<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR QUARTERLY PERIOD ENDED MARCH 31, 2000
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
-----------
PREMIER PARKS OPERATIONS INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 73-6137714
(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 1, 2000, Premier Parks Operations Inc. had outstanding 1,000 shares
of Common Stock, par value $.05 per share.
This Registrant meets with 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
PREMIER PARKS OPERATIONS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $56,267,000 $118,011,000
Accounts receivable.............................................. 31,988,000 26,728,000
Inventories...................................................... 34,026,000 23,590,000
Prepaid expenses and other current assets........................ 19,174,000 13,391,000
------------------------- ----------------------
Total current assets.......................................... 141,455,000 181,720,000
Other assets:
Debt issuance costs.............................................. 25,947,000 27,388,000
Deposits and other assets........................................ 61,459,000 64,416,000
------------------------- ----------------------
Total other assets............................................ 87,406,000 91,804,000
Property and equipment, at cost..................................... 2,370,392,000 2,259,195,000
Less accumulated depreciation.................................... 233,033,000 207,040,000
------------------------- ----------------------
Total property and equipment.................................. 2,137,359,000 2,052,155,000
Investment in theme parks .......................................... 104,214,000 92,332,000
Intangible assets, principally goodwill............................. 1,344,180,000 1,346,102,000
Less accumulated amortization.................................... 106,319,000 92,997,000
------------------------- ----------------------
1,237,861,000 1,253,105,000
------------------------- ----------------------
Total assets.................................................. $3,708,295,000 $3,671,116,000
========================= ======================
</TABLE>
See accompanying notes to consolidated financial statements
-2-
<PAGE>
Item 1 -- Financial Statements (Continued)
PREMIER PARKS OPERATIONS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................................... $ 50,656,000 $36,572,000
Accrued liabilities....................................................... 85,581,000 73,305,000
Accrued interest payable.................................................. 17,113,000 15,387,000
Deferred income........................................................... 32,487,000 6,037,000
Payable to parent company................................................. 120,894,000 100,291,000
Current maturities of long-term debt...................................... 122,012,000 2,055,000
----------------------- -----------------------
Total current liabilities.............................................. 428,743,000 233,692,000
Long-term debt and capitalized lease obligations............................. 1,193,986,000 1,195,184,000
Other long-term liabilities and minority interest............................ 35,220,000 41,760,000
Deferred income taxes........................................................ 109,677,000 158,650,000
----------------------- -----------------------
Total liabilities...................................................... 1,767,626,000 1,629,286,000
----------------------- -----------------------
Stockholder's equity:
Common stock of $.05 par value, 1,000 shares
authorized, issued and outstanding at
March 31, 2000 and December 31, 1999.................................. -- --
Capital in excess of par value............................................ 2,006,898,000 2,012,506,000
Retained earnings (accumulated deficit) .................................. (38,035,000) 47,047,000
Accumulated other comprehensive income (loss)
-foreign currency translation adjustments.............................. (28,194,000) (17,723,000)
----------------------- -----------------------
Total stockholder's equity............................................. 1,940,669,000 2,041,830,000
----------------------- -----------------------
Total liabilities and stockholder's equity............................. $3,708,295,000 $3,671,116,000
======================= =======================
</TABLE>
See accompanying notes to consolidated financial statements
-3-
<PAGE>
Item 1 -- Financial Statements (Continued)
PREMIER PARKS OPERATIONS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
(Note 1)
Revenue:
Theme park admissions.......................................................... $12,349,000 $14,318,000
Theme park food, merchandise and other......................................... 18,544,000 24,262,000
------------------- -----------------
Total revenue............................................................. 30,893,000 38,580,000
------------------- -----------------
Operating costs and expenses:
Operating expenses............................................................. 58,747,000 52,780,000
Selling, general and administrative............................................ 31,952,000 34,308,000
Costs of products sold......................................................... 2,468,000 3,193,000
Depreciation and amortization.................................................. 41,396,000 35,509,000
------------------- -----------------
Total operating costs and expenses........................................ 134,563,000 125,790,000
------------------- -----------------
Loss from operations...................................................... (103,670,000) (87,210,000)
------------------- -----------------
Other income (expense):
Interest expense............................................................... (30,064,000) (32,433,000)
Interest income................................................................ 772,000 2,765,000
Equity in operations of theme parks............................................ (865,000) (657,000)
Other income (expense), including minority interest............................ 257,000 (239,000)
------------------- -----------------
Total other income (expense).............................................. (29,900,000) (30,564,000)
------------------- -----------------
Loss before income taxes.................................................. (133,570,000) (117,774,000)
Income tax benefit................................................................ 48,488,000 40,517,000
------------------- -----------------
Net loss.................................................................. $(85,082,000) $(77,257,000)
=================== =================
</TABLE>
See accompanying notes to consolidated financial statements
-4-
<PAGE>
Item 1 -- Financial Statements (Continued)
PREMIER PARKS OPERATIONS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net loss.......................................... $(85,082,000) $(77,257,000)
Other comprehensive income (loss)--
Foreign currency translation adjustment........ (10,471,000) (17,723,000)
----------------------- -----------------------
Comprehensive loss................................ $(95,553,000) $(94,980,000)
======================= =======================
</TABLE>
See accompanying notes to consolidated financial statements
-5-
<PAGE>
Item 1 -- Financial Statements (Continued)
PREMIER PARKS OPERATIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net loss..................................................................... $(85,082,000) $(77,257,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............................................. 41,396,000 35,509,000
Equity in operations of theme parks....................................... 865,000 657,000
Minority interest ........................................................ 207,000 239,000
Interest accretion on notes payable ...................................... -- 1,111,000
Interest accretion on restricted-use investments ......................... -- (2,502,000)
Amortization of debt issuance costs....................................... 1,441,000 981,000
Deferred income taxes..................................................... (48,973,000) (43,742,000)
(Increase) decrease in accounts receivable................................ (5,260,000) 12,347,000
Increase in inventories and prepaid expenses and other current assets..... (16,219,000) (15,054,000)
Decrease in deposits and other assets..................................... 2,957,000 200,000
Increase in accounts payable and accrued expenses......................... 44,196,000 40,550,000
Increase in accrued interest payable...................................... 1,726,000 (8,687,000)
-------------------- -------------------
Total adjustments......................................................... 22,336,000 21,609,000
-------------------- -------------------
Net cash used in operating activities..................................... (62,746,000) (55,648,000)
-------------------- -------------------
Cash flow from investing activities:
Additions to property and equipment.......................................... (115,693,000) (120,442,000)
Investment in theme parks ................................................... (12,747,000) (10,952,000)
Acquisition of theme park companies, net of cash acquired.................... -- (2,407,000)
-------------------- -------------------
Net cash used in investing activities...................................... (128,440,000) (133,801,000)
Cash flow from financing activities:
Repayment of long-term debt.................................................. (42,242,000) (1,411,000)
Proceeds from borrowings..................................................... 161,000,000 20,000,000
Payment of debt issuance costs............................................... -- (173,000)
Increase in payable to parent company........................................ 20,603,000 58,616,000
Capital contributions (returned) received.................................... (5,608,000) 82,943,000
-------------------- -------------------
Net cash provided by financing activities................................. 133,753,000 159,975,000
Effect of exchange rate changes on cash .................................. (4,311,000) (1,384,000)
-------------------- -------------------
Decrease in cash and cash equivalents..................................... (61,744,000) (30,858,000)
Cash and cash equivalents at beginning of period................................ 118,011,000 80,167,000
-------------------- -------------------
Cash and cash equivalents at end of period...................................... $ 56,267,000 $ 49,309,000
-------------------- -------------------
Supplementary cash flow information:
Cash paid for interest............................................................$ 26,897,000 $ 31,587,000
==================== ===================
</TABLE>
See accompanying notes to consolidated financial statements
-6-
<PAGE>
PREMIER PARKS OPERATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL -- BASIS OF PRESENTATION
Premier Parks Operations Inc. owns and operates regional theme amusement
and water parks. As of March 31, 2000, the Company and its subsidiaries own or
operate 32 parks, including 24 domestic parks, one park in Mexico and seven
parks in Europe. The Company is also managing the construction and development
of a theme park in Europe and is constructing a new water park in the United
States scheduled to open in the 2000 season.
On March 24, 1998, the company then known as Premier Parks Inc. ("Premier
Operations") merged (the "1998 Merger") with an indirect wholly owned subsidiary
thereof, pursuant to which Premier Operations became a wholly owned subsidiary
of Premier Parks Holdings Corporation ("Holdings") and the holders of shares of
common stock of Premier Operations became, on a share-for-share basis, holders
of common stock of Holdings. On the 1998 Merger date, Premier Operations' name
was changed to Premier Parks Operations Inc., and Holdings' name was changed to
Premier Parks Inc.
On April 1, 1998, Holdings purchased all of the outstanding capital stock
of Six Flags Entertainment Corporation ("SFEC" and, together with its
subsidiaries "Six Flags"). On November 5, 1999, SFEC and Premier Operations
consummated a merger (the "1999 Merger"), in which Premier Operations was the
surviving corporation. References herein to the "Company," or "Premier
Operations" mean for all periods or dates, Premier Operations and its
consolidated subsidiaries. As used herein, Holdings refers only to Premier Parks
Inc., without regard to its subsidiaries.
The 1999 Merger was accounted for as a reorganization of interests under
common control in a manner similar to a pooling of interests. The effect of the
1999 Merger was to reflect the assets and liabilities of Six Flags as if
contributed to Premier Operations by Holdings on April 1, 1998, the SFEC
purchase date. Accordingly, the financial statements for the first quarter of
1999 include the results of SFEC and the results of Premier Operations for the
quarter.
In connection with the 1998 Merger, Premier Operations and Holdings entered
into a shared services agreement pursuant to which certain corporate,
administrative and other general services provided by Holdings are charged to
Premier Operations, either on the basis of their respective revenues or on other
relative bases. Allocation of these charges are reflected in the accompanying
consolidated financial statements.
During May 1999, in separate transactions, the Company purchased 100% of
the capital stock of the companies that owned Reino Aventura, a theme park
located in Mexico City, and purchased the assets used in the operation of
Splashtown, a water park near Houston. On November 15, 1999, the Company
purchased Warner Bros. Movie World Germany, near Dusseldorf, Germany, and
entered into a joint venture with Warner Bros. to develop and manage a new
Warner Bros. Movie World theme park scheduled to open in Madrid, Spain in 2002.
(See Note 2.)
The accompanying consolidated financial statements for the three months
ended March 31, 1999 do not include the results of the parks acquired subsequent
to the first quarter of 1999. (See Note 2.)
Management's Discussion and Analysis of Financial Condition and Results
of Operations which follows these notes contains additional information on
the results of operations and the financial position of the Company. Those
comments should be read in conjunction with these notes. The Company's annual
report on Form 10-K for the year ended December 31, 1999 includes additional
information about the Company, its operations and its financial position, and
should be referred to in conjunction with this
-7-
<PAGE>
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 March 31, 2000 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.
START-UP COSTS
As of January 1, 1999, the Company adopted the provisions of AICPA
Statement of Position No. 98-5, "Accounting for Start-Up Activities." Generally,
the statement requires the write-off of previously capitalized start-up costs
and precludes the future capitalization of these types of costs. Start-up costs
include pre-opening costs and professional fees and other costs associated with
incorporating or otherwise starting a business. The effect of the adoption of
the provisions of the statement was not material to the financial position,
operations or cash flow of the Company and is included in depreciation and
amortization.
REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB No. 101 was
amended in March 2000 to delay the effective date until periods beginning after
April 1, 2000. The Company has elected to adopt the provisions of SAB 101 as of
January 1, 2000. The provisions of SAB No. 101 do not have an impact on the
accounting policies that the Company utilizes to prepare its annual financial
statements and therefore, the adoption did not have an impact on the Company's
annual financial statements. However, the provisions of SAB No. 101 did change
the accounting policies that the Company uses to recognize revenue from
multi-admission tickets and season passes during the year. The Company's
accounting policy as of January 1, 2000 recognizes the revenue for
multi-admission tickets and season passes over the operating season rather than
upon receipt.
The provisions of SAB No. 101 allow companies to either restate results or
account for the change as a cumulative effect. The Company has elected to
restate its 1999 quarterly results of operations. Had the Company used the newly
adopted accounting policy described above, the quarterly results for the three
months ended March 31, 1999 would have been as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
----------------------------------------------
(in thousands)
AS ORIGINALLY REPORTED: AS RESTATED:
------------------------ -------------
<S> <C> <C>
Revenues.............................................. $ 53,649 $ 38,580
Net loss.............................................. (67,915) (77,257)
</TABLE>
-8-
<PAGE>
2. ACQUISITION OF THEME PARKS
On May 4, 1999, the Company acquired all of the capital stock of the
companies that own and operate Reino Aventura (subsequently renamed Six Flags
Mexico), a theme park located in Mexico City, for a cash purchase price of
approximately $59,600,000. The Company funded the acquisition from existing
cash. Approximately $14,575,000 of costs in excess of the fair value of the net
assets acquired were recorded as goodwill. The transaction was accounted for as
a purchase.
On May 13, 1999, the Company acquired the assets of Splashtown water park
located in Houston, Texas for a cash purchase price of approximately
$20,400,000. The Company funded the acquisition from existing cash.
Approximately $10,530,000 of costs in excess of the fair value of the net assets
acquired were recorded as goodwill. The transaction was accounted for as a
purchase.
On November 15, 1999, the Company purchased the partnership that owns
Warner Bros. Movie World Germany, near Dusseldorf, Germany, and entered into a
joint venture with Warner Bros. to design, develop and manage a new Warner Bros.
Movie World theme park scheduled to open in Madrid, Spain in 2002. At the same
time, the Company entered into a long-term license agreement for exclusive theme
park usage in Europe, Mexico, South America, and Central America of the Looney
Tunes, Hanna-Barbera, Cartoon Network and D.C. Comics characters. The aggregate
cost of the transactions was $180,269,000, which was funded by borrowings under
the Company's 1999 credit facility (the "Credit Facility"). See Note 3(c).
Approximately $42,800,000 of the aggregate costs were allocated to goodwill and
intangible assets. The transaction was accounted for as a purchase.
3. LONG-TERM INDEBTEDNESS
(a) On January 31, 1997, Premier Operations issued $125,000,000 of senior
notes due January 2007 (the "1997 Notes"). The 1997 Notes are senior unsecured
obligations of Premier Operations. The 1997 Notes bear interest at 9 3/4% per
annum payable semiannually and are redeemable, at Premier Operations' option, in
whole or in part, at any time on or after January 15, 2002, at varying
redemption prices. The 1997 Notes are guaranteed on a senior, unsecured, joint
and several basis by all of Premier Operations' principal domestic subsidiaries.
The indenture limits the ability of Premier Operations and its subsidiaries
to dispose of assets; incur additional indebtedness or liens; pay dividends;
engage in mergers or consolidations; and engage in certain transactions with
affiliates.
All obligations under the 1997 Notes and the related indenture remained as
obligations of Premier Operations and were not assumed by Holdings after the
Merger.
(b) On April 1, 1998, SFEC, which was subsequently merged into Premier
Operations, issued $170,000,000 principal amount of 8 7/8% Senior Notes (the
"SFEC Notes"). The SFEC Notes are guaranteed on a fully subordinated basis by
Holdings. The SFEC Notes require annual interest payments of approximately
$15,100,000 (8 7/8% per annum) and, except in the event of a change of control
of Premier Operations and certain other circumstances, do not require any
principal payments prior to their maturity in 2006. The SFEC Notes are
redeemable, at the Company'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 securities,
which were used to repay in full on December 15, 1999 pre-existing notes of SFEC
in a principal amount of $192,250,000 at that time.
-9-
<PAGE>
The indenture under which the SFEC Notes were issued limits the ability of
Premier Operations and its subsidiaries to dispose of assets; incur additional
indebtedness or liens; pay dividends; engage in mergers or consolidations; and
engage in certain transactions with affiliates.
(c) On November 5, 1999, Six Flags Theme Parks Inc., an indirect
wholly-owned subsidiary of the Company ("SFTP"), entered into the Credit
Facility and, in connection therewith, SFEC merged into Premier Operations
and SFTP became a subsidiary of Premier Operations. The Credit Facility
includes a $300,000,000 five-year revolving credit facility ($120,000,000 of
which was outstanding at March 31, 2000), a $300,000,000
five-and-one-half-year multicurrency reducing revolver facility (of which
$291,000,000 was outstanding at March 31, 2000) and a $600,000,000 six-year
term loan (all of which was borrowed at March 31, 2000). Borrowings under the
five-year revolving credit facility must be repaid in full for thirty
consecutive days each year. The interest rate on borrowings under the Credit
Facility can be fixed for periods ranging from one to six months. At the
Company's option the interest rate is based upon specified levels in excess
of the applicable base rate or LIBOR. In February 2000, the Company entered
into interest rate swap agreements that effectively convert the term loan
component of the Credit Facility into a fixed rate obligation through the
term of the swap agreements, ranging from December 2001 to March 2002. Giving
effect to such agreements, the effective rate on the term loan borrowings at
March 31, 2000 was 9.5%.
The multicurrency facility, which permits optional prepayments and
reborrowings, requires quarterly mandatory repayments of 2.5% of the outstanding
amount thereof commencing on December 31, 2001, 5.0% commencing on December 31,
2002, 7.5% commencing on December 31, 2003 and 20.0% commencing on December 31,
2004. The term loan facility requires quarterly repayments of 0.25% of the
outstanding amount thereof commencing on December 31, 2001 and 24.25% commencing
on December 31, 2004. A commitment fee of .50% of the unused credit of the
facility is due quarterly in arrears. The principal borrower under the facility
is SFTP, and borrowings under the Credit Facility are guaranteed by Holdings,
Premier Operations and all of Premier Operations' domestic subsidiaries and are
secured by substantially all of Premier Operations' domestic assets.
The Credit Facility contains restrictive covenants that, among other
things, limit the ability of Premier Operations and its subsidiaries to
dispose of assets; incur additional indebtedness or liens; repurchase stock;
make investments; engage in mergers or consolidations; pay dividends, except
that (subject to covenant compliance) dividends will be permitted to allow
Holdings to meet cash interest obligations with respect to its Senior Notes,
cash dividend payments on its Premium Income Equity Securities and its
obligations to the limited partners in the partnerships that own the Six
Flags Over Texas and Six Flags Over Georgia theme parks, and engage in
certain transactions with subsidiaries and affiliates. In addition, the
Credit Facility requires that Premier Operations comply with certain
specified financial ratios and tests.
On November 5, 1999, the Company borrowed $892,000,000 under the Credit
Facility principally to repay all amounts outstanding under the Company's then
existing credit facilities and to provide funds to consummate the November 1999
transactions with Warner Bros. described in Note 2.
4. COMMITMENTS AND CONTINGENCIES
In December 1998, a final judgment of $197,300,000 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 $12,000,000 in punitive damages was
entered against the Six Flags entities. The judgments are now the subject of an
appeal, which has been briefed and argued before the Georgia Court of Appeals.
The judgments arose out of a case entitled SIX FLAGS OVER GEORGIA, LLC ET AL V.
TIME WARNER ENTERTAINMENT
-10-
<PAGE>
COMPANY, LP ET AL based on certain disputed partnership affairs prior to the
Six Flags acquisition at Six Flags Over Georgia, including alleged breaches
of fiduciary duty. The sellers in the Six Flags Acquisition, including Time
Warner, Inc., have agreed to indemnify the Company from any and all
liabilities arising out of this litigation.
The Company is party to various legal actions arising in the normal course
of business. Matters that are probable of unfavorable outcome to the Company and
which can be reasonably estimated are accrued. Such accruals are based on
information known about the matters, the Company's estimates of the outcomes of
such matters and its experience in contesting, litigating and settling similar
matters. None of the actions are believed by management to involve amounts that
would be material to consolidated financial position, operations, or liquidity
after consideration of recorded accruals.
5. INVESTMENT IN THEME PARK PARTNERSHIPS
The Company has an investment in the Six Flags Marine World theme park and
an investment in a theme park being constructed in Spain. The Spanish park is
not yet in operation and has not contributed to the Company's operations. The
Company receives contingent revenue related to the operations of Six Flags
Marine World. The revenue is earned after the theme park reaches a minimum
amount of net revenues, typically in the third quarter of the year. The Company
does not recognize in equity from operations of theme parks any revenue until
the minimum net revenue is achieved. The Company does recognize in equity from
operations of theme parks a charge for the depreciation of the property and
equipment that the Company has placed in service at Six Flags Marine World.
6. BUSINESS SEGMENTS
The Company manages its 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, and all
non-operating expenses.
-11-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
(In thousands)
<S> <C> <C>
Theme park revenue................................................. $33,606 $38,811
Theme park cash expenses........................................... 98,207 90,340
--------- ---------
Aggregate park EBITDA.............................................. (64,601) (51,529)
Third-party share of EBITDA from parks
accounted for under the equity method........................... 7,178 4,356
Amortization of investment in theme park
partnerships.................................................... (1,025) (657)
Unallocated net expenses, including corporate
and other expenses.............................................. (4,434) (4,767)
Depreciation and amortization...................................... (41,396) (35,509)
Interest expense................................................... (30,064) (32,433)
Interest income.................................................... 772 2,765
--------- ---------
Loss before income taxes........................................... (133,570) (117,774)
========= =========
Theme park revenue................................................. 33,606 38,811
Theme park revenue from parks accounted
for under the equity method..................................... (2,713) (231)
--------- ---------
Consolidated total revenue......................................... $30,893 $38,580
========= =========
</TABLE>
Seven of the Company's parks are located in Europe and one is located in
Mexico. The Mexico park was acquired in May 1999 and one of the European parks
was acquired in November 1999. The following information reflects the Company's
long-lived assets and revenue by domestic and foreign categories for the first
quarter of 2000 and 1999:
<TABLE>
<CAPTION>
2000:
- ----- (In thousands)
Domestic International Total
-------- ------------- -----
<S> <C> <C>
Long-lived assets.................................. $3,014,797 $464,637 $3,479,434
Revenue............................................ 24,278 6,615 30,893
</TABLE>
<TABLE>
<CAPTION>
1999:
- ----- (In thousands)
Domestic International Total
-------- ------------- -----
<S> <C> <C>
Long-lived assets.................................. $2,783,424 $183,094 $2,966,518
Revenue............................................ 37,525 1,055 38,580
</TABLE>
-12-
<PAGE>
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
GENERAL
Results of operations for the three-month period ended March 31, 2000 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.
Results of operations for the three months ended March 31, 2000 include the
results of the three parks acquired in 1999. Results for the three months ended
March 31, 1999 do not include the results of the acquired parks.
Revenue in the first quarter of 2000 totaled $30.9 million compared to
$38.6 million for the first quarter of 1999. The $7.7 million decrease in 2000
revenue compared to revenue for the first quarter of 1999 resulted primarily
from 22 fewer operating days in the first quarter of 2000 due to the later
Easter and Spring Break holidays in 2000.
Operating expenses for the first quarter of 2000 increased $6.0 million
compared to expenses for the first quarter of 1999. The 11.3% increase resulted
almost entirely from the inclusion in the 2000 period of three consolidated
parks acquired subsequent to the end of the first quarter of 1999. Excluding the
acquired parks, operating expenses in the 2000 period increased $0.4 million as
compared to the prior-year period.
Selling, general and administrative expenses for the first quarter of 2000
decreased $2.4 million compared to comparable expenses for the first quarter of
1999. Excluding the acquired parks, selling, general and administrative expenses
decreased $6.3 million as compared to the prior year period, primarily as a
result of lower advertising expenditures in the quarter given the lesser first
quarter operating calendar.
Costs of products sold in the 2000 period decreased $0.7 million compared
to expenses for the first quarter of 1999, reflecting the reduction in park
operating days and consequent lower volumes in the 2000 period.
Depreciation and amortization expense for the first quarter of 2000
increased $5.9 million compared to the first quarter of 1999. The increase
compared to the 1999 level was attributable to the Company's on-going capital
program and from additional depreciation and amortization expense associated
with the parks acquired in 1999. Interest expense, net decreased $0.4 million
compared to the first quarter of 1999. The decrease resulted from the
repayment after the first quarter of 1999 of certain indebtedness of the
Company with the proceeds of a capital contribution by Holdings, offset in
part by higher average interest rates on a higher average Credit Facility
balance and reduced interest income from lower average cash and cash
equivalent and restricted-use investment balances during 2000.
Equity in operations of theme parks reflect the Company's share of the
lease of Six Flags Marine World and the management of that park.
Income tax benefit was $48.5 million for the first quarter of 2000 compared
to a $40.5 million benefit for the first quarter of 1999. The effective tax rate
for the first quarter of 2000 was 36.3%
-13-
<PAGE>
compared to a rate of 33.5% for the first quarter of 1999. 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.
LIQUIDITY, CAPITAL COMMITMENTS AND RESOURCES
At March 31, 2000, the Company's indebtedness aggregated $1,316.0 million,
of which approximately $122.0 million matures prior to March 31, 2001.
Substantially all of the short-term debt represents borrowings under the
revolving credit component of the Credit Facility. See Note 3 to the Company's
Consolidated Financial Statements for additional information regarding the
Company's indebtedness.
During the three months ended March 31, 2000, net cash used in operating
activities was $62.7 million. Net cash used in investing activities in the first
three months of 2000 totaled $128.4 million, consisting primarily of capital
expenditures. Net cash provided by financing activities in the first three
months of 2000 was $133.8 million, representing proceeds of borrowings under the
Credit Facility described in Note 3(c) to the Company's Consolidated Financial
Statements.
In addition to its obligations under its outstanding indebtedness, the
Company has guaranteed the obligations of certain subsidiaries of Holdings to
(i) make minimum annual distributions of approximately $48.6 million (subject
to annual cost of living adjustments) to the limited partners in the Six
Flags Over Texas and Six Flags Over Georgia partnerships, (ii) make minimum
capital expenditures at each of the Partnership parks during rolling
five-year periods, based generally on 6% of such park's revenues, and (iii)
purchase at specified prices a maximum number of 5% per year (accumulating to
the extent not purchased in any given year) of limited partnership units
outstanding (to the extent tendered by the unit holders). At March 31, 2000,
Holdings had $72.5 million in a dedicated escrow account available to fund
those obligations.
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 and available amounts
under the Credit Facility will be adequate to meet the Company's future
liquidity needs, including anticipated requirements for working capital,
capital expenditures and scheduled debt requirements, 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.
To minimize the Company's exposure to changing foreign currency rates on
ride purchases, in the past the Company has entered into foreign exchange
forward contracts. The Company has not entered into any foreign exchange forward
contracts in 2000 related to ride purchase contracts from foreign vendors.
Additionally, the Company has not hedged its exposure to changes in foreign
currency rates related to its international parks.
-14-
<PAGE>
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 for
accounting purposes. 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. A subsequent pronouncement, SFAS No.
137, was issued in July 1999 that delayed the effective date of SFAS 133 until
fiscal years beginning after June 15, 2000. It is expected that the Company will
adopt the provision of SFAS No. 133 as of January 1, 2001.
The Company has had limited involvement with derivative financial
instruments. The Company is currently evaluating the provisions of SFAS No. 133,
as amended. Based upon the Company's limited use of derivative financial
instruments, the Company does not believe that the adoption of SFAS No. 133 will
have a material impact on its consolidated financial position or future results
of operations.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - An Interpretation of APB Opinion No. 25." The Interpretation
clarifies the application of Opinion 25 for certain issues. The Company accounts
for stock based arrangements with employees based on Opinion 25. Among other
issues, the Interpretation clarifies (a) the definition of employee for purposes
of applying Opinion 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence of
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. The Interpretation is effective July 1, 2000, but certain
conclusions cover specific events that occur either after December 15, 1998 or
January 12, 2000. Certain employees of the Company receive options to purchase
stock of Holdings. The Company does not believe that the Interpretation will
have a material impact on its consolidated financial position or future results
of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information included in "Quantitative and Qualitative Disclosures
About Market Risk" in Item 7A of the Company's 1999 Annual Report on Form
10-K is incorporated herein by reference. Such information includes a
description of the Company's potential exposure to market risks, including
interest rate risk and foreign currency risk. As of March 31, 2000, there
have been no material changes in the Company's market risk exposure from that
disclosed in the 1999 Form 10-K.
-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 -- March 31, 2000
(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.
PREMIER PARKS OPERATIONS INC.
(Registrant)
Kieran E. Burke
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
James F. Dannhauser
CHIEF FINANCIAL OFFICER
Date: May 15, 2000
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