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Six Flags Entertainment Corp – ‘10-Q’ for 3/31/02

On:  Wednesday, 5/15/02, at 2:42pm ET   ·   For:  3/31/02   ·   Accession #:  912057-2-20692   ·   File #:  1-13703

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 5/15/02  Six Flags Entertainment Corp      10-Q        3/31/02    1:195K                                   Merrill Corp/FA

Quarterly Report   —   Form 10-Q
Filing Table of Contents

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11st Page   -   Filing Submission
"Part I-Financial Information
"Item 1-Financial Statements
"Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations
"Item 3. Quantitative and Qualitative Disclosures About Market Risk
"Items 1 -- 5
"Item 6-Exhibits and Reports on Form 8-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q



ý

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for Quarterly Period Ended March 31, 2002


OR


o

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from            to            

Commission File Number: 0-9789


SIX FLAGS, INC.
(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  13-3995059
(I.R.S. Employer Identification No.)

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 ý    No o

        Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:

        At May 7, 2002, Six Flags, Inc. had outstanding 92,454,959 shares of Common Stock, par value $.025 per share.




SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

        Some of the statements contained in or incorporated by reference in this Quarterly Report on Form 10-Q constitute forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act. The words "anticipates," "believes," "estimates," "expects," "plans," "intends" and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. These forward-looking statements reflect the current views of our management; however, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in, or implied by, these statements, including the following:

        We caution the reader that these risks may not be exhaustive. We operate in a continually changing business environment, and new risks emerge from time to time. We cannot predict such risks nor can we assess the impact, if any, of such risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those projected in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

2



PART I—FINANCIAL INFORMATION

Item 1—Financial Statements

SIX FLAGS, INC.
CONSOLIDATED BALANCE SHEETS

 
  March 31, 2002
  December 31, 2001
 
  (Unaudited)

   
Assets          
Current assets:          
  Cash and cash equivalents   $ 72,700,000   53,534,000
  Accounts receivable     52,837,000   35,470,000
  Inventories     40,140,000   26,275,000
  Prepaid expenses and other current assets     39,608,000   40,455,000
  Restricted-use investment securities     468,978,000  
   
 
    Total current assets     674,263,000   155,734,000
Other assets:          
  Debt issuance costs     53,140,000   45,490,000
  Restricted-use investment securities     75,482,000   75,169,000
  Deposits and other assets     30,519,000   32,110,000
   
 
    Total other assets     159,141,000   152,769,000
Property and equipment, at cost     2,823,539,000   2,801,356,000
  Less accumulated depreciation     501,283,000   465,656,000
   
 
      2,322,256,000   2,335,700,000
Investment in theme park partnerships     369,874,000   388,273,000
Intangible assets, principally goodwill     1,418,308,000   1,418,889,000
  Less accumulated amortization     205,390,000   205,223,000
   
 
    Total intangible assets     1,212,918,000   1,213,666,000
   
 
    Total assets   $ 4,738,452,000   4,246,142,000
   
 

See accompanying notes to consolidated financial statements

3


SIX FLAGS, INC.

CONSOLIDATED BALANCE SHEETS

 
  March 31, 2002
  December 31, 2001
 
 
  (Unaudited)

   
 
Liabilities and Stockholders' Equity            

Current liabilities:

 

 

 

 

 

 
  Accounts payable   $ 51,521,000   33,056,000  
  Accrued interest payable     48,467,000   30,674,000  
  Deferred revenue     34,490,000   15,237,000  
  Other accrued liabilities     57,355,000   51,195,000  
  Debt called for prepayment     450,000,000    
  Current portion of long-term debt     158,457,000   24,627,000  
   
 
 
    Total current liabilities     800,290,000   154,789,000  

Long-term debt

 

 

2,256,020,000

 

2,222,442,000

 
Other long-term liabilities     27,012,000   33,496,000  
Deferred income taxes     41,944,000   109,926,000  
Mandatorily redeemable preferred stock (redemption value of $287,500,000)     279,148,000   278,867,000  

Stockholders' equity:

 

 

 

 

 

 
  Preferred stock        
  Common stock     2,311,000   2,310,000  
  Capital in excess of par value     1,745,154,000   1,744,134,000  
  Accumulated deficit     (324,673,000 ) (211,006,000 )
  Deferred compensation     (5,213,000 ) (6,950,000 )
  Accumulated other comprehensive income (loss)     (83,541,000 ) (81,866,000 )
   
 
 
      Total stockholders' equity     1,334,038,000   1,446,622,000  
   
 
 
      Total liabilities and stockholders' equity   $ 4,738,452,000   4,246,142,000  
   
 
 

See accompanying notes to consolidated financial statements

4


SIX FLAGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)

 
  2002
  2001
 
Revenue:            
Theme park admissions   $ 21,522,000   14,419,000  
Theme park food, merchandise and other     27,729,000   20,750,000  
   
 
 
      Total revenue     49,251,000   35,169,000  
   
 
 
Operating costs and expenses:            
  Operating expenses     70,812,000   64,518,000  
  Selling, general and administrative     37,361,000   34,922,000  
  Noncash compensation (primarily selling, general and administrative)     2,604,000   1,357,000  
  Costs of products sold     4,271,000   2,987,000  
  Depreciation     36,636,000   34,166,000  
Amortization     276,000   14,097,000  
   
 
 
      Total operating costs and expenses     151,960,000   152,047,000  
   
 
 
      Loss from operations     (102,709,000 ) (116,878,000 )
   
 
 
Other income (expense):            
  Interest expense     (61,368,000 ) (58,973,000 )
  Interest income     1,403,000   2,959,000  
  Equity in operations of theme park partnerships     (15,176,000 ) (14,376,000 )
  Other expense     336,000   (3,159,000 )
   
 
 
      Total other income (expense)     (74,805,000 ) (73,549,000 )
   
 
 
      Loss before income taxes     (177,514,000 ) (190,427,000 )
  Income tax benefit     69,340,000   67,976,000  
   
 
 
    Loss before extraordinary loss     (108,174,000 ) (122,451,000 )
Extraordinary loss on extinguishment of debt, net of income tax benefit of $5,088,000 in 2001       (8,301,000 )
   
 
 
      Net loss   $ (108,174,000 ) (130,752,000 )
   
 
 
      Net loss applicable to common stock   $ (113,667,000 ) (140,602,000 )
   
 
 
Weighted average number of common shares outstanding—basic and diluted:     92,436,000   80,081,000  
   
 
 
Net loss per average common share outstanding—basic and diluted:            
      Loss before extraordinary loss   $ (1.23 ) (1.65 )
      Extraordinary loss       (0.11 )
   
 
 
      Net loss   $ (1.23 ) (1.76 )
   
 
 

See accompanying notes to consolidated financial statements

5


SIX FLAGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)

 
  2002
  2001
 
Net loss   $ (108,174,000 ) $ (130,752,000 )
Other comprehensive income (loss):              
  Foreign currency translation adjustment     (5,484,000 )   (22,281,000 )
  Cumulative effect of change in accounting principle         (3,098,000 )
  Net change in fair value of derivative instruments     537,000     (4,375,000 )
  Reclassifications of amounts taken to operations     3,272,000     777,000  
   
 
 
Comprehensive loss   $ (109,849,000 ) $ (159,729,000 )
   
 
 

See accompanying notes to consolidated financial statements

6


SIX FLAGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)

 
  2002
  2001
 
Cash flows from operating activities:              
  Net loss   $ (108,174,000 ) $ (130,752,000 )
  Adjustments to reconcile net loss to net cash used in operating activities (net of effects of acquisitions):              
      Depreciation and amortization     36,912,000     48,263,000  
      Equity in operations of theme park partnerships     15,176,000     14,376,000  
      Cash received from theme park partnerships     4,444,000     4,420,000  
      Noncash compensation     2,604,000     1,357,000  
      Interest accretion on notes payable     9,001,000     8,116,000  
      Extraordinary loss on early extinguishment of debt         13,389,000  
      Amortization of debt issuance costs     2,573,000     2,279,000  
      Loss on disposal of assets         (41,000 )
      Deferred income tax benefit     (70,316,000 )   (73,064,000 )
      Increase in accounts receivable     (17,294,000 )   (7,840,000 )
      Increase in inventories and prepaid expenses and other current assets     (13,018,000 )   (11,379,000 )
      (Increase) decrease in deposits and other assets     1,591,000     (46,000 )
      Increase in accounts payable, accrued expenses and other liabilities     43,609,000     13,530,000  
      Increase in accrued interest payable     17,793,000     18,991,000  
   
 
 
        Total adjustments     33,075,000     32,351,000  
   
 
 
        Net cash used in operating activities     (75,099,000 )   (98,401,000 )
   
 
 
Cash flows from investing activities:              
  Additions to property and equipment     (28,042,000 )   (52,951,000 )
  Investment in theme park partnerships     (1,221,000 )   (1,692,000 )
  Acquisition of theme park assets         (111,416,000 )
  Purchase of restricted-use investments     (469,291,000 )   (1,041,000 )
  Maturities of restricted-use investments         5,822,000  
  Proceeds from sale of assets         2,420,000  
   
 
 
        Net cash used in investing activities     (498,554,000 )   (158,858,000 )
   
 
 
Cash flows from financing activities:              
  Repayment of long-term debt     (4,884,000 )   (480,636,000 )
  Proceeds from borrowings     613,291,000     504,427,000  
  Net cash proceeds from issuance of preferred stock         278,130,000  
  Net cash proceeds from issuance of common stock     154,000     282,000  
  Payment of cash dividends     (5,211,000 )   (5,822,000 )
  Payment of debt issuance costs     (10,223,000 )   (10,012,000 )
   
 
 
        Net cash provided by financing activities     593,127,000     286,369,000  
   
 
 
Effect of exchange rate changes on cash and cash equivalents     (308,000 )   (203,000 )
   
 
 
Increase in cash and cash equivalents     19,166,000     28,907,000  
Cash and cash equivalents at beginning of year     53,534,000     42,978,000  
   
 
 
Cash and cash equivalents at end of period   $ 72,700,000   $ 71,885,000  
   
 
 
Supplementary cash flow information:              
Cash paid for interest   $ 32,001,000   $ 29,587,000  
   
 
 

See accompanying notes to consolidated financial statements

7


SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. General—Basis of Presentation

        We own and operate regional theme amusement and water parks. As of March 31, 2002, we own or operate 37 parks, including 28 domestic parks, one park in Mexico, one in Canada and seven parks in Europe. We are also managing the development and subsequent operation of a theme park in Europe which opened in April 2002. As used herein, Holdings refers only to Six Flags, Inc., without regard to its subsidiaries.

        In February 2001, we purchased substantially all of the assets used in the operation of Sea World of Ohio, a marine wildlife park located adjacent to our Six Flags Ohio theme park. In May 2001, we acquired substantially all of the assets of La Ronde, a theme park located in Montreal, Canada. See Note 3.

        The accompanying financial statements for the three months ended March 31, 2001 include the results of the former Sea World of Ohio only subsequent to its acquisition date, February 9, 2001 and do not include the results of La Ronde. The accompanying consolidated financial statements for the three months ended March 31, 2002 include the results of these two parks for the entire period.

        Management's Discussion and Analysis of Financial Condition and Results of Operations which follows these notes contains additional information on our results of operations and our financial position. Those comments should be read in conjunction with these notes. Our annual report on Form 10-K for the year ended December 31, 2001 includes additional information about us, our operations and our 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 which are, in the opinion of management, necessary to present a fair statement of the results for the periods presented.

        Results of operations for the three-month period ended March 31, 2002 are not indicative of the results expected for the full year. In particular, our theme park operations contribute a significant majority of their annual revenue during the period from Memorial Day to Labor Day each year.

        For periods through December 31, 2001, goodwill, which represents the excess of purchase price over fair value of net assets acquired, had been amortized on a straight-line basis over the expected period to be benefited, generally 18 to 25 years. Other intangible assets had been amortized over the period to be benefited, generally up to 25 years. We had assessed the recoverability of intangible assets by determining whether the amortization of the intangible asset balance over its remaining life could be recovered through undiscounted future operating cash flows from the acquisition. The amount of goodwill impairment, if any, has been measured based on projected discounted future operating cash flows using a discount rate reflecting our average borrowing rate. The assessment of the recoverability of goodwill would be impacted if estimated future operating cash flows were not achieved.

        For periods beginning on January 1, 2002, we adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." As a result, for the quarter ended March 31, 2002 and thereafter goodwill and intangible assets with indefinite useful lives no longer will be amortized, but instead will be tested for impairment at least annually.

        In connection with SFAS No. 142's transitional goodwill impairment evaluation, we will perform an assessment of whether there is an indication that goodwill (including goodwill included in our investment in theme park partnerships) was impaired as of January 1, 2002. To accomplish this, we must identify our reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of January 1, 2002. We will then have up to six months from January 1, 2002 to determine the fair

8


value of each reporting unit and compare it to the carrying amount of the reporting unit. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an indication exists that the reporting unit goodwill may be impaired and we must perform the second step of the transitional impairment test. The second step is required to be completed as soon as possible, but no later than the end of 2002. In the second step, we must compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill, both of which would be measured as of the date of adoption. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in our consolidated statements of operations.

        As of the date of adoption of SFAS No. 142, our unamortized goodwill was $1,196,140,000. Because of the extensive effort needed to comply with adopting SFAS No. 142, it is not practicable to reasonably estimate the impact of adopting SFAS No. 142 on our consolidated financial statements at the date of these consolidated financial statements, including whether we will be required to recognize any transitional impairment losses as the cumulative effect of a change in accounting principle.

        The following table reconciles our reported net loss to our adjusted net loss and our reported basic and diluted loss per average share to our adjusted basic and diluted loss per average share for the three months ended March 31, 2002 and 2001.

 
  Three Months Ended
March 31,

 
 
  2002
  2001
 
 
  (In thousands, except per share amounts)

 
Reported loss before extraordinary loss   $ (108,174 ) $ (122,451 )
Add back: Goodwill amortization, net of tax effect         14,036  
   
 
 
Adjusted loss before extraordinary loss     (108,174 )   (108,415 )
Extraordinary loss on extinguishment of debt, net of tax         (8,301 )
   
 
 
Adjusted net loss   $ (108,174 ) $ (116,716 )
   
 
 
Adjusted net loss applicable to common stock   $ (113,667 ) $ (126,566 )
   
 
 
Basic and diluted loss per average share:              
Reported loss before extraordinary loss   $ (1.23 ) $ (1.65 )
Extraordinary loss         (0.11 )
Goodwill amortization         0.18  
   
 
 
Adjusted net loss   $ (1.23 ) $ (1.58 )
   
 
 

        Included in goodwill amortization above for the three months ended March 31, 2001 is approximately $13,844,000 of amortization included in the consolidated statement of operations and $1,406,000 of equity method goodwill amortization included in equity in operations of theme park partnerships, exclusive of tax effect.

9


        The following table reflects our intangible assets, exclusive of goodwill, all of which are subject to amortization (in thousands):

 
  As of March 31, 2002
  As of December 31, 2001
 
  Gross
Carrying
Amount

  Accumulated
Amortization

  Gross
Carrying
Amount

  Accumulated
Amortization

Non-compete agreements   $ 4,610   1,027   4,610   906
Licenses   $ 15,246   1,483   15,150   1,328
   
 
 
 
    $ 19,856   2,510   19,760   2,234

        Amortization expense on our intangible assets subject to amortization will total approximately $1.0 million over each of the next five years.

        We review long-lived assets 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.

        In August 2001, the Financial Accounting Standards Board ("FASB") issued FASB Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While Statement No. 144 supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," it retains many of the fundamental provisions of that Statement. Statement No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business. However, it retains the requirement in Opinion No. 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of by sale, abandonment, or in a distribution to owners or is classified as held for sale. Statement No. 144 is effective for fiscal years beginning after December 15, 2001 and was adopted by us on January 1, 2002. The adoption of Statement 144 did not have an impact on our consolidated financial statements.

        In February 2000, we entered into three interest rate swap agreements that effectively convert our $600,000,000 term loan component of the Credit Facility (see Note 4(d)) into a fixed rate obligation. The terms of the agreements, as subsequently extended, each of which has a notional amount of $200,000,000, began in March 2000 and expire from March 2003 to December 2003. Our term loan borrowings bear interest based upon LIBOR plus a fixed margin. Our interest rate swap arrangements were designed to "lock-in" the LIBOR component at rates, prior to a February 2001 amendment, ranging from 6.615% to 6.780% and, subsequent to that date, 5.13% to 6.07% (with an average of 5.46%). The counterparties to these transactions are major financial institutions, which minimizes the credit risk.

        In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 138, establishes accounting and reporting

10


standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the consolidated balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge for accounting purposes. The accounting for changes in the fair value of a derivative (that is gains and losses) depends on the intended use of the derivative and the resulting designation. We adopted the provisions of SFAS No. 133 as of January 1, 2001. As a result of the adoption, we recognized a liability of approximately $4,996,000 and recorded in other comprehensive income (loss) $3,098,000 (net of tax effect) as a cumulative effect of a change in accounting principle, which is being amortized into operations over the original term of the interest rate swap agreements.

        As of January 1, 2001, two of the three interest rate swap agreements contained "knock-out" provisions that did not meet the definition of a derivative instrument that could be designated as a hedge under SFAS No. 133. From January 1, 2001 to February 23, 2001, we recognized in other income (expense) a $3,200,000 expense related to the change in fair value of these two hedges. As of February 23, 2001, the interest rate swap agreements were amended and the knock-out provisions were removed. As of that date and through March 31, 2002, we have designated all of the interest rate swap agreements as cash-flow hedges.

        We formally document all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash-flow hedges to forecasted transactions. We also assess, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.

        Changes in the fair value of a derivative that is effective and that is designated and qualifies as a cash-flow hedge are recorded in other comprehensive income (loss), until operations are affected by the variability in cash flows of the designated hedged item. Changes in fair value of a derivative that is not designated as a hedge are recorded in operations on a current basis.

        During the first quarter of 2002 and 2001, there were no gains or losses reclassified into operations as a result of the discontinuance of hedge accounting treatment for any of our derivatives.

        By using derivative instruments to hedge exposures to changes in interest rates, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instruments are placed with counterparties that we believe are minimal credit risks.

        Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates, commodity prices, or currency exchange rates. The market risk associated with interest rate swap agreements is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

11


SIX FLAGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        We do not hold or issue derivative instruments for trading purposes. Changes in the fair value of derivatives that are designated as hedges are reported on the consolidated balance sheet in "Accumulated other comprehensive income (loss)" ("AOCL"). These amounts are reclassified to interest expense when the forecasted transaction takes place.

        From February 2001 through March 2002, the critical terms, such as the index, settlement dates, and notional amounts, of the derivative instruments were substantially the same as the provisions of our hedged borrowings under the Credit Facility. As a result, no ineffectiveness of the cash-flow hedges was recorded in the consolidated statements of operations.

        As of March 31, 2002, approximately $7,300,000 of net deferred losses on derivative instruments accumulated in AOCL are expected to be reclassified to operations during the next 12 months. Transactions and events expected to occur over the next twelve months that will necessitate reclassifying these derivatives' losses to operations are the periodic payments that are required to be made on outstanding borrowings. The maximum term over which we are hedging exposures to the variability of cash flows for commodity price risk is 21 months.

        The weighted average number of shares of Common Stock used in the calculations of diluted loss per share for the three-month periods ended March 31, 2002 and 2001 does not include the effect of potential common shares issuable upon the exercise of employee stock options of 275,000 in 2002 and 891,000 in 2001 or the impact in either period of the potential conversion of our outstanding convertible preferred stock as the effects of the exercise of such options and such conversion and resulting decrease in preferred stock dividends is antidilutive. Our Preferred Income Equity Redeemable Shares ("PIERS"), which are shown as mandatorily redeemable preferred stock on our consolidated balance sheets, were issued in January 2001 and are convertible into 13,789,000 shares of common stock. On April 2, 2001, our Premium Income Equity Securities ("PIES") automatically converted into a total of 11,500,000 common shares. The PIES were not included in the determination of loss per share in the first quarter of 2001 as the effect was antidilutive.

2. Preferred Stock

        In January 2001, we issued 11,500,000 PIERS, for proceeds of $277,834,000, net of the underwriting discount and offering expenses of $9,666,000. We used the net proceeds of the offering to fund our acquisition of the former Sea World of Ohio (see Note 3), to repay borrowings under the working capital revolving credit portion of our senior credit facility (see Note 4(d)) and for working capital. Each PIERS represents one one-hundredth of a share of our 71/4% mandatorily redeemable preferred stock (an aggregate of 115,000 shares of preferred stock). The PIERS accrue cumulative dividends (payable, at our option, in cash or shares of common stock) at 71/4% per annum (approximately $20,844,000 per annum).

        Prior to August 15, 2009, each of the PIERS is convertible at the option of the holder into 1.1990 common shares (equivalent to a conversion price of $20.85 per common share), subject to adjustment in certain circumstances (the "Conversion Price"). At any time on or after February 15, 2004 and at the then applicable conversion rate, we may cause the PIERS, in whole or in part, to be automatically converted if for 20 trading days within any period of 30 consecutive trading days, including the last day of such period, the closing price of our common stock exceeds 120% of the then prevailing Conversion Price. On August 15, 2009, the PIERS are mandatorily redeemable in cash equal to 100% of the liquidation preference (initially $25.00 per PIERS), plus any accrued and unpaid dividends.

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        On April 2, 2001, the 5,750,000 shares of our PIES automatically converted into 11,500,000 shares of our common stock. In addition, on that date we issued to the holders of the PIES 278,912 shares of common stock, representing the final quarterly dividend payment on the PIES.

3. Acquisition of Theme Parks

        On May 2, 2001, we acquired substantially all of the assets of La Ronde, a theme park located in the City of Montreal for a cash purchase price of Can. $30,000,000 (approximately U.S. $19,600,000 at the exchange rate on such date). We have agreed to invest in the park Can. $90,000,000 (approximately U.S. $58,700,000 at that exchange rate) over four seasons commencing in 2002. We lease the land on which the park is located on a long-term basis. Approximately U.S. $7,378,000 of costs in excess of the fair value of the net assets acquired were recorded as goodwill. The transaction was accounted for as a purchase.

        On February 9, 2001, we acquired substantially all of the assets used in the operation of Sea World of Ohio, a marine wildlife park located adjacent to the Company's Six Flags Ohio theme park, for a cash purchase price of $110,000,000. We funded the acquisition from a portion of the proceeds of the PIERS offering. See Note 2. Approximately $57,834,000 of costs in excess of the fair value of the net assets acquired were recorded as goodwill. The transaction was accounted for as a purchase.

4. Long-Term Indebtedness

        (a)  On January 31, 1997, Six Flags Operations Inc., the predecessor to and currently a wholly-owned subsidiary of Holdings ("Six Flags Operations"), issued $125,000,000 of senior notes due January 2007 (the 1997 Notes). On March 2, 2001, we purchased 99.8% of the 1997 Notes pursuant to a tender offer. The balance of the notes were redeemed in full in January 2002. As a result of the early extinguishment of debt in 2001, we recognized an extraordinary loss of $8,301,000, net of tax benefit of $5,088,000. The loss on early extinguishment of the remaining notes in 2002 was not material.

        (b)  On April 1, 1998, Holdings issued at a discount $410,000,000 principal amount at maturity ($371,880,000 and $363,026,000 carrying value as of March 31, 2002 and December 31, 2001, respectively) of 10% Senior Discount Notes due 2008 (the "Senior Discount Notes") and $280,000,000 principal amount of 91/4% Senior Notes due 2006 (the "1998 Senior Notes"). The 1998 Senior Notes were redeemed in full on April 1, 2002. The redemption price was funded from a portion of the net proceeds of an offering by Holdings in February 2002 of $480,000,000 principal amount of 87/8% Senior Notes due 2010 (the "2002 Senior Notes"). See Note 4(g). An extraordinary loss of $11,809,000, net of a tax benefit of $7,238,000, will be recognized in the second quarter of 2002 from this early extinguishment.

        The Senior Discount Notes are senior unsecured obligations of Holdings and are not guaranteed by Holdings' subsidiaries. The notes do not require any interest payments prior to October 1, 2003 and, except in the event of a change of control of Holdings and certain other circumstances, any principal payments prior to their maturity in 2008. The Senior Discount Notes have an interest rate of 10% per annum. The Senior Discount Notes are redeemable, at our option, in whole or in part, at any time on or after April 1, 2003, at varying redemption prices beginning at 105% and reducing annually until maturity.

        The indenture under which the Senior Discount Notes were issued limits the ability of Holdings and its subsidiaries to dispose of assets; incur additional indebtedness or liens; pay dividends; engage in mergers or consolidations; and engage in certain transactions with affiliates.

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        (c)  On April 1, 1998, Six Flags Entertainment Corporation ("SFEC"), which was subsequently merged into Six Flags Operations, issued $170,000,000 principal amount of 87/8% Senior Notes (the "SFO Notes"). The SFO Notes were redeemed in full on April 1, 2002. The redemption price was funded from a portion of the proceeds of the offering of the 2002 Senior Notes. See Note 4(g). An extraordinary loss of $6,726,000, net of tax benefit of $4,123,000, will be recognized in the second quarter of 2002 for this early extinguishment.

        (d)  On November 5, 1999, Six Flags Theme Parks Inc., our indirect wholly-owned subsidiary ("SFTP"), entered into a senior credit facility (the "Credit Facility") and, in connection therewith, SFEC merged into Six Flags Operations and SFTP became a subsidiary of Six Flags Operations. The Credit Facility includes a $300,000,000 five-year working capital revolving credit facility ($150,000,000 of which was outstanding at March 31, 2002), a $285,000,000 five-and-one-half-year multicurrency reducing revolver facility (none of which was outstanding at March 31, 2002) and a $600,000,000 six-year term loan ($597,000,000 of which was outstanding at March 31, 2002). Borrowings under the five-year revolving credit facility must be repaid in full for thirty consecutive days each year. The interest rate on borrowings under the Credit Facility can be fixed for periods ranging from one to six months. At our option the interest rate is based upon specified levels in excess of the applicable base rate or LIBOR. We have 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 March 2003 to December 2003. At March 31, 2002, the weighted average interest rates for borrowings under the working capital revolver and term loan were 3.89% and 8.46%, respectively.

        The multicurrency facility permits optional prepayments and reborrowings. The committed amount reduces quarterly by 2.5% commencing on December 31, 2001, by 5.0% commencing on December 31, 2002, by 7.5% commencing on December 31, 2003 and by 20.0% commencing on December 31, 2004. Mandatory repayments are required if amounts outstanding exceed the reduced commitment amount. The term loan facility requires quarterly repayments of 0.25% of the outstanding amount thereof commencing on December 31, 2001 and 24.25% commencing on December 31, 2004. A commitment fee of .50% of the unused credit of the facility is due quarterly in arrears. The principal borrower under the facility is SFTP, and borrowings under the Credit Facility are guaranteed by Holdings, Six Flags Operations and all of Six Flags Operations' domestic subsidiaries and are secured by substantially all of Six Flags Operations' domestic assets and a pledge of Six Flags Operations' capital stock.

        The Credit Facility contains restrictive covenants that, among other things, limit the ability of Six Flags Operations and its subsidiaries to dispose of assets; incur additional indebtedness or liens; repurchase stock; make investments; engage in mergers or consolidations; pay dividends (except that (subject to covenant compliance) dividends will be permitted to allow Holdings to meet cash interest obligations with respect to its Senior Discount Notes, 1999 Senior Notes, 2001 Senior Notes and the 2002 Senior Notes (collectively, the "SFI Senior Notes"), cash dividend payments on the PIERS and obligations to the limited partners in Six Flags Over Texas and Six Flags Over Georgia (the "Partnership Parks") and engage in certain transactions with subsidiaries and affiliates. In addition, the Credit Facility requires that Six Flags Operations comply with certain specified financial ratios and tests.

        (e)  On June 30, 1999, Holdings issued $430,000,000 principal amount of 93/4% Senior Notes due 2007 (the "1999 Senior Notes"). The 1999 Senior Notes are senior unsecured obligations of Holdings, are not guaranteed by subsidiaries and rank equal to the other Senior Notes of Holdings. The 1999 Senior Notes require annual interest payments of approximately $41,925,000 (93/4% per annum) and, except in the event of a change in control of Holdings and certain other circumstances, do not require any principal payments prior to their maturity in 2007. The 1999 Senior Notes are redeemable, at

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Holdings' option, in whole or in part, at any time on or after June 15, 2003, at varying redemption prices beginning at 104.875% and reducing annually until maturity. The indenture under which the 1999 Senior Notes were issued contains covenants substantially similar to those relating to the Senior Discount Notes.

        The net proceeds of the 1999 Senior Notes were used to fund the purchase in a tender offer of $87,500,000 of previously outstanding Six Flags Operations' 1995 Senior Notes and the entire $285,000,000 principal amount of SFTP Senior Subordinated Notes. The remaining $2,500,000 balance of the 1995 Senior Notes was redeemed in August 1999. An extraordinary loss of $6,082,000, net of tax benefit of $4,054,000 was recognized from these early extinguishments.

        (f)    On February 2, 2001, Holdings issued $375,000,000 principal amount of 91/2% Senior Notes due 2009 (the 2001 Senior Notes). The 2001 Senior Notes are senior unsecured obligations of Holdings, are not guaranteed by subsidiaries and rank equal to the other Senior Notes of Holdings. The 2001 Senior Notes require annual interest payments of approximately $35,625,000 (91/2% per annum) and, except in the event of a change in control of Holdings and certain other circumstances, do not require any principal payments prior to their maturity in 2009. The 2001 Senior Notes are redeemable, at Holding's option, in whole or in part, at any time on or after February 1, 2005, at varying redemption prices beginning at 104.75% and reducing annually until maturity. The indenture under which the 2001 Senior Notes were issued contains covenants substantially similar to those relating to the other SFI Senior Notes. The net proceeds of the 2001 Senior Notes were used to fund the 2001 tender offer relating to the 1997 Notes (see Note 4(a)) and to repay borrowings under the multicurrency revolving portion of the Credit Facility (see Note 4(d)).

        (g)  On February 11, 2002, Holdings issued $480,000,000 principal amount of the 2002 Senior Notes. The 2002 Senior Notes are senior unsecured obligations of Holdings, are not guaranteed by subsidiaries and rank equal to the other SFI Senior Notes. The 2002 Senior Notes require annual interest payments of approximately $42,600,000 million (87/8% per annum) and, except in the event of a change in control of the Company and certain other circumstances, do not require any principal payments prior to their maturity in 2010. The 2002 Senior Notes are redeemable, at Holding's option, in whole or in part, at any time on or after February 1, 2006, at varying redemption prices beginning at 104.438% and reducing annually until maturity. The indenture under which the 2002 Senior Notes were issued contains covenants substantially similar to those relating to the other SFI Senior Notes. The net proceeds of the 2002 Senior Notes were used to fund the redemption of the 1998 Senior Notes (see Note 4(b)) and the SFO Notes (see Note 4(c)).

5. Commitments and Contingencies

        On April 1, 1998 we acquired all of the capital stock of SFEC for $976,000,000, paid in cash. In addition to our obligations under outstanding indebtedness and other securities issued or assumed in the Six Flags acquisition, we also guaranteed in connection therewith certain contractual obligations relating to the partnerships that own the two Partnership Parks, Six Flags Over Texas and Six Flags Over Georgia. Specifically, we guaranteed the obligations of the general partners of those partnerships to (i) make minimum annual distributions of approximately $51,000,000 (as of 2002 and subject to annual cost of living adjustments thereafter) to the limited partners in the Partnership Parks and (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. Cash flow from operations at the Partnership Parks is used to satisfy these requirements first, before any funds are required from us. We also guaranteed the obligation of our subsidiaries to purchase a maximum number of 5% per year (accumulating to the extent not purchased in any given year) of the total limited partnership units

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outstanding as of the date of the agreements (the "Partnership Agreements") that govern the partnerships (to the extent tendered by the unit holders). The agreed price for these purchases is based on a valuation for each respective Partnership Park equal to the greater of (i) a value derived by multiplying such park's weighted-average four-year EBITDA (as defined in the Partnership Agreements) by a specified multiple (8.0 in the case of the Georgia park and 8.5 in the case of the Texas park) or (ii) $250,000,000 in the case of the Georgia park and $374,800,000 in the case of the Texas park. Our obligations with respect to Six Flags Over Georgia and Six Flags Over Texas will continue until 2027 and 2028, respectively.

        As we purchase units relating to either Partnership Park, we are entitled to the minimum distribution and other distributions attributable to such units, unless we are then in default under the applicable agreements with our partners at such Partnership Park. On March 31, 2002, we owned approximately 25% and 36%, respectively, of the limited partnership units in the Georgia and Texas partnerships. The units tendered in 2002 entail an aggregate purchase price for both parks of $935,000. The maximum unit purchase obligations for 2003 at both parks will aggregate approximately $159,100,000. We can utilize the $75.4 million of restricted use investment securities included in other assets in the accompanying consolidated balance sheets to fund any required unit purchases.

        In December 1998, a final judgment of $197.3 million in compensatory damages was entered against SFEC, Six Flags Theme Parks Inc., 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. The compensatory damages judgment has been paid and, in October 2001, the order of the Georgia Court of Appeals affirming the punitive damages judgment was vacated by the United States Supreme Court. In 2002, the Georgia Court of Appeals reinstated the punitive damages judgment. 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 our acquisition of the former Six Flags at Six Flags Over Georgia, including alleged breaches of fiduciary duty. The sellers in the Six Flags acquisition, including Time Warner, Inc., have agreed to indemnify us from any and all liabilities arising out of this litigation.

        We are a defendant in a purported class action litigation pending in California Superior Court for Los Angeles County. The master complaint, Amendarez v. Six Flags Theme Parks, Inc., was filed on November 27, 2001, combining five previously filed complaints. The plaintiffs allege that security and other practices at our park in Valencia, California, discriminate against visitors on the basis of race, color, ethnicity, national origin and/or physical appearance, and assert claims under California statutes and common law. They seek compensatory and punitive damages in unspecified amounts, and injunctive and other relief. The named plaintiffs purport to represent seven "subclasses" of visitors to the Valencia park. We have objected to the class allegations, arguing that the lawsuit cannot appropriately be maintained as a class action, and intend to vigorously defend this case. The case is in an early stage and consequently we cannot predict the outcome, however, we do not believe it will have a material adverse effect on our consolidated financial position, results of operations, or liquidity.

        We are party to various other legal actions arising in the normal course of business. Matters that are probable of unfavorable outcome to us and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, we estimate of the outcomes of such matters and our experience in contesting, litigating and settling similar matters. None of the actions are believed by management to involve amounts that would be material to our consolidated financial position, results of operations, or liquidity after consideration of recorded accruals.

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6.    Investment in Theme Park Partnerships

        The following reflects the summarized results of the four parks managed by us during the three months ended March 31, 2002 and 2001.

 
  Three Months Ended
March 31,

 
 
  2002
  2001
 
 
  (In thousands)

 
Revenue   $ 10,671   $ 12,203  
Expenses:              
  Operating expenses     20,080     19,006  
  Selling, general and administrative     8,773     9,802  
  Costs of products sold     771     765  
  Depreciation and amortization     8,041     8,875  
  Interest expense, net     3,711     4,172  
  Other expense         (22 )
   
 
 
    Total     41,376     42,598  
   
 
 
Net loss   $ (30,705 ) $ (30,394 )
   
 
 

        Our share of loss from operations of the four theme parks for the three months ended March 31, 2002 was $10,474,000 prior to depreciation and amortization charges of $4,097,000 and third-party interest and other non-operating expenses of $605,000. Our share of loss from operations of the four theme parks for the three months ended March 31, 2001 was $8,838,000 prior to depreciation and amortization charges of $5,199,000 and third-party interest and other non-operating expenses of $339,000 (See Note 1 for the amount of equity method goodwill recognized in the consolidated statement of operations for the three months ended March 31, 2001). The following information reflects the reconciliation between the results of the four theme parks and the Company's share of the results:

 
  Three Months Ended
March 31,

 
 
  2002
  2001
 
 
  (In thousands)

 
Theme park partnership net loss   $ (30,705 ) $ (30,394 )
Third party share of net loss     15,570     16,873  
Depreciation of ride and equipment component of our investment in theme park partnerships in excess of share of net assets     (41 )   (855 )
   
 
 
Loss in operations of theme park partnerships   $ (15,176 ) $ (14,376 )
   
 
 

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        There is a substantial difference between the carrying value of our investment in the theme parks and the net book value of the theme parks. Prior to January 1, 2002 and the adoption of Statement 142 (see Note 1), the difference was being amortized over 20 years for the Partnership Parks and over the expected useful life of the rides and equipment installed by us at Six Flags Marine World. The following information reconciles our share of the net assets of the theme park partnerships and our investment in the partnership.

 
  March 31, 2002
  December 31, 2001
 
  (In thousands)

Our share of net assets of theme park partnerships   $ 95,283   $ 107,322
Our investment in theme park partnerships in excess of share of net assets     182,484     188,844
Advances made to theme park partnerships     92,107     92,107
   
 
Investments in theme park partnerships   $ 369,874   $ 388,273
   
 

7.    Business Segments

        We manage our operations on an individual park location basis. Discrete financial information is maintained for each park and provided to our 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 our parks provide similar products and services through a similar process to the same class of customer through a consistent method. As such, we have only one reportable segment—operation of theme parks. The following tables present segment financial information, a reconciliation of the primary segment performance measure to loss before income taxes and a reconciliation of theme park revenues to consolidated total revenues. Park level expenses exclude all noncash operating expenses, principally depreciation and amortization, and all non-operating expenses.

 
  Three Months Ended
 
 
  March 31, 2002
  March 31, 2001
 
 
  (In thousands)

 
Theme park revenue   $ 59,922   $ 47,372  
Theme park cash expenses     134,992     126,334  
   
 
 
Aggregate park EBITDA     (75,070 )   (78,962 )
Third-party share of EBITDA from parks accounted for under the equity method     7,924     7,625  
Depreciation and amortization of investment in theme park partnerships     (4,097 )   (5,199 )
Unallocated net expenses, including corporate and other expenses     (9,394 )   (9,614 )
Depreciation and amortization     (36,912 )   (48,263 )
Interest expense     (61,368 )   (58,973 )
Interest income     1,403     2,959  
   
 
 
Loss before income taxes   $ (177,514 ) $ (190,427 )
   
 
 
Theme park revenue   $ 59,922   $ 47,372  
Theme park revenue from parks accounted For under the equity method     (10,671 )   (12,203 )
   
 
 
Consolidated total revenue   $ 49,251   $ 35,169  
   
 
 

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        Seven of our parks are located in Europe, one is located in Mexico and one is located in Canada. The following information reflects our long-lived assets and revenue by domestic and foreign categories for the first quarter of 2002 and 2001. The information for the first quarter of 2001 does not include assets and revenue for the Canadian park, since it was acquired subsequent to March 31, 2001. See Note 3. Long-lived assets include property and equipment, investment in theme park partnerships and intangible assets.

 
  (In thousands)
2002:

  Domestic
  International
  Total
Long-lived assets   $ 3,379,782   $ 525,266   $ 3,905,048
Revenue     35,628     13,623     49,251
 
  (In thousands)
2001:

  Domestic
  International
  Total
Long-lived assets   $ 3,439,573   $ 481,769   $ 3,921,342
Revenue     27,285     7,884     35,169

        Long-lived assets include property and equipment, investment in theme park partnerships and intangible assets.

8.    Recently Issued Accounting Pronouncements

        On April 30, 2002, the FASB issued Statement No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The Statement updates, clarifies and simplifies existing accounting pronouncements. As it relates to us, the statement eliminates the extraordinary loss classification on early debt extinguishments. Instead, the premiums and other costs associated with the early extinguishment of debt would be reflected in pre-tax results similar to other debt-related expenses, such as interest expense and amortization of issuance costs. The statement will be effective for fiscal years beginning after May 15, 2002 (January 1, 2003 in our case). Upon adoption, we must reclassify the extraordinary losses incurred in prior periods (including 1999 and 2001) as pretax items. The result of the adoption of this statement will not modify or adjust net loss for any period and does not impact our compliance with various debt covenants.

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Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

        Results of operations for the three-month period ended March 31, 2002 are not indicative of the results expected for the full year. In particular, our theme park operations contribute a significant majority of their annual revenue during the period from Memorial Day to Labor Day each year.

        The results of operations for the three months ended March 31, 2001 include the results of Enchanted Village for the entire quarter and of the former Sea World of Ohio only subsequent to its acquisition date, February 9, 2001 and do not include the results of La Ronde, which was acquired in May 2001. The accompanying results of operations for the three months ended March 31, 2002 include the results of these three parks for the entire period.

        In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Our Annual Report on Form 10-K for the year ended December 31, 2001 (the "2001 Form 10-K") discussed our most critical accounting policies. Set forth below is an updated discussion of one of such policies "Valuation of long-lived and intangible assets and goodwill." There have been no material developments with respect to the other critical accounting policies discussed in the 2001 Form 10-K since December 31, 2001.

        Through December 31, 2001, we had assessed the impairment of long-lived assets and goodwill whenever events or changes in circumstances indicated that the carrying value would not be recoverable. Factors we consider important which could trigger an impairment review include the following:

        When we determined that the carrying value of long-lived assets and related goodwill may not have been recoverable based upon the existence of one or more of the above indicators of impairment, we measured any impairment based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model. Long-lived assets amounted to $3,905.0 million including goodwill and intangible assets of $1,212.9 million as of March 31, 2002. Long-lived assets include property and equipment, investment in theme park partnerships and intangible assets.

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        In 2002, Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" became effective and as a result, as of January 1, 2002, we ceased to amortize approximately $1.2 billion of goodwill. We had recorded approximately $15.3 million of goodwill amortization on these amounts during the first quarter of 2001 and would have recorded a comparable amount of amortization during the first quarter of 2002. Had SFAS No. 142 been in effect during the first quarter of 2001, the net loss for the period would have decreased to $116.7 million (or $1.58 per share). In lieu of amortization, we are required to perform an initial impairment review of our goodwill in 2002 and an annual impairment review thereafter. We expect to complete our initial review during the first six months of 2002. Because of the extensive effort needed to comply with adopting Statement 142, it is not practicable to reasonably estimate the impact of adopting this Statement on our consolidated financial statements at the date of this quarterly report, including whether any transitional impairment losses will be required to be recognized as the cumulative effect of a change in accounting principle. We will determine the fair value of our units base upon a number of factors principally, expected future cash flows and the fair value of property and equipment in a manner substantially similar to the method that we use when evaluating acquisition targets.

        Revenue in the first quarter of 2002 totaled $49.3 million compared to $35.2 million for the first quarter of 2001, representing a 40.0% increase. The increase in the 2002 period primarily reflects an increase in the number of operating days in that quarter compared to the 2001 period, largely as a result of the Easter holiday occurring in the first quarter of 2002, as well as increased attendance per operating day and improved per capita spending.

        Operating expenses for the first quarter of 2002 increased $6.3 million compared to expenses for the first quarter of 2001. The increase resulted primarily from the inclusion in the entire 2002 period of the former Sea World of Ohio, which was acquired in February 2001, and La Ronde, the Canadian park acquired after the end of the first quarter of 2001. During 2001, the former Sea World facility was combined with our adjacent Six Flags park. Excluding the increase in expenses at the combined Ohio facility and excluding La Ronde, operating expenses in the 2002 period increased $4.3 million as compared to the prior-year period, largely as a result of the increase in the 2002 quarter in the number of operating days.

        Selling, general and administrative expenses for the first quarter of 2002 increased $2.4 million compared to comparable expenses for the first quarter of 2001. Excluding the increase in expenses at the combined Ohio facility and excluding La Ronde, selling, general and administrative expenses in 2002 increased $1.9 million as compared to the prior-year period. Noncash compensation expense was $1.2 million greater than the prior-year period, reflecting the increased amortization associated with prior year restricted stock awards and director stock options.

        Costs of products sold in the 2002 period increased $1.3 million compared to costs for the first quarter of 2001, reflecting the increase in theme park food, merchandise and other revenue in the 2002 period.

        Depreciation and amortization expense for the first quarter of 2002 decreased $11.4 million compared to the first quarter of 2001. The decrease compared to the 2001 level was attributable to the elimination of amortization of goodwill in the 2002 quarter (see Note 1), offset in part by a $2.5 million increase in depreciation expense in the first quarter of 2002. Interest expense, net increased $4.0 million compared to the first quarter of 2001. The increase compared to interest expense, net for the 2001 quarter resulted from the short-term effects of our February 2002 refinancing of

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$450.0 million of public debt with the proceeds of our issuance of $480.0 million principal amount of 87/8% Senior Notes due 2010. Because the related redemption of the refinanced notes was not effected until April 1, 2002, interest expense on these notes continued to accrue through the end of the first quarter of 2002.

        Other expense decreased $2.8 million in the 2002 quarter due to the inclusion of $3.2 million of expense in the 2001 quarter related to the change in fair value of two of our interest rate swap agreements from January 1, 2001 to February 23, 2001 (the date that the interest rate swap agreements were designated as hedging instruments).

        Equity in operations of theme park partnerships reflects our share of the income or loss of Six Flags Over Texas (36% effective Company ownership) and Six Flags Over Georgia, including White Water Atlanta (25% effective Company ownership), the lease of Six Flags Marine World and the management of all four parks. During the first quarter of 2002, the loss from equity in operations of theme park partnerships increased $0.8 million compared to the first quarter of 2001.

        Income tax benefit was $69.3 million for the first quarter of 2002 compared to a $68.0 million benefit for the first quarter of 2001. The effective tax rate for the first quarter of 2002 and 2001 was 39.1% and 35.7%, respectively. Prior to the adoption of Statement 142 as of January 1, 2002, our quarterly effective tax rate varied from period-to-period primarily as a result of permanent differences associated with goodwill amortization for financial purposes and the deductible portion of the amortization for tax purposes.

LIQUIDITY, CAPITAL COMMITMENTS AND RESOURCES

        At March 31, 2002, our total debt (exclusive of debt that was redeemed on April 1, 2002) aggregated $2,414.5 million, of which approximately $158.5 million was scheduled to mature prior to March 31, 2002. Substantially all of the current portion of long-term debt represents borrowings under the working capital revolving credit component of our Credit Facility. Based on interest rates at March 31, 2002 for floating rate debt and after giving effect to the interest rate swaps described herein, annual cash interest payments for 2002 on total debt at March 31, 2002 will aggregate approximately $170.6 million. In addition, annual dividend payments on our outstanding preferred stock are $20.8 million, payable at our option in cash or shares of Common Stock.

        Our debt at March 31, 2002 included $1,652.4 million of fixed-rate senior notes (excluding the notes redeemed on April 1, 2002), with staggered maturities ranging from 2007 to 2010, $747.0 million under our credit facility and $15.1 million of other indebtedness. Our credit facility includes a $600.0 million term loan ($597.0 million outstanding at March 31, 2002); a $285.0 million multicurrency reducing revolver facility (none outstanding at that date) and a $300.0 million working capital revolver ($150.0 million outstanding at that date). The working capital revolving credit facility must be repaid in full for 30 consecutive days during each year and this facility terminates on November 4, 2004. The multicurrency reducing revolving credit facility, which permits optional prepayments and reborrowings, requires quarterly mandatory reductions in the initial commitment (together with repayments, to the extent that the outstanding borrowings thereunder would exceed the reduced commitment) 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 and this facility terminates on May 4, 2005. The term loan facility requires quarterly repayments of 0.25% of the outstanding amount thereof commencing on December 31, 2001 and 24.25% commencing on December 31, 2004. All of our outstanding preferred stock ($287.5 million liquidation preference) must be redeemed on August 15, 2009 (to the extent not previously converted

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into common stock). See Notes 2 and 4 to Notes to Consolidated Financial Statements for additional information regarding our indebtedness and preferred stock.

        Excluding restricted cash used on April 1, 2002 to redeem $450.0 million of debt, at March 31, 2002, we had approximately $72.7 million of unrestricted cash, $75.5 million of restricted cash (available to fund obligations relating to the Partnership Parks described below) and $435.0 million available under our credit facility.

        Due to the seasonal nature of our business, we are largely dependent upon our $300.0 million working capital revolving credit portion of our credit agreement in order to fund off season expenses. Our ability to borrow under the working capital revolver is dependent upon compliance with certain conditions, including financial ratios and the absence of any material adverse change. We are currently in compliance with all of these conditions. If we were to become unable to borrow under the facility, we would likely be unable to pay in full our off season obligations. The working capital facility expires in November 2004. The terms and availability of our credit facility and other indebtedness would not be affected by a change in the ratings issued by rating agencies in respect of our indebtedness.

        During the three months ended March 31, 2002, net cash used in operating activities was $75.1 million. Net cash used in investing activities in the first three months of 2002 totaled $498.6 million, consisting primarily of our investment of the $469.0 million net proceeds of the February 2002 debt issuance pending utilization on April 1, 2002 to redeem $450.0 million of existing public debt. Net cash provided by financing activities in the first three months of 2002 was $593.1 million, representing proceeds of the 2002 debt offering and the borrowings under the Credit Facility.

        In connection with our 1998 acquisition of the former Six Flags, we guaranteed certain obligations relating to Six Flags Over Georgia and Six Flags Over Texas. These obligations continue until 2026, in the case of the Georgia park and 2027, in the case of the Texas park. Among such obligations are (i) minimum annual distributions (including rent) of approximately $51.0 million in 2002 (subject to cost of living adjustments in subsequent years) to partners in these two Partnerships Parks (of which we will be entitled to receive in 2002 approximately $16.1 million based on our present ownership of 25.3% of the Georgia partnership and 35.7% of the Texas partnership), (ii) minimum capital expenditures at each park during rolling five-year periods based generally on 6% of park revenues, and (iii) an annual offer to purchase a maximum number of 5% per year (accumulating to the extent not purchased in any given year) of limited partnership units at specified prices.

        We plan to make approximately $19.8 million of capital expenditures at these parks for the 2002 season, an amount in excess of the minimum required expenditure. We will be required to purchase $935,000 of units at both parks pursuant to the 2002 offer to purchase. Because we have not been required since 1998 to purchase a material amount of units, our maximum unit purchase obligation for both parks in 2003 will be an aggregate of approximately $159.1 million, representing approximately 30.0% of the outstanding units of the Georgia park and 22.7% of the outstanding units of the Texas park. The annual unit purchase obligation (without taking into account accumulation from prior years) aggregates approximately $30.1 million for both parks based on current purchase prices. As we purchase additional units, we are entitled to a proportionate increase in our share of the minimum annual distributions.

        Cash flows from operations at the partnership parks will be used to satisfy the annual distribution and capital expenditure requirements, before any funds are required from us. The two partnerships generated approximately $69.5 million of aggregate EBITDA during 2001. In addition, we had $75.4 million in a dedicated escrow account at March 31, 2002 (classified as a restricted-use

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investment) available to fund these obligations and the obligation to purchase units. At March 31, 2002, we had total loans outstanding of $92.1 million to the partnerships that own these parks, primarily to fund the acquisition of Six Flags White Water Atlanta and to make capital improvements, which loans are included in our investment in theme park partnerships. The balance of these loans at December 31, 2001 was $92.1 million.

        By virtue of its acting as the managing general partner of the partnerships that own Six Flags Over Texas and Six Flags Over Georgia, one of our subsidiaries is legally liable for the obligations of each of those parks, including their indebtedness. Because we are required to account for our interests in those parks by the equity method of accounting, the obligations of the partnerships are not reflected as liabilities on our consolidated balance sheet. At March 31, 2002, these partnerships had outstanding $50.8 million of third-party indebtedness (including $15.6 million of borrowings under working capital revolving facilities at that date), of which $25.3 million (including the working capital facilities' borrowings) matures prior to March 31, 2003. We expect that cash flow from operations at each of the partnership parks will be adequate to satisfy its debt obligations.

        Our current property and liability insurance policies expire in September and November 2002, respectively. Due in large part to the effects of the September 11, 2001 terrorist attack upon the insurance industry, we cannot predict the level of the premiums that we may be required to pay for subsequent insurance coverage, the level of any self insurance retention applicable thereto, the level of aggregate coverage available or the availability of coverage for specific risks, such as terrorism.

        In addition to the debt, preferred stock and lease obligations set forth above and our commitments to the partnerships that own Six Flags Over Texas and Six Flags Over Georgia discussed above, our contractual commitments include commitments for license fees to Warner Bros. and commitments relating to capital expenditures. License fees to Warner Bros. for our domestic parks aggregate $2.5 million annually through 2005. After that season, the license fee is payable based upon the number of domestic parks utilizing the licensed characters. The license fee relating to our international parks is based on percentages of the revenues of the international parks utilizing the characters. For 2001, license fees for our international parks aggregated $1.8 million. At March 31, 2002, we have prepaid approximately $7.8 million of the international license fees.

        Although we are contractually committed to make specified levels of capital expenditures at selected parks for the next several years, the vast majority of our capital expenditures in 2002 and beyond will be made on a discretionary basis. We plan on spending approximately $140.0 million on capital expenditures for the 2002 season, including the expenditures at the Partnership Parks and Six Flags Marine World.

        The degree to which we are leveraged could adversely affect our liquidity. Our 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 our theme parks.

        We believe that, based on historical and anticipated operating results, cash flows from operations, available cash and available amounts under the credit agreement will be adequate to meet our future liquidity needs, including anticipated requirements for working capital, capital expenditures, scheduled debt and preferred stock requirements and obligations under arrangements relating to the Partnership Parks, for at least the next several years. We may, however, need to refinance all or a portion of our existing debt on or prior to maturity or to seek additional financing. In addition, our anticipated cash flows could be materially adversely affected by the occurrence of certain of the risks described in the

24



risk factors incorporated by reference herein from our report on Form 8-K, dated January 31, 2002. In that case, we would need to seek additional financing.


Item 3. Quantitative and Qualitative Disclosures About Market Risk

        The information included in "Quantitative and Qualitative Disclosures About Market Risk" in Item 7A of our 2001 Annual Report on Form 10-K is incorporated herein by reference. Such information includes a description of our potential exposure to market risks, including interest rate risk and foreign currency risk. As of March 31, 2002, there have been no material changes in our market risk exposure from that disclosed in the 2001 Form 10-K.

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PART II—OTHER INFORMATION


Items 1 - 5


 

 

Not applicable.


Item 6—Exhibits and Reports on Form 8-K


 

 

(a)

 

Exhibits

 

 

 

 

None.

 

 

(b)

 

Reports on Form 8-K

 

 

 

 

Current Report on 8-K, dated January 31, 2002.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


 

 

SIX FLAGS, INC.
(Registrant)

 

 

Kieran E. Burke
Chairman and Chief Executive Officer

 

 

James F. Dannhauser
Chief Financial Officer

Date: May 15, 2002

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PART I—FINANCIAL INFORMATION

Dates Referenced Herein   and   Documents Incorporated by Reference

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