<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for Quarterly Period Ended March 31, 1998
OR
[ ] Transaction Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transaction period from _________ to
_________
Commission File Number: 333-46897-01
Six Flags Entertainment Corporation
(Exact name of Registrant as specified in its charter)
Delaware 22-3136577
(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 No X
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:
At May 18, 1998, Six Flags Entertainment Corporation had outstanding
1,000 shares of Common Stock.
The registrant meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the
reduced disclosure format.
1
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
QUARTERLY REPORT FOR THE QUARTER ENDED MARCH 29, 1998
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page Number
---- ------
<S> <C>
Item 1 - Financial Statements:
Consolidated Statements of Operations (unaudited) for the three months ended
March 29, 1998 and March 30, 1997............................................. 2
Consolidated Balance Sheets as of March 29, 1998 (unaudited) and,
December 28, 1997............................................................. 3
Consolidated Statements of Cash Flows (unaudited) for the three months ended
March 29, 1998 and March 30, 1997............................................. 4
Notes to Consolidated Financial Statements (unaudited)......................... 5
Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................... 9
</TABLE>
2
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 29, 1998 and March 30, 1997
(Unaudited and In Thousands, except per share amounts)
amounts)
<TABLE>
<CAPTION>
March 29, 1998 March 30, 1997
-------------- --------------
<S> <C> <C>
Revenues:
Operating services $15,147 $22,811
Sales of products 8,472 13,726
Other 652 387
------- -------
24,271 36,924
------- -------
Costs and expenses
Operating, general and administrative 93,893 93,566
Cost of products sold 3,558 5,463
Depreciation 14,759 14,190
Amortization 3,263 6,735
Interest 21,902 20,386
Off-season expense deferral (86,196) (84,773)
------- -------
51,179 55,567
------- -------
Loss before income taxes (26,908) (18,643)
Income tax benefit 10,173 6,807
------- -------
Net loss (16,735) (11,836)
------- -------
------- -------
Net loss per common share
- Basic and diluted (248,460) (190,540)
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
March 29, 1998 December 28, 1997
-------------- -----------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $10,670 $16,805
Receivables, net 1,516 3,258
Receivable from affiliates --- 4,000
Inventories, net 22,765 14,338
Maintenance supplies 7,974 8,051
Off-season expense deferral 86,196 ---
Prepaid expenses and other current assets 20,350 3,848
------- ------
Total current assets 149,471 50,300
======= =======
Property and equipment, net 502,710 492,137
Investment in co-venture parks, net 169,637 78,370
Excess of cost over net assets acquired, net 194,882 196,928
Deferred financing costs, net 19,597 20,171
Other assets 40,556 26,784
------- ------
Total assets $1,076,853 $864,690
---------- --------
---------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $38,151 $21,055
Accrued liabilities 40,565 43,390
Current maturities of long-term debt 26,130 26,130
Short-term borrowings 108,000 30,503
------- ------
Total current liabilities 212,846 121,078
------- ------
Long-term debt 889,301 753,369
Other long-term liabilities 13,358 12,420
Minority Interest 150 150
Stockholders' equity:
Class A Convertible Preferred Stock 51 51
Class B Convertible Preferred Stock 49 49
</TABLE>
4
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
March 29, 1998 December 28, 1997
-------------- -----------------
ASSETS
<S> <C> <C>
Class A Common Stock --- ---
Class B Common Stock --- ---
Additional paid-in capital 40,275 40,217
Accumulated deficit (76,602) (59,867)
Unearned compensation reserved stock awards (2,575) (2,777)
---------- ---------
Total stockholders' (deficit) (38,802) (22,327)
---------- ---------
Total liabilities and stockholders' equity $1,076,853 $864,690
---------- ---------
---------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 29, 1998 and March 30, 1997
(Unaudited and In Thousands)
<TABLE>
<CAPTION>
March 29, 1998 March 30, 1997
-------------- --------------
<S> <C> <C>
Operating Activities:
Net loss $ (16,735) $(11,836)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 18,022 20,925
Non cash interest expense 12,959 12,066
Undistributed loss of co-venture parks 32,698 19,918
Off-season expense deferral (86,196) (84,773)
Changes in current assets and liabilities:
Receivables 5,742 (1,119)
Inventories (8,427) (4,385)
Maintenance supplies 77 98
Prepaid expenses and other current assets (16,502) (10,533)
Accounts payable and accrued liabilities 14,271 17,120
Other, net 18 (65)
---------- ---------
Net cash (used in) operating activities (44,073) (42,584)
---------- ---------
Investing Activities:
Investment in co-venture parks (6,374) (5,240)
Purchase of property and equipment (25,335) (16,886)
Receipt from sale of land and property --- 1,500
Purchase of convertible limited partnership units (117,984) ---
Prepayment of SFOT partnership obligations (13,866) ---
---------- ---------
Net cash (used in) investing activities (163,559) (20,626)
---------- ---------
Financing Activities:
Proceeds from short-term borrowings --- 2,056
Net proceeds from revolving line of credit 67,000 38,000
Proceeds from senior credit agreement 165,000 ---
Repayment of other debt (30,503) ---
---------- ---------
Net cash (used in) financing activities 201,497 40,056
---------- ---------
Decrease in cash and cash equivalents (6,135) (23,154)
Cash and cash equivalents at beginning of period 16,805 45,587
---------- ---------
Cash and cash equivalents at end of period $10,670 $22,433
---------- ---------
---------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six Flags Entertainment Corporation ("SFEC," and together with its
subsidiaries, the "Company"), a Delaware corporation, owns 100% of the common
Stock of S.F. Holdings, Inc. ("Holdings") which owns 100% of the Common Stock
of Six Flags Theme Parks Inc. ("Six Flags").
Prior to April 1, 1998, Six Flags operated twelve "Six Flags"
branded theme parks in eight locations throughout the United States. Nine of
the theme parks, Six Flags Great Adventure and Wild Safari Animal Park (New
York- Philadelphia), Six Flags Great America (Chicago-Milwaukee), Six Flags
Magic Mountain and Six Flags Hurricane Harbor (Los Angeles) (collectively,
"Six Flags California"), Six Flags AstroWorld and Six Flags Waterworld
(Houston) (collectively "Six Flags Houston"), Six Flags St. Louis (St. Louis)
and Six Flags Hurricane Harbor (Dallas-Ft. Worth), are owned directly by Six
Flags. Six Flags Fiesta Texas located in San Antonio, Texas is leased by a
limited partnership of which a subsidiary of Six Flags is a general partner
and manages the park. Two parks --Six Flags Over Texas (Dallas-Ft. Worth) and
Six Flags Over Georgia (Atlanta) --are operated by Six Flags pursuant to
partnership agreements (the "Co-Venture Parks"). Six Flags Over Texas is
owned by a limited partnership ("Texas Flags") of which the managing general
partner is a wholly-owned subsidiary of Six Flags. Six Flags Over Georgia is
owned by a limited partnership of which the managing general partner is SFOG
II, Inc., a Delaware Corporation which is a wholly-owned subsidiary of SFEC
("SFOG II"). Six Flags has entered into new partnership agreements for the
management of Six Flags Over Georgia and Six Flags Over Texas through 2026
and 2027, respectively. See the Investment in Co-venture Parks footnote for a
description of these new agreements. On April 1, 1998, Premier
Parks Inc. ("Premier") purchased all of the capital stock of SFEC. At that
time, Six Flags interests in the Co-Venture Parks were transferred to an
affiliate. See "Subsequent Events."
The accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes for the
period ended December 29, 1997 included in SFEC's Registration Statement on
Form S-3 (Reg No. 333-46897).
The accompanying consolidated financial statements have not been
audited; however, in the opinion of management, all adjustments, which
consist of normal recurring accruals necessary for a fair presentation of the
results of such interim periods, are included. The results of operations for
the interim periods are not indicative of results for an entire year. The
operations of the Company are highly seasonal, with the bulk of the operating
season occurring during the period from Memorial Day though Labor Day. Most
of the Company's revenues are collected in the second and third quarters of
the year.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. SFAS No. 130 establishes standards for reporting and display of
"comprehensive income" and its components in a set of financial statements.
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. The Company currently does not have any components of
comprehensive income that are not included in net income.
Also in June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," was
issued. SFAS No. 131 is effective for periods beginning after December 15, 1997.
SFAS No. 131 requires that a public entity report financial and descriptive
information about its reportable segments. Operating segments are components of
an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. The Company will adopt SFAS No.
131 in 1998. However, such adoption is not expected to impact the Company's
financial disclosures because the Company's current operations are limited to
one reportable operating segment under SFAS No. 131's definitions.
In January 1997, the Securities and Exchange Commission issued Release
No. 33-7386, which requires enhanced descriptions of accounting policies for
derivative financial instruments and derivative commodity instruments in the
footnotes to financial statements. The release also requires certain
quantitative and qualitative disclosure outside financial statements about
market risks inherent in market risk sensitive instruments and other financial
instruments. The requirements regarding accounting policy descriptions were
effective for any fiscal period ending after June 15, 1997. However, because
derivative financial and commodity instruments have not materially affected the
Company's consolidated financial position, cash flows or results of operations,
this part of the release does not affect the Company's first quarter 1998
financial statement disclosures.
7
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ACCOUNTING AND FINANCIAL REPORTING POLICIES
Revenues and Expenses
Operating services revenue consists primarily of theme park
admissions and parking, corporate sponsorships and other in-park services.
Sales of products consist primarily of revenues from the in- park sales of
food and beverages, merchandise and games of skill. Operating expenses
consist of theme park employee compensation and benefits and advertising
media and production. Park maintenance materials and services, utilities,
operating supplies, insurance and other operating service costs account for
the remainder. Cost of products sold consists of the cost of food and
beverages, gifts and souvenirs and games of skill prizes sold.
OFF-SEASON EXPENSES
Theme park operations are highly seasonal with substantially all
revenues being generated in the second and third quarters. Such revenues are
recognized when earned, while cost of products sold, general and administrative
expenses, interest on debt and income taxes are recognized when incurred. All
other interim period costs related to park operations are considered off-season
expenses and are charged to interim periods based upon estimated annual
revenues. No costs are deferred at the end of a fiscal year.
ACCUMULATED DEPRECIATION AND AMORTIZATION
At March 29, 1998 and December 28, 1997 accumulated
depreciation on property and equipment amounted to $287.9 million and $276.1
million, respectively.
At March 29, 1998 and December 28, 1997 accumulated
amortization of excess cost over net assets acquired amounted to $49.8 million
and $47.7 million.
NET LOSS PER SHARE
The calculation of Net Loss per share includes dividend accruals of
$8.1 million and $7.2 million on the Class A Convertible Preferred Stock for
the first quarter of 1998 and the first quarter of 1997, respectively.
INVESTMENT IN CO-VENTURE PARKS
Changes in the investment in co-venture parks during the first three
months of 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance at beginning of period $78,370 $19,135
Capital additions made by the co-venture parks 6,374 3,618
Operations and financing activities (32,698) (18,296)
Amortization (393) (3,858)
-------- --------
$51,653 $599
Purchase of SFOT limited partnership units
Balance at end of period 117,984 ---
-------- --------
$169,637 $599
======== ========
</TABLE>
8
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX FLAGS OVER GEORGIA
On March 18, 1997, Six Flags, SFEC, Time Warner Inc and Time Warner
Entertainment Company L.P. ("TWE") completed arrangements pursuant to which
SFOG II will manage the Six Flags Over Georgia Park through 2026. Under the
agreements governing the new arrangements (the "Georgia Agreements"), the Six
Flags Over Georgia Park is owned by a newly formed limited partnership ("Six
Flags Over Georgia II") of which SFOG II is the managing general partner.
The key elements of the new arrangements are as follows: (i) the
limited partner (which is not affiliated with Six Flags) will receive minimum
annual distributions of $18.5 million in 1997, increasing each year
thereafter in proportion to increases in the cost of living; thereafter, SFOG
II will be entitled to receive from available cash (after provision for
reasonable reserves and after minimum capital expenditures, calculated during
rolling five-year periods based generally on approximately 6% of prior year
revenues) a management fee equal to 3% of the prior year's gross revenues;
and, thereafter, any additional available cash will be distributed 95% to
SFOG II and 5% to the limited partner; (ii) in the second quarter of 1997, a
subsidiary of Six Flags (the "Six Flags-SFOG Subsidiary") and a subsidiary of
SFEC (the "SFEC-SFOG Subsidiary") made a tender offer for partnership
interests ("SFOG LP Units") in Six Flags Fund, Ltd. (L.P.), which owns 99% of
the limited partner of Six Flags Over Georgia II, that valued the Six Flags
Over Georgia Park at $250 million or 8 times 1997 EBITDA of the Six Flags
Over Georgia Park (the "SFOG Tender Offer Price"); (iii) commencing in 1998,
and on an annual basis thereafter, the Six Flags-SFOG Subsidiary and the
SFEC-SFOG Subsidiary will offer to purchase additional SFOG LP Units at a
price based on the greater of the SFOG Tender Offer Price or the EBITDA of
the Six Flags Over Georgia Park for the prior four years (provided that no
more than $50 million of such SFOG LP Units will be acquired by the Six
Flags-SFOG Subsidiary); and (iv) in 2026, Six Flags and its affiliates will
have the option to acquire the Six Flags Over Georgia Park at a price based
on the SFOG Tender Offer Price, increased in proportion to the increase in
the cost of living between December 1996 and December 2026. SFEC, Six Flags
and TWE have guaranteed certain of the obligations (including the minimum
annual distributions noted in (i) above) of SFOG II and Six Flags Over
Georgia II under the Georgia Agreements, and in consideration therefor, SFOG
II has agreed to assign to Six Flags at least 90% of the cash distributions
it receives from time to time from Six Flags Over Georgia II. Through March
29, 1998, Six Flags continued to account for the Six Flags Over Georgia Park
as a co-venture and included the revenues and expenses of Six Flags Over
Georgia II partnership (excluding partnership depreciation) in Six Flags'
consolidated financial statements and deducted as expenses the net amounts
distributed to the limited partners. As a result of entering into the Georgia
Agreements, Six Flags expects a reduction in net income and net cash flow
allocation from Six Flags Over Georgia II as compared to years prior to 1997.
On May 6, 1997, in connection with the closing of the tender offer
described above, the Six Flags- SFOG Subsidiary and the SFEC-SFOG Subsidiary
purchased approximately 17% and 8%, respectively, of SFOG LP Units for
approximately $42.4 million and $20.3 million, respectively. The purchase of
SFOG LP Units entitles each such purchaser the right to receive minimum annual
distributions and any residual distributions (5% of available cash after the
minimum annual distributions and management fee distributions) in proportion to
the percentage amounts purchased. The purchase of SFOG LP Units by the Six
Flags-SFOG Subsidiary was financed through a drawdown on the Company's secured
revolving line of credit available for acquisitions under its then credit
agreement. During the first quarter of 1998, the Company commenced its annual
unit purchase offer for SFOG LP Units, pursuant to which it will purchase an
immaterial number of units in the second quarter.
9
<PAGE>
SIX FLAGS OVER TEXAS
On November 24, 1997, Six Flags, SFEC, Time Warner and TWE completed
arrangements pursuant to which Six Flags Over Texas, Inc., a wholly-owned
subsidiary of Six Flags ("SFOT"), will manage the Six Flags Over Texas Park
through 2027. Under the agreements governing the new arrangements (the "Texas
Agreements"), the Six Flags Over Texas Park will continue to be owned by Texas
Flags Ltd., a limited partnership ("Six Flags Over Texas") of which SFOT is the
managing general partner.
10
d<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The key elements of the new arrangements are as follows: (i) the
limited partner (which is not affiliated with Six Flags) will receive minimum
annual distributions of $27.7 million in 1998, increasing each year thereafter
in proportion to increase in the cost of living; thereafter, SFOT II will be
entitled to receive from available cash (after provision for reasonable reserves
and after minimum capital expenditures, calculated during rolling five-year
periods based generally on of approximately 6% of prior year
revenues) a management fee equal to 3% of the prior year's gross revenue; and,
thereafter, any additional available cash will be distributed 92.5% to SFOT and
7.5% to the limited partner; (ii) in the first quarter of 1998, a subsidiary of
Six Flags (the "Six Flags-SFOT Subsidiary") and a subsidiary of SFEC (the
SFEC-SFOT Subsidiary) made a tender offer for partnership interests ("SFOT LP
Units") in Six Flags Over Texas, Ltd., which owns 99% of the limited partner of
Six Flags Over Texas, that valued the Six Flags Over Texas Park at $375 million
or 8.5 times 1998 EBITDA of the Six Flags Over Texas Park (the "SFOT
Tender Offer Price"); (iii) commencing in 1999, and on an annual basis
thereafter, the Six Flags-SFOT Subsidiary will offer to purchase additional SFOT
LP Units at a price based on the EBITDA of the Six Flags Over Texas Park for the
prior four years; and (iv) in 2027, Six Flags and its affiliates will have the
option to acquire the Six Flags Over Texas Park at a price based on the SFOT
Tender Offer Price, increased in proportion to the increase in the cost of
living between December 1997 and December 2027. SFEC, Six Flags and TWE have
guaranteed certain of the obligations (including the minimum annual
distributions noted in (i) above) of SFOT under the Texas Agreements.
Through March 29, 1998, Six Flags continued to account for the Six Flags Over
Texas Park as a co-venture and to include revenues and expenses of Six Flags
Over Texas partnership (excluding partnership depreciation) in Six Flags'
consolidated financial statements and deduct as expenses the net amounts
distributed to the limited partners. As a result of entering into the Texas
Agreements, Six Flags expects a reduction in net income and net cash flow
allocation from Texas Flags as compared to years prior to 1998. During the
first quarter of 1998, the Company purchased in the tender offer
approximately 33% of the Texas units for approximately $117.9 million.
SUBSEQUENT EVENTS
On April 1, 1998, Premier Parks Inc. ("Premier") acquired all of the
outstanding capital stock of SFEC pursuant to an Agreement and Plan of Merger
dated as of February 9, 1998 (the "Acquisition"). Premier acquired by merger all
of the capital stock of SFEC from TWE and Boston Ventures Management, Inc. for
approximately $1.9 billion, including the assumption or refinancing
of approximately $1.0 billion of SFEC debt (including approximately $285 million
in aggregate principal amount at maturity of the Six Flags 12 1/4% Series A
Senior Subordinated Discount Notes due 2005 (the "SFTP Notes") and approximarely
$161.1 accreted value at December 29, 1997 of SFEC notes (the "Old SFEC
Notes")). Premier funded the Acquisition with the proceeds of concurrent public
offerings and bank facilities (including a new $472 million credit facility of
Six Flags (the "Six Flags Credit Facility") and $170.0 million of 8-7/8% Senior
Notes due 2006 of SFEC (the "SFEC Notes")). The proceds of the SFEC Notes,
together with other cash, was deposited in escrow to provide for the repayment
in full at or prior to maturity in 1999 of the Old SFEC Notes. Pursuant to the
Acquisition, SFEC and Six Flags transferred, for 46.0 million in cash and
assumption of debt, to Premier all of their interests in the limited
partnerships that own Six Flags Over Georgia and Six Flags Over Texas. Also in
connection with the Acquisition, the companies entered into a long-term
licensing agreement that gives Premier the exclusive theme park rights in the
U.S. and Canada (excluding the Las Vegas, Nevada Metropolitan area) of all
Warner Bros. and DC Comics animated cartoon and comic book characters. These
financial statements do not reflect any adjustments relating to the consummation
of these transactions.
Borrowings under the Six Flags Credit Facility, which was entered into
on April 1, 1998, was secured by substantially all of the assets of Six Flags
and its subsidiaries and by a pledge by SF Holdings of the stock of Six Flags
and was guaranteed by SFEC, Six Flags, SF Holdings and Six Flags subsidiaries.
The Six Flags Credit Facility has an aggregate availability of $472.0 million
consisting of (i) up to $100.0 million under a Revolving Credit Facility to
refinance existing outstanding Six Flags bank indebtedness and for working
capital and other general corporate purposes; and (ii) up to $372.0 million
under a term loan facility (the "Term Loan Facility") used to refinance
existing outstanding Six
11
<PAGE>
Flags bank indebtedness and fund acquisitions and make capital improvements.
Approximately $710.0 million was borrowed under the Six Flag Credit Facility
in connection with the Acquisition. The proceeds of these borrowings and
other funds were used to repay in full all Company bank indebtedness at April
1, 1998. Interest rates per annum under the Six Flags Credit Facility are
equal to either (a) a base rate equal to the higher of the Federal Funds Rate
plus 1/2% or the prime rate of Citibank, N.A., in each case, plus the
Applicable Margin (as defined therein) or (b) the London Interbank Offered
Rate plus the Applicable Margin. The Revolving Credit Facility will terminate
five years from the closing of the Six Flags Acquisition. Borrowings under
the Term Loan Facility will mature on November 30, 2004. However, for the
Term Loan Facility, aggregate principal payments and reductions of $1.0
million will be 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.
12
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Six Flags Credit Facility contains restrictive covenants that,
among other things, limit the ability of Six Flags and its subsidiaries to
dispose of assets; engage in mergers and consolidations; engage in certain
transactions with subsidiaries and affiliates; incur, guarantee or grant liens
with respect to additional indebtedness; pay dividends except that (subject to
covenant compliance) dividends are permitted to allow SFEC to meet cash pay
interest obligations with respect to the SFEC Notes; repurchase stock; make
investments (including loans and advances) or capital expenditures; and engage
in sale-leaseback transactions. The Six Flags Credit Facility also limits the
ability of SFEC to grant liens. In addition, the Six Flags Credit Facility
requires Six Flags to comply with certain specified financial ratios and
tests.
The following results reflect the pro forma effects for the
relevants first-quarter periods of the transfer and sale of the interests of
the Company in the Co-Venture Parks as if the transactions had occured prior
to December 30, 1996 (the first day of SFEC's 1997 fiscal year):
1998 1997
---- ----
Revenues $ 17,121 25,274
Costs and expenses 41,789 38,254
-------- -------
Loss before incomne taxes (24,668) (12,980)
Income tax benefit 9,255 4,486
Net loss 15,413 8,494
-------- -------
-------- -------
13
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
FINANCIAL PART I - FINANCIAL INFORMATION (Continued)
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Prior to the Acquisition, the Company, through two subsidiaries, was
the general partner in partnerships the Co-Venture Parks. For the historical
periods presented, the Company accounted for the Co-Venture Parks as
co-ventures, i.e., their revenues and expenses (excluding partnership
depreciation)
14
<PAGE>
were included in the Company's consolidated statements of operations and the
net amounts distributed to the limited partners were deducted as expenses.
Except for the limited partnership units in the parks owned by Six Flags at
March 29, 1998, the Company had no rights or title to the Co-Venture Parks'
assets or to the proceeds from any sale of the Co-Venture Parks' assets or
liabilities during the periods presented. Accordingly, the Company's
historical consolidated balance sheets did not directly include any of the
Co-Venture Parks' assets. The investment in the Co-Venture Parks included in
the Company's historical consolidated balance sheets represented (i) Six
Flags' interest in the estimated future cash flows from the operations of the
Co-Venture Parks, which was amortized over the life of the original
partnership agreements, and (ii) the cost of limited partnership units
purchased pursuant to the tender offer relating to the parks.
In connection with the Acquisition, the Company transferred its
interests in the Co-Venture Parks to Premier for cash and assumption of debt.
Accordingly, cash flows from these parks will not be available to service the
debt of the Company (including the SFEC Notes and borrowings under the Six
Flags Credit Facility) and the Company will have no interest in the revenues
or cash flows of the Co-Venture Parks. The discussion below includes the
results of the Co-Venture Parks which were transferred to Premier as part of
the Acquisition.
The Three Months Ended March 29, 1998 Compared to the
Three Months Ended March 30, 1997
Revenues. Revenues for the first quarter of 1998 decreased $7.7
million or 31.6% compared to the first quarter of 1996. The revenue decrease
reflects (i) the effects of a strategic decision by prior management to
deemphasize season passes and promotional offers, which account for a
substantial portion of first quarter attendance, (ii) a planned reduction in
operating days in the 1998 period, as compared to the prior-year period and
(iii) inclement weather experienced by certain of the parks open during the
1998 quarter.
Operating, General and Administrative. Operating, general and
administrative expenses increased by $0.3 million or less than 1.0% for the
first quarter of 1998 compared to the first quarter of 1997. The slight
increase was attributed to higher compensation and maintenance expenses,
offset by lower insurance and advertising expense.
Cost of Products Sold. Cost of products sold decreased $1.9 million or
34.9% for the first quarter of 1998 compared to the first quarter of 1997. The
decrease in cost of products sold resulted primarily from lower volume.
Interest. Interest expense increased $1.5 million due primarily to
an increase in the average outstanding debt level.
Off-Season Expense. The great majority of the Company's revenues are
generated in the second and third quarters. Revenues are recognized when earned
and cost of products sold, corporate general and administrative expense,
interest expense, minority interest expense and income taxes, are recognized
when incurred. All other costs related to park operations are considered
off-season expenses. The estimated annual total of such off-season expenses are
charged to an interim period in an amount proportioned to the percentage of
estimated annual revenues recognized in each such period.
15
<PAGE>
Income Tax Expense. The relationship between income before taxes and
income tax expense is principally affected by the amortization of the excess of
cost over net assets acquired, which is nondeductible for income tax purposes.
Liquidity and Capital Resources
The operations of the Company are highly seasonal, with the majority of
the operating season occurring between Memorial Day and Labor Day. Most of the
Company's revenues are collected in the second and third quarters of each year
while most expenditures for capital improvements and major maintenance are
incurred when the parks are closed or operate only on weekends during the first
and fourth quarters of each year.
During the first quarter 1998, the Company used $44.1 million in net
operating cash. Net cash used in investing activities aggregated
approximately $163.6 million, $117.9 million of which represented amounts
expended to purchase units in the Texas Co-Venture Partnership, with most of
the balance consisting of capital expenditures. Net cash used in financing
activities for the period aggregated borrowings under revolving lines of
credit, partially offset by payments on term loans.
16
<PAGE>
In March 1998, Six Flags completed a tender offer pursuant to which it
purchased approximately 33% of the outstanding limited partnership units in
Six Flags Over Texas, for an aggregate price of $117.9 million, which was
financed by borrowings which were repaid in connection with the Acquisition.
SFEC and SFTP have guaranteed certain obligations relating to the Co-Venture
Parks.
The SFTP Notes (accreted value of $278.1 million at March 29, 1998)
require interest payments of approximately $34.9 million per annum, payable
semi-annually commencing December 15, 1998, and, except in certain
circumstances, no principal payments are due thereon until their maturity
date, June 15, 2005. The SFEC Notes require annual interest payments of
approximately $15.1 million 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. Term loan borrowings under the Six
Flags Credit Facility will mature on November 30, 2004 (with principal
payments of $1.0 million in each of 1998--2001, $25.0 million in 2002, $40.0
million in 2003 and $303.0 million at maturity). Revolving credit borrowings
under this facility (up to $100.0 million) mature on the fifth anniversary of
the Acquisition.
By reason of the Acquisition, on April 30, 1998, Six Flags was required
to offer to repurchase the SFTP Notes at a price equal to 101% of their accreted
amount (approximately $287.9 million at June 15, 1998). On April 30, 1998, the
last reported sales price of these Notes was substantially in excess of their
accreted amount. The Company has not entered into any standby arrangement to
finance the purchase of such notes in the event that it were to become
necessary.
The Company's liquidity could 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 parks.
The Company's ability to make scheduled payments on, or to refinance,
its indebtedness, or to fund planned capital expenditures, will depend on its
performance, which, to a certain extent, is subject to general economic,
financial, weather, competitive and other factors that are beyond its control.
Management believes that, based on current and anticipated operating results,
cash flow from operations, available cash and available borrowings under the
Six Flags Credit Facility will be adequate to meet the Company's' future
liquidity needs, including anticipated requirements for working capital,
capital expenditures and scheduled debt payments, for at least the next
several years. However, the Company may need to refinance all or a portion of
its existing debt on or prior to maturity or to obtain additional financing.
There can be no assurance that the Company's business will generate
sufficient cash flow from operations or that future borrowings will be
available under the Six Flags Credit Facility in an amount sufficient to
enable the Company to service its indebtedness or to fund its other liquidity
needs. In addition, there can be no assurance that the Company will be able
to effect any such refinancing on commercially reasonable terms or at all.
17
<PAGE>
Impact of Year 2000 Issue
An issue exists for all companies that rely on computers as the year
2000 approaches. The "Year 2000" problem is the result of past practices in the
computer industry of using two digits rather than four to identify the
applicable year. This practice will result in incorrect results when computers
perform arithmetic operations, comparisons or data field sorting involving years
later than 1999. Six Flags has completed plans to ensure year 2000 compliance
and started conversions of applications beginning in 1996. These modifications
and replacements are expected to be completed by January 1999. Costs in
connection with any such modifications are not expected to be material.
Item 3
Omitted pursuant to General Instruction H(2)(c) of Form 10-Q.
18
<PAGE>
PART II -- OTHER INFORMATION
Item 1
- ------------
Not applicable
Item 2-4
Omitted pursuant to General Instruction H(2)(b) of Form 10-Q
Item 5
Not applicable
Item 6 Exhibits and Reports on Form 8-K.
- -----
(a) Exhibits
--------
27. Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None.
19
<PAGE>
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.
Date: May 18, 1998
SIX FLAGS ENTERAINMENT CORPORATION
-------------------------------------
(Registrant)
/s/ Kieran E. Burke
-------------------------------------
Chairman and Chief Executive Officer
/s/ James F. Dannhauser
-------------------------------------
Chief Financial Officer
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> MAR-29-1998
<CASH> 10,670
<SECURITIES> 0
<RECEIVABLES> 22,765
<ALLOWANCES> 0
<INVENTORY> 7,974
<CURRENT-ASSETS> 149,471
<PP&E> 790,615
<DEPRECIATION> (287,905)
<TOTAL-ASSETS> 1,076,853
<CURRENT-LIABILITIES> 212,846
<BONDS> 400,088
0
100
<COMMON> 0
<OTHER-SE> (38,902)
<TOTAL-LIABILITY-AND-EQUITY> 1,076,853
<SALES> 24,271
<TOTAL-REVENUES> 24,271
<CGS> 3,558
<TOTAL-COSTS> 11,356
<OTHER-EXPENSES> 17,921
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,902
<INCOME-PRETAX> (26,908)
<INCOME-TAX> (10,173)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,735)
<EPS-PRIMARY> (248,460)
<EPS-DILUTED> (248,460)
</TABLE>
