<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED APRIL 4, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO
------------ ------------
Commission File Number: 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 May 7, 1999, Six Flags Entertainment Corporation had outstanding
1,000 shares of Common Stock.
This 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.
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<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
SIX FLAGS ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 4, 1999 January 3, 1999
------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................. $24,679,000 $46,112,000
Accounts receivable ........................................................ 3,728,000 10,399,000
Inventories ................................................................ 21,937,000 13,685,000
Prepaid expenses and other current assets .................................. 9,405,000 5,981,000
Restricted-use investment securities ....................................... 185,844,000 183,342,000
------------- -------------
Total current assets ..................................................... 245,593,000 259,519,000
Other assets:
Debt issuance costs ........................................................ 12,023,000 12,346,000
Deposits and other assets .................................................. 50,972,000 51,284,000
------------- -------------
Total other assets ....................................................... 62,995,000 63,630,000
Property and equipment ...................................................... 986,099,000 928,420,000
Less accumulated depreciation .............................................. 47,972,000 35,507,000
------------- -------------
Total property and equipment ............................................. 938,127,000 892,913,000
Intangible assets ........................................................... 1,197,555,000 1,197,855,000
Less accumulated amortization .............................................. 47,903,000 36,914,000
------------- -------------
Total intangible assets .................................................. 1,149,652,000 1,160,941,000
------------- -------------
Total assets ............................................................. $2,396,367,000 $2,377,003,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements
-2-
<PAGE>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 4, 1999 January 3, 1999
------------- -------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................ $31,533,000 $12,664,000
Accrued interest payable.................................................... 12,935,000 13,547,000
Payable to affiliate........................................................ 26,832,000 -
Other accrued liabilities................................................... 60,969,000 59,389,000
Current maturities of long-term debt........................................ 186,379,000 183,877,000
Current portion of capitalized lease obligations............................ 493,000 493,000
------------- -------------
Total current liabilities.................................................. 319,141,000 269,970,000
Long-term debt and capitalized lease obligations:
Notes payable............................................................... 489,776,000 491,167,000
Credit facilities........................................................... 408,500,000 408,750,000
Capitalized lease obligations............................................... 557,000 557,000
------------- -------------
Total long-term debt and capitalized lease obligations..................... 898,833,000 900,474,000
Other long-term liabilities ................................................. 45,431,000 46,946,000
Deferred income taxes ....................................................... 78,637,000 99,333,000
------------- -------------
Total liabilities.......................................................... 1,342,042,000 1,316,723,000
Stockholder's equity:
Common stock................................................................ -- --
Additional paid-in-capital.................................................. 1,067,844,000 1,031,598,000
Retained earnings (accumulated deficit)..................................... (13,519,000) 28,682,000
------------- -------------
Total stockholder's equity................................................. 1,054,325,000 1,060,280,000
------------- -------------
Total liabilities and stockholder's equity................................. $2,396,367,000 $2,377,003,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements
-3-
<PAGE>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED APRIL 4, 1999 AND MARCH 29, 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenue:
Theme park admissions .................................................................. $25,160,000 $15,047,000
Theme park food, merchandise and other.................................................. 16,154,000 8,356,000
----------- -----------
Total revenue......................................................................... 41,314,000 23,403,000
----------- -----------
Operating costs and expenses:
Operating expenses..................................................................... 34,661,000 42,823,000
Selling, general and administrative.................................................... 23,323,000 19,561,000
Costs of products sold................................................................. 2,925,000 2,565,000
Depreciation and amortization.......................................................... 23,756,000 17,629,000
----------- -----------
Total operating costs and expenses.................................................... 84,665,000 82,578,000
----------- -----------
Loss from operations.................................................................. (43,351,000) (59,175,000)
----------- -----------
Other income (expense):
Interest expense ....................................................................... (22,216,000) (21,339,000)
Interest income ....................................................................... 2,670,000 77,000
Equity in operations of theme park partnerships ....................................... -- (13,152,000)
----------- -----------
Total other income (expense).......................................................... (19,546,000) (34,414,000)
----------- -----------
Loss before income taxes.............................................................. (62,897,000) (93,589,000)
Income tax benefit ..................................................................... 20,696,000 --
----------- -----------
Net loss.............................................................................. (42,201,000) (93,589,000)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
-4-
<PAGE>
ITEM 1 -- FINANCIAL STATEMENTS (CONTINUED)
SIX FLAGS ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED APRIL 4, 1999 AND MARCH 29, 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net loss ........................................................................ $(42,201,000) $(93,589,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization .................................................. 23,756,000 17,629,000
Equity in operations of theme park partnerships ................................ -- 13,152,000
Interest accretion on notes payable, net of amortization
of fair market value adjustments .............................................. 1,111,000 11,932,000
Interest accretion on restricted-use investments ............................... (2,502,000) --
Amortization of debt issuance costs ............................................ 496,000 1,027,000
Deferred income taxes .......................................................... (20,696,000) --
Decrease in accounts receivable ................................................ 6,671,000 5,742,000
Increase in inventories and prepaid expenses ................................... (11,676,000) (24,852,000)
Decrease in deposits and other assets .......................................... 312,000 --
Increase in accounts payable and accrued expenses .............................. 18,932,000 17,458,000
Increase in payable to affiliate................................................ 26,832,000 --
Decrease in accrued interest payable ........................................... (612,000) (2,314,000)
Other .......................................................................... -- 18,000
----------- ------------
Total adjustments .............................................................. 42,624,000 54,958,000
----------- ------------
Net cash provided by operating activities ...................................... 423,000 (53,797,000)
----------- ------------
Cash flow from investing activities:
Additions to property and equipment ............................................... (57,679,000) (25,335,000)
Purchase of partnership parks limited partnership units ........................... -- (117,984,000)
Prepayment of SFOT partnership obligation ......................................... -- (13,866,000)
Investment in theme park partnerships ............................................. -- 3,350,000
----------- ------------
Net cash used in investing activities ............................................ (57,679,000) (153,835,000)
----------- ------------
Cash flow from financing activities:
Repayment of long-term debt ....................................................... (250,000) (30,503,000)
Capital contribution .............................................................. 36,246,000 --
Net proceeds from revolving line of credit ........................................ -- 67,000,000
Proceeds from senior credit agreement ............................................. -- 165,000,000
Payment of debt issuance costs .................................................... (173,000) --
----------- ------------
Net cash provided by financing activities ........................................ 35,823,000 201,497,000
----------- ------------
Decrease in cash and cash equivalents ............................................ (21,433,000) (6,135,000)
Cash and cash equivalents at beginning of period ................................... 46,112,000 16,805,000
----------- ------------
Cash and cash equivalents at end of period ......................................... $ 24,679,000 $10,670,000
----------- ------------
----------- ------------
</TABLE>
See accompanying 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. For all periods
presented, 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,
is 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 "Partnership 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 stock of SFEC (the "Acquisition"). At that time, Six Flags'
interests in the Partnership Parks were transferred to Premier. See Note 3.
Management's Discussion and Analysis of Financial Condition and Results
of Operations which follow these notes contains additional information on the
results of operations and the financial position of the Company. Those comments
should be read in conjunction with these notes. The Company's annual report on
Form 10-K for the year ended January 3, 1999 includes additional information
about the Company, its operations and its financial position, and should be
referred to in conjunction with this quarterly report on Form 10-Q. The
information furnished in this report reflects all adjustments (all of which are
normal and recurring) which are, in the opinion of management, necessary to
present a fair statement of the results for the periods presented.
Results of operations for the three-month period ended April 4, 1999
are not indicative of the results expected for the full year. In particular, the
Company's theme park operations contribute most of their annual revenue during
the period from Memorial Day to Labor Day each year. In addition, results for
the first quarter of 1999 and 1998 include season pass sales revenue based on
cash received for such sales.
As discussed above, Premier purchased SFEC on April 1, 1998. In
accordance with Securities and Exchange Commission Staff Accounting Bulletin No.
54 ("SAB No. 54"), SFEC has "pushed down" Premier's purchase price in revaluing
the assets and liabilities of SFEC. According to the provisions of SAB No. 54,
purchase transactions that result in an entity becoming substantially
wholly-owned require a new basis of accounting for the purchased assets and
liabilities. As a result of the purchase, SFEC recorded the following purchase
price adjustments as of April 1, 1998 (amounts in thousands):
-6-
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Increase (Decrease)
-------------------
<S> <C>
Current assets $(15,621)
Debt issuance costs (19,597)
Property and equipment 322,183
Intangible assets 1,006,606
Deposit and other assets 14,299
Accrued liabilities 26,599
Long-term debt 51,592
Deferred income taxes 64,820
Stockholder's equity 1,164,859
</TABLE>
The consolidated financial statements of SFEC for the period from December 29,
1997 to March 31, 1998 reflect the accounting basis used by SFEC prior to its
acquisition by Premier. The financial statements of SFEC subsequent to April 1,
1998 reflect the accounting basis for the purchased assets and liabilities used
by SFEC subsequent to its acquisition by Premier. The vertical line that
separates the SFEC consolidated financial statements 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.
RECLASSIFICATIONS
Certain items in the January 3, 1999 consolidated balance sheet have
been reclassified to conform to the April 4, 1999 presentation.
2. ACCOUNTING CHANGES
INVESTMENT IN THEME PARK PARTNERSHIPS
Prior to the Acquisition by Premier, Six Flags, through two
subsidiaries, was the general partner in the Partnerships Parks. Six Flags
accounted for the parks as co-ventures, I.E., the revenues and expenses
(excluding partnership depreciation) were included in Six Flags' consolidated
statements of operations and the net amounts distributed to the limited partners
were deducted as operating expenses. Except for the limited partnership units
purchased by Six Flags from unrelated limited partners, Six Flags had no rights
or title to the Partnership Parks' assets or to the proceeds from any sale of
the Partnership Parks' assets.
On April 1, 1998, Six Flags changed its method of accounting for the
Partnership Parks to the equity method of accounting as prescribed by
Accounting Principles Board Opinion 18 and related interpretations. The
change was applied retroactively to the beginning of Six Flags' 1998 fiscal
year, and accordingly, the consolidated statements of operations for the 1998
period reflects Six Flags' interests in the operations of the Partnership
Parks on the equity method. Six Flags' interests in the Partnership Parks
were transferred to Premier on April 1, 1998 and therefore, the consolidated
statement of operations for the 1999 period, does not include results of
Premier's ownership interests in the Partnership Parks. Six Flags changed its
accounting for the Partnership Parks to reflect in operations revenues and
costs and expenses of only those parks controlled by Six Flags through
majority ownership. This acccounting change had no cumulative effect on Six
Flags' accumulated deficit as of December 28, 1997.
-7-
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACCOUNTING FOR OFF-SEASON EXPENSES
On April 1, 1998, Six Flags changed its method of accounting for
off-season expenses related to park operations. Prior to the Acquisition by
Premier, Six Flags deferred interim period costs related to park operations and
charged such costs to interim periods based on estimated annual revenues,
substantially all of which were generated in the second and third quarters of
the year. No costs were deferred at the end of a fiscal year.
The change was applied retroactively to the beginning of Six Flags'
1998 fiscal year to conform with Premier's accounting policy for off-season
expenses. This accounting change had no cumulative effect on Six Flags'
accumulated deficit as of December 28, 1997. This accounting change had the
effect of increasing the net loss for the 1998 period by approximately
$76,854,000.
3. ACQUISITION OF SFEC
On April 1, 1998, Premier acquired all of the outstanding capital stock
of SFEC for $976,000,000, paid in cash. In addition, Premier repaid at closing,
assumed or refinanced approximately $1,032,717,000 of Company debt (including
approximately $285,000,000 in aggregate principal amount at maturity (carrying
value of $319,776,000 as of April 4, 1999) of Six Flags 12 1/4% Series A Senior
Subordinated Discount Notes due 2005 (the "SFTP Notes") and approximately
$164,703,000 accreted value at April 1, 1998 (carrying value of $185,379,000 as
of April 4, 1999) of SFEC Zero Coupon Notes (the "Old SFEC Notes")). Premier
funded the Acquisition with the proceeds of concurrent public offerings and bank
facilities (including a new $472,000,000 credit facility of Six Flags (the "Six
Flags Credit Facility") and $170,000,000 of 87/8% Senior Notes due 2006 of SFEC
(the "SFEC Notes")). See Note 4. The proceeds of the SFEC Notes, together with
cash contributed by Premier, were deposited in escrow and invested in
restricted-use investments to provide for the repayment in full at or prior to
maturity in December 1999 of the Old SFEC Notes. Pursuant to the Acquisition,
Six Flags transferred to Premier all of its interests in the limited
partnerships that own the Partnership Parks, for $46,000,000 in cash and
Premier's payment of $165,686,000 of SFEC debt. 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,
including Six Flags and Premier Parks Operations Inc.) the exclusive theme park
usage rights in the U.S. and Canada (excluding the Las Vegas, Nevada
metropolitan area) for all Warner Bros. and DC Comics animated and comic book
characters.
The following summarized unaudited pro forma results of operations for
the three months ended March 29, 1998, assume that the Acquisition, the transfer
and sale of the interests of Six Flags in the Partnership Parks and the related
financings occurred as of the beginning of that period.
<TABLE>
<S> <C>
Total revenues ........................................... $ 23,403,000
Net loss ................................................. $(86,705,000)
</TABLE>
4. 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 are
guaranteed on a fully subordinated basis by Premier. The SFEC Notes require
annual interest payments of approximately $15.1 million (8 7/8% per annum)
and, except in the event of a change of control of SFEC and certain other
circumstances, do not require any principal payments prior to their maturity
in 2006. The SFEC Notes are redeemable, at SFEC's option, in whole or in
part, at any time on or after April 1, 2002, at varying redemption prices.
The net proceeds of the SFEC Notes, together with other funds, were invested
in restricted-use
-8-
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
investment securities for the repayment in full on or before December 15, 1999
of the Old SFEC Notes (with a carrying value of $185.4 million at April 4,
1999).
The indenture under which the SFEC Notes were issued limits the ability
of SFEC and its subsidiaries to dispose of assets; incur additional indebtedness
or liens; pay dividends; engage in mergers or consolidations; and engage in
certain transactions with affiliates.
(b) The SFTP Senior Subordinated Notes are senior subordinated
obligations of SFTP in an aggregate principal amount of $285.0 million. The SFTP
Senior Subordinated Notes require interest payments of approximately $34.9
million per annum (12 1/4% per annum). The first interest payment was paid in
December 1998. Except in certain circumstances, no principal payments are
required prior to their maturity in 2005. The SFTP Senior Subordinated Notes are
guaranteed on a senior subordinated basis by the principal operating
subsidiaries of SFTP. The notes are redeemable, at SFTP's option, in whole or in
part, at any time on or after June 15, 2000, at varying redemption prices. As a
result of the application of purchase accounting, the carrying value of the SFTP
Senior Subordinated Notes was increased to $318.5 million, which was the
estimated fair value at the acquisition date of April 1, 1998. The premium that
resulted from the adjustment of the carrying value will be amortized as a
reduction to interest expense over the remaining term of the SFTP Senior
Subordinated Notes and will result in an effective interest rate of
approximately 9 3/4%.
The indenture under which the SFTP Senior Subordinated Notes were
issued limits the ability of SFTP and its subsidiaries to dispose of assets;
incur additional indebtedness or liens; pay dividends; engage in mergers or
consolidations; and engage in certain transactions with affiliates.
(c) On April 1, 1998, SFTP entered into the Six Flags Credit Facility,
pursuant to which it had outstanding $409.5 million at April 4, 1999. The Six
Flags Credit Facility includes (i) a $100.0 million five-year revolving credit
facility used to refinance Six Flags bank indebtedness as of April 1, 1998 and
for working capital and other general corporate purposes (of which $38.0 million
was outstanding on April 4, 1999); and (ii) a $372.0 million term loan facility
(the "Term Loan Facility"), of which $371.5 million was outstanding on April 4,
1999. Borrowings under the Term Loan Facility will mature on November 30, 2004.
However, aggregate principal payments and reductions of $1.0 million are
required during each of the first, second, third and fourth years; aggregate
principal payments of $25.0 million and $40.0 million are required in years five
and six, respectively, and $303.0 million at maturity. Borrowings under the Six
Flags Credit Facility are secured by substantially all of the assets of SFTP and
its subsidiaries and a pledge of the stock of SFTP, and are guaranteed by such
subsidiaries and SFEC.
The Six Flags Credit Facility contains restrictive covenants that,
among other things, limit the ability of SFTP and its subsidiaries to dispose of
assets; incur additional indebtedness or liens; pay dividends, except that
(subject to covenant compliance) dividends will be permitted to allow SFEC to
meet cash pay interest obligations with respect to the SFEC Notes; repurchase
stock; make investments; engage in mergers or consolidations and engage in
certain transactions with subsidiaries and affiliates. In addition, the Six
Flags Credit Facility requires that SFTP comply with certain specified financial
ratios and tests.
5. COMMITMENTS AND CONTINGENCIES
In December 1998, a final judgment of $197.3 million in compensatory
damages was entered against SFEC, SFTP, Six Flags Over Georgia, Inc. and Time
Warner Entertainment Company, L.P. ("TWE"), and a final judgment of $245,000,000
in punitive damages was entered against TWE and of
-9-
<PAGE>
SIX FLAGS ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$12,000,000 in punitive damages was entered against the referenced Six Flags
entities. TWE has appealed the judgments. The judgments arose out of a case
entitled SIX FLAGS OVER GEORGIA, INC. AND SIX FLAGS THEME PARKS, INC. V. SIX
FLAGS FUND, LTD., AND AVRAM SALKIN, AS TRUSTEE OF THE CLAIMS TRUST based on
certain disputed partnership affairs prior to the Acquisition at Six Flags Over
Georgia, including alleged breaches of fiduciary duty. The sellers in the
Acquisition, including Time Warner Inc., have agreed to indemnify the Company
against any and all liabilities arising out of this litigation.
The Company is party to various other legal actions arising in the
normal course of business. Matters that are probable of unfavorable outcome to
the Company and which can be reasonably estimated are accrued. Such accruals are
based on information known about the matters, the Company's estimates of the
outcomes of such matters and its experience in contesting, litigating and
settling similar matters.
None of the other actions are believed by management to involve amounts
that would be material to the Company's consolidated financial condition,
operations or liquidity after consideration of recorded accruals.
6. BUSINESS SEGMENTS
Both previous and current management managed the Company's operations
on an individual park location basis. Discrete financial information is
maintained for each park and provided to the Company's management for review and
as a basis for decision-making. The primary performance measure used to allocate
resources is earnings before interest, tax expense, depreciation and
amortization ("EBITDA"). All of the Company's parks provide similar products and
services through a similar process to the same class of customer through a
consistent method. As such, the Company has only one reportable segment --
operation of theme parks. The following tables present segment financial
information, a reconciliation of the primary segment performance measure to loss
before income taxes and a reconciliation of theme park revenues to consolidated
total revenues. Park level expenses exclude all noncash operating expenses,
principally depreciation and amortization.
<TABLE>
<CAPTION>
Three Months Ended
April 4, 1999 March 29, 1998
------------------------ -----------------------
(In thousands)
<S> <C> <C>
Theme park revenue ..................................... $ 41,314 $ 33,571
Theme park cash expenses ............................... 57,305 80,043
------------------------ -----------------------
Aggregate park EBITDA .................................. (15,991) (46,472)
Amortization of investment in theme park
partnerships......................................... -- (819)
Unallocated net expenses, including
corporate and other expenses ........................ (3,604) (7,407)
Depreciation and amortization .......................... (23,756) (17,629)
Interest expense ....................................... (22,216) (21,339)
Interest income ........................................ 2,670 77
------------------------ -----------------------
Loss before income taxes ............................... $(62,897) $(93,589)
------------------------ -----------------------
------------------------ -----------------------
Theme park revenue ..................................... $ 41,314 $ 33,571
Theme park revenue from parks accounted
for under the equity method ......................... -- (10,168)
------------------------ -----------------------
Consolidated total revenue $41,314 $23,403
------------------------ -----------------------
------------------------ -----------------------
</TABLE>
-10-
<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 Partnership Parks. For the historical
periods prior to the Acquisition, the Company accounted for the Partnership
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.
In connection with the Acquisition, the Company transferred its
interests in the Partnership 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 Partnership Parks. However, the Company is
a guarantor of certain obligations to the limited partners of the Partnership
Parks. Historical results for the first quarter of 1998 of the Company include
the results of the Partnership Parks which were transferred to Premier as part
of the Acquisition.
Results of operations for the three-month period ended April 4, 1999
are not indicative of the results expected for the full year. In particular, the
Company's theme park operations contribute most of their annual revenue during
the period from Memorial Day to Labor Day each year. In addition, results for
the first quarter of 1999 and 1998 include season pass sales revenue based on
cash received for such sales.
THREE MONTHS ENDED APRIL 4, 1999 VS. THREE MONTHS ENDED MARCH 29, 1998
The table below sets forth certain financial information with respect
to the Company for the three months ended April 4, 1999 and for the three months
ended March 29, 1998 and on a pro forma basis for such quarter with respect to
depreciation and amortization, interest expense, net and the transfer of the
Company's interest in the Partnership Parks as if the Acquisition had occurred
on the first day of 1998:
<TABLE>
<CAPTION>
Three Months Ended March 29, 1998
--------------------------------------------------------------
Three Months Pro Company
Ended Historical Forma Pro
April 4, 1999 Six Flags Adjustments Forma
----------------------- ------------------ ------------------- -----------------
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Theme park admissions ................. $25,160 15,047 -- 15,047
Theme park food,
merchandise and other .............. 16,154 8,356 -- 8,356
----------------------- ------------------ ------------------- -----------------
Total revenue ...................... $41,314 23,403 -- 23,403
----------------------- ------------------ ------------------- -----------------
</TABLE>
-11-
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C>
Operating costs and expenses:
Operating expenses ................... $ 34,661 42,823 -- 42,823
Selling, general and
administrative....................... 23,323 19,561 -- 19,561
Costs of products sold ............... 2,925 2,565 -- 2,565
Depreciation and amortization ........ 23,756 17,629 6,058(1) 23,687
----------------------- ------------------ ------------------- -----------------
Total operating costs
and expenses......................... 84,665 82,578 6,058 88,636
----------------------- ------------------ ------------------- -----------------
Loss from operations................... (43,351) (59,175) (6,058) (65,233)
----------------------- ------------------ ------------------- -----------------
Other income (expense):
Interest expense, net ................ (19,546) (21,262) (210)(2) (21,472)
Equity in operations of
theme park partnerships.............. -- (13,152) 13,152(3) --
----------------------- ------------------ ------------------- -----------------
Total other income (expense) .......... (19,546) (34,414) 12,942 (21,472)
Loss before income taxes............... (62,897) (93,589) 6,884 (86,705)
Income tax benefit .................... 20,696 -- -- --
----------------------- ------------------ ------------------- -----------------
Net loss .............................. $(42,201) (93,589) 6,884 (86,705)
----------------------- ------------------ ------------------- -----------------
----------------------- ------------------ ------------------- -----------------
EBITDA(4) ............................. $(19,595) (41,546) -- (41,546)
----------------------- ------------------ ------------------- -----------------
----------------------- ------------------ ------------------- -----------------
</TABLE>
- ---------------
(1) Includes adjustments to eliminate the historical depreciation and
amortization and the inclusion of estimated pro forma depreciation and
amortization for the three months ended March 29, 1998.
(2) Includes adjustments to reflect additional interest expense associated
with the SFEC Notes and the Six Flags Credit Facility net of (a) the
elimination of the historical interest expense associated with the Six
Flags credit facilities previously outstanding and (b) the amortization
of the fair market value adjustments on the SFTP Senior Subordinated
Notes and the SFEC Zero Coupon Notes recorded in connection with the
acquisition of Six Flags. Issuance costs associated with the borrowings
are being amortized over their respective periods.
(3) Includes adjustments to reflect the transfer of the Company's interest
in the Partnership Parks on April 1, 1998 in connection with the
Acquisition.
(4) EBITDA is defined as earnings before interest expense, net, income tax
expense (benefit), depreciation and amortization and minority interest.
The Company has included information concerning EBITDA because it is
used by certain investors as a measure of a company's ability to
service and/or incur debt. EBITDA is not required by generally accepted
accounting principles ("GAAP") and should not be considered in
isolation or as an alternative to net income, net cash provided by
operating, investing and financing activities or other financial data
prepared in accordance with GAAP or as an indicator of the Company's
operating performance. This information should be read in conjunction
with the Statements of Cash Flows contained in the Consolidated
Financial Statements.
-12-
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Revenue in the first quarter of 1999 totaled $41.3 million compared to
$23.4 million for the first quarter of 1998. The $17.9 million (76.5%) increase
in 1999 revenue compared to the first quarter of 1998 resulted primarily from
increased sponsorship income and increased season pass sales, as the Company
implemented new marketing plans.
Operating expenses for the first quarter of 1999 decreased $8.2 million
compared to expenses for the first quarter of 1998. The 19.1% decrease compared
to expenses for 1998 resulted primarily from operating efficiencies realized at
the Six Flags parks subsequent to their acquisition by Premier on April 1, 1998.
Selling, general and administrative expenses for the first quarter of
1999 increased $3.8 million, compared to expenses for the first quarter of 1998.
This increase compared to expenses for 1998 resulted from increased advertising
expense of approximately $9.3 million, partially offset by a decrease in other
selling, general and administrative expenses of $5.5 million. The increase in
advertising expenditures reflects a return to historical advertising levels and
timing of expenditures at the Six Flags parks. The $5.5 million decrease in
remaining selling, general and administrative expenses in the 1999 period
resulted from reduced corporate level expenditures, including staffing, related
to the closing of the former Six Flags corporate office subsequent to the April
1, 1998 acquisition.
Costs of products sold in the 1999 period increased $0.4 million
compared to expenses for the first quarter of 1998, resulting from higher sales
volume in the 1999 period.
Depreciation and amortization expense for the first quarter of 1999
increased $6.1 million and $0.1 million, respectively, compared to the actual
and pro forma amounts for the first quarter of 1998. Interest expense, net
decreased $1.7 million and $1.9 million, respectively, compared to the actual
and pro forma interest expense, net for the first quarter of 1998, primarily as
a result of lower effective interest rates subsequent to the Acquisition.
Equity in operations of theme park partnerships for the first
quarter of 1998 reflected the Company's share of the loss of Six Flags Over
Texas and Six Flags Over Georgia. The Company's ownership interests in Six
Flags Over Texas and Six Flags Over Georgia were transferred to Premier on
April 1, 1998, as part of the Acquisition.
Income tax benefit was $20.7 million for the first quarter of 1999. The
effective tax rate for the first quarter of 1999 was 32.9%. The Company's
quarterly effective tax rate will vary from period-to-period based upon the
inherent seasonal nature of the theme park business, as a result of permanent
differences associated with goodwill amortization for financial purposes and the
deductible portion of the amortization for tax purposes. Prior to the
Acquisition the recoverability of deferred tax assets, including net
operating loss carry-forwards, was assessed as not probable. Thus, no income
tax benefit was recognized in the first quarter of 1998.
LIQUIDITY, CAPITAL COMMITMENTS AND RESOURCES
At April 4, 1999, the Company's indebtedness (including $185.4 million
carrying value of the pre-existing SFEC notes which will be repaid in full from
the proceeds of the SFEC Notes, together with other funds, all of which have
been deposited in escrow) aggregated $1,085.7 million, of which approximately
$186.9 million (including $185.4 million carrying value of the pre-existing SFEC
Notes) matures prior to April 4, 2000. See Note 4 to the Company's Consolidated
Financial Statements for additional information regarding the Company's
indebtedness.
-13-
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
During the three months ended April 4, 1999, net cash provided by
operating activities was $0.4 million. Net cash used in investing activities
in the first three months of 1999 totaled $57.7 million, consisting primarily
of capital expenditures. Net cash provided by financing activities in the
first three months of 1999 was $35.8 million, primarily representing capital
contributions from Premier.
The degree to which the Company is leveraged could adversely affect its
liquidity. The Company's liquidity could also be adversely affected by
unfavorable weather, accidents or the occurrence of an event or condition,
including negative publicity or significant local competitive events, that
significantly reduce paid attendance and, therefore, revenue at any of its theme
parks.
The Company believes that, based on historical and anticipated
operating results, cash flows from operations, available cash, available
amounts under the Six Flags Credit Facility and contributions by Premier will
be adequate to meet the Company's future liquidity needs, including
anticipated requirements for working capital, capital expenditures and
scheduled debt for at least the next several years. The Company may, however,
need to refinance all or a portion of its existing debt on or prior to
maturity or to seek additional financing.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED
In June, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
an entity to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge. The accounting for changes in the fair value of a derivative (that is
gains and losses) depends on the intended use of the derivative and the
resulting designation. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. It is expected that the Company will
adopt the provision of SFAS No. 133 as of January 1, 2000. If the provisions of
SFAS No. 133 were to be applied as of April 4, 1999, they would not have a
material effect on the Company's financial position as of such date, or the
results of operations for the three-month period then ended.
IMPACT OF YEAR 2000 ISSUE
The Company's Year 2000 Project (the "Project") is in process. The
Project is addressing the Year 2000 issue caused by computer programs being
written utilizing two digits rather than four to define an applicable year. As a
result, the Company's computer equipment, software and devices with embedded
technology that are time sensitive may misinterpret the actual date beginning on
January 1, 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, but not limited to, a temporary
inability to process transactions.
The Company has undertaken various initiatives intended to ensure that
its computer equipment and software will function properly with respect to dates
in the Year 2000 and thereafter. In planning and developing the Project, the
Company has considered both its information technology ("IT") and its non-IT
systems. The term "computer equipment and software" includes systems that are
commonly thought of as IT systems, including accounting, data processing,
telephone systems, scanning equipment and other miscellaneous systems. Those
items not to be considered as IT technology include
-14-
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 $0.8 million.
The Company has not yet developed a most reasonably likely worst case
scenario with respect to Year 2000 issues, but instead has focused its efforts
on reducing uncertainties through the review described above. The Company has
not developed Year 2000 contingency plans other than as described above, and
does not expect to do so unless merited by the results of its continuing review.
The Company presently does not expect to incur significant operational
problems due to the Year 2000 issue. However, if all Year 2000 issues are not
properly and timely identified, assessed, remediated and tested, there can be no
assurance that the Year 2000 issue will not materially impact the Company's
results of operations or adversely affect its relationships with vendors or
others. Additionally, there can be no assurance that the Year 2000 issues of
other entities will not have a material impact on the Company's systems or
results of operations.
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 7A of the Company's January 3, 1999 Form 10-K. There have
been no material changes in the Company's exposure to market risk since
January 3, 1999.
-15-
<PAGE>
PART II -- OTHER INFORMATION
ITEMS 1 -- 5
Not applicable.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule -- April 4, 1999
(b) Reports on Form 8-K
None.
-16-
<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.
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
Date: May 18, 1999
-17-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-END> APR-04-1999
<CASH> 24,679
<SECURITIES> 0
<RECEIVABLES> 3,728
<ALLOWANCES> 0
<INVENTORY> 21,937
<CURRENT-ASSETS> 245,593
<PP&E> 986,099
<DEPRECIATION> 47,972
<TOTAL-ASSETS> 2,396,367
<CURRENT-LIABILITIES> 319,141
<BONDS> 898,833
0
0
<COMMON> 0
<OTHER-SE> 1,054,325
<TOTAL-LIABILITY-AND-EQUITY> 2,396,367
<SALES> 41,314
<TOTAL-REVENUES> 41,314
<CGS> 2,925
<TOTAL-COSTS> 2,925
<OTHER-EXPENSES> 58,417
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,546
<INCOME-PRETAX> (62,897)
<INCOME-TAX> (20,696)
<INCOME-CONTINUING> (42,201)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,201)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
