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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1999 OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________________
TO _____________________
COMMISSION FILE NUMBER: 0-9789
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PREMIER PARKS INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3995059
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11501 NORTHEAST EXPRESSWAY, OKLAHOMA CITY, OKLAHOMA 73131
(Address of principal executive offices, including zip code)
(405) 475-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes: X No :
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:
At November 1, 1999, Premier Parks Inc. had outstanding 78,249,406 shares
of Common Stock, par value $.025 per share.
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PREMIER PARKS INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents .................... $ 170,692,000 $ 400,578,000
Accounts receivable .......................... 72,545,000 31,484,000
Inventories .................................. 28,095,000 21,703,000
Prepaid expenses and other current assets .... 24,661,000 29,200,000
Restricted-use investment securities ......... 216,851,000 206,075,000
------------- -------------
Total current assets ...................... 512,844,000 689,040,000
Other assets:
Debt issuance costs .......................... 47,956,000 45,099,000
Restricted-use investment securities ......... 95,189,000 111,577,000
Deposits and other assets .................... 54,405,000 73,887,000
------------- -------------
Total other assets ........................ 197,550,000 230,563,000
Property and equipment .......................... 2,059,686,000 1,675,959,000
Less accumulated depreciation ................ 177,590,000 104,806,000
------------- -------------
Total property and equipment .............. 1,882,096,000 1,571,153,000
Investment in theme park partnerships ........... 404,247,000 294,893,000
Less accumulated amortization ................ 22,359,000 11,373,000
------------- -------------
Total investment in theme park partnerships 381,888,000 283,520,000
Intangible assets ............................... 1,328,223,000 1,321,616,000
Less accumulated amortization ................ 84,081,000 43,427,000
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Total intangible assets .................... 1,244,142,000 1,278,189,000
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Total assets .............................. $4,218,520,000 $4,052,465,000
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------------- -------------
See accompanying notes to consolidated financial statements
-2-
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
PREMIER PARKS INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................ 59,713,000 25,285,000
Accrued liabilities ..................................... 64,736,000 100,606,000
Accrued interest payable ................................ 36,711,000 33,269,000
Current maturities of long-term debt .................... 210,584,000 195,671,000
Current portion of capitalized lease obligations ........ 2,329,000 2,367,000
------------- -------------
Total current liabilities ............................ 374,073,000 357,198,000
Long-term debt and capitalized lease obligations:
Notes payable ........................................... 1,295,702,000 1,257,062,000
Credit facilities ....................................... 583,000,000 599,500,000
Capitalized lease obligations ........................... 4,531,000 6,125,000
------------- -------------
Total long-term debt and capitalized lease obligations 1,883,233,000 1,862,687,000
Other long-term liabilities and minority interest .......... 48,077,000 54,037,000
Deferred income taxes ...................................... 196,584,000 151,978,000
------------- -------------
Total liabilities .................................... 2,501,967,000 2,425,900,000
Stockholders' equity:
Preferred stock of $1.00 par value ...................... 12,000 12,000
Common stock of $.025 par value ......................... 1,953,000 1,912,000
Capital in excess of par value .......................... 1,689,426,000 1,640,532,000
Retained earnings ....................................... 46,969,000 133,000
Deferred compensation ................................... (17,719,000) (25,111,000)
Accumulated other comprehensive income (loss)
- foreign currency translation adjustment ............ (4,088,000) 9,087,000
------------- -------------
Total stockholders' equity ........................... 1,716,553,000 1,626,565,000
------------- -------------
Total liabilities and stockholders' equity ........... $ 4,218,520,000 $ 4,052,465,000
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See accompanying notes to consolidated financial statements
-3-
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
PREMIER PARKS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1999 1998
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Revenue:
Theme park admissions ................................... $ 247,831,000 $ 222,394,000
Theme park food, merchandise and other .................. 223,897,000 212,683,000
------------- -------------
Total revenue ...................................... 471,728,000 435,077,000
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Operating costs and expenses:
Operating expenses ...................................... 132,908,000 113,664,000
Selling, general and administrative ..................... 38,897,000 45,885,000
Noncash compensation .................................... 1,267,000 675,000
Costs of products sold .................................. 47,636,000 47,204,000
Depreciation and amortization ........................... 40,149,000 33,869,000
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Total operating costs and expenses ................. 260,857,000 241,267,000
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Income from operations ............................. 210,871,000 193,810,000
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Other income (expense):
Interest expense ........................................ (48,159,000) (46,028,000)
Interest income ......................................... 6,072,000 11,989,000
Equity in operations of theme park partnerships ......... 28,057,000 12,183,000
Other income (expense), including minority interest ..... 354,000 (944,000)
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Total other income (expense) ....................... (13,676,000) (22,800,000)
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Income before income taxes ......................... 197,195,000 171,010,000
Income tax expense ......................................... 80,365,000 70,254,000
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Net income ......................................... $ 116,830,000 $ 100,756,000
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Net income applicable to common stock .............. $ 111,008,000 $ 94,934,000
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Per share amounts:
Net income per average common share - basic ............. $ 1.42 $ 1.26
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Net income per average common share - diluted ........... $ 1.29 $ 1.17
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Weighted average number of common shares outstanding-basic . 78,200,000 75,363,000
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Weighted average number of common shares outstanding-diluted 90,366,000 86,082,000
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See accompanying notes to consolidated financial statements
-4-
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
PREMIER PARKS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1999 1998
-------------- --------------
Revenue:
Theme park admissions............................................. $470,501,000 $395,839,000
Theme park food, merchandise and other............................ 388,391,000 338,267,000
-------------- --------------
Total revenue................................................ 858,892,000 734,106,000
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Operating costs and expenses:
Operating expenses................................................ 290,431,000 235,240,000
Selling, general and administrative............................... 128,600,000 106,829,000
Noncash compensation.............................................. 10,503,000 2,025,000
Costs of products sold............................................ 81,907,000 76,672,000
Depreciation and amortization..................................... 114,135,000 71,408,000
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Total operating costs and expenses........................... 625,576,000 492,174,000
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Income from operations....................................... 233,316,000 241,932,000
-------------- --------------
Other income (expense):
Interest expense.................................................. (141,719,000) (101,893,000)
Interest income................................................... 19,606,000 24,418,000
Equity in operations of theme park partnerships................... 26,700,000 24,755,000
Other income (expense), including minority interest............... 156,000 (1,890,000)
-------------- --------------
Total other income (expense)................................. (95,257,000) (54,610,000)
-------------- --------------
Income (loss) before income taxes and extraordinary loss..... 138,059,000 187,322,000
Income tax expense................................................... 67,600,000 80,665,000
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Income before extraordinary loss............................. 70,459,000 106,657,000
Extraordinary loss on extinguishment of debt, net of
income tax benefit of $4,104,000 in 1999 and $526,000 in 1998...... (6,157,000) (788,000)
-------------- --------------
Net income................................................... $64,302,000 $105,869,000
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-------------- --------------
Net income applicable to common stock........................ $46,836,000 $94,225,000
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Per share amounts:
Income per average common share - basic:
Income before extraordinary loss............................. $ 0.68 $ 1.51
Extraordinary loss........................................... (0.08) (0.01)
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Net income................................................... $ 0.60 $ 1.50
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Income per average common share - diluted:
Income before extraordinary loss............................. $ 0.68 $ 1.48
Extraordinary loss........................................... (0.08) (0.01)
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Net income................................................... $ 0.60 $ 1.47
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Weighted average number of common shares outstanding-basic........... 77,439,000 62,719,000
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Weighted average number of common shares outstanding-diluted......... 80,002,000 63,909,000
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See accompanying notes to consolidated financial statements
-5-
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
PREMIER PARKS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
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Net income ............................... $ 116,830,000 $ 100,756,000 $ 64,302,000 $ 105,869,000
Other comprehensive income (loss) -
Foreign currency translation adjustment 5,622,000 10,334,000 (13,175,000) 10,692,000
------------- ------------- ------------- -------------
Comprehensive income ..................... $ 122,452,000 $ 111,090,000 $ 51,127,000 $ 116,561,000
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See accompanying notes to consolidated financial statements
-6-
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
PREMIER PARKS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1999 1998
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Cash flow from operating activities:
Net income ............................................................... $ 64,302,000 $ 105,869,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ....................................... 114,135,000 71,408,000
Equity in operations of theme park partnerships, net of cash received (18,568,000) (24,755,000)
Minority interest in (earnings) loss ................................ (231,000) 2,147,000
Noncash compensation ................................................ 10,503,000 2,025,000
Interest accretion on notes payable ................................. 25,788,000 21,028,000
Interest accretion on restricted-use investments .................... (7,609,000) (8,695,000)
Extraordinary loss on early extinguishment of debt .................. 10,261,000 1,314,000
Amortization of debt issuance costs ................................. 4,823,000 3,779,000
Deferred income taxes ............................................... 56,073,000 80,132,000
Increase in accounts receivable ..................................... (41,061,000) (38,632,000)
Increase in inventories and prepaid expenses ........................ (1,853,000) (14,980,000)
(Increase) decrease in deposits and other assets .................... 19,482,000 (19,738,000)
Decrease in accounts payable and accrued liabilities ................ (2,409,000) (54,056,000)
Increase in accrued interest payable ................................ 3,442,000 35,121,000
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Total adjustments ................................................... 172,776,000 56,098,000
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Net cash provided by operating activities ......................... 237,078,000 161,967,000
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Cash flow from investing activities:
Additions to property and equipment ...................................... (334,250,000) (194,073,000)
Investment in theme park partnerships .................................... (39,034,000) --
Acquisition of theme parks, net of cash acquired ......................... (80,952,000) (1,022,643,000)
Maturities of restricted-use investments ................................. 13,221,000 --
Purchase of restricted-use investments ................................... -- (321,750,000)
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Net cash used in investing activities ............................... (441,015,000) (1,538,466,000)
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Cash flow from financing activities:
Repayment of long-term debt .............................................. (496,818,000) (700,381,000)
Proceeds from borrowings ................................................. 499,024,000 1,361,703,000
Net cash proceeds from issuance of preferred stock ....................... -- 301,185,000
Net cash proceeds from issuance of common stock .......................... 1,951,000 954,542,000
Payment of cash dividends ................................................ (17,466,000) (5,822,000)
Payment of debt issuance costs ........................................... (10,934,000) (41,065,000)
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Net cash provided by (used in) financing activities ................. (24,243,000) 1,870,162,000
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Effect of exchange rate changes on cash ............................. (1,706,000) 992,000
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Increase (decrease) in cash and cash equivalents .................... (229,886,000) 494,655,000
Cash and cash equivalents at beginning of period ............................ 400,578,000 84,288,000
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Cash and cash equivalents at end of period .................................. $ 170,692,000 $ 578,943,000
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See accompanying notes to consolidated financial statements
-7-
PREMIER PARKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL - BASIS OF PRESENTATION
On March 24, 1998, the company then known as Premier Parks Inc.
("Premier Operations") merged (the "Merger") with an indirect wholly-owned
subsidiary thereof, pursuant to which Premier Operations became a wholly-owned
subsidiary of Premier Parks Holdings Corporation ("Holdings") and the holders of
shares of common stock ("Common Stock") of Premier Operations became, on a
share-for-share basis, holders of Common Stock of Holdings. On the Merger date,
Premier Operations' name was changed to Premier Parks Operations Inc., and
Holdings' name was changed to Premier Parks Inc. References herein to the
"Company" or "Premier" mean (i) for all periods or dates prior to March 24,
1998, Premier Operations and its consolidated subsidiaries and (ii) for all
subsequent periods or dates, Holdings and its consolidated subsidiaries
(including Premier Operations).
During 1998, the Company purchased approximately 97% of the outstanding
capital stock of Walibi, S.A. ("Walibi"). See Note 2 below. On April 1, 1998,
the Company purchased all of the outstanding capital stock of Six Flags
Entertainment Corporation ("SFEC" and, together with its subsidiaries, "Six
Flags") and consummated the related transactions described in Note 2 below.
Management's Discussion and Analysis of Financial Condition and Results
of Operations which follows these notes contains additional information on the
results of operations and the financial position of the Company. Those comments
should be read in conjunction with these notes. The Company's annual report on
Form 10-K for the year ended December 31, 1998 includes additional information
about the Company, its operations and its financial position, and should be
referred to in conjunction with this quarterly report on Form 10-Q. The
information furnished in this report reflects all adjustments (all of which are
normal and recurring) which are, in the opinion of management, necessary to
present a fair statement of the results for the periods presented.
Results of operations for the three-month and nine-month periods ended
September 30, 1999 are not indicative of the results expected for the full year.
In particular, the Company's theme park operations contribute most of their
annual revenue during the period from Memorial Day to Labor Day each year.
The accompanying consolidated financial statements for the nine months
ended September 30, 1998 do not include the results of Walibi or Six Flags for
the first three months of that period. See Note 2.
On November 5, 1999, SFEC was merged into Premier Operations, and the
Company entered into a new credit facility (the "New Credit Facility"). See Note
7.
-8-
PREMIER PARKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
START-UP COSTS
As of January 1, 1999, the Company adopted the provisions of AICPA
Statement of Position No. 98-5, "Accounting for Start-Up Activities." Generally,
the statement requires the write-off of previously capitalized start-up costs
and precludes the future capitalization of these types of costs. Start-up costs
include pre-opening costs and professional fees and other costs associated with
incorporating or otherwise starting a business. The effect of the adoption of
the provisions of the statement was not material to the financial position,
operations or cash flows of the Company and is included in depreciation and
amortization.
INCOME PER SHARE
The following table reconciles the weighted average number of common
shares outstanding used in the calculations of basic and diluted income per
share for the three and nine-month periods ended September 30, 1999 and 1998.
Additionally, the weighted average number of shares for the nine month periods
does not include the impact of the conversion of the Company's mandatorily
convertible preferred stock into approximately 9.6 million shares of Common
Stock as the effect of the conversion and resulting decrease in preferred stock
dividends is antidilutive. In determining net income applicable to common
stock for the nine-month periods, the dividends paid on the Company's
mandatorily convertible preferred stock have been deducted from net income.
THREE THREE
MONTHS MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 1999 SEPT. 30, 1998 SEPT. 30, 1999 SEPT. 30, 1998
-------------- -------------- -------------- --------------
Weighted average number of common shares
outstanding--basic ............................. 78,200,000 75,363,000 77,439,000 62,719,000
Effect of potential common shares issuable upon the
exercise of employee stock options ............. 2,612,000 1,165,000 2,563,000 1,190,000
Convertible preferred stock ....................... 9,554,000 9,554,000 -- --
---------- ---------- ---------- ----------
Weighted average number of common shares
outstanding--diluted ........................... 90,366,000 86,082,000 80,002,000 63,909,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
On June 9, 1998, the Company's common shareholders approved a
two-for-one stock split effective July 24, 1998. The par value of the Common
Stock was decreased to $.025 per share from $.05 per share. Additionally, the
authorized common shares of the Company were increased to 150,000,000. The
accompanying consolidated financial statements and notes to the consolidated
financial statements reflect the stock split as if it had occurred as of the
earliest date presented.
RECLASSIFICATIONS
Certain items in the December 31, 1998 consolidated balance sheet and
consolidated statements of operations for the three and nine months ended
September 30, 1998 have been reclassified to conform to the 1999 presentation.
2. ACQUISITION OF THEME PARKS
On March 26, 1998, the Company purchased (the "Private Acquisition")
approximately 49.9% of the outstanding capital stock of Walibi for an aggregate
purchase price of $42,300,000, of which 20% was
-9-
PREMIER PARKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
paid through issuance of 448,910 shares of Common Stock and 80% was paid in
cash. In June 1998, the Company purchased an additional 44.0% of the outstanding
capital stock of Walibi for an aggregate purchase price of $38,100,000, which
was paid through issuance of 347,746 shares of Common Stock and $31,400,000 in
cash. During the remainder of 1998, the Company purchased an additional 3% of
Walibi, which included the issuance of an additional 9,298 shares of Common
Stock. On the date of the Private Acquisition, Walibi's indebtedness aggregated
$71,181,000, which indebtedness was assumed or refinanced by the Company. The
Company funded the cash portion of the purchase price (and the refinancing of
such indebtedness) from borrowings under its senior secured credit facility (the
"Premier Credit Facility") entered into in March 1998. As of the acquisition
dates and after giving effect to the purchases, $11,519,000 of deferred tax
liabilities were recognized for the tax consequences attributable to the
differences between the financial carrying amounts and the tax basis of Walibi's
assets and liabilities. Approximately $60,118,000 of costs in excess of the fair
value of the net assets acquired was recorded as goodwill. The Company may be
required to issue additional shares of Common Stock based on Walibi's revenues
during 1999, 2000 or 2001. The value of the additional shares to be issued, if
any, will be recognized as additional goodwill. At September 30, 1999, the
Company owned 98.6% of the capital stock of Walibi and intends to purchase the
remaining shares during the balance of 1999.
On April 1, 1998, the Company acquired (the "Six Flags Acquisition")
all of the capital stock of SFEC for $976.0 million, paid in cash. In connection
with the Six Flags Acquisition, the Company issued through public offerings (i)
36,800,000 shares of Common Stock (with gross proceeds of $993.6 million), (ii)
5,750,000 Premium Income Equity Securities ("PIES") (with gross proceeds of
$310.5 million), (iii) $410.0 million aggregate principal amount at maturity of
the Company's 10% Senior Discount Notes due 2008 (the "Senior Discount Notes")
(with gross proceeds of $251.7 million) and (iv) $280.0 million aggregate
principal amount of the Company's 9 1/4% Senior Notes due 2006 (the "Senior
Notes"), and SFEC issued $170.0 million aggregate principal amount of its 8 7/8%
Senior Notes due 2006 (the "SFEC Notes"). In addition, in connection with the
Six Flags Acquisition, the Company (i) assumed $285.0 million principal amount
at maturity of senior subordinated notes (the "SFTP Senior Subordinated Notes")
of Six Flags Theme Parks Inc. ("SFTP"), an indirect wholly-owned subsidiary of
SFEC, which notes had an accreted value of $278.1 million at April 1, 1998 (fair
value of $318.5 million at that date) and were discharged in full pursuant to a
tender offer in June 1999 (see Note 3(d)) and (ii) refinanced all outstanding
SFTP bank indebtedness with the proceeds of $410.0 million of borrowings under a
new $472.0 million senior secured credit facility of SFTP (the "Six Flags Credit
Facility"). As of the acquisition date and after giving effect to the purchase,
$65,619,000 of deferred tax liabilities were recognized for the tax consequences
attributable to the differences between the financial carrying amounts and the
tax basis of Six Flags' assets and liabilities. Approximately $1,200,974,000 of
costs in excess of the fair value of the net assets acquired was recorded as
goodwill.
In addition to its obligations under outstanding indebtedness and other
securities issued or assumed in the Six Flags Acquisition, the Company also
guaranteed in connection therewith certain contractual obligations relating to
the partnerships that own two Six Flags parks, Six Flags Over Texas and Six
Flags Over Georgia (the "Partnership Parks"). Specifically, the Company
guaranteed the obligations of the general partners of those partnerships to (i)
make minimum annual distributions of approximately $46.3 million (subject to
cost of living adjustments) to the limited partners in the Partnership Parks and
(ii) make minimum capital expenditures at each of the Partnership Parks during
rolling five-year periods, based generally on 6% of such park's revenues. Cash
flow from operations at the Partnership Parks will be used to satisfy these
requirements first, before any funds are required from the Company. The Company
also guaranteed the obligation to purchase a maximum number of 5% per year
(accumulating to the extent not purchased in any given year) of the total
limited partnership units outstanding as of the date of the partnership
agreements that govern the partnerships (to the extent tendered by the unit
holders). The
-10-
PREMIER PARKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
agreed price for these purchases is based on a valuation for each respective
Partnership Park equal to the greater of (i) a value derived by multiplying such
park's weighted-average four-year EBITDA (as defined) by a specified multiple
(8.0 in the case of the Georgia park and 8.5 in the case of the Texas park) or
(ii) $250.0 million in the case of the Georgia park and $374.8 million in the
case of the Texas park. The Company's obligations with respect to Six Flags Over
Georgia and Six Flags Over Texas will continue until 2027 and 2028,
respectively.
As the Company purchases units relating to either Partnership Park, it
will be entitled to the minimum distribution and other distributions
attributable to such units, unless it is then in default under the applicable
agreements with its partners at such Partnership Park. Pursuant to its 1999
offer to purchase units in these partnerships, during May 1999, the Company
acquired an additional 0.9% of the units in the Texas partnership for
approximately $3.3 million. The Company was not required to purchase any limited
partnership units of the limited partner in the Georgia partnership during 1999,
as no limited partners thereof tendered any units. On September 30, 1999, the
Company owned approximately 25% and 34%, respectively, of the limited
partnership units in the Georgia and Texas partnerships.
The accompanying statement of operations for the nine months ended
September 30, 1999 reflects the results of Six Flags and Walibi. The statement
of operations for the nine months ended September 30, 1998 does not reflect the
results of those entities for the first three months of that period. The
following summarized unaudited pro forma results of operations for the nine
months ended September 30, 1998, assume that the Six Flags Acquisition, the
acquisition of Walibi and the related financings occurred as of the beginning of
that period.
(IN THOUSANDS)
Total revenues .................................................. $ 758,452
Net income ...................................................... 19,081
Net income per common share - basic ............................. 0.02
Net income per common share - diluted ........................... 0.02
On May 4, 1999 the Company acquired all of the capital stock of the
companies that own and operate Reino Aventura, a theme park located in Mexico
City on a site of approximately 107 acres, for a cash purchase price of
approximately $59.6 million. The Company funded the acquisition from existing
cash. The transaction was accounted for as a purchase.
On May 25, 1999, the Company also acquired the assets of White
Water-Atlanta water park and American Adventures entertainment park located in
Atlanta, Georgia and on May 13, 1999, the Company acquired the assets of
Splashtown water park located in Houston, Texas. The transactions were accounted
for as purchases.
On October 6, 1999, the Company entered into agreements (i) to purchase
Warner Bros. Movie World Germany, near Dusseldorf, Germany, and to enter into a
joint venture with Warner Bros. to develop and manage a new Warner Bros. Movie
World Theme Park scheduled to open in Madrid, Spain in 2002 and (ii) to provide
Premier with long-term license agreements for exclusive theme park usage in
Europe and Latin and South America (including Mexico) of the Looney Tunes1,
Hanna-Barbera, Cartoon Network and DC Comic characters. See Note 7.
- -----------------------
1 Looney Tunes is a copyright and trademark of Warner Bros., a division of Time
Warner Entertainment Company, L.P.
-11-
PREMIER PARKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM INDEBTEDNESS
(a) On January 31, 1997, Premier Operations issued $125,000,000 of 9
3/4% senior notes due January 2007 (the "1997 Notes"). The 1997 Notes are senior
unsecured obligations of Premier Operations. The 1997 Notes are redeemable, at
Premier Operations' option, in whole or in part, at any time on or after January
15, 2002, at varying redemption prices. The 1997 Notes are guaranteed on a
senior, unsecured, joint and several basis by all of Premier Operations'
principal domestic subsidiaries.
The indenture under which the 1997 Notes were issued limits the ability
of Premier Operations and its subsidiaries to dispose of assets; incur
additional indebtedness or liens; pay dividends; engage in mergers or
consolidations; and engage in certain transactions with affiliates.
By virtue of the Merger, all obligations under the 1997 Notes and the
related indenture remained as obligations of Premier Operations and were not
assumed by Holdings.
(b) In March 1998, Premier Operations entered into the Premier Credit
Facility and terminated its then outstanding $115.0 million credit facility,
resulting in a $788,000 extraordinary loss, net of tax benefit of $526,000, in
the first quarter of 1998 in respect of debt issuance costs related to the
terminated facility. At September 30, 1999, Premier Operations had borrowed
$193.5 million under the Premier Credit Facility. The Premier Credit Facility
included a five-year $75.0 million revolving credit facility (of which none was
outstanding at September 30, 1999), a five-year term loan facility (of which
$70.0 million was outstanding at September 30, 1999), requiring principal
payments of $7.5 million, $25.0 million, $30.0 million and $10.0 million in the
second, third, fourth and fifth years, and an eight-year $125.0 million term
loan facility (of which $123.5 million was outstanding as of September 30, 1999)
requiring principal payments of $1.0 million in each of the first six years and
$25.0 million and $94.0 million in the seventh and eighth years, respectively.
Borrowings under the Premier Credit Facility were guaranteed by Premier
Operations' domestic subsidiaries and secured by substantially all of the assets
of Premier Operations and such subsidiaries (other than real estate).
The Premier Credit Facility contained restrictive covenants that,
among other things, limited the ability of Premier Operations and its
subsidiaries to dispose of assets; incur additional indebtedness or liens;
pay dividends; repurchase stock; make investments; engage in mergers or
consolidations and engage in certain transactions with subsidiaries and
affiliates. In addition, the Premier Credit Facility required that Premier
Operations comply with certain specified financial ratios and tests. On
November 5, 1999, the Company refinanced the indebtedness outstanding under
the Premier Credit Facility with a portion of the proceeds of the New Credit
Facility. See Note 7.
(c) On April 1, 1998, the Company issued $410.0 million principal
amount at maturity of Senior Discount Notes and $280.0 million principal amount
of Senior Notes. The notes are senior unsecured obligations of Premier and are
not guaranteed by Premier's subsidiaries. The Senior Discount Notes do not
require any interest payments prior to October 1, 2003 and, except in the event
of a change of control of the Company and certain other circumstances, any
principal payments prior to their maturity in 2008. The Senior Notes require
annual interest payments of approximately $25.9 million (9 1/4% per annum) and,
except in the event of a change of control of the Company and certain other
circumstances, do not require any principal payments prior to their maturity in
2006. The notes are redeemable, at the Company's option, in whole or in part, at
any time on or after April 1, 2002 (in the case of the Senior Notes) and April
1, 2003 (in the case of the Senior Discount Notes), at varying redemption
prices.
Approximately $70.7 million of the net proceeds of the Senior Notes
were deposited in escrow to prefund the first six semi-annual interest payments
thereon, and $75.0 million of the net proceeds of the
-12-
PREMIER PARKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Senior Discount Notes were deposited in a restricted-use investment in escrow,
until April 1, 2003, to provide a fund to pay certain of Premier's potential
obligations to the limited partners of the Partnership Parks. See Note 2.
The indentures under which the Senior Discount Notes and the Senior
Notes were issued limit the ability of the Company and its subsidiaries to
dispose of assets; incur additional indebtedness or liens; pay dividends; engage
in mergers or consolidations; and engage in certain transactions with
affiliates.
(d) On June 30, 1999, the Company issued $430.0 million principal
amount of 9 3/4% Senior Notes (the "New Notes"). The New Notes are senior
unsecured obligations of Premier and are not guaranteed by Premier's
subsidiaries. The New Notes require annual interest payments of approximately
$41.9 million and, except in the event of a change in control of the Company and
certain other circumstances, do not require any principal payments prior to
their maturity in 2007. The New Notes are redeemable, at the Company's option,
in whole or in part, at any time on or after June 15, 2003 at varying redemption
prices. The indenture under which the New Notes were issued contains covenants
substantially similar to those relating to the Senior Notes and the Senior
Discount Notes.
The net proceeds of the New Notes were used to fund the purchase in a
tender offer of $87.5 million of PPO's 12% Senior Notes and the entire $285.0
million principal amount of SFTP's 12 1/4% Senior Subordinated Notes. The $2.5
million balance of PPO Notes were redeemed in September 1999. The tender offer
resulted in an extraordinary loss of $10.3 million on extinguishment of debt,
net of income tax benefit, of $4.1 million.
(e) On April 1, 1998, SFEC issued $170.0 million principal amount of
SFEC Notes, which are senior obligations of SFEC. The SFEC Notes were guaranteed
on a fully subordinated basis by Holdings. The SFEC Notes require annual
interest payments of approximately $15.1 million (8 7/8% per annum) and, except
in the event of a change of control of SFEC and certain other circumstances, do
not require any principal payments prior to their maturity in 2006. The SFEC
Notes are redeemable, at SFEC's option, in whole or in part, at any time on or
after April 1, 2002, at varying redemption prices. The net proceeds of the SFEC
Notes, together with other funds, were deposited in a restricted use investment
in escrow to provide for the repayment in full on December 15, 1999 of
pre-existing notes (the "SFEC Zero Coupon Notes") of SFEC (with a carrying value
of $191.0 million at September 30, 1999).
The indenture under which the SFEC Notes were issued limits the ability
of SFEC and its subsidiaries to dispose of assets; incur additional indebtedness
or liens; pay dividends; engage in mergers or consolidations; and engage in
certain transactions with affiliates. On November 5, 1999, SFEC was merged into
PPO, which assumed all of SFEC's obligations under the indenture.
(f) On April 1, 1998, SFTP entered into the Six Flags Credit Facility,
pursuant to which it had outstanding $409.0 million at September 30, 1999. The
Six Flags Credit Facility included (i) a $100.0 million five-year revolving
credit facility to be used to refinance pre-existing Six Flags bank indebtedness
and for working capital and other general corporate purposes (of which $38.0
million was outstanding on September 30, 1999); and (ii) a $372.0 million term
loan facility (the "Term Loan Facility"), of which $371.0 million was
outstanding on September 30, 1999. Borrowings under the Term Loan Facility would
have matured on November 30, 2004. However, aggregate principal payments and
reductions of $1.0 million were required during each of the first, second, third
and fourth years; aggregate principal payments of $25.0 million and $40.0
million are required in years five and six, respectively, and $303.0 million at
maturity. Borrowings under the Six Flags Credit Facility were secured by
substantially all of the assets of SFTP and its subsidiaries and a pledge of the
stock of SFTP, and were guaranteed by such
-13-
PREMIER PARKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
subsidiaries and SFEC.
The Six Flags Credit Facility contained restrictive covenants that,
among other things, limited the ability of SFTP and its subsidiaries to dispose
of assets; incur additional indebtedness or liens; pay dividends, except that
(subject to covenant compliance) dividends were permitted to allow SFEC to meet
cash pay interest obligations with respect to its SFEC Notes; repurchase stock;
make investments; engage in mergers or consolidations and engage in certain
transactions with subsidiaries and affiliates. In addition, the Six Flags Credit
Facility required that SFTP comply with certain specified financial ratios and
tests. On November 5, 1999, the Company refinanced the indebtedness outstanding
under the Six Flags Credit Facility with a portion of the proceeds of the New
Credit Facility. See Note 7.
4. COMMITMENTS AND CONTINGENCIES
In December 1998, a final judgment of $197.3 million in compensatory
damages was entered against SFEC, SFTP, Six Flags Over Georgia, Inc. and Time
Warner Entertainment Company, L.P. ("TWE"), and a final judgment of $245.0
million in punitive damages was entered against TWE and of $12.0 million in
punitive damages was entered against the referenced Six Flags entities. TWE has
appealed the judgments. The judgments arose out of a case entitled SIX FLAGS
OVER GEORGIA, INC. AND SIX FLAGS THEME PARKS, INC. V. SIX FLAGS FUND, LTD., AND
AVRAM SALKIN, AS TRUSTEE OF THE CLAIMS TRUST based on certain disputed
partnership affairs prior to the Six Flags Acquisition at Six Flags Over
Georgia, including alleged breaches of fiduciary duty. The sellers in the Six
Flags Acquisition, including Time Warner Inc., have agreed to indemnify the
Company against any and all liabilities arising out of this litigation.
On June 2, 1997, a water slide collapsed at the Company's
Waterworld/USA park in Concord, California, resulting in one fatality and the
park's closure for twelve days. Although the collapse and the resulting closure
had a material adverse impact on that park's operating performance for 1997, as
well as a lesser impact on the Company's Sacramento water park (which is also
named "Waterworld/USA"), located approximately seventy miles from the Concord
park, the Company's other parks were not adversely affected. The Company has
recovered all of the Concord park's operating shortfall under its business
interruption insurance. The Company has paid the self-retention limit on its
liability insurance and believes that such liability insurance coverage should
be adequate to provide for any additional personal injury liability which may
ultimately be found to exist in connection with the collapse.
On March 21, 1999, a raft capsized in the river rapids ride at Six
Flags Over Texas, one of the Company's Partnership Parks, resulting in one
fatality and injuries to ten others. While the Partnership Park is covered by
the Company's multi-layered general liability insurance coverage of up to
$100,000,000 per occurrence, with no self-insured retention, the impact of this
incident on the Company's financial position, operations or liquidity has not
yet been determined.
On August 7, 1999, a raft capsized in the river rapids ride at
Riverside Park, one of the Company's parks, resulting in injuries to four
individuals. While the park is covered by the Company's multi-layered general
liability insurance coverage of up to $100,000,000 per occurrence, with no
self-insured retention, the impact of this incident on the Company's financial
position, operations or liquidity has not yet been determined.
The Company is party to various other legal actions arising in the
normal course of business. Matters that are probable of unfavorable outcome to
the Company and which can be reasonably estimated are accrued. Such accruals are
based on information known about the matters, the Company's estimates
-14-
PREMIER PARKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of the outcomes of such matters and its experience in contesting, litigating and
settling similar matters.
None of the other actions are believed by management to involve amounts
that would be material to the Company's consolidated financial condition,
operations or liquidity after consideration of recorded accruals.
5. INVESTMENT IN THEME PARK PARTNERSHIPS
The following reflects the summarized results of the four parks managed
by the Company for the three and nine months ended September 30, 1999 and
September 30, 1998. The summarized results for the nine months ended September
30, 1998 do not include the results of the Partnership Parks for the first three
months of that period. The general partner and limited partnership interests in
the Partnership Parks were purchased on April 1, 1998 and the lease agreement
with the owner of Six Flags Marine World, which established a revenue sharing
arrangement in which the Company participates, became effective at the beginning
of the 1998 operating season. The summarized results include the results of
White Water Atlanta (which is owned by the partnership that owns Six Flags Over
Georgia) only for the period subsequent to its acquisition on May 25, 1999.
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPT. 30, 1999 SEPT. 30, 1998 SEPT. 30, 1999 SEPT. 30, 1998
-------------- -------------- -------------- --------------
(IN THOUSANDS)
Revenue .............................. $100,797 $ 88,285 $200,944 $168,934
Expenses:
Operating expenses ................ 27,279 27,226 72,723 57,466
Selling, general and administrative 6,639 8,602 27,750 21,831
Costs of products sold ............ 8,690 9,645 18,548 18,116
Depreciation and amortization ..... 3,980 3,478 11,502 7,815
Interest expense, net ............. 1,433 1,241 5,640 5,242
Other expense ..................... 264 62 458 229
-------- -------- ------ --------
Total .......................... 48,285 50,254 136,621 110,699
-------- -------- ------ --------
Net income ........................ $ 52,512 $ 38,031 64,323 $ 58,235
-------- -------- ------ --------
The Company's share of income from operations of the Partnership Parks
for the three and nine months ended September 30, 1999 were $33,937,000 and
$39,219,000, respectively, prior to interest, depreciation and amortization
charges of $5,880,000 and $12,519,000, respectively. The Company's share of
income from operations of the Partnership Parks for the three and nine months
ended September 30, 1998 was $15,163,000 and $28,896,000, respectively, prior to
interest, depreciation and amortization charges of $2,980,000 and $4,141,000,
respectively. There is a substantial difference between the carrying value of
the Company's investment in the theme parks and the net book value of the theme
parks. The difference is being amortized over 20 years for the Partnership Parks
and over the expected useful life of the rides and equipment installed by the
Company at Six Flags Marine World.
-15-
PREMIER PARKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. BUSINESS SEGMENTS
The Company manages its operations on an individual park location
basis. Discrete financial information is maintained for each park and provided
to the Company's management for review and as a basis for decision making. The
primary performance measure used to allocate resources is earnings before
interest, tax expense, depreciation and amortization ("EBITDA"). All of the
Company's parks provide similar products and services through a similar process
to the same class of customer through a consistent method. As such, the Company
has only one reportable segment - operation of theme parks. The following tables
present segment financial information, a reconciliation of the primary segment
performance measure to income before income taxes and a reconciliation of theme
park revenues to consolidated total revenues. Park level expenses exclude all
noncash operating expenses, principally depreciation and amortization. The
segment financial information for the nine months ended September 30, 1998 does
not include the results of Six Flags, Walibi and the Partnership Parks for the
first three months of that period.
-16-
PREMIER PARKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPT. 30,1999 SEPT. 30, 1998 SEPT. 30, 1999 SEPT. 30, 1998
------------- -------------- -------------- --------------
(IN THOUSANDS)
Theme park revenue .............................. $ 572,525 $ 523,362 $ 1,059,836 $ 903,040
Theme park cash expenses ........................ 256,838 242,702 604,045 491,148
----------- ----------- ----------- -----------
Aggregate park EBITDA ........................... 315,687 280,660 455,791 411,892
Third-party share of EBITDA from parks
accounted for under the equity method ........ (25,596) (28,278) (40,692) (43,302)
Amortization of investment in theme park
partnerships ................................. (4,348) (2,980) (10,987) (4,141)
Unallocated net expenses, including corporate and
other expenses from park acquired after
completion of the operating season............. (6,312) (10,484) (29,805) (28,244)
Depreciation and amortization ................... (40,149) (33,869) (114,135) (71,408)
Interest expense ................................ (48,159) (46,028) (141,719) (101,893)
Interest income ................................. 6,072 11,989 19,606 24,418
----------- ----------- ----------- -----------
Income before income taxes ...................... $ 197,195 $ 171,010 $ 138,059 $ 187,322
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Theme park revenue .............................. $ 572,525 $ 523,362 $ 1,059,836 $ 903,040
Theme park revenue from parks accounted for under
the equity method ............................... (100,797) (88,285) (200,944) (168,934)
----------- ----------- ----------- -----------
Consolidated total revenue ...................... $ 471,728 $ 435,077 $ 858,892 $ 734,106
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Six of the Company's parks are located in Europe and one is located in
Mexico. The following information reflects the Company's assets and revenue by
domestic and foreign categories as of and for the nine months ended September
30, 1999. The Company acquired its European operations on March 26, 1998 and
acquired its Mexican park on May 4, 1999:
(In thousands)
----------------------------------------------------
DOMESTIC FOREIGN TOTAL
---------- -------- ----------
Total assets....................................... $3,952,250 $266,270 $4,218,520
Revenue............................................ 771,464 87,428 858,892
7. SUBSEQUENT EVENTS
On October 6, 1999, the Company entered into agreements (i) to purchase
Warner Bros. Movie World Germany, near Dusseldorf, Germany and to enter into a
joint venture with Warner Bros. to develop and manage a new Warner Bros. Movie
World Theme Park scheduled to open in Madrid, Spain
-17-
PREMIER PARKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
in 2002 and (ii) to provide Premier with long-term license agreements for
exclusive theme park usage in Europe and Latin and South America (including
Mexico) of the Looney Tunes, Hanna-Barbera, Cartoon Network and DC Comic
characters. The transactions will require an aggregate cash payment at closing
of approximately $180 million, which the Company expects to fund from a portion
of the proceeds of the New Credit Facility described below. The Company expects
to close the transactions in mid-November 1999.
On November 5, 1999, the Company entered into the New Credit Facility
and, in connection therewith, merged SFEC into Premier Operations. The New
Credit Facility includes a $300 million five-year revolving credit facility, a
$300 million, five-and-one-half-year multicurrency reducing revolving facility
and a $600 million six-year term loan. Borrowings under the revolving credit
facility must be repaid in full for thirty consecutive days each year. The
multicurrency facility, which permits optional prepayments and refinancings,
requires quarterly mandatory reductions of 2.5% of the committed amount thereof
commencing on December 31, 2001, 5.0% commencing on December 31, 2002, 7.5%
commencing on December 31, 2003 and 20.0% commencing on December 31, 2004. Any
borrowings outstanding in excess of such reduced committed amounts at the time
of such reduction must be repaid. The term loan facility requires quarterly
repayments of 0.25% thereof commencing on December 31, 2001 and 24.25%
commencing on December 31, 2004. The principal borrower under the facility is
SFTP, and borrowings under the New Credit Facility are guaranteed by Holdings,
Premier Operations and all of the Company's domestic subsidiaries and are
secured by substantially all of the Company's assets.
The New Credit Facility contains restrictive covenants that, among
other things, limit the ability of Premier Operations and its subsidiaries to
dispose of assets; incur additional indebtedness or liens; repurchase stock;
make investments; engage in mergers or consolidations; pay dividends, except
that (subject to covenant compliance) dividends will be permitted to allow
Holdings to meet cash interest obligations with respect to its Senior Notes,
Senior Discount Notes and New Notes, cash dividend payments on its PIES and its
obligations to the limited partners in the Partnership Parks, and engage in
certain transactions with subsidiaries and affiliates. In addition, the New
Credit Facility requires that Premier Operations comply with certain specified
financial ratios and tests.
On November 5, 1999, the Company borrowed $892.0 million under the New
Credit Facility principally to repay all amounts outstanding under the Premier
Credit Facility and the Six Flags Credit Facility and to provide funds to
consummate the Warner Bros. transactions described above. The termination of the
Premier and Six Flags Credit Facilities will result in an extraordinary loss in
the fourth quarter of 1999 solely in respect of the debt issuance costs related
thereto in an amount of approximately $5.2 million net of estimated tax benefit
of $3.4 million.
-18-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
Results of operations for the three months and nine months ended
September 30, 1999 and the three months ended September 30, 1998 include the
results of Walibi, Six Flags and the Partnership Parks (each of which was
acquired during 1998), for the entire period. Results for the nine months ended
September 30, 1998 do not include the results of Walibi, Six Flags or the
Partnership Parks for the first three months of that period. Results of
operations for the 1999 periods also include the results of the May 1999
acquisitions (Reino Aventura, White Water Atlanta and Splashtown) from and after
their respective acquisition dates.
Results of operations for the three-month and nine-month periods ended
September 30, 1999 are not indicative of the results expected for the full year.
In particular, the Company's theme park operations contribute most of their
annual revenue during the period from Memorial Day to Labor Day each year.
THREE MONTHS ENDED SEPTEMBER 30, 1999 VS. THREE MONTHS ENDED
SEPTEMBER 30, 1998
Revenue in the third quarter of 1999 totaled $471.7 million ($460.8
million without giving effect to the parks (the "Acquired Parks") acquired in
the May 1999 acquisitions) compared to $435.1 million for the third quarter of
1998. The $25.6 million (5.9%) increase in 1999 revenue (excluding the Acquired
Parks) compared to revenue for the third quarter of 1998 resulted primarily from
a 10.7% increase in attendance, and the admission revenues and in-park spending
associated therewith. The four newly branded Six Flags parks achieved a 20.1%
increase in attendance for the third quarter of 1999 compared to the third
quarter of 1998.
Operating expenses for the third quarter of 1999 increased $19.2
million ($15.3 million excluding the Acquired Parks) compared to the 1998
period. The 13.5% increase (excluding the Acquired Parks) resulted primarily
from increased staffing levels and other expenses associated with higher
attendance levels. As a percentage of revenues, operating expenses were 28.2% in
1999 as compared to 26.1% in the prior year period.
Selling, general and administrative expenses (including noncash
compensation) for the third quarter of 1999 decreased $6.4 million, compared to
the expenses for the comparable quarter of 1998. As a percentage of revenue,
these expenses (including noncash compensation) were 8.5% in 1999, down from
10.7% in 1998. Selling, general and administrative expenses for the Acquired
Parks were $1.7 million for the third quarter of 1999. Advertising expenditures
for the quarter increased by $2.7 million, reflecting a return to historical
advertising levels at the Six Flags parks and additional expenditures in support
of the 1999 transition of four original Premier parks to the Six Flags brand.
The increase in noncash compensation related to the issuance of restricted stock
and conditional employee stock options in the fourth quarter of 1998. The $11.4
million decrease in remaining selling, general and administrative expenses in
the 1999 period resulted from reduced corporate level expenditures, including
staffing, related to the closing of the former Six Flags corporate office
subsequent to the April 1, 1998 acquisition, and significant cost reductions in
other areas, including insurance.
-19-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Costs of products sold remained relatively constant for the two
quarters. As a percentage of theme park food, merchandise and other revenue,
costs of products sold represented 21.3% in 1999, as compared to 22.2% in 1998.
Depreciation and amortization expense for the third quarter of 1999
increased $6.3 million compared to the 1998 level attributable to the
recognition of depreciation and amortization expense associated with the
Acquired Parks and to the Company's on-going capital program. Interest expense,
net increased $8.0 million compared to interest expense, net for the third
quarter of 1998, representing a $2.1 million increase in interest expense and a
$5.9 million decline in interest income. The increase in interest expense
resulted from higher average interest rates on a slightly higher outstanding
debt while the decline in interest income resulted from a lower average cash and
cash equivalents balance during the 1999 period compared to the 1998 period.
Equity in operations of theme park partnerships reflects the Company's
share of the income or loss of Six Flags Over Texas and Six Flags Over Georgia
(including its ownership of White Water Atlanta in the 1999 period), the lease
of Six Flags Marine World and the management of all four parks. The Company's
ownership interests in Six Flags Over Texas and Six Flags Over Georgia commenced
on April 1, 1998, the date of the Six Flags Acquisition. The Company earns its
share of the cash flow from the lease and management of Six Flags Marine World
during the second half of the year. The $15.9 million increase in the equity in
operations of theme park partnerships compared to the level for the third
quarter of 1998 was attributable to improved performance at the Partnership
Parks and the inclusion of the results of White Water Atlanta.
Income tax expense was $80.4 million for the third quarter of 1999
compared to $70.3 million, for the same quarter of 1998. The effective tax rate
for the third quarter of 1999 was 40.8% compared to a rate of 41.1% for the
comparable quarter of 1998. The Company's quarterly effective tax rate will vary
from period-to-period based upon the inherent seasonal nature of the theme park
business, and as a result of permanent differences associated with goodwill
amortization for financial purposes and the deductible portion of the
amortization for tax purposes.
NINE MONTHS ENDED SEPTEMBER 30, 1999 VS. NINE MONTHS ENDED
SEPTEMBER 30, 1998
The table below sets forth certain financial information with respect
to the Company for the nine months ended September 30, 1999 and 1998 and with
respect to Six Flags and Walibi for the three months ended March 31, 1998
(representing the pre-acquisition portion of the 1998 period) and on a pro forma
basis for the nine months ended September 30, 1998 with respect to depreciation
and amortization, interest expense, net and income tax expense as if the
acquisitions of Six Flags and Walibi had occurred on the first day of 1998:
-20-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Nine months Ended September 30, 1998
--------------------------------------------------------------------------
Historical Historical
Six Flags Walibi for
for Period Period Pro
Nine months Prior to Prior to Forma Company
Ended Historical April 1, March 26, Adjust- Pro
Sept. 30, 1999 Premier 1998(1) 1998(2) ments Forma
---------------- -------------- -------------- ------------- ------------ ----------
(In thousands)
Revenue:
Theme park admissions ........... $ 470,501 $ 395,839 $ 15,047 $ 883 $ -- $ 411,769
Theme park food,
Merchandise and other ......... 388,391 338,267 7,792 624 -- 346,683
---------------- -------------- -------------- ------------- ------------- ----------
Total revenue ................. 858,892 734,106 22,839 1,507 -- $ 758,452
---------------- -------------- -------------- ------------- ------------- ----------
Operating costs and expenses:
Operating expenses .............. 290,431 235,240 45,679 4,626 -- 285,545
Selling, general and
Administrative ................ 128,600 106,829 19,278 3,407 -- 129,514
Noncash compensation ............ 10,503 2,025 -- -- -- 2,025
Costs of products sold .......... 81,907 76,672 2,193 248 -- 79,113
Depreciation and amortization ... 114,135 71,408 17,629 3,214 6,440 (3) 98,691
---------------- -------------- -------------- ------------- ------------- ----------
Total operating costs
and expenses .................. 625,576 492,174 84,779 11,495 6,440 594,888
---------------- -------------- -------------- ------------- ------------- ----------
Income (loss) from operations . 233,316 241,932 (61,940) (9,988) (6,440) 163,564
---------------- -------------- -------------- ------------- ------------- -----------
Other income (expense):
Interest expense, net ........... (122,113) (77,475) (21,262) (889) (17,901)(4) (117,527)
Equity in operations
of theme park partnerships .... 26,700 24,755 -- -- (13,162)(5) 11,593
Other income (expense), including
minority interest ............. 156 (1,890) -- (1) -- (1,891)
---------------- -------------- -------------- ------------- ------------- ----------
Total other income (expense) .... (95,257) (54,610) (21,262) (890) (31,063) (107,825)
Income (loss) before income taxes
and extraordinary loss ........... 138,059 187,322 (83,202) (10,878) (37,503) 55,739
Income tax expense (benefit) ....... 67,600 80,665 (27,792) (4,786) (12,217)(6) 35,870
---------------- -------------- -------------- ------------- ------------- ----------
Income (loss) before extraordinary
loss ............................. $ 70,459 $ 106,657 $(55,410) $(6,092) $(25,286) $ 19,869
---------------- -------------- -------------- ------------- ------------- ----------
---------------- -------------- -------------- ------------- ------------- ----------
EBITDA(7) .......................... $ 357,954 $ 315,365 $(44,311) $(6,774) $ -- $ 264,280
---------------- -------------- -------------- ------------- ------------- ----------
---------------- -------------- -------------- ------------- ------------- ----------
Adjusted EBITDA(8) ................. $ 397,173 $ 344,261 $(44,311) $(6,774) $(11,950) $ 281,226
---------------- -------------- -------------- ------------- ------------- ----------
---------------- -------------- -------------- ------------- ------------- ----------
- ---------------
(1) Includes results of Six Flags for the period prior to April 1, 1998, the
acquisition date, adjusted to (i) eliminate results of the Partnership
Parks and (ii) eliminate the expense associated with certain one-time
option payments resulting from the purchase.
-21-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(2) Includes results of Walibi for the period prior to March 26, 1998, the
acquisition date.
(3) Includes adjustments to eliminate the historical depreciation and
amortization for Six Flags and Walibi and the inclusion of estimated pro
forma depreciation and amortization for the three months ended March 31,
1998.
(4) Includes adjustments to reflect additional interest expense associated
with the Senior Notes, the Senior Discount Notes, the SFEC Notes, the
Premier Credit Facility and the Six Flags Credit Facility net of (a) the
elimination of the historical interest expense associated with the Company
and Six Flags credit facilities outstanding prior to April 1, 1998 and the
long term debt of Walibi and (b) the amortization of the fair market value
adjustments on the SFTP Senior Subordinated Notes and the SFEC Zero Coupon
Notes recorded in connection with the acquisition of Six Flags. Issuance
costs associated with the borrowings are being amortized over their
respective periods.
(5) Includes adjustments to reflect the Company's share of the operations of
the Partnership Parks using the equity method of accounting.
(6) Includes adjustments to reflect the application of income taxes to the pro
forma adjustments and to the pre-acquisition operations of Six Flags and
Walibi, after consideration of permanent differences, at a rate of 38%.
(7) EBITDA is defined as earnings before interest expense, net, income tax
expense (benefit), noncash compensation, depreciation and amortization and
minority interest. The Company has included information concerning EBITDA
because it is used by certain investors as a measure of a company's
ability to service and/or incur debt. EBITDA is not required by generally
accepted accounting principles ("GAAP") and should not be considered in
isolation or as an alternative to net income, net cash provided by
operating, investing and financing activities or other financial data
prepared in accordance with GAAP or as an indicator of the Company's
operating performance. This information should be read in conjunction with
the Statements of Cash Flows contained in the Consolidated Financial
Statements.
(8) Adjusted EBITDA is defined as EBITDA of the Company plus the Company's
share (based on its ownership interests) of the EBITDA of the Partnership
Parks, determined on a pro forma basis as if Six Flags, Walibi and the
Company's interests in the Partnership Parks had been acquired on January
1, 1998.
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Revenue in the first nine months of 1999 totaled $858.9 million ($840.5
million without giving effect to the Acquired Parks) compared to $734.1 million
(actual) and $758.5 million (pro forma) for the first nine months of 1998. The
$82.1 million (10.8%) increase in 1999 revenue (excluding the Acquired Parks)
compared to pro forma revenue for the first nine months of 1998 resulted
primarily from an aggregate same park attendance increase of 4 million (15.2%)
and substantial season pass sales, resulting in increased admission and in-park
revenues.
Operating expenses for the first nine months of 1999 increased $55.2
million ($48.3 million excluding the Acquired Parks) compared to actual expenses
for the first nine months of 1998 and decreased $2.0 million (excluding the
Acquired Parks) compared to pro forma expenses for the first nine months of
1998. The decrease (excluding the Acquired Parks) compared to pro forma expenses
for 1998 resulted primarily from operating efficiencies realized at the Six
Flags parks subsequent to their acquisition on April 1, 1998 partially offset by
higher expenses at the original Premier parks resulting from increased
attendance and revenues. Comparing 1999 actual (excluding the Acquired Parks) to
1998 pro forma as a percentage of revenues, these expenses were 33.8% and 37.7%
respectively.
Selling, general and administrative expenses (including noncash
compensation) for the first nine months of 1999 increased $30.2 million and $7.6
million compared to the actual and pro forma expenses for the first nine months
of 1998. Selling, general and administrative expenses for the Acquired Parks
were $2.4 million for the 1999 period. Advertising expenditures for the nine
months increased by $25 million over the pro forma expense for 1998 reflecting a
return to historical advertising levels of expenditures at the Six Flags parks
and additional expenditures in support of the 1999 transition of four
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
original Premier parks to the Six Flags brand. Noncash compensation, increased
by $8.3 million, related to the issuance of restricted stock and conditional
employee stock options during 1998. Remaining selling, general and
administrative expenses decreased by $28.3 million in the 1999 period primarily
as a result of reduced corporate level expenditures, including staffing, related
to the closing of the former Six Flags corporate office subsequent to the April
1, 1998 acquisition, as well as certain other savings, including insurance.
Comparing 1999 actual (including the Acquired Parks) to 1998 pro forma as a
percentage of revenues, these expenses were 16.3% and 17.3% respectively.
Costs of products sold in the 1999 period increased $5.2 million ($3.6
million excluding the Acquired Parks) and $2.8 million ($1.2 million excluding
the Acquired Parks), respectively, compared to actual and pro forma expenses for
the first nine months of 1998.
Depreciation and amortization expense for the first nine months of 1999
increased $42.7 million and $15.4 million, respectively, compared to the actual
and pro forma amounts for the first nine months of 1998. The increase compared
to the pro forma 1998 level was attributable to the Company's on-going capital
program at the previously owned parks and from the additional improvements
associated with the Acquired Parks. Interest expense, net increased $44.6
million compared to the actual interest expense, net for the first nine months
of 1998 and increased $4.6 million compared to the pro forma interest expense,
net for the first nine months of 1998. The increase compared to pro forma
interest expense, net for 1998 resulted from higher average interest rates on a
slightly higher average debt and reduced interest income from lower average cash
and cash equivalent balances during the 1999 period.
Equity in operations of theme park partnerships reflects the Company's
share of the income or loss of Six Flags Over Texas and Six Flags Over Georgia
(including White Water Atlanta), the lease of Six Flags Marine World and the
management of all four parks. The Company's ownership interests in Six Flags
Over Texas and Six Flags Over Georgia commenced on April 1, 1998, the date of
the Six Flags Acquisition. The Company earns its share of the cash flows from
the lease and management of Six Flags Marine World during the second half of the
year. The $15.1 million increase in the equity in operations of theme park
partnerships compared to the pro forma level for the first nine months of 1998
was attributable to improved performance at the Partnership Parks and the
inclusion of the results of White Water Atlanta.
Income tax expense was $67.6 million for the first nine months of 1999
compared to a $80.7 million expense and a $35.9 million expense for the actual
and pro forma results, respectively, for the first nine months of 1998. The
effective tax rate for the first nine months of 1999 was 49.0% compared to a
rate on the pro forma amount of 64.4% for the first nine months of 1998. The
Company's effective tax rate will vary from period-to-period based upon the
inherent seasonal nature of the theme park business and as a result of permanent
differences associated with goodwill amortization for financial purposes and the
deductible portion of the amortization for tax purposes.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY, CAPITAL COMMITMENTS AND RESOURCES
At September 30, 1999, the Company's indebtedness (including $191.0
million carrying value of the pre-existing SFEC notes which will be repaid in
full from the proceeds of the SFEC Notes, together with other funds, all of
which have been deposited in escrow) aggregated $2,096.1 million, of which
approximately $212.9 million (including $191.0 million carrying value of the
pre-existing SFEC Notes) matures prior to September 30, 2000. On November 5,
1999, the Company refinanced all amounts outstanding under the Premier and Six
Flags Credit Facilities (aggregating $602.5 million at September 30, 1999) with
a portion of the proceeds of a borrowing under the New Credit Facility. See
Notes 3 and 7 to the Company's Consolidated Financial Statements for additional
information regarding the Company's indebtedness.
During the nine months ended September 30, 1999, net cash provided by
operating activities was $237.1 million. Net cash used in investing activities
in the first nine months of 1999 totaled $441.0 million, consisting primarily of
capital expenditures and acquisitions of theme parks. Net cash used in financing
activities in the first nine months of 1999 was $24.2 million, representing
primarily proceeds of the issuance of New Notes described in Note 3(d) to the
Company's Consolidated Financial Statements, offset by the retirement of the
Premier Operations and SFTP notes described therein.
As more fully described in Note 2 to the Company's Consolidated
Financial Statements, in connection with the Six Flags Acquisition, the Company
guaranteed certain obligations relating to the Partnership Parks. Cash flow from
operations at the Partnership Parks will be used to satisfy these requirements
before any funds are required from the Company.
The degree to which the Company is leveraged could adversely affect its
liquidity. The Company's liquidity could also be adversely affected by
unfavorable weather, accidents or the occurrence of an event or condition,
including negative publicity or significant local competitive events, that
significantly reduce paid attendance and, therefore, revenue at any of its theme
parks.
The Company believes that, based on historical and anticipated
operating results, cash flows from operations, available cash and available
amounts under the New Credit Facility will be adequate to meet the Company's
future liquidity needs, including anticipated requirements for working capital,
capital expenditures, scheduled debt and PIES requirements and obligations under
arrangements relating to the Partnership Parks, for at least the next several
years. The Company may, however, need to refinance all or a portion of its
existing debt on or prior to maturity or to seek additional financing.
To minimize the Company's exposure to changing foreign currency rates
on ride purchases, in the past the Company has entered into foreign exchange
forward contracts. No foreign exchange forward contracts are outstanding as of
September 30, 1999. Additionally, the Company has not hedged its exposure to
changes in foreign currency rates related to its foreign parks.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED
In June, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
-24-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
certain recognition of all derivatives as either assets or liabilities in the
balance sheet and measurement of those instruments at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge. The
accounting for changes in the fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative and whether it qualifies
as a hedge. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. A subsequent pronouncement, SFAS 137, was issued
in July 1999 that delayed the effective date of SFAS 133 until the fiscal year
beginning after June 15, 2000. The Company plans to adopt the provisions of SFAS
133 in the first quarter of the year ending December 31, 2001. If the provisions
of SFAS No. 133 were to be applied as of September 30, 1999, they would not have
a material effect on the Company's financial position as of such date, or the
results of operations for the three-month and nine-month periods then ended.
IMPACT OF YEAR 2000 ISSUE
The Company's Year 2000 Project (the "Project") is in process. The
Project is addressing the Year 2000 issue caused by computer programs being
written utilizing two digits rather than four to define an applicable year. As a
result, the Company's computer equipment, software and devices with embedded
technology that are time sensitive may misinterpret the actual date beginning on
January 1, 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, but not limited to, a temporary
inability to process transactions.
The Company has undertaken various initiatives intended to ensure that
its computer equipment and software will function properly with respect to dates
in the Year 2000 and thereafter. In planning and developing the Project, the
Company has considered both its information technology ("IT") and its non-IT
systems. The term "computer equipment and software" includes systems that are
commonly thought of as IT systems, including accounting, data processing,
telephone systems, scanning equipment and other miscellaneous systems. Those
items not to be considered as IT technology include alarm systems, fax machines,
monitors for park operations or other miscellaneous systems. Both IT and non-IT
systems may contain embedded technology, which complicates the Company's Year
2000 identification, assessment, remediation and testing efforts. Based upon its
identification and assessment efforts to date, the Company is in the process of
replacing the computer equipment and upgrading the software it currently uses to
become Year 2000 compliant. In addition, in the ordinary course of replacing
computer equipment and software, the Company plans to obtain replacements that
are in compliance with Year 2000.
The Company has initiated correspondence with its significant vendors
and service providers to determine the extent such entities are vulnerable to
Year 2000 issues and whether the products and services purchased from such
entities are Year 2000 compliant. The Company expects to receive a favorable
response from such third parties and it is anticipated that their significant
Year 2000 issues will be addressed on a timely basis.
With regard to IT, non-IT systems and communications with third
parties, the Company anticipates that the Project will be completed in November
1999.
As noted above, the Company is in the process of replacing certain
computer equipment and software because of the Year 2000 issue. The Company
estimates that the total cost of such replacements will be no more than $1.5
million. Substantially all of the personnel being used on the Project are
existing Company employees. Therefore, the labor costs of its Year 2000
identification, assessment, remediation and testing efforts, as well as
currently anticipated labor costs to be incurred by the Company with respect
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
to Year 2000 issues of third parties, are expected to be less than $0.8 million.
The Company has not yet developed a most reasonably likely worst case
scenario with respect to Year 2000 issues, but instead has focused its efforts
on reducing uncertainties through the review described above. The Company has
not developed Year 2000 contingency plans other than as described above, and
does not expect to do so unless merited by the results of its continuing review.
However, all but one of the Company's parks will not be in operation on January
1, 2000 due to the operating season for the Company's parks being primarily from
Memorial Day to Labor Day.
The Company presently does not expect to incur significant operational
problems due to the Year 2000 issue. However, if all Year 2000 issues are not
properly and timely identified, assessed, remediated and tested, there can be no
assurance that the Year 2000 issue will not materially impact the Company's
results of operations or adversely affect its relationships with vendors or
others. Additionally, there can be no assurance that the Year 2000 issues of
other entities will not have a material impact on the Company's systems or
results of operations.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations" above and Item 7A of the Company's December
31, 1998 Form 10-K.
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PART II - OTHER INFORMATION
ITEMS 1 - 5
Not applicable.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 $1,200,000,000 Credit Agreement among Premier Parks Inc.,
Premier Parks Operations Inc., Six Flags Theme Parks Inc., as
Primary Borrower, the Foreign Subsidiary Borrowers from time
to time parties hereto, the Several Lenders from time to time
parties hereto, The Bank of New York, as Syndication Agent,
Bank of America, N.A. and The Bank of Nova Scotia, as
Documentation Agents, Lehman Brothers Inc. and Lehman Brothers
International (Europe) Inc., as Advisors , Lead Arrangers and
Book Managers, and Lehman Commercial Paper Inc., as
Administrative Agent, dated as of November 5, 1999 (Exhibits
and Schedules intentionally deleted)
27.1 Financial Data Schedule - September 30, 1999
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PREMIER PARKS INC.
(Registrant)
/s/ Kieran E. Burke
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
/s/ James F. Dannhauser
CHIEF FINANCIAL OFFICER
Date: November 15, 1999
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