ITEM 1. BUSINESS
INTRODUCTION
Six Flags Entertainment Corporation ("SFEC"), through its
direct and indirect wholly-owned subsidiaries, S.F. Holdings,
Inc. ("Holdings"), Six Flags Theme Parks Inc. ("SFTP" and,
collectively with SFEC, Holdings and their subsidiaries, "Six
Flags" or the "Company"), operates six regional theme parks, as
well as three separately gated water parks and a wildlife safari
animal park. SFEC and Holdings are holding companies, which have
no significant operations independent of their ownership of SFTP.
As the operator of a leading national system of regional theme
parks for over thirty years, Six Flags has established a
nationally recognized brand name and identity. On a pro forma
basis, assuming the Company's interests in Six Flags Over Georgia
and Six Flags Over Texas had been transferred on January 1, 1998,
the Company's total revenue and earnings before interest, taxes,
depreciation and amortization ("EBITDA") for the year ended
January 3, 1999 would have been approximately $521.1 million and
$149.6 million, respectively.
Each of the parks is located in or near a major metropolitan
area: Six Flags Great Adventure and Six Flags Wild Safari Animal
Park -- New York/Philadelphia; Six Flags Magic Mountain and Six
Flags Hurricane Harbor -- Los Angeles (collectively, "Six Flags
California"); Six Flags Great America -- Chicago/Milwaukee; Six
Flags Hurricane Harbor -- Dallas/Fort Worth; Six Flags Houston
and Six Flags WaterWorld -- Houston (collectively, "Six Flags
Houston"); Six Flags St. Louis - St. Louis; and Six Flags Fiesta
Texas - San Antonio. Four of these parks are located in one of
the top ten markets in the United States in terms of population.
On April 1, 1998, Premier Parks Inc. ("Premier") acquired
(the "Acquisition") 100% of the equity of SFEC for a cash
purchase price of $965 million (plus an approximate $11 million
adjustment) from Time Warner Entertainment Company and Boston
Ventures. Premier also assumed or refinanced a total of
approximately $1,032.1 million of Company debt outstanding at that
date. As part of the Acquisition, the parties entered into a
long-term licensing agreement that gives Premier and the Company
the exclusive theme park rights in the U.S. (excluding the Las
Vegas, Nevada Metropolitan area) and Canada of Warner Bros. and
DC Comics animated characters. These characters include Bugs
Bunny, Daffy Duck, Tweety Bird, Yosemite Sam, Batman, Superman
and others.(1) As part of the Acquisition, Six Flags transferred
to Premier all of its interest in the limited partnerships (the
"Co-Venture Partnerships") that own Six Flags Over Texas and Six
Flags Over Georgia (the "Co-Venture Parks") for a cash payment of
approximately $46.0 million and the payment of $165.6 million of
SFEC debt.
The parks (other than the Six Flags Wild Safari Animal Park)
are designed to provide a full day of entertainment, offering a
broad selection of state-of-the-art thrill rides (or water rides
(1) Looney Tunes, Bugs Bunny, Daffy Duck, Tweety Bird and
Yosemite Sam are copyrights and trademarks of Warner Bros.,
a division of Time Warner Entertainment Company, L.P.
("TWE"). Batman and Superman are copyrights and trademarks
of DC Comics, a partnership between TWE and a subsidiary of
Time Warner Inc. Six Flags Great Adventure, Six Flags Great
America, Six Flags and all related indicia are federally
registered trademarks of Six Flags Theme Parks Inc., a
subsidiary of the Company. Fiesta Texas and all related
indicia are trademarks of Fiesta Texas, Inc., a subsidiary
of the Company.
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and activities in the case of the three water parks), themed
areas, concerts, shows, restaurants, theaters, game venues and
merchandise outlets.
The 1996 and 1997 fiscal years consisted of 52 weeks each
and ended December 29, 1996 and December 28, 1997, respectively.
The 1998 fiscal year consisted of 53 weeks and ended January 3,
1999.
DESCRIPTION OF PARKS
SIX FLAGS FIESTA TEXAS
Six Flags Fiesta Texas, the 39th largest theme park in North
America based on 1998 attendance, is located on approximately 206
acres of land in San Antonio, Texas. The San Antonio, Texas
market provides the park with a permanent resident population of
1.7 million people within 50 miles and 3.0 million people within
100 miles. The San Antonio market is the number 38 DMA in the
United States. Based upon in-park surveys, approximately 34.8%
of the visitors to the park in 1998 resided within a 50-mile
radius of the park, and 44.8% resided within a 100-mile radius.
Following the 1998 season, Premier purchased the 40% minority
interest in Six Flags Fiesta Texas and title to the park for
$45.0 million in cash.
Six Flags Fiesta Texas' principal competitor is Sea World of
Texas located in San Antonio. In addition, the park competes to
a lesser degree with Six Flags Houston, the Company's park
located in Houston, Texas, approximately 200 miles from the park.
SIX FLAGS GREAT ADVENTURE AND SIX FLAGS WILD SAFARI ANIMAL
PARK
Six Flags Great Adventure, the 11th largest theme park in
North America, and the separately gated adjacent Six Flags Wild
Safari Animal Park, are located in Jackson, New Jersey,
approximately 70 miles south of New York City and 50 miles east
of Philadelphia. The New York and Philadelphia markets provide
the parks with a permanent resident population of 12.4 million
people within 50 miles and 25.9 million people within 100 miles.
The New York and Philadelphia markets are the number 1 and number
4 DMAs in the United States, respectively. Based upon in-park
surveys, approximately 53.9% of the visitors to the parks in 1998
resided within a 50-mile radius of the park, and 86.2% resided
within a 100-mile radius.
The Company owns a site of approximately 2,200 acres, of
which approximately 125 acres are currently used for the theme
park operations, and approximately 350 adjacent acres are used
for the wildlife safari park, home to 55 species of 1,200 exotic
animals which can be seen over a four and one-half mile drive.
Approximately 1,640 acres remain undeveloped. Six Flags Great
Adventure's principal competitors are Hershey Park, located in
Hershey, Pennsylvania, approximately 150 miles from the park; and
Dorney Park, located in Allentown, Pennsylvania, approximately 75
miles from the park.
SIX FLAGS GREAT AMERICA
Six Flags Great America, the 19th largest theme park in
North America, is located in Gurnee, Illinois, between Chicago,
Illinois and Milwaukee, Wisconsin. The Chicago and Milwaukee
markets provide the park with a permanent resident population of
7.8 million people within 50 miles and 12.0 million people within
100 miles. The Chicago and Milwaukee markets are the number 3
and number 31 DMAs in the United States, respectively. Based
upon in-park surveys, approximately 66.6% of the visitors to the
park in 1998 resided within a 50-mile radius of the park, and
82.0% resided within a 100-mile radius.
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The Company owns a site of approximately 440 acres of which
86 are used for the theme park operations, and approximately 106
usable acres are in a separate parcel available for expansion and
complementary uses. Six Flags Great America currently has no
direct theme park competitors in the region, but does compete to
some extent with Kings Island, located near Cincinnati, Ohio,
approximately 350 miles from the park; Cedar Point, located in
Sandusky, Ohio, approximately 340 miles from the park; and Six
Flags St. Louis, the Company's park located outside St. Louis,
Missouri, approximately 320 miles from the park.
SIX FLAGS HOUSTON AND SIX FLAGS WATERWORLD
Six Flags Houston, the 30th largest theme park in North
America, and the separately gated adjacent Six Flags WaterWorld,
are located in Houston, Texas on the grounds of an entertainment
and sports complex that includes the Houston Astrodome. The
Houston, Texas market provides the parks with a permanent
resident population of 4.3 million people within 50 miles and 5.2
million people within 100 miles. The Houston market is the
number 11 DMA in the United States. Based upon in-park surveys,
approximately 63.6% of the visitors to the theme park in 1998
resided within a 50-mile radius of the park, and 69.9% resided
within a 100-mile radius.
The Company owns a site of approximately 90 acres used for
the theme park, and approximately 14 acres used for the water
park. Six Flags Houston indirectly competes with Sea World of
Texas and the Company's Six Flags Fiesta Texas, both located in
San Antonio, Texas, approximately 200 miles from the park. Six
Flags WaterWorld competes with Splashtown and Water Works, two
nearby water parks.
SIX FLAGS HURRICANE HARBOR
Six Flags Hurricane Harbor, the 7th largest water park in
the United States, is located in Arlington, Texas, between Dallas
and Fort Worth, Texas. The Dallas/Fort Worth market provides the
park with a permanent resident population of 4.5 million people
within 50 miles and 5.6 million people within 100 miles. The
Dallas/Fort Worth market is the number 8 DMA in the United
States.
The Company owns directly approximately 47 acres, of which
approximately 18 acres are currently used for Hurricane Harbor
and 31 acres remain undeveloped. Six Flags Hurricane Harbor has
no direct competitors in the area other than a municipal water
park.
SIX FLAGS MAGIC MOUNTAIN AND SIX FLAGS HURRICANE HARBOR
Six Flags Magic Mountain, the 15th largest theme park in
North America, and the separately gated adjacent Six Flags
Hurricane Harbor, the 15th largest water park in the United
States, are located in Valencia, California, in the northwest
section of Los Angeles County. The Los Angeles, California
market provides the parks with a permanent resident population of
9.8 million people within 50 miles and 15.8 million people within
100 miles. The Los Angeles market is the number 2 DMA in the
United States. Based upon in-park surveys, approximately 44.5%
of the visitors to the theme park in 1998 resided within a
50-mile radius of the parks, and 67.0% resided within a 100-mile
radius.
The Company owns a site of approximately 260 acres with 160
acres used for the theme park, and approximately 12 acres used
for the pirate-themed water park. Six Flags Magic Mountain's
principal competitors include Disneyland in Anaheim, California,
located approximately 60 miles from the park, Universal Studios
Hollywood in Universal City, California, located approximately 20
miles from the park, Knott's Berry Farm in Buena Park,
California, located approximately 50 miles from the park, and Sea
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World of California in San Diego, California, located
approximately 150 miles from the park. In early 1999, a new
park, Legoland, opened approximately 120 miles from Magic
Mountain. Six Flags Hurricane Harbor's only direct competitor in
the area is Raging Waters, approximately 50 miles from the water
park.
SIX FLAGS ST. LOUIS
Six Flags St. Louis, the 36th largest theme park in North
America, is located in Eureka, Missouri, about 35 miles west of
St. Louis, Missouri. The St. Louis market provides the park with
a permanent resident population of 2.6 million people within 50
miles and 3.7 million people within 100 miles. The St. Louis
market is the number 21 DMA in the United States. Based upon
in-park surveys, approximately 55.3% of the visitors to the park
in 1998 resided within a 50-mile radius of the park, and 65.1%
resided within a 100-mile radius.
The Company owns a site of approximately 497 acres used for
the theme park operations. Six Flags St. Louis competes with
Kings Island and The Beach, located near Cincinnati, Ohio,
approximately 350 miles from the park; Cedar Point, located in
Sandusky, Ohio, approximately 515 miles from the park; Silver
Dollar City, located in Branson, Missouri, approximately 250
miles from the park; and Six Flags Great America, the Company's
park located near Chicago, Illinois, approximately 320 miles from
the park.
MARKETING AND PROMOTION
The Company attracts visitors through locally oriented
multi-media marketing and promotional programs for each of its
parks. These programs are tailored to address the different
characteristics of their respective markets and to maximize the
impact of specific park attractions and product introductions.
All marketing and promotional programs are updated or completely
revamped each year to address new developments. Marketing
programs are supervised by Premier's Senior Vice President for
Marketing, with the assistance of senior management and in-house
marketing staff, as well as its national advertising agency.
The Company also develops partnership relationships with
well-known national and regional consumer goods companies and
retailers to supplement its advertising efforts and to provide
attendance incentives in the form of discounts and/or premiums.
The Company has also arranged for popular local radio and
television programs to be filmed or broadcast live from its
parks.
Group sales and pre-sold tickets provide the Company with a
consistent and stable base of attendance, representing over 35.2%
of aggregate attendance in 1998 at the Company's parks. Each
park has a group sales and pre-sold ticket manager and a
well-trained sales staff dedicated to selling multiple group
sales and pre-sold ticket programs through a variety of methods,
including direct mail, telemarketing and personal sales calls.
The Company has also developed effective programs for
marketing season pass tickets. Season pass sales establish a
solid attendance base in advance of the season, thus reducing
exposure to inclement weather. Additionally, season pass holders
often bring paying guests and generate "word-of-mouth"
advertising for the parks. During 1998, 22.1% of visitors to the
Company's parks utilized season passes.
A significant portion of the Company's attendance is
attributable to the sale of discount admission tickets. The
Company offers discounts on season and multi-visit tickets,
tickets for specific dates and tickets to affiliated groups such
as businesses, schools and religious, fraternal and similar
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organizations. The increased in-park spending which results from
such attendance is not offset by incremental operating expenses,
since such expenses are relatively fixed during the operating
season.
The Company also implements promotional programs as a means
of targeting specific market segments and geographic locations
not reached through its group or retail sales efforts. The
promotional programs utilize coupons, sweepstakes, reward
incentives and rebates to attract additional visitors. These
programs are implemented through direct mail, telemarketing,
direct response media, sponsorship marketing and targeted
multi-media programs. The special promotional offers are usually
for a limited time and offer a reduced admission price or provide
some additional incentive to purchase a ticket, such as
combination tickets with a complementary location.
LICENSES
Pursuant to a license agreement (the "License Agreement")
among Warner Bros., DC Comics, Premier and SFTP, Premier and its
subsidiaries, including the Company, have the exclusive right on
a long-term basis to use Warner Bros. and DC Comics animated
characters in theme parks throughout the United States (other
than the Las Vegas metropolitan area) and Canada. In particular,
the License Agreement entitles the Company to use, subject to
customary approval rights of Warner Bros. and, in limited
circumstances, approval rights of certain third parties, all
animated and comic book characters that Warner Bros. and DC
Comics have the right to license, including as of the date
hereof, Batman, Superman, Bugs Bunny, Daffy Duck, Tweety Bird and
Yosemite Sam, and includes the right to sell merchandise using
the characters. The license fee is fixed (without regard to the
number of the Company's parks) until 2005, and thereafter the
license fee will be subject to periodic scheduled increases and
will be payable on a per-theme park basis. In addition, the
Company will be required to pay a royalty fee on merchandise that
uses the licensed characters manufactured by or for the Company
where a fee has not been paid by the manufacturer. Warner Bros.
has the right to terminate the License Agreement under certain
circumstances, including if any persons involved in the movie or
television industries obtain control of the Company and upon a
default by Premier under an indemnity agreement in favor of Time
Warner Inc. ("Time Warner") executed in connection with the
Acquisition.
PARK OPERATIONS
The Company currently operates in geographically diverse
markets in the United States. Each of the Company's parks is
operated to the extent practicable as a separate operating
division of the Company in order to maximize local marketing
opportunities and to provide flexibility in meeting local needs.
Each park is managed by a general manager who reports to one of
Premier's Executive Vice Presidents (each of whom reports to the
Chief Operating Officer) and is responsible for all operations
and management of the individual park. Local advertising, ticket
sales, community relations and hiring and training of personnel
are the responsibility of individual park management in
coordination with corporate support teams.
Each of the Company's theme parks is managed by a full-time,
on-site management team under the direction of the general
manager. Each such management team includes senior personnel
responsible for operations and maintenance, marketing and
promotion, human resources and merchandising. Park management
compensation structures are designed to provide incentives
(including stock options and cash bonuses) for individual park
managers to execute the Company's strategy and to maximize
revenues and operating cash flow at each park.
The Company's parks are generally open daily from Memorial
Day through Labor Day. In addition, most of the Company's parks
are open during weekends prior to and following their daily
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seasons, primarily as a site for theme events (such as
Hallowscream and Oktoberfest). Certain of the parks have longer
operating seasons. Typically, the parks charge a basic daily
admission price, which allows unlimited use of all rides and
attractions, although in certain cases special rides and
attractions require the payment of an additional fee.
CAPITAL IMPROVEMENTS
The Company regularly makes capital investments in the
development and implementation of new rides and attractions at
its parks. The Company purchases both new and used rides. In
addition, the Company rotates rides among its parks to provide
fresh attractions. The Company believes that the introduction of
new rides is an important factor in promoting each of the parks
in order to achieve market penetration and encourage longer
visits, which lead to increased attendance and in-park spending.
In addition, the Company generally adds theming to acquired parks
and enhances the theming and landscaping of its existing parks in
order to provide a complete family oriented entertainment
experience. Capital expenditures are planned on a seasonal basis
with most expenditures made during the off-season. Expenditures
for materials and services associated with maintaining assets,
such as painting and inspecting rides are expensed as incurred
and therefore are not included in capital expenditures.
The Company's level of capital expenditures are directly
related to the optimum mix of rides and attractions given park
attendance and market penetration. These targeted expenditures
are intended to drive significant attendance growth at the parks
and to provide an appropriate complement of entertainment value,
depending on the size of a particular market. As an individual
park begins to reach an appropriate attendance penetration for
its market, management generally plans a new ride or attraction
every two to four years in order to enhance the park's
entertainment product.
The Company believes that there are ample sources for rides
and other attractions, and the Company is not dependent on any
single source. Certain of these manufacturers are located
outside the United States.
MAINTENANCE AND INSPECTION
The Company's rides are inspected daily by maintenance
personnel during the operating season. These inspections include
safety checks as well as regular maintenance and are made through
both visual inspection of the ride and test operation. Senior
management of Premier and the individual parks evaluate the risk
aspects of each park's operation. Potential risks to employees
and staff as well as to the public are evaluated. Contingency
plans for potential emergency situations have been developed for
each facility. During the off-season, maintenance personnel
examine the rides and repair, refurbish and rebuild them where
necessary. This process includes x-raying and magnafluxing (a
further examination for minute cracks and defects) steel portions
of certain rides at high-stress points.
In addition to the Company's maintenance and inspection
procedures, the Company's liability insurance carrier performs a
periodic inspection of each park and all attractions and related
maintenance procedures. The result of insurance inspections are
written evaluation and inspection reports, as well as written
suggestions on various aspects of park operations. State
inspectors also conduct annual ride inspections before the
beginning of each season. Other portions of each park are also
subject to inspections by local fire marshals and health and
building department officials. Furthermore, the Company uses
Ellis & Associates as water safety consultants at its parks in
order to train life guards and audit safety procedures.
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INSURANCE
The Company maintains insurance of the type and in amounts
that it believes are commercially reasonable and that are
available to businesses in its industry. The Company maintains
multi-layered general liability policies that provide for excess
liability coverage of up to $100.0 million per occurrence. With
respect to liability claims arising out of occurrences on and
after July 1, 1998, there is no self-insured retention by the
Company. However, with respect to claims arising out of
occurrences prior to July 1, 1998, the self-insured portion is
the first $2.0 million of loss per occurrence. The Company also
maintains fire and extended coverage, workers' compensation,
business interruption and other forms of insurance typical to
businesses in its industry. The fire and extended coverage
policies insure the Company's real and personal properties (other
than land) against physical damage resulting from a variety of
hazards.
COMPETITION
The Company's parks compete directly with other theme parks,
water and amusement parks and indirectly with all other types of
recreational facilities and forms of entertainment within their
market areas, including movies, sports attractions and vacation
travel. Accordingly, the Company's business is and will continue
to be subject to factors affecting the recreation and leisure
time industries generally, such as general economic conditions
and changes in discretionary consumer spending habits. Within
each park's regional market area, the principal factors affecting
competition include location, price, the uniqueness and perceived
quality of the rides and attractions in a particular park, the
atmosphere and cleanliness of a park and the quality of its food
and entertainment. The Company believes its parks feature a
sufficient variety of rides and attractions, restaurants,
merchandise outlets and family orientation to enable it to
compete effectively.
SEASONALITY
The operations of the Company are highly seasonal, with more
than 85% of park attendance in 1998 occurring in the second and
third calendar quarters and the most active period falling
between Memorial Day and Labor Day. The great majority of the
Company's revenues are collected in the second and third quarters
of each year.
ENVIRONMENTAL AND OTHER REGULATION
The Company's operations are subject to increasingly
stringent federal, state and local environmental laws and
regulations including laws and regulations governing water
discharges, air emissions, soil and groundwater contamination,
the maintenance of underground storage tanks and the disposal of
waste and hazardous materials. In addition, its operations are
subject to other local, state and federal governmental
regulations including, without limitation, labor, health, safety,
zoning and land use and minimum wage regulations applicable to
theme park operations, and local and state regulations applicable
to restaurant operations at the park. The Company believes that
it is in substantial compliance with applicable environmental and
other laws and regulations and, although no assurance can be
given, it does not foresee the need for any significant
expenditures in this area in the near future.
In addition, portions of the undeveloped areas at some of
its parks are classified as wetlands. Accordingly, the Company
may need to obtain governmental permits and other approvals prior
to conducting development activities that affect these areas, and
future development may be limited in some or all of these areas.
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EMPLOYEES
At March 1, 1999, the Company employed approximately 908
full-time employees, and the Company employed approximately
18,000 seasonal employees during the 1998 operating season. In
this regard, the Company competes with other local employers for
qualified student and other candidates on a season-by-season
basis. As part of the seasonal employment program, the Company
employs a significant number of teenagers, which subjects the
Company to child labor laws.
Approximately 19% of the Company's full-time and
approximately 12% of its seasonal employees are subject to labor
agreements with local chapters of national unions. These labor
agreements expire in December 1999 (Six Flags Great Adventure)
and January 2000 (Six Flags St. Louis).
The Company has not experienced any strikes or work
stoppages by its employees, and the Company considers its
employee relations to be good.
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