SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: JANUARY 3, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 333-46897-01
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SIX FLAGS ENTERTAINMENT CORPORATION
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(Exact name of Registrant as specified in its charter)
DELAWARE 22-3136577
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11501 NORTHEAST EXPRESSWAY
OKLAHOMA CITY, OKLAHOMA 73131
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (405) 475-2500
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Securities registered pursuant to Sec. 12(b) of the Act: None
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Securities registered pursuant to Sec. 12(g) of the Act: None
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Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant's
knowledge, in the definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates (assuming, solely for the purposes of this Form,
that all the directors of the Registrant are affiliates) of the
Registrant:
None. All of the capital stock of the Company is held by
its parent, Premier Parks Inc.
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest most
practicable date:
The number of shares of Common Stock of the Registrant
outstanding as of March 1, 1999 was 1,000.
The Registrant meets the conditions set forth in General
Instruction I(1)(a) and (b) of Form 10-K and is therefore filing
this form with reduced disclosure format.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
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Six Flags Entertainment Corporation ("SFEC"), through its
direct and indirect wholly-owned subsidiaries, S.F. Holdings,
Inc. ("Holdings"), Six Flags Theme Parks Inc. ("SFTP" and,
collectively with SFEC, Holdings and their subsidiaries, "Six
Flags" or the "Company"), operates six regional theme parks, as
well as three separately gated water parks and a wildlife safari
animal park. SFEC and Holdings are holding companies, which have
no significant operations independent of their ownership of SFTP.
As the operator of a leading national system of regional theme
parks for over thirty years, Six Flags has established a
nationally recognized brand name and identity. On a pro forma
basis, assuming the Company's interests in Six Flags Over Georgia
and Six Flags Over Texas had been transferred on January 1, 1998,
the Company's total revenue and earnings before interest, taxes,
depreciation and amortization ("EBITDA") for the year ended
January 3, 1999 would have been approximately $521.1 million and
$149.6 million, respectively.
Each of the parks is located in or near a major metropolitan
area: Six Flags Great Adventure and Six Flags Wild Safari Animal
Park -- New York/Philadelphia; Six Flags Magic Mountain and Six
Flags Hurricane Harbor -- Los Angeles (collectively, "Six Flags
California"); Six Flags Great America -- Chicago/Milwaukee; Six
Flags Hurricane Harbor -- Dallas/Fort Worth; Six Flags Houston
and Six Flags WaterWorld -- Houston (collectively, "Six Flags
Houston"); Six Flags St. Louis - St. Louis; and Six Flags Fiesta
Texas - San Antonio. Four of these parks are located in one of
the top ten markets in the United States in terms of population.
On April 1, 1998, Premier Parks Inc. ("Premier") acquired
(the "Acquisition") 100% of the equity of SFEC for a cash
purchase price of $965 million (plus an approximate $11 million
adjustment) from Time Warner Entertainment Company and Boston
Ventures. Premier also assumed or refinanced a total of
approximately $1,032.1 million of Company debt outstanding at that
date. As part of the Acquisition, the parties entered into a
long-term licensing agreement that gives Premier and the Company
the exclusive theme park rights in the U.S. (excluding the Las
Vegas, Nevada Metropolitan area) and Canada of Warner Bros. and
DC Comics animated characters. These characters include Bugs
Bunny, Daffy Duck, Tweety Bird, Yosemite Sam, Batman, Superman
and others.(1) As part of the Acquisition, Six Flags transferred
to Premier all of its interest in the limited partnerships (the
"Co-Venture Partnerships") that own Six Flags Over Texas and Six
Flags Over Georgia (the "Co-Venture Parks") for a cash payment of
approximately $46.0 million and the payment of $165.6 million of
SFEC debt.
The parks (other than the Six Flags Wild Safari Animal Park)
are designed to provide a full day of entertainment, offering a
broad selection of state-of-the-art thrill rides (or water rides
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(1) Looney Tunes, Bugs Bunny, Daffy Duck, Tweety Bird and
Yosemite Sam are copyrights and trademarks of Warner Bros.,
a division of Time Warner Entertainment Company, L.P.
("TWE"). Batman and Superman are copyrights and trademarks
of DC Comics, a partnership between TWE and a subsidiary of
Time Warner Inc. Six Flags Great Adventure, Six Flags Great
America, Six Flags and all related indicia are federally
registered trademarks of Six Flags Theme Parks Inc., a
subsidiary of the Company. Fiesta Texas and all related
indicia are trademarks of Fiesta Texas, Inc., a subsidiary
of the Company.
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and activities in the case of the three water parks), themed
areas, concerts, shows, restaurants, theaters, game venues and
merchandise outlets.
The 1996 and 1997 fiscal years consisted of 52 weeks each
and ended December 29, 1996 and December 28, 1997, respectively.
The 1998 fiscal year consisted of 53 weeks and ended January 3,
1999.
DESCRIPTION OF PARKS
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SIX FLAGS FIESTA TEXAS
Six Flags Fiesta Texas, the 39th largest theme park in North
America based on 1998 attendance, is located on approximately 206
acres of land in San Antonio, Texas. The San Antonio, Texas
market provides the park with a permanent resident population of
1.7 million people within 50 miles and 3.0 million people within
100 miles. The San Antonio market is the number 38 DMA in the
United States. Based upon in-park surveys, approximately 34.8%
of the visitors to the park in 1998 resided within a 50-mile
radius of the park, and 44.8% resided within a 100-mile radius.
Following the 1998 season, Premier purchased the 40% minority
interest in Six Flags Fiesta Texas and title to the park for
$45.0 million in cash.
Six Flags Fiesta Texas' principal competitor is Sea World of
Texas located in San Antonio. In addition, the park competes to
a lesser degree with Six Flags Houston, the Company's park
located in Houston, Texas, approximately 200 miles from the park.
SIX FLAGS GREAT ADVENTURE AND SIX FLAGS WILD SAFARI ANIMAL
PARK
Six Flags Great Adventure, the 11th largest theme park in
North America, and the separately gated adjacent Six Flags Wild
Safari Animal Park, are located in Jackson, New Jersey,
approximately 70 miles south of New York City and 50 miles east
of Philadelphia. The New York and Philadelphia markets provide
the parks with a permanent resident population of 12.4 million
people within 50 miles and 25.9 million people within 100 miles.
The New York and Philadelphia markets are the number 1 and number
4 DMAs in the United States, respectively. Based upon in-park
surveys, approximately 53.9% of the visitors to the parks in 1998
resided within a 50-mile radius of the park, and 86.2% resided
within a 100-mile radius.
The Company owns a site of approximately 2,200 acres, of
which approximately 125 acres are currently used for the theme
park operations, and approximately 350 adjacent acres are used
for the wildlife safari park, home to 55 species of 1,200 exotic
animals which can be seen over a four and one-half mile drive.
Approximately 1,640 acres remain undeveloped. Six Flags Great
Adventure's principal competitors are Hershey Park, located in
Hershey, Pennsylvania, approximately 150 miles from the park; and
Dorney Park, located in Allentown, Pennsylvania, approximately 75
miles from the park.
SIX FLAGS GREAT AMERICA
Six Flags Great America, the 19th largest theme park in
North America, is located in Gurnee, Illinois, between Chicago,
Illinois and Milwaukee, Wisconsin. The Chicago and Milwaukee
markets provide the park with a permanent resident population of
7.8 million people within 50 miles and 12.0 million people within
100 miles. The Chicago and Milwaukee markets are the number 3
and number 31 DMAs in the United States, respectively. Based
upon in-park surveys, approximately 66.6% of the visitors to the
park in 1998 resided within a 50-mile radius of the park, and
82.0% resided within a 100-mile radius.
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The Company owns a site of approximately 440 acres of which
86 are used for the theme park operations, and approximately 106
usable acres are in a separate parcel available for expansion and
complementary uses. Six Flags Great America currently has no
direct theme park competitors in the region, but does compete to
some extent with Kings Island, located near Cincinnati, Ohio,
approximately 350 miles from the park; Cedar Point, located in
Sandusky, Ohio, approximately 340 miles from the park; and Six
Flags St. Louis, the Company's park located outside St. Louis,
Missouri, approximately 320 miles from the park.
SIX FLAGS HOUSTON AND SIX FLAGS WATERWORLD
Six Flags Houston, the 30th largest theme park in North
America, and the separately gated adjacent Six Flags WaterWorld,
are located in Houston, Texas on the grounds of an entertainment
and sports complex that includes the Houston Astrodome. The
Houston, Texas market provides the parks with a permanent
resident population of 4.3 million people within 50 miles and 5.2
million people within 100 miles. The Houston market is the
number 11 DMA in the United States. Based upon in-park surveys,
approximately 63.6% of the visitors to the theme park in 1998
resided within a 50-mile radius of the park, and 69.9% resided
within a 100-mile radius.
The Company owns a site of approximately 90 acres used for
the theme park, and approximately 14 acres used for the water
park. Six Flags Houston indirectly competes with Sea World of
Texas and the Company's Six Flags Fiesta Texas, both located in
San Antonio, Texas, approximately 200 miles from the park. Six
Flags WaterWorld competes with Splashtown and Water Works, two
nearby water parks.
SIX FLAGS HURRICANE HARBOR
Six Flags Hurricane Harbor, the 7th largest water park in
the United States, is located in Arlington, Texas, between Dallas
and Fort Worth, Texas. The Dallas/Fort Worth market provides the
park with a permanent resident population of 4.5 million people
within 50 miles and 5.6 million people within 100 miles. The
Dallas/Fort Worth market is the number 8 DMA in the United
States.
The Company owns directly approximately 47 acres, of which
approximately 18 acres are currently used for Hurricane Harbor
and 31 acres remain undeveloped. Six Flags Hurricane Harbor has
no direct competitors in the area other than a municipal water
park.
SIX FLAGS MAGIC MOUNTAIN AND SIX FLAGS HURRICANE HARBOR
Six Flags Magic Mountain, the 15th largest theme park in
North America, and the separately gated adjacent Six Flags
Hurricane Harbor, the 15th largest water park in the United
States, are located in Valencia, California, in the northwest
section of Los Angeles County. The Los Angeles, California
market provides the parks with a permanent resident population of
9.8 million people within 50 miles and 15.8 million people within
100 miles. The Los Angeles market is the number 2 DMA in the
United States. Based upon in-park surveys, approximately 44.5%
of the visitors to the theme park in 1998 resided within a
50-mile radius of the parks, and 67.0% resided within a 100-mile
radius.
The Company owns a site of approximately 260 acres with 160
acres used for the theme park, and approximately 12 acres used
for the pirate-themed water park. Six Flags Magic Mountain's
principal competitors include Disneyland in Anaheim, California,
located approximately 60 miles from the park, Universal Studios
Hollywood in Universal City, California, located approximately 20
miles from the park, Knott's Berry Farm in Buena Park,
California, located approximately 50 miles from the park, and Sea
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World of California in San Diego, California, located
approximately 150 miles from the park. In early 1999, a new
park, Legoland, opened approximately 120 miles from Magic
Mountain. Six Flags Hurricane Harbor's only direct competitor in
the area is Raging Waters, approximately 50 miles from the water
park.
SIX FLAGS ST. LOUIS
Six Flags St. Louis, the 36th largest theme park in North
America, is located in Eureka, Missouri, about 35 miles west of
St. Louis, Missouri. The St. Louis market provides the park with
a permanent resident population of 2.6 million people within 50
miles and 3.7 million people within 100 miles. The St. Louis
market is the number 21 DMA in the United States. Based upon
in-park surveys, approximately 55.3% of the visitors to the park
in 1998 resided within a 50-mile radius of the park, and 65.1%
resided within a 100-mile radius.
The Company owns a site of approximately 497 acres used for
the theme park operations. Six Flags St. Louis competes with
Kings Island and The Beach, located near Cincinnati, Ohio,
approximately 350 miles from the park; Cedar Point, located in
Sandusky, Ohio, approximately 515 miles from the park; Silver
Dollar City, located in Branson, Missouri, approximately 250
miles from the park; and Six Flags Great America, the Company's
park located near Chicago, Illinois, approximately 320 miles from
the park.
MARKETING AND PROMOTION
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The Company attracts visitors through locally oriented
multi-media marketing and promotional programs for each of its
parks. These programs are tailored to address the different
characteristics of their respective markets and to maximize the
impact of specific park attractions and product introductions.
All marketing and promotional programs are updated or completely
revamped each year to address new developments. Marketing
programs are supervised by Premier's Senior Vice President for
Marketing, with the assistance of senior management and in-house
marketing staff, as well as its national advertising agency.
The Company also develops partnership relationships with
well-known national and regional consumer goods companies and
retailers to supplement its advertising efforts and to provide
attendance incentives in the form of discounts and/or premiums.
The Company has also arranged for popular local radio and
television programs to be filmed or broadcast live from its
parks.
Group sales and pre-sold tickets provide the Company with a
consistent and stable base of attendance, representing over 35.2%
of aggregate attendance in 1998 at the Company's parks. Each
park has a group sales and pre-sold ticket manager and a
well-trained sales staff dedicated to selling multiple group
sales and pre-sold ticket programs through a variety of methods,
including direct mail, telemarketing and personal sales calls.
The Company has also developed effective programs for
marketing season pass tickets. Season pass sales establish a
solid attendance base in advance of the season, thus reducing
exposure to inclement weather. Additionally, season pass holders
often bring paying guests and generate "word-of-mouth"
advertising for the parks. During 1998, 22.1% of visitors to the
Company's parks utilized season passes.
A significant portion of the Company's attendance is
attributable to the sale of discount admission tickets. The
Company offers discounts on season and multi-visit tickets,
tickets for specific dates and tickets to affiliated groups such
as businesses, schools and religious, fraternal and similar
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organizations. The increased in-park spending which results from
such attendance is not offset by incremental operating expenses,
since such expenses are relatively fixed during the operating
season.
The Company also implements promotional programs as a means
of targeting specific market segments and geographic locations
not reached through its group or retail sales efforts. The
promotional programs utilize coupons, sweepstakes, reward
incentives and rebates to attract additional visitors. These
programs are implemented through direct mail, telemarketing,
direct response media, sponsorship marketing and targeted
multi-media programs. The special promotional offers are usually
for a limited time and offer a reduced admission price or provide
some additional incentive to purchase a ticket, such as
combination tickets with a complementary location.
LICENSES
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Pursuant to a license agreement (the "License Agreement")
among Warner Bros., DC Comics, Premier and SFTP, Premier and its
subsidiaries, including the Company, have the exclusive right on
a long-term basis to use Warner Bros. and DC Comics animated
characters in theme parks throughout the United States (other
than the Las Vegas metropolitan area) and Canada. In particular,
the License Agreement entitles the Company to use, subject to
customary approval rights of Warner Bros. and, in limited
circumstances, approval rights of certain third parties, all
animated and comic book characters that Warner Bros. and DC
Comics have the right to license, including as of the date
hereof, Batman, Superman, Bugs Bunny, Daffy Duck, Tweety Bird and
Yosemite Sam, and includes the right to sell merchandise using
the characters. The license fee is fixed (without regard to the
number of the Company's parks) until 2005, and thereafter the
license fee will be subject to periodic scheduled increases and
will be payable on a per-theme park basis. In addition, the
Company will be required to pay a royalty fee on merchandise that
uses the licensed characters manufactured by or for the Company
where a fee has not been paid by the manufacturer. Warner Bros.
has the right to terminate the License Agreement under certain
circumstances, including if any persons involved in the movie or
television industries obtain control of the Company and upon a
default by Premier under an indemnity agreement in favor of Time
Warner Inc. ("Time Warner") executed in connection with the
Acquisition.
PARK OPERATIONS
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The Company currently operates in geographically diverse
markets in the United States. Each of the Company's parks is
operated to the extent practicable as a separate operating
division of the Company in order to maximize local marketing
opportunities and to provide flexibility in meeting local needs.
Each park is managed by a general manager who reports to one of
Premier's Executive Vice Presidents (each of whom reports to the
Chief Operating Officer) and is responsible for all operations
and management of the individual park. Local advertising, ticket
sales, community relations and hiring and training of personnel
are the responsibility of individual park management in
coordination with corporate support teams.
Each of the Company's theme parks is managed by a full-time,
on-site management team under the direction of the general
manager. Each such management team includes senior personnel
responsible for operations and maintenance, marketing and
promotion, human resources and merchandising. Park management
compensation structures are designed to provide incentives
(including stock options and cash bonuses) for individual park
managers to execute the Company's strategy and to maximize
revenues and operating cash flow at each park.
The Company's parks are generally open daily from Memorial
Day through Labor Day. In addition, most of the Company's parks
are open during weekends prior to and following their daily
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seasons, primarily as a site for theme events (such as
Hallowscream and Oktoberfest). Certain of the parks have longer
operating seasons. Typically, the parks charge a basic daily
admission price, which allows unlimited use of all rides and
attractions, although in certain cases special rides and
attractions require the payment of an additional fee.
CAPITAL IMPROVEMENTS
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The Company regularly makes capital investments in the
development and implementation of new rides and attractions at
its parks. The Company purchases both new and used rides. In
addition, the Company rotates rides among its parks to provide
fresh attractions. The Company believes that the introduction of
new rides is an important factor in promoting each of the parks
in order to achieve market penetration and encourage longer
visits, which lead to increased attendance and in-park spending.
In addition, the Company generally adds theming to acquired parks
and enhances the theming and landscaping of its existing parks in
order to provide a complete family oriented entertainment
experience. Capital expenditures are planned on a seasonal basis
with most expenditures made during the off-season. Expenditures
for materials and services associated with maintaining assets,
such as painting and inspecting rides are expensed as incurred
and therefore are not included in capital expenditures.
The Company's level of capital expenditures are directly
related to the optimum mix of rides and attractions given park
attendance and market penetration. These targeted expenditures
are intended to drive significant attendance growth at the parks
and to provide an appropriate complement of entertainment value,
depending on the size of a particular market. As an individual
park begins to reach an appropriate attendance penetration for
its market, management generally plans a new ride or attraction
every two to four years in order to enhance the park's
entertainment product.
The Company believes that there are ample sources for rides
and other attractions, and the Company is not dependent on any
single source. Certain of these manufacturers are located
outside the United States.
MAINTENANCE AND INSPECTION
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The Company's rides are inspected daily by maintenance
personnel during the operating season. These inspections include
safety checks as well as regular maintenance and are made through
both visual inspection of the ride and test operation. Senior
management of Premier and the individual parks evaluate the risk
aspects of each park's operation. Potential risks to employees
and staff as well as to the public are evaluated. Contingency
plans for potential emergency situations have been developed for
each facility. During the off-season, maintenance personnel
examine the rides and repair, refurbish and rebuild them where
necessary. This process includes x-raying and magnafluxing (a
further examination for minute cracks and defects) steel portions
of certain rides at high-stress points.
In addition to the Company's maintenance and inspection
procedures, the Company's liability insurance carrier performs a
periodic inspection of each park and all attractions and related
maintenance procedures. The result of insurance inspections are
written evaluation and inspection reports, as well as written
suggestions on various aspects of park operations. State
inspectors also conduct annual ride inspections before the
beginning of each season. Other portions of each park are also
subject to inspections by local fire marshals and health and
building department officials. Furthermore, the Company uses
Ellis & Associates as water safety consultants at its parks in
order to train life guards and audit safety procedures.
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INSURANCE
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The Company maintains insurance of the type and in amounts
that it believes are commercially reasonable and that are
available to businesses in its industry. The Company maintains
multi-layered general liability policies that provide for excess
liability coverage of up to $100.0 million per occurrence. With
respect to liability claims arising out of occurrences on and
after July 1, 1998, there is no self-insured retention by the
Company. However, with respect to claims arising out of
occurrences prior to July 1, 1998, the self-insured portion is
the first $2.0 million of loss per occurrence. The Company also
maintains fire and extended coverage, workers' compensation,
business interruption and other forms of insurance typical to
businesses in its industry. The fire and extended coverage
policies insure the Company's real and personal properties (other
than land) against physical damage resulting from a variety of
hazards.
COMPETITION
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The Company's parks compete directly with other theme parks,
water and amusement parks and indirectly with all other types of
recreational facilities and forms of entertainment within their
market areas, including movies, sports attractions and vacation
travel. Accordingly, the Company's business is and will continue
to be subject to factors affecting the recreation and leisure
time industries generally, such as general economic conditions
and changes in discretionary consumer spending habits. Within
each park's regional market area, the principal factors affecting
competition include location, price, the uniqueness and perceived
quality of the rides and attractions in a particular park, the
atmosphere and cleanliness of a park and the quality of its food
and entertainment. The Company believes its parks feature a
sufficient variety of rides and attractions, restaurants,
merchandise outlets and family orientation to enable it to
compete effectively.
SEASONALITY
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The operations of the Company are highly seasonal, with more
than 85% of park attendance in 1998 occurring in the second and
third calendar quarters and the most active period falling
between Memorial Day and Labor Day. The great majority of the
Company's revenues are collected in the second and third quarters
of each year.
ENVIRONMENTAL AND OTHER REGULATION
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The Company's operations are subject to increasingly
stringent federal, state and local environmental laws and
regulations including laws and regulations governing water
discharges, air emissions, soil and groundwater contamination,
the maintenance of underground storage tanks and the disposal of
waste and hazardous materials. In addition, its operations are
subject to other local, state and federal governmental
regulations including, without limitation, labor, health, safety,
zoning and land use and minimum wage regulations applicable to
theme park operations, and local and state regulations applicable
to restaurant operations at the park. The Company believes that
it is in substantial compliance with applicable environmental and
other laws and regulations and, although no assurance can be
given, it does not foresee the need for any significant
expenditures in this area in the near future.
In addition, portions of the undeveloped areas at some of
its parks are classified as wetlands. Accordingly, the Company
may need to obtain governmental permits and other approvals prior
to conducting development activities that affect these areas, and
future development may be limited in some or all of these areas.
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EMPLOYEES
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At March 1, 1999, the Company employed approximately 908
full-time employees, and the Company employed approximately
18,000 seasonal employees during the 1998 operating season. In
this regard, the Company competes with other local employers for
qualified student and other candidates on a season-by-season
basis. As part of the seasonal employment program, the Company
employs a significant number of teenagers, which subjects the
Company to child labor laws.
Approximately 19% of the Company's full-time and
approximately 12% of its seasonal employees are subject to labor
agreements with local chapters of national unions. These labor
agreements expire in December 1999 (Six Flags Great Adventure)
and January 2000 (Six Flags St. Louis).
The Company has not experienced any strikes or work
stoppages by its employees, and the Company considers its
employee relations to be good.
ITEM 2. PROPERTIES
Set forth below is a brief description of the Company's real
estate at March 1, 1999:
Six Flags Fiesta Texas, San Antonio, Texas -- 206 acres (fee
ownership)
Six Flags Great Adventure & Wild Safari Animal Park,
Jackson, New Jersey -- 2,200 acres (fee ownership)(2)
Six Flags Great America, Gurnee, Illinois -- 440 acres (fee
ownership)(2)
Six Flags Houston, Houston, Texas -- 90 acres (fee
ownership)(2)
Six Flags Hurricane Harbor, Arlington, Texas -- 47 acres
(fee ownership)(2)
Six Flags Hurricane Harbor, Valencia, California -- 12 acres
(fee ownership)(2)
Six Flags Magic Mountain, Valencia, California -- 248 acres
(fee ownership)(2)
Six Flags St. Louis, Eureka, Missouri -- 497 acres (fee
ownership)(2)
Six Flags WaterWorld, Houston, Texas -- 14 acres (fee
ownership)(2)
In addition, the Company leases certain office space and also
certain of the rides and attractions at its parks. See Note 14
to Notes to Consolidated Financial Statements.
The Company considers its properties to be well-maintained, in
good condition and adequate for their present uses and business
requirements.
ITEM 3. LEGAL PROCEEDINGS
The nature of the industry in which the Company operates tends
to expose it to claims by visitors for injuries. Historically,
the great majority of these claims have been minor. While the
Company believes that it is adequately insured against the claims
currently pending against it and any potential liability, if the
number of such events resulting in liability significantly
increased, or if the Company becomes subject to damages that
cannot by law be insured against, such as punitive damages, there
may be a material adverse effect on its operations.
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(2) The Company has granted to its lenders under the Six Flags
credit agreement a mortgage on this property.
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In December 1998, a final judgment of $197.3 million in
compensatory damages was entered against SFEC, SFTP, Six Flags
Over Georgia, Inc. and TWE, and a final judgment of $245.0
million in punitive damages was entered against TWE and of $12.0
million in punitive damages was entered against the referenced
Six Flags entities. TWE has indicated that it intends to appeal
the judgments. The judgments arose out of a case entitled Six
Flags Over Georgia, LLC et al. v. Time Warner Entertainment
Company, L.P. et al. based on certain disputed partnership
affairs prior to the Six Flags Acquisition at Six Flags Over
Georgia, including alleged breaches of fiduciary duty.
The sellers in the Six Flags Acquisition, including Time
Warner, have agreed to indemnify Premier and the Company from any
and all liabilities arising out of this litigation.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
All of the Company's Common Stock is owned by Premier, and
during the three years ended January 3, 1999, there has been no
public market for the Common Stock.
The Company paid no cash dividends during the three years
ended January 3, 1999. The indenture relating to the Company's
8 % Senior Notes Due 2006 (the "SFEC Senior Notes") limit the
payment of cash dividends to common stockholders. See Note 8 to
Notes to Consolidated Financial Statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
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The Company's revenues are derived principally from the sale
of tickets for entrance to its parks, parking and corporate
sponsorships (approximately 52.1%, 60.3% and 59.6% in the years
ended January 3, 1999 (fiscal 1998), December 28, 1997 (fiscal
1997) and December 29, 1996 (fiscal 1996), respectively) and the
sale of food, merchandise, gasoline, games and attractions inside
its parks, as well as sponsorship and other income (approximately
47.9%, 39.7% and 40.4% in the fiscal years 1998, 1997 and 1996,
respectively). The fiscal year 1998 revenue percentage for
entrance, parking and corporate sponsorships includes entrance
revenues only. The Company's principal costs of operations
include salaries and wages, fringe benefits, advertising, outside
services, maintenance, utilities and insurance. The Company's
expenses are relatively fixed. Costs for full-time employees,
maintenance, utilities, advertising and insurance do not vary
significantly with attendance, thereby providing the Company with
a significant degree of operating leverage as attendance
increases and fixed costs per visitor decrease.
Prior to the Acquisition, the Company, through two
subsidiaries, was the general partner in the Co-Venture
Partnerships. For the 1997 and 1997 periods, the Company
accounted for the Co-Venture Parks as co-ventures, i.e., their
revenues and expenses (excluding partnership depreciation) were
included in the Company's consolidated statements of operations
and the net amounts distributed to the limited partners were
deducted as expenses. Except for the limited partnership units
in the Georgia park owned by the Company prior to the
Acquisition, the Company had no rights or title to the Co-Venture
Parks' assets or to the proceeds from any sale of the Co-Venture
Parks' assets or liabilities during the periods presented.
Accordingly, the Company's 1997 consolidated balance sheet
did not include any of the Co-Venture Parks' assets. The
investment in the Co-Venture Parks included in the Company's
1997 consolidated balance sheet represented (i) the
Company's interest in the estimated future cash flows from the
operations of the Co-Venture Parks, which was amortized over the
life of the partnership agreements, and (ii) the value of Limited
Partnership units purchased pursuant to the tender offer relating
to the Georgia park. The Co-Venture Parks contributed revenues
of $7.2 million, $176.8 million and $152.0 million to the Company
in the fiscal years 1998 (through April 1, 1998, the date of
Premier's acquisition of SFEC), 1997 and 1996, respectively.
In connection with the Acquisition, Six Flags transferred
its interests in the Co-Venture Parks to Premier. Accordingly,
cash flows from these parks are not available to service the debt
of Six Flags (including the SFEC Senior Notes and the Six Flags
Credit Facility) and the Company has no interest in the revenues
or cash flows of the Co-Venture Parks. The discussion below
excludes the results of the Co-Venture Parks which were
transferred to Premier as part of the Acquisition.
Due to the change of control resulting from the Acquisition,
the Company recognized $46.1 million of substantial noncash
compensation expense in fiscal 1998 immediately prior to Premier's
purchase of the Company by virtue of the vesting of certain restricted
stock and stock options. Such expense is non-recurring and was
included in SFEC's Pre-Acquisition results (prior to Premier's
purchase).
-11-
<PAGE>
YEAR ENDED JANUARY 3, 1999
-------------------------------------
POST-ACQUISITION PRE-ACQUISITION
278-DAY PERIOD 93-DAY PERIOD
ENDED ENDED
JANUARY 3, 1999(1) MARCH 31, 1998(2)
------------------ -----------------
Revenues:
Theme park admissions $256,316 $ 15,047
Theme park food,
merchandise and other 241,412 8,356
------- -------
Total revenue . . . . 497,728 23,403
------- -------
Operating costs and
expense:
Operating expenses . 172,750 56,307
Selling, general and
administrative . . . 61,471 54,711
Costs of products sold 69,643 2,757
Depreciation and
amortization . . . . 71,896 17,629
Total operating costs
and expenses . . . . 375,760 131,404
------- -------
Income (loss) from
operations . . . . . 121,968 (108,001)
------- -------
Other income (expense):
Interest expense, net (58,658) (22,508)
Equity in operations
of theme park
partnerships . . . . -- (13,152)
Minority interest in
(earnings) loss . . . 36 --
Other expense . . . . (151) --
-------- -------
Total other income
(expense) . . . . . (58,773) (35,660)
-------- -------
Income (loss) before
taxes . . . . . . . 63,195 (143,661)
Income tax benefit
(expense) . . . . . . (34,513) --
-------- ---------
Net income (loss) . . $ 28,682 $(143,661)
======== =========
EBITDA . . . . . . . . . $193,864 $ (90,372)
-------- ---------
YEAR ENDED JANUARY 3, 1999
----------------------------------------
CO-VENTURE PRO FORMA COMPANY
ADJUSTMENTS(3) ADJUSTMENTS(4) PRO FORMA
-------------- -------------- ---------
Theme park
admissions . . . . $ -- $ -- $271,363
Theme park food,
merchandise and
other . . . . . . -- -- 249,768
-------- --------- --------
Total revenue . . . -- -- 521,131
-------- --------- --------
Operating costs and
expense:
Operating expenses . -- (10,628) 218,429
Selling, general and
administrative . . -- (35,433) 80,749
Costs of products
sold . . . . . . . -- -- 72,400
Depreciation and
amortization . . . -- -- 89,525
Total operating
costs and expenses. -- (46,061) 461,103
-------- -------- --------
Income (loss) from
operations . . . . . -- 46,061 60,028
-------- -------- --------
Other income (expense):
Interest expense,
net . . . . . . . -- -- (81,166)
Equity in operations
of theme park
partnerships . . . 13,152 -- --
Minority interest in
(earnings) loss . . -- -- 36
Other expense . . . -- -- (151)
------- ------- -------
Total other income
(expense) . . . . 13,152 -- (81,281)
------- ------- -------
Income (loss) before
taxes . . . . . . 13,152 46,061 (21,253)
Income tax benefit
(expense) . . . . . . (4,998) 33,613 (5,898)
--------- -------- --------
Net income (loss) . $ 8,154 $ 79,674 $(27,151)
========= ======== =========
EBITDA . . . . . . . . $ -- $ 46,061 $149,553
========= ======== =========
YEAR ENDED DECEMBER 28, 1997
----------------------------------
PRE-ACQUISITION
YEAR ENDED CO-VENTURE
DECEMBER 28, 1997 ADJUSTMENTS(5)
----------------- --------------
Theme park admissions $368,139 $(93,946)
Theme park food,
merchandise and other 340,527 (82,848)
-------- --------
Total revenue . . . . 708,666 (176,794)
-------- --------
Operating costs and
expense:
Operating expenses . 330,033 (100,445)
Selling, general and
administrative . . . 113,326 (17,474)
Costs of products sold 101,239 (24,137)
Depreciation and
amortization . . . . 84,493 (12,107)
Total operating costs
and expenses . . . . 629,091 (154,163)
------- -------
Income (loss) from
operations . . . . . 79,575 (22,631)
------- -------
Other income (expense):
Interest expense, net (84,430) 1,574
Equity in operations
of theme park
partnerships . . . . -- --
Minority interest in
(earnings) loss . . . 1,147 --
Other expense . . . . -- --
------- -------
Total other income
(expense) . . . . . (83,283) 1,574
-------- -------
Income (loss) before
taxes . . . . . . . $ (3,708) $(21,057)
Income tax benefit
(expense) . . . . . . . -- --
-------- --------
Net income (loss) . . $ (3,708) $(21,057)
======== ========
EBITDA . . . . . . . . . $164,068 $(34,738)
======== ========
YEAR ENDED DECEMBER 28, 1997
-----------------------------
PRO FORMA COMPANY
ADJUSTMENTS(6) PRO FORMA
-------------- ---------
Theme park admissions $ -- $274,193
Theme park food,
merchandise and other -- 257,679
-------- -------
Total revenue . . . . -- 531,872
-------- -------
Operating costs and
expense:
Operating expenses . 7,333 236,921
Selling, general and
administrative . . . -- 95,852
Costs of products sold -- 77,102
Depreciation and
amortization . . . . -- 72,386
Total operating costs
and expenses . . . . 7,333 482,261
------- -------
Income (loss) from
operations . . . . . (7,333) 49,611
------- -------
Other income (expense):
Interest expense, net -- (82,856)
Equity in operations
of theme park
partnerships . . . . -- --
Minority interest in
(earnings) loss . . . -- 1,147
Other expense . . . . -- --
------- --------
Total other income
(expense) . . . . . -- (81,709)
------- --------
Income (loss) before
taxes . . . . . . . (7,333) (32,098)
Income tax benefit
(expense). . . . . . . -- --
------- -------
Net income (loss) . . $(7,333) $(32,098)
======== ========
EBITDA . . . . . . . . . $(7,333) $121,997
======== ========
(1) Represents results from and after April 1, 1998, and does
not include results of the Co-Venture Parks.
(2) Represents actual results for the period prior to the
Acquisition (the "1998 Pre-Acquisition Period").
(3) Adjustments eliminate the results of the Co-Venture Parks in
the 1998 Pre-Acquisition Period.
(4) Adjustments eliminate the compensation expense arising
by virtue of the vesting of certain restricted stock
and stock options resulting from the Acquisition
(expense was included in the 1998 Pre-Acquisition Period).
Excludes additional depreciation and amortization and interest
expense resulting from the Acquisition.
(5) Adjustments eliminate the results of the Co-Venture Parks in
the 1997 period.
(6) Adjustment reverses the amount by which expenses were
reduced in 1997 as a result of the elimination of certain
accruals established in years prior to 1997.
-12-
<PAGE>
RESULTS OF OPERATIONS
---------------------
YEARS ENDED JANUARY 3, 1999 AND DECEMBER 28, 1997
Revenues. Adjusted revenues aggregated $521.1 million for
fiscal 1998 compared to $708.7 million (actual) and
$531.9 million (adjusted) for fiscal 1997. The 2.0% decrease in
adjusted revenues compared to 1997 adjusted revenues resulted
from an approximate 5.6% decline in attendance during the 1998
season, which was partially offset by higher spending per guest
in fiscal 1998.
Operating, Selling, General and Administrative. Adjusted
operating expenses for fiscal 1998 declined $111.6 million and
$18.5 million, respectively, compared to the actual and adjusted
amounts for fiscal 1997. The 7.8% decline compared to adjusted
operating expenses for 1997 resulted from lower compensation,
outside services and repair and maintenance expenses resulting
from improved operating efficiencies achieved during fiscal 1998.
Adjusted selling, general and administrative expenses for fiscal
1998 declined $32.6 million and $15.1 million, respectively,
compared to the actual and adjusted levels for fiscal 1997. The
15.8% decline compared to the adjusted selling, general and
administrative expenses in fiscal 1998 resulted primarily from
reduced corporate-level expenditures, including reduced staffing,
and, to a lesser extent, lower advertising expense.
Costs of Products Sold. Adjusted costs of products sold in
fiscal 1998 declined $28.8 million and $4.7 million,
respectively, compared to the actual and adjusted amounts for
fiscal 1997. The 6.1% decrease compared to the adjusted amounts
for fiscal 1998 resulted from lower sales volume from the decline
in attendence, as well as increased efficiencies.
Depreciation, Amortization and Interest Expense. Adjusted
depreciation and amortization expense for fiscal 1998 increased
$5.0 million and $17.1 million, respectively, compared to the
actual and the adjusted amounts for fiscal 1997. The increase in
depreciation and amortization expense resulted from the increase
in the carrying value of property and equipment and intangible
assets resulting from the purchase accounting used in conjunction
with the Acquisition. Interest expense, net for fiscal 1998
decreased $1.7 million compared to the adjusted amount for fiscal
1997. This decrease is primarily due to the lower effective
interest rate associated with the Company's debt subsequent to
the Acquisition.
Income Taxes. Adjusted income tax benefit was $6.9 million
for fiscal 1998 as compared to no tax expense (actual and
adjusted) for fiscal 1997.
At January 3, 1999, the Company reported that it had
carryforwards of approximately $236.0 million of net operating
losses ("NOLs") for regular Federal income tax purposes. The
NOLs are subject to review and potential disallowance by the
Internal Revenue Service upon audit of the Federal income tax
returns of the Company and its subsidiaries. In addition, the
use of such NOLs is, and, as a result of the Acquisition, the use
of all of such NOLs will become, subject to limitations on the
amount of taxable income that can be offset with such NOLs.
Accordingly, no assurance can be given as to the timing or amount
of the availability of such NOLs to the Company and its
subsidiaries. See Note 9 to Notes to Consolidated Financial
Statements
YEARS ENDED DECEMBER 28, 1997 AND DECEMBER 29, 1996
Revenues. Revenues aggregated $708.7 million in fiscal
1997, compared to $680.9 million in fiscal 1996. The 4.1%
increase in revenues is attributable to higher spending per
guest, partially offset by decreased attendance. The average
ticket spending per guest increased 8.1% as a result of selected
price increases and reductions in ticket discounts. Average
in-park spending per guest increased 4.4% primarily from gains in
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<PAGE>
food service, stemming from improved processes, quality and
service and increases in games, attractions and parking spending.
Attendance declined by 2.5% primarily due to the postponement of
the linear induction motor ("LIM") coasters at three of the
Company's parks, poor early-season weather and increased
competition in the San Antonio market. The declines were offset,
in part, by a substantial increase in attendance in 1997 at the
Georgia park after a low attendance level at that park in 1996
due largely to the effects of the Atlanta Olympics during that
summer. All three LIM's were operational during the 1998 season.
Operating, General and Administrative. Operating, general
and administrative expenses were $443.4 million in fiscal 1997,
compared to $419.8 million in fiscal 1996. As a percentage of
revenues, these expenses constituted 62.6% for 1997 and 61.6% for
1996. The increase over 1996 expenses related primarily to
increased distributions to the limited partners of the Georgia
park along with higher compensation and maintenance expenses,
which were partially offset by reduced advertising costs and the
reversal of expense accruals of approximately $7.3 million during
1997 that were no longer deemed necessary. Limited partner
distributions increased as a result of the new arrangements
entered into in March 1997 with respect to the Georgia Co-Venture
Partnership. The higher compensation costs resulted from higher
average seasonal wage rates, additional operating hours in 1997,
and a return to full staffing at the Georgia park after reduced
requirements in 1996. Higher maintenance costs were incurred to
repair major rides and facilities to enhance park operations.
Advertising costs were down due to lower spending by the Georgia
park, which incurred much higher advertising expense levels in
1996 as a result of the Olympics. Additionally, the postponed
opening of the LIM coasters resulted in reduced advertising costs
at three of the Company's parks.
Costs of Products Sold. Costs of products sold were $101.2
million for fiscal 1997 compared to $106.0 million for fiscal
1996. Costs of products sold as a percentage of theme park food,
merchandise and other decreased from 31.9% in 1996 to 29.7% in
1997. The $4.7 million or 4.5% decrease from 1996 resulted
primarily from centralized procurement of key food items and a
shift in sales to higher margin food products sold.
Depreciation, Amortization and Interest Expense.
Depreciation and amortization expense was $84.5 million for
fiscal 1997, compared to $87.4 million in fiscal 1996. The
decrease resulted from lower amortization of the investment in
the Co-Venture Parks related to the Georgia Co-Venture Park as a
result of the amendments in 1997 to the structure of the Georgia
Co-Venture Partnership. Interest expense, net, increased $7.9
million in 1997, as compared to 1996, primarily due to the
increased average borrowings in 1997 and higher interest expense
incurred by the Co-Venture Parks, partially offset by a decrease
in average borrowing rates.
Income Taxes. The relationship between income (loss)
before taxes and income tax expense is principally affected by
the amortization of the excess of costs over net assets acquired,
which is non-deductible for income tax purposes. The income tax
expense recorded for fiscal 1996 principally represented a
valuation allowance on the Company's deferred tax assets.
LIQUIDITY, CAPITAL COMMITMENTS AND RESOURCES
--------------------------------------------
At January 3, 1999, the Company's indebtedness (including
$182.9 million carrying value of SFEC's Zero Coupon Senior Notes
(the "Old SFEC Notes"), which will be repaid on or prior to
December 15, 1999 in full from the proceeds of the SFEC Senior
Notes issued in connection with the Acquisition, together with
other funds, all of which have been deposited in escrow (and
invested in restricted-use investment securities) and including
$36.2 million fair market value adjustment to the Senior
Subordinated Notes of SFTP arising as a result of Premier's
-14-
<PAGE>
acquisition of SFEC) aggregated $1,083.9 million ($901.9 million
excluding the Old SFEC Notes), of which approximately $1.0
million (excluding the Old SFEC Notes) matures prior to December
31, 1999. Based on interest rates at January 3, 1999 for
floating rate debt, annual interest payments for 1999 on this
indebtedness will total approximately $77.5 million. See Note 8
to Notes to Consolidated Financial Statements for additional
information regarding the Company's indebtedness.
During the period from April 1, 1998 to January 3, 1999,
net cash provided by operating activities was $87.7 million.
Net cash used in investing activities in 1998 totaled $69.5
million, consisting primarily of capital expenditures and the
purchase of restricted use investments, offset by proceeds from
the sale of the Company's interests in the Co-Venture Parks to
Premier. Net cash provided by financing activities in 1998 was
$9.2 million, representing proceeds of borrowings under the Six
Flags credit facilities, capital contributions received from
Premier and proceeds of the public offering of the SFEC Senior
Notes issued in connection with the Acquisition and described in
Note 8 to Notes to Consolidated Financial Statements, offset in part
by debt payments and the payment of certain debt issuance costs.
As more fully described in Note 6 to Notes to Consolidated
Financial Statements, in connection with the Acquisition, the
Company guaranteed certain obligations relating to the Co-Venture
Parks. Among such obligations are (i) minimum distributions of
approximately $47.3 million in 1999 to partners in the Co-Venture
Parks (approximately $14.1 million of which will be distributed
to Premier in respect of its present ownership interest in the
limited partners), (ii) up to approximately $43.75 million of
minimum limited partnership unit purchase obligations for 1999
with respect to both parks and (iii) minimum capital expenditures
for that year at both parks of approximately $14.6 million. Cash
flows from operations at the Co-Venture Parks will be used to
satisfy these requirements, before any funds are required from
the Company.
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 reduces paid attendance and, therefore, revenue at
any of its theme parks.
On October 30, 1998, the Company purchased the 40%
remaining minority interest in Six Flags Fiesta Texas and title
to the park for approximately $45.0 million in cash.
The Company believes that, based on historical and
anticipated operating results, cash flows from operations,
available cash and available amounts under the Premier and Six
Flags Credit Facilities will be adequate to meet the Company's
future liquidity needs, including anticipated requirements for
working capital, capital expenditures and scheduled debt 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.
MARKET RISKS AND SENSITIVITY ANALYSES
-------------------------------------
Six Flags is exposed to market risks relating to
fluctuations in interest rates. The objective of financial risk
management at Six Flags is to minimize the negative impact of
interest rate fluctuations on the Company's earnings, cash flows
and equity. Six Flags does not acquire market risk sensitive
instruments for trading purposes.
The following analysis present the sensitivity of the
market value, earnings and cash flows of Six Flags' financial
instruments to hypothetical changes in interest rates as if these
changes occurred at January 3, 1999. The range of changes chosen
for this analysis reflect the Company's view of changes which are
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<PAGE>
reasonably possible over a one-year period. Market values are
the present values of projected future cash flows based on the
interest rate assumptions. These forward looking disclosures
are selective in nature and only address the potential impacts
from financial instruments. They do not include other potential
effects which could impact the Company's business as a result of
these changes in interest rates.
INTEREST RATE AND DEBT SENSITIVITY ANALYSIS
At January 3, 1999, Six Flags had debt (excluding the Old
SFEC Notes) totaling $901.0 million, of which $491.2 million
represents fixed-rate debt and $409.8 million represents
floating-rate debt. For fixed-rate debt, interest rate changes
affect the fair market value but do not impact book value
earnings or cash flows. Conversely, for floating-rate debt,
interest rate changes generally do not affect the fair market
value but do impact future earnings and cash flows, assuming
other factors remain constant.
Assuming other variables remain constant (such as debt
levels), the cash flows impact resulting from a one percentage
point increase in interest rates would be approximately $4.1
million.
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."
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. 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. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999.
It is expected that the Company will adopt the provision of SFAS
No. 133 as of January 1, 2000. If the provisions of SFAS No. 133
were to be applied as of January 3, 1999, it would not have a
material effect on the Company's financial position as of such
date, or the results of operations for the year then ended.
In April 1998, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position 98-5, "Reporting
on the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5
establishes standards for the financial report of start-up costs
and organization costs. It requires that those costs be expensed
as incurred. The effect of the implementation of SOP 98-5 is
accounted for as a cumulative effect of a change in accounting
principle. The Company is required to adopt the provisions of
SOP 98-5 in the first quarter of 1999 and does not anticipate
that the adoption of the provision of SOP 98-5 will have a
material effect on the Company's financial position as of that
date or the results of operations for the year then ended.
IMPACT OF YEAR 2000 ISSUE
-------------------------
The Company's Year 2000 Project (the "Project") is in
process. The Project is addressing the Year 2000 issue caused
by computer programs being written utilizing two digits rather
than four to define an applicable year. As a result, the Company's
computer equipment, software and devices with embedded technology
that are time sensitive may misinterpret the actual date beginning
on January 1, 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, but
not limited to, a temporary inability to process transactions.
-16-
<PAGE>
The Company has undertaken various initiatives intended to
ensure that its computer equipment and software will function
properly with respect to dates in the Year 2000 and thereafter.
In planning and developing the Project, the Company has
considered both its information technology ("IT") and its non-IT
systems. The term "computer equipment and software" includes
systems that are commonly thought of as IT systems, including
accounting, data processing, telephone systems, scanning
equipment and other miscellaneous systems. Those items not to be
considered as IT technology include alarm systems, fax machines,
monitors for park operations or other miscellaneous systems.
Both IT and non-IT systems may contain embedded technology, which
complicates the Company's Year 2000 identification, assessment,
remediation and testing efforts. Based upon its identification
and assessment efforts to date, the Company is in the process of
replacing the computer equipment and upgrading the software it
currently uses to become Year 2000 compliant. In addition, in
the ordinary course of replacing computer equipment and software,
the Company plans to obtain replacements that are in compliance
with Year 2000.
The Company has initiated correspondence with its
significant vendors and service providers to determine the extent
such entities are vulnerable to Year 2000 issues and whether the
products and services purchased from such entities are Year 2000
compliant. The Company expects to receive a favorable response
from such third parties and it is anticipated that their
significant Year 2000 issues will be addressed on a timely basis.
With regard to IT, non-IT systems and communications with
third parties, the Company anticipates that the Project will be
completed in November 1999.
As noted above, the Company is in the process of replacing
certain computer equipment and software because of the Year 2000
issue. The Company estimates that the total cost of such
replacements will be no more than $1.0 million. Substantially
all of the personnel being used on the Project are existing
Company employees. Therefore, the labor costs of its Year 2000
identification, assessment, remediation and testing efforts, as
well as currently anticipated labor costs to be incurred by the
Company with respect to Year 2000 issues of third parties, are
expected to be less than $0.8 million.
The Company has not yet developed a most reasonably likely
worst case scenario with respect to Year 2000 issues, but instead
has focused its efforts on reducing uncertainties through the
review described above. The Company has not developed Year 2000
contingency plans other than as described above, and does not
expect to do so unless merited by the results of its continuing
review.
The Company presently does not expect to incur significant
operational problems due to the Year 2000 issue. However, if all
Year 2000 issues are not properly and timely identified,
assessed, remediated and tested, there can be no assurance that
the Year 2000 issue will not materially impact the Company's
results of operations or adversely affect its relationships with
vendors or others. Additionally, there can be no assurance that
the Year 2000 issues of other entities will not have a material
impact on the Company's systems or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Reference is made to the information appearing under the
subheading "Market Risks and Sensitivity Analyses" under the
heading "Management's Discussion and Analysis of Financial
Condition and Results of Operation" on page 15 of this Report.
-17-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements listed in Item 14 are included in this
Report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a)(1) and (2) Financial Statements and Financial Statement
Schedules
The following consolidated financial statements of Six Flags
Entertainment Corporation and subsidiaries, the notes thereto, the
related reports thereon of independent auditors, and financial
statement schedules are filed under Item 8 of this Report:
PAGE
----
Independent Auditors' Reports F-2
Consolidated Balance Sheets -- January 3, 1999 and
December 28, 1997 F-5
Consolidated Statements of Operations
Period from April 1, 1998 to January 3, 1999,
Period from December 29, 1997 to March 31, 1998,
and Years December 28, 1997 and December 29, 1996 F-6
Consolidated Statements of Stockholders' Equity (Deficit)
Period from April 1, 1998 to January 3, 1999,
Period from December 29, 1997 to March 31, 1998,
and Years December 28, 1997 and December 29, 1996 F-7
Consolidated Statements of Cash Flows
Period from April 1, 1998 to January 3, 1999,
Period from December 29, 1997 to March 31, 1998,
and Years December 28, 1997 and December 29, 1996 F-8
Notes to Consolidated Financial Statements F-9
Schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are omitted because they either are not required under the
related instructions, are inapplicable, or the required
information is shown in the financial statements or notes
thereto.
(a)(3) See Exhibit Index.
(b) Reports on Form 8-K
-------------------
None.
(c) Exhibits
See Item 14(a)(3) above.
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<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: April 12, 1999
SIX FLAGS ENTERTAINMENT CORPORATION
By: /s/ Kieran E. Burke
--------------------------------
Kieran E. Burke
Chairman of the Board
and Chief Executive Officer
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<PAGE>
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons on
behalf of the Registrant and in the following capacities on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Kieran E. Burke Chairman of the Board, April 12, 1999
------------------- Chief Executive Officer
Kieran E. Burke (Principal Executive
Officer) and Director
/s/ Gary Story President, Chief Operating April 12, 1999
-------------------- Officer and Director
Gary Story
/s/ James F. Dannhauser Chief Financial Officer April 12, 1999
-------------------- (Principal Financial and
James F. Dannhauser Accounting Officer) and
Director
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<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report F-2
Independent Auditors' Report F-4
Consolidated Balance Sheets - January 3, 1999 and December 28, 1997 F-5
Consolidated Statements of Operations - Period from April 1, 1998
to January 3, 1999; Period from December 29, 1997 to March 31, 1998;
and Years ended December 28, 1997 and December 29, 1996 F-6
Consolidated Statements of Stockholder's Equity (Deficit) - Period
from April 1, 1998 to January 3, 1999; Period from December 29, 1997
to March 31, 1998; and Years ended December 28, 1997 and December 29, 1996 F-7
Consolidated Statements of Cash Flows - Period from April 1, 1998 to January 3, 1999;
Period from December 29, 1997 to March 31, 1998; and Years ended
December 28, 1997 and December 29, 1996 F-8
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholder
Six Flags Entertainment Corporation:
We have audited the accompanying consolidated balance sheet of Six Flags
Entertainment Corporation and subsidiaries (Six Flags) (a wholly-owned
subsidiary of Premier Parks Inc.) as of January 3, 1999, and the related
consolidated statements of operations, stockholder's equity (deficit), and
cash flows for the periods from April 1, 1998 to January 3, 1999 (1998
Post-Acquisition period), and from December 29, 1997 to March 31, 1998
1998 Pre-Acquisition period). These consolidated financial statements are
the responsibility of Six Flags' management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1998 Post-Acquisition period consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Six Flags Entertainment Corporation and subsidiaries as of
January 3, 1999, and the results of their operations and their cash flows for
the 1998 Post-Acquisition period, in conformity with generally accepted
accounting principles. Further, in our opinion, the consolidated financial
statements referred to above for the 1998 Pre-Acquisition period present fairly,
in all material respects, the results of operations and cash flows for the 1998
Pre-Acquisition period, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, effective April
1, 1998, Premier Parks Inc. acquired all the outstanding stock of Six Flags
Entertainment Corporation in a business combination accounted for as a purchase.
As a result of the acquisition, the consolidated financial information for the
period after the acquisition is presented on a different cost basis than that
for the period before the acquisition and, therefore, is not comparable.
F-2
<PAGE>
As discussed in Note 2 to the consolidated financial statements, Six Flags
changed its method of accounting for its share of the operations of the
Partnership Parks and its method of accounting for off-season expenses.
KPMG LLP
Oklahoma City, Oklahoma
March 22, 1999
F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Six Flags Entertainment Corporation
We have audited the accompanying consolidated balance sheet of
Six Flags Entertainment Corporation as of December 28, 1997 and
the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the years ended December 28,
1997 and December 29, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the accounting principles used in significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Six Flags Entertainment Corporation at
December 28, 1997 and the consolidated results of its operations
and its cash flows for the years ended December 28, 1997 and
December 29, 1996 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
New York, New York
February 14, 1998
F-4
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
January 3, December 28,
Assets 1999 1997
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 46,112,000 $ 16,805,000
Accounts receivable 10,399,000 3,258,000
Receivable from affiliate -- 4,000,000
Inventories 13,685,000 22,389,000
Prepaid expenses and other current assets 5,981,000 3,848,000
Restricted-use investment securities 183,342,000 --
-------------- --------------
Total current assets 259,519,000 50,300,000
-------------- --------------
Other assets:
Debt issuance costs 12,346,000 20,171,000
Deposits and other assets 51,284,000 5,165,000
-------------- --------------
Total other assets 63,630,000 25,336,000
-------------- --------------
Property and equipment, at cost 928,420,000 768,256,000
Less accumulated depreciation 35,507,000 276,119,000
-------------- --------------
892,913,000 492,137,000
-------------- --------------
Investment in theme park partnerships -- 201,809,000
Less accumulated amortization -- 112,714,000
-------------- --------------
-- 89,095,000
-------------- --------------
Intangible assets, principally goodwill 1,197,855,000 278,551,000
Less accumulated amortization 36,914,000 70,729,000
-------------- --------------
1,160,941,000 207,822,000
-------------- --------------
Total assets $2,377,003,000 $ 864,690,000
============== ==============
Liabilities and Stockholder's Equity (Deficit)
Current liabilities:
Accounts payable $ 12,664,000 $ 21,055,000
Accrued interest payable 13,547,000 3,431,000
Accrued insurance 28,727,000 15,608,000
Other accrued liabilities 30,662,000 24,351,000
Short-term borrowings -- 30,503,000
Current portion of long-term debt 184,370,000 26,130,000
-------------- --------------
Total current liabilities 269,970,000 121,078,000
Long-term debt 900,474,000 753,369,000
Other long-term liabilities 46,946,000 12,570,000
Deferred income taxes 99,333,000 --
-------------- --------------
Total liabilities 1,316,723,000 887,017,000
-------------- --------------
Stockholder's equity (deficit):
Class A convertible preferred stock ($.01 par value per share; no shares
authorized, issued or outstanding at January 3, 1999; 6,100,000 shares
authorized; 5,100,000 shares issued and outstanding at December 28, 1997;
$273,499,000 aggregate liquidation preference at December 28, 1997) -- 51,000
Class B convertible preferred stock ($.01 par value per share; no shares authorized,
issued or outstanding at January 3, 1999; 4,900,000 shares authorized,
issued and outstanding at December 28, 1997; $196,000,000 aggregate
liquidation preference at December 28, 1997) -- 49,000
Class A common stock ($.01 par value per share; no shares authorized, issued
or outstanding at January 3, 1999; 6,100,000 shares authorized; 51 shares
issued and outstanding at December 28, 1997) -- --
Class B common stock ($.01 par value per share; no shares authorized, issued
or outstanding at January 3, 1999; 20,000,000 shares authorized; 49 shares
issued and outstanding at December 28, 1997) -- --
Common stock ($.05 par value per share; 1,000 shares authorized, issued and outstanding
at January 3, 1999; none authorized, issued, or outstanding at December 28, 1997) -- --
Additional paid-in capital 1,031,598,000 40,217,000
Retained earnings (accumulated deficit) 28,682,000 (59,867,000)
Unearned compensation reserved stock awards -- (2,777,000)
-------------- --------------
Total stockholder's equity (deficit) 1,060,280,000 (22,327,000)
-------------- --------------
Total liabilities and stockholder's equity (deficit) $2,377,003,000 $ 864,690,000
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Period from Period from
April 1, 1998 December 29, Year ended Year ended
to 1997 to December 28, December 29,
January 3, 1999 March 31, 1998 1997 1996
--------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Theme park admissions $ 256,316,000 $ 15,047,000 $ 368,139,000 $ 348,845,000
Theme park food, merchandise and other 241,412,000 8,356,000 340,527,000 332,031,000
------------- ------------- ------------- -------------
Total revenue 497,728,000 23,403,000 708,666,000 680,876,000
------------- ------------- ------------- -------------
Operating costs and expenses:
Operating expenses 172,750,000 56,307,000 330,033,000 308,809,000
Selling, general and administrative 61,471,000 54,711,000 113,326,000 110,947,000
Costs of products sold 69,643,000 2,757,000 101,239,000 105,988,000
Depreciation and amortization 71,896,000 17,629,000 84,493,000 87,417,000
------------- ------------- ------------- -------------
Total operating costs and expenses 375,760,000 131,404,000 629,091,000 613,161,000
------------- ------------- ------------- -------------
Income (loss) from operations 121,968,000 (108,001,000) 79,575,000 67,715,000
------------- ------------- ------------- -------------
Other income (expense):
Interest expense, net (58,658,000) (22,508,000) (84,430,000) (76,530,000)
Equity in operations of theme park partnerships -- (13,152,000) -- --
Minority interest in (earnings) loss 36,000 -- 1,147,000 (1,297,000)
Other income (expense) (151,000) -- -- --
------------- ------------- ------------- -------------
Total other income (expense) (58,773,000) (35,660,000) (83,283,000) (77,827,000)
------------- ------------- ------------- -------------
Income (loss) before income taxes 63,195,000 (143,661,000) (3,708,000) (10,112,000)
Income tax expense (34,513,000) -- -- (5,137,000)
------------- ------------- ------------- -------------
Net income (loss) $ 28,682,000 $(143,661,000) $ (3,708,000) $ (15,249,000)
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Consolidated Statements of Stockholder's Equity (Deficit)
Period from April 1, 1998 to January 3, 1999, Period from December 29, 1997 to
March 31, 1998, and Years ended December 28, 1997 and December 29, 1996
<TABLE>
<CAPTION>
Preferred Stock A Preferred Stock B Common Stock
---------------------- ---------------------- --------------
Shares Shares Shares
Issued Amount Issued Amount Issued Amount
---------- -------- ---------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 5,100,000 $ 51,000 4,900,000 $ 49,000 100 $ --
Net loss -- -- -- -- -- --
Reserved stock awards -- -- -- -- -- --
Amortization of unearned
compensation -- -- -- -- -- --
---------- -------- ---------- -------- ----- ----
Balances at December 29, 1996 5,100,000 51,000 4,900,000 49,000 100 --
Net loss -- -- -- -- -- --
Reserved stock awards -- -- -- -- -- --
Amortization of unearned
compensation -- -- -- -- -- --
Capital contribution -- -- -- -- -- --
---------- -------- ---------- -------- ----- ----
Balances at December 28, 1997 5,100,000 51,000 4,900,000 49,000 100 --
Net loss -- -- -- -- -- --
Amortization of unearned
compensation -- -- -- -- -- --
---------- -------- ---------- -------- ----- ----
Balances at March 31, 1998 5,100,000 51,000 4,900,000 49,000 100 --
Acquisition of SFEC by Premier (5,100,000) (51,000) (4,900,000) (49,000) 900 --
Contributions by Premier -- -- -- -- -- --
Net income -- -- -- -- -- --
---------- -------- ---------- -------- ----- ----
Balances at January 3, 1999 -- $ -- -- $ -- 1,000 $ --
========== ======== ========== ======== ===== ====
</TABLE>
<TABLE>
<CAPTION>
Retained
Additional Earnings Stockholder's
Paid-in (Accumulated Unearned Equity
Capital Deficit) Compensation (Deficit)
-------------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 $ 35,749,000 $(40,910,000) $(4,152,000) $ (9,213,000)
Net loss -- (15,249,000) -- (15,249,000)
Reserved stock awards 234,000 -- (234,000) --
Amortization of unearned
compensation -- -- 891,000 891,000
-------------- ------------ ---------- --------------
Balances at December 29, 1996 35,983,000 (56,159,000) (3,495,000) (23,571,000)
Net loss -- (3,708,000) -- (3,708,000)
Reserved stock awards 234,000 -- (234,000) --
Amortization of unearned
compensation -- -- 952,000 952,000
Capital contribution 4,000,000 -- -- 4,000,000
-------------- ------------ ---------- --------------
Balances at December 28, 1997 40,217,000 (59,867,000) (2,777,000) (22,327,000)
Net loss -- (143,661,000) -- (143,661,000)
Amortization of unearned
compensation -- -- 260,000 260,000
-------------- ------------ ---------- --------------
Balances at March 31, 1998 40,217,000 (203,528,000) (2,517,000) (165,728,000)
Acquisition of SFEC by Premier 958,914,000 203,528,000 2,517,000 1,164,859,000
Contributions by Premier 32,467,000 -- -- 32,467,000
Net income -- 28,682,000 -- 28,682,000
-------------- ------------ ---------- --------------
Balances at January 3, 1999 $1,031,598,000 $ 28,682,000 $ -- $1,060,280,000
============== ============ ========== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period from Period from
April 1, 1998 December 29, Year ended Year ended
to 1997 to December 28, December 29,
January 3, 1999 March 31, 1998 1997 1996
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 28,682,000 $(143,661,000) $ (3,708,000) $ (15,249,000)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 71,896,000 17,629,000 84,493,000 87,417,000
Equity in operations of theme park
partnerships -- 13,152,000 -- --
Minority interest in earnings (loss) (36,000) -- (1,147,000) 1,297,000
Interest accretion on notes payable 9,521,000 11,932,000 44,444,000 39,580,000
Interest accretion on restricted-use
investments (7,267,000) -- -- --
Amortization of debt issuance costs 1,480,000 1,027,000 4,108,000 4,108,000
Deferred income taxes 34,513,000 -- -- 5,137,000
(Increase) decrease in accounts receivable (9,073,000) 1,742,000 3,301,000 401,000
(Increase) decrease in inventories, prepaid
expenses and other current assets 6,714,000 (24,852,000) (1,941,000) (4,519,000)
(Increase) decrease in deposits and
other assets (6,721,000) -- (3,332,000) 578,000
Increase (decrease) in accounts payable
and accrued expenses (55,562,000) 69,302,000 (15,648,000) 8,481,000
Increase (decrease) in accrued interest payable 13,547,000 (1,068,000) 690,000 805,000
Other, net -- 18,000 (957,000) 566,000
------------- ------------- ------------- -------------
Total adjustments 59,012,000 88,882,000 114,011,000 143,851,000
------------- ------------- ------------- -------------
Net cash provided by (used in)
operating activities 87,694,000 (54,779,000) 110,303,000 128,602,000
------------- ------------- ------------- -------------
Cash flows from investing activities:
Additions to property and equipment (56,415,000) (25,335,000) (67,675,000) (75,627,000)
Investment in theme park partnerships -- (131,518,000) (84,057,000) (5,548,000)
Transfer of interests in theme park
partnerships to Premier 208,082,000 -- -- --
Acquisition of theme park assets (45,049,000) -- -- --
Proceeds from sale of property and equipment -- -- 2,000,000 --
Purchase of restricted-use investments (176,075,000) -- -- --
------------- ------------- ------------- -------------
Net cash used in investing
activities (69,457,000) (156,853,000) (149,732,000) (81,175,000)
------------- ------------- ------------- -------------
Cash flows from financing activities:
Repayment of long-term debt (589,436,000) (30,503,000) (117,521,000) (93,881,000)
Proceeds from borrowings 580,000,000 240,000,000 128,168,000 41,673,000
Contributions of equity 32,467,000 4,000,000 -- --
Payment of debt issuance costs (13,826,000) -- -- --
------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities 9,205,000 213,497,000 10,647,000 (52,208,000)
------------- ------------- ------------- -------------
Increase (decrease) in cash and cash equivalents 27,442,000 1,865,000 (28,782,000) (4,781,000)
Cash and cash equivalents at beginning of period 18,670,000 16,805,000 45,587,000 50,368,000
------------- ------------- ------------- -------------
Cash and cash equivalents at end of period $ 46,112,000 $ 18,670,000 $ 16,805,000 $ 45,587,000
============= ============= ============= =============
Supplementary cash flow information:
Cash paid for interest $ 41,377,000 $ 11,257,000 $ 36,089,000 $ 34,284,000
============= ============= ============= =============
Cash paid for income taxes $ -- $ -- $ 3,479,000 $ --
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
(a) Description of Business
Six Flags Entertainment Corporation ("SFEC," and together with its
subsidiaries, the "Company" or "Six Flags") owns 100% of the common
stock of S.F. Holdings, Inc. ("SF Holdings") which owns 100% of the
common stock of Six Flags Theme Parks Inc. ("SFTP").
Prior to April 1, 1998, Six Flags operated twelve "Six Flags" branded
theme parks in eight locations throughout the United States. For all
periods presented, nine of the theme parks, Six Flags Great Adventure
and Wild Safari Animal Park (New York-Philadelphia), Six Flags Great
America (Chicago-Milwaukee), Six Flags Magic Mountain and Six Flags
Hurricane Harbor (Los Angeles), Six Flags AstroWorld and Six Flags
Waterworld (Houston), Six Flags St. Louis (St. Louis) and Six Flags
Hurricane Harbor (Dallas-Ft. Worth) were owned by Six Flags. Six Flags
Fiesta Texas, located in San Antonio, Texas, was leased by a limited
partnership of which a subsidiary of Six Flags is a general partner
and manages the park. On October 30, 1998, Six Flags purchased the
minority interest in the limited partnership and title to the park.
Two parks - Six Flags Over Texas (Dallas-Ft. Worth) and Six Flags Over
Georgia (Atlanta) (the "Partnership Parks") - are owned by limited
partnerships of which the managing general partner was (prior to April
1, 1998) a wholly-owned subsidiary of Six Flags. On April 1, 1998,
Premier Parks Inc. ("Premier") purchased all of the stock of SFEC (the
"Acquisition"). At that time, Six Flags' interests in the Partnership
Parks were transferred to Premier. See Note 3.
(b) Basis of Presentation
As discussed above, Premier purchased SFEC on April 1, 1998. In
accordance with Securities & Exchange Commission Staff Accounting
Bulletin No. 54 ("SAB No. 54"), SFEC has "pushed down" Premier's
purchase price in revaluing the assets and liabilities of SFEC.
According to the provisions of SAB No. 54, purchase transactions that
result in an entity becoming substantially wholly-owned require a new
basis of accounting for the purchased assets and liabilities. As a
result of the purchase, SFEC recorded the following purchase price
adjustments as of April 1, 1998 (amounts in thousands):
Increase (Decrease)
-------------------
Current assets $ (15,621)
Debt issuance costs (19,597)
Property and equipment 322,183
Intangible assets 1,006,606
Deposit and other assets 14,299
Accrued liabilities 26,599
Long-term debt 51,592
Deferred income taxes 64,820
Stockholder's equity 1,164,859
F-9
(Continued)
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
The consolidated financial statements of SFEC for the period from
December 29, 1997 to March 31, 1998 (the 1998 Pre-Acquisition period)
and as of December 28, 1997 and for the years ended December 28, 1997
and December 29, 1996 reflect the accounting basis used by SFEC prior
to its acquisition by Premier. The financial statements of SFEC
subsequent to April 1, 1998 (the 1998 Post-Acquisition period) reflect
the accounting basis for the purchased assets and liabilities used
by SFEC subsequent to its acquisition by Premier. The vertical
line that separates the SFEC consolidated financial statements
emphasizes that the new basis of accounting used by SFEC after the
purchase by Premier is not comparable to the basis of accounting
used by SFEC prior to the purchase by Premier.
Additionally, the accompanying notes to SFEC's consolidated financial
statements disclose: (1) the relationship between Premier and SFEC;
(2) that SFEC does not guarantee any of Premier's debt, or pledge
assets or stock as security for Premier's debt; and (3) that SFEC's
ability to pay dividends is restricted by its and its subsidiaries'
debt agreements.
The 1996 and 1997 fiscal years each consisted of 52 weeks. The 1998
fiscal year consisted of 53 weeks. The 1996 fiscal year ended on
December 29, 1996, while the 1997 and 1998 fiscal years ended on
December 28, 1997 and January 3, 1999, respectively.
The Company's accounting policies reflect industry practices and
conform to generally accepted accounting principles.
The consolidated financial statements include the accounts of SFEC,
its wholly-owned subsidiaries, limited partnerships and limited
liability companies in which the Company beneficially owns 100% of the
interests, and partnerships that the Company serves as sole general
partner and owns a majority of the limited partnership interests.
Intercompany transactions and balances have been eliminated in
consolidation.
(c) Cash Equivalents
Cash equivalents of $33,188,000 and $9,651,000 at January 3, 1999 and
December 28, 1997, respectively, consist of short-term highly liquid
investments with a remaining maturity as of purchase date of three
months or less, which are readily convertible into cash. For purposes
of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments with remaining maturities as of
their purchase date of three months or less to be cash equivalents.
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and primarily consist of products for resale including
merchandise and food and miscellaneous supplies including repair parts
for rides and attractions amounting to $8,051,000 as of December 28,
1997.
F-10
(Continued)
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
(e) Advertising Costs
Production costs of commercials and programming are charged to
operations in the year first aired. The costs of other advertising,
promotion, and marketing programs are charged to operations in the
year incurred.
Advertising and promotions expense was $35,900,000, $7,872,000,
$61,100,000, and $64,600,000 during 1998 Post-Acquisition period, 1998
Pre-Acquisition period, 1997, and 1996, respectively.
(f) Debt Issuance Costs
The Company capitalizes costs related to the issuance of debt. The
amortization of such costs is recognized as interest expense under a
method approximating the interest method over the life of the
respective debt issue.
(g) Depreciation and Amortization
Rides and attractions are depreciated using the straight-line method
over 5-25 years. Buildings and improvements are depreciated over their
estimated useful lives of approximately 30 years by use of the
straight-line method. Furniture and equipment are depreciated using
the straight-line method over 5-10 years.
Maintenance and repairs are charged directly to expense as incurred,
while betterments and renewals are generally capitalized in the
property accounts. When an item is retired or otherwise disposed of,
the cost and applicable accumulated depreciation are removed and the
resulting gain or loss is recognized.
(h) Investment in Theme Park Partnerships
Prior to acquisition by Premier, the Company managed two parks (the
Partnership Parks) in which the Company did not own a controlling
interest. On April 1, 1998, the Company transferred its investment in
theme park partnerships to Premier in exchange for $46,000,000 in cash
and payment of $165,686,000 of Company borrowings. See Note 13.
In 1997 and 1996, Six Flags accounted for its investment in theme park
partnerships as co-ventures, i.e., the revenues and expenses
(excluding partnership depreciation) were included in Six Flags'
consolidated statements of operations and the net amounts distributed
to the limited partners were deducted as expenses. Except for the
limited partnership units purchased pursuant to the tender offers
described in Note 6, Six Flags had no rights or title to the
Partnership. Park assets or to the proceeds from any sale of the
Partnership Parks' assets. Six Flags' 1997 consolidated balance sheet
does not include any of the Partnership Parks' assets. The investment
in theme park partnerships included in the 1997 consolidated balance
sheet represented (i) Six Flags' interest in the estimated future cash
flows from the operations of the Partnership Parks and was
F-11
(Continued)
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
amortized over the life of the partnership agreements, and (ii) the
value of limited partnership units purchased pursuant to the SFOG
tender offer. The SFOT tender offer was made subsequent to December
28, 1997. These two parks contributed revenues of $176,794,000 and
$151,987,000 to Six Flags in the fiscal years 1997 and 1996,
respectively.
For the period from December 29, 1997 to March 31, 1998, the Company
accounted for its investment in these two parks using the equity
method of accounting. See Note 2. The equity method of accounting
recognizes the Company's share of the activity of the Partnership
Parks in the accompanying consolidated statements of operations in the
caption "equity in operations of theme park partnerships." The equity
method of accounting differs from the consolidation method of
accounting used for the theme parks in which the Company owns a
controlling interest. In the consolidation method of accounting, the
activities of the consolidated parks are reflected in each revenue and
expense caption rather than aggregated into one caption.
(i) Intangible Assets
Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on the straight-line basis
over the expected period to be benefited, generally 25 years. The
Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating
cash flows of the acquisition. The amount of goodwill impairment, if
any, is measured based on projected discounted future operating cash
flows using a discount rate reflecting the Company's average borrowing
rate.
The goodwill associated with acquisitions made by Six Flags prior to
the Acquisition was being amortized on the straight-line basis over
periods not exceeding 40 years.
(j) Long-Lived Assets
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset or group of assets to
future net cash flows expected to be generated by the asset or group
of assets. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
(k) Interest Expense Recognition
Interest on notes payable is generally recognized as expense on the
basis of stated interest rates adjusted to reflect amortization of
premiums or accretion of discounts. Such amortization or accretion is
recognized over the term of the notes using the effective-interest
method.
F-12
(Continued)
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
(l) Income Taxes
Income taxes are accounted for under the asset and liability method as
computed on a stand-alone basis. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Effective with the Acquisition, the Company and Premier entered into a
tax sharing agreement, whereby the Company will pay to Premier the
Company's portion of Premier's current tax expense.
(m) Investment Securities
Restricted-use investment securities at January 3, 1999 consist of
U.S. Treasury securities. The securities which are scheduled to mature
in 1999 are restricted to provide a redemption fund for Company
indebtedness also maturing in 1999. The Company classifies its
investment securities as held-to-maturity. Held-to-maturity securities
are those securities in which the Company has the ability and intent
to hold the security until maturity. Held-to-maturity securities are
recorded at amortized cost, adjusted for the amortization or accretion
of premiums or discounts. There are no other securities held by the
Company.
Premiums and discounts are amortized or accreted over the life of the
related held-to-maturity security as an adjustment to yield using the
effective interest method. Dividend and interest income are recognized
when earned.
(n) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(o) Reclassifications
Reclassifications have been made to certain amounts reported in 1997
and 1996 to conform with the 1998 presentation.
F-13
(Continued)
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
(2) Accounting Changes
(a) Accounting for Investment in Theme Park Partnerships
Prior to the Acquisition by Premier, Six Flags, through two
subsidiaries, was the general partner in two theme park limited
partnerships. Six Flags accounted for the parks as co-ventures, i.e.,
the revenues and expenses (excluding partnership depreciation) were
included in Six Flags' consolidated statements of operations and the
net amounts distributed to the limited partners were deducted as
operating expenses. Except for the limited partnership units purchased
pursuant to the tender offers described in Note 6, Six Flags had no
rights or title to the Partnership Parks' assets or to the proceeds
from any sale of the Partnership Parks' assets. Six Flags' 1997
consolidated balance sheet does not include any of the Partnership
Parks' assets.
On April 1, 1998, Six Flags changed its method of accounting for the
Partnership Parks to the equity method of accounting as prescribed by
Accounting Principles Board Opinion 18 and related interpretations.
The change was applied retroactively to the beginning of Six Flags'
1998 fiscal year, and accordingly, the consolidated statements of
operations for the 1998 Pre-Acquisition period reflects Six Flags'
interests in the operations of the Partnership Parks on the equity
method. Six Flags' interests in the Partnership Parks were transferred
to Premier on April 1, 1998 and therefore, the consolidated statement
of operations for the 1998 Post-Acquisition period ended January 3,
1999, does not include results of Premier's ownership interests in the
Partnership Park partnerships. Six Flags changed its accounting for
the Partnership Parks to reflect in operations revenues and costs and
expenses of only those parks controlled by Six Flags through majority
ownership. This accounting change had no cumulative effect on Six
Flags' accumulated deficit as of December 28, 1997 and no effect on
net loss for 1997 and 1996.
The unaudited pro forma effect assuming the equity method of
accounting for the Partnership Parks was applied retroactively for all
periods presented is as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 28, December 29,
1997 1996
------------ -----------
<S> <C> <C>
Revenues, as reported $708,666,000 680,876,000
Revenues, pro forma $531,872,000 528,889,000
============ ===========
Operating costs and expenses, as reported $629,091,000 613,161,000
Operating costs and expenses, pro forma $474,928,000 464,693,000
============ ===========
Interest expense, net, as reported $ 84,430,000 76,530,000
Interest expense, net, pro forma $ 82,856,000 74,979,000
============ ===========
</TABLE>
F-14
(Continued)
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Year ended Year ended
December 28, December 29,
1997 1996
------------ -----------
<S> <C> <C>
Equity in operations of theme park partnerships,
as reported $ -- --
Equity in operations of theme park partnerships,
pro forma $21,057,000 1,968,000
=========== ===========
Net loss, as reported $(3,708,000) (15,249,000)
Net loss, pro forma $(3,708,000) (15,249,000)
=========== ===========
</TABLE>
(b) Accounting for Off-Season Expenses
On April 1, 1998, Six Flags changed its method of accounting for
off-season expenses related to park operations. Prior to acquisition
by Premier, Six Flags deferred interim period costs related to park
operations and charged such costs to interim periods based on
estimated annual revenues, substantially all of which were generated
in the second and third quarters of the year. No costs were deferred
at the end of a fiscal year.
The change was applied retroactively to the beginning of Six Flags'
1998 fiscal year to conform with Premier's accounting policy for
off-season expenses. This accounting change had no cumulative effect
on Six Flags' accumulated deficit as of December 28, 1997 and would
not have had any effect on net loss for 1997 and 1996. The change had
the effect of increasing the net loss for the 1998 Pre-Acquisition
period by approximately $96,654,000.
(3) Acquisition of SFEC
On April 1, 1998, Premier acquired all of the outstanding capital stock of
SFEC for $976,000,000, paid in cash. In addition, Premier repaid at
closing, assumed or refinanced approximately $1,032,717,000 of Company debt
(including approximately $285,000,000 in aggregate principal amount at
maturity (carrying value of $321,167,000 as of January 3, 1999) of Six
Flags 12 1/4 % Series A Senior Subordinated Discount Notes due 2005 (the
"SFTP Notes") and approximately $164,703,000 accreted value at April 1,
1998 (carrying value of $182,377,000 as of January 3, 1999) of SFEC Zero
Coupon Notes (the "Old SFEC Notes")). Premier funded the Acquisition with
the proceeds of concurrent public offerings and bank facilities (including
a new $472,000,000 credit facility of Six Flags (the "Six Flags Credit
Facility") and $170,000,000 of 8 7/8% Senior Notes due 2006 of SFEC (the
"SFEC Notes")). See Note 8. The proceeds of the SFEC Notes, together with
cash contributed by Premier, were deposited in escrow and invested in
restricted-use investments to provide for the repayment in full at or prior
to maturity in December 1999 of the Old SFEC Notes. Pursuant to the
Acquisition, Six Flags transferred to Premier all of its interests in the
limited partnerships that own the Partnership
F-15
(Continued)
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
Parks, for $46,000,000 in cash and Premier's payment of $165,686,000 of
SFEC debt. Also in connection with the Acquisition, Premier and Warner
Bros. Consumer Products Division entered into a long-term licensing
agreement that gives Premier (and its subsidiaries, including Six Flags and
Premier Parks Operations Inc.) the exclusive theme park usage rights in the
U.S. and Canada (excluding the Las Vegas, Nevada metropolitan area) for all
Warner Bros. and DC Comics animated cartoon and comic book characters.
The following summarized unaudited pro forma results of operations for the
years ended January 3, 1999 and December 28, 1997, assume that the
Acquisition and the related financings occurred as of December 30, 1996
(the first day of the 1997 fiscal year).
Year ended Year ended
January 3, December 28,
1999 1997
---------- ------------
(Unaudited)
(In thousands)
Total revenues $521,131 531,872
Net loss (30,776) (55,314)
(4) Fair Value of Financial Instruments
The recorded amounts for cash and cash equivalents, accounts receivable,
receivable from affiliate, accounts payable and accrued liabilities
approximate fair value because of the short maturity of these financial
instruments. As of January 3, 1999, the fair value of the Company's
restricted-use investments was approximately $184,930,000. The fair value
was determined using quoted market prices. The fair value estimates,
methods, and assumptions relating to the Company's debt financial
instruments are discussed in Note 8.
(5) Property and Equipment
Property and equipment, at cost, are classified as follows:
January 3, December 28,
1999 1997
------------ -----------
Land $ 94,945,000 50,582,000
Buildings and improvements 334,249,000 263,475,000
Rides and attractions 405,129,000 389,798,000
Equipment 59,415,000 9,033,000
Construction-in-process 34,682,000 55,368,000
------------ -----------
Total 928,420,000 768,256,000
Less accumulated depreciation 35,507,000 276,119,000
------------ -----------
$892,913,000 492,137,000
============ ===========
F-16
(Continued)
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
(6) Investment in Theme Park Partnerships
Six Flags Over Georgia
On March 18, 1997, Six Flags, Time Warner Inc. and Time Warner
Entertainment Company, L.P. (TWE) completed arrangements pursuant to which
a subsidiary of Six Flags (SFOG II) will manage the Six Flags Over Georgia
Park through 2026. Under the agreements governing the new arrangements (the
"Georgia Agreements"), the Six Flags Over Georgia Park is owned by a newly
formed limited partnership ("Six Flags Over Georgia II") of which SFOG II
is the managing general partner.
The key elements of these arrangements are as follows: (i) the limited
partner (which is not affiliated with Six Flags) will receive minimum
annual distributions of $18,500,000 commencing in 1997, increasing each
year thereafter in proportion to increases in the cost of living;
thereafter, SFOG II will be entitled to receive from available cash (after
provision for reasonable reserves and after capital expenditures per annum
of approximately 6% of prior year revenues) a management fee equal to 3% of
the prior year's gross revenues; and, thereafter, any additional available
cash will be distributed 95% to SFOG II and 5% to the limited partner; (ii)
in the second quarter of 1997, a subsidiary of SFTP (the "SFTP-SFOG
Subsidiary") and a subsidiary of SFEC (the "SFEC-SFOG Subsidiary") made a
tender offer for partnership interests ("SFOG LP Units") in Six Flags Fund,
Ltd. (L.P.), which owns 99% of the limited partner of Six Flags Over
Georgia II, that valued the Six Flags Over Georgia Park at the greater of
$250,000,000 or 8.0 times 1997 EBITDA of the Six Flags Over Georgia Park
(the "SFOG Tender Offer Price"); (iii) commencing in 1998, and on an annual
basis thereafter, the SFTP-SFOG Subsidiary and the SFEC-SFOG Subsidiary
will offer to purchase additional SFOG LP Units at a price based on the
greater of the SFOG Tender Offer Price or the EBITDA of the Six Flags Over
Georgia Park for the prior four years (provided that no more than
$50,000,000 of such SFOG LP Units will be acquired by the SFTP-SFOG
Subsidiary); and (iv) in 2026, Six Flags and its affiliates will have the
option to acquire the Six Flags Over Georgia Park at a price based on the
Tender Offer Price, increased in proportion to the increase in the cost of
living between December 1996 and December 2026. SFEC, SFTP, Time Warner
Inc. and TWE have guaranteed certain of the obligations (including the
minimum annual distributions noted in (i) above) of SFOG II and Six Flags
Over Georgia II under the Georgia Agreements, and in consideration
therefor, SFOG II agreed to assign to SFTP at least 90% of the cash
distributions it received from time to time from Six Flags Over Georgia II.
See Note 2.
On May 6, 1997, in connection with the closing of the tender offer
described above, the SFTP-SFOG Subsidiary and the SFEC-SFOG Subsidiary
purchased approximately 17% and 8%, respectively, of SFOG LP Units for
approximately $42,400,000 and $20,300,000, respectively. The purchase of
SFOG LP Units entitles each such purchaser the right to receive minimum
annual distributions and any residual distributions (5% of available cash
after the minimum annual distributions and management fee distributions) in
proportion to the percentage amounts purchased. The purchase of SFOG LP
Units
F-17
(Continued)
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
by the SFTP-SFOG Subsidiary was financed through a drawdown on Six Flags'
secured revolving line of credit available for acquisitions under the
Credit Agreement and the purchase of SFOG LP Units by the SFEC-SFOG
Subsidiary was financed through loans from TWE, which were subsequently
refinanced with demand loans. See Note 7. Purchases of SFOG LP units in the
1998 tender offer were less than $25,000.
In connection with the purchase of the SFOG LP Units, approximately
$49,800,000 of the excess of cost over net assets acquired associated with
this investment was being amortized over 30 years. The net investment in
SFOG LP Units was presented as part of the investment in theme park
partnerships prior to the Acquisition. Accumulated amortization at December
28, 1997 amounted to $2,582,000.
Six Flags Over Texas
On November 24, 1997, Six Flags, Time Warner Inc. and TWE completed
arrangements pursuant to which Six Flags Over Texas, Inc., a wholly-owned
subsidiary of SFTP ("SFOT II"), will manage the Six Flags Over Texas Park
through 2027. Under the agreements governing the new arrangements (the
"Texas Agreements"), the Six Flags Over Texas Park will continue to be
owned by Texas Flags Ltd., a limited partnership ("Six Flags Over Texas")
of which SFOT II is the managing general partner.
The key elements of these arrangements are as follows: (i) the limited
partner (which is not affiliated with Six Flags) will receive minimum
annual distributions of $27,700,000 commencing in 1998, increasing each
year thereafter in proportion to increases in the cost of living;
thereafter, SFOT II will be entitled to receive from available cash (after
provision for reasonable reserves and after capital expenditures per annum
of approximately 6% of prior year revenues) a management fee equal to 3% of
the prior year's gross revenues; and, thereafter, any additional available
cash will be distributed 92.5% to SFOT and 7.5% to the limited partner;
(ii) in the first quarter of 1998, a subsidiary of SFTP (the "SFTP-SFOT
Subsidiary") and a subsidiary of SFEC (the "SFEC-SFOT Subsidiary")
commenced a tender offer for partnership interests ("SFOT LP Units") in Six
Flags Over Texas, Ltd., which owns 99% of the limited partner of Six Flags
Over Texas, that values the Six Flags Over Texas Park at the greater of
$375,000,000 or 8.5 times 1998 EBITDA of the Six Flags Over Texas Park (the
"SFOT Tender Offer Price"); (iii) commencing in 1999, and on an annual
basis thereafter, the SFTP-SFOT Subsidiary and the SFEC-SFOT Subsidiary
will offer to purchase additional SFOT LP Units at a price based on the
greater of the SFOT Tender Offer price or the EBITDA of the Six Flags Over
Texas Park for the prior four years; and (iv) in 2027, Six Flags and its
affiliates will have the option to acquire the Six Flags Over Texas Park at
a price based on the SFOT Tender Offer Price, increased in proportion to
the increase in the cost of living between December 1997 and December 2027.
SFEC, SFTP, Time Warner Inc. and TWE have guaranteed certain of the
obligations (including the minimum annual distributions noted in (i) above)
of SFOT under the Texas Agreements. See Note 2.
F-18
(Continued)
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
In connection with the entering into the Texas Agreements, a subsidiary of
SFEC loaned $10,725,000 to the Six Flags Over Texas Partnership during
December 1997 as a prepayment of its obligations under the Texas
Agreements. This amount has been included in the Company's investment in
theme park partnerships as of December 28, 1997.
The tender offer for SFOT LP Units closed on March 12, 1998. Six Flags
purchased approximately 33% of these units for approximately $117,984,000
through the SFEC-SFOT Subsidiary and financed the purchase of such units
through loans.
The summarized results of the Partnership Parks for the period from
December 29, 1997 to March 31, 1998 are as follows:
Revenues $ 10,168,000
Expenses:
Operating expenses 18,435,000
Selling, general and administrative 2,859,000
Costs of products sold 993,000
Depreciation and amortization 3,286,000
Interest expense, net 640,000
------------
Total 26,213,000
------------
Net loss $(16,045,000)
============
Changes in the investment in theme park partnerships for the year ended
December 28, 1997 are as follows:
Balance at beginning of period $ 19,135,000
Capital additions made by the theme parks 16,147,000
Operations, net of distributions to the limited partners 18,633,000
Distributions to Six Flags (24,126,000)
Amortization (11,515,000)
------------
18,274,000
------------
Purchase of SFOG limited partnership units 62,678,000
Amortization (2,582,000)
------------
60,096,000
------------
Advance to SFOT 10,725,000
------------
$ 89,095,000
============
As of the Acquisition, the Company's investment in theme park partnerships
was transferred to Premier in exchange for $46,000,000 in cash and
Premier's payment of $165,686,000 of Company borrowings. See Note 13.
F-19
(Continued)
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
The following summarized unaudited pro forma results of operations for the
period from December 29, 1997 to March 31, 1998 and for the year ended
December 28, 1997, assume the transfer of the Company's interests in the
Partnership Parks had occurred on December 30, 1996 (the first day of
SFEC's 1997 fiscal year):
Period from
December 29, Year ended
1997 to December 28,
March 31, 1998 1997
-------------- ------------
(Unaudited)
(in thousands)
Revenues $ 23,403 531,872
Net loss (130,509) (24,765)
(7) Short-Term Borrowings
Short-term borrowings at January 3, 1999 and December 28, 1997 consist of
the following:
<TABLE>
<CAPTION>
January 3, December 28,
1999 1997
---------- ------------
<S> <C> <C>
8.5% Note payable to Chase Bank, due March 31, 1998 $ -- 19,778,000
7.2% Note payable to TWE, due March 31, 1998 -- 10,725,000
---------- ------------
$ -- 30,503,000
========== ============
</TABLE>
The proceeds from the note payable to Chase Bank were used to purchase
approximately 8% of SFOG LP Units pursuant to the tender offer for such
units. The proceeds from the TWE note payable were loaned to Six Flags Over
Texas Partnership in connection with the Texas Agreements. See Note 6. The
weighted average interest rate of short-term borrowings outstanding as of
December 28, 1997 was 8.5%. These short-term borrowings were refinanced in
March 1998 at the time of the financing of the initial tender offer for
SFOT LP units through a $165,000,000 facility. The new facility was paid in
full at the time of the Acquisition by Premier in exchange for the
interests in the theme park partnerships previously owned by SFEC.
(Continued)
F-20
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
(8) Long-Term Debt
At January 3, 1999 and December 28, 1997, long-term debt consists of:
<TABLE>
<CAPTION>
January 3, December 28,
1999 1997
-------------- ------------
<S> <C> <C>
Long-term debt:
Old Credit Agreement (a) $ -- 348,500,000
SFEC Notes (b) 170,000,000 --
SFEC Zero Coupon Notes (b) 182,877,000 161,074,000
SFTP Senior Subordinated Notes (c) 321,167,000 269,925,000
Credit Facility (d) 409,750,000 --
Other 1,050,000 --
-------------- -----------
1,084,844,000 779,499,000
Less current portion, in 1999 primarily the SFEC Zero
Coupon Notes (carrying value of $182,877,000 as of
January 3, 1999) which have been prefunded with 184,370,000 26,130,000
restricted-use investments. See note (b) -------------- -----------
$ 900,474,000 753,369,000
============== ===========
</TABLE>
(a) In 1995, SFTP entered into a $600,000,000 credit agreement (the "Old
Credit Agreement") with a group of lenders. The Old Credit Agreement
consisted of a $345,000,000 Tranche A Senior Secured Term Loan
Facility (the "Tranche A Term Facility"), a $130,000,000 Tranche B
Senior Secured Term Loan Facility (the "Tranche B Term Facility")
(together the "Term Facilities"), and a Senior Secured Revolving
Credit Facility (the "Revolving Facility"). The Revolving Facility
provided for revolving loans to SFTP and the issuance of letters of
credit for the account of SFTP in an aggregate principal amount of up
to $125,000,000, of which not more than $12,000,000 could be
represented by letters of credit. The interest rates per annum
applicable to the Tranche A Term Facility and Revolving Facility were
LIBOR plus 2.50%, as adjusted semi-annually. The interest rate per
annum applicable to the Tranche B Term Facility was LIBOR plus 3.00%,
as adjusted semi-annually. The amounts outstanding under the Term
Facilities were $307,500,000 at December 28, 1997. The amounts
borrowed against the Revolving Facility as of December 28, 1997 were
$41,000,000. As of December 28, 1997, the Company had $9,300,000 in
letters of credit outstanding.
SFTP was required to pay a per annum fee equal to 2.50%, plus a
fronting fee of 0.25%, of the aggregate face amount of outstanding
letters of credit under the Revolving Facility and a per annum fee
equal to 0.50% on the undrawn portion of the commitments in respect of
the Revolving Facility.
In connection with the Acquisition, in April 1998, the Company
satisfied all amounts then outstanding under the Old Credit Agreement
and the Old Credit Agreement was terminated.
(Continued)
F-21
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
(b) On April 1, 1998, SFEC issued $170,000,000 principal amount of SFEC
Notes, which are senior obligations of SFEC. The SFEC Notes are
guaranteed on a fully subordinated basis by Premier. 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 SFEC and
certain other circumstances, do not require any principal payments
prior to their maturity in 2006. The SFEC Notes are redeemable, at
SFEC'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 to provide for the repayment in full on or before December
15, 1999 of the SFEC Zero Coupon Notes (with a carrying value of
$182,877,000 at January 3, 1999).
The indenture under which the SFEC Notes were issued limits the
ability of SFEC 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) The SFTP Senior Subordinated Notes were issued in an aggregate
principal amount of $285,000,000 at a discount and effective in
1999 require interest payments of approximately $34,900,000 per annum
(12 1/2% per annum). The first interest payment was paid in December
1998. Except in certain circumstances, no principal payments are
required prior to their maturity in 2005. The SFTP Senior
Subordinated Notes are guaranteed on a senior subordinated basis by
the principal operating subsidiaries of SFTP. The Notes are
redeemable, at SFTP's option, in whole or in part, at any time on or
after June 15, 2000, at varying redemption prices. As a result of the
application of purchase accounting, the carrying value of the SFTP
Senior Subordinated Notes was increased to $318,500,000, which was the
estimated fair value at the Acquisition date, April 1, 1998. The
premium that resulted from the adjustment of the carrying value will
be amortized as a reduction to interest expense over the remaining
term of the SFTP Senior Subordinated Notes and will result in an
effective interest rate of approximately 9 3/4%.
The indenture under which the SFTP Senior Subordinated Notes were
issued limits the ability of SFTP 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
subsidiaries and affiliates.
(d) On April 1, 1998, SFTP entered into the Credit Facility, pursuant to
which it had outstanding $409,750,000 at January 3, 1999. The Credit
Facility includes (i) a $100,000,000 five-year revolving credit
facility used to refinance Six Flags bank indebtedness as of April 1,
1998 and for working capital and other general corporate purposes (of
which $38,000,000 was outstanding on January 3, 1999); and (ii) a
$372,000,000 term loan facility (the "Term Loan Facility") which was
fully drawn on January 3, 1999. Borrowings under the Term Loan
Facility will mature on November 30, 2004. However, aggregate
principal payments and reductions of $1,000,000 are required during
each of the first, second, third and fourth years; aggregate principal
payments of $25,000,000 and $40,000,000 are required in years five and
six, respectively, and $303,000,000 at maturity. Borrowings under the
Credit Facility are secured by substantially all of the assets of
(Continued)
F-22
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
SFTP and its subsidiaries and a pledge of the stock of SFTP, and are
guaranteed by such subsidiaries and SFEC.
The Credit Facility contains restrictive covenants that, among other
things, limit the ability of SFTP and its subsidiaries to dispose of
assets; incur additional indebtedness or liens; pay dividends, (except
that, subject to covenant compliance, dividends will be permitted to
allow SFEC to meet cash pay interest obligations with respect to the
SFEC Notes); repurchase stock; make investments; engage in mergers or
consolidations and engage in certain transactions with subsidiaries
and affiliates. In addition, the Credit Facility requires that SFTP
comply with certain specified financial ratios and tests.
Annual maturities of long-term debt during the five years subsequent
to January 3, 1999, are as follows:
1999 $ 184,370,000
2000 1,493,000
2001 1,065,000
2002 7,000,000
2003 and thereafter 890,916,000
--------------
$1,084,844,000
==============
The following table reflects the condensed financial information of
Premier (guarantor of the 8 7/8% SFEC Notes described in (b) above).
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <S> <C>
Assets: Liabilities and stockholders' equity:
Cash and cash equivalents $ 320,411 Current liabilities $ 22,888
Restricted-use investment securities 22,734 ----------
Other current assets 38,067 Long-term debt 550,896
----------
Total current assets 381,212
Other long-term liabilities 568
Other assets 21,757
Deferred income taxes 217
Restricted-use investments 111,576
Stockholders' equity 1,626,565
Investment in subsidiaries 1,432,883 ----------
Investment in theme park partnerships 226,324
Property and equipment, net 23,758
Intangible assets, net 3,624
---------- Total liabilities and
Total assets $2,201,134 stockholders' equity $2,201,134
========== ==========
</TABLE>
(Continued)
F-23
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C> <S> <C>
Revenue $ 340 Cash flow information:
---------- Cash flows from operating activities $ (17,367)
Operating costs and expenses: ----------
Selling, general and administrative 9,351 Cash flows from investing activities:
Noncash compensation 5,687 Additions to property and equipment (23,970)
Depreciation and amortization 166 Investment in theme park partnerships (217,641)
----------
Total operating costs and expenses 15,204 Acquisitions of theme park companies (1,000,065)
----------
Loss from operations (14,864) Investment in subsidiaries (39,030)
----------
Other income (expense): Purchase of restricted-use investments (145,675)
Interest expense (41,031) Maturities of restricted-use
Interest income 20,593 investments 11,365
----------
Equity in operations of theme park (1,415,016)
partnerships 21,002 ----------
----------
Total other income (expense) 564 Cash flows from financing activities:
----------
Loss before income Proceeds from borrowings 531,703
taxes (14,300) Net cash proceeds from issuance
Income tax benefit (5,918) of stock 1,256,319
----------
Payment of preferred dividends (11,644)
Net loss $ (8,382) Payment of debt issuance costs (23,584)
========== ----------
1,752,794
Net loss applicable ----------
to common stock $ (25,848) Increase in cash and cash equivalents $ 320,411
========== ==========
</TABLE>
As discussed in (a) to (d), the long-term debt of the Company has been
issued by both SFEC and by one of its subsidiaries, SFTP. SFEC does
not guarantee the SFTP Senior Subordinated Notes. SFEC is a holding
company with limited assets other than its investment in SFTP and the
restricted-use investments that will be used to repay the SFEC Zero
Coupon Notes. Additionally, SFEC does not have any operating income or
operating cash flow outside of interest payments on the SFEC Notes.
The vast majority of the SFEC consolidated assets, liabilities,
operations and cash flows are those of SFTP. As such, condensed
information of SFEC and of consolidated SFTP is not presented.
The debt indentures or credit facility agreements generally restrict
the ability of the obligors to distribute assets to parent companies
or in the case of SFEC to its stockholder. The following table
discloses the amounts available for distribution (other than permitted
payments in respect of shared administrative and other corporate
expenses and tax sharing payments) at January 3, 1999 by each debt
group based upon the most restrictive applicable limitation.
Amount
Available
-------------
(in thousands)
SFEC $ 111,226
SFTP 3,772
The fair value of the Company's long-term debt is estimated by
discounting the future cash flows of each instrument at rates
currently offered to the Company for similar debt instruments of
comparable maturities by the Company's investment bankers or based
upon quoted market prices. The fair value of
(Continued)
F-24
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
the Company's long-term debt as of January 3, 1999 and December 28, 1997
was approximately $1,084,702,000 and $822,100,000, respectively.
(9) Income Taxes
Income tax expense allocated to operations for the 1998 Post-Acquisition
period, 1998 Pre-Acquisition period, 1997 and 1996 consists of the
following:
Current Deferred Total
------- -------- -----
Post-Acquisition 1998:
U.S. federal $ -- 29,972,000 29,972,000
State and local -- 4,541,000 4,541,000
----------- ---------- ----------
$ -- 34,513,000 34,513,000
=========== ========== ==========
Pre-Acquisition 1998:
U.S. federal $ -- -- --
State and local -- -- --
----------- ---------- ----------
$ -- -- --
=========== ========== ==========
1997:
U.S. federal $ -- -- --
State and local -- -- --
----------- ---------- ----------
$ -- -- --
=========== ========== ==========
1996:
U.S. federal $ -- 4,369,000 4,369,000
State and local -- 768,000 768,000
----------- ---------- ----------
$ -- 5,137,000 5,137,000
=========== ========== ==========
(Continued)
F-25
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
Income tax expense (benefit) differed from amounts computed by applying the U.S.
federal income tax rate of 35% to income (loss) before income taxes as follows:
<TABLE>
<CAPTION>
1998 1998
Post- Pre-
Acquisition Acquisition
Period Period 1997 1996
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Computed "expected" federal income
tax expense (benefit) $22,118,000 (50,281,000) (1,298,000) (3,539,000)
Amortization of goodwill 10,480,000 777,000 2,866,000 2,287,000
Other, net 19,000 (60,000) (327,000) 68,000
Carryover of net operating losses -- 49,564,000 (1,241,000) 5,822,000
Effect of state and local income taxes,
net of federal tax benefit 1,896,000 -- -- 499,000
----------- ---------- ---------- ----------
$34,513,000 -- -- 5,137,000
=========== ========== ========== ==========
</TABLE>
Substantially all of the Company's future taxable temporary differences
(deferred tax liabilities) relate to the different financial accounting and tax
bases resulting from the application of purchase method of accounting for
business combinations and depreciation methods and periods for property and
equipment. The Company's net operating loss carryforwards, alternative minimum
tax carryforwards, accrued insurance expenses, and asset tax basis in excess of
financial basis, represent future income tax deductions (deferred tax assets).
The tax effects of these temporary differences as of January 3, 1999 and
December 28, 1997, are presented below:
January 3, December 28,
1999 1997
------------ ------------
Deferred tax assets before valuation allowance $123,993,000 103,138,000
Less valuation allowance -- (15,921,000)
------------ ------------
Net deferred tax assets 123,993,000 87,217,000
Deferred tax liabilities 223,326,000 87,217,000
------------ ------------
Net deferred tax liability $ 99,333,000 --
============ ============
(Continued)
F-26
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
The following details the material financial and tax differences comprising the
deferred tax asset and deferred tax liability above.
<TABLE>
<CAPTION>
January 3, December 28,
1999 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Property and equipment - tax basis in excess of
financial basis $ -- 55,467,000
Net operating loss carryforwards 89,025,000 43,071,000
Other 34,968,000 4,600,000
------------ ------------
$123,993,000 103,138,000
============ ============
Deferred tax liabilities:
Property and equipment - financial basis in excess
of tax basis $217,515,000 33,736,000
Deferral related to tax and fiscal year difference -- 46,225,000
Other 5,811,000 7,256,000
------------ ------------
$223,326,000 87,217,000
============ ============
</TABLE>
Because most of the Company's Post-Acquisition depreciable assets' financial
carrying amounts and tax basis differences will reverse before the expiration of
the Company's net operating loss carryforwards and taking into account the
Company's projections of future taxable income over the same period, management
believes that the Company will more likely than not realize the benefits of
these net future deductions. As a result, no valuation allowance is deemed
necessary as of January 3, 1999.
As of January 3, 1999, the Company has approximately $236,000,000 of net
operating loss carryforwards available for federal income tax purposes which
expire through 2013. Additionally, the Company has approximately $4,728,000 of
alternative minimum tax credits which have no expiration date.
The Company has experienced an ownership change within the meaning of Internal
Revenue Code Section 382 and the regulations thereunder as a result of the
Acquisition by Premier. Due to this ownership change, no more than $49,200,000
of such net operating loss carryforwards may be used to offset taxable income in
any year. Furthermore, the amount of such NOLs that can be used is limited to
the cumulative taxable income of Six Flags. Notwithstanding these limitations,
management believes that it is more likely than not that all of the Company's
net operating loss carryforwards will be utilized by the Company before their
expiration.
(Continued)
F-27
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
(10) Stockholders' Equity
(a) Pre-Acquisition Capital Structure
Prior to the Acquisition, SFEC's outstanding equity consisted of
5,100,000 shares of Class A Convertible Preferred Stock, par value of
$.01 per share, 4,900,000 shares of Class B Convertible Preferred
Stock, par value of $.01 per share, 51 shares of Class A Common Stock,
par value $.01 per share ("Class A Common Stock"), and 49 shares of
Class B Common Stock, par value $.01 per share ("Class B Common
Stock"). The Class A Convertible Preferred Stock had a liquidation
preference per share of $40 plus accrued and unpaid dividends to the
liquidation date. Dividends accrued on the outstanding shares of Class
A Convertible Preferred Stock on a daily basis at the rate of 12% per
annum, compounded semi-annually on December 1 and June 1 of each year.
Accrued and unpaid dividends for the Class A Convertible Preferred
Stock were $69,500,000 at December 28, 1997. The Class B Convertible
Preferred Stock had a liquidation preference per share of $40. No
dividends accrued on the Class B Convertible Preferred Stock. SFEC's
Class A Convertible Preferred Stock and Class A Common Stock were
further divided into shares of voting stock (known as Class A-1
Convertible Preferred Stock and Class A-1 Common Stock, respectively)
and non-voting stock (known as Class A-2 Convertible Preferred Stock
and Class A-2 Common Stock, respectively). The non-voting shares of
each such class were created for the benefit of certain regulated
entities (each a "Regulated Holder") whose ability to own voting stock
was restricted. Shares of Class A-1 Convertible Preferred Stock and
Class A-1 Common Stock could have been exchanged by a Regulated Holder
on a share-for-share basis for non-voting shares of such class. Shares
of Class A-2 Convertible Preferred Stock and Class A-2 Common Stock
could have been exchanged on a share-for-share basis for voting shares
of each such class if such shares were held by a person other than by
a Regulated Holder. Except for voting rights specifically accorded to
a particular class under Delaware law, the shares of Class A-1 Common
Stock and Class B Common Stock voted together as a single class on
matters requiring stockholder action.
Six Flags entered into an Employment Agreement ("the Agreement") with
an Executive (the "Executive") whereby SFEC agreed to reserve for
issuance a certain number of shares of Class B Common Stock (the
"Reserved Shares"), as defined in the Agreement. The Reserved Shares
were to become vested on December 31, 2000, subject to the Executive's
employment having continued through such date or prior thereto if
certain events occurred as defined in the Agreement, including
change-of-control provisions. Six Flags has recognized compensation
expense related to the Reserved Shares during the 1998 Pre-Acquisition
period, 1997, and 1996.
Under the Agreement, the Executive was also granted options to
purchase shares of SFEC's Class B Common Stock. Included was an option
to purchase an additional 163,936 shares of SFEC's Class B Common
Stock (the "Tranche 1 Option"), and a second option to purchase an
additional 327,872 shares of SFEC's Class B Common Stock (the "Tranche
2 Option"). The exercise price of the Tranche 1 Option was based on a
September 1995 exercise price of $40.64 per share, increasing at a
cumulative annual rate of 10%. The exercise price of the Tranche 2
Option was based on a September 1995 exercise price of $40.94 per
share increasing at a cumulative
(Continued)
F-28
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
annual rate of 15%. On each September 15 while the Executive was
employed under the Agreement, the number of shares of SFEC's Class B
Common Stock reserved for issuance under the terms of the Tranche 1
Option decreased by 5,858.9 shares. At the same time, the Executive
was granted a like number of additional Reserved Shares. In addition,
SFEC granted additional options for the purchase of 327,872 shares of
SFEC's Class B Common Stock to members of management of Six Flags and
its subsidiaries. The terms of these options were similar to the
Tranche 1 Option and Tranche 2 Option described above.
The options were to become exercisable only if there was a triggering
event, as defined in the stock option plan agreement. Accordingly,
prior to the triggering event, these stock options had been treated as
if they were unissued due to the uncertainty regarding the Executive's
and other management employees' ability to exercise such options. As a
result of the Acquisition causing the options and the Reserved Shares
to vest, Six Flags recognized $46,061,000 of compensation expense
associated with the options and the Reserved Shares during the 1998
Pre-Acquisition period.
(b) Post-Acquisition Capital Structure
As a component of the Acquisition, the capitalization of SFEC was
modified. Post-Acquisition, SFEC's capital structure consists of 1,000
shares of $.05 common stock. All 1,000 shares of common stock have
been issued, with all of the shares owned by Premier. All previously
outstanding SFEC shares were retired.
(11) Pension Benefits
Six Flags maintains a noncontributory, defined benefit pension plan (the
"Benefit Plan"). The Benefit Plan covers substantially all of Six Flags'
full-time employees. Subsequent to January 3, 1999, the Benefit Plan was
extended to cover substantially all of Premier's full-time employees. The
Benefit Plan permits normal retirement at age 65, with early retirement at
ages 55 through 64 upon attainment of ten years of credited service. The
early retirement benefit is reduced for benefits commencing before age 62.
Benefit Plan benefits are calculated according to a benefit formula based
on age, average compensation over the highest consecutive five-year period
during the employee's last ten years of employment and years of service.
Benefit Plan assets are invested primarily in common stock and mutual
funds. The Benefit Plan does not have significant liabilities other than
benefit obligations. Under the Company's funding policy, contributions to
the Benefit Plan are determined using the projected unit credit cost
method. This funding policy meets the requirements under the Employee
Retirement Income Security Act of 1974.
(Continued)
F-29
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
The following table sets forth the aggregate funded status of the Benefit Plan
and the related amounts recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
Period from Period from
April 1, 1998 December 29,
to 1997 to
January 3, March 31,
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Change in benefit obligation:
Benefit obligation, beginning of period $ 68,712,000 68,912,000 58,702,000
Service cost 2,444,000 801,000 3,025,000
Interest cost 3,808,000 1,261,000 4,858,000
Actuarial (gain) loss 757,000 (1,987,000) 3,444,000
Benefits paid (1,063,000) (275,000) (1,117,000)
------------ ----------- -----------
Benefit obligation, end of period 74,658,000 68,712,000 68,912,000
------------ ----------- -----------
Change in plan assets:
Fair value of assets, beginning of period 85,236,000 77,024,000 60,471,000
Actual return on plan assets 3,097,000 8,488,000 13,584,000
Employer contributions -- -- 4,086,000
Benefits paid (1,063,000) (276,000) (1,117,000)
------------ ----------- -----------
Fair value of assets, end of period 87,270,000 85,236,000 77,024,000
------------ ----------- -----------
Plan assets in excess of benefit obligations 12,612,000 16,524,000 8,112,000
Unrecognized net actuarial (gain) loss 3,317,000 (16,349,000) (7,943,000)
Unrecognized prior service cost -- (1,046,000) (1,090,000)
------------ ----------- -----------
Prepaid (accrued) benefit cost (included in deposits
and other assets as of January 3, 1999, other
long-term liabilities as of December 28, 1997) $ 15,929,000 (871,000) (921,000)
============ =========== ===========
</TABLE>
Net pension expense of the Benefit Plan for the 1998 Post-Acquisition period,
the 1998 Pre-Acquisition period, 1997, and 1996 included the following
components:
<TABLE>
<CAPTION>
Period from Period from
April 1, 1998 December 29,
to 1997 to
January 3, 1999 March 31, 1998 1997 1996
--------------- -------------- --------- ---------
<S> <C> <C> <C> <C>
Service cost $ 2,444,000 801,000 3,025,000 3,133,000
Interest cost 3,808,000 1,261,000 4,858,000 4,436,000
Expected return on assets (5,657,000) (1,740,000) (5,496,000) (4,565,000)
Amortization of:
Prior service cost -- (44,000) (176,000) (176,000)
Actuarial gain (loss) -- (53,000) -- 33,000
----------- ---------- --------- ---------
Net periodic cost $ 595,000 225,000 2,211,000 2,861,000
=========== ========== ========= =========
</TABLE>
(Continued)
F-30
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
Assumptions used in the determination the actuarial present value of the
projected benefit obligations and net pension expense are as follows:
<TABLE>
<CAPTION>
Period from Period from
April 1, 1998 December 29,
to 1997 to
January 3, 1999 March 31, 1998 1997 1996
--------------- -------------- ---- ----
<S> <C> <C> <C> <C>
Weighted average discount rate 6.75% 7.25% 7.25% 7.75%
Long-term rate of return 9.00% 9.00% 9.00% 9.00%
Future compensation levels 4.50% 5.00% 5.00% 6.00%
</TABLE>
(12) 401(k) Plan
The Company has a qualified, contributory 401(k) plan (the "Six Flags
Savings Plan"). Under the provisions of the Six Flags Savings Plan,
employees of Six Flags completing one year of service (minimum 1,000 hours)
and attaining age 21 are eligible to participate and may contribute up to
6% of compensation as a tax deferred basic contribution. Each participant
may also elect to make additional contributions of up to 10% of
compensation (up to 4% tax deferred). Tax deferred contributions to the
savings plan may not exceed amounts defined by the Internal Revenue Service
($10,000 for 1998; $9,500 for 1997). Both the basic and additional
contributions are at all times vested. Six Flags, at its discretion, may
make matching contributions of up to 100% of its employees' basic
contributions. Six Flags recognized contribution expense of $743,000,
$247,000, $900,000, and $700,000 for the 1998 Post-Acquisition period, 1998
Pre-Acquisition period, 1997 and 1996, respectively. Six Flags' matching
contributions to the savings plan are made in the first quarter of the
succeeding year. During the first quarter of 1999, the Six Flags Savings
Plan was merged into Premier's existing 401(k) plan.
(13) Related Party Transactions
Transactions with Time Warner Entertainment Company, L.P. and Affiliates
prior to April 1, 1998
On December 31, 1997, TWE contributed $4,000,000 to Six Flags. This capital
is reflected as an affiliate receivable as of December 28, 1997.
On May 5, 1997, TWE loaned $19,500,000 to a subsidiary of Six Flags.
The proceeds from this affiliate loan were used to purchase
approximately 8% of SFOG LP Units pursuant to the tender offer for such
units. On December 23, 1997, this affiliate loan, along with accrued
interest, was refinanced with proceeds of a note payable to Chase Bank. On
November 24, 1997, TWE loaned $10,725,000 to another Six Flags subsidiary.
The proceeds of this affiliate loan were loaned to the Six Flags Over Texas
Partnership in connection with the Texas Agreements. This loan was
refinanced in March 1998 by a $165,000,000 credit facility with Chase Bank.
(Continued)
F-31
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
In 1996 and 1997, Six Flags reimbursed TWE and its affiliates $4,400,000
and $2,600,000, respectively, for royalties on merchandise, advertising and
other expenses.
During 1995, Six Flags entered into a license agreement (the "License
Agreement") pursuant to which it obtained the exclusive right for a term of
55 years to theme park use in the United States and Canada (excluding the
Las Vegas, Nevada metropolitan area) of all animated, cartoon and comic
book characters that Warner Bros. and DC Comics have the right to license
for such use during the term of the agreement, including all characters
which, prior to the effectiveness of the License Agreement, already had
been licensed by Warner Bros. and DC Comics to Six Flags for use in
connection with Six Flags' theme parks.
Under the License Agreement, Six Flags pays an annual license fee of
$500,000 for each of the first ten years of the license term. Thereafter,
the license fee will be subject to periodic scheduled increases and will be
payable on a per-theme park basis. The annual license fees will also be
increased by amounts equal to any third-party payments which may be payable
by Warner Bros. or DC Comics as a result of the use of any licensed
character by Six Flags.
Six Flags entered into an amendment to the License Agreement ("Amendment
No. 1") which provided the exclusive right for a period of three years
ending December 31, 1998, to theme park use of elements contained in
released versions of certain theatrical motion pictures and television
shows, along with usage of the "Warner Bros. Backlot Logo" (the "Logo
Usage"). Each separate motion picture, television series and/or Logo Usage
may be utilized only in connection with live shows within Six Flags' parks.
Six Flags was charged $400,000 in total for the years 1996 and 1997 and was
charged $150,000 in 1998 for the rights granted pursuant to Amendment No.
1.
In addition to the annual license fees described above, Six Flags is also
required to pay royalties on sales of products incorporating the licensed
characters at standard royalty rates for such products, subject to increase
from time to time. Warner Bros. will be entitled to terminate the License
Agreement prior to the expiration of the stated term if Six Flags, at any
time during the term, is directly or indirectly controlled by a person that
derives significant revenues from the production or distribution of motion
pictures or engages in certain other businesses competitive with TWE.
Six Flags also entered into a license agreement with TWE pursuant to which
TWE granted Six Flags a 25-year license to use the trademarks and service
marks relating to the "Home Box Office" and "HBO" names and the "HBO" logo
for use in connection with operation of restaurants in Six Flags' theme
parks. The TWE license is royalty-free for the first ten years of its term.
Thereafter, annual royalties will be established every five years. Six
Flags also entered into an agreement entitling Six Flags (i) to use the
name "Time Warner" in connection with operating a retail merchandise outlet
with the name "Time Warner Studio Store" at Six Flags' theme parks and for
establishing a themed area in each of Six Flags' theme parks to be called
"Time Warner Studios" and (ii) to stage a concert series in Six Flags'
theme parks under the name "Warner Music Rock Review." Six Flags also
entered into a license agreement with the Sports Illustrated division of
Time Warner pursuant to which Time Warner granted Six Flags a ten-year
royalty-free license to use the "Sports Illustrated" and "Sports
Illustrated for Kids" trademarks and service marks in connection with the
operation of a sports festival at Six
(Continued)
F-32
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
Flags' theme parks. The licensor under each of these additional license
agreements has the right to terminate the license granted thereby if,
during the stated term of any such license agreement, the Warner Bros.
License Agreement is terminated for any reason. The licensor also has the
right under certain circumstances to suspend the right of any Six Flags'
theme parks to use the licenses granted thereby if the license is not
sufficiently utilized in such theme park.
The License Agreement and Amendment No. 1 thereto described above were
superceded by the License Agreement entered into in connection with the
Acquisition to include the parks owned and operated by Premier Parks
Operations Inc. As it relates to Six Flags, the terms of the new License
Agreement are substantially the same as those described above.
Transactions with Premier Parks Inc. and Affiliates Subsequent to March 31,
1998
In connection with the Acquisition, SFEC, Premier and Premier Parks
Operations Inc., also a direct subsidiary of Premier that owns or controls
19 parks ("PPO"), entered into a shared services agreement pursuant to
which certain corporate, administrative and other general services provided
by Premier are charged to SFEC and PPO, either on the basis of their
respective revenues or on other relative bases. Allocation of these charges
are reflected in the accompanying consolidated financial statements.
Additionally, as of the Acquisition date, Six Flags transferred its
ownership interests in the Six Flags Over Texas and Six Flags Over Georgia
partnerships to Premier for total consideration of $211,686,000 (which
consisted of $208,082,000 related to the interest in the Partnership Parks
and $3,604,000 as a capital contribution used to retire the remaining
Company borrowings associated with the purchase of the units of the
Partnership Parks). On the same date, Premier contributed $10,750,000 to
Six Flags to establish the restricted-use investment associated with the
SFEC Zero Coupon Notes. Throughout the remainder of the year,
Premier contributed an additional $18,113,000 to Six Flags for various
corporate uses.
(14) Commitments and Contingencies
Total rental expense, including office space and park sites, was
approximately $4,751,000, $1,867,000, $9,700,000 and $8,500,000 for the
1998 Post-Acquisition period, 1998 Pre-Acquisition period, 1997 and 1996,
respectively.
In December 1998, a final judgment of $197,300,000 in compensatory
damages was entered against SFEC, SFTP, Six Flags Over Georgia, Inc. and
TWE, and a final judgment of $245,000,000 in punitive damages was entered
against TWE and of $12,000,000 in punitive damages was entered against the
referenced Six Flags entities. TWE has indicated that it intends to appeal
the judgments. The judgments arose out of a case entitled Six Flags Over
Georgia, L.L.C. et al v. Time Warner Entertainment Company, L.P., et al
based on certain disputed partnership affairs prior to the Acquisition at
Six Flags Over Georgia, including alleged breaches of fiduciary duty. The
sellers in the Acquisition, including Time Warner, Inc., have agreed to
indemnify the Company from any and all liabilities arising out of this
litigation.
(Continued)
F-33
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
Notes to Consolidated Financial Statements
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 condition, operations, or liquidity after consideration of
recorded accruals.
(15) Business Segments
Both previous and current management managed the Company's operations on an
individual park location basis. Discrete financial information is
maintained for each park and provided to Company 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 table presents
segment financial information and a reconciliation of the primary segment
performance measure to income (loss) before income taxes. Park level
expenses exclude all non-cash operating expenses, principally depreciation
and amortization.
<TABLE>
<CAPTION>
Period from Period from
April 1, 1998 December 29,
to 1997 to
January 3, 1999 March 31, 1998 1997 1996
--------------- -------------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Theme park revenues $ 497,728 33,571 707,578 680,796
Theme park cash expenses 292,356 82,280 505,903 504,767
--------- -------- ------- -------
Aggregate park EBITDA 205,372 (48,709) 201,675 176,029
Amortization of investment in
theme park partnerships -- (393) -- --
Unallocated net expenses, including
corporate (11,623) (54,422) (36,460) (22,194)
Depreciation and amortization (71,896) (17,629) (84,493) (87,417)
Interest expense, net (58,658) (22,508) (84,430) (76,530)
--------- -------- ------- -------
Income (loss) before income taxes $ 63,195 (143,661) (3,708) (10,112)
========= ======== ======= =======
Theme park revenues $ 497,728 33,571 707,578 680,796
Theme park revenues from parks
accounted for under the equity
method -- (10,168) -- --
Other revenues -- -- 1,088 80
--------- -------- ------- -------
$ 497,728 23,403 708,666 680,876
========= ======== ======= =======
</TABLE>
(Continued)
F-34
<PAGE>
EXHIBIT INDEX
PAGE
----
(3) Article of Incorporation and By-Laws:
*(a) Amended and Restated Certificate of Incorporation
of Registrant filed April 1, 1998.
*(b) By-laws of Registrant, as amended.
(4) Instruments Defining the Rights of Security Holders,
Including Indentures:
(a) Indenture dated as of April 1, 1998 between
Premier Parks Inc., Six Flags Entertainment
Corporation and The Bank of New York, as Trustee
with respect to Six Flags' 8 7/8% Senior Notes
due 2006 - incorporated by reference from
Exhibit 4(q) to Premier Parks Inc.'s ("Premier")
Registration Statement on Form S-3 (No. 333-
45859) declared effective on March 26, 1998.
(b) Indenture dated as of June 25, 1995 between Six
Flags Theme Parks Inc. and United States Trust
Company, as Trustee with respect to SFTP's 12
1/4% Senior Subordinated Discount Notes due 2005
- incorporated by reference from Exhibit 4(t) to
Premier's Form 10-K for the year ended December
31, 1998.
(10) (a) Agreement and Plan of Merger dated as of
February 9, 1998, by and among the Registrant,
Six Flags Entertainment Corporation and others
incorporated by reference from Exhibit 10(a) to
Premier's Current Report on Form 8-K dated
February 9, 1998.
(b) Subordinated Indemnity Agreement dated February
9, 1998, among the Registrant, the subsidiaries
of the Registrant named therein, Time Warner
Inc., the subsidiaries of Time Warner Inc. named
therein, Premier and the subsidiaries of Premier
named therein - incorporated by reference from
Exhibit 2(b) to Premier's Registration Statement
on Form S-3 (No. 333-45859) declared effective
on March 26, 1998.
(c) Credit Agreement dated as of April 1, 1998 by
and among Six Flags Theme Parks Inc., Six Flags
Entertainment Corporation, S.F. Holdings, Inc.,
the subsidiary guarantors named therein, the
lender parties thereto and the Bank of New York,
as Administrative Agent and Lehman Brothers Inc.
as Advisor, Arranger, and Syndication Agent -
incorporated by reference from Exhibit 10(ar) to
Premier's Form 10-K for the year ended December
31, 1998.
(d) Overall Agreement dated as of February 15, 1997
among Six Flags Fund, Ltd. (L.P.), Salkin Family
Trust, SFG, Inc., SFG-I, LLC, SFG-II, LLC, Six
Flags Over Georgia, Ltd., SFOG II Inc., SFOG II
Employee, Inc., SFOG Acquisition A, Inc., SFOG
Acquisition B, Inc., Six Flags Over Georgia,
Inc., Six Flags Series of Georgia, Inc., Six
Flags Theme Parks, Inc., and Six Flags
Entertainment Corporation - incorporated by
reference from Exhibit 10(au) to Premier's Form
10-K for the year ended December 31, 1998.
(e) Overall Agreement dated as of November 24, 1997
among Six Flags Over Texas Fund, Ltd., Flags'
Directors, LLC, FD-II, LLC, Texas Flags, Ltd.,
SFOT Employee, Inc., SFOT Acquisition I, Inc.,
SFOT Acquisitions II, Inc., Six Flags Over
Texas, Inc., Six Flags Theme Parks Inc., and Six
Flags Entertainment Corporation - incorporated
by reference from Exhibit 10(av) to Premier's
Form 10-K for the year ended December 31, 1998.
*(27) Financial Data Schedule
---------------
* Filed herewith.
Exhibit 3(a)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SIX FLAGS ENTERTAINMENT CORPORATION
FIRST: The name of the corporation is Six Flags
Entertainment Corporation (hereinafter called the "Corporation").
SECOND: The registered office of the Corporation in the
State of Delaware is located at Corporation Service Company, 1013
Centre Road, in the City of Wilmington, County of New Castle.
The name of the registered agent of the Corporation at such
address is Corporation Service Company.
THIRD: The purpose for which the Corporation is organized
is to engage in any and all lawful acts and activity for which
corporations may be organized under the General Corporation law
of Delaware. The Corporation will have perpetual existence.
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 1,000 shares, par
value $.01 per share, designated Common Stock.
FIFTH: Directors of the Corporation need not be elected
by written ballot unless the bylaws of the Corporation otherwise
provide.
SIXTH: The Directors of the Corporation shall have the
power to adopt, amend, and repeat the bylaws of the Corporation.
SEVENTH: No contract or transaction between the Corporation
and one or more of its directors, officers, or stockholders or
between the Corporation and any person (as used herein "person"
means other corporation, partnership, association, firm, trust,
joint venture, political subdivision, or instrumentality) or
other organization in which one or more of its directors,
offices, or stockholders are directors, officers or stockholders,
or have a financial interest, shall be void or voidable solely
for this reason, or solely because the director or officer is
present at or participates in the meeting of the board or
committee which authorizes the contractor transaction, or solely
because his, her or their votes are counted for such purpose, if:
(i) the material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known
to the board of directors or the committee, and the board of
directors or committee in good faith authorizes the contract or
transaction, and the board of directors or committee in good
faith authorizes the contract or transaction by the affirmative
votes of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; or (ii) the
material facts as to his or her relationship or interest and as
<PAGE>
to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
stockholders, or (iii) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved, or
ratified by the board of directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the board of
directors or of a committee which authorizes the contract or
transaction.
EIGHTH: (a) To the fullest extent permitted by the
General Corporation Law of the State of Delaware, as amended,
this Corporation shall indemnify any director or officer who is
or was made, or threatened to be made, a party to any threatened,
pending or completed action, suit or proceeding (a "Proceeding"),
whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of
this Corporation to procure a judgment in its favor, by reason of
the fact that such person, or a person of whom such person is the
legal representative, is or was a director or office of this
Corporation, or is or was serving in any capacity at the request
of this Corporation for any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise (any
"Other Entity"), against liabilities, losses, judgments, fines,
penalties, excise taxes, amounts paid in settlement and costs,
charges and expenses (including attorneys' fees and
disbursements). Persons who are not directors or officers of
this Corporation (or otherwise entitled to indemnification
pursuant to the preceding sentence) may be similarly indemnified
in respect of service to this Corporation or to any Other Entity
at the request of this Corporation to the extent the Board at any
time specifies that such persons are entitled to the benefits of
this Article VIII.
------------
(b) This Corporation shall, from time to time,
reimburse or advance to any director or officer or other person
entitled to indemnification hereunder the funds necessary for
payment of expenses, including attorneys' fees and disbursements,
incurred in connection with any Proceeding, in advance of the
final disposition of such Proceeding; provided, however, that if
-------- -------
required by the General Corporation Law of the State of Delaware,
such expenses incurred by or on behalf of any director or officer
or other person may be paid in advance of the final disposition
of a Proceeding only upon receipt by this Corporation of an
undertaking by or on behalf of such director or officer (or other
person indemnified hereunder) to repay any such amount so
advanced if it shall ultimately be determined by final judicial
decision from which there is no further right of appeal that such
director, officer or other person is not entitled to be
indemnified for such expenses.
(c) The rights to indemnification and
reimbursement or advancement of expenses provided by or granted
pursuant to, this Article VIII shall not be deemed exclusive of
------------
any other rights to which a person seeking indemnification or
reimbursement or advancement of expense may have or hereafter be
entitled, including without limitation any right arising under
any statute, this Amended and Restated Certificate of
Incorporation, the By-Laws, any agreement, any vote of
stockholders or disinterested directors or otherwise, both as to
<PAGE>
action is his or her official capacity and as to action in
another capacity while holding such office.
(d) The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted
pursuant to, this Article VIII shall continue as to a person who
------------
has ceased to be a director or officer (or other person
indemnified hereunder) and shall inure to the benefit of the
heirs, executors, administrators, legatees and distributees of
such person.
(e) This Corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of this Corporation, or is
or was serving at the request of this Corporation as a director,
officer, employee or agent of any Other Entity, against any
liability asserted against such person's status as such, whether
or not this Corporation would have the power to indemnify such
person against such liability under the provisions of this
Article VIII, the By-Laws or under Section 145 of the General
------------
Corporation Law of the State of Delaware, as amended, or any
other provision of law.
(f) The provisions of this Article VIII shall be
------------
a contract between this Corporation, on the one hand, and each
director and officer who serves in such capacity at any time
while this Article VIII is in effect and any other person
------------
entitled to indemnification hereunder, on the other hand,
pursuant to which this Corporation and each such director,
officer, or other person intend to be, and shall be, legally
bound. No repeal or modification of this Article VIII shall
------------
affect any rights or obligations with respect to any state of
facts then or theretofore existing, or arising thereafter but
before notice of such repeal or modification is delivered to the
persons so affected or any Proceeding theretofore or thereafter
brought or threatened based on whole or in part upon any state of
facts. Until notice of such repeal or modification is given to
any person whose rights hereunder are adversely affected, such
repeal or modification shall have no effect on such rights of
such person hereunder.
(g) The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted
pursuant to, this Article VIII shall be enforceable by any person
------------
entitled to such indemnification or reimbursement or advancement
of expenses in any court of competent jurisdiction. The burden
of proving that such indemnification or reimbursement or
advancement of expense is not appropriate shall be on this
Corporation. Neither the failure of this Corporation (including
its independent legal counsel, its stockholders or the
disinterested directors) to have made a determination prior to
the commencement of such action that such indemnification or
reimbursement or advancement of expenses is proper in the
circumstances nor an actual determination by this Corporation
(including its independent legal counsel, its stockholders or the
disinterested directors) that such person is not entitled to such
indemnification or reimbursement or advancement of expenses shall
constitute a defense to the action or create a presumption that
such person is not so entitled. Such a person shall also be
indemnified for any expenses incurred in connection with
<PAGE>
successfully establishing his or her right to such
indemnification or reimbursement or advancement of expenses, in
whole or in part, in any such proceeding.
(h) Any director or officer of this Corporation
serving in any capacity for (i) another corporation of which a
majority of the shares entitled to vote in the election of its
directors is held, directly or indirectly, by this Corporation or
(ii) any employee benefit plan of this Corporation or any
corporation referred to in clause (i) shall be deemed to be doing
so at the request of this Corporation.
NINTH: A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for
monetary damages for breach or fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal
benefit. Any repeal or amendment of this Article Eleventh by the
stockholders of the Corporation shall be prospective only, and
shall not adversely affect any limitation on the personal
liability of a director of the Corporation arising from an act or
omission occurring prior to the time of such repeal or amendment.
In addition to the circumstances in which a director of the
Corporation is not personally liable as set forth in the
foregoing provision of this Article Eleventh, a director shall
not be liable to the Corporation or its stockholders to such
further extent as permitted by any law hereafter enacted,
including without limitation any subsequent amendment to the
Delaware General Corporation Law.
TENTH: The Corporation expressly elects not to be
governed by Section 203 of the General Corporation Law of
Delaware.
Exhibit 3(b)
BY-LAWS
of
SIX FLAGS ENTERTAINMENT CORPORATION
(A Delaware Corporation)
As Amended and Restated as of June 23, 1995
ARTICLE I
DEFINITIONS
-----------
As used in these By-Laws, unless the context
otherwise requires, the term:
1.1 "Affiliate shall have the meaning ascribed thereto in
the Stockholders Agreement.
1.2 "Assistant Secretary" means an Assistant Secretary of
the Corporation.
1.3 "Assistant Treasurer" means an Assistant Treasurer of
the Corporation.
1.4 "Board" means the Board of Directors of the
Corporation.
1.5 "By-Laws" means the initial By-Laws of the Corporation,
as amended from time to time.
1.6 "CEO" shall mean the chief executive officer of the
Corporation.
<PAGE>
1.7 "Certificate of incorporation" means the initial
certificate of incorporation of the corporation, as amended,
supplemented or restated from time to time.
1.8 "Chairman" means the Chairman of the Board of Directors
of the Corporation. Unless the Board designates another person,
the CEO shall be the Chairman of the Board of Directors.
1.9 "Class A Stockholder" shall have the meaning ascribed
thereto in the Stockholders Agreement.
1.10 "Corporation" means Six Flags Entertainment
Corporation.
1.11 "Directors" means directors of the Corporation.
1.12 "Entire Board" means all directors of the Corporation
in office, whether or not present at a meeting of the Board, but
disregarding vacancies.
1.13 "General Corporation Law" means the General Corporation
Law of the State of Delaware, as amended from time to time.
1.14 "Majority Class A-1 Holders" shall have the meaning
ascribed thereto in the Stockholders Agreement.
1.15 "Majority Class B Holders" shall have the meaning
ascribed thereto in the Stockholders Agreement.
1.16 "Office of the Corporation" means the executive office
of the Corporation, anything in Section 131 of the General
Corporation Law to the contrary notwithstanding.
1.17 "President" means the President of the corporation and
its chief executive officer.
1.18 "Secretary" means the Secretary of the Corporation.
<PAGE>
1.19 "Shares" shall have the meaning ascribed thereto in the
Stockholders Agreement.
1.20 "Stockholders" means stockholders of the corporation.
1.21 "Stockholders Agreement" means the Stockholders and
Registration Rights Agreement, dated as of June 23, 1995, by and
among the Corporation and the Stockholders named therein.
1.22 "Supermajority Vote" shall have the meaning ascribed
thereto in the Stockholders Agreement.
1.23 "Treasurer" means the Treasurer of the Corporation.
1.24 "Vice President" means a Vice President of the
Corporation.
ARTICLE 2
STOCKHOLDERS
------------
2.1 Place of Meetings. Every meeting of Stockholders shall
-----------------
be held at the office of the Corporation or at such other place
within or without the State of Delaware as shall be specified or
fixed in the notice of such meeting or in the waiver of notice
thereof.
2.2 Annual Meeting. A meeting of Stockholders shall be
--------------
held annually for the election of Directors and the transaction
of other business at such hour and on such business day in April
or May or as may be determined by the Board and designated in the
notice of meeting.
2.3 Deferred Meeting for Election of Directors, Etc. If
------------------------------------------------
the annual meeting of Stockholders for the election of Directors
and the transaction of other business is not held within the
<PAGE>
months specified in Section 2.2 hereof, the Board shall call a
meeting of Stockholders for the election of Directors and the
transaction of other business as soon thereafter as convenient.
2.4 Other Special Meetings. A special meeting of
----------------------
Stockholders (other than a special meeting for the election of
Directors), unless otherwise prescribed by statute, may be called
at any time by the Board or by the President or by the Secretary.
At any special meeting of Stockholders only such business may be
transacted as is related to the purpose or purposes of such
meeting set forth in the notice thereof given pursuant to Section
2.6 hereof or in any waiver of notice thereof given pursuant to
Section 2.7 hereof.
2.5 Fixing Record Date. For the purpose of
------------------
(a) determining the Stockholders entitled (i) to notice of
or to vote at any meeting of Stockholders or any adjournment
thereof, (ii) unless otherwise provided in the Certificate of
Incorporation, to express consent to corporate action in writing
without a meeting or (iii) to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or
exchange of stock; or (b) any other lawful action, the Board may
fix a record date,, which record date shall not precede the date
upon which the resolution fixing the record date was adopted by
the Board and which record date shall not be (x) in the case of
clause (a) (i) above, more than sixty nor less than ten days
before the date of such meeting, (y) in the case of clause
(a)(ii) above, more than ten days after the date upon which the
resolution fixing the record date was adopted by the Board and
(z) in the case of clause (a)(iii) or (b) above, more than sixty
days prior to such action. If no such record date is fixed:
<PAGE>
2.5.1 the record date for determining Stockholders
entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the
meeting is held;
2.5.2 the record date for determining stockholders
entitled to express consent to corporate action in writing
without a meeting (unless otherwise provided in the Certificate
of Incorporation), when no prior action by the Board is required
under the General Corporation Law, shall be the first day on
which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery
to its registered office in the State of Delaware, its principal
place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of
stockholders are recorded; and when prior action by the Board is
required under the General Corporation Law, the record date for
determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on
the date on which the Board adopts the resolution taking such
prior action; and
2.5.3 the record date for determining stockholders for
any purpose other than those specified in Sections 2.5.1 and
2.5.2 shall be at the close of business on the day on which the
Board adopts the resolution relating thereto.
When a determination of Stockholders entitled to notice of
or to vote at any meeting of Stockholders has been made as
provided in this section 2.5, such determination shall apply to
any adjournment thereof unless the Board fixes a new record date
for the adjourned meeting. Delivery made to the Corporation's
registered office in accordance with Section 2.5.2 shall be by
<PAGE>
hand or by certified or registered mail, return receipt
requested.
2.6 Notice of Meetings of Stockholders. Except as
----------------------------------
otherwise provided in Sections 2.5 and 2.7 hereof, whenever under
the provisions of any statute, the Certificate of Incorporation,
these By-Laws or the Stockholders Agreement, Stockholders are
required or permitted to take any action at a meeting, written
notice shall be given stating the place, date and hour of the
meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called. Unless otherwise
provided by any statute, the Certificate of Incorporation, these
By-Laws or the Stockholders Agreement, a copy of the notice of
any meeting shall be given, personally or by mail, not less than
tan nor more than sixty days before the date of the meeting, to
each Stockholder entitled to notice of or to vote at such
meeting. If mailed, such notice shall be deemed to be given when
deposited in the United States mail, with postage prepaid,
directed to the Stockholder at his or her address as it appears
on the records of the Corporation. An affidavit of the Secretary
or an Assistant-Secretary or of the transfer agent of the
Corporation that the notice required by this section 2.6 has been
given shall, in the absence of fraud, be prima facie evidence of
the facts stated therein. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting
if the time and place thereof are announced at the meeting at
which the adjournment is taken, and at the adjourned meeting any
business may be transacted that might have been transacted at the
meeting as originally called. If, however, the adjournment is
for more than thirty days, or if after the adjournment a new
<PAGE>
record date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given to each Stockholder of record
entitled to notice of or to vote at the meeting.
2.7 Waivers of Notice. Whenever the giving of any notice
-----------------
is required by statute, the Certificate of Incorporation, these
By-Laws or the Stockholders Agreement, a waiver thereof, in
writing, signed by the Stockholder or Stockholders entitled to
said notice, whether before or after the event as to which such
notice is required, shall be deemed equivalent to notice.
Attendance by a Stockholder at a meeting shall constitute a
waiver of notice of such meeting, except when the Stockholder
attends a meeting for the purpose of objecting, at the beginning
of the meeting, to the transaction of any business on the ground
that the meeting has not been lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Stockholders need be specified
in any written waiver of notice unless so required by statute,
the Certificate of Incorporation, these By-Laws or the
Stockholders Agreement.
2.8 List of Stockholders. The Secretary shall prepare and
--------------------
make, or cause to be prepared and made, at least ten days before
every meeting of Stockholders, a complete list of the
Stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each Stockholder
and the number of shares registered in the name of each
Stockholder. Such list shall be open to the examination of any
Stockholder, the Stockholder's agent, or attorney, at the
Stockholder's expense, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ton days
prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place
<PAGE>
where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any Stockholder who is
present. The Corporation shall maintain the Stockholder list in
written form or in another form capable of conversion into
written form within a reasonable time. Upon the willful neglect
or refusal of the Directors to produce such a list at any meeting
for the election of Directors, they shall be ineligible for
election to any office at such meeting. The stock ledger shall
be the only evidence as to who are the Stockholders entitled to
examine the stock ledger, the list of Stockholders or the books
of the Corporation, or to vote in person or by proxy at any
meeting of Stockholders.
2.9 Quorum of Stockholders; Adjournment. Except as
-----------------------------------
otherwise provided by any statute, the Certificate of
Incorporation or these By-Laws, the holders of a majority of each
of the Class A Preferred Stock, the Class B Preferred Stock the
Class A Common Stock and the Class B Common stock outstanding and
entitled to vote at any-meeting of Stockholders, present in
person or represented by proxy, shall constitute a quorum for the
transaction of any business at such meeting. When a quorum is
once present to organize a meeting of Stockholders, it is not
broken by the subsequent withdrawal of any Stockholders. The
holders of a majority of the shares.of stock present in person or
represented by proxy at any meeting of Stockholders, including an
adjourned meeting, whether or not a quorum is present, may
adjourn such meeting to another time and place. Shares of its
own stock belonging to the Corporation or to another corporation,
if a majority of the shares entitled to vote in the election of
directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote
<PAGE>
nor be counted for quorum purposes; provided, however, that the
-------- -------
foregoing shall not limit the right of the corporation to vote
stock, including but not limited to its own stock, held by it in
a fiduciary capacity.
2.10 Voting; Proxies. Unless otherwise provided in the
---------------
Certificate of Incorporation, every Stockholder of record shall
be entitled at every meeting of stockholders to one vote for each
share of capital stock standing in his or her name on the record
of Stockholders determined in accordance with Section 2.5 hereof.
If the Certificate of Incorporation provides for more or less
than one vote for any share on any matter, each reference in the
By-Laws or the General Corporation Law to a majority or other
proportion of stock shall refer to such majority or other
proportion of the votes of such stock. The provisions of
Sections 212 and 217 of the General Corporation Law shall apply
in determining whether any shares of capital stock may be voted
and the persons, if any, entitled to vote such shares; but the
Corporation shall be protected in assuming that the persons in
whose names shares of capital stock stand on the stock ledger of
the corporation are entitled to vote such shares. Holders of
redeemable shares of stock are not entitled to vote after the
notice of redemption is mailed to such holders and a sum
sufficient to redeem the stocks has been deposited with a bank,
trust company, or other financial institution under an
irrevocable obligation to pay the holders the redemption price on
surrender of the shares of stock. At any meeting of Stockholders
(at which a quorum was present to organize the meeting), all
matters, except as otherwise provided by statute or by the
Certificate of Incorporation, by these By-Laws or by the
Stockholders Agreement, shall be decided by a majority of the
votes cast at such meeting by the holders of shares present in
<PAGE>
person or represented by proxy and entitled to vote thereon,
whether or not a quorum is present when the vote is taken. All
elections of Directors shall be by written ballot unless
otherwise provided in the Certificate of Incorporation. In
voting on any other question on which a vote by ballot is
required by law or is demanded by any Stockholder entitled to
vote, the voting shall be by ballot. Each ballot shall be signed
by the Stockholder voting or the Stockholder's proxy and shall
state the number of shares voted. on all other questions, the
voting may be Each Stockholder entitled to vote at a meeting of
Stockholders or to express consent or dissent to corporate action
in writing without a meeting may authorize another person or
persons to act for such Stockholder by proxy. The validity and
enforceability of any proxy shall be determined in accordance
with Section 212 of the General Corporation Law. A Stockholder
may revoke any proxy that is not irrevocable by attending the
meeting and voting in person or by filing an instrument in
writing revoking the proxy or by delivering a proxy in accordance
with applicable law bearing a later date to the Secretary.
2.11 Voting Procedures and Inspectors of Election at
------------------------------------------------
Meetings of Stockholders. The Board, in advance of any meeting
------------------------
of stockholders, may appoint one or more inspectors to act at the
meeting and make a written report thereof. The Board may
designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate has
been appointed or is able to act at a meeting, the person
presiding at the meeting may appoint, and on the request of any
Stockholder entitled to vote thereat shall appoint, one or more
inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his or her duties, shall take and
sign an oath faithfully to execute the duties of inspector with
<PAGE>
strict impartiality and according to the best of his or her
ability. The inspectors shall (a) ascertain the number of shares
outstanding and the voting power of each, (b) determine the
shares represented at the meeting and the validity of proxies and
ballots, (c) count all votes and ballots, (d) determine and
retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (e)
certify their determination of the number of shares represented
at the meeting and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to
assist the inspectors in the performance of their duties. Unless
otherwise provided by the Board, the date and time of the opening
and the closing of the polls for each matter upon which the
Stockholders will vote at a meeting shall be determined by the
person presiding at the meeting and shall be announced at the
meeting. No ballot, proxies or votes, or any revocation thereof
or change thereto, shall be accepted by the inspectors after the
closing of the polls unless the Court of Chancery of the State of
Delaware upon application by a Stockholder shall determine
otherwise.
2.12 Organization. At each meeting of Stockholders, the
------------
President, or in the absence of the President, the Chairman, or
if there is no Chairman or if there be one and the Chairman is
absent, a Vice President, and in case more than one Vice
President shall be present, that Vice President designated by the
Board (or in the absence of any such designation, the most senior
Vice President, based on age, present), shall act as chairman of
the meeting. The Secretary, or in his or her absence one of the
Assistant Secretaries, shall act as secretary of the meeting. In
case none of the officers above designated to act as chairman or
secretary of the meeting, respectively, shall be present, a
<PAGE>
chairman or a secretary of the meeting, as the case may be, shall
be chosen by a majority of the votes cast at such meeting by the
holders of shares of capital stock present in person or
represented by proxy and entitled to vote at the meeting.
2.13 Order of Business. The order of business at all
-----------------
meetings of Stockholders shall be as determined by the chairman
of the meeting, but the order of business to be followed at any
meeting at which a quorum is present may be changed by a majority
of the votes cast at such meeting by the holders of shares of
capital stock present in person or represented by proxy and
entitled to vote at the meeting.
2.14 Written Consent of Stockholders Without Meeting.
-----------------------------------------------
Unless otherwise provided in the certificate of Incorporation,
any action required by the General Corporation Law to be taken at
any annual or special meeting of stockholders, or any action
which may be taken at any annual or special meeting, may be taken
without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be
delivered (by hand or by certified or registered mail, return
receipt requested) to the Corporation by delivery to its
registered office in the State of Delaware, its principal place
of business, or-an officer or agent of the corporation having
custody-of the book in which proceedings of meetings of
stockholders are recorded. Ever written consent shall bear the
date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate
action referred to therein unless, within sixty days of-the
<PAGE>
earliest dated consent delivered in the manner required by this
Section 2.14, written consents signed by a sufficient number of
holders to take action are delivered to the Corporation as
aforesaid. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be
given to those Stockholders have not consented in writing.
ARTICLE 3
Directors
---------
3.1 General Powers. Except as otherwise provided in the
--------------
Certificate of incorporation, the business and affairs of the
corporation shall be managed by or under the direction of the
Board. The Board may adopt such rules and regulations, not
inconsistent with the Certificate of Incorporation, these By-
Laws, the Stockholders Agreement or applicable laws, as it may
deem proper for the conduct of its meetings and the management of
the Corporation. In addition to the powers expressly conferred
by these By-Laws, the Board may exercise all powers and perform
all act that are not required, by these By-Laws, the Certificate
of Incorporation, the Stockholders Agreement or by statute, to be
exercised and performed by the Stockholders.
3.2 Number; Qualification; Term of Office. As provided in
-------------------------------------
the Stockholders Agreement, and subject to Section 1.8 thereof,
the Board shall consist of twelve (12) members, or such other
even number of directors (the "Authorized Number") as may be
agreed to by a Supermajority Vote, of whom (i) a number of
Directors equal to fifty percent of the Authorized Number (the
"Class A-1 Authorized Number") shall be designated by the
<PAGE>
Majority Class A-1 Holders (collectively the "Class A-1
Directors"--and each a Class A-1 Directory), (ii) a number of
Directors equal to the Class A-1 Authorized Number minus one
shall be designated by the Majority Class B Holders (collectively
the "Class B Directors" and each a "Class B Director") and one
Director, who shall be the CEO, appointed by a Supermajority Vote
(the management Director"). Directors need not be Stockholders.
Each Director shall hold office until a successor is elected and
qualified or until the Director's death, resignation or removal.
3.3 Directors shall, except as otherwise required by
statute or by the Certificate of Incorporation, be elected in
accordance with Article IV, Section B, Part 5 and Article IV,
Section C, Part 1 of the Certificate of Incorporation at a
meeting of stockholders by the holders of shares entitled to vote
in the election in accordance with the stockholders Agreement.
3.4 Newly Created Directorships and Vacancies. Unless
-----------------------------------------
otherwise provided in the Certificate of incorporation, newly
created Directorships resulting from an increase in the number of
Directors and vacancies occurring in the Board for any other
reason, including the removal of Directors with or without cause,
shall be filled only by the Stockholders in accordance with the
Stockholders Agreement. A Director elected to fill a vacancy
shall be elected to hold office until a successor is elected and
qualified, or until the Director's earlier death, resignation or
removal. if at any time a vacancy is created on the Board by
reason of the death, removal or resignation of any Class A-1
Director, Class B Director or Management Director, each
Stockholder shall, within five days after the date such vacancy
first occurs, take such action as is reasonably necessary,
including the voting of its Shares, to elect a director or
<PAGE>
directors designated in accordance with Section 3.2 hereof to
fill such vacancy or vacancies; provided that during such five-
day period following the creation of the vacancy, the
stockholders and the Board shall not transact any other business
of the Corporation.
3.5 Resignation. Any Director may resign at any tine by
-----------
written notice to the Corporation. Such resignation shall take
effect at the time therein specified, and, unless otherwise
specified in such resignation, the acceptance of such resignation
shall not be necessary to make it effective.
3.6 Removal. Subject to the provisions of Section 141(k)
-------
of the General Corporation Law, any or all of the Directors may
be removed with or without cause by vote of the Stockholders in
accordance with the Stockholders Agreement and the Certificate of
incorporation.
3.7 Compensation. Each Director, in consideration of his
------------
or her service as such, shall be entitled to receive from the
Corporation such amount per annum or such fees for attendance at
Directors, meetings, or both, as the Board may from time to time
determine, together with reimbursement for the reasonable out-of-
pocket expenses, if any, incurred by such Director in connection
with the performance of his or her duties. Each Director who
shall serve as a member of any committee of Directors in
consideration of serving as such shall be entitled to such
additional amount per annum or such fees for attendance at
committee meetings, or both, as the Board may from time to time
determine, together with reimbursement for the reasonable out-of-
pocket expenses, if any, incurred by such Director in the
performance of his or her duties. Nothing contained in this
Section 3.7 shall preclude any Director from serving the
<PAGE>
Corporation or its subsidiaries in any other capacity and
receiving proper compensation therefor.
3.8 Times and Places of Meetings. The Board may hold
----------------------------
meetings, both regular and special, either within or without the
State of Delaware. The times and places for holding meetings of
the Board may be fixed from time to time by resolution of the
Board or (unless contrary to a resolution of the Board) in the
notice of the meeting. Except as otherwise determined by the
Board, all special and regular meetings of the Board shall be
held at the principal offices of the Corporation.
3.9 Annual Meetings. On the day when and at the place
----------------
where the annual meeting of stockholders for the election of
Directors is held, and as soon as practicable thereafter, the
Board may hold its annual meeting, without notice of such
meeting, for the purposes of organization, the election of
officers and the transaction of other business. The annual
meeting of the Board may be hold at any other time and place
specified in a notice given as provided in Section 3.11
hereof for special meetings of the Board or in a waiver of notice
thereof.
3.10 Regular Meetings. Regular meetings of the Board shall
----------------
be held at least quarterly and may be held without notice at such
times and at such places as shall from time to time be determined
by the Board.
3.11 Special Meetings. Special meetings of the Board may
----------------
be called by the CEO, a majority of the class A-1 Directors then
in office or a majority of the class B Directors then in office
on at least three business days' notice to each Director given by
one of the means specified in section 3.14. Special meetings
<PAGE>
shall be called by the Chairman, President or Secretary in like
manner and on like notice on the written request of a majority of
the Class A-1 Directors or a majority of the Class B Directors
then serving.
3.12 Telephone Meetings. Directors or members of any
------------------
committee designated by the Board may participate in a meeting of
the Board or of such committee by means of conference telephone
or similar communications equipment through which all persons
participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 3.12 shall
constitute attendance in person at such meeting. All actions by
the Board shall be reflected in the minutes of such meeting.
3.13 Adjourned Meetings. A majority of the Directors
------------------
present at any meeting of the Board, including an adjourned
meeting, whether or not a quorum is present, may adjourn such
meeting to another time and place. At least one day's notice of
any adjourned meeting of the Board shall be given to each
Director whether or not present at the time of the adjournment,
if such notice shall be given by one of the means specified in
Section 3.14 hereof other than by mail, or at least three days'
notice if by mail. Any business may be transacted at an
adjourned meeting that might have been transacted at the meeting
as originally called.
3.14 Notice Procedure. Subject to Sections 3.11 and 3.17
----------------
hereof, whenever, under the provisions of any statute, the
Certificate of Incorporation or these By-Laws, notice is required
to be given to any Director, such notice shall be in writing and
shall be delivered in person or sent by facsimile, telegram,
telex, by registered or certified mail (postage prepaid, return
receipt requested) or by reputable overnight courier to the
<PAGE>
Director at such Director's address as it appears on the records
of the corporation (and shall be deemed to have been given as of
the date so delivered or sent).
3.15 Waiver of Notice. Whenever the giving of any notice is
----------------
required by statute, the Certificate of Incorporation or these
By-Laws, a waiver thereof, in writing, signed by the person or
persons entitled to said notice, whether before or after the
event as to which such notice is required, shall be deemed
equivalent to notice. Attendance by a person at a meeting shall
constitute a waiver of notice of such meeting except when the
person attends a meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business
on the ground that the meeting has not been lawfully called or
convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Directors or a
committee of Directors need be specified in any written waiver of
notice unless so required by statute, the Certificate of
Incorporation or these By-Laws.
3.16 Organization. At each meeting of the Board, the
------------
Chairman, or in the absence of the Chairman, the President, or in
the absence of the President a chairman chosen by a majority of
the Class A-1 Directors and a majority of the Class B Directors
present, shall preside. The Secretary shall act as secretary at
each meeting of the Board. In case the Secretary shall be absent
from any meeting of the Board, an Assistant Secretary shall
perform the duties of secretary at such meeting; and in the
absence from any such meeting of the Secretary and all Assistant
Secretaries, the person presiding at the meeting may appoint any
person to act as secretary of the meeting.
<PAGE>
3.17 Quorum of Directors. The presence in person of a
-------------------
majority of the Class A-1 Directors and a majority of the Class B
Directors shall be necessary and sufficient to constitute a
quorum for the transaction of business at any meeting of the
Board, but a majority of a smaller number of each of the
Class A-1 Directors and the Class B Directors present may adjourn
any such meeting to a later date.
3.18 Board Action. No action required or permitted to be
------------
taken by the Board at any meeting may be taken by the Board
unless a quorum is present. Except as otherwise expressly
required by statute, the Certificate of Incorporation, the
Stockholders Agreement or these By-Laws, the act of a majority of
the Directors present at a meeting at which a quorum is present
shall be the act of the Board; provided that if the matter being
considered is a Supermajority Matter (as defined in the
Stockholders Agreement), a Supermajority Vote shall be required
for such action. Any such action also may be taken by unanimous
written consent.
3.19 Action Without Meeting. Unless otherwise restricted by
----------------------
the Certificate of Incorporation or these By-Laws, any action
required or permitted to be taken at any meeting of the Board or
of any committee thereof may be taken without a meeting if all
Directors or members of such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
3.20 Board Observers. Each Class A Stockholder that is not
---------------
otherwise directly represented on the Board of Directors by a
Class A Director and (i) in the case of an original Purchaser (as
defined in the stockholders Agreement) which is a bank or an
<PAGE>
Affiliate thereof, that holds at least 50% of the Shares
originally purchased by it, and (ii) in all cases (including the
case of a Class A Stockholder that is an Affiliate of a bank)
that either directly or in the aggregate with its Affiliates
holds at least 5% of the issued and outstanding Shares, shall be
entitled to designate a representative who may attend (but shall
not be entitled to cast any votes and shall not count for quorum
purposes) any meeting of the Board of Directors. The Company
shall use its reasonable efforts to provide such representatives
with notice of any meeting of the Board of Directors and copies
of any materials distributed to the Board of Directors in
connection with any such meeting simultaneously with any such
notice or material being given failure by the Company to give
such notice or to distribute such materials to such
representatives shall not invalidate, delay or otherwise affect
any such meeting or any action taken or resolution adopted
thereat. The reasonable out-of-pocket expenses incurred in
connection with such attendance by such representatives which are
designated by a bank, Aetna (as defined in the Stockholders
Agreement) or an Affiliate thereof shall be paid by the
Corporation.
ARTICLE 4
COMMITTEES OF THE BOARD
-----------------------
The Board may, by resolution passed by a Supermajority Vote,
designate one or more committees, each committee to consist of
one or more of the Directors of the Corporation, and may
designate one or more Directors as alternate members of any such
committee, who may replace any absent or disqualified member at
any meeting of such committee. Any such committee, to the extent
<PAGE>
provided in the resolution of the Board passed as aforesaid,
shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the
corporation, and may authorize the seal of the Corporation to be
impressed on all papers that may require it, but no such
committee shall have the power or authority of the Board in
reference to amending the Certificate of Incorporation, adopting
an agreement of merger or consolidation under section 251 or
section 252 of the General Corporation Law, recommending to the
Stockholders the sale, lease or exchange of all or substantially
all of the Corporation's property and assets, recommending to the
stockholders the dissolution or revocation of the dissolution of
the corporation, or amending the By-Laws of the Corporation; or,
without a Supermajority Vote, acting on any supermajority Matter;
and, unless the resolution designating it expressly so provides,
no such committee shall have the power and authority to declare a
dividend, to authorize the issuance of stock or to adopt a
certificate of ownership and merger pursuant to Section 253 of
the General Corporation Law. Unless otherwise specified in the
resolution of the Board designating a committee or involving a
supermajority Matter, at all meetings of such committee a
majority of the total number of members of the committee shall
constitute a quorum for the transaction of business, and the vote
of a majority of the members of the committee present at any
meeting at which there is a quorum shall be the act of the
committee. No action by any committee of the Board shall be
valid unless (i) taken at a meeting for which notice, sent as
provided in Section 3.14 of these By-Laws, has been duly given
to, or waived by, the members of such committee or (ii) effected
by an action by unanimous written consent signed by each of the
members of such committee. Such notice shall include a
description of the general nature of the business to be
<PAGE>
transacted at the meeting. Each committee shall keep regular
minutes of its meetings. Unless the Board otherwise provides,
each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such
rules each committee shall conduct its business in the same
manner as the Board conducts its business pursuant to Article 3
of these By-Laws.
ARTICLE 5
OFFICERS
--------
5.1 Positions. The officers of the Corporation shall be a
---------
President, a Secretary, a Treasurer and such other officers as
the Board may appoint, including a Chairman, one or more vice
Presidents and one or more Assistant Secretaries and Assistant
Treasurers, who shall exercise such powers and perform such
duties as shall be determined from time to time by the Board.
The Board may designate one or more Vice Presidents as Executive
Vice Presidents and may use descriptive words or phrases to
designate the standing, seniority or areas of special competence
of the Vice Presidents elected or appointed by it. Any number of
offices may be held by the same person unless the Certificate of
Incorporation or these By-Laws otherwise provide.
5.2 Appointment. The officers of the Corporation shall be
-----------
chosen by the Board (and, in the case of an appointment of a
person who would be one of the three most senior executive
officers of the Corporation, by supermajority Vote of the Board)
at its annual meeting or at such other time or times as the Board
shall determine.
<PAGE>
5.3 Compensation. The compensation of all officers of the
------------
Corporation shall be fixed by the Board. No officer shall be
prevented from receiving a salary or other compensation by reason
of the fact that the officer is also a Director.
5.4 Term of Office. Each officer of the Corporation shall
--------------
hold office for the term for which he or she is elected and until
such officer's Successor is elected and qualified or until such
officer's earlier death, resignation or removal. Any officer may
resign at any time upon written notice to the Corporation. Such
resignation shall take effect at the date of receipt of such
notice or at such later time as is therein specified, and, unless
otherwise specified, the acceptance of such resignation shall not
be necessary to make it effective. The resignation of an officer
shall be without prejudice to the contract rights of the
Corporation, if any. Any officer elected or appointed by the
Board may be removed at any time, with or without cause, by vote
of a majority of the entire Board, provided that the removal or
suspension of any person who is one of the three most senior
executive officers of the Corporation shall require a
Supermajority Vote of the Board. Any vacancy occurring in any
office of the Corporation shall be filled by the Board. The
removal of an officer without cause shall be without prejudice to
the officers contract rights, if any. The election or
appointment of an officer shall not of itself create contract
rights.
5.5 Fidelity Bonds. The Corporation may secure the
--------------
fidelity of any or all of its officers or agents by bond or
otherwise.
5.6 Chairman. The Chairman, if one shall have been
--------
appointed, shall preside at all meetings of the Board and shall
exercise such powers and perform such other duties as shall be
determined from time to time by the Board.
<PAGE>
5.7 President. The President shall be the Chief Executive
---------
Officer of the Corporation and shall have general supervision
over the business of the Corporation, subject, however, to the
control of the Board and of any duly authorized committee of
Directors. The President shall preside at all meetings of the
Stockholders and at all meetings of the Board at which the
Chairman (if there be one) is not present. The President may
sign and execute in the name of the Corporation deeds, mortgages,
bonds, contracts and other instruments except in cases in which
the signing and execution thereof shall be expressly delegated by
the Board or by these By-Laws to some other officer or agent of
the corporation or shall be required by statute otherwise to be
signed or executed and, in general, the President shall perform
all duties incident to the office of President of a corporation
and such other duties as may from time to time be assigned to the
President by the Board; provided that any document or instrument
relating to a Supermajority Matter (as defined in the
Stockholders Agreement) must be approved by a Supermajority Vote
of the Board as set forth in the stockholders Agreement prior to
any such signing, execution or performance.
5.8 Vice Presidents. At the request of the President, or,
---------------
in the President's absence, at the request of the Board, the Vice
Presidents shall (in such order as may be designated by the Board
or, in the absence of any such designation, in order of seniority
based on age) perform all of the duties of the President and, in
so performing, shall have all the powers of, and be subject to
all restrictions upon, the President. Any Vice President may
sign and execute in the name of the corporation deeds, mortgages,
bonds, contracts or other instruments, except in cases in which
the signing and execution thereof shall be expressly delegated by
<PAGE>
the Board or by these By-Laws to some other officer or agent of
the Corporation, or shall be required by statute otherwise to be
signed or executed, and each Vice President shall perform such
other duties as from time to time may be assigned to such Vice
President by the Board or by the President; provided that any
document or instrument relating to a Supermajority Matter (as
defined in the Stockholders Agreement) must be approved-by a
supermajority Vote of the Board as set forth in the Stockholders
Agreement prior to any such signing, execution or performance.
5.9 Secretary. The Secretary shall attend all meetings of
---------
the Board and of the Stockholders and shall record all the
proceedings of the meetings of the Board and of the stockholders
in a book to be kept for that purpose, and shall perform like
duties for committees of the Board, when required. The secretary
shall give, or cause to be given, notice of all special meetings
of the Board and of the stockholders and shall perform such other
duties as may be prescribed by the Board or by the President,
under whose supervision the secretary shall be. The Secretary
shall have custody of the corporate seal of the Corporation, and
the Secretary, or an Assistant Secretary, shall have authority to
impress the same on any instrument requiring it, and when so
impressed the seal may be attested by the signature of the
Secretary or by the signature of such Assistant Secretary. The
Board may give general authority to any other officer to impress
the seal of the Corporation and to attest the same by such
officer's signature. The Secretary or an Assistant Secretary may
also attest all instruments signed by the president or any Vice
President. The Secretary shall have charge of all the books,
records and papers of the Corporation relating to its
organization and management, shall see that the reports,
<PAGE>
statements and other documents required by statute are properly
kept and filed and, in general, shall perform all duties incident
to the office of Secretary of a corporation and such other duties
as may from time to time be assigned to the Secretary by the
Board or by the President.
5.10 Treasurer. The Treasurer shall have charge and custody
---------
of, and be responsible for, all funds, securities and notes of
the Corporation; receive and give receipts for moneys due and
payable to the Corporation from any sources whatsoever; deposit
all such moneys and valuable effects in the name and to the
credit of the Corporation in such depositories as may be
designated by the Board; against proper vouchers, cause such
funds to be disbursed by checks or drafts on the authorized
depositories of the Corporation signed in such manner as shall be
determined by the Board and be responsible for the accuracy of
the amounts of all moneys so disbursed; regularly enter or cause
to be entered in books or other records maintained for the
purpose full and adequate account of all moneys received or paid
for the account of the Corporation; have the right to require
from time to time reports or statements giving such information
as the Treasurer may desire with respect to any and all financial
transactions of the Corporation from the officers or agents
transacting the same; render to the President or the Board,
whenever the President or the Board shall require the Treasurer
so to do, an account of the financial condition of the
Corporation and of all financial transactions of the corporation,
exhibit at all reasonable times the records and books of account
to any of the Directors upon application at the office of the
Corporation where such records and books are kept; disburse the
funds of the Corporation as ordered by the Board; and, in
general, perform all duties incident to the office of Treasurer
<PAGE>
of a corporation and such other duties as may from time to time
be assigned to the Treasurer by the Board or the President.
5.11 Assistant Secretaries and Assistant Treasurers.
----------------------------------------------
Assistant Secretaries and Assistant Treasurers shall perform such
duties as shall be assigned to them by the Secretary or by the
Treasurer, respectively, or by the Board or by the President.
ARTICLE 6
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
----------------------------------------------
6.1 Execution of Contracts. The Board, except as otherwise
----------------------
provided in these By-Laws, may prospectively or retroactively
authorize any officer or officers, employee or employees or agent
or agents, in the name and on behalf of the Corporation, to enter
into any contract or execute and deliver any instrument, and any
such authority may be general or confined to specific instances,
or otherwise limited.
6.2 Loans. The Board may prospectively or retroactively
-----
authorize the President or any other officer, employee or agent
of the Corporation to effect loans and advances at any time for
the Corporation from any bank, trust company or other
institution, or from any firm, corporation or individual, and for
such loans and advances the person so authorized may make,
execute and deliver promissory notes, bonds or other certificates
or evidences of indebtedness of the Corporation, and, when
authorized by the Board so to do, may pledge and hypothecate or
transfer any securities or other property of the Corporation as
security for any such loans or advances. Such authority
conferred by the Board may be general or confined to specific
instances, or otherwise limited.
<PAGE>
6.3 Checks, Drafts, Etc. All checks, drafts and other
--------------------
orders for the payment of money out of the funds of the
Corporation and all evidences of indebtedness of the Corporation
shall be signed on behalf of the Corporation in such manner as
shall from time to time be determined by resolution of the Board.
6.4 Deposits. The funds of the Corporation not otherwise
--------
employed shall be deposited from time to time to the order of the
Corporation with such banks, trust companies investment banking
firms, financial institutions or other depositories as the Board
may select or as may be selected by an officer, employee or agent
of the Corporation to whom such power to select may from time to
time be delegated by the Board.
ARTICLE 7
STOCK AND DIVIDENDS
-------------------
7.1 Certificates Representing Shares. The shares of
--------------------------------
capital stock of the Corporation shall be represented by
certificates in such form (consistent with the provisions of
Section 158 of the General Corporation Law) as shall be approved
by the Board. Such certificates shall be signed by the chairman,
the President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer,
and may be impressed with the seal of the Corporation or a
facsimile thereof. The signatures of the officers upon a
certificate may be facsimiles, if the certificate is
countersigned by a transfer agent or registrar other than the
corporation itself or its employee. In case any officer,
transfer agent or registrar who has signed or whose facsimile
signature has been placed upon any certificate shall have ceased
to be such officer, transfer agent or registrar before such
<PAGE>
certificate is issued, such certificate may, unless otherwise
ordered by the Board, be issued by the Corporation with the same
effect as if such person were such officer, transfer agent or
registrar at the date of issue.
7.2 Transfer of Shares. Transfers of shares of capital
------------------
stock of the Corporation shall be made only on the books of the
Corporation by the holder thereof or by the holder's duly
authorized-attorney appointed by a power of attorney duly
executed and filed with the Secretary or a transfer agent of the
Corporation, and on surrender of the certificate or certificates
representing such shares of capital stock properly endorsed for
transfer and upon payment of all necessary transfer taxes. Every
certificate exchanged, returned or surrendered to the corporation
shall be marked "Cancelled," with the date of cancellation, by
the Secretary or an Assistant Secretary or the transfer agent of
the Corporation. A person in whose name shares of capital stock
shall stand on the books of the corporation shall be deemed the
owner thereof to receive dividends, to vote as such owner and for
all other purposes as respects the Corporation. No transfer of
shares of capital stock shall be valid as against the
Corporation, its stockholders and creditors for any purpose,
except to render the transferee liable for the debts of the
Corporation to the extent provided by law, until such transfer
shall have been entered on the books of the Corporation by an
entry showing from and to whom transferred.
7.3 Transfer and Registry Agents. The Corporation may from
----------------------------
time to time maintain one or more transfer offices or agents and
registry offices or agents at such place or places as may be
determined from time to time by the Board.
<PAGE>
7.4 Lost, Destroyed, Stolen and Mutilated Certificates.
--------------------------------------------------
The holder of any shares of capital stock of the Corporation
shall immediately notify the Corporation of any loss,
destruction, theft or mutilation of the certificate representing
such shares, and the Corporation may issue a new certificate to
replace the certificate alleged to have been lost, destroyed,
stolen or mutilated. The Board may, in its discretion, as a
condition to the issue of any such new certificate, require the
owner of the lost, destroyed, stolen or mutilated certificate, or
his or her legal representatives, to make proof satisfactory to
the Board of such loss, destruction, theft or mutilation and to
advertise such fact in such manner as the Board may require, and
to give the corporation and its transfer agents and registrars,
or such of them as the Board may require, a bond in such form, in
such sums and with such surety or sureties as the Board may
direct, to indemnify the Corporation and its transfer agents and
registrars against any claim that may be made against any of them
on account of the continued existence of any such certificate so
alleged to have been lost, destroyed, stolen or mutilated and
against any expense in connection with such claim.
7.5 Rules and Regulations. The Board may make such rules
---------------------
and regulations as it may deem expedient, not inconsistent with
these By-Laws, the Certificate of Incorporation or the
Stockholders Agreement, concerning the issue, transfer and
registration of certificates representing shares of its capital
stock.
7.6 Restriction on Transfer of Stock. A written
--------------------------------
restriction on the transfer or registration of transfer of
capital stock of the Corporation, if permitted by Section 202 of
The General Corporation Law and noted conspicuously on the
certificate representing such capital stock, may be enforced
against the holder of the restricted capital stock or any
<PAGE>
successor or transferee of the holder, including an executor,
administrator, trustee, guardian or other fiduciary entrusted
with like responsibility for the person or estate of the holder.
Unless noted conspicuously on the certificate representing such
capital stock, a restriction, even though permitted by' Section
202 of the General corporation Law, shall be ineffective except
against a person with actual knowledge of the restriction. A
restriction on the transfer or registration of transfer of
capital stock of the corporation may be imposed either by the
Certificate of Incorporation or by an agreement along any n of
stockholders or among such stockholders and the Corporation. No
restriction so imposed shall be binding with respect to capital
stock issued prior to the adoption of the restriction unless the
holders of such capital stock are parties to an agreement or
voted in favor of the restriction. The shares of Class A-1
Common Stock, Class A-2 Common Stock, Class B Common Stock,
Class A-1 Convertible Preferred Stock, Class A-2 Convertible
Preferred Stock and Class B Convertible Preferred Stock, in each
case having a par value of $.01 per share, of the Corporation are
subject to restrictions on their transferability as set forth in
the Stockholders Agreement.
7.7 Dividends Surplus, Etc. Subject to the provisions of
-----------------------
the Certificate of Incorporation, the Stockholders Agreement and
of law, the Board:
7.7.1 may declare and pay dividends or make other
distributions on the outstanding shares of capital stock in such
amounts and at such time or times as it, in its discretion, shall
deem advisable giving due consideration to the condition of the
affairs of the corporation;
<PAGE>
7.7.2 may use and apply, in its discretion, any of the
surplus of the Corporation in purchasing or acquiring any shares
of capital stock of the Corporation, or purchase warrants
therefor, in accordance with law, or any of its bonds,
debentures, notes, scrip or other securities or evidences of
indebtedness; and
7.7.3 may set aside from time to time out of such
surplus or net profits such sum or sums as, in its discretion, it
may think proper, as a reserve fund to meet contingencies, or for
equalizing dividends or for the purpose of maintaining or
increasing the property or business of the Corporation, or for
any purpose it may think conducive to the best interests of the
Corporation.
ARTICLE 8
INDEMNIFICATION
---------------
8.1 Indemnity Undertaking. To the fullest extent permitted
---------------------
by the General Corporation Law of the State Of Delaware
(including, without limitation, Section 102(b)(7)), as amended
from time to time, no Director of this Corporation shall be
liable to this corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Any repeal
or amendment of this Section 8.1 or adoption of any provision of
these By-Laws inconsistent with this Section 8.1 shall have
prospective effect only and shall not adversely affect the
liability of a Director of this Corporation with respect to any
act or omission occurring at or before the time of such repeal,
amendment or adoption of an inconsistent provision. To the
fullest extent permitted by the General Corporation Law, the
Corporation shall indemnify any Director or officer who is or was
<PAGE>
made, or threatened to be made, a party to any threatened,
pending or completed action, suit or proceeding (a "Proceeding"),
whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of
the Corporation to procure a judgment in its favor, by reason of
the fact that such person, or a person of whom such person is the
legal representative, is or was a Director or officer of the
corporation, or is or was serving in any capacity at the request
of the Corporation for any other corporation, any partnership,
joint venture, trust, employee benefit plan or other enterprise
(any "Other Entity"), against liabilities, excise taxes, amounts
losses, judgements, fines, penalties, paid in settlement and
costs, charges and expanses (including attorney fees and
disbursements). Persons who are not directors or officers of the
Corporation may be similarly indemnified in respect of service to
the Corporation or to any Other Entity at the request of the
corporation to the extent the Board at any time specifies that
such persons are entitled to the benefits of this Article 8.
8.2 Advancement of Expenses. The Corporation shall, from
-----------------------
time to time, reimburse or-advance to any Director or officer or
other person entitled to indemnification hereunder the funds
necessary for payment of expenses, including attorneys' fees and
disbursements, incurred in connection with any Proceeding, in
advance of the final disposition of such Proceeding; provided,
however that, if required by the General Corporation Law, such
expenses incurred by or on behalf of any Director or officer or
other person may be paid in advance of the final disposition of a
Proceeding only upon receipt by the Corporation of an undertaking
by or on behalf of such Director or officer (or other person
indemnified hereunder) to repay any such amount so advanced if it
<PAGE>
shall ultimately be determined by final judicial decision from
which there is no further right of appeal that such Director,
officer or other person is not entitled to be indemnified for
such expenses.
8.3 Rights Not Exclusive. The rights to indemnification
--------------------
and reimbursement or advancement of expenses provided by, or
granted pursuant to, this Article 8 shall not be deemed exclusive
of any other rights to which a person seeking indemnification or
reimbursement or advancement of expenses may have or hereafter be
entitled, including without limitation any right arising under
any statute, the Certificate of Incorporation, these By-Laws, any
agreement, any vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and
as to action in another capacity while holding such office.
8.4 Continuation of Benefits. The rights to
------------------------
indemnification and reimbursement or advancement of expenses
provided by, or granted pursuant to, this Article shall continue
as to a person who has ceased to be a Director or officer (or
other person indemnified hereunder) and shall inure to the
benefit of the heirs, executors, administrators, legatees and
distributees of such person.
8.5 Insurance. The Corporation shall have power to
---------
purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a
director, officer, employee or agent of any other Entity, against
any liability asserted against such person and incurred by such
person in any such capacity, or arising out of such person's
status as such, whether or not the corporation would have the
power to indemnify such person against such liability under the
<PAGE>
provisions of this or under Article 8, the Certificate of
Incorporation or under section 145 of the General corporation Law
or any other pro-vision of law.
8.6 Binding Effect. The provisions of this Article 8 shall
--------------
be a contract between the Corporation, on the one hand and each
Director and officer who serves in such capacity at any time
while this Article 8 is in effect, and any other person entitled
to indemnification on the other hand, pursuant to which the
Corporation and each such Director, officer or other person
intend to be and shall be legally bound. No repeal or
modification of this Article 8 shall affect any rights or
obligations with respect to any state of facts then or
theretofore existing, or arising thereafter but before notice of
such repeal or modification is delivered to the persons so
affected or any Proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of
facts. Until notice of such repeal or modification is given to
any person whose rights hereunder are adversely affected, such
repeal or modification shall have no effect on such rights of
such person hereunder.
8.7 Procedural Rights. The rights to indemnification and
-----------------
reimbursement or advancement of expenses provided by, or granted
pursuant to this Article 8 shall be enforceable by any person
entitled to such indemnification or reimbursement or advancement
of expenses in any court of competent jurisdiction. The burden
of proving that such indemnification or reimbursement or
advancement of expenses is not appropriate shall be on the
Corporation. Neither the failure of the Corporation (including
its disinterested Directors, its independent legal counsel and
its stockholders) to have made a determination prior to the
<PAGE>
commencement of such action that such indemnification or
reimbursement or advancement of expenses is proper in the
circumstances nor an actual determination by the Corporation
(including its disinterested Directors, its independent legal
counsel and its stockholders) that such person is not entitled to
such indemnification or reimbursement or advancement of expenses
shall constitute a defense to the action or create a presumption
that such person is not so entitled. Such a person shall also be
indemnified for any expenses incurred in connection with
successfully establishing his or her right to such
indemnification or reimbursement or advancement of expenses, in
whole or in part, in any such proceeding.
8.8 Service Deemed at Corporation's Request. Any Director
---------------------------------------
or officer of the Corporation serving in any capacity (a) another
corporation of which a majority of the shares entitled to vote in
the election of its directors is held, directly or indirectly, by
the Corporation or (b) any employee benefit plan of the
Corporation or any corporation referred to in clause (a) shall be
deemed to be doing so at the request of the Corporation.
ARTICLE 9
BOOKS AND RECORDS
-----------------
9.1 Books and Records. There shall be kept at the
-----------------
principal office of the Corporation correct and complete records
and books of account recording the financial transactions of the
Corporation and minutes of the proceedings of the stockholders,
the Board and any committee of the Board. The Corporation shall
keep at its principal office, or at the office of the transfer
agent or registrar of the Corporation, a record containing the
<PAGE>
names and addresses of all stockholders, the number and class of
shares held by each and the dates when they respectively became
the owners of record thereof.
9.2 Form of Records. Any records maintained by the
---------------
Corporation in the regular course of its business, including its
stock ledger, books of account, and minute books, may be kept on,
or be in the form of, punch cards, magnetic tape, photographs,
microphotographs, or any other information storage device,
provided that the records so kept can be converted into clearly
legible written form within a reasonable time. The Corporation
shall so convert any records so kept upon the request of any
person entitled to inspect the same.
9.3 Inspection of Book and Records. Except as otherwise
------------------------------
provided by law and in the Stockholders Agreement, the Board
shall determine from time to time whether, and, if allowed, when
and under what conditions and regulations, the accounts, books,
minutes and other records of the Corporation, or any of them,
shall be open to the stockholders for inspection.
ARTICLE 10
SEAL
----
The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization and the words
"Corporate Seal, Delaware." The seal may be used by causing it
or a facsimile thereof to be impressed or affixed or otherwise
reproduced.
<PAGE>
ARTICLE 11
FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed, and may
be changed, by resolution of the Board.
ARTICLE 12
PROXIES AND CONSENTS
--------------------
Unless otherwise directed by the Board, the Chairman, the
President, any Vice President, the Secretary or the Treasurer, or
any one of them, may execute and deliver on behalf of the
corporation proxies respecting any and all shares or other
ownership interests of any Other Entity owned by the Corporation
appointing such person or persons as the officer executing the
same shall deem proper to represent and vote the shares or other
ownership interests so owned at any and all meetings of holders
of shares or other ownership interests, whether general or
special, and/or to execute and deliver consents respecting such
shares or other ownership interests; or any of the aforesaid
officers may attend any meeting of the holders of shares or other
ownership interests of such Other Entity and thereat vote or
exercise any or all other powers of the Corporation as the holder
of such shares or other ownership interests.
<PAGE>
ARTICLE 13
AMENDMENTS
----------
These By-Laws may be amended or repealed and new By-Laws may
be adopted by a vote of the Majority A-1 Holders and the Majority
B Holders or by the Board in accordance with the stockholders
Agreement. Any By-Laws adopted or amended by the Board may be
amended or repealed by a vote of the majority A-1 Holders and the
Majority B Holders.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-END> JAN-03-1999
<CASH> 46,112,000
<SECURITIES> 183,342,000
<RECEIVABLES> 10,399,000
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<INVENTORY> 13,685,000
<CURRENT-ASSETS> 259,519,000
<PP&E> 928,420,000
<DEPRECIATION> 35,507,000
<TOTAL-ASSETS> 2,377,003,000
<CURRENT-LIABILITIES> 269,970,000
<BONDS> 900,474,000
0
0
<COMMON> 0
<OTHER-SE> 1,060,280,000
<TOTAL-LIABILITY-AND-EQUITY> 2,377,003,000
<SALES> 521,131,000
<TOTAL-REVENUES> 521,131,000
<CGS> 72,400,000
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<OTHER-EXPENSES> 318,582,000
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<INTEREST-EXPENSE> 81,166,000
<INCOME-PRETAX> (80,466,000)
<INCOME-TAX> 34,513,000
<INCOME-CONTINUING> (114,979,000)
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