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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 June 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
(State or other jurisdiction of 13-3995059
incorporation or organization) (I.R.S. Employer Identification No.)
11501 Northeast Expressway, Oklahoma City, Oklahoma 73131
(Address of principal executive offices, including zip code)
(405) 475-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |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 August 9, 1999, Premier Parks Inc. had outstanding 78,140,728 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
June 30, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 142,034,000 $ 400,578,000
Accounts receivable .............................. 68,164,000 31,484,000
Inventories ...................................... 36,607,000 21,703,000
Prepaid expenses and other current assets ........ 24,488,000 29,200,000
Restricted-use investment securities ............. 214,280,000 206,075,000
-------------- --------------
Total current assets .......................... 485,573,000 689,040,000
Other assets:
Debt issuance costs .............................. 48,267,000 45,099,000
Restricted-use investment securities ............. 95,683,000 111,577,000
Deposits and other assets ........................ 55,971,000 73,887,000
-------------- --------------
Total other assets ............................ 199,921,000 230,563,000
Property and equipment .............................. 1,976,749,000 1,675,959,000
Less accumulated depreciation .................... 150,843,000 104,806,000
-------------- --------------
Total property and equipment .................. 1,825,906,000 1,571,153,000
Investment in theme park partnerships ............... 368,678,000 294,893,000
Less accumulated amortization .................... 18,451,000 11,373,000
-------------- --------------
Total investment in theme park partnerships ... 350,227,000 283,520,000
Intangible assets ................................... 1,324,978,000 1,321,616,000
Less accumulated amortization .................... 69,347,000 43,427,000
-------------- --------------
Total intangible assets ........................ 1,255,631,000 1,278,189,000
-------------- --------------
Total assets .................................. $4,117,258,000 $4,052,465,000
============== ==============
See accompanying notes to consolidated financial statements
-2-
Item 1--Financial Statements (Continued)
PREMIER PARKS INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1999 December 31, 1998
--------------- -----------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................ 84,835,000 25,285,000
Accrued liabilities ......................................... 89,393,000 100,606,000
Accrued interest payable .................................... 23,359,000 33,269,000
Current maturities of long-term debt ........................ 265,931,000 195,671,000
Current portion of capitalized lease obligations ............ 2,329,000 2,367,000
--------------- ---------------
Total current liabilities ................................ 465,847,000 357,198,000
Long-term debt and capitalized lease obligations:
Notes payable ............................................... 1,291,942,000 1,257,062,000
Credit facilities ........................................... 589,750,000 599,500,000
Capitalized lease obligations ............................... 5,829,000 6,125,000
--------------- ---------------
Total long-term debt and capitalized lease obligations ... 1,887,521,000 1,862,687,000
Other long-term liabilities and minority interest .............. 49,824,000 54,037,000
Deferred income taxes .......................................... 116,698,000 151,978,000
--------------- ---------------
Total liabilities ........................................ 2,519,890,000 2,425,900,000
Stockholders' equity:
Preferred stock of $1.00 par value .......................... 12,000 12,000
Common stock of $.025 par value ............................. 1,950,000 1,912,000
Capital in excess of par value .............................. 1,689,338,000 1,640,532,000
Retained earnings (accumulated deficit) ..................... (64,039,000) 133,000
Deferred compensation ....................................... (20,183,000) (25,111,000)
Accumulated other comprehensive income (loss)
- foreign currency translation adjustments ............... (9,710,000) 9,087,000
--------------- ---------------
Total stockholders' equity ............................... 1,597,368,000 1,626,565,000
--------------- ---------------
Total liabilities and stockholders' equity ............... $ 4,117,258,000 $ 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 JUNE 30, 1999 AND 1998
(Unaudited)
1999 1998
------------- -------------
Revenue:
Theme park admissions ........................................ $ 193,283,000 $ 169,666,000
Theme park food, merchandise and other ....................... 140,232,000 122,532,000
------------- -------------
Total revenue ........................................... 333,515,000 292,198,000
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Operating costs and expenses:
Operating expenses ........................................... 104,743,000 110,201,000
Selling, general and administrative .......................... 54,651,000 53,885,000
Noncash compensation ......................................... 4,201,000 675,000
Costs of products sold ....................................... 31,078,000 29,331,000
Depreciation and amortization ................................ 38,257,000 31,738,000
------------- -------------
Total operating costs and expenses ...................... 232,930,000 225,830,000
------------- -------------
Income from operations .................................. 100,585,000 66,368,000
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Other income (expense):
Interest expense ............................................. (47,253,000) (49,120,000)
Interest income .............................................. 6,100,000 11,864,000
Equity in operations of theme park partnerships .............. 6,550,000 12,572,000
Other income (expense), including minority interest .......... 41,000 (936,000)
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Total other income (expense) ............................ (34,562,000) (25,620,000)
------------- -------------
Income before income taxes and extraordinary loss ....... 66,023,000 40,748,000
Income tax expense .............................................. 29,580,000 20,185,000
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Income before extraordinary loss ........................ 36,443,000 20,563,000
Extraordinary loss on extinguishment of debt, net of
income tax benefit of $4,104,000 .............................. (6,157,000) --
------------- -------------
Net income .............................................. $ 30,286,000 $ 20,563,000
============= =============
Net income applicable to common stock ................... $ 24,464,000 $ 14,741,000
============= =============
Per share amounts:
Income per average common share--basic:
Income before extraordinary loss ........................ $ 0.40 $ 0.20
Extraordinary loss ...................................... (0.08) 0.00
------------- -------------
Net income .............................................. $ 0.32 $ 0.20
============= =============
Income per average common share--diluted:
Income before extraordinary loss ........................ $ 0.38 $ 0.19
Extraordinary loss ...................................... (0.07) 0.00
------------- -------------
Net Income .............................................. $ 0.31 $ 0.19
============= =============
Weighted average number of common shares outstanding--basic ..... 77,372,000 74,595,000
============= =============
Weighted average number of common shares outstanding--diluted ... 80,160,000 75,870,000
============= =============
See accompanying notes to consolidated financial statements
-4-
Item 1--Financial Statements (Continued)
PREMIER PARKS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
1999 1998
------------- -------------
Revenue:
Theme park admissions .................................................. $ 222,670,000 $ 173,445,000
Theme park food, merchandise and other ................................. 164,494,000 125,584,000
------------- -------------
Total revenue ..................................................... 387,164,000 299,029,000
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Operating costs and expenses:
Operating expenses ..................................................... 157,523,000 121,576,000
Selling, general and administrative .................................... 89,703,000 60,974,000
Noncash compensation ................................................... 9,236,000 1,350,000
Costs of products sold ................................................. 34,271,000 29,468,000
Depreciation and amortization .......................................... 73,986,000 37,539,000
------------- -------------
Total operating costs and expenses ................................ 364,719,000 250,907,000
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Income from operations ............................................ 22,445,000 48,122,000
------------- -------------
Other income (expense):
Interest expense ....................................................... (93,560,000) (55,865,000)
Interest income ........................................................ 13,534,000 12,429,000
Equity in operations of theme park partnerships ........................ (1,357,000) 12,572,000
Other income (expense), including minority interest .................... (198,000) (946,000)
------------- -------------
Total other income (expense) ...................................... (81,581,000) (31,810,000)
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Income (loss) before income taxes and extraordinary loss .......... (59,136,000) 16,312,000
Income tax expense (benefit) .............................................. (12,765,000) 10,411,000
------------- -------------
Income (loss) before extraordinary loss ........................... (46,371,000) 5,901,000
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 (loss) ................................................. $ (52,528,000) $ 5,113,000
============= =============
Net loss applicable to common stock ............................... $ (64,172,000) $ (709,000)
============= =============
Per share amounts:
Income (loss) per average common share--basic and diluted:
Income (loss) before extraordinary loss ........................... $ (0.75) $ (0.00)
Extraordinary loss ................................................ (0.08) (0.01)
------------- -------------
Net loss .......................................................... $ (0.83) $ (0.01)
============= =============
Weighted average number of common shares outstanding--basic and diluted ... 77,052,000 56,292,000
============= =============
See accompanying notes to consolidated financial statements
-5-
Item 1--Financial Statements (Continued)
PREMIER PARKS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
---- ---- ---- ----
Net income (loss)............................... $30,286,000 $20,563,000 $(52,528,000) $5,113,000
Other comprehensive income (loss) -
Foreign currency translation adjustment...... (7,265,000) 358,000 (18,797,000) 358,000
----------- ----------- ------------ ----------
Comprehensive income (loss)..................... $23,021,000 $20,921,000 $(71,325,000) $5,471,000
=========== =========== ============ ==========
See accompanying notes to consolidated financial statements
-6-
Item 1--Financial Statements (Continued)
PREMIER PARKS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
1999 1998
---- ----
Cash flow from operating activities:
Net income (loss) ................................................................ $ (52,528,000) $ 5,113,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ............................................... 73,986,000 37,539,000
Equity in operations of theme park partnerships ............................. 1,357,000 (12,572,000)
Minority interest in loss ................................................... 198,000 1,028,000
Noncash compensation ........................................................ 9,236,000 1,350,000
Interest accretion on notes payable ......................................... 16,646,000 13,971,000
Interest accretion on restricted-use investments ............................ (3,481,000) (4,405,000)
Extraordinary loss on early extinguishment of debt .......................... 10,261,000 1,314,000
Amortization of debt issuance costs ......................................... 3,542,000 2,165,000
Deferred income taxes ....................................................... (23,813,000) 8,878,000
Increase in accounts receivable ............................................. (36,680,000) (32,648,000)
Increase in inventories and prepaid expenses ................................ (10,192,000) (19,398,000)
(Increase) decrease in deposits and other assets ............................ 17,916,000 (515,000)
Increase (decrease) in accounts payable and accrued liabilities ............. 47,491,000 (556,000)
Increase (decrease) in accrued interest payable ............................. (9,910,000) 24,694,000
--------------- ---------------
Total adjustments ........................................................... 96,557,000 20,845,000
--------------- ---------------
Net cash provided by operating activities ......................... 44,029,000 25,958,000
--------------- ---------------
Cash flow from investing activities:
Additions to property and equipment .............................................. (251,315,000) (141,623,000)
Investment in theme park partnerships ............................................ (27,975,000) --
Acquisition of theme parks, net of cash acquired ................................. (82,432,000) (1,024,775,000)
Maturities of restricted-use investments ......................................... 11,170,000 --
Purchase of restricted-use investments ........................................... -- (321,750,000)
--------------- ---------------
Net cash used in investing activities ............................. (350,552,000) (1,488,148,000)
--------------- ---------------
Cash flow from financing activities:
Repayment of long-term debt ...................................................... (427,621,000) (659,875,000)
Proceeds from borrowings ......................................................... 499,024,000 1,361,703,000
Net cash proceeds from issurance of preferred stock .............................. -- 301,185,000
Net cash proceeds from issuance of common stock .................................. 1,510,000 954,403,000
Payment of cash dividends ........................................................ (11,644,000) --
Payment of debt issuance costs ................................................... (9,964,000) (40,974,000)
--------------- ---------------
Net cash provided by financing activities ......................... 51,305,000 1,916,442,000
Effect of exchange rate changes on cash and cash equivalents ...... (3,326,000) --
--------------- ---------------
Increase (decrease) in cash and cash equivalents .................. (258,544,000) 454,252,000
Cash and cash equivalents at beginning of period ................................. 400,578,000 84,288,000
--------------- ---------------
Cash and cash equivalents at end of period ....................................... $ 142,034,000 $ 538,540,000
=============== ===============
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 six-month periods ended June
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 six months
ended June 30, 1998 do not include the results of Walibi or Six Flags for the
first three months of that period. 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. 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.
-8-
PREMIER PARKS INC.
Notes to Consolidated Financial Statements (Continued)
Income (loss) Per Share
The following table reconciles the weighted average number of common
shares outstanding used in the calculations of basic and diluted income (loss)
per share for the three and six-month periods ended June 30, 1999 and 1998.
Since the effect of using the weighted average number of shares on a diluted
basis was antidilutive to the diluted loss per share calculation for each
six-month period, diluted loss per share was calculated using the same weighted
average number of shares used in the basic loss per share calculation.
Additionally, the weighted average number of shares for each period does not
include the impact of the conversion of the Company's mandatorily convertible
preferred stock into 9.6 million shares of Common Stock as the effect of the
conversion and resulting decrease in preferred stock dividends is antidilutive.
Three Three
Months Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
---------- ---------- ---------- ----------
Weighted average number
of common shares
outstanding--basic ....... 77,372,000 74,595,000 77,052,000 56,292,000
Effect of potential
common shares
issuable upon the
exercise of employee
stock options ............ 2,788,000 1,275,000 -- --
---------- ---------- ---------- ----------
Weighted average number
of common shares
outstanding--diluted ..... 80,160,000 75,870,000 77,052,000 56,292,000
========== ========== ========== ==========
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 six months ended June
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 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
-9-
PREMIER PARKS INC.
Notes to Consolidated Financial Statements (Continued)
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 June 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(e)) 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.
-10-
PREMIER PARKS INC.
Notes to Consolidated Financial Statements (Continued)
As the Company purchases units relating to either Partnership Park, it
will be entitled to the minimum distributions 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 June 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 six months ended June 30,
1999 reflects the results of Six Flags and Walibi. The statement of operations
for the six months ended June 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 six months ended June 30,
1998, assume that the Six Flags Acquisition, the acquisition of Walibi and the
related financings occurred as of the beginning of that period.
Total revenues.................................................. $ 331,398,000
Net loss........................................................ (60,859,000)
Net loss per common share--basic and diluted.................... (0.96)
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 partnership that owns Six Flags Over Georgia acquired
for Premier common stock the assets of White Water-Atlanta water park and
American Adventures outdoor entertainment complex located in Atlanta, Georgia
and on May 13, 1999, the Company acquired for cash the assets of Splashtown
water park located in Houston, Texas. The transactions were accounted for as
purchases.
3. Long-Term Indebtedness
(a) In August 1995, Premier Operations issued $90,000,000 principal amount
of senior notes (the "1995 Notes"). All but $2.5 million principal amount of the
1995 Notes were discharged in a tender offer completed in June 1999. See Note
3(e).
(b) On January 31, 1997, Premier Operations issued $125,000,000 of 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 require annual interest payments of approximately
$12.2 million (9 3/4% per annum) and, except in the event of a change of control
of Premier Operations and certain other circumstances, do not require any
principal payments prior to their maturity in 2005. 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.
-11-
PREMIER PARKS INC.
Notes to Consolidated Financial Statements (Continued)
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.
(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 June 30, 1999, Premier Operations had borrowed $256.3
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 $60.0 million was outstanding at June 30, 1999), a
five-year term loan facility (of which $72.5 million was outstanding at June 30,
1999), requiring additional 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 $123.8 million was
outstanding as of June 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
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, except that (subject to covenant compliance) dividends will be
permitted to allow the Company to meet a portion of its interest obligations
with respect to the New Notes (as defined below); 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 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
-12-
PREMIER PARKS INC.
Notes to Consolidated Financial Statements (Continued)
dividends; engage in mergers or consolidations; and engage in certain
transactions with affiliates.
(e) On June 30, 1999, the Company issued $430.0 million principal amount
of 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 (9 3/4%
per annum) and, except in the event of a change in control of the Company and
certain other circumstances, do not require any principal payments prior to
their maturity in 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 the 1995 Notes and the entire $285.0 million
principal amount of SFTP's 12 1/4% Senior Subordinated Notes. The tender offer
resulted in an extraordinary loss of $6.2 million on extinguishment of debt, net
of income tax benefit of $4.1 million.
(f) 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 of pre-existing notes (the "SFEC
Zero Coupon Notes") of SFEC (with a carrying value of $188.4 million at June 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.
(g) On April 1, 1998, SFTP entered into the Six Flags Credit Facility,
pursuant to which it had outstanding $409.3 million at June 30, 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 June 30, 1999); and (ii) a $372.0 million term loan facility
(the "Term Loan Facility"), of which $371.3 million was outstanding on June 30,
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 interest obligations with respect to the SFEC Notes and to allow the
Company to meet a portion of its interest obligations with respect to the New
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.
-13-
PREMIER PARKS INC.
Notes to Consolidated Financial Statements (Continued)
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 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 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.
-14-
PREMIER PARKS INC.
Notes to Consolidated Financial Statements (Continued)
5. Investment in Theme Park Partnerships
The following reflects the summarized results of the three parks managed
by the Company for the three and six months ended June 30, 1999 and June 30,
1998. In addition, results for White Water Atlanta and the related outdoor
entertainment complex, which were acquired by the Georgia partnership on May 25,
1999, are included for periods after the acquisition date. The summarized
results for the six months ended June 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.
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
--------- --------- --------- ---------
(In Thousands)
Revenue .................................. $ 86,591 $ 80,649 $100,147 $ 80,649
Expenses:
Operating expenses .................... 30,210 30,240 45,444 30,240
Selling, general and administrative ... 14,548 13,229 21,111 13,229
Costs of products sold ................ 8,738 8,471 9,858 8,471
Depreciation and amortization ......... 4,306 4,337 7,522 4,337
Interest expense, net ................. 2,360 4,001 4,207 4,001
Other expense ......................... 132 167 194 167
-------- -------- -------- --------
Total .............................. 60,294 60,445 88,336 60,445
-------- -------- -------- --------
Net income ............................... 26,297 $ 20,204 11,811 $ 20,204
======== ======== ======== ========
The Company's share of income from operations of the Partnership Parks for
the three and six months ended June 30, 1999 was $9,076,000 and $5,282,000,
respectively, prior to depreciation and amortization charges of $2,526,000 and
$6,639,000, respectively. The Company's share of income from operations of the
Partnership Parks for the three and six months ended June 30, 1998 was
$13,733,000 prior to depreciation and amortization charges of 1,161,000. 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 income (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. The
segment financial information for the six months ended June 30, 1998 does not
include the results of Six Flags, Walibi and the Partnership Parks for the first
three months of that period.
-15-
PREMIER PARKS INC.
Notes to Consolidated Financial Statements (Continued)
Three Months Ended Six Months Ended
----------------------------- -----------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
(In thousands)
Theme park revenue ......................... $ 420,106 $ 372,847 $ 487,311 $ 379,678
Theme park cash expenses ................... 238,537 237,155 347,207 254,391
--------- --------- --------- ---------
Aggregate park EBITDA ...................... 181,569 135,692 140,104 125,287
Third-party share of EBITDA from parks
accounted for under the equity method ... (19,452) (15,024) (15,096) (15,024)
Amortization of investment in theme park
partnerships ............................ (2,526) (1,161) (6,639) (1,161)
Unallocated net expenses, including
corporate and other expenses from park
acquired after completion of the
operating season ......................... (14,158) (9,765) (23,493) (11,815)
Depreciation and amortization .............. (38,257) (31,738) (73,986) (37,539)
Interest expense ........................... (47,253) (49,120) (93,560) (55,865)
Interest income ............................ 6,100 11,864 13,534 12,429
--------- --------- --------- ---------
Income (loss) before income taxes .......... $ 66,023 $ 40,748 $ (59,136) $ 16,312
========= ========= ========= =========
Theme park revenue ......................... $ 420,106 $ 372,847 $ 487,311 $ 379,678
Theme park revenue from parks accounted
for under the equity method ............. (86,591) (80,649) (100,147) (80,649)
--------- --------- --------- ---------
Consolidated total revenue ................. $ 333,515 $ 292,198 $ 387,164 $ 299,029
========= ========= ========= =========
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 six months ended June 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.............. $3,864,378 $252,880 $4,117,258
Revenue................... 358,163 29,001 387,164
-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 and six months ended June 30,
1999 and the three months ended June 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 six months ended June 30, 1998 do not include
the results of Walibi, Six Flags or the Partnership Parks for the first three
months of that period. The Partnership Parks and Six Flags Marine World are
accounted for using the equity method of accounting. The equity method of
accounting recognizes the Company's share of the activity of these parks in the
accompanying statements of operations in the caption "Equity in operations of
Theme Park Partnerships". Results of operations for the 1999 periods also
include the results of the May 1999 acquisitions (Reino Aventura, White Water
Atlanta (also on the equity method) and Splashtown) from and after their
respective acquisition dates.
Results of operations for the three-month and six-month periods ended June
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 June 30, 1999 vs. Three months ended June 30, 1998
Revenue in the second quarter of 1999 totaled $333.5 million ($326.2
million without giving effect to the parks (the "Acquired Parks") acquired in
the May 1999 acquisitions) compared to $292.2 million for the second quarter of
1998. The $34.0 million (11.6%) increase in 1999 revenue (excluding the Acquired
Parks) compared to revenue for the second quarter of 1998 resulted primarily
from an increase in season pass sales of approximately $13.9 million, an
increase in other ticket revenues of $5.1 million and an increase in in-park
revenues of approximately $14.0 million. The increase in other ticket revenues
and in-park spending resulted from a 19.4% increase in attendance at the owned
parks, with the four newly branded Six Flags parks achieving a 29.4 % increase
in attendance for the second quarter of 1999 compared to the second quarter of
1998.
Operating expenses for the second quarter of 1999 decreased $5.5 million
($8.5 million excluding the Acquired Parks) compared to the 1998 period. As a
percentage of revenues, operating expenses were 31.4% in 1999 as compared to
37.7% in the prior year period. The 6.5% decrease (excluding the Acquired Parks)
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.
Selling, general and administrative expenses for the second quarter of
1999 increased $0.8 million, compared to the expenses for the comparable quarter
of 1998. As a percentage of revenue, these expenses were 16.4% and 18.4% in 1999
and 1998, respectively. The increase compared to expenses for 1998 resulted from
increased advertising expense of approximately $7.2 million offset by a decrease
in other selling, general and administrative expenses of $6.4 million. Selling,
generally and administrative expenses for the acquired parks were $0.7 million
for the second quarter of 1999. The increase in advertising expenditures
reflects 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 $6.4 million decrease in remaining
-17-
Item 2--Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
selling, general and administrative expenses in the 1999 period primarily
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.
Noncash compensation increased by $3.5 million related to the issuance of
restricted stock and conditional employee stock options in 1998.
Costs of products sold in the 1999 period primarily increased $1.7 million
($0.9 million excluding the Acquired Parks) compared to expenses for the second
quarter of 1998. As a percentage of food, merchandise and other spending, cost
of goods sold represented 22.2% in 1999, as compared to 23.9% in 1998.
Depreciation and amortization expense for the second quarter of 1999
increased $6.5 million compared to the 1998 level attributable to the Company's
on-going capital program. Interest expense, net increased $3.9 million compared
to interest expense, net for the second quarter of 1998. A $1.8 million decline
in interest expense was completely offset by a $5.7 million decline in interest
income. The decline in interest expense resulted from lower average interest
rates on 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 (34% 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
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 $6.0 million reduction in
the loss from equity in operations of theme park partnerships compared to the
level for the second quarter of 1998 was attributable to the timing and amount
of advertising and other expenses, the reduced level of management fees
recognized by the Company in the second quarter of 1999 compared to the prior
year period and the increased depreciation expense from the 1998 addition of
rides and equipment at Six Flags Marine World.
Income tax expense was $29.6 million for the second quarter of 1999
compared to $20.2 million, for the same quarter of 1998. The effective tax rate
for the second quarter of 1999 was 44.8% compared to a rate of 49.5% 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, as a result of permanent differences associated with goodwill
amortization for financial purposes and the deductible portion of the
amortization for tax purposes.
Six months ended June 30, 1999 vs. Six months ended June 30, 1998
The table below sets forth certain financial information with respect to
the Company for the six months ended June 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 six
months ended June 30, 1998 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:
-18-
Item 2--Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Six Months Ended June 30, 1998
------------------------------------------------------------------------------
Historical Historical
Six Flags Walibi for
for Period Period Pro
Six Months Prior to Prior to Forma Company
Ended Historical April 1, March 26, Adjust- Pro
June 30, 1999 Premier 1998(1) 1998(2) ments Forma
--------------- ------------ ------------- ------------- ------------ ------------
(In thousands)
Revenue:
Theme park admissions ..... $ 222,670 173,445 15,047 883 -- 189,375
Theme park food,
Merchandise and other ... 164,494 125,584 7,792 624 -- 134,000
------------ ------------ ------------ ------------ ------------ ------------
Total revenue ........... 387,164 299,029 22,839 1,507 -- 323,375
------------ ------------ ------------ ------------ ------------ ------------
Operating costs and
expenses:
Operating expenses ........ 157,523 121,576 45,679 4,626 -- 171,881
Selling, general and
Administrative .......... 89,703 60,974 19,278 3,407 -- 83,659
Noncash compensation ...... 9,236 1,350 -- -- -- 1,350
Costs of products sold .... 34,271 29,468 2,193 248 -- 31,909
Depreciation and
amortization .............. 73,986 37,539 17,629 3,214 6,440(3) 64,822
------------ ------------ ------------ ------------ ------------ ------------
Total operating costs
and expenses ............ 364,719 250,907 84,779 11,495 6,440 353,621
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) from
operations ............ 22,445 48,122 (61,940) (9,988) (6,440) (30,246)
------------ ------------ ------------ ------------ ------------ ------------
Other income (expense):
Interest expense, net ..... (80,026) (43,436) (21,262) (889) (17,901)(4) (83,488)
Equity in operations
of theme park
partnerships .............. (1,357) 12,572 -- -- (13,162)(5) (590)
Other expense, including
minority interest ....... (198) (946) -- (1) -- (947)
------------ ------------ ------------ ------------ ------------ ------------
Total other income
(expense) ................. (81,581) (31,810) (21,262) (890) (31,063) (85,025)
Income (loss) before income
taxes and extraordinary
loss........................ (59,136) 16,312 (83,202) (10,878) (37,503) (115,271)
Income tax expense
(benefit) .................... (12,765) 10,411 (27,792) (4,786) (12,217)(6) (34,384)
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) before
extraordinary loss ........... $ (46,371) 5,901 (55,410) (6,092) (25,286) (80,887)
============ ============ ============ ============ ============ ============
EBITDA(7) .................... $ 105,667 87,011 (44,311) (6,774) -- 35,926
============ ============ ============ ============ ============ ============
Adjusted EBITDA(8) ........... $ 110,949 100,744 (44,311) (6,774) (11,705) 37,954
============ ============ ============ ============ ============ ============
- ---------------
(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.
-19-
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 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
- ----------
Revenue in the first six months of 1999 totaled $387.2 million ($379.9
million without giving effect to the Acquired Parks) compared to $299.0 million
(actual) and $323.4 million (pro forma) for the first six months of 1998. The
$56.5 million (17.5%) increase in 1999 revenue (excluding the Acquired Parks)
compared to pro forma revenue for the first six months of 1998 resulted
primarily from an increase in season pass sales of approximately $21.6 million,
an increase in other ticket revenues of $9.6 million and an increase in in-park
revenues of approximately $19.4 million. The increases in other ticket revenues
and in-park spending resulted from a 22.4% increase in attendance at the owned
parks, with the four newly branded Six Flags parks achieving a 32.2% increase in
attendance in the first six months of 1999 compared to the 1998 period.
Operating expenses for the first six months of 1999 increased $35.9
million ($32.9 million excluding the Acquired Parks) compared to actual expenses
for the first six months of 1998 and decreased $14.4 million ($17.4 million
excluding the Acquired Parks) compared to pro forma expenses for the first six
months of 1998. Comparing 1999 actual to 1998 pro forma, as a percentage of
revenues, these expenses were 40.7% and 53.2% respectively. The 10.1% 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.
Selling, general and administrative expenses for the first six months of
1999 increased $28.8 million and $6.0 million, respectively, compared to the
actual and pro forma expenses for the first six months of 1998. Comparing 1999
actual to 1998 pro forma, as a percentage of revenues, these expenses were 23.2%
and 25.9%, respectively. The $6.0 million increase compared to pro forma
expenses for 1998 resulted from increased advertising expense of approximately
$20.2 million
-20-
Item 2--Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
partially offset by a $14.2 million decrease in other selling, general and
administrative expenses. Selling, general and administrative expenses for the
Acquired Parks were $0.6 million for the 1999 period. The increase in
advertising expenditures reflects a return to historical advertising levels 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
$14.2 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.
Noncash compensation increased by $7.9 million related to the issuance of
restricted stock and conditional employee stock options in 1998.
Costs of products sold in the 1999 period increased $4.8 million ($4.1
million excluding the Acquired Parks) and $2.4 million ($1.7 million excluding
the Acquired Parks), respectively, compared to actual and pro forma expenses for
the first six months of 1998. As a percentage of food, merchandise and other
spending, cost of products sold represented 20.8% in 1999, as compared to 23.5%
in 1998.
Depreciation and amortization expense for the first six months of 1999
increased $36.4 million and $9.2 million, respectively, compared to the actual
and pro forma amounts for the first six months 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 $36.6 million compared to the actual
interest expense, net for the first six months of 1998 and decreased $3.5
million compared to the pro forma interest expense, net for the first six months
of 1998. The decrease compared to pro forma interest expense, net for 1998
reflected interest income earned on investment securities in the first six
months of 1999, which investments were made during 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 (34% 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
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 $0.7 million increase in
the loss from equity in operations of theme park partnerships compared to the
pro forma level for the first six months of 1998 was attributable to the
increased depreciation expense from the addition of rides and equipment in 1998
at Six Flags Marine World.
Income tax benefit was $12.8 million for the first six months of 1999
compared to a $10.4 million expense and a $34.4 million benefit for the actual
and pro forma results, respectively, for the first six months of 1998. The
effective tax rate for the first six months of 1999 was 21.6% compared to a rate
on the pro forma amount of 29.8% for the first six 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, 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 June 30, 1999, the Company's indebtedness (including $188.4 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 $2,155.8 million, of which approximately
$268.3 million (including $188.4 million carrying value of the pre-existing SFEC
Notes) matures prior to June 30, 2000. See Note 3 to the Company's Consolidated
Financial Statements for additional information regarding the Company's
indebtedness.
During the six months ended June 30, 1999, net cash provided by operating
activities was $44.0 million. Net cash used in investing activities in the first
six months of 1999 totaled $350.6 million, consisting primarily of capital
expenditures and acquisitions of theme parks. Net cash provided by financing
activities in the first six months of 1999 was $51.3 million, representing
primarily proceeds of borrowings under the Premier Credit Facility described in
Note 3 to the Company's Consolidated Financial Statements.
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. Although the Company has entered into purchase contracts in
1999 for rides from foreign vendors, it has not entered into any foreign
exchange forward contracts in 1999. Additionally, the Company has not hedged its
exposure to changes in foreign currency rates related to its Walibi or Reino
Aventura 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 certain
recognition of all derivatives as either assets or liabilities in the balance
sheet and measurement of
-22-
Item 2--Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
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 June 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 six-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 to
Year 2000 issues of third parties, are expected to be less than $0.8 million.
-23-
Item 2--Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
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.
-24-
PART II--OTHER INFORMATION
Items 1--3 and 5
Not applicable.
Item 4--Submission of Matters to a Vote of Securityholders
On June 8, 1998, the Company held its Annual Meeting of Stockholders. The
number of shares of Common Stock represented at thee Meeting either in person or
by proxy, was 71,713,333 shares (93.7% of the outstanding shares of common
Stock). Two proposals were voted upon at the Meeting. The proposals and voting
results were as follows:
1. Proposal 1--Election of Directors
The following persons were elected as directors as follows:
Name For Against
---- ---------- -------
Paul A. Biddelman............................... 71,576,061 137,272
Kieran E. Burke................................. 71,572,651 140,682
James F. Dannhauser............................. 71,572,701 140,632
Michael E. Gellert.............................. 71,572,171 141,162
Arnold S. Gurtler............................... 71,571,551 141,782
Gary Story...................................... 71,572,201 141,132
Charels R. Wood................................. 71,570,961 142,372
2. Proposal 2--Ratification of selection by the Company's Board of Directors
of KPMG LLP as independent public accountants of the Company for the year
ending December 31, 1999
For Against Withheld
--- ------- --------
71,698,349 7,100 7,884
Item 6--Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule - June 30, 1999
(b) Reports on Form 8-K
- Form 8-K of Registrant, dated May 5, 1999
- Form 8-K of Registrant, dated June 29, 1999
- Form 8-K of Registrant, dated July 2, 1999
-25-
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: August 12, 1999
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