<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
--------- -----
COMMISSION FILE NUMBER: 333-46897-01
-----------
SIX FLAGS OPERATIONS INC.
(formerly Premier Parks Operations Inc.)
(Exact name of Registrant as specified in its charter)
DELAWARE 73-6137714
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11501 NORTHEAST EXPRESSWAY, OKLAHOMA CITY, OKLAHOMA 73131
(Address of principal executive offices, including zip code)
(405) 475-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
At November 1, 2000, Six Flags Operations Inc. had outstanding 1,000
shares of Common Stock, par value $.05 per share.
This Registrant meets with the conditions set forth in General
Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with
the reduced disclosure format.
===============================================================================
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
SIX FLAGS OPERATIONS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 58,799,000 $ 118,011,000
Accounts receivable.............................................. 77,315,000 26,728,000
Inventories...................................................... 31,904,000 23,590,000
Prepaid expenses and other current assets........................ 20,574,000 13,391,000
---------------------- ----------------------
Total current assets.......................................... 188,592,000 181,720,000
Other assets:
Debt issuance costs.............................................. 23,822,000 27,388,000
Deposits and other assets........................................ 59,776,000 64,416,000
---------------------- ----------------------
Total other assets............................................ 83,598,000 91,804,000
Property and equipment, at cost..................................... 2,518,406,000 2,259,195,000
Less accumulated depreciation.................................... 295,825,000 207,040,000
---------------------- ----------------------
Total property and equipment.................................. 2,222,581,000 2,052,155,000
Investment in theme parks .......................................... 98,934,000 92,332,000
Intangible assets, principally goodwill............................. 1,345,897,000 1,346,102,000
Less accumulated amortization.................................... 133,585,000 92,997,000
---------------------- ----------------------
1,212,312,000 1,253,105,000
---------------------- ----------------------
Total assets.................................................. $ 3,806,017,000 $ 3,671,116,000
====================== ======================
</TABLE>
See accompanying notes to consolidated financial statements
-2-
<PAGE>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS OPERATIONS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable....................................................... $ 72,219,000 $ 36,572,000
Accrued liabilities.................................................... 51,812,000 73,350,000
Accrued interest payable............................................... 16,419,000 15,387,000
Deferred income........................................................ 16,413,000 6,037,000
Due to affiliate ...................................................... 98,787,000 100,291,000
Current maturities of long-term debt................................... 969,000 2,055,000
----------------------- ---------------------
Total current liabilities........................................... 256,619,000 233,692,000
Long-term debt ........................................................... 1,192,797,000 1,195,184,000
Other long-term liabilities and minority interest......................... 35,256,000 41,760,000
Deferred income taxes..................................................... 225,661,000 158,650,000
----------------------- ---------------------
Total liabilities................................................... 1,710,333,000 1,629,286,000
----------------------- ---------------------
Stockholder's equity:
Common stock of $.05 par value, 1,000 shares
authorized, issued and outstanding at
September 30, 2000 and December 31, 1999........................... -- --
Capital in excess of par value......................................... 2,010,792,000 2,012,506,000
Retained earnings ..................................................... 136,930,000 47,047,000
Accumulated other comprehensive income (loss)
-foreign currency translation adjustments........................... (52,038,000) (17,723,000)
----------------------- ---------------------
Total stockholder's equity.......................................... 2,095,684,000 2,041,830,000
----------------------- ---------------------
Total liabilities and stockholder's equity.......................... $ 3,806,017,000 $ 3,671,116,000
======================= =====================
</TABLE>
See accompanying notes to consolidated financial statements
-3-
<PAGE>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS OPERATIONS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Revenue:
Theme park admissions.......................................... $ 296,411,000 $ 271,507,000
Theme park food, merchandise and other......................... 251,028,000 223,897,000
-------------------- --------------------
Total revenue............................................. 547,439,000 495,404,000
-------------------- --------------------
Operating costs and expenses:
Operating expenses............................................. 137,154,000 132,908,000
Selling, general and administrative............................ 45,660,000 37,759,000
Costs of products sold......................................... 51,829,000 47,636,000
Depreciation and amortization.................................. 45,880,000 39,620,000
-------------------- --------------------
Total operating costs and expenses........................ 280,523,000 257,923,000
-------------------- --------------------
Income from operations.................................... 266,916,000 237,481,000
-------------------- --------------------
Other income (expense):
Interest expense............................................... (33,159,000) (23,551,000)
Interest income................................................ 991,000 3,926,000
Equity in operations of theme parks............................ 6,399,000 7,151,000
Other income (expense), including minority interest............ (629,000) 429,000
-------------------- --------------------
Total other income (expense).............................. (26,398,000) (12,045,000)
-------------------- --------------------
Income before income taxes................................ 240,518,000 225,436,000
Income tax expense................................................ 93,210,000 91,379,000
-------------------- --------------------
Net income ............................................... $ 147,308,000 $ 134,057,000
==================== ====================
</TABLE>
See accompanying notes to consolidated financial statements
-4-
<PAGE>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS OPERATIONS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Revenue:
Theme park admissions................................................... $ 497,286,000 $ 459,735,000
Theme park food, merchandise and other.................................. 422,125,000 388,391,000
------------------- -------------------
Total revenue...................................................... 919,411,000 848,126,000
------------------- -------------------
Operating costs and expenses:
Operating expenses...................................................... 314,222,000 290,431,000
Selling, general and administrative..................................... 139,007,000 125,811,000
Costs of products sold.................................................. 86,652,000 81,907,000
Depreciation and amortization........................................... 131,565,000 113,170,000
------------------- -------------------
Total operating costs and expenses................................. 671,446,000 611,319,000
------------------- -------------------
Income from operations............................................. 247,965,000 236,807,000
------------------- -------------------
Other income (expense):
Interest expense........................................................ (98,332,000) (89,063,000)
Interest income......................................................... 2,233,000 9,510,000
Equity in operations of theme parks .................................... 5,341,000 5,838,000
Other income (expense), including minority interest..................... (494,000) 231,000
------------------- -------------------
Total other income (expense)....................................... (91,252,000) (73,484,000)
------------------- -------------------
Income before income taxes......................................... 156,713,000 163,323,000
Income tax expense ........................................................ 66,830,000 76,018,000
------------------- -------------------
Income before extraordinary loss................................... 89,883,000 87,305,000
Extraordinary loss on extinguishment of debt, net of
income tax benefit of $4,104,000 in 1999............................. -- (6,158,000)
------------------- -------------------
Net income ........................................................ $ 89,883,000 $ 81,147,000
=================== ===================
</TABLE>
See accompanying notes to consolidated financial statements
-5-
<PAGE>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS OPERATIONS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------ ----------------------------------
2000 1999 2000 1999
----------------- ---------------- ----------------- -------------
<S> <C> <C> <C> <C>
Net income ...................................... $ 147,308,000 $ 134,057,000 $ 89,883,000 $ 81,147,000
Other comprehensive income (loss) --
Foreign currency translation adjustment....... (17,650,000) 5,622,000 (34,315,000) (13,175,000)
----------------- ---------------- ----------------- -------------
Comprehensive income ............................ $ 129,658,000 $ 139,679,000 $ 55,568,000 $ 67,972,000
================= ================ ================= =============
</TABLE>
See accompanying notes to consolidated financial statements
-6-
<PAGE>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS OPERATIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net income.............................................................. $ 89,883,000 $ 81,147,000
Adjustments to reconcile net loss to net cash
Provided by operating activities:
Depreciation and amortization........................................ 131,565,000 113,170,000
Equity in operations of theme parks, net of cash received............ 9,378,000 (5,838,000)
Minority interest in loss ........................................... 132,000 (231,000)
Extraordinary loss on early extinguishment of debt................... -- 10,261,000
Interest accretion on notes payable ................................. -- 2,900,000
Interest accretion on restricted-use investments .................... -- (7,609,000)
Amortization of debt issuance costs.................................. 3,566,000 2,770,000
Deferred income taxes................................................ 67,011,000 63,447,000
Increase in accounts receivable...................................... (46,777,000) (40,828,000)
Increase in inventories and prepaid expenses ........................ (15,497,000) (10,970,000)
Decrease in deposits and other assets................................ 4,640,000 758,000
Increase in accounts payable and accrued expenses.................... 19,659,000 15,255,000
Increase (decrease) in accrued interest payable...................... 1,032,000 (13,465,000)
-------------------- --------------------
Total adjustments.................................................... 174,709,000 129,620,000
-------------------- --------------------
Net cash provided by operating activities................... 264,592,000 210,767,000
-------------------- --------------------
Cash flow from investing activities:
Additions to property and equipment..................................... (300,845,000) (347,116,000)
Investment in theme parks .............................................. (15,980,000) (25,039,000)
Acquisition of theme park companies, net of cash acquired............... -- (77,637,000)
-------------------- --------------------
Net cash used in investing activities....................... (316,825,000) (449,792,000)
-------------------- --------------------
Cash flow from financing activities:
Repayment of long-term debt............................................. (306,473,000) (497,093,000)
Proceeds from borrowings................................................ 303,000,000 70,000,000
Payment of debt issuance costs.......................................... -- (169,000)
Increase (decrease) in payable to parent company........................ (1,504,000) 739,121,000
Capital contributions (returned) received............................... 286,000 (168,000)
-------------------- --------------------
Net cash provided by (used in) financing activities......... (4,691,000) 311,691,000
Effect of exchange rate changes on cash ............................. (2,288,000) (1,706,000)
-------------------- --------------------
Increase (decrease) in cash and cash equivalents..................... (59,212,000) 70,960,000
Cash and cash equivalents at beginning of period........................... 118,011,000 80,167,000
==================== ====================
Cash and cash equivalents at end of period................................. $ 58,799,000 $ 151,127,000
-------------------- --------------------
Supplementary cash flow information:
Cash paid for interest.................................................. $ 93,880,000 $ 98,264,000
==================== ====================
</TABLE>
See accompanying notes to consolidated financial statements
-7-
<PAGE>
SIX FLAGS OPERATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL -- BASIS OF PRESENTATION
Six Flags Operations Inc. owns and operates regional theme amusement
and water parks. As of September 30, 2000, the Company and its subsidiaries own
or operate 33 parks, including 25 domestic parks, one park in Mexico and seven
parks in Europe. The Company is also managing the construction and development
of a theme park in Europe.
On March 24, 1998, the company then known as Premier Parks Inc.
("Premier Operations") merged (the "1998 Merger") with an indirect wholly owned
subsidiary thereof, pursuant to which Premier Operations became a wholly owned
subsidiary of Premier Parks Holdings Corporation ("Holdings") and the holders of
shares of common stock of Premier Operations became, on a share-for-share basis,
holders of common stock of Holdings. On the 1998 Merger date, Premier
Operations' name was changed to Premier Parks Operations Inc., and Holdings'
name was changed to Premier Parks Inc.
On April 1, 1998, Holdings purchased all of the outstanding capital
stock of Six Flags Entertainment Corporation ("SFEC" and, together with its
subsidiaries "Six Flags"). On November 5, 1999, SFEC and Premier Operations
consummated a merger (the "1999 Merger"), in which Premier Operations was the
surviving corporation. On June 30, 2000, Premier Parks Inc. changed its name to
Six Flags, Inc. and Premier Parks Operations Inc. changed its name to Six Flags
Operations Inc. References herein to the "Company," or "SF Operations" mean for
all periods or dates, Six Flags Operations Inc. and its consolidated
subsidiaries. As used herein, Holdings refers only to Six Flags, Inc., without
regard to its subsidiaries.
The 1999 Merger was accounted for as a reorganization of interests
under common control in a manner similar to a pooling of interests. The effect
of the 1999 Merger was to reflect the assets and liabilities of Six Flags as if
contributed to SF Operations by Holdings on April 1, 1998, the SFEC purchase
date. Accordingly, the financial statements for the three months and nine months
ended September 30, 1999 include the results of SFEC and the results of SF
Operations for each period.
In connection with the 1998 Merger, SF Operations and Holdings entered
into a shared services agreement pursuant to which certain corporate,
administrative and other general services provided by Holdings are charged to SF
Operations, 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.
During May 1999, in separate transactions, the Company purchased 100%
of the capital stock of the companies that owned Reino Aventura, a theme park
located in Mexico City, and purchased the assets used in the operation of
Splashtown, a water park near Houston. On November 15, 1999, the Company
purchased Warner Bros. Movie World Germany, near Dusseldorf, Germany, and
entered into a joint venture with Warner Bros. to develop and manage a new
Warner Bros. Movie World theme park scheduled to open in Madrid, Spain in 2002.
(See Note 2.)
The accompanying consolidated financial statements for the three months
and nine months ended September 30, 1999 include the results of the parks
acquired in May 1999 only from the respective dates of their acquisition and do
not include the results of Movie World Germany which was acquired in November
1999. (See Note 2.)
-8-
<PAGE>
SIX FLAGS OPERATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Management's Discussion and Analysis of Financial Condition and Results
of Operations which follows these notes contains additional information on the
results of operations and the financial position of the Company. Those comments
should be read in conjunction with these notes. The Company's annual report on
Form 10-K for the year ended December 31, 1999 includes additional information
about the Company, its operations and its financial position, and should be
referred to in conjunction with this quarterly report on Form 10-Q. The
information furnished in this report reflects all adjustments (all of which are
normal and recurring) which are, in the opinion of management, necessary to
present a fair statement of the results for the periods presented.
Results of operations for the three-month and nine-month periods ended
September 30, 2000 are not indicative of the results expected for the full year.
In particular, the Company's theme park operations contribute most of their
annual revenue during the period from Memorial Day to Labor Day each year.
START-UP COSTS
As of January 1, 1999, the Company adopted the provisions of AICPA
Statement of Position No. 98-5, "Accounting for Start-Up Activities." Generally,
the statement requires the write-off of previously capitalized start-up costs
and precludes the future capitalization of these types of costs. Start-up costs
include pre-opening costs and professional fees and other costs associated with
incorporating or otherwise starting a business. The effect of the adoption of
the provisions of the statement was not material to the financial position,
operations or cash flow of the Company and is included in depreciation and
amortization.
REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB No. 101 was
amended to delay the effective date until periods beginning after October 1,
2000. The Company has elected to adopt the provisions of SAB 101 as of January
1, 2000. The provisions of SAB No. 101 do not have an impact on the accounting
policies that the Company utilizes to prepare its annual financial statements
and therefore, the adoption did not have an impact on the Company's annual
financial statements. However, the provisions of SAB No. 101 did change the
accounting policies that the Company uses to recognize revenue from
multi-admission tickets and season passes during the year. The Company's
accounting policy as of January 1, 2000 recognizes the revenue for
multi-admission tickets and season passes over the operating season rather than
upon receipt.
-9-
<PAGE>
SIX FLAGS OPERATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provisions of SAB No. 101 allow companies to either restate results
or account for the change as a cumulative effect. The Company has elected to
restate its 1999 interim results of operations. The following sets forth the
results for the three months and nine months ended September 30, 1999 as
originally reported and as so restated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1999 1999
------------------------------------ -----------------------------------
(IN THOUSANDS)
AS ORIGINALLY AS ORIGINALLY
REPORTED: AS RESTATED: REPORTED: AS RESTATED:
--------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues......................... 471,728 495,404 858,892 $ 848,126
Net income ..................... 103,920 134,057 87,822 81,147
</TABLE>
2. ACQUISITION OF THEME PARKS
On May 4, 1999, the Company acquired all of the capital stock of the
companies that own and operate Reino Aventura (subsequently renamed Six Flags
Mexico), a theme park located in Mexico City, for a cash purchase price of
approximately $59,600,000. The Company funded the acquisition from existing
cash. Approximately $14,575,000 of costs in excess of the fair value of the net
assets acquired were recorded as goodwill. The transaction was accounted for as
a purchase.
On May 13, 1999, the Company acquired the assets of Splashtown water
park located in Houston, Texas for a cash purchase price of approximately
$20,400,000. The Company funded the acquisition from existing cash.
Approximately $10,530,000 of costs in excess of the fair value of the net assets
acquired were recorded as goodwill. The transaction was accounted for as a
purchase.
On November 15, 1999, the Company purchased the partnership that owns
Warner Bros. Movie World Germany, near Dusseldorf, Germany, and entered into a
joint venture with Warner Bros. to design, develop and manage a new Warner Bros.
Movie World theme park scheduled to open in Madrid, Spain in 2002. At the same
time, the Company entered into a long-term license agreement for exclusive theme
park usage in Europe, Mexico, South America and Central America of the Looney
Tunes, Hanna-Barbera, Cartoon Network and D.C. Comics characters. The aggregate
cost of the transactions was $180,269,000, which was funded by borrowings under
the Company's 1999 credit facility (the "Credit Facility"). See Note 3(c).
Approximately $42,800,000 of the aggregate costs were allocated to goodwill and
intangible assets. The transaction was accounted for as a purchase.
In June 2000, the Company acquired the remaining minority interest in
Walibi, S.A. held by third parties for an aggregate cost of approximately
$1,023,000. The purchase price was allocated primarily to goodwill.
3. LONG-TERM INDEBTEDNESS
(a) On January 31, 1997, SF Operations issued $125,000,000 of senior
notes due January 2007 (the "1997 Notes"). The 1997 Notes are senior unsecured
obligations of SF Operations. The 1997 Notes require annual interest payments of
approximately $12.2 million (9 3/4% per annum) and, except in the event of a
change of control of SF Operations and certain other circumstances, do not
-10-
<PAGE>
SIX FLAGS OPERATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
require any principal payments prior to their maturity in 2007. The 1997 Notes
are redeemable, at SF Operations' option, in whole or in part, at any time on or
after January 15, 2002, at varying redemption prices. The 1997 Notes are
guaranteed on a senior, unsecured, joint and several basis by all of SF
Operations' principal domestic subsidiaries.
The indenture limits the ability of SF Operations and its subsidiaries
to dispose of assets; incur additional indebtedness or liens; pay dividends;
engage in mergers or consolidations; and engage in certain transactions with
affiliates.
All obligations under the 1997 Notes and the related indenture remained
as obligations of SF Operations and were not assumed by Holdings after the 1998
Merger.
(b) On April 1, 1998, SFEC, which was subsequently merged into SF
Operations, issued $170,000,000 principal amount of 8 7/8% Senior Notes (the
"SFEC Notes"). The SFEC Notes are guaranteed on a fully subordinated basis by
Holdings. The SFEC Notes require annual interest payments of approximately
$15,100,000 (8 7/8% per annum) and, except in the event of a change of control
of SF Operations and certain other circumstances, do not require any principal
payments prior to their maturity in 2006. The SFEC Notes are redeemable, at the
Company's option, in whole or in part, at any time on or after April 1, 2002, at
varying redemption prices. The net proceeds of the SFEC Notes, together with
other funds, were invested in restricted-use securities, which were used to
repay in full on December 15, 1999 pre-existing notes of SFEC in a principal
amount of $192,250,000 at that time.
The indenture under which the SFEC Notes were issued limits the ability
of SF Operations and its subsidiaries to dispose of assets; incur additional
indebtedness or liens; pay dividends; engage in mergers or consolidations; and
engage in certain transactions with affiliates.
(c) On November 5, 1999, Six Flags Theme Parks Inc., a wholly-owned
subsidiary of the Company ("SFTP"), entered into the Credit Facility and, in
connection therewith, SFEC merged into SF Operations and SFTP became a
subsidiary of SF Operations. The Credit Facility includes a $300,000,000
five-year revolving credit facility (none of which was outstanding at September
30, 2000), a $300,000,000 five-and-one-half-year multicurrency reducing revolver
facility (of which $291,000,000 was outstanding at September 30, 2000) and a
$600,000,000 six-year term loan (all of which was outstanding at September 30,
2000). Borrowings under the five-year revolving credit facility must be repaid
in full for thirty consecutive days each year. The interest rate on borrowings
under the Credit Facility can be fixed for periods ranging from one to nine
months. At the Company's option the interest rate is based upon specified levels
in excess of the applicable base rate or LIBOR. In February 2000, the Company
entered into interest rate swap agreements that effectively convert the term
loan component of the Credit Facility into a fixed rate obligation through the
term of the swap agreements, ranging from December 2001 to March 2002. Giving
effect to such agreements, the effective rate on the term loan borrowings at
September 30, 2000 was 9.94%.
The multicurrency facility, which permits optional prepayments and
reborrowings, requires quarterly mandatory repayments of 2.5% of the committed
amount thereof commencing on December 31, 2001, 5.0% commencing on December 31,
2002, 7.5% commencing on December 31, 2003 and 20.0% commencing on December 31,
2004. The term loan facility requires quarterly repayments of 0.25% of the
committed amount thereof commencing on December 31, 2001 and 24.25% commencing
on December 31, 2004. A commitment fee of .50% of the unused credit of the
facility is due quarterly in arrears. The principal borrower under the facility
is SFTP, and borrowings under the Credit Facility are guaranteed by Holdings, SF
Operations and all of SF Operations' domestic subsidiaries and are secured by
substantially all of SF Operations' domestic assets.
-11-
<PAGE>
SIX FLAGS OPERATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Credit Facility contains restrictive covenants that, among other
things, limit the ability of SF Operations and its subsidiaries to dispose of
assets; incur additional indebtedness or liens; repurchase stock; make
investments; engage in mergers or consolidations; pay dividends, except that
(subject to covenant compliance) dividends will be permitted to allow Holdings
to meet cash interest obligations with respect to its Senior Notes, cash
dividend payments on its Premium Income Equity Securities and its obligations to
the limited partners in the partnerships that own the Six Flags Over Texas and
Six Flags Over Georgia theme parks; and engage in certain transactions with
subsidiaries and affiliates. In addition, the Credit Facility requires that SF
Operations comply with certain specified financial ratios and tests.
On November 5, 1999, the Company borrowed $892,000,000 under the Credit
Facility principally to repay all amounts outstanding under the Company's then
existing credit facilities and to provide funds to consummate the November 1999
transactions with Warner Bros. described in Note 2.
4. COMMITMENTS AND CONTINGENCIES
In December 1998, a final judgment of $197,300,000 in compensatory
damages was entered against SFEC, SFTP, Six Flags Over Georgia, Inc. and Time
Warner Entertainment Company, L.P. (TWE), and a final judgment of $245,000,000
in punitive damages was entered against TWE and $12,000,000 in punitive damages
was entered against the Six Flags entities. In July 2000 the judgments were
upheld by the Georgia Court of Appeals. TWE has indicated that it intends to
appeal the judgments to the Georgia Supreme Court. The judgments arose out of a
case entitled SIX FLAGS OVER GEORGIA, LLC ET AL V. TIME WARNER ENTERTAINMENT
COMPANY, LP ET AL based on certain disputed partnership affairs prior to
Holdings' acquisition of Six Flags at Six Flags Over Georgia, including alleged
breaches of fiduciary duty. The sellers in the Six Flags acquisition, including
Time Warner, Inc., have agreed to indemnify the Company from any and all
liabilities arising out of this litigation.
The Company is party to various legal actions arising in the normal
course of business. Matters that are probable of unfavorable outcome to the
Company and which can be reasonably estimated are accrued. Such accruals are
based on information known about the matters, the Company's estimates of the
outcomes of such matters and its experience in contesting, litigating and
settling similar matters. None of the actions are believed by management to
involve amounts that would be material to consolidated financial position,
operations, or liquidity after consideration of recorded accruals.
5. INVESTMENT IN THEME PARKS
The following reflects the summarized results of Six Flags Marine
World, which is managed by the Company for the three and nine month periods
ended September 30, 2000 (in thousands):
-12-
<PAGE>
SIX FLAGS OPERATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
2000 1999 2000 1999
-------------- ------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues ........................................ $ 28,262 $ 28,093 $ 52,984 $ 50,026
Expenses.........................................
Operating expenses.......................... 6,489 7,518 19,431 20,048
Selling, general and administrative......... 2,827 1,753 11,523 10,036
Cost of products sold....................... 2,513 3,041 4,850 5,503
Depreciation and amortization............... 1,212 1,256 4,526 4,629
Interest expense, net....................... 854 1,086 3,229 4,145
Other expense............................... 125 242 458 458
-------------- ------------- -------------- --------------
Total expense............................ 14,020 14,896 44,017 44,819
============== ============= ============== ==============
Net Income....................................... $ 14,242 $ 13,197 $ 8,967 $ 5,207
============== ============= ============== ==============
</TABLE>
The Company's share of income from operations of Six Flags Marine World
for the three and nine months ended September 30, 2000 was $8.3 million and $9.3
million, respectively, prior to depreciation and amortization charges of $1.9
million and $4.0 million respectively.
The Company's share of income from operations of Six Flags Marine World
for the three and nine months ended September 30, 1999 was $8.2 million and $8.1
million, respectively, prior to depreciation and amortization charges of $1.0
million and $2.3 million respectively.
6. BUSINESS SEGMENTS
The Company manages its operations on an individual park location
basis. Discrete financial information is maintained for each park and provided
to the Company's management for review and as a basis for decision making. The
primary performance measure used to allocate resources is earnings before
interest, tax expense, depreciation and amortization ("EBITDA"). All of the
Company's parks provide similar products and services through a similar process
to the same class of customer through a consistent method. As such, the Company
has only one reportable segment--operation of theme parks. The following tables
present segment financial information, a reconciliation of the primary segment
performance measure to income before income taxes and a reconciliation of theme
park revenues to consolidated total revenues. Park level expenses exclude all
noncash operating expenses, principally depreciation and amortization, and all
non-operating expenses.
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<PAGE>
SIX FLAGS OPERATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- -------------------------------
2000 1999 2000 1999
--------------- --------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Theme park revenue............................... $ 575,701 $ 525,791 $ 972,395 $ 898,152
Theme park cash expenses......................... 242,286 226,542 563,772 520,611
--------------- --------------- -------------- --------------
Aggregate park EBITDA............................ 333,415 299,249 408,673 377,541
Third-party share of EBITDA from parks
accounted for under the equity method......... (7,013) (6,089) (7,979) (7,431)
Amortization of investment in theme park
Partnerships.................................. (1,953) (1,025) (4,003) (2,338)
Unallocated net expenses, including corporate
and other expenses............................ (5,883) (7,454) (12,314) (11,726)
Depreciation and amortization.................... (45,880) (39,620) (131,565) (113,170)
Interest expense................................. (33,159) (23,551) (98,332) (89,063)
Interest income.................................. 991 3,926 2,233 9,510
--------------- --------------- -------------- --------------
Income before income taxes....................... $ 240,518 $ 225,436 $ 156,713 $ 163,323
=============== =============== ============== ==============
Theme park revenue............................... $ 575,701 $ 525,791 $ 972,395 $ 898,152
Theme park revenue from parks accounted
for under the equity method................... (28,262) (30,387) (52,984) (50,026)
=============== =============== ============== ==============
Consolidated total revenue....................... $ 547,439 $ 495,404 $ 919,411 $ 848,126
=============== =============== ============== ==============
</TABLE>
Seven of the Company's parks are located in Europe and one is located in
Mexico. The Mexico park was acquired in May 1999 and one of the European parks
was acquired in November 1999. The following information reflects the Company's
long-lived assets and revenue by domestic and foreign categories as of and for
the nine months ended September 30, 2000 and 1999, respectively:
<TABLE>
<CAPTION>
2000: (In thousands)
---- Domestic International Total
-------- ------------- -----
<S> <C> <C> <C>
Long-lived assets.................................. $ 3,045,613 $ 488,214 $ 3,533,827
Revenue............................................ 772,363 147,048 919,411
<CAPTION>
1999: (In thousands)
---- Domestic International Total
-------- ------------- -----
<S> <C> <C> <C>
Long-lived assets.................................. $ 3,147,079 $ 250,513 $ 3,397,592
Revenue............................................ 760,698 87,428 848,126
</TABLE>
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<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
Results of operations for the three-month and nine-month periods ended
September 30, 2000 are not indicative of the results expected for the full year.
In particular, the Company's theme park operations contribute most of their
annual revenue during the period from Memorial Day to Labor Day each year.
Results of operations for the three months and nine months ended
September 30, 2000 include the results of the three parks acquired in 1999.
Results for the three months and nine months ended September 30, 1999 include
the results of two of the acquired parks from their respective dates of
acquisition in May 1999 and do not include the results of the Movie World
Germany park acquired in November 1999.
THREE MONTHS ENDED SEPTEMBER 30, 2000 VS. THREE MONTHS ENDED SEPTEMBER
30, 1999
Revenue in the third quarter of 2000 totaled $547.4 million
compared to $495.4 million for the third quarter of 1999, representing a 10.5%
increase. The increase was primarily attributable to a 5.2% increase in
attendance in the 2000 quarter (including significant increases at the four
rebranded parks), increased per capita spending in that quarter and the
inclusion in 2000 of the results of Movie World Germany. Reported revenues from
the Company's European parks as translated into U.S. dollars were adversely
impacted by a relative decline in European currencies during the 2000 quarter.
Revenue growth in the 2000 quarter would have been approximately $13.0 million
higher had European currency exchange rates remained at 1999 levels.
Operating expenses for the third quarter of 2000 increased $4.2 million
compared to the third quarter of 1999 due primarily to the inclusion of Movie
World Germany in the 2000 period. Operating expenses decreased as a percentage
of revenues to 25.1% in the 2000 quarter from 26.8% in the prior year quarter.
Excluding Movie World Germany from both periods, operating expenses in the 2000
period would have decreased $1.8 million (1.4%) as compared to the prior year
period.
Selling, general and administrative expenses for the third quarter of
2000 increased $7.9 million compared to comparable expenses for the third
quarter of 1999 due primarily to the inclusion of Movie World Germany in the
2000 period and, to a lesser extent, higher advertising and insurance expense.
As a percentage of revenues, these expenses represented 8.3% in the 2000 quarter
as compared to 7.6% in the 1999 period.
Costs of products sold in the 2000 period increased $4.2 million
compared to costs for the third quarter of 1999. As a percentage of theme park
food, merchandise and other revenue, costs of good sold represented 20.6% in the
2000 period as compared to 21.3% in the 1999 quarter.
Depreciation and amortization expense for the third quarter of 2000
increased $6.3 million compared to the third quarter of 1999. The increase
compared to the 1999 level was attributable to the Company's on-going capital
program and from additional depreciation and amortization expense ($3.2 million)
associated with the1999 acquisition of Movie World Germany. Interest expense,
net increased $12.5 million compared to the third quarter of 1999. The increase
in the 2000 period compared to interest expense, net for the 1999 quarter
resulted from higher average interest rates on a higher average debt and
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<PAGE>
reduced interest income from lower average cash and cash equivalent and
restricted-use investment balances during 2000.
Equity in operations of theme parks reflects the lease of Six Flags
Marine World, the management of that park and depreciation and amortization
expense related thereto. The equity in operations of theme parks in the 2000
quarter decreased by $0.8 million compared to the third quarter of 1999.
Income tax expense was $93.2 million for the third quarter of 2000
compared to $91.4 million for the third quarter of 1999. The effective tax rate
for the third quarter of 2000 was 38.8% compared to a rate of 40.5% for the
third quarter of 1999. The Company's quarterly effective tax rate will vary from
period-to-period based upon the inherent seasonal nature of the theme park
business, as a result of permanent differences associated with goodwill
amortization for financial statement purposes and the deductible portion of the
amortization for tax purposes.
NINE MONTHS ENDED SEPTEMBER 30, 2000 VS. NINE MONTHS ENDED SEPTEMBER
30, 1999
Revenue in the first nine months of 2000 totaled $919.4 million
compared to $848.1 million for the comparable period of 1999. Revenues in the
2000 period increased 8.4% over the prior year period due to the inclusion of
the results of the parks acquired in 1999 and to a lesser extent to an increase
in per capita spending at the Company's parks. The Company believes that
revenues in the 2000 period were adversely affected by unusually difficult
weather, particularly in June and July, in a large number of its major markets.
Reported revenues from the Company's European parks as translated into U.S.
dollars were adversely impacted by a relative decline in European currencies
during the period. Revenue growth would have been approximately $19.4 million
higher had European currency exchange rates remained at 1999 levels.
Operating expenses for the nine months ended September 30, 2000
increased $23.8 million compared to expenses for the first half of 1999. The
8.2% increase resulted primarily from the inclusion in the 2000 period of two
consolidated parks acquired in May 1999 and one acquired in November 1999.
Excluding the acquired parks from both periods, operating expenses in the 2000
period would have increased $3.8 million (1.3%) as compared to the prior year
period primarily as a result of increased compensation expense.
Selling, general and administrative expenses for the first nine months
of 2000 increased $13.2 million compared to similar expenses for the first nine
months of 1999. Excluding the parks acquired in 1999 from both periods, selling,
general and administrative expenses decreased $0.3 million as compared to the
prior year period.
Costs of products sold in the 2000 period increased $4.7 million
compared to costs for the first nine months of 1999. As a percentage of theme
park food, merchandise and other revenue, costs of good sold represented 20.5%
in the 2000 period as compared to 21.1% in the 1999 period.
Depreciation and amortization expense for the first nine months of 2000
increased $18.4 million compared to the comparable period of 1999. The increase
compared to the 1999 level was attributable to the Company's on-going capital
program and from additional depreciation and amortization expense ($9.7 million)
associated with the consolidated parks acquired in 1999. Interest expense, net
increased $16.5 million compared to the first nine months of 1999. The increase
compared to interest expense, net for the 1999 period resulted primarily from
higher average interest rates on a higher average debt, reduced interest income
from lower average cash and cash equivalent and restricted-use investment
balances during 2000.
Equity in operations of theme parks reflects the share the lease of Six
Flags Marine World, the management of that park and depreciation and
amortization expense related thereto. The equity in
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<PAGE>
operations of theme parks in the 2000 period decreased by $0.5 million as
compared to the first nine months of 1999.
Income tax expense was $66.8 million for the nine months ended
September 30, 2000 compared to $76.0 million for the first nine months of 1999.
The effective tax rate for the 2000 period was 42.6% compared to a rate of 46.5%
for the comparable period of 1999. The Company's quarterly effective tax rate
will vary from period-to-period based upon the inherent seasonal nature of the
theme park business, as a result of permanent differences associated with
goodwill amortization for financial statement purposes and the deductible
portion of the amortization for tax purposes.
LIQUIDITY, CAPITAL COMMITMENTS AND RESOURCES
At September 30, 2000, the Company's indebtedness aggregated $1,193.8
million, of which approximately $1.0 million matures prior to September 30,
2001. See Note 3 to the Company's Consolidated Financial Statements for
additional information regarding the Company's indebtedness.
During the nine months ended September 30, 2000, net cash provided by
operating activities was $264.6 million. Net cash used in investing activities
in the first nine months of 2000 totaled $316.8 million, consisting primarily of
capital expenditures and investments in theme parks. Net cash used in financing
activities in the first nine months of 2000 was $4.7 million, representing net
repayments of borrowings.
In addition to its obligations under its outstanding indebtedness, the
Company has guaranteed the obligations of certain subsidiaries of Holdings to
(i) make minimum annual distributions of approximately $48.6 million (subject to
annual cost of living adjustments) to the limited partners in the Six Flags Over
Texas and Six Flags Over Georgia partnerships, (ii) make minimum capital
expenditures at each of the Partnership parks during rolling five-year periods,
based generally on 6% of such park's revenues, and (iii) purchase at specified
prices a maximum number of 5% per year (accumulating to the extent not purchased
in any given year) of limited partnership units outstanding (to the extent
tendered by the unit holders). Cash flows from operations at these partnership
parks will be used to satisfy the obligations described in clauses (i) and (ii)
above before any funds are required from Holdings. In addition, at September 30,
2000, Holdings had a dedicated escrow account available to fund those
obligations.
The degree to which the Company is leveraged could adversely affect its
liquidity. The Company's liquidity could also be adversely affected by
unfavorable weather, accidents or the occurrence of an event or condition,
including negative publicity or significant local competitive events, that
significantly reduce paid attendance and, therefore, revenue at any of its theme
parks.
The Company believes that, based on historical and anticipated
operating results, cash flows from operations, available cash and available
amounts under the Credit Facility will be adequate to meet the Company's future
liquidity needs, including anticipated requirements for working capital, capital
expenditures and scheduled debt requirements, for at least the next several
years. The Company may, however, need to refinance all or a portion of its
existing debt on or prior to maturity or to seek additional financing.
To minimize the Company's exposure to changing foreign currency rates
on ride purchases, in the past the Company has entered into foreign exchange
forward contracts. The Company has not entered into any foreign exchange forward
contracts in 2000 related to ride purchase contracts from foreign vendors.
Additionally, the Company has not hedged its exposure to changes in foreign
currency rates related to its international parks.
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<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED
In September, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and in September 2000 issued SFAS 138, which
amended certain provisions of SFAS 133. SFAS 133, as amended, establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as a hedge for accounting purposes. The accounting for changes in the
fair value of a derivative (that is gains and losses) depends on the intended
use of the derivative and the resulting designation. It is expected that the
Company will adopt the provisions of SFAS No. 133 and SFAS No. 138 as of January
1, 2001.
The Company has had limited involvement with derivative financial
instruments, primarily the Company's interest rate swap related to the $600.0
million term loan. The Company is currently evaluating the provisions of SFAS
No. 133, as amended. Based upon the Company's limited use of derivative
financial instruments, the Company does not believe that the adoption of SFAS
No. 133 will have a material impact on its consolidated financial position or
future results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information included in "Quantitative and Qualitative Disclosures
About Market Risk" in Item 7A of the Company's 1999 Annual Report on Form 10-K
is incorporated herein by reference. Such information includes a description of
the Company's potential exposure to market risks, including interest rate risk
and foreign currency risk. During the period January 1, 2000 through September
30, 2000, the value of the Euro has declined approximately 12.5% in relation to
the dollar. This decline to date is more than the hypothetical 10% decline
described and evaluated in the 1999 Form 10-K. However, the Company's foreign
net operations in the fourth quarter of 2000 are not expected to be materially
impacted by adverse change in the currency exchange rate. Although the Company
may in the future enter into transactions to hedge currency exchange risks in
respect of specific purchase contracts with foreign vendors, the Company has no
current plans to enter into hedging transactions with respect to its foreign
operations generally.
During the first nine months, interest rates (as measured by LIBOR)
have increased by approximately 13.5%. As previously disclosed, the Company has
entered into interest swap arrangements with respect to its $600.0 million term
loan. At September 30, 2000, the balance of the Company's other indebtedness
represented fixed rate debt, other than $291.0 million outstanding under the
Credit Facility. Increases in LIBOR in the future will result in higher interest
expense with respect to this $291.0 million in indebtedness. Except as described
above, there have been no material changes in the Company's market risk exposure
from that disclosed in the 1999 Form 10-K.
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<PAGE>
PART II -- OTHER INFORMATION
ITEMS 1 -- 5
Not applicable.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule -- September 30, 2000
(b) Reports on Form 8-K
None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIX FLAGS OPERATIONS INC.
(Registrant)
Kieran E. Burke
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
James F. Dannhauser
CHIEF FINANCIAL OFFICER
Date: November ____, 2000
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