SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
(Mark One)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for Quarterly Period Ended September 27, 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: 333-46897-01
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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 |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 30, 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.
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1 -- Financial Statements
SIX FLAGS ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
Pre-Acquisition Post-Acquisition
(Note 1) (Note 1)
December 28, 1997 September 27, 1998
------------------ -------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 16,805 $ 161,294
Receivables, net........................ 3,258 26,630
Receivable from affiliate............... 4,000 --
Inventories, net........................ 14,338 15,679
Prepaid expenses and other current
assets ............................... 11,899 8,411
---------- -----------
Total current assets................. 50,300 212,014
Property and equipment, net................. 492,137 837,565
Investment in co-venture parks, net......... 78,370 --
Deferred financing costs, net............... 20,171 12,276
Restricted-use investments.................. -- 180,873
Deposits and other assets................... 26,784 26,894
Intangible assets, net...................... 196,928 1,210,846
---------- -----------
Total assets......................... $ 864,690 $ 2,480,468
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................ $ 21,055 $ 26,015
Accrued liabilities..................... 43,390 102,888
Payable to affiliate.................... -- 5,147
Current portion of long-term debt....... 26,130 1,493
Short-term borrowings................... 30,503 --
---------- -----------
Total current liabilities............ 121,078 135,543
Notes payable............................... 404,869 672,967
Credit facilities........................... 348,500 409,000
Other long-term liabilities................. 12,420 38,840
Deferred income taxes....................... -- 147,142
Minority interest........................... 150 266
---------- -----------
Total liabilities.................... 887,017 1,403,758
Stockholders' equity (deficit):
Convertible preferred stock............. 100 --
Common stock............................ -- --
Additional paid-in capital.............. 40,217 1,013,197
Retained earnings (accumulated deficit). (59,867) 63,513
Unearned compensation reserved stock
awards ............................... (2,777) --
---------- -----------
Total stockholders'
equity (deficit)................... (22,327) 1,076,710
---------- -----------
Total liabilities
and stockholders' equity .......... $ 864,690 $ 2,480,468
========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
Item 1 -- Financial Statements (Continued)
SIX FLAGS ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 28, 1997 and September 27, 1998
(Unaudited and In Thousands)
<TABLE>
<CAPTION>
Pre-Acquisition Post-Acquisition
(Note 1) (Note 1)
Three Months Three Months
Ended Ended
September 28, 1997 September 27, 1998
------------------ ------------------
<S> <C> <C>
Revenues:
Theme park admissions................ $ 183,387 $ 121,424
Theme park food, merchandise
and other ......................... 162,686 127,797
---------- ----------
Total revenues....................... 346,073 249,221
Operating costs and expenses:
Operating expenses................... 111,120 69,362
Selling, general and administrative.. 27,406 21,461
Costs of products sold............... 50,000 36,411
Depreciation and amortization........ 20,736 22,801
Off season expense accrual........... 102,093 --
---------- ----------
Total operating costs and expenses... 311,355 150,035
Income from operations............... 34,718 99,186
Other income (expense):
Interest expense, net................ (21,452) (17,125)
Minority interest in earnings........ (792) (116)
---------- ----------
Total other income (expense)......... (22,244) (17,241)
Income before income taxes........... 12,474 81,945
Income tax expense...................... (5,928) (35,525)
---------- ----------
Net income........................... $ 6,546 $ 46,420
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
Item 1 -- Financial Statements (Continued)
SIX FLAGS ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 28, 1997, 93-Day Period Ended March 31,
1998 and 180-Day Period Ended September 27, 1998
(Unaudited and In Thousands)
<TABLE>
<CAPTION>
Pre-Acquisition Pre-Acquisition Post-Acquisition
(Note 1) (Note 1) (Note 1)
Nine Months 93-Day 180-Day
Ended Period Ended Period Ended
September 28, 1997 March 31, 1998 September 27, 1998
------------------- --------------- ------------------
<S> <C> <C> <C>
Revenues:
Theme park admissions ................ $ 334,321 $ 12,680 $ 233,934
Theme park food, merchandise
and other .......................... 309,431 11,591 215,774
--------- --------- ---------
Total revenue ........................ 643,752 24,271 449,708
Operating costs and expenses:
Operating expenses ................... 283,893 85,307 135,797
Selling, general and administrative .. 89,493 57,853 50,796
Costs of products sold ............... 93,032 3,750 63,366
Depreciation and amortization ........ 62,520 18,022 44,315
Off season expense accrual ........... 57,631 (86,196) --
--------- --------- ---------
Total operating costs and expenses ... 586,569 78,736 294,274
Income (loss) from operations ........ 57,183 (54,465) 155,434
Other income (expense):
Interest expense, net ................ (63,206) (21,902) (38,306)
Minority interest in earnings ........ (792) -- (116)
Gain on disposal of assets ........... -- 5,411 --
--------- --------- ---------
Total other income (expense) ......... (63,998) (16,491) (38,422)
Income (loss) before income taxes .... (6,815) (70,956) 117,012
Income tax (expense) benefit ............ 201 27,792 (53,499)
--------- --------- ---------
Net income (loss) .................... $ (6,614) $ (43,164) $ 63,513
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
Item 1 -- Financial Statements (Continued)
SIX FLAGS ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 28, 1997, 93-Day Period Ended March 31,
1998 and 180-Day Period Ended September 27, 1998
(Unaudited and In Thousands)
<TABLE>
<CAPTION>
Pre-Acquisition Pre-Acquisition Post-Acquisition
(Note 1) (Note 1) (Note 1)
Nine Months 93-Day 180-Day
Ended Period Ended Period Ended
September 28, 1997 March 31, 1998 September 27, 1998
------------------ ---------------- ------------------
<S> <C> <C> <C>
Operating Activities:
Net income (loss) .................................... $ (6,614) $ (43,164) $ 63,513
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ..................... 62,520 18,022 44,315
Deferred income tax ............................... -- -- 53,499
Non-cash interest expense ......................... 35,513 12,959 9,380
Interest accretion on restricted use investment ... -- -- (4,845)
Minority interest in earnings ..................... 792 -- 116
Undistributed loss of co-venture parks ............ -- 32,698 --
Off-season expense accrual ........................ 57,631 (86,196) --
Changes in current assets and liabilities:
Receivables ....................................... (17,909) 5,742 (25,304)
Inventories ....................................... (2,788) (8,427) 4,101
Prepaid expenses and other current assets ......... 1,635 (16,425) (3,920)
Accounts payable and accrued liabilities .......... (9,814) 44,443 2,362
Other, net ........................................... (651) (3,725) 1,211
--------- --------- ---------
Net cash provided by (used in) operating activities .. 119,523 (44,073) 144,428
--------- --------- ---------
Investing Activities:
Investment in co-venture parks ....................... (18,459) (6,374) --
Purchase of property and equipment ................... (52,943) (25,335) (25,815)
Receipt from sale of land and property ............... 2,000 -- --
Purchase of co-venture partnership units ............. (62,678) (117,984) --
Sale of interest in co-venture partnership units ..... -- -- 46,000
Purchase of restricted use investments ............... -- -- (176,028)
Prepayment of co-venture obligations ................. -- (13,866) --
--------- --------- ---------
Net cash used in investing activities ................ (132,080) (163,559) (155,843)
--------- --------- ---------
Financing Activities:
Net proceeds from revolving line of credit ........... 39,415 75,000 --
Proceeds (repayment) of bank debt .................... (39,000) 165,000 (588,500)
Proceeds (repayment) of other debt ................... 19,507 (30,503) --
Advances on credit facility .......................... -- -- 410,000
Proceeds from issuance of notes payable .............. -- -- 170,000
Payment of debt issuance costs ....................... -- -- (13,212)
Capital contribution ................................. -- -- 175,751
--------- --------- ---------
Net cash provided by financing activities ............ 19,922 209,497 154,039
--------- --------- ---------
Increase in cash and cash equivalents ................ 7,365 1,865 142,624
Cash and cash equivalents at beginning of period ..... 45,587 16,805 18,670
--------- --------- ---------
Cash and cash equivalents at end of period ........... $ 52,952 $ 18,670 $ 161,294
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General -- Basis of Presentation
Six Flags Entertainment Corporation ("SFEC," and together with its
subsidiaries, the "Company" or "Six Flags") owns 100% of the Common Stock of
S.F. Holdings, Inc. ("SF Holdings") which owns 100% of the Common Stock of Six
Flags Theme Parks Inc. ("SFTP").
Prior to April 1, 1998, Six Flags operated twelve "Six Flags" branded
theme parks in eight locations throughout the United States. At September 27,
1998, 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), Six Flags
AstroWorld and Six Flags Waterworld (Houston), Six Flags St. Louis (St. Louis)
and Six Flags Hurricane Harbor (Dallas-Ft. Worth) were owned by Six Flags. Six
Flags Fiesta Texas located in San Antonio, Texas was leased by a limited
partnership of which a subsidiary of Six Flags is a general partner and manages
the park. On October 30, 1998, Six Flags purchased the minority interest in the
limited partnership and title to the park. Two parks -- Six Flags Over Texas
(Dallas-Ft. Worth) and Six Flags Over Georgia (Atlanta) (the "Co-Venture Parks")
- -- are owned by limited partnerships of which the managing general partner was
(prior to April 1, 1998) a wholly-owned subsidiary of Six Flags. 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
Premier. See Note 2.
In connection with the Acquisition, SFEC, Premier and Premier Parks
Operations Inc., also a direct subsidiary of Premier that owns or controls 19
parks ("PPO"), entered into a shared services agreement pursuant to which
certain corporate, administrative and other general services provided by Premier
are charged to SFEC and PPO, either on the basis of their respective revenues or
on other reasonable bases. Allocation of these charges are reflected in the
accompanying financial statements for periods subsequent to April 1, 1998.
The accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes for the
period ended December 28, 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 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.
Comprehensive Income
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
6
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
financial statements. The Company currently does not have any components of
comprehensive income that are not included in net income.
Basis of Presentation
As discussed above, Premier purchased SFEC on April 1, 1998. In accordance
with Staff Accounting Bulletin No. 54 ("SAB No. 54"), SFEC has recognized the
"pushdown" of the SFEC purchase price recognized by Premier. According to the
provisions of SAB No. 54, purchase transactions that result in an entity
becoming substantially wholly owned establish a new basis of accounting for the
purchased assets and liabilities. According to SAB No. 54, when the form of
ownership is within the control of the parent, the basis of accounting for
purchased assets and liabilities should be the same regardless of whether the
entity continues to exist or is merged into the parent's operations. Therefore,
Premier's cost of acquiring SFEC was pushed down, i.e., used to establish a
new accounting basis in SFEC's separate financial statements. As a result of the
purchase and the conforming of SFEC's accounting methods to be consistent with
those of Premier, SFEC recorded the following purchase price adjustments
(amounts in thousands):
Increase
(decrease)
----------
Current assets $ (27,008)
Property and equipment 329,579
Intangible assets 938,360
Deferred charges (19,144)
Deposits and other assets (16,366)
Accrued liabilities 22,800
Long-term debt 51,591
Deferred income taxes 93,644
Stockholders' equity 1,037,386
The financial statements of SFEC prior to April 1, 1998 reflect the
accounting basis and principles used by SFEC prior to its acquisition by
Premier. The financial statements of SFEC subsequent to April 1, 1998 reflect
the accounting basis and principles used by SFEC subsequent to its acquisition
by Premier. The vertical line that separates SFEC into the pre-Acquisition
period and post- Acquisition period emphasizes that the new basis of accounting
used by SFEC after the purchase by Premier is not comparable to the basis of
accounting used by SFEC prior to the purchase by Premier.
Additionally, the accompanying notes to SFEC's financial statements
disclose: (1) the relationship between Premier and SFEC; (2) that SFEC does not
guarantee any of Premier's debt, nor pledge assets or stock as security for
Premier's debt; and (3) that SFEC's ability to pay dividends is restricted by
its and its subsidiaries' debt indentures.
2. The Acquisition
On April 1, 1998, 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") from Time Warner Entertainment Company, L.P. and Boston
Ventures Management, Inc. and others for approximately $976.0 million, paid in
cash. In addition, Premier repaid, assumed or refinanced approximately $1.0
7
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
billion of Company debt (including approximately $285.0 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 approximately $161.1
accreted value at December 28, 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 $472.0 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")). See Note 3. The proceeds of the SFEC Notes,
together with other cash, were 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, 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 the
Co-Venture Parks. Also in connection with the Acquisition, Premier and Warner
Bros. Consumer Products Division entered into a long-term licensing agreement
that gives Premier (and its subsidiaries, Six Flags and PPO) the exclusive theme
park usage 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.
The following results reflect the pro forma effects for the relevant
nine-month periods of 1997 and 1998 as if the Acquisition and the transfer and
sale of the interests of the Company in the Co-Venture Parks had occurred on
December 30, 1996 (the first day of SFEC's 1997 fiscal year):
1998 1997
----- ----
(In Thousands)
Revenues.................................. $ 473,111 $ 489,247
Net income................................ 15,776 27,702
3. Long-Term Indebtedness
(a) 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 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 the Old SFEC Notes (with a
carrying value of $180.9 million at September 27, 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.
(b) The SFTP Notes are senior subordinated obligations of SFTP in an
aggregate principal amount of $285.0 million. The SFTP Notes require interest
payments of approximately $34.9 million per annum (12 1/4% 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 Notes are
guaranteed on a senior subordinated basis by the principal operating
subsidiaries of SFTP. The SFTP 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
8
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of the SFTP 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 Notes and will result in an
effective interest rate of approximately 9 3/4%.
The indenture under which the SFTP 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.
(c) On April 1, 1998, SFTP entered into the Six Flags Credit Facility,
pursuant to which it had outstanding $410.0 million at September 27, 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 27, 1998); and (ii) a $372.0 million term
loan facility (the "Term Loan Facility") which was fully drawn on September 27,
1998. Borrowings under the Term Loan Facility will mature on November 30, 2004.
However, aggregate principal payment and reductions of $1.0 million are required
during each of the first, second, third and fourth year; aggregate principal
payments of $25.0 million and $40.0 million are required in years five and six,
respectively, and $303.0 million (or such lesser amount as may then be
outstanding) 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.
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.
9
<PAGE>
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
General
Prior to the Acquisition, the Company was the general partner in the
limited partnerships that owned the Co-Venture Parks. For the historical periods
prior to that date, the Company accounted for the Co-Venture Parks as
co-ventures, i.e., their revenues and expenses (excluding partnership
depreciation) were included in the Company's consolidated statements of
operations and the net amounts distributed to the limited partners were deducted
as expenses. The investment in the Co-Venture Parks included in the Company's
December 28, 1997 historical consolidated balance sheet 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 partnership
agreements, and (ii) the cost of limited partnership units purchased pursuant to
the tender offers 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, the SFTP Notes and borrowings under the Six
Flags Credit Facility) and the Company has no continuing interest in the
revenues or cash flows of the Co-Venture Parks. However, the Company is a
guarantor of certain obligations to the limited partners of the Co-Venture
Parks. Historical results of the Company include the results of the Co-Venture
Parks which were transferred to Premier as part of the Acquisition for the first
three months of 1998 and for each of the 1997 periods.
Results of operations for the aggregate nine-month period ended September
27, 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.
Aggregate nine-month period ended September 27, 1998 vs. Nine months ended
September 28, 1997
The table below sets forth certain pro forma financial information with
respect to the Company for the first nine months of 1997 and the aggregate
nine-month period ended September 27, 1998. The pro forma adjustments to the
first nine months of 1997 reflect only (i) the transfer of the Company's
interests in the Co-Venture Parks and (ii) changes in certain accounting
policies to match those followed by Premier, including the elimination of the
deferral of off-season expenses and an intra-period change in the recognition of
season pass revenue, in each case as if the Acquisition had occurred on December
30, 1996. The pro forma adjustments to the aggregate nine-month period ended
September 27, 1998 reflect the two adjustments described above along with (i)
the elimination of deferred compensation expense arising out of the exercise of
stock options in connection with the Acquisition and (ii) reductions in
park-level operating expenses and selling, general and administrative expenses,
in each case as if the Acquisition had occurred on December 29, 1997.
10
<PAGE>
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
<TABLE>
<CAPTION>
Nine Months Ended September 27, 1998
-----------------------------------------------------------------------------------
Post-Acquisition Pre-Acquisition
180-Day Period 93-Day Period
Ended Ended Co-Venture Pro forma Company
September 27, 1998 March 31, 1998 Adjustments Adjustments Pro forma
------------------ -------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Theme park admissions ......... $ 233,934 $ 12,680 $ (3,915) $ 6,282 $ 248,981
Theme park food, merchandise
and other ................... 215,774 11,591 (3,235) -- 224,130
--------- -------- -------- -------- ---------
Total revenue ................. 449,708 24,271 (7,150) 6,282 473,111
Operating costs and expense:
Operating expenses ............ 135,797 85,307 (27,875) (21,750) 171,479
Selling, general and
administrative .............. 50,796 57,853 (2,859) (44,147) 61,643
Costs of products sold ........ 63,366 3,750 (988) -- 66,128
Depreciation and
amortization ................ 44,315 18,022 (393) 4,797 66,741
Off season expense deferral.... -- (86,196) -- 86,196 --
--------- -------- -------- -------- ---------
Total operating costs
and expenses ................ 294,274 78,736 (32,115) 25,096 365,991
Income from operations ........ 155,434 (54,465) 24,965 (18,814) 107,120
Other income (expense):
Interest expense, net ......... (38,306) (21,902) 640 82 (59,486)
Minority interest in
earnings .................... (116) -- -- -- (116)
Gain on disposal of assets .... -- 5,411 -- (5,411) --
--------- -------- -------- -------- ---------
Total other income
(expense) ................... (38,422) (16,491) 640 (5,329) (59,602)
Income (loss) before taxes .... 117,012 (70,956) 25,605 (24,143) 47,518
Income tax benefit (expense) ..... (53,499) 27,792 (10,242) 4,197 (31,752)
--------- -------- -------- -------- ---------
Net income (loss) ............. $ 63,513 $(43,164) $ 15,363 $(19,946) $ 15,766
========= ======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 28, 1997
-------------------------------------------------------
Pre-Acquisition
Nine Months
Ended Co-Venture Pro forma Company
September 28, 1997 Adjustments Adjustments Pro forma
------------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Theme park admissions.......... $ 334,321 $ (68,990) $ 4,410 $ 269,741
Theme park food, merchandise
and other.................... 309,431 (89,925) -- 219,506
--------- --------- -------- ---------
Total revenue.................. 643,752 (158,915) 4,410 489,247
Operating costs and expense:
Operating expenses............. 283,893 (81,228) -- 202,665
Selling, general and
administrative .............. 89,493 (15,608) -- 73,885
Costs of products sold......... 93,032 (21,834) -- 71,198
Depreciation and
amortization................. 62,520 (10,298) -- 52,222
Off season expense deferral.... 57,631 -- (57,631) --
--------- --------- -------- ---------
Total operating costs
and expenses ................ 586,569 (128,968) (57,631) 399,970
Income from operations......... 57,183 (29,947) 62,041 89,277
Other income (expense):
Interest expense, net.......... (63,206) 1,672 -- (61,534)
Minority interest in
earnings..................... (792) -- -- (792)
Gain on disposal of assets..... -- -- -- --
--------- --------- -------- ---------
Total other income (expense)... (63,998) 1,672 -- (62,326)
Income (loss) before taxes..... (6,815) (28,275) 62,041 26,951
Income tax benefit (expense)...... 201 11,310 (24,816) (13,305)
--------- --------- -------- ---------
Net income (loss).............. $ (6,614) $ (16,965) $ 37,225 $ 13,646
========= ========= ======== =========
</TABLE>
11
<PAGE>
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Adjusted revenues aggregated $473.1 million for the nine-month period of
1998 compared to $643.7 million (actual) and $489.2 million (adjusted) for the
nine months of 1997. The 3.3% decrease in revenues compared to 1997 adjusted
revenues resulted from an approximate 7.4% decline in attendance in the 1998
period, which was partially offset by higher spending per guest in that period.
Adjusted operating expenses for the nine-month period of 1998 declined
$112.4 million and $31.2 million respectively, compared to the actual and
adjusted amounts for the nine months of 1997. The 15.4% decline compared to
adjusted operating expenses for 1997 resulted from lower compensation, outside
services and repair and maintenance expenses resulting from improved operating
efficiencies achieved during the 1998 period.
Adjusted selling, general and administrative expenses for the 1998 period
declined $27.8 million and $12.2 million, respectively, compared to the actual
and adjusted levels for the nine months of 1997. The 16.6% decline compared to
the adjusted selling, general and administrative expenses in 1997 resulted
primarily from reduced corporate-level expenditures, including staffing, and, to
a lesser extent, lower advertising expense.
Adjusted costs of products sold declined $26.9 million and $5.1 million,
respectively, compared to the actual and adjusted amounts for the nine months of
1997. The 7.1% decrease compared to the adjusted amounts for the nine months of
1997 resulted primarily from lower sales volume.
Adjusted depreciation and amortization expense increased $4.2 million and
$14.5 million, respectively, compared to the actual and the adjusted amounts for
1997. The increase in depreciation and amortization expense resulted from the
increase in the carrying value of property and equipment and intangible assets
resulting from the purchase accounting used in conjunction with the Acquisition.
Interest expense, net for the 1998 period decreased $2.1 million compared to the
adjusted amount for the nine months of 1997. This decrease is primarily due to
the lower effective interest rate associated with the Company's debt subsequent
to the Acquisition.
Adjusted income tax expense was $31.8 million for the 1998 period as
compared to a tax benefit of $0.2 million (actual) and a tax expense of $13.3
(adjusted) for the 1997 period. The adjusted income tax benefit as a percentage
of income before income taxes for the 1998 period was 66.8% compared to 49.4%
(adjusted) for the 1997 period. The change was a function of the increase in
non-deductible intangible asset amortization associated with the Acquisition.
Approximately $12.3 million of non-deductible amortization will be recognized
each quarter. The Company's quarterly effective tax rate will vary from
period-to-period based upon the inherent seasonal nature of the theme park
business.
Three months ended September 27, 1998 vs. Three months ended
September 28, 1997
The table below sets forth certain pro forma financial information with
respect to the Company for the third quarter of 1997 and the three months ended
September 27, 1998. The pro forma adjustments to the third quarter of 1997
reflect only (i) the transfer of the Company's interests in the Co-Venture Parks
and (ii) changes in certain accounting policies to match those followed by
Premier, including the elimination of the deferral of off-season expenses and an
intra-period change in the recognition of season pass revenue, in each case as
if the acquisition had occurred on December 30, 1996. The pro forma adjustments
to the three months ended September 27, 1998 reflect reductions in park-level
operating expenses and selling, general and administrative expenses as if the
Acquisition had occurred on December 29, 1997.
12
<PAGE>
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
<TABLE>
<CAPTION>
Three Months Ended September 27, 1998
---------------------------------------------------------
Post-Acquisition
Three Months Ended Co-Venture Pro forma Company
September 27, 1998 Adjustments Adjustments Pro forma
------------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Theme park admissions............. $ 121,424 $ -- $ -- $ 121,424
Theme park food, merchandise and
other .......................... 127,797 -- -- 127,797
--------- ------- ------- ---------
Total revenue..................... 249,221 -- -- 249,221
Operating costs and expense:
Operating expenses................ 69,362 -- (5,494) 63,868
Selling, general and
administrative ................. 21,461 -- (4,256) 17,205
Costs of products sold............ 36,411 -- -- 36,411
Depreciation and amortization..... 22,801 -- -- 22,801
Off season expense deferral....... -- -- -- --
--------- ------- ------- ---------
Total operating costs and
expenses ....................... 150,035 -- (9,750) 140,285
Income from operations............ 99,186 -- 9,750 108,936
Other income (expense):
Interest expense, net............. (17,125) -- -- (17,125)
Minority interest in earnings..... (116) -- -- (116)
Gain on disposal of assets........ -- -- -- --
--------- ------- ------- ---------
Total other income (expense)...... (17,241) -- -- (17,241)
Income before taxes............... 81,945 -- 9,750 91,695
Income tax benefit (expense)......... (35,525) -- (4,986) (40,511)
--------- ------- ------- ---------
Net income ....................... $ 46,420 $ -- $ 4,764 $ 51,184
========= ======= ======= =========
<CAPTION>
Three Months Ended September 28, 1997
---------------------------------------------------------------
Pre-Acquisition
Three Months Ended Co-Venture Pro forma Company
September 28, 1997 Adjustments Adjustments Pro forma
------------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Theme park admissions............. $ 183,387 $ (27,718) $ (9,993) $ 146,676
Theme park food, merchandise
and other ...................... 162,686 (51,187) -- 111,499
--------- --------- -------- ---------
Total revenue..................... 346,073 (78,905) (9,993) 257,175
Operating costs and expense:
Operating expenses................ 111,120 (30,282) -- 80,838
Selling, general and
administrative ................. 27,406 (3,508) -- 23,898
Costs of products sold............ 50,000 (10,794) -- 39,206
Depreciation and amortization..... 20,736 (2,584) -- 18,152
Off season expense deferral....... 102,093 -- (102,093) --
--------- --------- -------- ---------
Total operating costs and expenses 311,355 (47,168) (102,093) 162,094
Income from operations............ 34,718 (31,737) 92,100 95,081
Other income (expense):
Interest expense, net............. (21,452) 670 -- (20,782)
Minority interest in earnings..... (792) -- -- (792)
Gain on disposal of assets........ -- -- -- --
--------- --------- -------- ---------
Total other income (expense)...... (22,244) 670 -- (21,574)
Income (loss) before taxes........ 12,474 (31,067) 92,100 73,507
Income tax benefit (expense)......... (5,928) 12,427 (36,840) (30,341)
--------- --------- -------- ---------
Net income (loss)................. $ 6,546 $ (18,640) $ 55,260 $ 43,166
========= ========= ======== =========
</TABLE>
13
<PAGE>
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Revenues for the third quarter of 1998 totaled $249.2 million compared to
$346.1 million (actual) and $257.2 million (adjusted) for the third quarter of
1997. The 3.1% decrease in revenues compared to third quarter 1997 adjusted
revenues resulted from an approximate 4.7% decline in attendance in the 1998
period, partially offset by higher spending per guest in that period.
Adjusted operating expenses for the third quarter of 1998 declined $47.3
million and $17.0 million, respectively, compared to the actual and adjusted
expenses for the third quarter of 1997. The 21.0% decrease compared to the
adjusted expenses for 1997 resulted from improved operating efficiencies
achieved during the third quarter of 1998.
Adjusted selling, general and administrative expenses declined $10.2
million and $6.7 million, respectively, compared to the actual and adjusted
amounts for 1997. The 28.0% decline compared to the adjusted expenses for 1997
resulted primarily from lower corporate expenditures, including staffing, in the
1998 quarter.
Adjusted costs of products sold declined $13.6 million and $2.8 million,
respectively, compared to the actual and adjusted costs in 1997. The 7.1%
decrease compared to the adjusted 1997 costs resulted primarily from lower sales
volume.
Depreciation and amortization expense for the third quarter of 1998
increased $2.1 million and $4.6 million, respectively, compared to the actual
and adjusted expenses in the third quarter of 1997. The increase in depreciation
and amortization expense resulted from the increase in the carrying value of
property and equipment and intangible assets resulting from the purchase
accounting used in conjunction with the Acquisition. Interest expense for the
third quarter of 1998 decreased $3.7 million compared to the adjusted third
quarter of 1997. This decrease is primarily due to the lower effective interest
rate associated with the Company's debt subsequent to the Acquisition.
Adjusted income tax expense was $40.5 million for the 1998 period as
compared to $30.3 million for the 1997 adjusted period. The adjusted income tax
expense as a percentage of income before income taxes was 44.2% for the 1998
period as compared to 41.3% (adjusted) for the 1997 period. The change was a
function of the increase in non-deductible intangible asset amortization
associated with the Acquisition. Approximately $12.3 million of non-deductible
amortization will be recognized each quarter. As a result, the Company's
quarterly effective tax rate will vary from period-to-period based upon the
inherent seasonal nature of the theme park business.
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 earned 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.
At September 27, 1998, the Company's indebtedness (including $180.4
million carrying value of the Old SFEC Notes which will be repaid in full from
the proceeds of the SFEC Notes, together with other funds, which have been
deposited in a restricted-use investment in escrow) aggregated $1,083.5 million,
of which $1.5 million matures prior to September 27, 1999. See Note 3 to the
Company's Consolidated Financial Statements for additional information regarding
the Company's indebtedness.
14
<PAGE>
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
During the first nine months of 1998, the Company generated $100.4 million
in aggregate net operating cash. Aggregate net cash used in investing activities
in that period aggregated approximately $319.4 million, $138.2 million of which
represented amounts invested in the Co-Venture Parks, $176.0 million represented
the restricted-use investment relating to the Old SFEC Notes and $51.2 million
consisted of capital expenditures, offset by the cash proceeds from the transfer
of the Company's interests in the Co-Venture Parks to Premier. Aggregate net
cash provided by financing activities for the period aggregated $363.5 million,
representing proceeds from a capital contribution of $175.8 million combined
with proceeds from the Six Flags Credit Facility and SFEC Notes, offset in part
by repayments of indebtedness and debt issuance costs in connection with the
Acquisition.
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'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
reduce paid attendance and, therefore, revenue at any of its parks.
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.
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 27,
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 provisions of SFAS No. 133 as of January 1, 2000. If the provisions of
SFAS No. 133 were to be applied as of September 27, 1998, it would not have a
material effect on the Company's consolidated financial position as of such
date, or the results of operations for the nine-month period then ended.
15
<PAGE>
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
IMPACT OF YEAR 2000 ISSUE
The Company's Year 2000 Project (the "Project") is in process. The Project
is addressing the Year 2000 issue caused by computer programs being written
utilizing two digits rather than four to define an applicable year. As a result,
the Company's computer equipment, software and devices with embedded technology
that are time sensitive may misinterpret the actual date beginning on January 1,
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, but not limited to, a temporary inability
to process transactions.
The Company has undertaken various initiatives intended to ensure that its
computer equipment and software will function properly with respect to dates in
the Year 2000 and thereafter. In planning and developing the Project, the
Company has considered both its information technology ("IT") and its non-IT
systems. The term "computer equipment and software" includes systems that are
commonly thought of as IT systems, including accounting, data processing,
telephone systems, scanning equipment and other miscellaneous systems. Those
items not to be considered as IT technology include alarm systems, fax machines,
monitors for park operations or other miscellaneous systems. Both IT and non-IT
systems may contain embedded technology, which complicates the Company's Year
2000 identification, assessment, remediation and testing efforts. Based upon its
identification and assessment efforts to date, the Company is in the process of
replacing the computer equipment and upgrading the software it currently uses to
become Year 2000 compliant. In addition, in the ordinary course of replacing
computer equipment and software, the Company plans to obtain replacements that
are in compliance with Year 2000.
The Company has initiated correspondence with its significant vendors and
service providers to determine the extent such entities are vulnerable to Year
2000 issues and whether the products and services purchased from such entities
are Year 2000 compliant. The Company expects to receive a favorable response
from such third parties and it is anticipated that their significant Year 2000
issues will be addressed on a timely basis.
With regard to IT, non-IT systems and communications with third parties,
the Company anticipates that the Project will be completed in November 1999.
As noted above, the Company is in the process of replacing certain
computer equipment and software because of the Year 2000 issue. The Company
estimates that the total cost of such replacements will be no more than $1.0
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
16
<PAGE>
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
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.
17
<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.
18
<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: November 12, 1998
SIX FLAGS ENTERTAINMENT CORPORATION
-----------------------------------
(Registrant)
/s/ Kieran E. Burke
-----------------------------------
Kieran E. Burke
Chairman and Chief Executive Officer
/s/ James F. Dannhauser
-----------------------------------
James F. Dannhauser
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> SEP-27-1998
<CASH> 161,294
<SECURITIES> 0
<RECEIVABLES> 26,630
<ALLOWANCES> 0
<INVENTORY> 15,679
<CURRENT-ASSETS> 212,014
<PP&E> 858,107
<DEPRECIATION> 20,542
<TOTAL-ASSETS> 2,480,468
<CURRENT-LIABILITIES> 135,543
<BONDS> 1,081,967
0
0
<COMMON> 0
<OTHER-SE> 1,076,710
<TOTAL-LIABILITY-AND-EQUITY> 2,480,468
<SALES> 449,708
<TOTAL-REVENUES> 449,708
<CGS> 63,366
<TOTAL-COSTS> 63,366
<OTHER-EXPENSES> 180,112
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,306
<INCOME-PRETAX> 117,012
<INCOME-TAX> 53,499
<INCOME-CONTINUING> 63,513
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,513
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
