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SIX FLAGS, INC. - learnfrombarryprework · PDF file Six Flags secured this well-known brand in 1998 when, then known as Premier Parks, Inc., it acquired Six Flags Theme Parks, Inc

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Text of SIX FLAGS, INC. - learnfrombarryprework · PDF file Six Flags secured this well-known brand in...

  • Copyright 1981 – 2011 Barry M Frohlinger 1

    SIX FLAGS, INC.

    We will be using the case during the seminar. Make sure that you read this case prior to the start of the seminar. As you read these financial statements, please take note of:

     Any unusual [nonrecurring] income statement items [income or expense] or early warning signs or credit deterioration.

  • Copyright 1981 – 2011 Barry M Frohlinger 2

    Six Flags is the largest regional theme park operator in the world, engaged solely in the theme park business; Walt Disney Company is the largest amusement park operator. Two-thirds of the U.S. population lives within 150 miles of one of its parks, and the properties serve 35 of the 50 largest U.S. metropolitan areas. A key difference between Disney and Six Flags is that Disney's parks attract visitors worldwide, whereas Six Flags focuses more on local markets. Six Flags' parks feature thrill rides, animal attractions, upscale restaurants, shows, merchandise outlets, elaborate picnic areas and kiddie attractions, and water slides. Six Flags secured this well-known brand in 1998 when, then known as Premier Parks, Inc., it acquired Six Flags Theme Parks, Inc. The latter traced its origins back to the 1961 opening of Six Flags Over Texas. Premier Parks, which was founded in 1971 and known until 1994 as Tierco Group, did not enter the amusement park business until the early 1980s. Tierco/Premier became renowned for buying struggling parks and turning them around with expansion and aggressive marketing strategies that targeted families. This strategy has continued at the company under its current configuration, and Six Flags also attempts to maintain a competitive edge by annually adding new rides and attractions to its many parks.

    Tierco Group was originally an Oklahoma-based real estate company. The company purchased the Frontier City theme park in Oklahoma City in 1982 for $1.2 million. Tierco had no intention of entering into the amusement park business, however. Company officials planned to demolish the park, subdivide the land, and build a shopping center. Given the economic downturns prompted by an oil bust in Oklahoma, however, developers lost interest in the idea of converting the park into a shopping center. So in 1984 Tierco hired Gary Story as general manager of Frontier City and invested $39 million into improving the park.

    Story began his career in the amusement park business at the age of 16, when he was employed to sweep park streets at Six Flags Over Mid-America. After ten years of service in various capacities there, including that of manager of attractions, Story worked for amusement parks in Mexico and in Australia. As the new manager of Frontier City, he quadrupled that park's attendance and revenues. Under his leadership, two new rides and a petting zoo were added to the park along with a new ticket booth, sales office, and improved food service.

    In the late 1980s, Tierco shifted its strategic direction from real estate to amusement parks. Leading the shift was investment banker Kieran Burke, who was hired as president and CEO in October 1989. Tierco sold much of its property during this time, which generated capital to invest.

    Tierco purchased Oklahoma City's White Water Waterpark in 1991 (the name later being changed to White Water Bay). The company realized the key to boosting a park's attendance was to add new and exciting rides and make it more attractive to families. It converted White Water's old gang slide into a dual racing slide where two two-passenger boats raced against each other and the clock. New picnic areas were added, one with a beachcomber theme, and the activity pool was converted into a pirate's cove. Eventually, Tierco added the Blue Marlin Grill, an upscale sit-down restaurant.

  • Copyright 1981 – 2011 Barry M Frohlinger 3

    Tierco acquired the financially troubled Wild World in Largo, Maryland, in 1992. With a $500,000 investment, Tierco expanded Wild World's kiddie section and remodeled its buildings to give the park a tropical look and feel. Story was promoted to executive vice-president after the purchase of Wild World. In 1994, he was promoted again to president and chief operating officer (COO). At the same time, Burke became chairman and CEO.

    Since Tierco was on its way to becoming a "premier" regional theme park operator, in 1994 it changed its name to Premier Parks. Burke noted that the new name signified the beginning of a new era for the company.

    During the next few years, Premier acquired three parks in 1995 and in 1996 Premier added another three parks. Premier went public in 1996 and raised $70 million through an initial offering at $18 a share. The company planned to use the money to expand its ten parks and acquire new ones. In 1997, Premier purchased two parks and became manager of Marine World, then a marine and exotic wildlife park located in Vallejo, California, pursuant to a contract with the City of Vallejo under which Six Flags is entitled to receive an annual base management fee of $250,000 and up to $250,000 annually in additional management fees based on park revenues. In November 1997, Six Flags exercised its option to lease approximately 40 acres of land within the site for nominal rent and an initial term of 55 years (plus four ten-year and one four-year renewal options). Six Flags is entitled to receive, in addition to the management fee, 80% of the cash flow generated by the combined operations at the park, after combined operating expenses and debt service on outstanding third party debt obligations relating to the park and also an option through February 2007 to purchase the entire site at a purchase price equal to the greater of the then principal amount of the debt obligations of the seller (expected to aggregate $52,000,000) or the then fair market value of the seller’s interest in the park (based on a formula relating to the seller’s 20% share of Marine World’s cash flow).

    A second public offering at $29 a share raised an additional $200 million. Nearly 8.8 million people visited Premier's parks in 1996, making it the second largest chain in the world by attendance.

    Burke said that the success of Premier's first three parks propelled it into its public offering, which raised the capital the company needed to purchase the additional parks.

    In December 1997, Premier purchased a controlling 94 percent interest in Walibi Family Parks in Europe. Walibi owned three parks in France, two in Belgium, and one in The Netherlands. The transaction was valued at $140 million for all six parks. After the acquisition of the Walibi parks, which was consummated in March 1998, Premier controlled 20 parks with a combined 1997 attendance of approximately 14.5 million. Then in April 1998 Premier purchased the 12-park Six Flags chain from Time Warner, a chain whose history dated back to 1961.

    Early History of Six Flags

    The company that introduced steel roller coasters, log flumes, and whitewater rides to the world was founded by Angus Wynne in 1961. Three years before the grand opening of his first amusement park, Six Flags Over Texas, Wynne, a Texas oilman and real estate developer, and his partners held a brainstorming session to try to find a way to finance their latest project, a sprawling industrial park located on 7,500 acres of land between Dallas and Fort Worth. Having exhausted all of their cash and credit to purchase the land, the group needed money to develop their dream, the Great Southwest Industrial District. As the conversation at the meeting turned to Disneyland, which had opened three years earlier, one of the partners suggested to Wynne that he open an amusement park himself to generate the needed funds. Wynne took the advice seriously. Later that year, he paid a visit to the southern California park and returned to Texas convinced that the idea for the project was viable. Construction began in 1960 and was completed on August 15, 1961, at a cost of $3.4 million. Wynne named the business "Six Flags Over Texas."

  • Copyright 1981 – 2011 Barry M Frohlinger 4

    The first Six Flags park, like its Disney forerunner, featured a variety of attractions designed to entertain customers of all ages. The people of Texas responded positively to his message. Although Wynne projected that 500,000 people would enter [with an entrance fee of $2.50], his expectations proved to be too conservative: the park drew more than one million that first year, providing enough cashflow to pay off all construction costs.

    As had been his original intent, Wynne and his partners used the cash to get the industrial park back on its feet. Even after such a successful debut, the park was intended to have a life span of only about ten years, at which time it would be swallowed up by the industrial development. As attendance and revenue continued to increase during those first few years, however, Wynne quickly came to realize that the amusement park itself was of great value.

    During the 1960s, the burgeoning amusement park increased its attendance each ye

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