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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 QUARTERLY PERIOD ENDED MARCH 31, 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 May 7, 1999, Premier Parks Inc. had outstanding 76,866,063 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
March 31, December 31,
1999 1998
-------------- --------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents................... $261,372,000 $400,578,000
Accounts receivable......................... 18,939,000 31,484,000
Inventories................................. 31,376,000 21,703,000
Prepaid expenses and other current assets... 27,331,000 29,200,000
Restricted-use investment securities........ 211,744,000 206,075,000
--------------- --------------
Total current assets..................... 550,762,000 689,040,000
Other assets:
Debt issuance costs......................... 43,789,000 45,099,000
Restricted-use investment securities........ 109,907,000 111,577,000
Deposits and other assets................... 56,413,000 73,887,000
--------------- --------------
Total other assets....................... 210,109,000 230,563,000
Property and equipment......................... 1,777,824,000 1,675,959,000
Less accumulated depreciation............... 126,557,000 104,806,000
--------------- --------------
Total property and equipment............. 1,651,267,000 1,571,153,000
Investment in theme park partnerships.......... 301,477,000 294,893,000
Less accumulated amortization............... 14,912,000 11,373,000
--------------- --------------
Total investment in theme park partner-
ships................................. 286,565,000 283,520,000
Intangible assets.............................. 1,322,177,000 1,321,616,000
Less accumulated amortization............... 56,240,000 43,427,000
--------------- ---------------
Total intangible assets.................. 1,265,937,000 1,278,189,000
-------------- --------------
Total assets............................. $3,964,640,000 $4,052,465,000
============== ==============
See accompanying notes to consolidated financial statements
-2-
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
PREMIER PARKS INC.
CONSOLIDATED BALANCE SHEETS
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................... $51,840,000 $25,285,000
Accrued interest payable................. 38,616,000 33,269,000
Other accrued liabilities................ 93,942,000 100,606,000
Current maturities of long-term debt..... 219,759,000 195,671,000
Current portion of capitalized lease
obligations........................... 2,329,000 2,367,000
--------------- ----------------
Total current liabilities............. 406,486,000 357,198,000
Long-term debt and capitalized lease
obligations:
Notes payable............................ 1,262,279,000 1,257,062,000
Credit facilities........................ 596,500,000 599,500,000
Capitalized lease obligations............ 6,003,000 6,125,000
--------------- ----------------
Total long-term debt and capitalized
lease obligations................... 1,864,782,000 1,862,687,000
Other long-term liabilities................. 50,160,000 54,037,000
Deferred income taxes....................... 106,715,000 151,978,000
--------------- ----------------
Total liabilities..................... 2,428,143,000 2,425,900,000
Stockholders' equity:
Preferred stock.......................... 12,000 12,000
Common stock............................. 1,918,000 1,912,000
Capital in excess of par value........... 1,648,162,000 1,640,532,000
Retained earnings (accumulated deficit).. (88,503,000) 133,000
Deferred compensation.................... (22,647,000) (25,111,000)
Accumulated other comprehensive income
(loss)................................ (2,445,000) 9,087,000
--------------- ----------------
Total stockholders' equity............ 1,536,497,000 1,626,565,000
--------------- ----------------
Total liabilities and stockholders'
equity............................. $3,964,640,000 $4,052,465,000
=============== ================
See accompanying notes to consolidated financial statements
-3-
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
PREMIER PARKS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
1999 1998
---- ----
Revenue:
Theme park admissions........................... $29,387,000 $3,779,000
Theme park food, merchandise and other.......... 24,262,000 3,052,000
-------------- ------------
Total revenue.............................. 53,649,000 6,831,000
-------------- ------------
Operating costs and expenses:
Operating expenses.............................. 52,780,000 11,375,000
Selling, general and administrative............. 35,052,000 7,089,000
Noncash compensation............................ 5,035,000 675,000
Costs of products sold.......................... 3,193,000 137,000
Depreciation and amortization................... 35,729,000 5,801,000
-------------- ------------
Total operating costs and expenses......... 131,789,000 25,077,000
-------------- ------------
Loss from operations....................... (78,140,000) (18,246,000)
-------------- -----------
Other income (expense):
Interest expense................................ (46,307,000) (6,745,000)
Interest income................................. 7,434,000 565,000
Equity in operations of theme park partnerships. (7,907,000) --
Other income (expense), including minority
interest..................................... (239,000) (10,000)
-------------- -------------
Total other income (expense).............. (47,019,000) (6,190,000)
-------------- -------------
Loss before income taxes and extraordinary
loss..................................... (125,159,000) (24,436,000)
Income tax benefit................................. 42,345,000 9,774,000
-------------- -------------
Loss before extraordinary loss............. (82,814,000) (14,662,000)
Extraordinary loss on extinguishment of debt, net
of income tax benefit of $526,000................ -- (788,000)
-------------- -------------
Net loss.................................. $ (82,814,000) $(15,450,000)
============== =============
Net loss applicable to common stock....... $ (88,636,000) $(15,450,000)
============== =============
Per share amounts:
Loss per average common share -- basic and
diluted:
Loss before extraordinary loss............. $(1.16) $ (0.39)
Extraordinary loss........................ -- (0.02)
-------------- -------------
Net loss................................... $(1.16) $ (0.41)
============== =============
Weighted average number of common shares
outstanding--basic and diluted................... 76,729,000 37,786,000
============== =============
See accompanying notes to consolidated financial statements
-4-
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
PREMIER PARKS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
Three Months Ended
------------------
March 31,
---------
1999 1998
---- ----
Net loss.................................... $(82,814,000) $(15,450,000)
Other comprehensive income (loss) --
Foreign currency translation adjustment.. (11,532,000) --
------------------ -------------
Comprehensive loss.......................... $(94,346,000) $(15,450,000)
================== ==============
See accompanying notes to consolidated financial statements
-5-
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
PREMIER PARKS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
1999 1998
------------- -------------
Cash flow from operating activities:
Net loss ................................ $ (82,814,000) $ (15,450,000)
Adjustments to reconcile net loss to net
cash
used in operating activities:
Depreciation and amortization ........ 35,729,000 5,801,000
Equity in operations of theme park
partnerships ..................... 7,907,000 --
Minority interest in loss ............ 239,000 --
Noncash compensation ................. 5,035,000 675,000
Interest accretion on notes payable .. 7,719,000 --
Interest accretion on restricted-use
investments ...................... (3,999,000) --
Extraordinary loss on early
extinguishment of debt............ -- 1,314,000
Amortization of debt issuance costs .. 1,654,000 422,000
Deferred income taxes ................ (45,263,000) (11,017,000)
Decrease in accounts receivable ...... 12,545,000 1,012,000
Increase in inventories and prepaid
expenses ......................... (7,804,000) (3,084,000)
Decrease in deposits and other assets 17,474,000 35,000
Increase (decrease) in accounts
payable and accrued expenses ..... 20,374,000 (1,777,000)
Increase (decrease) in accrued
interest payable ................. 5,347,000 (5,575,000)
------------- -------------
Total adjustments .................... 56,957,000 (12,194,000)
------------- -------------
Net cash used in operating activities (25,857,000) (27,644,000)
------------- -------------
Cash flow from investing activities:
Additions to property and equipment ..... (111,459,000) (47,248,000)
Investment in theme park partnerships ... (10,952,000) --
Acquisition of theme park companies, net
of cash
acquired .............................. (2,407,000) (21,556,000)
Other investments ....................... -- (6,000)
------------- -------------
Net cash used in investing activities (124,818,000) (68,810,000)
------------- -------------
Cash flow from financing activities:
Repayment of long-term debt ............. (1,410,000) (39,000)
Proceeds from borrowings ................ 20,000,000 135,000,000
Net cash proceeds from issuance of
common stock .......................... 429,000 --
Payment of cash dividends ............... (5,822,000) --
Payment of debt issuance costs .......... (344,000) (12,224,000)
------------- -------------
Net cash provided by financing
activities ....................... 12,853,000 122,737,000
Effect of exchange rate changes on
cash and cash equivalents ........ (1,384,000) --
------------- -------------
Increase (decrease) in cash and cash
equivalents ...................... (139,206,000) 26,283,000
Cash and cash equivalents at beginning of
period ................................ 400,578,000 84,288,000
------------- -------------
Cash and cash equivalents at end of period . $ 261,372,000 $ 110,571,000
============= =============
See accompanying notes to consolidated financial statements
-6-
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 other 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 period ended March 31, 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 three months
ended March 31, 1998 do not include the results of Walibi or Six Flags. See Note
2.
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. Startup costs
include pre-opening costs and professional fees and other costs associated with
incorporating or otherwise starting a business. The effect of the adoption of
the provisions of the statement was not material to the financial position,
operations or cash flow of the Company and is included in depreciation and
amortization.
-7-
PREMIER PARKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LOSS PER SHARE
The weighted average number of shares of Common Stock used in the
calculations of diluted loss per share for the three-month periods ended March
31, 1999 and 1998 does not include the effect of potential common shares
issuable upon the exercise of employee stock options of 2,609,000 in 1999 and
1,176,000 in 1998 or the impact in the 1999 period of the potential conversion
of the Company's mandatorily convertible preferred stock into 9.6 million shares
of Common Stock as the effects of the exercise of such options and such
conversion and resulting decrease in preferred stock dividends is antidilutive.
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 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 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 March 31, 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
-8-
PREMIER PARKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 87/8% 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 (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 was 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 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. On March 31, 1999, the
Company owned approximately 25% and 33%, respectively, of the limited
partnership units in the Georgia and Texas partnerships. Pursuant to its 1999
offer to purchase units in these partnerships, during May 1999, the Company will
acquire an additional 2.1% of the units in the Texas partnership for
approximately $3.3 million. See Note 7.
The accompanying statement of operations for the three months ended
March 31, 1999 reflects the results of Six Flags and Walibi. The statement of
operations for the three months ended March 31, 1998 does not. The following
summarized unaudited pro forma results of operations for the three months ended
March 31, 1998, assume that the Six Flags Acquisition, the acquisition of Walibi
and the related financings occurred as of the beginning of that period.
-9-
PREMIER PARKS INC.
Notes to Consolidated Financial Statements (Continued)
Total revenues...................................... $31,741,000
Net loss............................................ (101,450,000)
Net loss per common share-- basic and diluted....... (1.42)
3. LONG-TERM INDEBTEDNESS
(a) In August 1995, Premier Operations issued $90,000,000
principal amount of senior notes (the "1995 Notes"). The 1995 Notes are senior
unsecured obligations of Premier Operations, which mature on August 15, 2003.
The 1995 Notes bear interest at 12% per annum payable semiannually. The 1995
Notes are redeemable, at Premier Operations' option, in whole or part, at any
time on or after August 15, 1999, at varying redemption prices. The 1995 Notes
are guaranteed on a senior, unsecured, joint and several basis by all of Premier
Operations' principal domestic subsidiaries.
The proceeds of the 1995 Notes were used in the acquisition by Premier
Operations of Funtime Parks, Inc. in August 1995 and in the refinancing at that
time of previously existing indebtedness.
The indenture under which the 1995 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 1995 Notes and the
related indenture remained as obligations of Premier Operations and were not
assumed by Holdings.
(b) 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 and equal to the 1995 Notes
in priority upon liquidation. 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 contains covenants
substantially similar to those relating to the 1995 Notes. A portion of the
proceeds were used to pay in full all amounts outstanding under Premier
Operations' then credit facility.
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.
(c) 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 March 31, 1999, Premier Operations had borrowed
$219.0 million under the Premier Credit Facility, in part to fund the
acquisition of Walibi. The Premier Credit Facility includes a five-year $75.0
million revolving credit facility (of which $20.0 million was outstanding at
March 31, 1999), a five-year $100.0 million term loan facility (subsequently
reduced to $75.0 million, which amount was outstanding at March 31, 1999),
requiring principal payments of $10.0 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 $124 million was outstanding as of
March 31, 1999 and requires principal payments of $1.0 million in each of the
first six years and $25.0 million and $94.0
-10-
PREMIER PARKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
million in the seventh and eighth years, respectively). Borrowings under the
Premier Credit Facility are 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 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; 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 requires that Premier Operations comply with certain specified
financial ratios and tests.
By virtue of the Merger, all obligations of the Company under the
Premier Credit Facility remained as obligations of Premier Operations and were
not assumed by Holdings.
(d) 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 was
deposited in escrow to prefund the first six semi-annual interest payments
thereon, and $75.0 million of the net proceeds of the Senior Discount Notes was
deposited in a restricted use investment in escrow, until April 1, 2003, to
provide a fund to pay certain of Premier's 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.
(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 (87/8% 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 of
pre-existing notes (the "SFEC Zero Coupon Notes") of SFEC (with a carrying value
of $185.4 million at March 31, 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.
-11-
PREMIER PARKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(f) The SFTP Senior Subordinated Notes are senior subordinated
obligations of SFTP in an aggregate principal amount of $285.0 million. The SFTP
Senior Subordinated Notes require interest payments of approximately $34.9
million per annum (12 1/2% per annum). The first payment was paid in December
1998. Except in certain circumstances, no principal payments are required prior
to their maturity in 2005. The SFTP Senior Subordinated Notes are guaranteed on
a senior subordinated basis by the principal operating subsidiaries of SFTP. The
notes are redeemable, at SFTP's option, in whole or in part, at any time on or
after June 15, 2000, at varying redemption prices. As a result of the
application of purchase accounting, the carrying value of the SFTP Senior
Subordinated Notes was increased to $318.5 million, which was the estimated fair
value at the acquisition date of April 1, 1998. The premium that resulted from
the adjustment of the carrying value will be amortized as a reduction to
interest expense over the remaining term of the SFTP Senior Subordinated Notes
and will result in an effective interest rate of approximately 9 3/4%.
The indenture under which the SFTP Senior Subordinated Notes were
issued limits the ability of SFTP and its subsidiaries to dispose of assets;
incur additional indebtedness or liens; pay dividends; engage in mergers or
consolidations; and engage in certain transactions with affiliates.
(g) On April 1, 1998, SFTP entered into the Six Flags Credit
Facility, pursuant to which it had outstanding $409.5 million at March 31, 1999.
The Six Flags Credit Facility includes (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 March 31, 1999); and (ii) a $372.0 million term loan
facility (the "Term Loan Facility"), of which $371.5 million was outstanding on
March 31, 1999. Borrowings under the Term Loan Facility will mature on November
30, 2004. However, aggregate principal payments and reductions of $1.0 million
are 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 are secured by substantially all of the assets of SFTP and
its subsidiaries and a pledge of the stock of SFTP, and are guaranteed by such
subsidiaries and SFEC.
The Six Flags Credit Facility contains restrictive covenants that,
among other things, limit the ability of SFTP and its subsidiaries to dispose of
assets; incur additional indebtedness or liens; pay dividends, except that
(subject to covenant compliance) dividends will be permitted to allow SFEC to
meet cash pay interest obligations with respect to the SFEC Notes; repurchase
stock; make investments; engage in mergers or consolidations and engage in
certain transactions with subsidiaries and affiliates. In addition, the Six
Flags Credit Facility requires that SFTP comply with certain specified financial
ratios and tests.
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 $245,000,000
in punitive damages was entered against TWE and of $12,000,000 in punitive
damages was entered against the referenced Six Flags entities. TWE has 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
-12-
PREMIER PARKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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 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 three parks
managed by the Company for the three months ended March 31, 1999. Previous
periods are not presented as 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.
-13-
PREMIER PARKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In Thousands)
--------------
Revenue............................................. $13,556
Expenses:
Operating expenses............................... 15,234
Selling, general and administrative.............. 6,563
Costs of products sold........................... 1,120
Depreciation and amortization.................... 3,216
Interest expense, net............................ 1,847
Other expense.................................... 62
-----------------
Total......................................... 28,042
-----------------
Net loss............................................ $(14,486)
=================
The Company's share of loss from operations of the three theme parks
for the three months ended March 31, 1999 was $3,794,000, prior to depreciation
and amortization charges of $4,113,000. 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.
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 loss before income taxes and a reconciliation of theme
park revenues to consolidated total revenues. Park level expenses exclude all
noncash operating expenses, principally depreciation and amortization.
-14-
PREMIER PARKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three Months Ended
March 31, 1999 March 31, 1998
--------------- --------------
(In thousands)
Theme park revenue............................. $67,205 $6,831
Theme park cash expenses....................... 108,670 (17,236)
----------- -----------
Aggregate park EBITDA.......................... (41,465) (10,405)
Third-party share of EBITDA from parks
accounted for under the equity method....... 4,356 --
Amortization of investment in theme park
partnerships................................ (4,113) --
Unallocated net expenses, including corporate
and other expenses from park acquired
after completion of the operation season.... (9,335) (2,050)
Depreciation and amortization.................. (35,729) (5,801)
Interest expense............................... (46,307) (6,745)
Interest income................................ 7,434 565
------------ -----------
Loss before income taxes....................... $(125,159) $(24,436)
============ ===========
Theme park revenue............................. $67,205 $ 6,831
Theme park revenue from parks accounted
for under the equity method................. (13,556) --
------------ ---------
Consolidated total revenue..................... $53,649 $ 6,831
============ ===========
Six of the Company's parks are located in Europe. The following
information reflects the Company's assets and revenue by domestic and European
categories as of and for the three months ended March 31, 1999 (the Company did
not have any foreign operations prior to March 26, 1998):
(In thousands)
Domestic European Total
-------- -------- -----
Total assets......... $3,768,340 $196,300 $3,964,640
Revenue.............. 52,594 1,055 53,649
7. SUBSEQUENT EVENTS
On May 4, 1999 the Company acquired all of the capital stock of the
companies that own and operate Reino Aventura, a theme park, for a cash purchase
price of approximately $59.0 million. The Company funded the acquisition from
existing cash. The transaction was accounted for as a purchase. Reino Aventura
is located in Mexico City on a site of approximately 107 acres.
-15-
PREMIER PARKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In April 1999, the Company entered into definitive agreements to
purchase the assets of White Water-Atlanta water park and American Adventures
entertainment park located in Atlanta, Georgia and Splashtown water park located
in Houston, Texas. The closings of the transactions are expected to occur in May
1999.
On May 14, 1999, the Company will be required to purchase 2.125 limited
partnership units (approximately 2.1%) of the limited partner in the Six Flags
Over Texas park for approximately $3.3 million pursuant to an obligation under
the agreements that govern the park. See Note 2. The Company is not required to
purchase any limited partnership units of the limited partner in the Six Flags
Over Georgia park during 1999, as no limited partners thereof tendered any
units.
-16-
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 ended March 31, 1999 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 three months ended
March 31, 1998 do not include the results of Walibi, Six Flags or the
Partnership Parks.
Results of operations for the three-month period ended March 31, 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 MARCH 31, 1999 VS. THREE MONTHS ENDED MARCH 31, 1998
The table below sets forth certain financial information with respect
to the Company for the three months ended March 31, 1999 and with respect to the
Company, Six Flags and Walibi for the three months ended March 31, 1998 and on a
pro forma basis for such quarter with respect to depreciation and amortization,
interest expense, net and income tax benefit as if the acquisitions of Six Flags
and Walibi had occurred on the first day of 1998:
Three Months Ended
March 31, 1998
----------------------------
Historical
Six Flags
for Period
Three Months Prior to
Ended Historical April 1,
March 31, 1999 Premier 1998(1)
-------------- ----------- ----------------
(In thousands)
Revenue:
Theme park admissions........... $29,387 3,779 15,047
Theme park food,
merchandise and other......... 24,262 3,052 8,356
------------- ---------- ---------------
Total revenue................. 53,649 6,831 23,403
------------- ---------- ---------------
Operating costs and expenses:
Operating expenses.............. 52,780 11,375 45,679
Selling, general and
administrative................ 35,052 7,089 19,278
Noncash compensation............ 5,035 675 --
Costs of products sold.......... 3,193 137 2,757
Depreciation and amortization... 35,729 5,801 17,629
------------- ---------- ---------------
Total operating costs
and expenses.................. 131,789 25,077 85,343
------------- ---------- ---------------
Loss from operations.......... $(78,140) (18,246) (61,940)
------------- ---------- ---------------
Three Months Ended March 31, 1998
-----------------------------------------
Historical
Walibi for
Period Pro
Prior to Forma Company
March 26, Adjust- Pro
1998(2) ments Forma
-------------- -------------- ----------
Revenue:
Theme park admissions.......... 883 -- 19,709
Theme park food,
merchandise and other........ 624 -- 12,032
-------------- -------------- ----------
Total revenue................ 1,507 -- 31,741
-------------- -------------- ----------
Operating costs and expenses:
Operating expenses............. 4,626 -- 61,680
Selling, general and
administrative............... 3,407 -- 29,774
Noncash compensation........... -- -- 675
Costs of products sold......... 248 -- 3,142
Depreciation and amortization.. 3,214 6,440(3) 33,084
-------------- -------------- ----------
Total operating costs
and expenses................. 11,495 6,440 128,355
-------------- -------------- ----------
Loss from operations......... (9,988) (6,440) (96,614)
-------------- -------------- ----------
-17-
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Other income (expense):
Interest expense, net........... $(38,873) (6,180) (21,262)
Equity in operations
of theme park partnerships.... (7,907) -- --
Other expense, including
minority interest............. (239) (10) --
------------ --------- --------
Total other income (expense).... (47,019) (6,190) (21,262)
Loss before income taxes
and extraordinary loss........... (125,159) (24,436) (83,202)
Income tax benefit................. 42,345 9,774 27,792
------------ --------- --------
Loss before extraordinary loss..... $(82,814) (14,662) (55,410)
============ ========= ========
EBITDA(7).......................... $(37,376) (11,770) (44,311)
============ ========= ========
Adjusted EBITDA(8)................. $(41,170) (11,770) (44,311)
============ ========= ========
Other income (expense):
Interest expense, net........... (889) (17,901)(4) (46,232)
Equity in operations
of theme park partnerships.... -- (13,162)(5) (13,162)
Other expense, including
minority interest............. (1) -- (11)
------------ -------------- -------------
Total other income (expense).... (890) (31,063) (59,405)
Loss before income taxes
and extraordinary loss........... (10,878) (37,503) (156,019)
Income tax benefit................. 4,786 12,217(6) 54,569
------------ -------------- -------------
Loss before extraordinary loss..... (6,092) (25,286) (101,450)
============ ============== =============
EBITDA(7).......................... (6,774) -- (62,855)
============ ============== =============
Adjusted EBITDA(8)................. (6,774) (11,705) (74,560)
============ ============== =============
- ---------------
(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.
(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 previously outstanding 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.
-18-
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Revenue in the first quarter of 1999 totaled $53.6 million compared to
$6.8 million (actual) and $31.7 million (pro forma) for the first quarter of
1998. The $21.9 million (69%) increase in 1999 revenue compared to pro forma
revenue for the first quarter of 1998 resulted primarily from increased
sponsorship income and increased season pass sales, principally at the Six Flags
parks, as the Company implemented new marketing plans.
Operating expenses for the first quarter of 1999 increased $41.4
million compared to actual expenses for the first quarter of 1998 and decreased
$8.9 million compared to pro forma expenses for the first quarter of 1998. The
14.4% decrease 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.
Selling, general and administrative expenses (including noncash
compensation) for the first quarter of 1999 increased $32.3 million and $9.6
million, respectively, compared to the actual and pro forma expenses for the
first quarter of 1998. The $9.6 million increase compared to pro forma expenses
for 1998 resulted from increased advertising expense of approximately $11.8
million and increased noncash compensation of $4.4 million partially offset by
a decrease in other selling, general and administrative expenses of $6.6
million. The increase in advertising expenditures reflects a return to
historical advertising levels and timing of expenditures 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 during 1998. The $6.6 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.
Costs of products sold in the 1999 period increased $3.1 million
compared to actual expenses for the first quarter of 1998 and were flat compared
to pro forma expenses for the first quarter of 1998.
Depreciation and amortization expense for the first quarter of 1999
increased $29.9 million and $2.6 million, respectively, compared to the actual
and pro forma amounts for the first quarter of 1998. The increase compared to
the pro forma 1998 level was attributable to the Company's on-going capital
program. Interest expense, net increased $32.7 million compared to the actual
interest expense, net for the first quarter of 1998 and decreased $7.4 million
compared to the pro forma interest expense, net for the first quarter of 1998.
The decrease compared to pro forma interest expense, net for 1998 reflected
interest income earned on investment securities in the first quarter of 1999,
which investments were made after 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 (33% effective Company
ownership) and Six Flags Over Georgia (25% effective Company ownership), the
lease of Six Flags Marine World and the management of all three 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
recognized its share of the cash flow received from the lease and management of
Six Flags Marine World during the second half of 1998. The $5.3 million
reduction in the loss from equity in operations of theme park partnerships
compared to the pro forma level for the first quarter of 1998 was attributable
to improved operations at Six Flags Over Texas and Six Flags Over Georgia during
the first quarter of 1999, resulting primarily from increased sponsorship income
and season pass sales.
-19-
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Income tax benefit was $42.3 million for the first quarter of 1999
compared to a $9.8 million and $54.6 million benefit for the actual and pro
forma results, respectively, for the first quarter of 1998. The effective tax
rate for the first quarter of 1999 was 33.8% compared to a rate on the pro forma
amount of 35% for the first 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, as a result of permanent differences associated with
goodwill amortization for financial purposes and the deductible portion of the
amortization for tax purposes.
LIQUIDITY, CAPITAL COMMITMENTS AND RESOURCES
At March 31, 1999, the Company's indebtedness (including $185.4 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 $2,086.9 million, of which approximately
$222.1 million (including $185.4 million carrying value of the pre-existing SFEC
Notes) matures prior to March 31, 2000. See Note 3 to the Company's Consolidated
Financial Statements for additional information regarding the Company's
indebtedness.
During the three months ended March 31, 1999, net cash used in
operating activities was $25.9 million. Net cash used in investing activities in
the first three months of 1999 totaled $124.8 million, consisting primarily of
capital expenditures. Net cash provided by financing activities in the first
three months of 1999 was $12.9 million, representing proceeds of borrowings
under the Premier Credit Facility described in Note 3 to the Company's
Consolidated Financial Statements, net of cash dividends paid.
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 Premier and Six Flags Credit Facilities will be adequate to
meet the Company's future liquidity needs, including anticipated requirements
for working capital, capital expenditures, 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. The Company has not entered into any new purchase contracts
for rides from foreign vendors or foreign exchange forward contracts in 1999.
Additionally, the Company has not hedged its exposure to changes in foreign
currency rates related to its Walibi parks.
-20-
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED
In June, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
an entity to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge. The accounting for changes in the fair value of a derivative (that is
gains and losses) depends on the intended use of the derivative and the
resulting designation. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. It is expected that the Company will
adopt the provision of SFAS No. 133 as of January 1, 2000. If the provisions of
SFAS No. 133 were to be applied as of March 31, 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 period 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.
-21-
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 to
Year 2000 issues of third parties, are expected to be less than $0.8 million.
The Company has not yet developed a most reasonably likely worst case
scenario with respect to Year 2000 issues, but instead has focused its efforts
on reducing uncertainties through the review described above. The Company has
not developed Year 2000 contingency plans other than as described above, and
does not expect to do so unless merited by the results of its continuing review.
The Company presently does not expect to incur significant operational
problems due to the Year 2000 issue. However, if all Year 2000 issues are not
properly and timely identified, assessed, remediated and tested, there can be no
assurance that the Year 2000 issue will not materially impact the Company's
results of operations or adversely affect its relationships with vendors or
others. Additionally, there can be no assurance that the Year 2000 issues of
other entities will not have a material impact on the Company's systems or
results of operations.
ITEM 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.
-22-
PART II -- OTHER INFORMATION
ITEMS 1 -- 5
Not applicable.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule -- March 31, 1999
(b) Reports on Form 8-K
None.
-23-
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)
Kieran E. Burke
Chairman and Chief Executive Officer
James F. Dannhauser
Chief Financial Officer
Date: May ___, 1999
-24-
EXHIBIT INDEX
Exhibit Description
------- -----------
27.1 Financial Data Schedule