<PAGE>
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 June 28, 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
-----------
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 August 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.
<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, June 28,
1997 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $16,805 $75,010
Receivables, net............................................. 3,258 23,671
Receivable from affiliate.................................... 4,000 --
Inventories, net............................................. 14,338 22,933
Prepaid expenses and other current assets.................... 11,899 12,356
--------- --------
Total current assets................................ 50,300 133,970
Property and equipment, net........................................... 492,137 842,852
Investment in co-venture parks, net................................... 78,370 --
Deferred financing costs, net......................................... 20,171 12,685
Restricted-use investments............................................ -- 178,483
Deposits and other assets............................................. 26,784 30,255
Intangible assets..................................................... 196,928 1,211,098
--------- ---------
Total assets........................................ $ 864,690 $ 2,409,343
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................. $21,055 $50,573
Accrued liabilities.......................................... 43,390 92,230
Payable to affiliate......................................... -- 4,361
Current portion of long-term debt............................ 26,130 --
Short-term borrowings........................................ 30,503 --
-------- ---------
Total current liabilities........................... 121,078 147,164
Notes payable......................................................... 404,869 672,149
Credit facilities..................................................... 348,500 410,000
Other long-term liabilities........................................... 12,420 39,532
Deferred income taxes................................................. -- 111,619
Minority interest..................................................... 150 150
-------- ---------
Total liabilities..................................................... 887,017 1,380,614
Stockholders' equity (deficit):
Convertible preferred stock.................................. 100 --
Common stock................................................. -- --
</TABLE>
1
<PAGE>
<TABLE>
Item 1 -- Financial Statements (Continued)
<S> <C> <C>
Additional paid-in capital................................... 40,217 1,011,636
Retained earnings (accumulated deficit)...................... (59,867) 17,093
Unearned compensation reserved stock awards.................. (2,777) --
-------- ---------
Total stockholders' equity (deficit)................ (22,327) 1,028,729
-------- ---------
Total liabilities and stockholders' equity.......... $864,690 $2,409,343
-------- ---------
-------- ---------
</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 June 29, 1997, Two Day Period Ended March 31, 1998
and 89 Day Period Ended June 28, 1998
(Unaudited and In Thousands)
<TABLE>
<CAPTION>
Pre-Acquisition Pre-Acquisition Post-Acquisition
(Note 1) (Note 1) (Note 1)
Three Month Two Day 89 Day
Ended Period Ended Period Ended
June 29, 1997 March 31, 1998 June 28, 1998
------------- -------------- -------------
<S> <C> <C> <C>
Revenues:
Theme park admissions............................ $131,838 $ -- $112,510
Theme park food, merchandise and other........... 128,917 87,977
----------- --------- ----------
Total revenues................................... 260,755 -- 200,487
Operating costs and expenses:
Operating expenses............................... 100,485 13,834 66,435
Selling, general and administrative.............. 40,809 35,433 29,335
Costs of products sold........................... 37,569 192 26,955
Depreciation and amortization.................... 20,859 -- 21,514
Off season expense deferral...................... 40,311 -- --
----------- ---------- ---------
Total operating costs and expenses............... 240,033 49,459 144,239
Income (loss) from operations.................... 20,722 (49,459) 56,248
Other income (expense):
Interest expense, net............................ (21,368) -- (21,181)
Gain on disposal of assets....................... -- 5,411 --
-------- -------- --------
Total other income (expense)..................... (21,368) 5,411 (21,181)
Income (loss) before income taxes................ (646) (44,048) 35,067
Income tax (expense) benefit .................... (678) 17,619 (17,974)
---------- --------- --------
Net income (loss)................................ $ (1,324) $(26,429) $ 17,093
---------- --------- --------
---------- --------- --------
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
Item 1 -- Financial Statements (Continued)
SIX FLAGS ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 29, 1997, 93 Day Period Ended March 31, 1998
and 89 Day Period Ended June 28, 1998
(Unaudited and In Thousands)
<TABLE>
<CAPTION>
Pre-Acquisition Pre-Acquisition Post-Acquisition
(Note 1) (Note 1) (Note 1)
Six Month 93 Day 89 Day
Ended Period Ended Period Ended
June 29, 1997 March 31, 1998 June 28, 1998
------------- -------------- -------------
<S> <C> <C> <C>
Revenues:
Theme park admissions............................. $150,934 $12,680 $112,510
Theme park food, merchandise and other............ 146,745 11,591 87,977
----------- ---------- -----------
Total revenue..................................... 297,679 24,271 200,487
Operating costs and expenses:
Operating expenses................................ 172,773 85,307 66,435
Selling, general and administrative............... 62,087 57,853 29,335
Costs of products sold............................ 43,032 3,750 26,955
Depreciation and amortization..................... 41,784 18,022 21,514
Off season expense deferral....................... (44,462) (86,196) --
----------- ---------- -----------
Total operating costs and expenses................ 275,214 78,736 144,239
Income (loss) from operations..................... 22,465 (54,465) 56,248
Other income (expense):
Interest expense, net............................. (41,754) (21,902) (21,181)
Gain on disposal of assets........................ -- 5,411 --
--------- ------- -----
Total other income (expense)...................... (41,754) (16,491) (21,181)
Income (loss) before income taxes................. (19,289) (70,956) 35,067
Income tax (expense) benefit...................... 6,129 27,792 (17,974)
---------- --------- ---------
Net income (loss)................................. $ (13,160) $ (43,164) $ 17,093
---------- --------- ---------
---------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
Item 1 -- Financial Statements (Continued)
SIX FLAGS ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 29, 1997, 93 Day Period Ended March 31, 1998
and 89 Day Period Ended June 28, 1998
(Unaudited and In Thousands)
<TABLE>
<CAPTION>
Pre-Acquisition Pre-Acquisition Post-Acquisition
(Note 1) (Note 1) (Note 1)
Six Month Ended 93-Day Period Ended 89-Day Period Ended
June 29, 1997 March 31, 1998 June 28, 1998
--------------- ---------------- -------------
<S> <C> <C> <C>
Operating Activities:
Net income (loss)............................................ $(13,160) $(43,164) $ 17,093
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................ 41,784 18,022 21,514
Deferred income tax expense (benefit).................... -- -- 17,974
Non-cash interest expense................................ 23,598 12,959 8,064
Interest accretion on restricted use investment.......... -- -- (2,455)
Undistributed loss of co-venture parks................... -- 32,698 --
Off-season expense deferral.............................. (44,462) (86,196) --
Changes in current assets and liabilities:
Receivables.............................................. (22,794) 5,742 (22,345)
Inventories.............................................. (10,444) (8,427) (3,153)
Prepaid expenses and other current assets................ (8,356) (16,425) (3,742)
Accounts payable and accrued liabilities................. 40,544 44,443 21,152
Other, net................................................... (6,811) (3,725) (343)
------------ ------------ -----------
Net cash provided by (used in) operating activities.......... (101) (44,073) 53,759
------------ ------------ -----------
Investing Activities:
Investment in co-venture parks............................... 2,864 (6,374) --
Purchase of property and equipment........................... (46,071) (25,335) (21,520)
Receipt from sale of land and property....................... 1,500 -- --
Purchase of co-venture partnership units..................... (40,769) (117,984) --
Sale of 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........................ (82,476) (163,559) (151,548)
------------ ------------ -----------
Financing Activities:
Net proceeds from revolving line of credit................... 61,415 75,000 --
Proceeds (repayment) of bank debt............................ -- 165,000 (588,500)
Repayment of other debt...................................... -- (30,503) --
Advances on credit facility.................................. -- -- 410,000
Proceeds from issuance of notes payable...................... -- -- 170,000
Payment of debt issuance costs............................... -- -- (13,122)
Capital contribution......................................... -- -- 175,751
------------ ------------ -----------
Net cash provided by financing activities.................... 61,415 209,497 154,129
------------ ------------ -----------
Increase (decrease) in cash and cash equivalents............. (21,162) 1,865 56,340
Cash and cash equivalents at beginning of period............. 45,587 16,805 18,670
------------ ------------ -----------
Cash and cash equivalents at end of period................... $ 24,425 $ 18,670 $ 75,010
------------ ------------ -----------
------------ ------------ -----------
</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. 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), 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)
(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 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 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, while substantial operating
and other expenses are incurred before those operations commence.
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 were "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):
<TABLE>
<CAPTION>
Increase
(decrease)
----------
<S> <C>
Current assets $ (25,357)
Property and equipment 329,579
Intangible assets 927,071
Deferred charges (19,144)
Deposits and other assets (13,866)
Accrued liabilities 17,223
Long-term debt 51,591
Deferred income taxes 93,644
Stockholders' equity 1,035,825
</TABLE>
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 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 billion
7
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 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 $472.0 million credit
facility of Six Flags (the "Six Flags Credit Facility") and $170.0 million of
87/8% 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
six-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):
<TABLE>
<CAPTION>
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Revenues........................... $223,890 $232,072
Net loss........................... (36,671) (21,995)
</TABLE>
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 $178.2 million at June 28, 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 1/2% 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 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 December 15, 1998, at varying redemption
prices. As a result of the application of purchase accounting, the carrying
value 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%.
8
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 June 28, 1998. The Six Flags
Credit Facility includes (i) a $100.00 million five-year revolving credit
facility to be used to refinance pre-existing six Flags bank indebtedness and
for working capital and other general corporate purposes (of which $38.0 million
was outstanding on June 28, 1998); and (ii)a $372.0 million term loan facility
(the "Term Loan Facility") which was fully drawn on June 28, 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 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 original 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 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 six-month period ended June 28, 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 form Memorial Day to Labor Day each year, while substantial operating
and other expenses are incurred before those operations commence.
Aggregate six month period ended June 28, 1998 vs. Six months ended June
29, 1997
The table below sets forth certain pro forma financial information with
respect to the Company for the first six months of 1997 and the aggregate six
month period ended June 28, 1998. The pro forma adjustments to the first six
months of 1997 reflect (i) the transfer of the Company's interests in the
Co-Venture Parks, (ii) changes in certain accounting policies to match those
followed by Premier, including the elimination of the deferral of off-season
expenses and a change in recognition of season pass revenue, and (iii) the
elimination of deferred compensation expense arising out of the exercise of
stock options in connection with the Acquisition, in each case as if the
Acquisition had occurred on December 30, 1996. The pro forma adjustments to
the aggregate six month period ended June 28, 1998 reflect the three
adjustments described above along with reductions in park-level operating
expenses and selling, general and administrative expenses 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>
Six Months Ended June 28, 1998
----------------------------------------------------------------------------
Post- Pre-
Acquisition Acquisition
89-Day Period Two Day Period
Ended Ended Co-Venture Pro forma Company
June 28, 1998 March 31, 1998 Adjustments Adjustments Pro forma
------------- -------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Theme park admissions ................ $ 112,510 $ 12,680 $ (3,915) $ 6,282 $ 127,557
Theme park food, merchandise and other 87,977 11,591 (3,235) -- 96,333
--------- --------- --------- --------- ---------
Total revenue ........................ 200,487 24,271 (7,150) 6,282 223,890
Operating costs and expense:
Operating expenses ................... 66,435 85,307 (30,123) (14,008) 107,611
Selling, general and administrative .. 29,335 57,853 (2,859) (39,891) 44,438
Costs of products sold ............... 26,955 3,750 (988) -- 29,717
Depreciation and amortization ........ 21,514 18,022 (393) 4,797 43,940
Off season expense deferral .......... -- (86,196) -- 86,196 --
--------- --------- --------- --------- ---------
Total operating costs and expenses ... 144,239 78,736 (34,363) 37,094 225,706
Income from operations ............... 56,248 (54,465) 27,213 (30,812) (1,816)
Other income (expense):
Interest expense, net ................ (21,181) (21,902) 640 82 (42,361)
Gain on disposal of assets ........... -- 5,411 -- (5,411) --
--------- --------- --------- --------- ---------
Total other income (expense) ......... (21,181) (16,491) 640 (5,329) (42,361)
Income (loss) before taxes ........... 35,067 (70,956) 27,853 (36,141) (44,177)
Income tax benefit (expense) ......... (17,974) 27,792 (11,141) 10,082 8,759
--------- --------- --------- --------- ---------
Net income (loss) .................... $ 17,093 $ (43,164) $ 16,712 $ (26,059) $ (35,418)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 29, 1997
---------------------------------------------------
Pre-Acquisition
Six Months
Ended Co-Venture Pro forma Company
June 29, 1997 Adjustments Adjustments Pro forma
------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Theme park admissions ................ $ 150,934 $ (41,272) $ 14,403 $ 124,065
Theme park food, merchandise and other 146,745 (38,738) -- 108,007
------- ------- --------- -------
Total revenue ........................ 297,679 (80,010) 14,403 232,072
Operating costs and expense:
Operating expenses ................... 172,773 (53,259) 2,313 121,827
Selling, general and administrative .. 62,087 (12,100) -- 49,987
Costs of products sold ............... 43,032 (11,040) -- 31,992
Depreciation and amortization ........ 41,784 (7,714) -- 34,070
Off season expense deferral .......... (44,462) -- 44,462 --
------- ------- --------- -------
Total operating costs and expenses ... 275,214 (84,113) 46,775 237,876
Income from operations ............... 22,465 4,103 (32,372) (5,804)
Other income (expense):
Interest expense, net ................ (41,754) 1,002 -- (40,752)
Gain on disposal of assets ........... -- -- -- --
--------- --------- --------- ---------
Total (loss) other income (expense) .. (41,754) 1,002 -- (40,752)
Income before taxes .................. (19,289) 5,105 (32,372) (46,556)
Income tax benefit (expense) ......... 6,129 (2,042) (12,949) 17,036
------- ------- --------- -------
Net income (loss) .................... $ (13,160) $ 3,063 $ (19,423) $ (29,520)
------- ------- --------- -------
------- ------- --------- -------
</TABLE>
11
<PAGE>
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Adjusted revenues aggregated $223.9 million for the six month period of
1998 compared to $297.7 million (actual) and $232.1 million (adjusted) for the
six months of 1997. The 3.5% decrease in revenues compared to 1997 adjusted
revenues resulted from an approximate 10% decline in attendance in the 1998
period, which was partially offset by higher season pass revenue in 1998,
primarily during the second quarter.
Adjusted operating expenses for the six-month period of 1998 declined
$65.2 million and $14.2 million respectively, compared to the actual and
adjusted amounts for the six months of 1997. The 11.7% 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 second quarter of 1998.
Adjusted selling, general and administrative expenses for the 1998 period
declined $17.6 million and $5.5 million, respectively, compared to the actual
and adjusted levels for the six months of 1997. The 11.1% decline compared to
the adjusted selling, selling and administrative expenses in 1997 resulted from
reduced advertising and corporate-level expenditures.
Adjusted costs of products sold declined $13.3 million and $2.3 million,
respectively, compared to the actual and adjusted amounts for the six months of
1997. The 7.1% decrease compared to the adjusted six months of 1997 resulted
primarily from lower sales volume.
Adjusted depreciation and amortization expense increased $2.2 million and
$9.9 million, respectively, compared to the actual and the adjusted amounts for
1997. Adjusted interest expense increased $0.6 million and $1.6 million compared
to the actual and adjusted expense for the six months of 1997. The increase in
depreciation and amortization expense and interest expense resulted from the
Acquisition and the related financings.
Adjusted income tax benefit was $8.8 million for the 1998 period as
compared to $6.1 million (actual) and $17.0 (adjusted) for the 1997 period.
The adjusted income tax benefit as a percentage of loss before income taxes
for the 1998 period was 19.6% compared to 36.8% (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.
Aggregate three month period ended June 28, 1998 vs. Three months ended
June 29, 1997
The table below sets forth certain pro forma financial information with
respect to the Company for the second quarter of 1997 and the aggregate three
month period ended June 28, 1998. The pro forma adjustments to the second
quarter of 1997 reflect (i) the transfer of the Company's interests in the
Co-Venture Parks, (ii) changes in certain accounting policies to match those
followed by Premier, including the elimination of the deferral of off-season
expenses and a change in recognition of season pass revenue, and (iii) the
elimination of deferred compensation expense arising out of the exercise of
stock options in connection with the Acquisition, in each case as if the
Acquisition had occurred on December 30, 1996. The pro forma adjustments to
the aggregate three month period ended June 28, 1998 reflect the three
adjustments described above along with 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 June 28, 1998
----------------------------------------------------------------------------
Post- Pre-
Acquisition Acquisition
89-Day Period Two Day Period
Ended Ended Co-Venture Pro forma Company
June 28, 1998 March 31, 1998 Adjustments Adjustments Pro forma
------------- -------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Theme park admissions $ 112,510 $ -- $ -- $ -- $ 112,510
Theme park food, merchandise and other 87,977 -- -- -- 87,977
--------- --------- --------- ---------
Total revenue 200,487 -- -- -- 200,487
Operating costs and expense:
Operating expenses 66,435 13,834 -- (11,919) 68,350
Selling, general and administrative 29,335 35,433 -- (35,433) 29,335
Costs of products sold 26,955 192 -- -- 27,147
Depreciation and amortization 21,514 -- -- -- 21,514
Off season expense deferral -- -- -- -- --
--------- --------- --------- ---------
Total operating costs and expenses 144,239 49,459 -- (47,352) 146,346
Income from operations 56,248 (49,459) -- 47,352 54,141
Other income (expense):
Interest expense, net (21,181) -- -- -- (21,181)
Gain on disposal of assets -- 5,411 -- (5,411) --
--------- --------- --------- ---------
Total other income (expense) (21,181) 5,411 -- (5,411) (21,181)
Income (loss) before taxes 35,067 (44,048) -- 41,941 32,960
Income tax benefit (expense) (17,974) 17,619 -- (16,776) (17,131)
--------- --------- --------- ---------
Net income (loss) $ 17,093 $ (26,429) -- $ 25,165 $ 15,829
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 29, 1997
---------------------------------------------------
Pre-Acquisition
Six Months
Ended Co-Venture Pro forma Company
June 29, 1997 Adjustments Adjustments Pro forma
------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Theme park admissions $ 131,838 $ (35,160) $ 10,859 $ 107,537
Theme park food, merchandise and other 128,917 (33,200) -- 95,717
--------- --------- --------- ---------
Total revenue 260,755 (68,360) 10,859 203,254
Operating costs and expense:
Operating expenses 100,485 (30,297) 2,313 72,501
Selling, general and administrative 40,809 (8,645) -- 32,164
Costs of products sold 37,569 (9,341) -- 28,228
Depreciation and amortization 20,859 (3,856) -- 17,003
Off season expense deferral 40,311 -- (40,318) --
--------- --------- --------- ---------
Total operating costs and expenses 240,033 (52,139) (37,998) 149,896
Income from operations 20,722 (16,221) 48,857 53,358
Other income (expense):
Interest expense, net (21,368) 584 -- (20,784)
Gain on disposal of assets -- -- -- --
--------- --------- --------- ---------
Total other income (expense) (21,368) 584 -- (20,784)
Income (loss) before taxes (646) (15,637) 48,857 32,574
Income tax benefit (expense) (678) 6,225 (19,543) (13,966)
--------- --------- --------- ---------
Net income (loss) $ (1,324) $ (9,382) $ 29,314 $ 18,608
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
13
<PAGE>
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Revenues for the second quarter of 1998 totaled $200.5 million compared to
$260.8 million (actual) and $203.3 million (adjusted) for the second quarter of
1997. The 1.4% decrease in revenues compared to second quarter 1997 adjusted
revenues resulted from an approximate 7.0% decline in attendance in the 1998
period, partially offset by higher season pass revenue in the second quarter of
1998.
Adjusted operating expenses for the second quarter of 1998 declined $32.1
million and $4.2 million, respectively, compared to the actual and adjusted
expenses for the second quarter of 1997. The 5.7% decrease compared to the
adjusted expenses for 1997 resulted from improved operating efficiencies
achieved during the second quarter of 1998.
Adjusted selling, general and administrative expenses declined $11.5
million and $2.8 million, respectively, compared to the actual and adjusted
amounts for 1997. The 8.8% decline compared to the adjusted expenses for 1997
resulted primarily from lower corporate expenditures in the 1998 quarter.
Adjusted costs of products sold declined $10.4 million and $1.1 million,
respectively, compared to the actual and adjusted costs in 1997. The 3.8%
decrease compared to the adjusted 1997 costs resulted primarily from lower sales
volume.
Depreciation and amortization expense for the second quarter of 1998
increased $0.6 million and $4.5 million, respectively, compared to the actual
and adjusted expenses in the second quarter of 1997. Interest expense for the
second quarter of 1998 increased $0.4 million compared to the adjusted second
quarter of 1997. These increases all relate to the Acquisition and the related
financings.
Adjusted income tax expense was $17.1 million for the 1998 period as
compared to $14.0 million for the 1997 adjusted period. The adjusted income
tax expense as a percentage of income before income taxes was 51.8% for the
1998 period as compared to 42.9% (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 June 28, 1998, the Company's indebtedness (including $178.2 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 $1,082.1 million, none of
which matures prior to June 28, 1999. See Note 3 to the Company's Consolidated
Financial Statements for additional information regarding the Company's
indebtedness.
During the first six months of 1998, the Company generated $9.7 million
in aggregate net operating cash. Aggregate net cash used in investing
activities in that period aggregated approximately $315.1 million, $124.4
million of which represented amounts invested in the Co-Venture Parks, $176.1
million represented the restricted-
14
<PAGE>
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
use investment relating to the Old SFEC Notes and $46.9 million consisted of
capital expenditures, offset by the cash proceeds from the transfer of the
Company's interests in the Co-Venture Parks. Aggregate net cash provided by
financing activities for the period aggregated $363.6 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.
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.
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
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 provisions of SFAS No. 133 as of
January 1, 2000. If the provisions of SFAS No. 133 were to be applied as of
June 28, 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 six-month period then ended.
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 the past practice 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
15
<PAGE>
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
arithmetic operations, comparisons or data field sorting involving years later
than 1999. The Company has not completed plans to ensure year 2000 compliance.
The Company anticipates that it will be able to test its entire system using its
internal programming staff and outside computer consultants and intends to make
any necessary modifications to prevent disruption to its operations. Costs in
connection with any such modifications are not expected to be material. However,
if such modifications are not completed in a timely manner, the Year 2000
problem may have a material adverse impact on the operations of the Company.
Item 3.
Not applicable.
16
<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.
17
<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: August 21, 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
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> JUN-28-1998
<CASH> 75,010
<SECURITIES> 0
<RECEIVABLES> 23,671
<ALLOWANCES> 0
<INVENTORY> 22,933
<CURRENT-ASSETS> 133,970
<PP&E> 851,848
<DEPRECIATION> 8,996
<TOTAL-ASSETS> 2,409,343
<CURRENT-LIABILITIES> 147,164
<BONDS> 1,082,149
0
0
<COMMON> 0
<OTHER-SE> 1,028,729
<TOTAL-LIABILITY-AND-EQUITY> 2,409,343
<SALES> 200,487
<TOTAL-REVENUES> 200,487
<CGS> 26,955
<TOTAL-COSTS> 26,955
<OTHER-EXPENSES> 93,862
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,181
<INCOME-PRETAX> 35,067
<INCOME-TAX> 17,974
<INCOME-CONTINUING> 17,093
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,093
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
