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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
September 30, 1998
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 October 29, 1998, Premier Parks Inc. had outstanding 75,411,000
shares of Common Stock, par value $.025 per share.
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PART I -- FINANCIAL INFORMATION
Item 1 -- Financial Statements
PREMIER PARKS INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1998 December 31, 1997
------------------ -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents................................................. $578,943,000 $84,288,000
Accounts receivable....................................................... 57,606,000 6,537,000
Inventories............................................................... 24,520,000 5,547,000
Income tax receivable..................................................... 995,000 995,000
Prepaid expenses.......................................................... 28,727,000 3,690,000
------------------------- -------------------------
Total current assets................................................... 690,791,000 101,057,000
Other assets:
Debt issuance costs....................................................... 46,095,000 10,123,000
Restricted-use investments................................................ 330,445,000 --
Deposits and other assets................................................. 78,749,000 3,949,000
------------------------- -------------------------
Total other assets..................................................... 455,289,000 14,072,000
Property and equipment, at cost.............................................. 1,571,129,000 479,271,000
Less accumulated depreciation............................................. 79,340,000 35,474,000
------------------------- -------------------------
Total property and equipment........................................... 1,491,789,000 443,797,000
Investment in theme park partnerships........................................ 261,066,000 6,595,000
Less accumulated amortization............................................. 4,888,000 136,000
------------------------- -------------------------
Total investment in theme park partnerships............................ 256,178,000 6,459,000
Intangible assets............................................................ 1,341,114,000 48,876,000
Less accumulated amortization............................................. 29,389,000 2,940,000
------------------------- -------------------------
Total intangible assets................................................ 1,311,725,000 45,936,000
------------------------- -------------------------
Total assets........................................................... $4,205,772,000 $611,321,000
------------------------- -------------------------
------------------------- -------------------------
See accompanying notes to financial statements
2
Item 1 -- Financial Statements (Continued)
PREMIER PARKS INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1998 December 31, 1997
------------------ -----------------
(Unaudited)
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $41,240,000 $10,051,000
Accrued expenses, other than interest....................................... 99,726,000 13,148,000
Accrued interest payable.................................................... 45,573,000 9,785,000
Current maturities of long-term debt........................................ 7,500,000 --
Current portion of capitalized lease obligations............................ 2,120,000 795,000
-------------------- -------------------------
Total current liabilities................................................ 196,159,000 33,779,000
Long-term debt & capitalized lease obligations:
Notes payable............................................................... 1,432,255,000 215,000,000
Credit facilities........................................................... 605,884,000 --
Capitalized lease obligations............................................... 6,645,000 1,231,000
-------------------- -------------------------
Total long-term debt and capitalized lease obligations................... 2,044,784,000 216,231,000
Other long-term liabilities and minority interest.............................. 46,325,000 4,025,000
Deferred income taxes.......................................................... 210,717,000 33,537,000
-------------------- -------------------------
Total liabilities........................................................ 2,497,985,000 287,572,000
Stockholders' equity:
Preferred stock............................................................. 12,000 --
Common stock................................................................ 1,885,000 944,000
Capital in excess of par value.............................................. 1,618,045,000 354,235,000
Retained earnings (accumulated deficit)..................................... 88,628,000 (17,241,000)
Deferred compensation....................................................... (11,475,000) (13,500,000)
Accumulated other comprehensive income --
foreign currency translation adjustments................................. 10,692,000 --
-------------------- -------------------------
1,707,787,000 324,438,000
Less treasury stock, at cost................................................ -- (689,000)
-------------------- -------------------------
Total stockholders' equity............................................... 1,707,787,000 323,749,000
-------------------- -------------------------
Total liabilities & stockholders' equity................................. $4,205,772,000 $611,321,000
-------------------- -------------------------
-------------------- -------------------------
See accompanying notes to financial statements
3
Item 1 -- Financial Statements (Continued)
PREMIER PARKS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1998 1997
---- ----
Revenues:
Theme park admissions........................................................ $222,394,000 $ 53,985,000
Theme park food, merchandise and other....................................... 223,987,000 66,029,000
-------------------- ---------------------
Total revenues.......................................................... 446,381,000 120,014,000
Operating costs and expenses:
Operating expenses........................................................... 114,664,000 36,827,000
Selling, general and administrative.......................................... 44,855,000 11,944,000
Non-cash compensation........................................................ 675,000 --
Costs of products sold....................................................... 58,508,000 15,540,000
Depreciation and amortization................................................ 33,869,000 5,717,000
-------------------- ---------------------
Total operating costs and expenses...................................... 252,571,000 70,028,000
Income from operations.................................................. 193,810,000 49,986,000
Other income (expense):
Interest expense, net........................................................ (34,039,000) (4,495,000)
Equity in operations of theme park partnerships.............................. 12,183,000 --
Minority interest in earnings................................................ (1,119,000) --
Other income................................................................. 175,000 18,000
-------------------- ---------------------
Total other income (expense)............................................ (22,800,000) (4,477,000)
Income before income taxes.............................................. 171,010,000 45,509,000
Income tax expense.............................................................. 70,254,000 18,272,000
-------------------- ---------------------
Net income.............................................................. $100,756,000 $ 27,237,000
-------------------- ---------------------
-------------------- ---------------------
Net income applicable to common stock................................... $ 94,934,000 $ 27,237,000
-------------------- ---------------------
-------------------- ---------------------
Per share amounts:
Net income per average share--basic............................................. $ 1.26 $ 0.74
-------------------- ---------------------
-------------------- ---------------------
Net income per average share--diluted........................................... $ 1.24 $ 0.72
-------------------- ---------------------
-------------------- ---------------------
Average shares outstanding--basic............................................... 75,363,000 36,601,000
-------------------- ---------------------
-------------------- ---------------------
Average shares outstanding--diluted............................................. 76,528,000 37,668,000
-------------------- ---------------------
-------------------- ---------------------
See accompanying notes to financial statements
4
Item 1 -- Financial Statements (Continued)
PREMIER PARKS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1998 1997
---- ----
Revenues:
Theme park admissions........................................................ $395,839,000 $91,080,000
Theme park food, merchandise and other....................................... 357,057,000 95,666,000
-------------------- -------------------
Total revenues.......................................................... 752,896,000 186,746,000
Operating costs and expenses:
Operating expenses........................................................... 236,240,000 69,444,000
Selling, general and administrative.......................................... 105,829,000 29,688,000
Non-cash compensation........................................................ 2,025,000 --
Costs of products sold....................................................... 95,462,000 22,072,000
Depreciation and amortization................................................ 71,408,000 13,974,000
-------------------- -------------------
Total operating costs and expenses...................................... 510,964,000 135,178,000
Income from operations.................................................. 241,932,000 51,568,000
Other income (expense):
Interest expense, net........................................................ (77,475,000) (12,869,000)
Equity in operations of theme park partnerships.............................. 24,755,000 --
Minority interest in earnings................................................ (2,147,000) --
Other income (expense)....................................................... 257,000 (44,000)
-------------------- -------------------
Total other income (expense)............................................ (54,610,000) (12,913,000)
Income before income taxes and extraordinary loss....................... 187,322,000 38,655,000
Income tax expense.............................................................. 80,665,000 15,462,000
-------------------- -------------------
Income before extraordinary loss........................................ 106,657,000 23,193,000
Extraordinary loss on extinguishment of debt, net of
income tax benefit of $526,000................................................ (788,000) --
-------------------- -------------------
Net income.............................................................. $105,869,000 $23,193,000
-------------------- -------------------
-------------------- -------------------
Net income applicable to common stock................................... $ 94,225,000 $23,193,000
-------------------- -------------------
-------------------- -------------------
Per share amounts:
Income per average share--basic:
Income before extraordinary loss............................................. $ 1.51 $ 0.66
Extraordinary loss........................................................... (0.01) --
-------------------- -------------------
Net income................................................................... $ 1.50 $ 0.66
-------------------- -------------------
-------------------- -------------------
Income per average share--diluted:
Income before extraordinary loss............................................. $ 1.48 $ 0.64
Extraordinary loss........................................................... (0.01) --
-------------------- -------------------
Net income................................................................... $ 1.47 $ 0.64
-------------------- -------------------
-------------------- -------------------
Average shares outstanding--basic................................................ 62,719,000 35,025,000
-------------------- -------------------
-------------------- -------------------
Average shares outstanding--diluted.............................................. 63,909,000 36,092,000
-------------------- -------------------
-------------------- -------------------
See accompanying notes to financial statements
5
Item 1 -- Financial Statements (Continued)
PREMIER PARKS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Net income ............................ $100,756,000 $ 27,237,000 $105,869,000 $ 23,193,000
Other comprehensive income --
Foreign currency translation adjustment 10,334,000 -- 10,692,000 --
------------ ------------ ------------ ------------
Comprehensive income .................. $111,090,000 $ 27,237,000 $116,561,000 $ 23,193,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
See accompanying notes to financial statements
6
Item 1 -- Financial Statements (Continued)
PREMIER PARKS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1998 1997
---- ----
Cash flow from operating activities:
Net income ................................................. $ 105,869,000 $ 23,193,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .............................. 71,408,000 13,974,000
Equity in operations of theme park partnerships ............ (24,755,000) --
Minority interest in earnings .............................. 2,147,000 --
Non-cash compensation ...................................... 2,025,000 --
Interest accretion on notes payable ........................ 21,028,000 --
Interest accretion on restricted-use investments ........... (8,695,000) --
Extraordinary loss on early extinguishment of debt ......... 1,314,000 --
Amortization of debt issuance costs ........................ 3,779,000 1,443,000
Deferred income taxes ...................................... 80,132,000 15,226,000
Increase in accounts receivable ............................ (38,632,000) (14,696,000)
Increase in inventories and prepaid expenses ............... (14,980,000) (1,420,000)
(Increase) decrease in deposits and other assets ........... (19,738,000) 4,112,000
Increase (decrease) in accounts payable and accrued expenses (54,056,000) 2,339,000
Increase (decrease) in accrued interest payable ............ 35,121,000 (250,000)
--------------- ---------------
Total adjustments ....................................... 56,098,000 20,728,000
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Net cash provided by operating activities ............... 161,967,000 43,921,000
--------------- ---------------
Cash flow from investing activities:
Additions to property and equipment ........................ (194,073,000) (108,166,000)
Acquisition of theme park companies, net of cash acquired .. (1,022,643,000) (21,376,000)
Purchase of restricted-use investments ..................... (321,750,000) --
--------------- ---------------
Net cash used in investing activities ................... (1,538,466,000) (129,542,000)
--------------- ---------------
Cash flow from financing activities:
Repayment of long-term debt ................................ (700,381,000) (66,081,000)
Proceeds from borrowings ................................... 1,361,703,000 132,500,000
Net cash proceeds from issuance of preferred stock ......... 301,185,000 --
Net cash proceeds from issuance of common stock ............ 954,542,000 189,427,000
Payment of cash dividends .................................. (5,822,000) --
Payment of debt issuance costs ............................. (41,065,000) (5,117,000)
--------------- ---------------
Net cash provided by financing activities ............... 1,870,162,000 250,729,000
Effect of exchange rate changes on cash ................. 992,000 --
--------------- ---------------
Increase in cash and cash equivalents ................... 494,655,000 165,108,000
Cash and cash equivalents at beginning of period .............. 84,288,000 4,043,000
--------------- ---------------
Cash and cash equivalents at end of period .................... $ 578,943,000 $ 169,151,000
--------------- ---------------
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See accompanying notes to financial statements
7
PREMIER PARKS INC.
NOTES TO 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 the first six months of 1998, the Company purchased
approximately 95% of the outstanding capital stock of Walibi, S.A. ("Walibi").
See Note 3 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 3 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, 1997 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 nine-month period ended September 30,
1998 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 and
nine months ended September 30, 1998 reflect the results of Riverside Park and
Kentucky Kingdom from January 1, 1998, of Walibi from March 26, 1998 and of Six
Flags from April 1, 1998. See Note 3. The accompanying consolidated financial
statements for the three and nine months ended September 30, 1997 reflect the
results of Riverside Park only from its acquisition date, February 5, 1997, and
do not include the results of Kentucky Kingdom, Walibi or Six Flags for those
periods. In addition, 1998 results include the Company's share of the revenues
of Marine World under the applicable lease and related documents. Those results
are not included in the 1997 periods. Historical balance sheet data at September
30, 1998 include the assets and liabilities of Walibi and Six Flags on a
consolidated basis.
Comprehensive Income
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," on January 1, 1998. SFAS
No. 130 established standards for reporting and display of "comprehensive
income" and its components in a set of financial statements.
8
PREMIER PARKS INC.
Notes to Financial Statements (Continued)
It requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Through March 31, 1998, the Company had not accounted for any items
included in comprehensive income that were not already included in Premier's
consolidated statement of operations. As a result of Premier entering into
foreign operations through the acquisition of a controlling interest in Walibi
in March 1998 (see Note 3), the Company has included a statement of
comprehensive income for the period ended September 30, 1998. The new statement
reflects the periodic change in the foreign currency translation adjustment
which is included in the equity section of the balance sheet and not normally
reflected in the statement of operations.
Investment in Theme Park Partnerships
The Company manages three parks in which the Company does not currently
own a controlling interest. The Company accounts for its investment in these
three parks using the equity method of accounting. The equity method of
accounting recognizes the Company's share of the activity of Six Flags Over
Texas, Six Flags Over Georgia and Marine World in the accompanying statements of
operations in the caption equity in operations of theme park partnerships. The
equity method of accounting differs from the consolidation method of accounting
used for the theme parks in which the Company owns a controlling interest. The
activities of the controlled parks are reflected in each revenue and expense
caption rather than aggregated into one caption.
Reclassifications
Certain items in the December 31, 1997 consolidated balance sheet have
been reclassified to conform to the 1998 presentation.
Earnings Per Share
The following table reconciles the weighted average number of shares of
Common Stock used in the calculations of basic earnings per share for the three
and nine-month periods ended September 30, 1998 and 1997, as well as the
weighted average number of shares of Common Stock on a diluted basis for each
period. Additionally, the weighted average number of shares for the three and
nine months ended September 30, 1998 does not include the impact of the
conversion of the Company's mandatorily convertible preferred stock into 9.4
million shares of Common Stock as the effect of the conversion and resulting
decrease in preferred stock dividends is antidilutive.
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------ ------------------ ------------------ ------------------
Weighted average number of
common shares outstanding-- basic... 75,363,000 36,601,000 62,719,000 35,025,000
---------- ---------- ---------- ----------
Effect of potential common shares
issuable upon the exercise of
employee stock options 1,165,000 1,067,000 1,190,000 1,067,000
---------- ---------- ---------- ----------
Weighted average number of
common shares outstanding --
diluted 76,528,000 37,668,000 63,909,000 36,092,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
9
PREMIER PARKS INC.
Notes to Financial Statements (Continued)
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.
2. Stockholders' Equity
In connection with the Company's acquisition of SFEC on April 1, 1998,
the Company issued 36,800,000 shares of Common Stock and 5,750,000 Premium
Income Equity Securities ("PIES"), each representing one five-hundredth of a
share of the Company's mandatorily convertible preferred stock (an aggregate of
11,500 shares of preferred stock). See Note 3. The PIES accrue cumulative
dividends (payable, at the Company's option, in cash or shares of Common Stock)
at 7 1/2% per annum (approximately $23.3 million per annum) and are mandatorily
convertible into Common Stock in 2001.
3. Acquisition of Theme Parks
On February 5, 1997, the Company purchased all of the outstanding
common stock of Stuart Amusement Company, the owner of Riverside Park and an
adjacent multi-use stadium, for a purchase price of approximately $22,200,000
($1,000,000 of which was paid through issuance of 64,258 shares of Common
Stock). The transaction was accounted for as a purchase. As of the acquisition
date and after giving effect to the purchase, $6,623,000 of deferred tax
liabilities were recognized for the tax consequences attributable to the
differences between the financial statement carrying amounts and the tax basis
of Stuart Amusement Company's assets and liabilities. Approximately $10,484,000
of cost in excess of the fair value of the net assets acquired was recorded as
goodwill. The amortization period for the goodwill is 25 years.
On November 7, 1997, the Company acquired all of the interests of a
limited liability company which owned substantially all of the theme park assets
of Kentucky Kingdom--The Thrill Park ("Kentucky Kingdom"), located in
Louisville, Kentucky, for a purchase price of $64,000,000, of which $4,831,000
was paid through the issuance of 243,342 shares of Common Stock. The Company may
be required to issue additional shares of Common Stock based upon the level of
revenues at Kentucky Kingdom during 1998, 1999 and 2000. Based on estimated 1998
revenues, the Company estimates that it will be required to issue approximately
300,000 shares in respect of such year. The acquisition was accounted for as a
purchase. The purchase price was primarily allocated to property and equipment
with $4,592,000 of costs recorded as intangible assets, primarily goodwill. The
value of the additional shares will be recognized as additional goodwill. The
amortization period for the goodwill is 25 years.
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 45.0% 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. 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 proceeds of a borrowing under its senior secured credit facility (the
"Premier Credit Facility") entered into in March
10
PREMIER PARKS INC.
Notes to Financial Statements (Continued)
1998. See Note 4(c). As of the acquisition dates and after giving effect to the
purchases, $11,493,000 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
$56,869,000 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, if any, will be recognized as additional goodwill. The
amortization period for the goodwill is 25 years.
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 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 (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, $93,644,000 of
deferred tax liabilities were recognized for the tax consequences attributable
to the differences between the financial carrying amounts and the tax basis of
Six Flags' assets and liabilities. Approximately $1,234,619,000 of costs in
excess of the fair value of the net assets acquired was recorded as goodwill.
The amortization period for the Six Flags goodwill is 25 years.
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 "Co-Venture 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 Co-Venture Parks and
(ii) make minimum capital expenditures at each of the Co-Venture Parks during
rolling five-year periods, based generally on 6% of such park's revenues. Cash
flow from operations at the Co-Venture 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 co-venture
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 Co-Venture 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.
11
PREMIER PARKS INC.
Notes to Financial Statements (Continued)
As the Company purchases units relating to either Co-Venture 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 Co-Venture Park. On September 30, 1998, the
Company owned approximately 25% and 33%, respectively, of the limited
partnership units in the Georgia and Texas partnerships. The maximum unit
purchase obligations for 1999 at both parks will aggregate approximately $43.75
million.
The following summarized unaudited pro forma results of operations for
the nine months ended September 30, 1998, assumes that the Six Flags
Acquisition, the acquisition of Walibi and the related financings occurred as of
the beginning of that period.
Total revenues ..................... $ 777,826,000
Net income ......................... 67,254,000
Net income per common share--basic . 0.66
Net income per common share--diluted 0.65
4. 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 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.
12
PREMIER PARKS INC.
Notes to Financial Statements (Continued)
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 September 30, 1998, Premier Operations had borrowed
$200.0 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 (none of which was outstanding at September
30, 1998), a five-year $100.0 million term loan facility (subsequently reduced
to $75.0 million, which amount was outstanding at September 30, 1998), 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 (which was fully drawn as of September 30, 1998 and
requires 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; 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 Co-Venture Parks. See Note 3.
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
13
PREMIER PARKS INC.
Notes to Financial Statements (Continued)
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 Premier. 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 of SFEC (with
a carrying value of $180.4 million at September 30, 1998).
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.
(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), with the first payment due in December
1998, and, except in certain circumstances, do not require principal payments
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 subsidiaries and
affiliates.
(g) On April 1, 1998, SFTP entered into the Six Flags Credit Facility,
pursuant to which it had outstanding $410.0 million at September 30, 1998. 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 September 30, 1998); and (ii) a $372.0 million term
loan facility (the "Term Loan Facility") which was fully drawn on September 30,
1998. 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 is guaranteed by such
subsidiaries and SFEC.
14
PREMIER PARKS INC.
Notes to Financial Statements (Continued)
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.
5. Commitments and Contingencies
The Company is party to various 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 actions are believed by management to
involve amounts that would be material to consolidated financial condition,
operations, or liquidity after considerations of recorded accruals.
6. Investment in Theme Park Partnerships
The following reflects the summarized results of the three parks
managed by the Company for the nine months ended September 30, 1998, in the case
of Marine World, and for the period subsequent to April 1, 1998 (the date of the
Six Flags Acquisition), in the case of the Co-Venture Parks. Previous periods
are not presented as the general partner and limited partnership interests in
the Co-Venture Parks were purchased on April 1, 1998 and the lease agreement
with the owner of Marine World, which established a revenue sharing arrangement
in which the Company participates, became effective at the beginning of the 1998
operating season.
(In Thousands)
Revenue................................................................................. $174,301
Expenses:
Operating expenses................................................................... 57,466
Selling, general and administrative.................................................. 21,831
Costs of products sold............................................................... 23,483
Depreciation and amortization........................................................ 7,815
Interest expense, net................................................................ 5,242
Other expense........................................................................ 229
-----------------
Total............................................................................. 116,066
-----------------
Net income.............................................................................. $ 58,235
-----------------
-----------------
The Company's share of operations of the three theme parks for the
three and nine months ended September 30, 1998 was $15,163,000 and $28,896,000,
respectively, prior to depreciation and amortization charges of $2,980,000 and
$4,141,000, respectively. There is a substantial difference between the carrying
value of the Company's investment in the theme parks and the net book value of
the theme parks. The difference is being amortized over 28 years for the
Co-Venture Parks (which is the remaining term of the management and lease
agreements) and being amortized over the expected useful life of the rides and
equipment installed by the Company at the Marine World theme park.
15
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
General
Results of operations for the three and nine months ended September 30,
1998 include the results of Riverside Park and Kentucky Kingdom (each of which
was acquired during 1997) for the entire period. Results of Walibi and Six Flags
are included in 1998 results only from the dates of their respective
acquisitions (March 26, 1998, in the case of Walibi, and April 1, 1998, in the
case of Six Flags). Results for the three and nine months ended September 30,
1997 reflect the results of Riverside Park only from its acquisition date,
February 5, 1997, and do not include the results of Kentucky Kingdom, Walibi or
Six Flags for those periods. In addition, 1998 results include the Company's
share of the revenues of Marine World under the applicable lease and related
documents. Those results are not included in the 1997 periods.
Results of operations for the nine-month period ended September 30,
1998 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.
Nine months ended September 30, 1998 vs. Nine months ended September
30, 1997
Revenues in the first nine months of 1998 increased $566.2 million,
from $186.7 million in the comparable 1997 period. Of this increase, $515.6
million represented revenues of Six Flags and Walibi (the "Acquired Parks")
which were acquired in 1998, and thus not included in 1997 results. Revenues
generated by the Company's other twelve parks (excluding Marine World) amounted
to $237.3 million in the first nine months of 1998, as compared to $186.7
million from the Company's eleven parks in the 1997 period. During the 1998
period, the Company's thirteen parks (including Marine World) experienced a
12.2% increase in attendance and a 6.9% increase in per capita spending over the
performance of those thirteen parks in the prior year period.
Operating expenses increased $166.8 million in the first nine months of
1998, of which $155.2 million related directly to the Acquired Parks. Operating
expenses at the Company's other twelve parks (excluding Marine World) increased
$11.6 million, primarily reflecting $8.9 million of operating expenses for
Kentucky Kingdom which were not included in the prior year period, and increased
salary expense. As a percentage of total revenue, consolidated operating
expenses were 31.4% of revenue in 1998 as compared to 37.2% in the same period
in 1997.
Selling, general and administrative expenses (including non-cash
compensation) were $107.9 million in the 1998 period as compared to $29.7
million in 1997. Of this increase, $59.6 million related to the Acquired Parks.
Selling, general and administrative expenses at the remaining twelve parks
(excluding Marine World) increased $18.5 million over 1997 levels, primarily
reflecting $4.5 million of selling, general and administrative expenses at
Kentucky Kingdom, increased corporate expenses reflecting the larger scope of
the Company's operations and, to a lesser extent, increased marketing and
advertising costs. As a percentage of total revenue, consolidated selling,
general and administrative expenses (excluding non-cash compensation) were 14.1%
of revenue in 1998 as compared to 15.9% for the same period in 1997. The
decrease is a result of the Company's continued ability to use operating
leverage to increase operations without having to increase administrative costs
by a like percentage.
16
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Costs of products sold increased $73.4 million, of which $69.2 million
related to the Acquired Parks. The balance of the increase primarily related to
$2.7 million of costs of sales at Kentucky Kingdom and to increased product
sales at the parks owned in both years.
Depreciation and amortization expense increased $57.4 million from
$14.0 million in the 1997 period to $71.4 million in 1998, of which $51.4
million was attributable to the recognition of depreciation and amortization
expense for the Acquired Parks, $1.7 million was attributable to Kentucky
Kingdom and the balance was attributable to the Company's on-going capital
program. Interest expense, net increased from $12.9 million to $77.5 million in
the 1998 period principally as a result of borrowings made in connection with
the acquisition of Six Flags and Walibi. See Note 3 to the Consolidated
Financial Statements.
Equity in operations of theme park partnerships results from the
Company's shares of the operations of Six Flags Over Texas (33% effective
Company ownership) and Six Flags Over Georgia (25% effective Company ownership),
the lease of Marine World and the management of all three parks. The Company did
not have the partial ownership or lease arrangement with any of the parks prior
to commencement of the 1998 operating season. See Notes 1 and 6 to the
Consolidated Financial Statements.
Income tax expense was $80.7 million for the 1998 period as compared to
$15.5 million for the same period in 1997. The increase in the effective tax
rate to 43.1% from 40.0% is a function of the non-deductible intangible asset
amortization associated with the Six Flags Acquisition. Approximately $12.8
million of non-deductible amortization will be recognized each quarter. The
Company's quarterly effective income tax rate will vary from period-to-period
based upon the inherent seasonal nature of the theme park business.
Net income applicable to common stock in 1998 reflects as a charge to
net income the preferred stock dividends accrued since the April 1, 1998
issuance of the PIES. The PIES accrue cumulative dividends at 7 1/2% per annum
(1 7/8% per quarter), which approximates an annual dividend requirement of $23.3
million (approximately $5.8 million per quarter). The dividend is payable in
cash or shares of Common Stock at the option of the Company. To date, the
Company has elected to pay the dividend in cash.
Three months ended September 30, 1998 vs. Three months ended September
30, 1997
Revenues in the third quarter of 1998 increased $326.4 million, from
$120.0 million in the comparable 1997 period. Of this increase, $292.8 million
represented revenues of the Acquired Parks. Revenues from the twelve other parks
(excluding Marine World) increased $33.6 million from the inclusion of Kentucky
Kingdom ($13.9 million), as well as a 467,000 person (8.4%) increase in
attendance and an approximate 9.8% increase in per capita spending at the
Company's eleven other parks. In addition, attendance at Marine World increased
by 90% in the 1998 quarter over the prior year, while attendance at Kentucky
Kingdom increased by 28.4%. Attendance at the Six Flags parks for the 1998
quarter declined by 6.8% over the prior year period, most of which decline
occurred in July. For the period from August 2 through the end of the primary
operating season, the Six Flags parks' attendance was 3.3% higher in 1998 than
in the prior year. The Company believes the attendance decline for the quarter
was primarily attributable to capital and marketing decisions for the 1998
season implemented by former management, and that the improved performance in
August and
17
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
the balance of the season reflects the impact of the Company's changes to those
programs after the acquisition.
Operating expenses increased $77.8 million in the third quarter of
1998, of which $73.8 million related directly to the Acquired Parks. Operating
expenses at the other twelve parks increased $4.0 million, solely as a result of
the inclusion of the operating expenses at Kentucky Kingdom. Operating expenses
at the Six Flags parks consolidated during the quarter decreased by $11.5
million from operating expenses in the 1997 quarter (prior to the Company's
acquisition of Six Flags). As a percentage of total revenues, consolidated
operating expenses were 25.7% of revenue in the 1998 quarter, as compared to
30.7% in the 1997 period.
Selling, general and administrative expenses (including non-cash
compensation) were $45.5 million in the 1998 period as compared to $11.9 million
in 1997. Of this increase, $31.5 million related to the Acquired Parks. Selling,
general and administrative expenses at the remaining twelve parks increased $2.1
million as a result of the inclusion of Kentucky Kingdom ($0.5 million) and an
increase in corporate expenses reflecting the larger scope of the Company's
operations. Selling, general and administrative expenses at the Six Flags parks
decreased by $2.5 million during the 1998 quarter as compared to selling,
general and administrative expenses in the 1997 quarter (prior to the Company's
acquisition of Six Flags). As a percentage of total revenue, consolidated
selling, general and administrative expenses (excluding non-cash compensation)
were 10.0% of revenue in both periods.
Costs of products sold increased $43.0 million, of which $40.1 million
related to the Acquired Parks. The remaining increases primarily related to
Kentucky Kingdom ($1.7 million) and to increased sales at the parks owned in
both years.
Depreciation and amortization expense increased from $5.7 million in
the 1997 period to $33.9 million in 1998, of which $26.1 million was
attributable to the recognition of depreciation expense for the Acquired Parks,
$0.6 million was attributable to Kentucky Kingdom, and the balance was
attributable to the Company's on-going capital program. Interest expense, net
increased from $4.5 million to $34.0 million principally as a result of
borrowings made in connection with the acquisition of Six Flags and Walibi. See
Note 3 to the Consolidated Financial Statements.
Equity in operations of theme park partnerships results from the
Company's share of the operations of Six Flags Over Texas (33% effective Company
ownership) and Six Flags Over Georgia (25% effective Company ownership), the
lease of Marine World and the management of all three parks. The Company did not
have the partial ownership or lease arrangements with any of the parks prior to
commencement of the 1998 operating season. See Notes 1 and 6 to the Consolidated
Financial Statements.
Income tax expense was $70.3 million for the 1998 period as compared to
$18.3 million for the same period in 1997. The increase in the effective tax
rate to 41.1% from 40.2% is a function of the non-deductible intangible asset
amortization associated with the Six Flags Acquisition. Approximately $12.8
million of non-deductible amortization will be recognized each quarter. The
Company's quarterly effective income tax rate will vary from quarter-to-quarter
based upon the inherent seasonal nature of theme park business.
18
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Net income applicable to common stock in 1998 reflects as a charge
to net income the quarterly preferred stock dividend. The Company's PIES
accrue cumulative dividends at 7 1/2% per annum (1 7/8% per quarter), which
approximates an annual dividend of $23.3 million ($5.8 million per quarter).
The dividend is payable in cash or shares of Common Stock at the option of
the Company.
LIQUIDITY, CAPITAL COMMITMENTS AND RESOURCES
At September 30, 1998, the Company's indebtedness (including $180.4
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 $2,054.4 million, of which
approximately $9.6 million matures prior to September 30, 1999. See Note 4 to
the Company's Consolidated Financial Statements for additional information
regarding the Company's indebtedness.
During the nine months ended September 30, 1998, net cash provided by
operating activities was $162.0 million. Net cash used in investing activities
in the first nine months of 1998 totaled $1,538.5 million, consisting primarily
of the Company's acquisition of Six Flags and Walibi and to a lesser extent
capital expenditures. Net cash provided by financing activities in the 1998
period was $1,870.2 million, representing proceeds of borrowings under the
Premier and Six Flags Credit Facilities, and proceeds of the public offerings of
Common Stock, PIES, Senior Notes, Senior Discount Notes and SFEC Notes described
in Note 3 to the Company's Consolidated Financial Statements, offset in part by
debt payments and the payment of certain debt issuance costs.
As more fully described in Note 3 to the Company's Consolidated
Financial Statements, in connection with the Six Flags Acquisition, the Company
guaranteed certain obligations relating to the Co-Venture Parks. Cash flows from
operations at the Co-Venture Parks will be used to satisfy these requirements,
before any funds are required from the Company. The degree to which the Company
is leveraged following the Six Flags Acquisition 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 reduces paid attendance and, therefore, revenue at any of its
theme parks.
On October 30, 1998, the Company purchased the 40% minority interest in
Six Flags Fiesta Texas and title to the park for approximately $45.0 million
in cash.
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 Co-Venture 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.
19
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 February, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132 revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. It standardizes
the disclosure requirements for pensions and other postretirement benefits to
the extent practicable, requires additional information on changes in the
benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer as
useful as they previously were. SFAS No. 132 is effective for fiscal years
beginning after December 15, 1997. The Company will adopt the new disclosure
requirements in its annual financial statements for the year ending December 31,
1998.
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 September 30, 1998, it would not have a
material effect on the Company's financial position as of such date, or the
results of operations for the nine-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
20
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 $1.0
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 $0.5 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
Not applicable.
21
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 -- September 30, 1998
27.2 Financial Data Schedule -- September 30, 1997
(b) Reports on Form 8-K
None.
22
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: November 12, 1998
23