quarter of 1999. The increase resulted almost exclusively from the inclusion in the 2001 period of the two parks acquired subsequent to the end of the first quarter of 2000. Excluding the acquired parks, operating expenses in the 2001 period increased $0.2 million as compared to the prior-year period. Selling, general and administrative expenses for the first quarter of 2001 increased $0.9 million compared to comparable expenses for the first quarter of 2000. Excluding the acquired parks, selling, general and administrative expenses decreased $0.1 million as compared to the prior-year period. Noncash compensation expense was $1.8 million less than the prior-year period, reflecting the decreased amortization associated with prior year restricted stock awards and conditional option grants. Costs of products sold in the 2001 period increased $0.5 million compared to costs for the first quarter of 2000, reflecting the increase in theme park food, merchandise and other revenue in the 2001 period and to a lesser extent certain price increases. Depreciation and amortization expense for the first quarter of 2001 increased $6.1 million compared to the first quarter of 2000. The increase compared to the 2000 level was attributable to the Company's on-going capital program and from additional expense associated with the acquired parks. Interest expense, net increased $3.0 million compared to the first quarter of 2000. The increase compared to interest expense, net for the 2000 quarter resulted from higher average interest rates. Other income (expense) includes $3.2 million of expense related to the change in fair value of two of the Company's interest rate swap agreements from January 1, 2001 to February 23, 2001 (the date that the interest rate swap agreements were designated as hedging instruments). Equity in operations of theme park partnerships reflects the Company's share of the income or loss of Six Flags Over Texas (35% effective Company ownership) and Six Flags Over Georgia, including White Water Atlanta (25% effective Company ownership), the lease of Six Flags Marine World and the management of all four parks. During the first quarter of 2001, the loss from equity in operations of theme park partnerships increased $0.2 million compared to the first quarter of 2000. -16- Income tax benefit was $68.0 million for the first quarter of 2001 compared to a $63.1 million benefit for the first quarter of 2000. The effective tax rate for the first quarter of each year was 35.7%. The Company's quarterly effective tax rate will vary from period-to-period based upon the inherent seasonal nature of the theme park business, as a result of permanent differences associated with goodwill amortization for financial purposes and the deductible portion of the amortization for tax purposes. LIQUIDITY, CAPITAL COMMITMENTS AND RESOURCES At March 31, 2001, the Company's indebtedness aggregated $2,364.8 million, of which approximately $102.3 million matures prior to March 31, 2002. Substantially all of the current portion of long-term debt represents borrowings under the working capital revolving credit component of the Credit Facility. See Note 4 to the Company's Consolidated Financial Statements for additional information regarding the Company's indebtedness. During the three months ended March 31, 2001, net cash used in operating activities was $98.4 million. Net cash used in investing activities in the first three months of 2001 totaled $158.9 million, consisting primarily of the Company's acquisition of the former Sea World of Ohio and, to a lesser extent, capital expenditures. Net cash provided by financing activities in the first three months of 2001 was $286.4 million, representing proceeds of the 2001 offerings of the PIERS and the 2001 Senior Notes, offset in part by the tender offer for the 1997 Notes and the repayment of borrowings under the Credit Facility. In addition to its obligations under its outstanding indebtedness, the Company has guaranteed the obligations of certain of its subsidiaries to (i) make minimum annual distributions of approximately $50.2 million (subject to annual cost of living adjustments) to the limited partners in the Partnership Parks, (ii) make minimum capital expenditures at each of the Partnership Parks during rolling five-year periods, based generally on 6% of such park's revenues, and (iii) purchase at specified prices a maximum number of 5% per year (accumulating to the extent not purchased in any given year) of limited partnership units outstanding (to the extent tendered by the unit holders). Cash flows from operations at the parks will be used to satisfy the annual distribution and capital expenditure requirements, before any funds are required from the Company. At March 31, 2001, the Company had $70.4 million in a dedicated escrow account available to fund those obligations. The degree to which the Company is leveraged could adversely affect its liquidity. The Company's liquidity could also be adversely affected by unfavorable weather, accidents or the occurrence of an event or condition, including negative publicity or significant local competitive events, that significantly reduce paid attendance and, therefore, revenue at any of its theme parks. The Company believes that, based on historical and anticipated operating results, cash flows from operations, available cash and available amounts under the Credit Facility will be adequate to meet the Company's future liquidity needs, including anticipated requirements for working capital, capital expenditures, scheduled debt and PIERS requirements and obligations under arrangements relating to the Partnership Parks, for at least the next several years. The Company may, however, need to refinance all or a portion of its existing debt on or prior to maturity or to seek additional financing. To minimize the Company's exposure to changing foreign currency rates on ride purchases, in the past the Company has entered into foreign exchange forward contracts. The Company has not entered into any new foreign exchange forward contracts in 2001 related to ride purchase contracts from foreign vendors. Additionally, the Company has not hedged its exposure to changes in foreign currency rates related to its international parks. -17- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information included in "Quantitative and Qualitative Disclosures About Market Risk" in Item 7A of the Company's 2000 Annual Report on Form 10-K is incorporated herein by reference. Such information includes a description of the Company's potential exposure to market risks, including interest rate risk and foreign currency risk. Interest rates, as measured by 90-day LIBOR, have decreased 1.60% from January 1, 2001 to March 31, 2001. However due to the Company's use of interest rate swap agreements, the Company's cash interest obligations have not substantially changed. As of March 31, 2001, there have been no material changes in the Company's market risk exposure from that disclosed in the 2000 Form 10-K. -18- PART II -- OTHER INFORMATION ITEMS 1 - 5 Not applicable. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None. (b) Reports on Form 8-K Current Report on 8-K, dated January 11, 2001. Current Report on 8-K, dated January 23, 2001. Current Report on 8-K, dated January 29, 2001. Current Report on 8-K, dated February 7, 2001. Current Report on 8-K, dated February 14, 2001. Current Report on 8-K, dated February 26, 2001. Current Report on 8-K, dated March 1, 2001. -19- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SIX FLAGS, INC. (Registrant) /s/ Kieran E. Burke --------------------------------------- Kieran E. Burke CHAIRMAN AND CHIEF EXECUTIVE OFFICER /s/ James F. Dannhauser --------------------------------------- James F. Dannhauser CHIEF FINANCIAL OFFICER Date: May 14, 2001 -20-