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Table of Contents

 

 

 

UNITED STATES

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 the quarterly period ended September 30, 2009

 

 

 

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: 1-13703

 


 

SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

13-3995059

(State or Other Jurisdiction of

 

(I.R.S. Employer Identification No.)

Incorporation or Organization)

 

 

 

1540 Broadway, 15th Fl., New York, NY 10036

(Address of Principal Executive Offices, Including Zip Code)

 

(212) 652-9403

(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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  o

 

Accelerated filer  o

 

 

 

Non-accelerated filer  x

 

Smaller reporting company  o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

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, 2009, Six Flags, Inc. had 98,330,013 outstanding shares of common stock, par value $0.025 per share.

 

 

 



Table of Contents

 

SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

FORM 10-Q

 

INDEX

 

Cautionary Note Regarding Forward-Looking Statements

1

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2008

3

 

 

 

 

Condensed Consolidated Statements of Operations (unaudited) for the Three Months Ended
September 30, 2009 and 2008

5

 

 

 

 

Condensed Consolidated Statements of Operations (unaudited) for the Nine Months Ended
September 30, 2009 and 2008

6

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the
Three and Nine Months Ended September 30, 2009 and 2008

7

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended
September 30, 2009 and 2008

8

 

 

 

 

Notes to Condensed Consolidated Financial Statements

9

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

52

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

59

 

 

 

Item 4T.

Controls and Procedures

59

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

60

 

 

 

Item 1A.

Risk Factors

60

 

 

 

Item 3.

Defaults Upon Senior Securities

60

 

 

 

Item 6.

Exhibits

61

 

 

 

Signatures

 

 

 



Table of Contents

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This document and the documents incorporated herein by reference contain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods.  Examples of forward-looking statements include, but are not limited to, our ability to successfully consummate a restructuring plan.

 

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions.  Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict.  Our actual results may differ materially from those contemplated by the forward-looking statements.  We caution you therefore that you should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance.  These risks and uncertainties include, but are not limited to, statements we make regarding: (i) our ability to develop, prosecute, confirm and consummate one or more Chapter 11 plans of reorganization (See “Chapter 11 Reorganization” herein), (ii) the potential adverse impact of the Chapter 11 filing on our global operations, management and employees, (iii) risks associated with third parties seeking and obtaining court approval to terminate or shorten the exclusivity period for us to propose and confirm a plan of reorganization, to appoint a Chapter 11 trustee or to convert the cases to Chapter 7 cases, (iv) customer response to the Chapter 11 filing, (v) the adequacy of cash flows from operations, available cash and available amounts under our credit facilities to meet our future liquidity needs, or (vi) our continued viability, our operations and results of operations.  Additional important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions and include the following:

 

·                  factors impacting attendance, such as local conditions, contagious diseases, events, disturbances and terrorist activities;

·                  accidents occurring at our parks;

·                  adverse weather conditions;

·                  competition with other theme parks and other entertainment alternatives;

·                  changes in consumer spending patterns;

·                  pending, threatened or future legal proceedings; and

·                  other factors that are described in “Risk Factors,” or are included with the Company’s filings with the United States Bankruptcy Court for the District of Delaware.

 

A more complete discussion of these factors and other risks applicable to our business is contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008 (the “2008 Annual Report”), our Current Reports on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on May 7, 2009 and July 23, 2009 and our Quarterly Report on Form 10-Q filed with the SEC on August 14, 2009.

 

Any forward-looking statement made by us in this document, or on our behalf by our directors, officers or employees related to the information contained herein, speaks only as of the date of this Quarterly Report on Form 10-Q.  Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them.  We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

 

1



Table of Contents

 

Available Information

 

Copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, if applicable, are available free of charge through our website at www.sixflags.com. References to our website in this Quarterly Report on Form 10-Q are provided as a convenience and do not constitute an incorporation by reference of the information contained on, or accessible through, the website. Therefore, such information should not be considered part of this Quarterly Report on Form 10-Q. These reports, and any amendments to these reports, are made available on our website as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the SEC. Copies are also available, without charge, by sending a written request to Six Flags, Inc., 1540 Broadway, New York, NY 10036, Attn:  Secretary.

 

2



Table of Contents

 

PART I — FINANCIAL INFORMATION

 

Item 1.        Financial Statements

 

SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

September 30, 2009

 

December 31, 2008
(As Adjusted Note
2m)

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

262,126,000

 

$

210,332,000

 

Accounts receivable

 

48,799,000

 

20,057,000

 

Inventories

 

25,601,000

 

24,909,000

 

Prepaid expenses and other current assets

 

39,308,000

 

41,450,000

 

Total current assets

 

375,834,000

 

296,748,000

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Debt issuance costs

 

13,209,000

 

31,194,000

 

Restricted-use investment securities

 

2,340,000

 

16,061,000

 

Deposits and other assets

 

95,757,000

 

66,167,000

 

Total other assets

 

111,306,000

 

113,422,000

 

 

 

 

 

 

 

Property and equipment, at cost

 

2,718,930,000

 

2,654,939,000

 

Less accumulated depreciation

 

1,190,553,000

 

1,094,466,000

 

Total property and equipment

 

1,528,377,000

 

1,560,473,000

 

Intangible assets, net of accumulated amortization

 

1,060,222,000

 

1,059,486,000

 

Total assets

 

$

3,075,739,000

 

$

3,030,129,000

 

 

See accompanying notes to condensed consolidated financial statements.

 

3



Table of Contents

 

Item 1.    Financial Statements (Continued)

 

SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

 

 

 

September 30,
2009

 

December 31, 2008
(As Adjusted Note
2m)

 

 

 

(Unaudited)

 

 

 

LIABILITIES and STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

 

 

Liabilities not subject to compromise:

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

21,557,000

 

$

25,060,000

 

Accrued compensation, payroll taxes and benefits

 

18,649,000

 

22,934,000

 

Accrued insurance reserves

 

16,468,000

 

33,929,000

 

Accrued interest payable

 

9,208,000

 

42,957,000

 

Other accrued liabilities

 

26,525,000

 

45,001,000

 

Deferred income

 

36,561,000

 

17,594,000

 

Liabilities from discontinued operations

 

3,000,000

 

1,400,000

 

Current portion of long-term debt

 

305,448,000

 

253,970,000

 

Total current liabilities not subject to compromise

 

437,416,000

 

442,845,000

 

 

 

 

 

 

 

Long-term debt

 

843,905,000

 

2,044,230,000

 

Liabilities from discontinued operations

 

 

6,730,000

 

Other long-term liabilities

 

81,230,000

 

74,337,000

 

Deferred income taxes

 

122,818,000

 

121,710,000

 

Total liabilities not subject to compromise

 

1,485,369,000

 

2,689,852,000

 

Liabilities subject to compromise

 

1,699,609,000

 

 

Total liabilities

 

3,184,978,000

 

2,689,852,000

 

Redeemable noncontrolling interests

 

373,469,000

 

414,394,000

 

Mandatorily redeemable preferred stock (redemption value of $287,500,000 plus accrued and unpaid dividends of $15,633,000 as of December 31, 2008, respectively)

 

 

302,382,000

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

Preferred stock, $1.00 par value

 

 

 

 

 

 

 

 

 

Common stock, $0.025 par value, 210,000,000 shares authorized and 98,330,013 and 97,726,233 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively

 

2,458,000

 

2,443,000

 

Capital in excess of par value

 

1,505,515,000

 

1,491,494,000

 

Accumulated deficit

 

(1,943,958,000

)

(1,813,978,000

)

Accumulated other comprehensive loss

 

(46,723,000

)

(56,458,000

)

 

 

 

 

 

 

Total stockholders’ deficit

 

(482,708,000

)

(376,499,000

)

 

 

 

 

 

 

Total liabilities and stockholders’ deficit

 

$

3,075,739,000

 

$

3,030,129,000

 

 

See accompanying notes to condensed consolidated financial statements.

 

4



Table of Contents

 

Item 1.    Financial Statements (Continued)

 

SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(UNAUDITED)

 

 

 

2009

 

2008
(As Adjusted
Note 2m)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Theme park admissions

 

$

248,891,000

 

$

260,576,000

 

Theme park food, merchandise and other

 

194,303,000

 

209,430,000

 

Sponsorship, licensing and other fees

 

13,841,000

 

19,334,000

 

Total revenue

 

457,035,000

 

489,340,000

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Operating expenses (including stock-based compensation of ($1,418,000) in 2008)

 

143,831,000

 

140,753,000

 

Selling, general and administrative (including stock-based compensation of $521,000 in 2009 and $1,496,000 in 2008)

 

51,185,000

 

53,777,000

 

Costs of products sold

 

38,026,000

 

40,153,000

 

Depreciation

 

36,949,000

 

35,610,000

 

Amortization

 

229,000

 

420,000

 

(Gain) loss on disposal of assets

 

(723,000

)

9,790,000

 

Total operating costs and expenses

 

269,497,000

 

280,503,000

 

Income from operations

 

187,538,000

 

208,837,000

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest expense (contractual interest expense was $45,568,000 in 2009)

 

(16,213,000

)

(45,182,000

)

Interest income

 

152,000

 

400,000

 

Equity in operations of partnerships

 

1,521,000

 

418,000

 

Other income (expense)

 

(148,000

)

2,034,000

 

 

 

 

 

 

 

Total other income (expense)

 

(14,688,000

)

(42,330,000

)

 

 

 

 

 

 

Income from continuing operations before reorganization items, income taxes and discontinued operations

 

172,850,000

 

166,507,000

 

Reorganization items

 

(7,038,000

)

 

 

 

 

 

 

 

Income from continuing operations before income taxes and discontinued operations

 

165,812,000

 

166,507,000

 

 

 

 

 

 

 

Income tax expense

 

(8,378,000

)

(2,635,000

)

 

 

 

 

 

 

Income from continuing operations before discontinued operations

 

157,434,000

 

163,872,000

 

 

 

 

 

 

 

Discontinued operations

 

3,442,000

 

(789,000

)

 

 

 

 

 

 

Net income

 

160,876,000

 

163,083,000

 

 

 

 

 

 

 

Less: Net income attributable to noncontrolling interests

 

(17,536,000

)

(21,358,000

)

 

 

 

 

 

 

Net income attributable to Six Flags, Inc.

 

$

143,340,000

 

$

141,725,000

 

Net income applicable to Six Flags, Inc. common stockholders

 

$

137,927,000

 

$

136,233,000

 

 

 

 

 

 

 

Weighted average number of common shares outstanding – basic

 

97,864,000

 

97,344,000

 

 

 

 

 

 

 

Weighted average number of common shares outstanding – diluted

 

148,747,000

 

155,227,000

 

 

 

 

 

 

 

Net income per average common share outstanding – basic:

 

 

 

 

 

Income from continuing operations applicable to Six Flags, Inc. common stockholders

 

$

1.37

 

$

1.41

 

Discontinued operations applicable to Six Flags, Inc. common stockholders

 

0.04

 

(0.01

)

Net income applicable to Six Flags, Inc. common stockholders

 

$

1.41

 

$

1.40

 

 

 

 

 

 

 

Net income per average common share outstanding – diluted:

 

 

 

 

 

Income from continuing operations applicable to Six Flags, Inc. common stockholders

 

$

0.94

 

$

0.95

 

Discontinued operations applicable to Six Flags, Inc. common stockholders

 

0.02

 

(0.00

)

Net income applicable to Six Flags, Inc. common stockholders

 

$

0.96

 

$

0.95

 

 

 

 

 

 

 

Amounts attributable to Six Flags, Inc.:

 

 

 

 

 

Income from continuing operations

 

$

139,898,000

 

$

142,514,000

 

Discontinued operations

 

3,442,000

 

(789,000

)

Net income

 

$

143,340,000

 

$

141,725,000

 

 

See accompanying notes to condensed consolidated financial statements.

 

5



Table of Contents

 

Item 1.        Financial Statements (Continued)

 

SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(UNAUDITED)

 

 

 

2009

 

2008
(As Adjusted

Note 2m)

 

Revenue:

 

 

 

 

 

Theme park admissions

 

$

434,783,000

 

$

476,202,000

 

Theme park food, merchandise and other

 

343,304,000

 

381,811,000

 

Sponsorship, licensing and other fees

 

32,926,000

 

45,234,000

 

Total revenue

 

811,013,000

 

903,247,000

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Operating expenses (including stock-based compensation of $1,649,000 in 2008)

 

346,383,000

 

347,795,000

 

Selling, general and administrative (including stock-based compensation of $1,962,000 in 2009 and $4,652,000 in 2008)

 

164,285,000

 

178,152,000

 

Costs of products sold

 

69,259,000

 

76,491,000

 

Depreciation

 

107,209,000

 

103,605,000

 

Amortization

 

687,000

 

980,000

 

Loss on disposal of assets

 

5,817,000

 

14,381,000

 

Total operating costs and expenses

 

693,640,000

 

721,404,000

 

Income from operations

 

117,373,000

 

181,843,000

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest expense (contractual interest expense was $126,435,000 in 2009)

 

(91,209,000

)

(140,977,000

)

Interest income

 

691,000

 

883,000

 

Equity in operations of partnerships

 

2,170,000

 

(1,368,000

)

Net gain on debt extinguishment

 

 

107,743,000

 

Other expense

 

(18,092,000

)

(847,000

)

 

 

 

 

 

 

Total other income (expense)

 

(106,440,000

)

(34,566,000

)

 

 

 

 

 

 

Income from continuing operations before reorganization items, income taxes and discontinued operations

 

10,933,000

 

147,277,000

 

Reorganization items

 

(85,763,000

)

 

 

 

 

 

 

 

Income (loss) from continuing operations before income taxes and discontinued operations

 

(74,830,000

)

147,277,000

 

 

 

 

 

 

 

Income tax expense

 

(5,214,000

)

(7,109,000

)

 

 

 

 

 

 

Income (loss) from continuing operations before discontinued operations

 

(80,044,000

)

140,168,000

 

 

 

 

 

 

 

Discontinued operations

 

1,478,000

 

(15,765,000

)

 

 

 

 

 

 

Net income (loss)

 

(78,566,000

)

124,403,000

 

 

 

 

 

 

 

Less: Net income attributable to noncontrolling interests

 

(35,072,000

)

(41,324,000

)

Net income (loss) attributable to Six Flags, Inc.

 

$

(113,638,000

)

$

83,079,000

 

 

 

 

 

 

 

Net income (loss) applicable to Six Flags, Inc. common stockholders

 

$

(129,980,000

)

$

66,602,000

 

Weighted average number of common shares outstanding – basic

 

97,607,000

 

96,787,000

 

Weighted average number of common shares outstanding – diluted

 

97,607,000

 

140,881,000

 

 

 

 

 

 

 

Net income (loss) per average common share outstanding – basic:

 

 

 

 

 

Income (loss) from continuing operations applicable to Six Flags, Inc. common stockholders

 

$

(1.35

)

$

0.85

 

Discontinued operations applicable to Six Flags, Inc. common stockholders

 

0.02

 

(0.16

)

Net income (loss) applicable to Six Flags, Inc. common stockholders

 

$

(1.33

)

$

0.69

 

 

 

 

 

 

 

Net income (loss) per average common share outstanding – diluted:

 

 

 

 

 

Income (loss) from continuing operations applicable to Six Flags, Inc. common stockholders

 

$

(1.35

)

$

0.69

 

Discontinued operations applicable to Six Flags, Inc. common stockholders

 

0.02

 

(0.11

)

Net income (loss) applicable to Six Flags, Inc. common stockholders

 

$

(1.33

)

$

0.58

 

 

 

 

 

 

 

Amounts attributable to Six Flags, Inc.:

 

 

 

 

 

Income (loss) from continuing operations

 

$

(115,116,000

)

$

98,844,000

 

Discontinued operations

 

1,478,000

 

(15,765,000

)

 

 

 

 

 

 

Net income (loss)

 

$

(113,638,000

)

$

83,079,000

 

 

See accompanying notes to condensed consolidated financial statements.

 

6



Table of Contents

 

Item 1.        Financial Statements (Continued)

 

SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(UNAUDITED)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2009

 

2008
(As adjusted
Note 2m)

 

2009

 

2008
(As adjusted
Note 2m)

 

Net income (loss)

 

$

160,876,000

 

$

163,083,000

 

$

(78,566,000

)

$

124,403,000

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

2,918,000

 

(4,983,000

)

8,429,000

 

(4,249,000

)

Defined benefit retirement plan

 

232,000

 

5,000

 

3,977,000

 

(225,000

)

Change in cash flow hedging

 

(437,000

)

(5,506,000

)

(2,671,000

)

6,775,000

 

Comprehensive income (loss)

 

163,589,000

 

152,599,000

 

(68,831,000

)

126,704,000

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to noncontrolling interests

 

(17,536,000

)

(21,358,000

)

(35,072,000

)

(41,324,000

)

Comprehensive income (loss) attributable to Six Flags, Inc.

 

$

146,053,000

 

$

131,241,000

 

$

(103,903,000

)

$

85,380,000

 

 

See accompanying notes to condensed consolidated financial statements.

 

7



Table of Contents

 

Item 1.    Financial Statements (Continued)

 

SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(UNAUDITED)

 

 

 

2009

 

2008
(As Adjusted
Note 2m)

 

Cash flow from operating activities:

 

 

 

 

 

Net income (loss)

 

$

(78,566,000

)

$

124,403,000

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities before reorganization activities:

 

 

 

 

 

Depreciation and amortization

 

107,896,000

 

104,585,000

 

Stock-based compensation

 

1,962,000

 

6,301,000

 

Interest accretion on notes payable

 

2,785,000

 

5,057,000

 

Net (gain) on debt extinguishment

 

 

(107,743,000

)

Reorganization items, net

 

85,763,000

 

 

(Gain) loss on discontinued operations

 

(5,130,000

)

11,881,000

 

Amortization of debt issuance costs

 

3,313,000

 

4,130,000

 

Other including loss on disposal of assets

 

14,755,000

 

15,900,000

 

Increase in accounts receivable

 

(30,093,000

)

(38,612,000

)

Decrease (increase) in inventories, prepaid expenses and other current assets

 

1,495,000

 

(3,194,000

)

(Increase) decrease in deposits and other assets

 

(29,589,000

)

4,830,000

 

Increase in accounts payable, deferred income, accrued liabilities and other long-term liabilities

 

44,631,000

 

7,884,000

 

Increase in accrued interest payable

 

16,128,000

 

9,365,000

 

Deferred income tax expense

 

951,000

 

250,000

 

Total adjustments

 

214,867,000

 

20,634,000

 

Net cash provided by operating activities before reorganization activities

 

136,301,000

 

145,037,000

 

 

 

 

 

 

 

Cash flow from reorganization activities:

 

 

 

 

 

Cash used in reorganization activities

 

(13,641,000

)

 

Total net cash provided by operating activities

 

122,660,000

 

145,037,000

 

 

 

 

 

 

 

Cash flow from investing activities:

 

 

 

 

 

Additions to property and equipment

 

(76,143,000

)

(92,554,000

)

Property insurance recovery

 

2,423,000

 

8,712,000

 

Purchase of identifiable intangible assets

 

 

(258,000

)

Acquisition of theme park assets

 

 

(473,000

)

Maturities of restricted-use investments

 

15,638,000

 

 

Purchase of restricted-use investments

 

(1,917,000

)

(3,384,000

)

Gross proceeds from sale of assets

 

957,000

 

606,000

 

Net cash used in investing activities

 

(59,042,000

)

(87,351,000

)

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

Repayment of borrowings

 

(36,390,000

)

(295,107,000

)

Proceeds from borrowings

 

100,619,000

 

278,750,000

 

Purchase of redeemable minority interests

 

(58,461,000

)

 

Noncontrolling interest distributions

 

(17,536,000

)

(20,436,000

)

Payment of cash dividends

 

 

(5,211,000

)

Payment of debt issuance costs

 

(489,000

)

(9,672,000

)

Net cash used in financing activities

 

(12,257,000

)

(51,676,000

)

Effect of exchange rate changes on cash

 

433,000

 

(70,000

)

Increase in cash and cash equivalents

 

51,794,000

 

5,940,000

 

Cash and cash equivalents at beginning of year

 

210,332,000

 

28,388,000

 

Cash and cash equivalents at end of period

 

$

262,126,000

 

$

34,238,000

 

 

 

 

2009

 

2008
(As Adjusted
Note 2m)

 

Supplemental cash flow information:

 

 

 

 

 

 Cash paid for interest

 

$

77,707,000

 

$

122,426,000

 

 

 

 

 

 

 

 Cash paid for income taxes

 

$

4,091,000

 

$

6,415,000

 

 

See accompanying notes to condensed consolidated financial statements.

 

8



Table of Contents

 

SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

SIX FLAGS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.                                      Chapter 11 Reorganization

 

As used in this Quarterly Report on Form 10-Q, unless the context requires otherwise, the terms “we,” “our,” “Company” or “Six Flags” refer to Six Flags, Inc. and its consolidated subsidiaries.  As used herein, “Holdings” refers only to Six Flags, Inc., without regard to its subsidiaries.

 

On June 13, 2009, Holdings, Six Flags Operations Inc. (“SFO”) and Six Flags Theme Parks Inc. (“SFTP”) and certain of SFTP’s domestic subsidiaries (the “SFTP Subsidiaries” and, collectively with Holdings, SFO and SFTP, the “Debtors”) filed voluntary petitions for relief (the “Chapter 11 Filing”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) (Case No. 09-12019).  The entities that own our interests in Six Flags Over Texas (“SFOT”) and Six Flags Over Georgia (including Six Flags White Water Atlanta) (“SFOG” and together with SFOT, the “Partnership Parks”) and our Canadian and Mexican parks are not debtors in the Chapter 11 Filing.

 

In anticipation of the Chapter 11 Filing, the Debtors entered into a Plan Support Agreement (the “Support Agreement”), dated June 13, 2009, with certain participating lenders (the “Participating Lenders”), who are parties to the Second Amended and Restated Credit Agreement, dated as of May 25, 2007 (as amended, modified or otherwise supplemented from time to time, the “Credit Agreement”), among Holdings, SFO, SFTP (as the primary borrower), certain of SFTP’s foreign subsidiaries party thereto, the lenders thereto (the “Lenders”), the agent banks party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (in such capacity, the “Administrative Agent”).  The Debtors’ proposed joint Chapter 11 plan of reorganization (the “Original Plan”), as outlined in the Support Agreement, had the unanimous support of the Lenders’ steering committee and the Administrative Agent.

 

Under the Original Plan, the holders of claims under the Credit Agreement against SFTP and certain of its wholly-owned domestic subsidiaries (“Prepetition Credit Agreement Claims”) would have converted such claims into (i) approximately 92% of the common stock (“New Common Stock”) to be issued by Holdings following its emergence from Chapter 11 (“Reorganized SFI”) (subject to dilution by a new long-term incentive plan (the “Long-Term Incentive Plan”)), and (ii) a new term loan in the aggregate principal amount of $600 million (the “Original New Term Loan”).  Prepetition Credit Agreement Claims against SFO would have been discharged and exchanged for a new guaranty of the obligations under the Original New Term Loan by SFO following its emergence from Chapter 11 (“Reorganized SFO”).  All other secured claims against the Debtors that were allowed, if any, would have been either paid in full or reinstated, in the Debtors’ discretion.  Allowed unsecured claims against all of the Debtors other than Holdings and SFO would have been paid in full or been reinstated (but solely to the extent such claims were allowed by the Bankruptcy Court).  Claims against SFTP and SFO, respectively, based on a guaranty of the obligations of SFOG Acquisition A, Inc., SFOG Acquisition B, L.L.C., SFOT Acquisition I, Inc. and SFOT Acquisition II, Inc., each an indirect subsidiary of Holdings (the “Acquisition Parties”), and the general partners of the Partnership Parks, to Historic TW Inc. and Warner Bros. Entertainment Inc. and certain of their affiliates (collectively, “Time Warner”) under a certain promissory note and a certain subordinated indemnity agreement (the “Subordinated Indemnity Agreement”) would have been discharged and exchanged for new guarantees of such obligations.  The holders of allowed unsecured claims against SFO (which includes claims arising under or related to $400 million aggregate principal amount of SFO’s unsecured 12.25% senior notes (plus accrued and unpaid interest) due 2016 (the “2016 Notes”) issued pursuant to that certain Indenture (the “2016 Indenture”), dated as of June 16, 2008, among SFO, Holdings and HSBC Bank USA, National Association (“SFO

 

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Table of Contents

 

SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

Note Claims”)) would have converted their claims against SFO into approximately 7% of the New Common Stock to be issued by Reorganized SFI (subject to dilution by the Long-Term Incentive Plan).  The holders of allowed unsecured claims against Holdings (which includes claims arising under (i)  Holdings’ unsecured 8.875% senior notes due 2010 (the “2010 Notes”) issued pursuant to that certain Indenture, dated as of February 11, 2002, between Holdings and The Bank of New York (“BONY”), (ii) Holdings’ unsecured 9.75% senior notes due 2013 (the “2013 Notes”) issued pursuant to that certain Indenture dated as of April 16, 2003, between Holdings and BONY, (iii) Holdings’ unsecured 9.625% senior notes due 2014 (the “2014 Notes”) issued pursuant to that certain Indenture, dated as of December 5, 2003, between Holdings and BONY, (iv) Holdings’ unsecured 4.5% convertible senior notes due 2015  (the “2015 Notes”) issued pursuant to that certain Indenture, dated as of November 19, 2004, between Holdings and BONY (collectively, the 2010 Notes, the 2013 Notes, the 2014 Notes and the 2015 Notes, “Holdings’ Notes”), and (v) the guaranty by Holdings of obligations owed to holders of the 2016 Notes under the 2016 Notes Indenture (“SFO Note Guaranty Claim”)) would have converted their claims against Holdings into approximately 1% of the New Common Stock to be issued by Reorganized SFI (subject to dilution by the Long-Term Incentive Plan).  All existing equity interests in Holdings would have been cancelled under the Original Plan.  All existing equity interests in SFO would have been cancelled, and 100% of the newly-issued common stock of SFO would have been issued to Holdings on the effective date of the Original Plan in consideration for Holdings’ distribution of the New Common Stock in Reorganized SFI to certain holders of allowed claims, as described above.  The existing equity interests in all Debtors other than Holdings and SFO (“Preconfirmation Subsidiary Equity Interests”) would have remained unaltered by the Original Plan.  On July 22, 2009, the Debtors filed with the Bankruptcy Court a Disclosure Statement and the Original Plan, which was amended by the Debtors and filed on August 21, 2009 to provide additional detail on the Debtors’ financial condition and business projections, but the fundamental structure and creditor treatment remained the same.

 

Since the filing of the Original Plan, a variety of factors led the Debtors to conclude that the Original Plan should be modified, including extensive discussions with a wide variety of creditor constituencies, including the creditors’ committee of the Debtors (the “Creditors’ Committee”), an informal committee of holders of the 2016 Notes (the “Informal Committee”), certain holders of the 2010 Notes, 2013 Notes, 2014 Notes and 2015 Notes, and Time Warner.  As a result, on November 7, 2009, the Debtors filed with the Bankruptcy Court the Disclosure Statement (the “Disclosure Statement”) and a Second Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the “Plan”), which amended the Original Plan. The Support Agreement is expected to be terminated in the near term.

 

Under the Plan, the holders of Prepetition Credit Agreement Claims against SFTP, SFO and certain of its wholly-owned domestic subsidiaries will be paid in full, in cash, from the proceeds of (i) an exit term loan in the principal amount of $650 million (the “Exit Term Loan”), and (ii) a $450 million rights offering (the “Offering”) based on a $1.335 billion total enterprise value of Six Flags to the holders of allowed unsecured claims against SFO (which includes SFO Note Claims) who are “accredited investors” as defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (“Eligible Holders”), that vote to accept the Plan (“Accepting SFO Noteholder”).  The Company also entered into a backstop commitment agreement (the “Backstop Commitment Agreement”) with entities (the “Backstop Purchasers”) that agreed to subscribe for any such amount of New Common Stock not purchased pursuant to the Offering if the net proceeds from the Offering are less than $450 million.  Under the Backstop Commitment Agreement, in the event that the Debtors enter into a financing transaction with parties other than the Backstop Purchasers or do not issue the New Common Stock on the terms and subject to the conditions set forth in the Plan, the Debtors will be required to pay to the Backstop Purchasers a breakup fee equal to 5.0% of the Offering amount.  All other secured claims against the Debtors that are allowed by the Bankruptcy Court, if any, will either be paid in full or reinstated, in the Debtors’ discretion, with the consent of a majority of the Backstop Purchasers (the “Majority Backstop Purchasers”) (which consent shall not be unreasonably withheld).  Allowed unsecured claims against all of the Debtors other than Holdings and SFO will be paid in full or be reinstated (but solely to the extent such claims are allowed by the Bankruptcy Court).

 

Claims against SFTP, SFO and Holdings, respectively, based on a guaranty of the obligations of the

 

10



Table of Contents

 

SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

Acquisition Parties and the general partners of the Partnership Parks and, in the case of SFTP and SFO, the entities that are the limited partners in the Partnership Parks, will be affirmed and continued by SFTP following emergence from Chapter 11 (“Reorganized SFTP”), Reorganized SFO and Reorganized SFI, respectively (collectively, the “Partnership Parks Claims”).

 

The holders of allowed unsecured claims against SFO will convert their claims against SFO into approximately 22.89% of the New Common Stock to be issued by Reorganized SFI (subject to dilution by the Long-Term Incentive Plan), which amount does not attribute any value associated with the SFO Note Guaranty Claim.  The holders of allowed unsecured claims against Holdings will convert their claims against Holdings into approximately 7.34% of the New Common Stock to be issued by Reorganized SFI (subject to dilution by the Long-Term Incentive Plan), which amount includes the value attributed to the SFO Note Guaranty Claim.  Additionally, each Accepting SFO Noteholder will have the limited right to participate in the Offering to purchase its Limited Offering Pro Rata Share of up to $450 million of New Common Stock, representing approximately 69.77% of the New Common Stock (including New Common Stock to be acquired by the Backstop Purchasers in the Offering), subject to dilution by the Long-Term Incentive Plan, to be issued by Reorganized SFI.  The “Limited Offering Pro Rata Share” is (x) the total principal amount of 2016 Notes held by an Eligible Holder divided by (y) four times the aggregate principal amount of all 2016 Notes outstanding as of June 13, 2009, which is the date the Debtors commenced their Chapter 11 Filing (the “Petition Date”).

 

All existing equity interests in Holdings will be cancelled under the Plan.  All existing equity interests in SFO will be cancelled, and 100% of the newly-issued common stock of SFO will be issued to Holdings on the effective date of the Plan in consideration for Holdings’ distribution of the New Common Stock in Reorganized SFI to certain holders of allowed claims, as described above.  The Preconfirmation Subsidiary Equity Interests will remain unaltered by the Plan.

 

Based upon the Debtors’ estimate of the allowed claims as of an assumed effective date of the Plan of December 31, 2009 in the Chapter 11 Filing and the estimated range of reorganization value further detailed in the Disclosure Statement, the Plan provides for a recovery of 100.0% to holders of Prepetition Credit Agreement Claims against SFTP, a 100% recovery for the holders of all other secured claims, a 100% recovery for the holders of unsecured claims against all Debtors other than SFO and Holdings, 31.2% to 47.1% to holders of SFO unsecured claims, 3.2% to 4.8% to holders of SFI unsecured claims, and no recovery for holders of equity interests in Holdings prior to the Chapter 11 Filing.  These projections are based on assumptions described in the Disclosure Statement and are not guaranteed.  See “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” contained in Item 1A of the 2008 Annual Report and Part II, Item 1A of the Quarterly Report on Form 10-Q filed with the SEC on August 14, 2009.  The Plan is supported by the Debtors and each of the Informal Committee (subject to the satisfaction of the terms and conditions set forth in the Backstop Commitment Agreement), the steering committee of the Participating Lenders and Time Warner.

 

Chapter 11 Financing

 

The Plan provides for the Debtors to incur new indebtedness upon the effective date, consisting of a senior secured credit facility to be provided to SFTP (the “Exit Facility”) by JPMorgan Chase Bank, N.A. (“JPMCB”), J.P. Morgan Securities Inc. (“JPMSI”), Bank of America, N.A. (“BANA”) and Banc of America Securities LLC (“BAS”) (together with JPMCB, JPMSI and BANA, collectively, the “Commitment Parties”) and a syndicate of lenders chosen by the Commitment Parties (together with JPMCB, the “Exit Facility Lenders”).  Such Exit Facility is described below.

 

The Exit Facility, as contemplated in the commitment letter and related term sheet and fee letter

 

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Table of Contents

 

SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

executed by the Commitment Parties and SFTP in October 2009 (the “Commitment Parties’ Commitment Papers”), will consist of an eight hundred million dollar ($800,000,000) senior secured credit facility comprised of a $150,000,000 revolving loan facility (the “Exit Revolving Loan”) and a $650,000,000 term loan facility (the “Exit Term Loan” and together with the Exit Revolving Loan, collectively, the “Exit Facility Loans”).  Interest on the Exit Facility will accrue at an annual rate equal to LIBOR + 4.25%, with a 2.00% LIBOR floor and a 1.50% commitment fee on the Exit Revolving Loans on the average daily unused portion of the Exit Revolving Loans.  The principal amount of the Exit Revolving Loans will be due and payable five years from the closing date of the Exit Facility and the principal amount of the Exit Term Loan will be due and payable six years from the closing date of the Exit Facility.  The loan agreement governing the Exit Facility (the “Exit Facility Loan Agreement”) will require quarterly payments on the Exit Term Loan in an amount equal to 0.25% of the initial aggregate principal amount of the Exit Term Loan and the remainder of the balance will be paid in one final payment on the date that is six years after the closing date of the Exit Facility and is prepayable at any time at the option of SFTP.  The Exit Facility will be guaranteed by Holdings, SFO and each of the current and future direct and indirect domestic subsidiaries of SFTP; provided that to the extent SFTP acquires any non-wholly owned direct or indirect subsidiary after the closing date of the Chapter 11 Filing such subsidiary will not be required to be a guarantor and/or pledgor of the Exit Facility (together with SFTP, collectively, the “Exit Financing Loan Parties”).  The proceeds of the Exit Term Loan together with the net proceeds from the Offering will be used to repay the outstanding amounts owed under the Prepetition Credit Agreement and the Exit Revolving Loans will be used to meet working capital and other corporate needs of the Debtors, thereby facilitating their emergence from bankruptcy.  The Exit Facility will be secured by first priority liens upon substantially all existing and after-acquired assets of the Exit Financing Loan Parties.  The Exit Facility Loan Agreement will contain certain representations, warranties and affirmative covenants, including minimum interest coverage and maximum senior leverage maintenance covenants.  In addition, the Exit Facility Loan Agreement will contain restrictive covenants that limit, among other things, the ability of the Exit Financing Loan Parties to incur indebtedness, create liens, engage in mergers, consolidations and other fundamental changes, make investments or loans, engage in transactions with affiliates, pay dividends, make capital expenditures and repurchase capital stock.  The Exit Financing Loan Agreement will contain certain events of default, including payment, breaches of covenants and representations, cross defaults to other material indebtedness, judgment, changes of control and bankruptcy events of default.  The Commitment Parties’ commitment is subject to certain customary conditions and market “flex” provisions as well as confirmation of the Plan and the retention of the existing senior management of the Debtors continuing as the senior management of Six Flags following consummation of the Plan.  In addition the Debtors’ payment or other binding obligations under the Commitment Parties’ Commitment Papers would be subject to Bankruptcy Court approval.

 

The commitment of the Commitment Parties to provide the Exit Facility Loans will expire unless the Bankruptcy Court has entered a final order approving the Commitment Parties’ Commitment Papers by 5:00 p.m. (New York time) on November 24, 2009.

 

The Debtors have executed documents evidencing the same together with other documents that the Exit Facility Lenders have required to consummate the Exit Facility and the transactions contemplated thereby.  In accordance with the Plan, the Reorganized Debtors’ entry into the Exit Facility Loans and the incurrence of the indebtedness thereunder on the effective date will be authorized without the need for any further corporate action and without any further action by holders of claims or Preconfirmation Equity Interests.

 

Notwithstanding the foregoing, the Majority Backstop Purchasers will have the right to (i) approve any term or provision in the Exit Facility Loan Documents that constitutes a material change to any term or condition set forth in the Commitment Parties’ Commitment Papers, and (ii) approve all terms and conditions of the Exit Facility not set forth, or left as “to be determined,” “customary” or

 

12



Table of Contents

 

SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

similar descriptions therein, in the Commitment Parties’ Commitment Papers.

 

Further, shortly after the Chapter 11 Filing, Six Flags and Time Warner entered into discussions to address the Acquisition Parties’ future obligations under the Partnership Park arrangements and the Subordinated Indemnity Agreement, as applicable, to purchase future “put” limited partnership units in the Partnership Parks (“Partnership Park LP Interests”).  As a result of those discussions, Time Warner delivered to Six Flags and the Acquisition Parties an executed commitment letter and related term sheet and fee letter in October 2009 (the “TW Commitment Papers”), pursuant to which Time Warner or an affiliate of Time Warner (the “New TW Lender”) has agreed to provide the Acquisition Parties with a $150,000,000 multi-draw term loan facility (the “New TW Loan”) on the terms and subject to the conditions summarized in the TW Commitment Papers.  Interest on the New TW Loan will accrue at a rate equal to (i) the greater of (a) LIBOR and (b) 2.50% (or to the extent that any LIBOR or similar rate floor under the Exit Term Loan (or under any senior term credit facility that amends, restates, amends and restates, refinances, modifies or extends the Exit Term Loan) is higher than 2.50%, such higher floor) plus (ii) the then “Applicable Margin” under the Exit Term Loan (or, if higher) under any successor term facility plus (iii) 1.00%.  In the event that any of the loan parties issue corporate bonds or other public debt, and the then applicable credit default swap spread is higher than the “Applicable Margin” referenced in the foregoing sentence, such “Applicable Margin” will be increased based on the applicable default swap spread then in effect, subject to a fixed cap.  Funding during the availability period under the New TW Loan will occur only on May 14th (or the immediately preceding business day) of each fiscal year (each a “Funding Date”) in which amounts required to satisfy the “put” obligations exceeds (a) for the fiscal year ending December 31, 2010, $10,000,000, (b) for the fiscal year ending December 31, 2011, $12,500,000 and (c) for each subsequent fiscal year, $15,000,000.  The principal amount of the New TW Loan borrowed on each Funding Date will be due and payable five years from such Funding Date.  The loan agreement governing the New TW Loan (the “New TW Loan Agreement”) will require prepayments with any cash of the Acquisition Parties (other than up $50,000 per year) including the proceeds received by the Acquisition Parties from the Company-owned Partnership Park LP Interests and is prepayable at any time at the option of the Acquisition Parties.  However, as long as any amounts owing under the existing TW Loan are outstanding, any such cash will first be applied toward mandatory prepayments of amounts owing thereunder.  The New TW Loan will be unconditionally guaranteed on a joint and several and senior unsecured basis by Holdings, SFO, SFTP and each of the current direct and indirect domestic subsidiaries of Holdings who are or in the future become guarantors under the Exit Facility (collectively, the “New TW Guarantors”) under the terms of a guaranty agreement (the “New TW Guarantee Agreement”) to be entered into by the New TW Guarantors in favor of the New TW Lender.  As set forth in the TW Commitment Papers, the New TW Loan Agreement and New TW Guarantee Agreement will contain representations, warranties, covenants and events of default on substantially similar terms as those contained in the Exit Facility but will be modified, as agreed to by New TW Lender and the New TW Guarantors, to provide additional flexibility to the New TW Guarantors from the covenants in the Exit Facility that are commensurate with the different positions of the Exit Facility and the New TW Loan Agreement in the capital structure of Six Flags.  The Exit Facility will contain terms and conditions that (a) are not in conflict with the terms of the New TW Loan Agreement and do not directly or indirectly restrict the ability of the Acquisition Parties and New TW Guarantors to perform their obligations under the New TW Loan Agreement, the Subordinated Indemnity Agreement, the Partnership Parks arrangements or certain license agreements with Warner Bros., and (b) contain terms and conditions that are no more onerous (as determined by the New TW Lender) to the Acquisition Parties and New TW Guarantors than those set forth in the in the TW Commitment Papers.  TW’s commitment is subject to certain customary conditions as well as confirmation of the Plan and the retention of the existing senior management of the Debtors continuing as the senior management of Six Flags following consummation of the Plan.  In addition, the New TW Guarantors’ payment or other binding obligations under the TW Commitment Papers would be subject to Bankruptcy Court approval.

 

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Table of Contents

 

SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

The commitment of the New TW Lender to provide the New TW Loan will expire unless the Bankruptcy Court has entered a final order approving the TW Commitment Papers by 5:00 p.m. (New York time) on November 24, 2009.

 

Notwithstanding the foregoing, any material changes to the New TW Loan as described in the TW Commitment Papers are subject to the approval of the Majority Backstop Purchasers.

 

Reporting Requirements

 

As a result of the Chapter 11 Filing, the Debtors are now required to file various documents with, and provide certain information to, the Bankruptcy Court, including statements of financial affairs, schedules of assets and liabilities, and monthly operating reports in forms prescribed by federal bankruptcy law, as well as certain financial information on an unconsolidated basis. Such materials will be prepared according to requirements of federal bankruptcy law.  While they accurately provide then-current information required under federal bankruptcy law, they are nonetheless unconsolidated, unaudited, and are prepared in a format different from that used in Six Flags, Inc.’s consolidated financial statements filed under the securities laws.  Accordingly, the Company believes that the substance and format do not allow meaningful comparison with its regular publicly-disclosed consolidated financial statements.  Moreover, the materials filed with the Bankruptcy Court are not prepared for the purpose of providing a basis for an investment decision relating to the Company’s securities, or for comparison with other financial information filed with the SEC.

 

Reasons for Bankruptcy

 

For several years, the Debtors have faced a number of challenges, most significantly their over-leveraged balance sheet, which have impaired their ability to achieve profitability.  Under the direction of the previous board of directors of Holdings and the management team, the Company had amassed more than $2.5 billion of debt and preferred income equity redeemable shares (“PIERS”) obligations by the end of 2005 in order to acquire theme parks and conduct various capital expenditure programs.  Faced with a highly leveraged balance sheet, in 2006 the newly constituted board of directors approved substantial changes to senior management, including several park presidents (formerly referred to as general managers), and new management began to effectuate a series of long-term operating initiatives.  By 2008, the new management team achieved several key strategic objectives, including diversifying and growing revenues, and increasing operational efficiency and operating cash flows, which it had set out to achieve by the end of its third year.

 

In addition, the new management team also worked to reduce the Company’s debt obligations.  This was achieved by, among other means, selling ten parks for approximately $400 million in gross proceeds, entering into the Credit Agreement that reduced interest costs and extended maturities and completing an exchange offer that exchanged $530.6 million of Holdings’ Notes for $400.0 million of 2016 Notes, resulting in reduced debt and interest, and extended maturities.  Despite these significant achievements, the Company remained highly leveraged and had substantial indebtedness and PIERS obligations.

 

The PIERS required mandatory redemption by August 15, 2009 at 100% of the liquidation preference in cash, which amounted to approximately $275.4 million (after giving affect to $12.1 million of PIERS that converted to common stock in the third quarter of 2009), plus accrued and unpaid dividends of approximately $31.2 million.  Because the Debtors were not going to be able to satisfy this obligation and a default of the PIERS obligations would also have caused a default under the Credit Agreement, the Debtors sought to refinance or restructure the PIERS before the mandatory redemption

 

14



Table of Contents

 

SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

date.  A default under the Credit Agreement, in turn, would have permitted the lenders thereunder to accelerate the Debtors’ obligations under the Credit Agreement.  Such acceleration under the Credit Agreement would have also triggered cross-defaults under Holdings’ Notes, resulting in most, if not all, of the Debtors’ long-term debt becoming due and payable immediately.

 

Recognizing the need for a comprehensive solution for these financial issues, prior to commencing the Chapter 11 Filing, the Debtors attempted to effect out-of-court exchange offers designed to reduce unsecured debt and interest expense requirements, leave in place its favorable Credit Agreement, and improve financial and operational flexibility to allow the Company to compete more effectively and generate long-term growth (the “Exchange Offers”).  Accordingly, Holdings (i) announced the commencement of an exchange offer and consent solicitation on April 17, 2009 to exchange the 2010 Notes, 2013 Notes and 2014 Notes for common stock and (ii) announced the commencement of an exchange offer and consent solicitation on May 6, 2009 to exchange the 2015 Notes for common stock.  The consummation of the Exchange Offers with respect to such Holdings’ Notes was conditioned on, among other things, the valid participation of at least 95% of the aggregate principal amount of each issue of Holdings’ Notes.  The Exchange Offers, however, were unsuccessful for two primary reasons: (1) the minimum tender thresholds established for such Exchange Offers were not met; and (2) even more importantly, the Company determined that these Exchange Offers would have ultimately been inadequate to resolve its financial challenges due to significant, and unexpected, declines in financial performance and liquidity for reasons beyond management’s control (e.g., macro economic turbulence, rising levels of national unemployment, a swine flu epidemic, and adverse weather conditions), as well as higher-than-expected “put” obligations from the Partnership Parks.  Accordingly, even if the minimum tender conditions were satisfied, the Company would have continued to face significant challenges maintaining adequate liquidity and necessary financial covenant compliance under the Credit Agreement.

 

Holdings also contemplated soliciting consents from the holders of the PIERS to amend the terms of the PIERS to provide for the automatic conversion of the PIERS into common stock and filed a preliminary proxy statement with the SEC with respect to, among other things, the PIERS solicitation.  However, because it became apparent that 95% of the aggregate principal amount of each of the 2010 Notes, 2013 Notes and 2014 Notes would not participate in the Exchange Offers, Holdings did not commence the consent solicitation with respect to the PIERS.

 

Notifications

 

Shortly after the Petition Date, the Debtors began notifying current or potential creditors of the Chapter 11 Filing.  Subject to certain exceptions under the Bankruptcy Code, the Chapter 11 Filing automatically enjoined, or stayed, the continuation of any judicial or administrative proceedings or other actions against the Debtors or their property to recover on, collect or secure a claim arising prior to the Petition Date.  Thus, for example, most creditor actions to obtain possession of property from the Debtors, or to create, perfect or enforce any lien against the property of the Debtors, or to collect on monies owed or otherwise exercise rights or remedies with respect to a claim arising prior to the Petition Date are enjoined unless and until the Bankruptcy Court lifts the automatic stay.  Vendors are being paid for goods furnished and services provided after the Petition Date in the ordinary course of business.  The deadline for the filing of proofs of claims against the Debtors has not yet been established by the Bankruptcy Court.

 

Creditors’ Committee

 

As required by the Bankruptcy Code, the United States Trustee for the District of Delaware appointed the Creditors’ Committee.  The Creditors’ Committee and its legal representatives have a right to be heard on all matters that come before the Bankruptcy Court with respect to the Debtors.  There can be no assurance that the Creditors’ Committee will support the Debtors’ positions on matters to be presented to the Bankruptcy Court in the future or on any plan of reorganization.  Disagreements between the Debtors and the Creditors’ Committee could protract the court proceedings, negatively impact the Debtors’ ability to operate and delay the Debtors’ emergence from bankruptcy.

 

Executory Contracts — Section 365

 

Under Section 365 and other relevant sections of the Bankruptcy Code, the Debtors may assume, assume and assign, or reject certain executory contracts and unexpired leases, including, without limitation, leases of real property, subject to the approval of the Bankruptcy Court and certain other

 

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SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

conditions.  Any description of an executory contract or unexpired lease in this Form 10-Q, including where applicable, the Debtors’ express termination rights or a quantification of our obligations, must be read in conjunction with, and is qualified by, any overriding rejection rights the Debtors have under Section 365 of the Bankruptcy Code.  Claims may arise as a result of rejecting any executory contract.

 

Plan of Reorganization

 

In order to successfully emerge from bankruptcy, the Debtors will need to propose and obtain confirmation by the Bankruptcy Court of a plan of reorganization that satisfies the requirements of the Bankruptcy Code.  A plan of reorganization would, among other things, resolve the Debtors obligations arising prior to the Petition Date, set forth the revised capital structure of the newly reorganized entities and provide for corporate governance subsequent to exit from bankruptcy.

 

Automatically, upon commencing the Chapter 11 Filing, the Debtors under the Bankruptcy Code have the exclusive right for 120 days after the Petition Date to file a plan of reorganization and, if they do so, 60 additional days to obtain necessary acceptances of their plan.  On November 7, 2009, the Debtors filed the Plan with the Bankruptcy Court.  If the Debtors’ exclusivity period lapsed, any party in interest would be able to file a plan of reorganization for any of the Debtors.  In addition to being voted on by holders of impaired claims and equity interests, a plan of reorganization must satisfy certain requirements of the Bankruptcy Code and must be approved, or confirmed, by the Bankruptcy Court in order to become effective.

 

A plan of reorganization will be deemed accepted by holders of claims against and equity interests in the Debtors if (1) at least one-half in number and two-thirds in dollar amount of claims actually voting in each impaired class of claims have voted to accept the plan, and (2) at least two-thirds in amount of equity interests actually voting in each impaired class of equity interests has voted to accept the plan.  Under certain circumstances set forth in Section 1129(b) of the Bankruptcy Code, however, the Bankruptcy Court may confirm a plan even if such plan has not been accepted by all impaired classes of claims and equity interests.  A class of claims or equity interests that does not receive or retain any property under the plan on account of such claims or interests is deemed to have voted to reject the plan.  The precise requirements and evidentiary showing for confirming a plan, notwithstanding its rejection by one or more impaired classes of claims or equity interests, depends upon a number of factors including, without limitation, the status and seniority of the claims or equity interests in the rejecting class (i.e., secured claims or unsecured claims, subordinated or senior claims, preferred or common stock). Generally, with respect to common stock interests, a plan may be “crammed down” even if the stockholders receive no recovery if the proponent of the plan demonstrates that (1) no class junior to the common stock is receiving or retaining property under the plan, and (2) no class of claims or interests senior to the common stock is being paid more than in full.

 

Reorganization Costs

 

The Debtors have incurred and will continue to incur significant costs associated with the reorganization.  The amount of these costs, which are being expensed as incurred, are expected to significantly affect the Debtors’ results of operations.  See Note 2d “Reorganization Items” below for additional information.

 

Risks and Uncertainties

 

The ability of the Debtors, both during and after the Bankruptcy Court proceedings, to continue as a going concern, is dependent upon, among other things, (i) the ability of the Debtors to maintain

 

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SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

adequate liquidity, including the generation of cash from operations, and (ii) the ability of the Debtors to confirm a plan of reorganization under the Bankruptcy Code.  Uncertainty as to the outcome of these factors raises substantial doubt about the Debtors’ ability to continue as a going concern.  The accompanying condensed consolidated financial statements do not include any adjustments to reflect or provide for the consequences of the bankruptcy proceedings, except for unsecured claims allowed by the Bankruptcy Court.  See Note 2d “Reorganization Items” below for additional information. In particular, such financial statements do not purport to show (a) as to assets, their realization value on a liquidation basis or their availability to satisfy liabilities, (b) as to liabilities arising prior to the Petition Date, the amounts that may be allowed for claims or contingencies, or the status and priority thereof, (c) as to stockholder accounts, the effect of any changes that may be made in the capitalization of the Debtors, or (d) as to operations, the effects of any changes that may be made in the underlying business.  A plan of reorganization would likely cause material changes to the amounts currently disclosed in the condensed consolidated financial statements.

 

Negative events associated with the Chapter 11 Filing could adversely affect revenues and the Debtors’ relationship with customers, as well as with vendors and employees, which in turn could adversely affect the Debtors’ operations and financial condition, particularly if the Bankruptcy Court proceedings are protracted.  Also, transactions outside of the ordinary course of business are subject to the prior approval of the Bankruptcy Court, which may limit the Debtors’ ability to respond timely to certain events or take advantage of certain opportunities.   Because of the risks and uncertainties associated with the Bankruptcy Court proceedings, the ultimate impact that events that occur during these proceedings will have on the Debtors’ business, financial condition and results of operations cannot be accurately predicted or quantified, and until such issues are resolved, there remains substantial doubt about the Debtors’ ability to continue as a going concern.

 

As a result of the Chapter 11 Filing, realization of assets and liquidation of liabilities are subject to uncertainty.  While operating as a debtor-in-possession under the protection of Chapter 11 of the Bankruptcy Code, and subject to Bankruptcy Court approval or otherwise as permitted in the normal course of business, the Debtors may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the condensed consolidated financial statements.  Further, a plan of reorganization could materially change the amounts and classifications reported in the consolidated historical financial statements, which do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a consequence of confirmation of a plan of reorganization.

 

Impact on Net Operating Loss Carryforwards

 

Upon consummation, our proposed Plan of bankruptcy reorganization will result in cancellation of indebtedness income that will reduce our net operating loss carryforwards (“NOLs”) under Section 108 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as an ownership change that will limit our ability to utilize our NOLs under Section 382 of the Code.  In general, following an ownership change, Section 382 limits the amount of pre-ownership change NOLs that may be used to offset taxable income in each year following the ownership change.   Under a special rule that may be elected for an ownership change pursuant to a chapter 11 bankruptcy reorganization, the amount of this annual limitation will be equal to the “long-term tax-exempt rate” (published monthly by the IRS) for the month in which the ownership change occurs, multiplied by the value of our stock immediately after the ownership change.  By taking into account the value of our stock immediately after the Chapter 11 Filing, the limitation is increased as a result of cancellation of indebtedness pursuant to the Chapter 11 Filing.  Any portion of the annual limitation that is not used in a particular year may be carried forward and used in subsequent years.  The annual limitation is increased by certain built-in income and gains recognized (or treated as recognized) during the five years following the ownership change (up to the total amount of

 

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SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

net built-in income and gain that existed at the time of the ownership change).  Built-in income for this purpose includes the amount by which our tax depreciation expense during this five year period is less than it would have been if our assets had a tax basis on the date of the ownership change equal to their fair market value.  Because most of our assets are theme park assets, which are depreciated on an accelerated basis over a seven-year recovery period, we expect any NOL limitation for the five years following the ownership change to be substantially increased by built-in income and to result in a carryforward of excess limitation to future periods.

 

2.                                      General — Basis of Presentation

 

We own and operate regional theme and water parks.  Of the 20 parks we own or operate, 18 are located in the United States. Of the other two, one is located in Mexico City, Mexico and the other is located in Montreal, Canada.  During the second quarter of 2008, we decided that we would not re-open our New Orleans park, which sustained very extensive damage during Hurricane Katrina in late August 2005 and has not re-opened since.  During the third quarter of 2009, the Company and the City of New Orleans mutually agreed to terminate the Company’s lease with the City of New Orleans and to settle the related litigation, pursuant to which the Company agreed, among other things, to pay $3 million and to transfer title to the Company’s property and equipment at the leased site to the City of New Orleans, including land owned by the Company adjacent to the site.  We have recorded appropriate provisions for impairment and liabilities related to discontinuing the New Orleans park operations.  The condensed consolidated financial statements as of and for all periods presented reflect the assets, liabilities and results of the facilities sold and held for sale as discontinued operations.  See Notes 3 and 7.

 

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. That discussion should be read in conjunction with the condensed consolidated financial statements and these notes.  Our 2008 Annual Report 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 normal and recurring) that 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, 2009 are not indicative of the results expected for the full year.  In particular, our park operations contribute a majority of their annual revenue during the period from Memorial Day to Labor Day each year, while expenses are incurred year round.

 

The accompanying condensed consolidated financial statements do not purport to reflect or provide for the consequences of our Chapter 11 Filing.  In particular, the financial statements do not purport to show (1) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities, (2) as to liabilities arising prior to the Petition Date, the amounts that may be allowed for claims or contingencies, or the status and priority thereof, (3) as to stockholders’ equity accounts, the effect of any changes that may be made in our capitalization, or (4) as to operations, the effect of any changes that may be made to our business.

 

a.              Consolidated U.S. GAAP Presentation

 

Our accounting policies reflect industry practices and conform to U.S. generally accepted accounting principles.

 

The condensed consolidated financial statements include our accounts and the accounts of our wholly owned subsidiaries.

 

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SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

We also consolidate the partnerships and joint ventures that own SFOT and SFOG, as we have determined that we have the most significant economic interest since we receive a majority of these entities’ expected losses or expected residual returns and have the ability to make decisions that significantly affect the results of the activities of these entities.  The equity interests owned by non-affiliated parties in SFOT and SFOG are reflected in the accompanying condensed consolidated balance sheets as redeemable noncontrolling interests.  The portion of earnings or loss from each of the parks attributable to non-affiliated parties is reflected as net income (loss) attributable to noncontrolling interests in the accompanying condensed consolidated statements of operations.

 

While operating as debtors-in-possession, the Debtors may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as permitted in the ordinary course of business.  These dispositions and settlements may be in amounts other than those reflected in the condensed consolidated financial statements. Further, a plan of reorganization could materially change the amounts and classifications in the condensed consolidated financial statements.

 

b.     Liquidity and Going Concern

 

The accompanying condensed consolidated financial statements have been prepared assuming we will continue as a going concern.  This assumes a continuing of operations and the realization of assets and liabilities in the ordinary course of business.  The condensed consolidated financial statements do not include any adjustments that might result if we were forced to discontinue operations.  See Note 1 “Chapter 11 Reorganization” regarding the impact of the Chapter 11 Filing and the proceedings in Bankruptcy Court on the Company’s liquidity and its status as a going concern.

 

c.     Accounting for the Chapter 11 Filing

 

We follow the accounting prescribed by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 852, “Reorganizations” (“FASB ASC 852”).  This accounting literature provides guidance for periods subsequent to a Chapter 11 filing, among other things, the presentation of liabilities that are and are not subject to compromise by the Bankruptcy Court proceedings, as well as the treatment of interest expense and presentation of costs associated with the proceedings.

 

In accordance with FASB ASC 852, debt discounts or premiums as well as debt issuance costs should be viewed as valuations of the related debt.  When the debt has become an allowed claim and the allowed claim differs from the carrying amount of the debt, the recorded amount should be adjusted to the allowed claim.  We have written-off costs that are associated with unsecured debt that is included in liabilities subject to compromise at September 30, 2009.  See Note 2d “Reorganization Items”.  Premiums and discounts as well as debt issuance cost on debts that are not subject to compromise, such as fully secured claims, have not been adjusted.

 

Because Holdings’ existing stockholders are expected to own less than 50% of the voting shares after Holdings emerges from bankruptcy, we expect to apply “Fresh-Start Reporting,” in which our assets and liabilities will be recorded at their estimated fair value using the principles of purchase accounting contained in FASB ASC Topic 805, “Business Combinations.”  The difference between our estimated fair value and our identifiable assets and liabilities will be recognized as goodwill.

 

d.     Reorganization Items

 

FASB ASC 852 requires separate disclosure of reorganization items such as realized gains and losses from the settlement of liabilities subject to compromise, provisions for losses resulting from the

 

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SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

reorganization and restructuring of the business, as well as professional fees directly related to the process of reorganizing the Debtors under the Bankruptcy Code.  The Debtors’ reorganization items consist of the following:

 

 

 

Three months
ended
September 30,
2009

 

Nine months
ended
September 30,
2009

 

 

 

(in thousands)

 

Write-off of unamortized debt issuance costs, premiums and discounts associated
with unsecured debt subject to compromise

 

$

 

$

67,581

 

Costs and expenses directly related to the reorganization

 

7,038

 

18,182

 

Total reorganization items

 

$

7,038

 

$

85,763

 

 

Costs and expenses directly related to the reorganization primarily include fees associated with advisors to the Debtors, certain creditors and the Creditors’ Committee.

 

Net cash paid for reorganization items, entirely constituting professional fees, as of September 30, 2009 totaled $13,641,000.

 

e.     Liabilities Subject to Compromise

 

Liabilities subject to compromise refers to unsecured obligations that will be accounted for under a plan of reorganization.  Generally, actions to enforce or otherwise effect payment of liabilities arising before the date of filing of the plan of reorganization are stayed.  FASB ASC 852 requires liabilities that are subject to compromise to be reported at the claim amounts expected to be allowed, even if they may be settled for lesser amounts.  These liabilities represent the estimated amount of claims expected to be allowed on known or potential claims to be resolved through the bankruptcy process, and remain subject to future adjustments arising from negotiated settlements, actions of the Bankruptcy Court, rejection of executory contracts and unexpired leases, the determination as to the value of collateral securing the claims, proofs of claim, or other events.  Liabilities subject to compromise also include certain items that may be assumed under the plan of reorganization, and as such, may be subsequently reclassified to liabilities not subject to compromise.  The Company has not included the Credit Agreement obligations, and swap obligations secured ratably therewith, as liabilities subject to compromise as these secured liabilities are expected to be fully recovered by the Lenders.  The Bankruptcy Court has granted final approval of many of the Debtors’ “first day” motions covering, among other things, human resource obligations, supplier relations, insurance, customer relations, business operations, certain tax matters, cash management, post-petition utilities, case management and retention of professionals.  Obligations associated with these matters are not classified as liabilities subject to compromise.

 

The Debtors may reject pre-petition executory contracts and unexpired leases with respect to the Debtors’ operations, with the approval of the Bankruptcy Court.  Damages resulting from rejection of executory contracts and unexpired leases are generally treated as general unsecured claims and will be classified as liabilities subject to compromise.  Holders of such pre-petition claims will be required to file proofs of claims by a bar date to be determined by the Bankruptcy Court.  A bar date is the date by which claims against the Debtors must be filed if the claimants wish to receive any distribution in the Chapter 11 Filing.  The Debtors will notify all known claimants subject to the bar date of their need to file a proof of claim with the Bankruptcy Court.  Differences between liability amounts estimated by the Debtors and claims filed by creditors will be investigated and, if necessary, the Bankruptcy Court will make a final determination of the allowable claim. The determination of how liabilities will ultimately be treated

 

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SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

cannot be made until the Bankruptcy Court approves a plan of reorganization. Accordingly, the ultimate amount or treatment of such liabilities is not determinable at this time.

 

Liabilities subject to compromise consist of the following:

 

 

 

September 30, 2009

 

December 31, 2008

 

 

 

(in thousands)

 

Accounts payable and other accrued expenses

 

$

74,777

 

$

 

Accrued interest payable

 

49,877

 

 

Unsecured debt

 

988,305

 

 

Unsecured convertible notes

 

280,000

 

 

Other long-term liabilities

 

 

 

PIERS

 

306,650

 

 

Total liabilities subject to compromise

 

$

1,699,609

 

$

 

 

Liabilities subject to compromise, at September 30, 2009, include trade accounts payable of approximately $20.9 million related to purchases prior to the Petition Date, which generally have not been paid.  As a result, the Company’s cash flows from operations were favorably affected by the stay of payments related to these liabilities.

 

In accordance with the guidance provided in FASB ASC Topic 480, “Distinguishing Liabilities from Equity” and FASB ASC 852, during the third quarter of 2009 we reclassified the $275.4 million redemption value of PIERS plus accrued and unpaid dividends of approximately $31.2 million from mezzanine equity to liabilities subject to compromise, as the PIERS became an unconditional obligation as of August 15, 2009.  In the current Plan, the PIERS are considered an unsecured equity interest subject to compromise and the holders of such instruments are expected to receive no recovery.

 

f.      PARC Note

 

We recorded the $37.0 million note that we received pursuant to the sale of seven parks in April 2007 (the “PARC Note”) at an estimated fair value of $11.4 million, reflecting the risk of collectability due to the PARC Note’s subordination to other obligations.  We will not recognize interest income from the PARC Note until the entire carrying amount has been recovered, in accordance with the guidance of FASB ASC Topic 310, “Receivables.”  As of September 30, 2009, we have collected payments in the amount of $7.5 million leaving the PARC Note receivable balance at $3.9 million.  See Note 7.

 

g.     Income Taxes

 

Income taxes are accounted for under the asset and liability method.  At December 31, 2008, we had recorded a valuation allowance of $598,510,000 due to uncertainties related to our ability to utilize some of our deferred tax assets before they expire.  The valuation allowance was increased by $58,062,000 through September 30, 2009, in respect of the net loss before income taxes generated during the first nine months of 2009.  In addition, we decreased the valuation allowance by $3,555,000 through September 30, 2009 related to other comprehensive income (loss).

 

We classify interest and penalties attributable to income taxes as part of income tax expense.  As of September 30, 2009, we have a liability of approximately $4,466,000 accrued for interest and penalties.

 

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SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

h.     Long-Lived Assets

 

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.

 

i.      Derivative Instruments and Hedging Activities

 

We account for derivatives and hedging activities in accordance with FASB ASC Topic 815, “Derivatives and Hedging” (“FASB ASC 815”).  This accounting guidance 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 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 (e.g., gains and losses) depends on the intended use of the derivative and the resulting designation.

 

We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and our 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 other expense in our condensed consolidated statements of operations on a current basis.

 

During the fourth quarter of 2008, we discontinued hedge accounting treatment for the interest rate swaps, as they no longer met the probability test as detailed in FASB ASC 815.  See Note 4.

 

j.      Income (Loss) Per Common Share

 

The effect of potential common shares issuable upon the exercise of employee stock options on the weighted average number of shares on a diluted basis for both the three and nine months ended September 30, 2009 does not include 6,500,000 options, and for the three and nine months ended September 30, 2008 does not include 6,884,000 options, as the effect of the exercise of these options would be antidilutive.  Additionally, the weighted average number of shares of common stock on a diluted basis for the nine-month periods ended September 30, 2009 and 2008 does not include the effect of the potential conversion of the PIERS and for the nine-month period ended September 30, 2009 does not include the effect of the potential conversion of the 2015 Notes, as the effect of such conversion and the resulting decrease in preferred stock dividends and interest expense, as the case may be, is antidilutive.  The PIERS, which are included in the liabilities subject to compromise as of September 30, 2009 and are shown as mandatorily redeemable preferred stock on our consolidated balance sheet as of December 31, 2008, were issued in January 2001 and are convertible into 13,209,000 (after giving affect to 483,000 PIERS that converted to common stock in the third quarter of 2009) and 13,789,000 shares of common stock as of August 15,

 

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SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

2009 and September 30, 2008, respectively.  The 2015 Notes are convertible at the option of the holder into 44,094,000 shares of common stock, although we can satisfy conversions by delivering cash in lieu of shares. The following table reconciles the weighted average number of shares of common stock outstanding used in the calculations of basic and diluted income per share for the three and nine months ended September 30, 2009 and 2008.

 

 

 

Three months ended September 30,

 

 

 

2009

 

2008

 

 

 

 

 

Weighted

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

Per

 

 

 

Average

 

Per

 

 

 

Net

 

Shares

 

Share

 

Net

 

Shares

 

Share

 

 

 

Income

 

Outstanding

 

Amount

 

Income

 

Outstanding

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

143,340,000

 

 

 

 

 

$

141,725,000

 

 

 

 

 

PIERS dividends

 

(5,413,000

)

 

 

 

 

(5,492,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

137,927,000

 

97,864,000

 

$

1.41

 

136,233,000

 

97,344,000

 

$

1.40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of potential common stock issuable upon exercise of employee stock options

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

PIERS

 

5,413,000

 

6,789,000

 

 

 

5,492,000

 

13,789,000

 

 

 

Convertible Notes

 

 

44,094,000

 

 

 

5,107,000

 

44,094,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 143,340,000

 

148,747,000

 

$

0.96

 

$

146,832,000

 

155,227,000

 

$

0.95

 

 

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SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

 

 

Nine months ended September 30,

 

 

 

2009

 

2008

 

 

 

 

 

Weighted

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

Per

 

 

 

Average

 

Per

 

 

 

Net

 

Shares

 

Share

 

Net

 

Shares

 

Share

 

 

 

Income

 

Outstanding

 

Amount

 

Loss

 

Outstanding

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(113,638,000

)

 

 

 

 

$

83,079,000

 

 

 

 

 

PIERS dividends

 

(16,342,000

)

 

 

 

 

(16,477,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(129,980,000

)

97,607,000

 

$

(1.33

)

66,602,000

 

96,787,000

 

$

0.69

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of potential common stock issuable upon exercise of employee stock options

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

PIERS

 

 

 

 

 

 

 

 

 

Convertible Notes

 

 

 

 

 

15,165,000

 

44,094,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 (129,980,000

)

97,607,000

 

$

(1.33

)

$

81,767,000

 

140,881,000

 

$

0.58

 

 

PIERS dividends and amortization of related issue costs of $5,413,000 and $16,342,000 were included in determining net income (loss) attributable to Holdings’ common stockholders for the three and nine months ended September 30, 2009, respectively.  PIERS dividends and amortization of related issue costs of $5,492,000 and $16,477,000 were included in determining net income (loss) attributable to Holdings’ common stockholders for the three and nine months ended September 30, 2008, respectively.

 

k.     Reclassifications

 

Reclassifications have been made to certain amounts reported in 2008 to conform to the 2009 presentation.

 

l.      Stock Benefit Plans

 

The Debtors, after emergence from bankruptcy, expect to implement the Long-Term Incentive Plan for management, selected employees and directors of the reorganized companies, providing incentive compensation in the form of new issuances of stock options and/or restricted stock in Holdings.

 

As a result of the Chapter 11 Filing, it is unlikely that the restricted stock or stock options granted to employees and directors in the past under the stock-based compensation arrangements described below

 

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SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

will retain any value, as the Plan proposes that all existing stockholders of Holdings will not receive any compensation for their claims.

 

We maintain stock-based compensation arrangements under which employees and directors are awarded grants of restricted stock and stock options.  During the three months ended September 30, 2009 and 2008, stock-based compensation expense was $521,000 and $78,000, respectively.  During the nine months ended September 30, 2009 and 2008, stock-based compensation expense was $1,962,000 and $6,301,000, respectively.

 

Under our various stock option and incentive plans (“Stock Incentive Plans”), our officers and non-employee directors may be awarded stock options, restricted stock and other stock-based awards.  As of September 30, 2009, options to purchase 6,500,000 shares of our common stock and approximately 1,751,000 shares of restricted stock were outstanding under the Stock Incentive Plans and approximately 3,861,000 shares were available for future grant.  50,000 stock options were granted during the nine-month period ended September 30, 2009 to our Chief Financial Officer pursuant to the terms of his employment agreement.  No stock options were granted during the nine-month period ended September 30, 2008.

 

Stock Options

 

Options granted under the Stock Incentive Plans may be designated as either incentive stock options or non-qualified stock options.  Options are generally granted with an exercise price equal to the market value of our common stock at the date of grant.  These option awards generally vest 20% per annum, commencing with the date of grant, and have a contractual term of either 7, 8 or 10 years.  In addition, our President and Chief Executive Officer was granted 475,000 options during the first quarter of 2006 that become exercisable only if certain market prices of our common stock are maintained for consecutive 90 day periods.  Stock option compensation is recognized over the vesting period using the graded vesting terms of the respective grant.

 

The estimated fair value of options granted without a market condition was calculated using the Black-Scholes option pricing valuation model.  This model takes into account several factors and assumptions.  The risk-free interest rate is based on the yield on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumption at the time of grant.  The expected term (estimated period of time outstanding) is estimated using the contractual term of the option and the historical effects of employees’ expected exercise and post-vesting employment termination behavior.  Expected volatility was calculated based on historical volatility for a period equal to the stock option’s expected life, calculated on a daily basis.  The expected dividend yield is based on expected dividends for the expected term of the stock options.  The fair value of stock options on the date of grant is expensed on a straight line basis over the requisite service period of the graded vesting term as if the award was, in substance, multiple awards.

 

The estimated fair value of options granted to our President and Chief Executive Officer with a market condition was calculated using the Monte Carlo option pricing valuation model.  This model takes into account several factors and assumptions.  The risk-free interest rate is based on the yield on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumption at the time of grant.  The expected term (estimated period of time outstanding) is estimated using the contractual term of the option and the historical effects of employees’ expected exercise and post-vesting employment termination behavior.  Expected volatility was equal to the expected volatility utilized in the Black-Scholes option pricing valuation model described above.  The expected dividend yield is based on expected dividends for the expected term of the stock options.  The vesting hurdles were based on the market prices of our common stock pursuant to the terms of the option grants ($12 and $15) and the

 

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SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

exercise multiple utilized was 1.75 which assumes that the option holder will exercise once the stock price has appreciated to 1.75 times the grant price.

 

The weighted-average assumptions used in the option pricing valuation models for options granted in the nine months ended September 30, 2009 and 2008 are as follows:

 

 

 

September 30,

 

 

 

2009

 

2008

 

 

 

Employees

 

Directors

 

Employees

 

Directors

 

Risk-free interest rate

 

1.79

%

 

 

 

Expected life (in years)

 

5.68

 

 

 

 

Expected volatility

 

68.47

%

 

 

 

Expected dividend yield

 

 

 

 

 

 

A summary of the status of our option awards as of September 30, 2009 and changes during the nine months then ended is presented below:

 

 

 

Shares

 

Weighted
Avg. Exercise
Price ($)

 

Weighted Avg.
Remaining
Contractual
Term

 

Aggregate
Intrinsic
Value

 

Balance at January 1, 2009

 

6,884,000

 

6.57

 

 

 

 

 

Granted

 

50,000

 

0.33

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

Canceled or exchanged

 

 

 

 

 

 

 

Forfeited

 

(160,000

)

6.44

 

 

 

 

 

Expired

 

(274,000

)

13.70

 

 

 

 

 

Balance at September 30, 2009

 

6,500,000

 

6.22

 

6.60

 

 

Vested and expected to vest at September 30, 2009

 

6,463,000

 

6.28

 

6.59

 

 

Options exercisable at September 30, 2009

 

3,640,000

 

6.85

 

6.39

 

 

 

The weighted average grant date fair value of our option awards granted during the nine months ended September 30, 2009 and 2008 was $0.20 and $0.00, respectively.  The total intrinsic value of options exercised for both periods was $0.  The total fair value of options that vested during the nine months ended September 30, 2009 and 2008 was $3.2 million and $3.2 million, respectively.

 

As of September 30, 2009, there was $1.0 million of unrecognized compensation expense related to our option awards.  The weighted average period over which that cost is expected to be recognized, without regard to the potential impact of the Chapter 11 Filing and proceedings, is 1.53 years.

 

Restricted Stock

 

Restricted shares of our common stock may be awarded under the Stock Incentive Plans and are subject to restrictions on transferability and other restrictions, if any, as the compensation committee (the “Compensation Committee”) of Holdings’ board of directors may impose.  The Compensation Committee may also determine when and under what circumstances the restrictions may lapse and whether the participant receives the rights of a stockholder, including, without limitation, the right to vote and receive dividends.  Unless the Compensation Committee determines otherwise, restricted stock that is still subject to restrictions is forfeited upon termination of employment.  The fair value of restricted stock awards on

 

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SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

the date of grant is expensed on a straight line basis over the requisite service period of the graded vesting term as if the award was, in substance, multiple awards.

 

We issued 50,000 shares of restricted stock during the nine months ended September 30, 2009 to our Chief Financial Officer pursuant to the terms of his employment agreement.

 

We issued 2,505,518 shares of restricted stock during the year ended December 31, 2008 as settlement for 2007 accrued management bonuses to certain key employees and to fund a portion of our 401(k) plan match for 2007.  Of the 2,505,518 shares issued (i) 1,029,109 vested on March 11, 2008, (ii) 1,050,985 shares vested on April 7, 2008, (iii) 113,333 shares, related to the 401(k) plan match vested on September 10, 2008, (iv) 19,013 shares were forfeited upon the termination of several employees throughout 2008, (v) 17,005 shares were forfeited upon the termination of several employees in 2009, and (vi) 276,073 shares will vest in 2011 if certain performance based financial goals of the Company are met.

 

A summary of the status of our restricted stock awards as of September 30, 2009 and changes during the nine months then ended is presented below:

 

 

 

Shares

 

Weighted Average
Grant Date Fair Value ($)

 

Non-vested balance at January 1, 2009

 

1,731,412

 

4.99

 

Granted

 

50,000

 

0.33

 

Vested

 

(5,000

)

5.54

 

Forfeited

 

(25,338

)

3.99

 

Non-vested balance at September 30, 2009

 

1,751,074

 

4.87

 

 

The weighted average grant date fair value per share of restricted stock awards granted during the nine months ended September 30, 2009 and 2008 was $0.33 and $1.80, respectively.  The total grant date fair value of restricted stock awards granted during the nine months ended September 30, 2009 and 2008 was $0.02 million and $4.5 million, respectively.  The total fair value of restricted stock awards that vested during the nine months ended September 30, 2009 and 2008 was $0.03 million and $4.0 million, respectively.  As of September 30, 2009, there were unrecognized compensation costs of $1.2 million related to restricted stock awards.  The weighted average period over which that cost is expected to be recognized, without regard to the potential impact of the Chapter 11 Filing and proceedings, is 1.25 years.

 

m.    New Accounting Pronouncements

 

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles,” which was codified into FASB ASC Topic 105, “Generally Accepted Accounting Principles” (“FASB ASC 105”).  The new guidance establishes FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP.  The FASB Accounting Standards Codification supersedes and deems unauthoritative all non-grandfathered non-SEC accounting literature not included in the Codification.  The new guidance is effective for the financial statements issued for interim and annual periods ending after September 15, 2009.  We adopted FASB ASC 105 for the interim period ending September 30, 2009.  The adoption had no impact on our financial statements.  We cited the relevant parts of FASB Accounting Standards Codification in the current quarter report and will apply the new presentation prospectively.

 

In August of 2009, the FASB issued ASC Update No. 2009-05, “Measuring Liabilities at Fair Value” (“ASC Update No. 2009-05”).  ASC Update No. 2009-05 provides amendments to ASC Topic 820, “Fair Value Measurements and Disclosures” (“FASB ASC 820”) for the fair value measurement of

 

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SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

liabilities.  The updated guidance states that when the quoted price in an active market for the identical liability is not available, a reporting entity can measure fair value of the liability using quoted prices of the identical or similar liability when traded as an asset.   Such valuation method will result in Level 1 fair value measurement.  The updated guidance also provides for other valuation techniques that are consistent with the principles of FASB ASC Topic 820.  A further clarification is provided for the fair value estimate of the liability, stating that such estimate does not have to be adjusted for the existing restrictions that prevent the transfer of the liability.  ASC Update No. 2009-05 is effective for the first reporting period, including interim periods, beginning after issuance.  We adopted ASC Update No. 2009-05 for the interim period ending September 30, 2009.  The adoption did not impact our existing approach used in determining fair-value measurement of the liabilities.

 

In August 2009, the FASB issued ASC Update No. 2009-04, “Accounting for Redeemable Equity Instruments” (“ASC Update No. 2009-04”).  This guidance updates FASB ASC Topic 480, “Distinguishing Liabilities from Equity” of the current Codification per EITF Topic D-98, “Classification and Measurement of Redeemable Securities.”  ASC Update No. 2009-04 does not change the existing accounting guidance for classification and disclosures related to preferred securities that are redeemable for cash or other assets.  Rather, it expands on the application of the current guidance to other redeemable equity instruments, providing specific examples for applying the guidance to freestanding financial instruments, equity instruments subject to registration payment arrangements, share-based payment awards, convertible debt instruments that contain a separately classified equity component, certain redemptions upon liquidation events, and certain redemptions covered by insurance proceeds.  We adopted ASC Update No. 2009-04 for the interim period ending September 30, 2009.  The adoption of ASC Update No. 2009-04 did not affect our condensed consolidated financial statement presentation and disclosures.

 

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”).  SFAS 167 changes the consolidation guidance applicable to a variable interest entity.  It also amends the guidance governing the determination of whether an enterprise is the primary beneficiary of a variable interest entity, and is, therefore, required to consolidate an entity, by requiring a qualitative analysis rather than a quantitative analysis.  The qualitative analysis will include, among other things, consideration of who has the power to direct the activities of the entity that most significantly impact the entity’s economic performance and who has the obligation to absorb losses or the right to receive benefits of the variable interest entity that could potentially be significant to the variable interest entity.  This standard also requires continuous reassessments of whether an enterprise is the primary beneficiary of a variable interest entity.  Previously, the applicable guidance required reconsideration of whether an enterprise was the primary beneficiary of a variable interest entity only when specific events had occurred.  Qualifying special-purpose entities, which were previously exempt from the application of this standard, will be subject to the provisions of this standard when it becomes effective.  SFAS 167 also requires enhanced disclosures about an enterprise’s involvement with a variable interest entity.  SFAS 167 is effective as of the beginning of interim and annual reporting periods that begin after November 15, 2009.  We are currently evaluating the effect that SFAS 167 will have on our condensed consolidated financial statements.

 

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”), which was codified into FASB ASC Topic 855, “Subsequent Events” (“FASB ASC 855”).  The new guidance defines the period after the balance sheet date during which a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which a reporting entity should recognize events or transactions occurring after the balance sheet date and the disclosures required for events or transactions that occurred after the balance sheet date.  Subsequent events that provide additional evidence about conditions that existed at the balance sheet date are to be recognized in the financial statements.  Subsequent events that are conditions that arose after the balance sheet date but prior to the issuance of the financial statements are not

 

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SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

recognized in the financial statements, but should be disclosed if failure to do so would render the financial statements misleading.  The guidance requires disclosure of the date through which subsequent events have been evaluated.  For subsequent events not recognized, disclosures should include a description of the nature of the event and either an estimate of its financial effect or a statement that such an estimate cannot be made.  We adopted FASB ASC 855 for the interim period ending June 30, 2009.  Adoption did not affect the recognition or disclosure of subsequent events.  We evaluate subsequent events up to the date we file our Quarterly Report on Form 10-Q with the Securities and Exchange Commission for our condensed consolidated financial statements.  For the period ended September 30, 2009, this date was November 12, 2009.

 

In December 2008, the FASB issued Staff Position No.  FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets,” which was codified into FASB ASC Topic 715, “Compensation — Retirement Benefits” (“FASB ASC 715”).  The new guidance enhances an employer’s disclosures about the plan assets of a defined benefit pension or other postretirement plans.  In particular, it requires additional information on investment policies and strategies, the reporting of fair value by asset category and other information about fair value measurements.  The enhanced disclosures around plan assets are required for fiscal years ending after December 15, 2009.  Upon initial application, comparative period disclosures are not required for earlier periods.  We will expand our disclosures in accordance with FASB ASC 715 in our annual report on Form 10-K for the year ending December 31, 2009.  The adoption of this new accounting guidance is not expected to have a material impact on the Company’s condensed consolidated financial statements

 

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”), which was codified into FASB ASC Topic 805, “Business Combinations” (“FASB ASC 805”).  The new guidance retains the fundamental requirements that an acquirer be identified and the acquisition method of accounting (previously called the purchase method) be used for all business combinations.  The scope of the new pronouncement is broader than that of the previous guidance, which applied only to business combinations in which control was obtained by transferring consideration.  By applying the acquisition method to all transactions and other events in which one entity obtains control over one or more other businesses, the new guidance improves the comparability of the information about business combinations provided in financial reports.  FASB ASC 805 establishes principles and requirements for how an acquirer recognizes and measures identifiable assets acquired, liabilities assumed and noncontrolling interest in the acquiree, as well as any resulting goodwill.  The new guidance applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.

 

In December 2007, the FASB also issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements-an amendment of Accounting Research Bulletin No. 51,” which was codified into FASB ASC Topic 810, “Consolidation” (“FASB ASC 810”).  The new pronouncement states that accounting and reporting for minority interests will be recharacterized as noncontrolling interests and classified as a component of equity.  It also establishes reporting requirements that provide disclosures necessary to identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. The new guidance is effective for fiscal years, and interim periods within the fiscal year, beginning after December 15, 2008, and early adoption is prohibited.  Retroactive adoption of the presentation and disclosure requirements is required for existing minority interests.  All other requirements of the new pronouncement will be applied prospectively.  The condensed consolidated financial statements herein reflect the adoption of FASB ASC 810.  As a result of our adoption of this accounting pronouncement as of January 1, 2009, future purchases of “puttable” limited partnership units in the Partnership Parks will no longer be subject to purchase accounting but will be accounted for by reducing our redeemable noncontrolling interests and cash, respectively.  Comparative financial statements of prior periods have been adjusted to apply this new presentation retrospectively.

 

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SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

In May 2008, the FASB issued Staff Position No. APB 14-1 (“FSP APB 14-1”), “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement),” which was codified into FASB ASC Topic 470, “Debt” (“FASB ASC 470”).  The new accounting guidance requires issuers of convertible debt to account separately for the liability and equity components of these instruments in a manner that reflects the issuer’s nonconvertible borrowing rate.  The guidance is effective for fiscal years beginning after December 15, 2008 with retroactive application to all periods presented during which any such convertible debt instruments were outstanding.  We adopted FASB ASC 470 on January 1, 2009.  The new guidance changed the accounting treatment for the 2015 Notes and resulted in an increase to non-cash interest reported in our historical financial statements.  Comparative financial statements of prior periods have been adjusted to apply this new presentation retrospectively.

 

As of September 30, 2009 and December 31, 2008, the principal amount of 2015 Notes outstanding was $280.0 million and $280.0 million, respectively, the unamortized discount of the 2015 Notes was $0 million and $68.0 million as of September 30, 2009 and December 31, 2008, respectively, and the net carrying value of the 2015 Notes was $280.0 million and $212.0 million at September 30, 2009 and December 31, 2008, respectively.  The debt discount was amortized to interest expense resulting in an increase in non-cash interest expense of approximately $3.3 million for the nine months ended September 30, 2009.  The 2015 Notes are convertible into approximately 44.1 million shares of common stock at a conversion rate of 157.5 shares per $1,000 face amount of debt.  Comparative financial statements of prior periods have been adjusted to apply this new presentation retrospectively.

 

The following condensed consolidated balance sheet as of December 31, 2008 and the following condensed consolidated statements of operations, condensed consolidated statements of comprehensive income (loss) line items for the three and nine months ended September 30, 2008 and the condensed consolidated statement of cash flows line items for the nine months ended September 30, 2008 were affected by FASB ASC 810 and FASB ASC 470:

 

Condensed Consolidated Balance Sheet

 

December 31, 2008

 

As originally
reported

 

Effect of
adoption
of  FASB
ASC 810

 

Effect of 
adoption of
FASB
ASC 470

 

As adjusted

 

Debt issuance costs

 

$

 31,910,000

 

$

 —

 

$

 (716,000

)

$

 31,194,000

 

Total assets

 

$

 3,030,845,000

 

$

 —

 

$

 (716,000

)

$

 3,030,129,000

 

Long-term debt

 

$

 2,112,272,000

 

$

 —

 

$

 (68,042,000

)

$

 2,044,230,000

 

Capital in excess of par value

 

$

 1,404,346,000

 

$

 —

 

$

 87,148,000

 

$

 1,491,494,000

 

Accumulated deficit

 

$

 (1,794,156,000

)

$

 —

 

$

 (19,822,000

)

$

 (1,813,978,000

)

Total stockholders’ deficit

 

$

 (443,825,000

)

$

 —

 

$

 67,326,000

 

$

 (376,499,000

)

Total liabilities and stockholders’ deficit

 

$

 3,030,845,000

 

$

 —

 

$

 (716,000

)

$

 3,030,129,000

 

 

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SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

Condensed Consolidated Statement of Operations

 

Three Months Ended September 30, 2008

 

As originally
reported

 

Effect of
adoption of
FASB
ASC 810

 

Effect of
adoption of
FASB
ASC 470

 

As adjusted

 

Interest expense

 

$

 (43,438,000

)

$

 —

 

$

 (1,744,000

)

$

 (45,182,000

)

Minority interest in earnings

 

$

 (21,358,000

)

$

 21,358,000

 

$

 —

 

$

 —

 

Total other expense

 

$

 (61,944,000

)

$

 21,358,000

 

$

 (1,744,000

)

$

 (42,330,000

)

Income from continuing operations before income taxes and discontinued operations

 

$

 146,893,000

 

$

 21,358,000

 

$

 (1,744,000

)

$

 166,507,000

 

Income from continuing operations before discontinued operations

 

$

 144,258,000

 

$

 21,358,000

 

$

 (1,744,000

)

$

 163,872,000

 

Net income

 

$

 143,469,000

 

$

 21,358,000

 

$

 (1,744,000

)

$

 163,083,000

 

Less: Net income attributable to noncontrolling interests

 

$

 —

 

$

 (21,358,000

)

$

 —

 

$

 (21,358,000

)

Income per share from continuing operations attributable to Six Flags, Inc. common stockholders — basic

 

$

 1.43

 

$

 —

 

$

 (0.02

)

$

 1.41

 

Net income per share attributable to Six Flags, Inc. common stockholders - basic

 

$

 1.42

 

$

 —

 

$

 (0.02

)

$

 1.40

 

 

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SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

Nine Months Ended September 30, 2008

 

As
originally
reported

 

Effect of 
adoption of
FASB
ASC 810

 

Effect of
adoption of
FASB
ASC 470

 

As adjusted

 

Interest expense

 

$

 (135,900,000

)

$

 —

 

$

 (5,077,000

)

$

 (140,977,000

)

Minority interest in earnings

 

$

 (41,324,000

)

$

 41,324,000

 

$

 —

 

$

 —

 

Total other expense

 

$

 (70,813,000

)

$

 41,324,000

 

$

 (5,077,000

)

$

 (34,566,000

)

Income from continuing operations before income taxes and discontinued operations

 

$

 111,030,000

 

$

 41,324,000

 

$

 (5,077,000

)

$

 147,277,000

 

Income from continuing operations before discontinued operations

 

$

 103,921,000

 

$

 41,324,000

 

$

 (5,077,000

)

$

 140,168,000

 

Net income

 

$

 88,156,000

 

$

 41,324,000

 

$

 (5,077,000

)

$

 124,403,000

 

Plus: Net loss attributable to noncontrolling interests

 

$

 —

 

$

 (41,324,000

)

$

 —

 

$

 (41,324,000

)

Income per share from continuing operations attributable to Six Flags, Inc. common stockholders

 

$

 0.90

 

$

 —

 

$

 (0.05

)

$

 0.85

 

Net income per share attributable to Six Flags, Inc. common stockholders

 

$

 0.74

 

$

 —

 

$

 (0.05

)

$

 0.69

 

 

Condensed Consolidated Statement of Comprehensive Income (Loss)

 

Three Months Ended September 30, 2008

 

As originally
reported

 

Effect of 
adoption of
FASB
ASC 810

 

Effect of 
adoption of
FASB
ASC 470

 

As adjusted

 

Net income

 

$

 143,469,000

 

$

 21,358,000

 

$

 (1,744,000

)

$

 163,083,000

 

Comprehensive income

 

$

 132,985,000

 

$

 21,358,000

 

$

 (1,744,000

)

$

 152,599,000

 

Comprehensive income attributable to noncontrolling interests

 

$

 —

 

$

 (21,358,000

)

$

 —

 

$

 (21,358,000

)

 

Nine Months Ended September 30, 2008

 

As
originally
reported

 

Effect of
adoption
of FASB
ASC 810

 

Effect of
adoption
of FASB
ASC 470

 

As adjusted

 

Net income

 

$

 88,156,000

 

$

 41,324,000

 

$

 (5,077,000

)

$

 124,403,000

 

Comprehensive income

 

$

 90,457,000

 

$

 41,324,000

 

$

 (5,077,000

)

$

 126,704,000

 

Comprehensive income attributable to noncontrolling interests

 

$

 —

 

$

 (41,324,000

)

$

 —

 

$

 (41,324,000

)

 

32



Table of Contents

 

SIX FLAGS, INC.

(DEBTOR-IN-POSSESSION as of June 13, 2009)

Notes to Condensed Consolidated Financial Statements (Unaudited) Continued)

 

Condensed Consolidated Statement of Cash Flows

 

Nine Months Ended September 30, 2008

 

As originally
reported

 

Effect of
adoption of
FASB ASC
810

 

Effect of 
adoption of 
FASB
ASC 470

 

As adjusted

 

Net Income

 

$

 88,156,000

 

$

 41,324,000

 

$

 (5,077,000

)

$

 124,403,000

 

Minority interest in earnings

 

$

 41,324,000