<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED
SEPTEMBER 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ________ TO _________
COMMISSION FILE NUMBER: 0-9789
-----------
SIX FLAGS, INC.
(formerly Premier Parks Inc.)
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3995059
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11501 NORTHEAST EXPRESSWAY, OKLAHOMA CITY, OKLAHOMA 73131
(Address of principal executive offices, including zip code)
(405) 475-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
At November 1, 2000, Six Flags, Inc. had outstanding 78,700,603 shares
of Common Stock, par value $.025 per share.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
SIX FLAGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................. $ 65,744,000 $ 138,131,000
Accounts receivable ....................... 79,850,000 29,208,000
Inventories ............................... 31,904,000 23,590,000
Prepaid expenses and other current assets . 20,574,000 32,793,000
Restricted-use investment securities ...... 25,545,000 24,430,000
-------------- --------------
Total current assets ................... 223,617,000 248,152,000
Other assets:
Debt issuance costs ....................... 49,073,000 55,540,000
Restricted-use investment securities ...... 64,049,000 84,464,000
Deposits and other assets ................. 59,831,000 64,472,000
-------------- --------------
Total other assets ..................... 172,953,000 204,476,000
Property and equipment, at cost .............. 2,531,854,000 2,272,419,000
Less accumulated depreciation ............. 297,771,000 207,680,000
-------------- --------------
Total property and equipment ........... 2,234,083,000 2,064,739,000
Investment in theme park partnerships ........ 393,260,000 384,637,000
Intangible assets, principally goodwill ...... 1,352,677,000 1,352,732,000
Less accumulated amortization ............. 133,960,000 93,164,000
-------------- --------------
Total intangible assets ................ 1,218,717,000 1,259,568,000
-------------- --------------
Total assets ........................... $4,242,630,000 $4,161,572,000
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
-2-
<PAGE>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 72,213,000 $ 37,918,000
Accrued liabilities......................................................... 57,634,000 89,726,000
Accrued interest payable.................................................... 41,606,000 23,566,000
Deferred income............................................................. 16,413,000 6,037,000
Current maturities of long-term debt........................................ 969,000 2,055,000
------------------ -------------------
Total current liabilities................................................ 188,835,000 159,302,000
Long-term debt ................................................................ 2,223,218,000 2,202,933,000
Other long-term liabilities and minority interest.............................. 35,256,000 41,761,000
Deferred income taxes.......................................................... 182,038,000 141,960,000
------------------ -------------------
Total liabilities........................................................ 2,629,347,000 2,545,956,000
Stockholders' equity:
Preferred stock of $1.00 par value ......................................... 12,000 12,000
Common stock of $0.025 par value ........................................... 1,967,000 1,958,000
Capital in excess of par value.............................................. 1,705,840,000 1,700,305,000
Accumulated deficit ........................................................ (34,635,000) (53,681,000)
Deferred compensation....................................................... (7,863,000) (15,255,000)
Accumulated other comprehensive income (loss)
-foreign currency translation adjustments................................ (52,038,000) (17,723,000)
------------------ -------------------
Total stockholders' equity............................................... 1,613,283,000 1,615,616,000
------------------ -------------------
Total liabilities and stockholders' equity............................... $ 4,242,630,000 $ 4,161,572,000
================== ===================
</TABLE>
See accompanying notes to consolidated financial statements
-3-
<PAGE>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Revenue:
Theme park admissions ..................................... $ 296,411,000 $ 271,507,000
Theme park food, merchandise and other .................... 251,028,000 223,897,000
------------- -------------
Total revenue ........................................ 547,439,000 495,404,000
------------- -------------
Operating costs and expenses:
Operating expenses ........................................ 137,154,000 132,908,000
Selling, general and administrative ....................... 46,719,000 38,897,000
Noncash compensation ...................................... 3,147,000 1,267,000
Costs of products sold .................................... 51,829,000 47,636,000
Depreciation and amortization ............................. 46,320,000 40,149,000
------------- -------------
Total operating costs and expenses ................... 285,169,000 260,857,000
------------- -------------
Income from operations ............................... 262,270,000 234,547,000
------------- -------------
Other income (expense):
Interest expense .......................................... (58,797,000) (48,159,000)
Interest income ........................................... 2,492,000 6,072,000
Equity in operations of theme park partnerships ........... 16,519,000 28,253,000
Other income (expense), including minority interest ....... (629,000) 354,000
------------- -------------
Total other income (expense) ......................... (40,415,000) (13,480,000)
------------- -------------
Income before income taxes ........................... 221,855,000 221,067,000
Income tax expense ........................................... 87,205,000 89,436,000
------------- -------------
Net income ........................................... $ 134,650,000 $ 131,631,000
============= =============
Net income applicable to common stock ................ $ 128,828,000 $ 125,809,000
============= =============
Per share amounts:
Net income per average common share-- basic: .............. $ 1.64 $ 1.61
============= =============
Net income per average common share-- diluted: ............ $ 1.49 $ 1.46
============= =============
Weighted average number of common shares
outstanding -- basic ....................................... 78,701,000 78,200,000
============= =============
Weighted average number of common shares
outstanding -- diluted ..................................... 90,597,000 90,366,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
-4-
<PAGE>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Revenue:
Theme park admissions ..................................................... $ 497,286,000 $ 459,735,000
Theme park food, merchandise and other .................................... 422,125,000 388,391,000
------------- -------------
Total revenue ........................................................ 919,411,000 848,126,000
------------- -------------
Operating costs and expenses:
Operating expenses ........................................................ 314,222,000 290,431,000
Selling, general and administrative ....................................... 142,713,000 128,600,000
Noncash compensation ...................................................... 9,439,000 10,503,000
Costs of products sold .................................................... 86,652,000 81,907,000
Depreciation and amortization ............................................. 133,079,000 114,135,000
------------- -------------
Total operating costs and expenses ................................... 686,105,000 625,576,000
------------- -------------
Income from operations ............................................... 233,306,000 222,550,000
------------- -------------
Other income (expense):
Interest expense .......................................................... (174,948,000) (141,719,000)
Interest income ........................................................... 6,601,000 19,606,000
Equity in operations of theme park partnerships ........................... 11,439,000 24,602,000
Other income (expense), including minority interest ....................... (494,000) 156,000
------------- -------------
Total other income (expense) ......................................... (157,402,000) (97,355,000)
------------- -------------
Income before income taxes ........................................... 75,904,000 125,195,000
Income tax expense ........................................................... 39,392,000 62,712,000
------------- -------------
Income before extraordinary loss ..................................... 36,512,000 62,483,000
Extraordinary loss on extinguishment of debt, net of income tax
benefit of $4,104,000 in 1999 ............................................. -- (6,157,000)
------------- -------------
Net income ........................................................... $ 36,512,000 $ 56,326,000
============= =============
Net income applicable to common stock ................................ $ 19,046,000 $ 38,860,000
============= =============
Per share amounts:
Income per average common share-- basic:
Income before extraordinary loss...................................... $ 0.24 $ 0.58
Extraordinary loss.................................................... -- (0.08)
------------- -------------
Net income............................................................ $ 0.24 $ 0.50
============= =============
Net income per average common share-- diluted:
Income before extraordinary loss...................................... $ 0.24 $ 0.56
Extraordinary loss.................................................... -- (0.08)
------------- -------------
Net income............................................................ $ 0.24 $ 0.48
============= =============
Weighted average number of common shares outstanding - basic ................. 78,622,000 77,439,000
============= =============
Weighted average number of common shares outstanding -diluted ................ 79,707,000 80,002,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
-5-
<PAGE>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ------------------------------------
2000 1999 2000 1999
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net income ...................................... $ 134,650,000 $ 131,631,000 $ 36,512,000 $ 56,326,000
Other comprehensive income (loss) --
Foreign currency translation adjustment....... (17,650,000) 5,622,000 (34,315,000) (13,175,000)
---------------- --------------- ---------------- ----------------
Comprehensive income ............................ $ 117,000,000 $ 137,253,000 $ 2,197,000 $ 43,151,000
================ =============== ================ ================
</TABLE>
See accompanying notes to consolidated financial statements
-6-
<PAGE>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................................... $ 36,512,000 $ 56,326,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................................. 133,079,000 114,135,000
Equity in operations of theme park partnerships, net of cash received......... 10,644,000 (16,470,000)
Minority interest............................................................. 132,000 (231,000)
Noncash compensation.......................................................... 9,439,000 10,503,000
Interest accretion on notes payable........................................... 22,671,000 25,788,000
Interest accretion on restricted-use investments.............................. (2,982,000) (7,609,000)
Extraordinary loss on early extinguishment of debt ........................... -- 10,261,000
Amortization of debt issuance costs........................................... 6,467,000 4,823,000
Deferred income taxes......................................................... 40,078,000 51,185,000
Increase in accounts receivable............................................... (46,900,000) (41,061,000)
(Increase) decrease in inventories and prepaid expenses....................... 3,905,000 (1,853,000)
Decrease in deposits and other assets......................................... 4,641,000 19,482,000
Increase in accounts payable, accrued expenses, and other liabilities......... 9,684,000 8,357,000
Increase in accrued interest payable.......................................... 18,040,000 3,442,000
------------------- -----------------
Total adjustments............................................................. 208,898,000 180,752,000
------------------- -----------------
Net cash provided by operating activities.......................... 245,410,000 237,078,000
------------------- -----------------
Cash flows from investing activities:
Additions to property and equipment.............................................. (301,083,000) (334,250,000)
Investment in theme park partnerships............................................ (19,267,000) (39,034,000)
Acquisition of theme park companies, net of cash acquired........................ -- (80,952,000)
Purchase of restricted-use investments .......................................... (4,500,000) --
Maturities of restricted-use investments ........................................ 26,782,000 13,221,000
------------------- -----------------
Net cash used in investing activities.............................. (298,068,000) (441,015,000)
------------------- -----------------
Cash flows from financing activities:
Repayment of long-term debt...................................................... (306,473,000) (496,818,000)
Proceeds from borrowings......................................................... 303,000,000 499,024,000
Net cash proceeds from issuance of common stock.................................. 3,498,000 1,951,000
Payment of cash dividends........................................................ (17,466,000) (17,466,000)
Payment of debt issuance costs................................................... -- (10,934,000)
------------------- -----------------
Net cash used in financing activities.............................. (17,441,000) (24,243,000)
------------------- -----------------
Effect of exchange rate changes on cash ...................................... (2,288,000) (1,706,000)
------------------- -----------------
Decrease in cash and cash equivalents......................................... (72,387,000) (229,886,000)
Cash and cash equivalents at beginning of period.................................... 138,131,000 400,578,000
------------------- -----------------
Cash and cash equivalents at end of period.......................................... $ 65,744,000 $ 170,692,000
=================== =================
Supplementary cash flow information:
Cash paid for interest........................................................... $ 127,903,000 $ 107,666,000
=================== =================
</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, Inc. ("Six Flags" or the "Company") owns and operates
regional theme amusement and water parks. As of September 30, 2000, the Company
and its subsidiaries own or operate 36 parks, including 28 domestic parks, one
park in Mexico and seven parks in Europe. The Company is also managing the
construction and development of a theme park in Europe. On June 30, 2000, the
Company changed its name from Premier Parks Inc. to Six Flags, Inc. As used
herein, Holdings refers only to Six Flags, Inc., without regard to its
subsidiaries.
During May 1999, in separate transactions, the Company purchased 100%
of the capital stock of the companies that own Reino Aventura, a theme park
located in Mexico City, and purchased the assets used in the operation of
Splashtown, a water park near Houston. In addition, during May 1999, the limited
partnership that owns Six Flags Over Georgia purchased the assets used in the
operation of White Water Atlanta, a water park and related entertainment
facility. The Company is the managing general partner of the limited partnership
and owns approximately 25% of the limited partnership units. On November 15,
1999, the Company purchased Warner Bros. Movie World Germany, near Dusseldorf,
Germany, and entered into a joint venture with Warner Bros. to develop and
manage a new Warner Bros. Movie World theme park scheduled to open in Madrid,
Spain in 2002. (See Note 2.)
The accompanying consolidated financial statements for the three months
and nine months ended September 30, 1999 include the results of the parks
acquired in May 1999 only from the respective dates of their acquisition and do
not include the results of Movie World Germany, which was acquired in November
1999. (See Note 2.)
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, 1999 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) 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 and nine-month periods ended
September 30, 2000 are not indicative of the results expected for the full year.
In particular, the Company's theme park operations contribute most of their
annual revenue during the period from Memorial Day to Labor Day each year.
START-UP COSTS
As of January 1, 1999, the Company adopted the provisions of AICPA
Statement of Position No. 98-5, "Accounting for Start-Up Activities." Generally,
the statement required the write-off of previously capitalized start-up costs
and precludes the future capitalization of these types of costs. Start-up costs
include pre-opening costs and professional fees and other costs associated with
incorporating or otherwise starting a business. The effect of the adoption of
the provisions of the statement was not material to the financial position,
operations or cash flow of the Company and is included in depreciation and
amortization.
-8-
<PAGE>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCOME PER SHARE
The following table reconciles the weighted average number of common
shares outstanding used in the calculations of basic and diluted income per
share for the three and nine-month periods ended September 30, 2000 and 1999,
respectively. The weighted average number of shares of Common Stock for the nine
month periods does not include the effect of the conversion of the Company's
mandatorily convertible preferred stock into a maximum of 11,500,000 shares of
common stock and a minimum of 9,554,000 shares of common stock as the effects of
such conversion and the resulting decrease in preferred stock dividends is
antidilutive. In determining net income applicable to common stock for the nine
month periods, the dividends paid on the Company's mandatorily convertible
preferred stock have been deducted from net income.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average number of common shares
outstanding - basic .................................. 78,701,000 78,200,000 78,622,000 77,439,000
Effect of potential common shares issuable upon
the exercise of employee stock options ............... 396,000 2,612,000 1,085,000 2,563,000
Convertible preferred stock ............................ 11,500,000 9,554,000 -- --
---------- ---------- ---------- ----------
Weighted average number of common shares
outstanding - diluted ................................ 90,597,000 90,366,000 79,707,000 80,002,000
========== ========== ========== ==========
</TABLE>
REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB No. 101
was amended to delay the effective date until periods beginning after October
1, 2000. The Company has elected to adopt the provisions of SAB 101 as of
January 1, 2000. The provisions of SAB No. 101 do not have an impact on the
accounting policies that the Company utilizes to prepare its annual financial
statements and therefore, the adoption did not have an impact on the
Company's annual financial statements. However, the provisions of SAB No. 101
did change the accounting policies that the Company uses to recognize revenue
from multi-admission tickets and season passes during the year. The Company's
accounting policy as of January 1, 2000 recognizes the revenue for
multi-admission tickets and season passes over the operating season on a
usage basis rather than upon receipt.
-9-
<PAGE>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provisions of SAB No. 101 allow companies to either restate results
or account for the change as a cumulative effect. The Company has elected to
restate its 1999 interim results of operations. The following sets forth the
results for the three months and nine months ended September 30, 1999 as
originally reported and as restated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
----------------------------- ------------------------------
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
AS AS
ORIGINALLY AS ORIGINALLY
REPORTED: RESTATED: REPORTED: AS RESTATED:
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Revenues.................................... $ 471,728 $ 495,404 $ 858,892 $ 848,126
Net income applicable to
common stock............................ 111,008 125,809 46,836 38,860
Net income per average common share
outstanding - basic..................... 1.42 1.61 0.60 0.50
Net income per average common share
outstanding - diluted................... 1.29 1.46 0.60 0.48
</TABLE>
2. ACQUISITION OF THEME PARKS
On May 4, 1999, the Company acquired all of the capital stock of the
companies that own and operate Reino Aventura (subsequently renamed Six Flags
Mexico), a theme park located in Mexico City, for a cash purchase price of
approximately $59,600,000. The Company funded the acquisition from existing
cash. Approximately $14,575,000 of costs in excess of the fair value of the net
assets acquired were recorded as goodwill. The transaction was accounted for as
a purchase.
On May 13, 1999, the Company acquired the assets of Splashtown water
park located in Houston, Texas for a cash purchase price of approximately
$20,400,000. The Company funded the acquisition from existing cash.
Approximately $10,530,000 of costs in excess of the fair value of the net assets
acquired were recorded as goodwill. The transaction was accounted for as a
purchase.
On May 25, 1999, the limited partnership that owns Six Flags Over
Georgia acquired the assets of White Water Atlanta water park and the adjacent
American Adventures entertainment facility located near Atlanta, Georgia. In
connection with the acquisition, the Company issued a $40,700,000 note that was
converted into 1,080,000 shares of the Company's common stock. The transaction
was accounted for by the limited partnership as a purchase. The Company has
reflected the additional investment in the limited partnership as investment in
theme park partnerships.
On November 15, 1999, the Company purchased the partnership that owns
Warner Bros. Movie World Germany, near Dusseldorf, Germany, and entered into a
joint venture with Warner Bros. to design, develop and manage a new Warner Bros.
Movie World theme park scheduled to open in Madrid, Spain in 2002. At the same
time, the Company entered into a long-term license agreement for exclusive theme
park usage in Europe, Mexico, South America and Central America of the Looney
Tunes, Hanna-Barbera, Cartoon Network and D.C. Comics characters. The aggregate
cost of the transactions was
-10-
<PAGE>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$180,269,000, which was funded by borrowings under the Company's 1999 credit
facility (the "Credit Facility"). See Note 3(d). Approximately $42,800,000 of
the aggregate costs were allocated to goodwill and intangible assets. The
transaction was accounted for as a purchase.
In June 2000, the Company acquired the remaining minority interest in
Walibi S.A. held by third parties for an aggregate cost of approximately
$1,023,000. The purchase price was allocated primarily to goodwill.
3. LONG-TERM INDEBTEDNESS
(a) On January 31, 1997, Six Flags Operations Inc. (formerly known
as Premier Operations Inc.), a wholly-owned subsidiary of Holdings ("SF
Operations"), issued $125,000,000 of senior notes due January 2007 (the "1997
Notes"). The 1997 Notes are senior unsecured obligations of SF Operations.
The 1997 Notes require annual interest payments of approximately $12.2 million
(9 3/4% per annum) and, except in the event of a change of control of SF
Operations and certain other circumstances, do not require any principal
payments prior to their maturity in 2007. The 1997 Notes are redeemable, at
SF 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 SF Operations' principal
domestic subsidiaries.
The indenture limits the ability of SF 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.
(b) On April 1, 1998, Holdings issued at a discount $410,000,000
principal amount at maturity ($321,244,000 and $298,664,000 carrying value as of
September 30, 2000 and December 31, 1999, respectively) of Senior Discount Notes
( the "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 $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 the Company's obligations to the limited partners of Six Flags
Over Georgia and Six Flags Over Texas (the "Partnership Parks") and to pay cash
dividends on the Company's Premium Income Equity Securities ("PIES"), a
mandatorily convertible preferred stock.
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 SF Operations, issued $170,000,000 principal
amount of 8 7/8% Senior Notes
-11-
<PAGE>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(the "SFEC Notes"). The SFEC Notes are guaranteed on a fully subordinated basis
by Holdings. The SFEC 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 SF Operations and certain other circumstances, do not require any principal
payments prior to their maturity in 2006. The SFEC Notes are redeemable, at SF
Operation's option, in whole or in part, at any time on or after April 1, 2002,
at varying redemption prices. The net proceeds of the SFEC Notes, together with
other funds, were invested in restricted-use securities, which were used to
repay in full on December 15, 1999 pre-existing notes of SFEC in a principal
amount of $192,250,000 at that date.
The indenture under which the SFEC Notes were issued limits the ability
of SF 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 the Credit
Facility and, in connection therewith, SFEC merged into SF Operations and SFTP
became a subsidiary of SF Operations. The Credit Facility includes a
$300,000,000 five-year revolving credit facility (none of which was outstanding
at September 30, 2000), a $300,000,000 five-and-one-half-year multicurrency
reducing revolver facility (of which $291,000,000 was outstanding at September
30, 2000) and a $600,000,000 six-year term loan (all of which was outstanding at
September 30, 2000). 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. In February
2000, the Company 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 2001
to March 2002. Giving effect to such agreements, the effective rate on the term
loan borrowings at September 30, 2000 was 9.94%.
The multicurrency facility, which permits optional prepayments and
reborrowings, requires quarterly mandatory repayments of 2.5% of the
committed amount thereof commencing on December 31, 2001, 5.0% commencing on
December 31, 2002, 7.5% commencing on December 31, 2003 and 20.0% commencing
on December 31, 2004. The term loan facility requires quarterly repayments of
0.25% of the committed 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, SF Operations and all of SF Operations' domestic
subsidiaries and are secured by substantially all of SF Operations' domestic
assets.
The Credit Facility contains restrictive covenants that, among other
things, limit the ability of SF 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 and 1999 Senior Notes, cash dividend payments on the PIES and its
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 SF Operations comply with certain specified financial
ratios and tests.
On November 5, 1999, the Company borrowed $892,000,000 under the Credit
Facility principally to repay all amounts outstanding under the Company's then
existing credit facilities and to provide funds to consummate the November 1999
transactions with Warner Bros. described in Note 2.
-12-
<PAGE>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(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 1998 Senior Notes and the Senior Discount Notes. The 1999 Senior
Notes require annual interest payments of approximately $41,900,000 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
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 1998 Senior Notes and the Senior
Discount Notes. The net proceeds of the 1999 Senior Notes were used to retire
then outstanding notes of SF Operations and SFTP.
4. COMMITMENTS AND CONTINGENCIES
On March 21, 1999, a raft capsized in the river rapids ride at Six
Flags Over Texas, one of the Partnership Parks, resulting in one fatality and
injuries to ten others. As a result, 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. In July 2000 the judgments were
upheld by the Georgia Court of Appeals. TWE has indicated that it intends to
appeal the judgments to the Georgia 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 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.
5. INVESTMENT IN THEME PARK PARTNERSHIPS
The following reflects the summarized results of the four parks
managed by the Company during the three and nine months ended September 30,
2000 and 1999. Results for White Water Atlanta and the related outdoor
entertainment complex, which were acquired by the limited partnership that
owns Six Flags Over Georgia on May 25, 1999, are included in the nine month
1999 period only from the acquisition date.
-13-
<PAGE>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ---------------------------------
2000 1999 2000 1999
------------ -------------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue..................................... $ 91,449 $ 100,993 $ 186,304 $ 198,846
Expenses:
Operating expenses.......................... 24,980 27,279 68,033 72,723
Selling, general and administrative......... 7,922 6,639 29,411 27,750
Costs of products sold...................... 7,310 8,690 15,508 18,548
Depreciation and amortization............... 4,280 3,980 11,742 11,502
Interest expense, net....................... 3,276 1,433 10,489 5,640
Other expense............................... 125 264 518 458
----------- ------------- ------------ ----------
Total..................................... 47,893 48,285 135,701 136,621
----------- ------------- ------------ ----------
Net income ................................. $ 43,556 $ 52,708 $ 50,603 $ 62,225
=========== ============= ============ ==========
</TABLE>
The Company's share of income from operations of the four theme parks
for the three and nine months ended September 30, 2000 was $22,684,000 and
$27,478,000, respectively, prior to depreciation and amortization charges of
$5,736,000 and $15,270,000, respectively, and third-party interest and other
non-operating expenses of $429,000 and $769,000, respectively. The Company's
share of income from operations of the four theme parks for the three and nine
months ended September 30, 1999 was $32,601,000 and $35,589,000, respectively,
prior to depreciation, amortization and interest charges of $4,348,000 and
$10,987,000, respectively. 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.
6. BUSINESS SEGMENTS
The Company manages its operations on an individual park location
basis. Discrete financial information is maintained for each park and
provided to the Company's management for review and as a basis for decision
making. The primary performance measure used to allocate resources is
earnings before interest, tax expense, depreciation and amortization
("EBITDA"). All of the Company's parks provide similar products and services
through a similar process to the same class of customer through a consistent
method. As such, the Company has only one reportable segment -- operation of
theme parks. The following tables present segment financial information, a
reconciliation of the primary segment performance measure to income before
income taxes and a reconciliation of theme park revenues to consolidated
total revenues. Park level expenses exclude all noncash operating expenses,
principally depreciation and amortization, and all non-operating expenses.
-14-
<PAGE>
SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ---------------------------------
2000 1999 2000 1999
------------- --------------- --------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Theme park revenue............................. $ 638,888 $ 596,397 $ 1,105,715 $ 1,046,972
Theme park cash expenses....................... 270,450 256,838 640,870 604,045
----------- ------------- ------------- --------------
Aggregate park EBITDA.......................... 368,438 339,559 464,845 442,927
Third-party share of EBITDA from
parks accounted for under the
equity method............................... (24,111) (25,596) (41,737) (40,692)
Amortization of investment in theme
park partnerships........................... (5,736) (4,348) (15,270) (10,987)
Unallocated net expenses, including
corporate and other expenses................ (14,111) (6,312) (30,508) (29,805)
Depreciation and amortization.................. (46,320) (40,149) (133,079) (114,135)
Interest expense............................... (58,797) (48,159) (174,948) (141,719)
Interest income................................ 2,492 6,072 6,601 19,606
----------- ------------- ------------- --------------
Income before income taxes..................... $ 221,855 $ 221,067 $ 75,904 $ 125,195
=========== ============= ============= ==============
Theme park revenue............................. $ 638,888 $ 596,397 $ 1,105,715 $ 1,046,972
Theme park revenue from parks
accounted for under the equity method....... (91,449) (100,993) (186,304) (198,846)
=========== ============= ============= ==============
Consolidated total revenue..................... $ 547,439 $ 495,404 $ 919,411 $ 848,126
=========== ============= ============= ==============
</TABLE>
Seven of the Company's parks are located in Europe and one is located in
Mexico. The Mexico park was acquired in May 1999 and one of the European parks
was acquired in November 1999. The following information reflects the Company's
long-lived assets and revenue by domestic and foreign categories as of and for
the nine months ended September 30, 2000 and 1999, respectively:
<TABLE>
<CAPTION>
2000: (In thousands)
---- --------------------------------------------------------------
DOMESTIC INTERNATIONAL TOTAL
-------- ------------- -----
<S> <C> <C> <C>
Long-lived assets................................ $ 3,357,846 $ 488,214 $3,846,060
Revenue.......................................... 772,363 147,048 919,411
<CAPTION>
1999: (In thousands)
--------------------------------------------------------------
DOMESTIC INTERNATIONAL TOTAL
-------- ------------- -----
<S> <C> <C> <C>
Long-lived assets................................ $ 3,257,613 $ 250,513 $3,508,126
Revenue.......................................... 760,698 87,428 848,126
</TABLE>
-15-
<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-month and nine-month periods ended
September 30, 2000 are not indicative of the results expected for the full year.
In particular, the Company's theme park operations contribute most of their
annual revenue during the period from Memorial Day to Labor Day each year.
Results of operations for the three and nine months ended September 30,
2000 include the results of the four parks acquired in 1999. Results for the
three and nine months ended September 30, 1999 include the results of three of
the acquired parks from their respective dates of acquisition in May 1999 and do
not include the results of the Movie World Germany park acquired in November
1999.
THREE MONTHS ENDED SEPTEMBER 30, 2000 VS. THREE MONTHS ENDED
SEPTEMBER 30, 1999
Revenue in the third quarter of 2000 totaled $547.4 million compared
to $495.4 million for the third quarter of 1999, representing a 10.5%
increase. The increase was primarily attributable to a 5.2% increase in
attendance in the 2000 quarter (including significant increases at the four
rebranded parks), increased per capita spending in that quarter and the
inclusion in 2000 of the results of Movie World Germany. Reported revenues
from the Company's European parks as translated into U.S. dollars were
adversely impacted by a relative decline in European currencies during the
2000 quarter. Revenue growth in the 2000 quarter would have been
approximately $13.0 million higher had European currency exchange rates
remained at 1999 levels.
Operating expenses for the third quarter of 2000 increased $4.2 million
compared to the third quarter of 1999 due primarily to the inclusion of Movie
World Germany in the 2000 period. Operating expenses decreased as a percentage
of revenues to 25.1% in the 2000 quarter from 26.8% in the prior year quarter.
Excluding Movie World Germany from both periods, operating expenses in the 2000
period would have decreased $1.8 million (1.4%) as compared to the prior year
period.
Selling, general and administrative expenses for the third quarter
of 2000 increased $7.8 million compared to comparable expenses for the third
quarter of 1999 due primarily to the inclusion of Movie World Germany in the
2000 period and, to a lesser extent, higher advertising and insurance
expense. As a percentage of revenues, these expenses represented 8.5% in the
2000 quarter as compared to 7.9% in the 1999 period. Noncash compensation
expense was $1.9 million more than the prior year period. During December
1999 the conditions applicable to certain stock options were met. As a
result, the total cost of the stock options was determined at that time. In
periods subsequent to that date, this remaining fixed and determined cost is
being amortized over the remaining vesting period. In prior periods, an
estimated cost was used.
Costs of products sold in the 2000 period increased $4.2 million
compared to costs for the third quarter of 1999. As a percentage of theme park
food, merchandise and other revenue, costs of good sold represented 20.6% in the
2000 period as compared to 21.3% in the 1999 quarter.
Depreciation and amortization expense for the third quarter of 2000
increased $6.2 million compared to the third quarter of 1999. The increase
compared to the 1999 level was attributable to the Company's on-going capital
program and from additional depreciation and amortization expense ($3.2 million)
associated with the 1999 acquisition of Movie World Germany. Interest expense,
net increased $14.2 million compared to the third quarter of 1999. The increase
in the 2000 period resulted from higher average interest rates on a higher
average debt and reduced interest income from lower average cash and cash
equivalents and restricted-use investment balances during 2000.
-16-
<PAGE>
For the 2000 period, equity in operations of theme park partnerships
reflects the Company's share of the income of Six Flags Over Texas (34%
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. The partnership that owns Six Flags Over
Georgia acquired White Water Atlanta in May 1999. The $11.7 million decrease in
the equity in operations of theme park partnerships compared to the third
quarter of 1999 was primarily attributable to reduced attendance in the 2000
period as compared to 1999 levels at certain of these parks.
Income tax expense was $87.2 million for the third quarter of 2000
compared to $89.4 million for the third quarter of 1999. The effective tax rate
for the third quarter of 2000 was 39.3% compared to a rate of 40.5% for the
third quarter of 1999. 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 statement purposes and the deductible portion of the
amortization for tax purposes.
NINE MONTHS ENDED SEPTEMBER 30, 2000 VS. NINE MONTHS ENDED SEPTEMBER
30, 1999
Revenue in the first nine months of 2000 totaled $919.4 million
compared to $848.1 million for the comparable period of 1999. Revenues in the
2000 period increased 8.4% over the prior year period due to the inclusion in
the entire 2000 period of the results of the parks acquired in 1999 and to a
lesser extent to an increase in per capita spending at the Company's parks.
The Company believes that revenues in the 2000 period were adversely affected
by unusually difficult weather, particularly in June and July, in a large
number of its major markets. Reported revenues from the Company's European
parks as translated into U.S. dollars were adversely impacted by a decline in
European currencies during the 2000 period. Revenue growth in the first nine
months of 2000 would have been approximately $19.4 million higher had
European currency exchange rates remained at 1999 levels.
Operating expenses for the nine months ended September 30, 2000
increased $23.8 million compared to the comparable nine months of 1999. The 8.2%
increase resulted primarily from the inclusion in the 2000 period of two
consolidated parks acquired in May 1999 and one acquired in November 1999.
Excluding the acquired parks from both periods, operating expenses in the 2000
period would have increased $3.8 million (1.3%) as compared to the prior year
period primarily as a result of increased compensation expense.
Selling, general and administrative expenses for the first nine
months of 2000 increased $14.1 million compared to the comparable period of
1999. Excluding the parks acquired in 1999 from both periods, selling,
general and administrative expenses in 2000 would have increased $0.6 million
as compared to the prior year period. Noncash compensation expense in the
2000 period was $1.1 million less than the prior year period, reflecting the
difference between the fixed cost in the 2000 period relating to certain
conditional stock options and the estimated cost used in the 1999 period.
Costs of products sold in the 2000 period increased $4.7 million
compared to costs for the first nine months of 1999. As a percentage of theme
park food, merchandise and other revenue, costs of good sold represented 20.5%
in the 2000 period as compared to 21.1% in the 1999 period.
Depreciation and amortization expense for the first nine months of 2000
increased $18.9 million compared to the comparable period of 1999. The increase
compared to the 1999 level was attributable to the Company's on-going capital
program and from additional depreciation and amortization expense ($9.7 million)
associated with the consolidated parks acquired in 1999. Interest expense, net
increased $46.2 million compared to the comparable nine months of 1999. The
increase in the 2000 period resulted from higher average interest rates on a
higher average debt and reduced interest income from lower average cash and cash
equivalents and restricted-use investment balances during 2000.
-17-
<PAGE>
For the 2000 period, equity in operations of theme park partnerships
reflects the Company's share of the income or loss of Six Flags Over Texas (34%
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. The partnership that owns Six Flags Over
Georgia acquired White Water Atlanta in May 1999. The equity in operations of
theme park partnerships compared to the first nine months of 1999 decreased by
$13.2 million, primarily as result of reduced attendance in the 2000 period at
certain of these parks.
Income tax expense was $39.4 million for the nine months ended
September 30, 2000 compared to $62.7 million for the first nine months of 1999.
The effective tax rate for the 2000 period was 51.9% compared to a rate of 50.1%
for the comparable period of 1999. 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 statement purposes and the deductible
portion of the amortization for tax purposes.
LIQUIDITY, CAPITAL COMMITMENTS AND RESOURCES
At September 30, 2000, the Company's indebtedness aggregated $2,224.2
million, of which approximately $1.0 million matures prior to September 30,
2001. See Note 3 to the Company's Consolidated Financial Statements for
additional information regarding the Company's indebtedness.
During the nine months ended September 30, 2000, net cash provided by
operating activities was $245.4 million. Net cash used in investing activities
in the first nine months of 2000 totaled $298.1 million, consisting primarily of
capital expenditures and investments in theme park partnerships. Net cash used
in financing activities in the first nine months of 2000 was $17.4 million,
primarily representing cash dividends paid.
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 $48.6 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 those two Partnership Parks will be used to satisfy the
obligations described in clauses (i) and (ii) above before any funds are
required from the Company. In addition, at September 30, 2000, the Company had a
dedicated escrow account available to fund these 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 PIES 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.
-18-
<PAGE>
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 2000 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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and in June 2000 issued SFAS No. 138, which
amended certain provisions of SFAS 133. SFAS No. 133, as amended, 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. It is expected that the
Company will adopt the provisions of SFAS No. 133 and SFAS No. 138 as of January
1, 2001.
The Company has had limited involvement with derivative financial
instruments, primarily the Company's interest rate swap related to the $600.0
million term loan. The Company is currently evaluating the provisions of SFAS
No. 133, as amended. Based upon the Company's limited use of derivative
financial instruments, the Company does not believe that the adoption of SFAS
No. 133 will have a material impact on its consolidated financial position or
future results of operations.
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 1999 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. During the period January 1,
2000 through September 30, 2000, the value of the Euro has declined
approximately 12.5% in relation to the dollar. This decline to date is more
than the hypothetical 10% decline described and evaluated in the 1999 Form
10-K. However, the Company's foreign net operations in the fourth quarter of
2000 are not expected to be materially impacted by an adverse change in the
currency exchange rate. Although the Company may in the future enter into
transactions to hedge currency exchange risks in respect of specific purchase
contracts with foreign vendors, the Company has no current plans to enter
into hedging transactions with respect to its foreign operations generally.
During the first nine months of 2000, interest rates (as measured by
LIBOR) have increased by approximately 13.5%. As previously disclosed, the
Company has entered into interest swap arrangements with respect to its $600.0
million term loan. At September 30, 2000, the balance of the
-19-
<PAGE>
Company's other indebtedness represented fixed rate debt, other than $291.0
million outstanding under the Credit Facility. Increases in LIBOR in the
future will result in higher interest expense with respect to this $291.0
million in indebtedness. Except as described above, there have been no
material changes in the Company's market risk exposure from that disclosed in
the 1999 Form 10-K.
-20-
<PAGE>
PART II -- OTHER INFORMATION
ITEMS 1 - 5
Not applicable.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule - September 30, 2000
(b) Reports on Form 8-K
None.
-21-
<PAGE>
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)
Kieran E. Burke
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
James F. Dannhauser
CHIEF FINANCIAL OFFICER
Date: November ___, 2000
-22-
