10-Q: PARKS AMERICA, INC
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Management's discussion and analysis of results of operations and financial condition ("MD&A") is a supplement to the accompanying unaudited consolidated financial statements and provides additional information on the Company's businesses, current developments, financial condition, cash flows and results of operations. The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q (this "Quarterly Report") and with our Annual Report on Form 10-K for the fiscal year ended October 2, 2016.
Except for the historical information contained herein, this Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve risks and uncertainties, including, among other things, statements concerning: our business strategy; liquidity and capital expenditures; future sources of revenues and anticipated costs and expenses; and trends in industry activity generally. Such forward-looking statements include, among others, those statements including the words such as "may," "will," "should," "expect," "plan," "could," "anticipate," "intend," "believe," "estimate," "predict," "potential," "goal," or "continue" or similar language or by discussions of our outlook, plans, goals, strategy or intentions.
Our actual results may differ significantly from those projected in the forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including, but not limited to, the risks outlined under "RISK FACTORS" in this Quarterly Report, that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. For example, assumptions that could cause actual results to vary materially from future results include, but are not limited to:
The forward-looking statements we make in this Quarterly Report are based on management's current views and assumptions regarding future events and speak only as of the date of this report. We assume no obligation to update any of these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting these forward-looking statements, except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission.
Through our wholly owned subsidiaries, we own and operate two regional theme parks and are in the business of acquiring, developing and operating local and regional theme parks and attractions in the United States. Our wholly owned subsidiaries are Wild Animal Safari, Inc., a Georgia corporation ("Wild Animal - Georgia") and Wild Animal, Inc., a Missouri corporation ("Wild Animal - Missouri"). Wild Animal - Georgia owns and operates the Wild Animal Safari theme park in Pine Mountain, Georgia (the "Georgia Park"). Wild Animal - Missouri owns and operates the Wild Animal Safari theme park located in Strafford, Missouri (the "Missouri Park").
Our Parks are open year round but experience increased seasonal attendance, typically beginning in the latter half of March through early September. On a combined basis, net sales for the third and fourth quarter of our last two fiscal years represented approximately 67% to 72% of annual net sales.
Our goal is to build a family of theme parks primarily through acquisitions of small, local and regional, privately owned existing parks and to develop a series of compatible, themed attractions. When evaluating possible acquisitions, we rely on the following primary criteria:
Properties that have an operating history;
Properties that our management team believes have the potential to increase profits and operating efficiencies; and
Properties where there is additional, underutilized land available for expansion of operations.
We believe that acquisitions, if any, should not unnecessarily encumber the Company with additional debt that cannot be justified by current operations. By using a combination of equity, debt and other financing options, we intend to carefully monitor stockholder value in conjunction with the pursuit of growth.
We may also pursue contract management opportunities for themed attractions owned by third parties.
One of our highest priorities is to continue to improve operating performance and profit at our Missouri Park. Since we acquired our Missouri Park in March 2008, we have worked to upgrade the Park's physical facilities and dramatically improve its concessions. During our 2015 fiscal year, we completed the installation of five amusement park "kiddie" rides at our Missouri Park. These rides are targeted toward families with children between the ages of three and twelve years old. The addition of these rides is a continuation of our ongoing effort to improve the overall guest experience, as well as public perception of our Missouri Park, and it is our belief that the addition of these rides will help increase attendance and average spending per guest visit. We believe that years of operation under the prior owners resulted in negative preconceptions about the condition of our Missouri Park. We will continue to focus our efforts to promote our Missouri Park and make additional improvements as our capital budget allows. We expect that over the course of several years these efforts will ultimately yield favorable results.
Additionally, we are committed to leveraging the strong operating model we have established at our Georgia Park, with a focus on increasing attendance, as well as increasing the average revenue generated per guest visit via concession and gift shop revenues.
On January 9, 2013, we completed a $3,752,000 loan transaction (the "Refinancing Loan"), the proceeds of which were used primarily to refinance the Company's then-outstanding debt and fund $230,000 of new construction and renovations at our Parks. Over the last four fiscal years, the Refinancing Loan lowered our annual debt service payments by approximately $170,000, freeing up cash flow to fund operations and capital improvements at our Parks.
Our income from operations and operating cash flow have improved significantly over the past two fiscal years. These improvements are primarily attributable to a combination of increased attendance revenues and strong operating cost controls. The Refinancing Loan has also provided us with incremental cash flow margin. However, our current size and operating model leave us little room for error. Any future capital raised by us is likely to result in dilution to existing stockholders. It is possible that cash generated by, or available to, us may not be sufficient to fund our capital and liquidity needs for the near-term.
Results of Operations For the Three Month Period Ended January 1, 2017 as Compared to Three Month Period Ended
January 3, 2016
We manage our operations on an individual location basis. Discrete financial information is maintained for each Park and provided to our corporate management for review and as a basis for decision-making. The primary performance measures used to allocate resources are Park earnings before interest and tax expense, and free cash flow. We use this measure of operating profit to gauge segment performance because we believe this measure is the most indicative of performance trends and the overall earnings potential of each reportable segment.
Our 2017 fiscal year will end on October 1, 2017 and will be comprised of 52 weeks. Our 2016 fiscal year ended on October 2, 2016 and was comprised of 53 weeks. The additional week in our 2016 fiscal year occurred within the three months ended January 3, 2016. As such, we will discuss Park attendance based net sales on both a reported, as well as a comparable 13-week, basis for the three months ended January 1, 2017 as compared to the prior year.
The following table shows our consolidated and segment operating results for the three months ended January 1, 2017 and January 3, 2016:
Georgia Park Missouri Park Consolidated Fiscal 2017 Fiscal 2016 Fiscal 2017 Fiscal 2016 Fiscal 2017 Fiscal 2016 Total net sales $ 879,826 $ 667,415 $ 119,604 $ 105,197 $ 999,430 $ 772,612 Segment income (loss) from operations 391,561 179,167 (73,659) (104,512) 317,902 74,655 Segment operating margin % 44.5% 26.8% -61.6% -99.3% 31.8% 9.7% Corporate expenses (260,982) (159,312) Other income (expense), net 1,831 2,096 Interest expense (50,224) (54,603) Income before income taxes $ 8,527 $ (137,164)
Total Net Sales
On a reported basis, our total net sales for the three month period ended January 1, 2017 increased by $226,818, or 29.4%, to $999,430 versus the three month period ended January 3, 2016. Our Parks' combined attendance based net sales increased by $188,756 or 24.9%, and animal sales increased $38,062. On a comparable 13-week basis, our Parks' combined attendance based net sales increased by $220,504 or 30.3%.
Our Georgia Park's reported net sales increased by $212,411 or 31.8%. Our Georgia Park's attendance based net sales increased by 27.3% and 31.5%, on a reported and comparable 13-week basis, respectively. Our Missouri Park's reported net sales increased by $14,407 or 13.7%. Our Missouri Park's attendance based net sales increased by 7.6% and 21.1%, on a reported and comparable 13-week basis, respectively.
On a comparable 13-week basis for the period ended January 1, 2017, attendance at our Georgia and Missouri Parks increased by 26.4% and 20.9%, respectively. We believe positive seasonal weather and overall favorable customer perception of our Parks contributed to higher revenues and higher attendance during the three months ended January 1, 2017 as compared to the comparable period in the prior year.
Segment Operating Margin
Our consolidated segment operating margin increased by $243,247, resulting in segment income from operations of $317,902 for the three month period ended January 1, 2017 compared to $74,655 for the three month period ended January 3, 2016. Our Georgia Park's segment income was $391,561, resulting in an increase of $212,394, principally as a result of higher attendance based net sales and lower advertising expense, partially offset higher general operating and compensation expenses, and increased cost of sales. The segment loss for our Missouri Park was $73,659, a decrease of $30,853, primarily as a result of higher attendance based net sales and lower overall operating expenses.
Corporate Expenses and Other
Corporate spending increased by $101,670 to $260,982 during the three month period ended January 1, 2017, primarily due to higher compensation and legal expenses.
Interest expense for the three month period ended January 1, 2017 was $50,224, a decrease of $4,379 compared with the three month period ended January 3, 2016. This decrease is the result of lower average term loan borrowing.
For the fiscal year ending October 1, 2017, we expect to generate pre-tax income and to record a tax provision at an effective rate of approximately 38%. As such, we recorded a tax provision of $3,300 for the three month period ended January 1, 2017.
Our cumulative Federal net operating loss carry-forward was approximately $1,913,000 at October 2, 2016 and will expire beginning in the year 2026. For the fiscal year ending October 1, 2017, we expect to utilize a portion of its Federal net tax operating loss carry-forwards to offset regular Federal cash tax due in its 2017 fiscal year. However, the Company will likely owe Federal alternative minimum tax for its 2017 fiscal year.
For additional information, see "NOTE 8. INCOME TAXES" of the Notes to the Consolidated Financial Statements (Unaudited).
Net Income and Income Per Share
During the three month period ended January 1, 2017, we generated net income of $5,227 or $0.00 per basic share and per fully diluted share, compared to a net loss of $137,164 or $0.00 per basic share and per fully diluted share, for the three month period ended January 3, 2016, resulting in an improvement of $142,391. The primary drivers of the improvement in our net income for the three month period ended January 1, 2017 compared to the comparable 2016 fiscal period were a $212,394 increase in operating income for our Georgia Park, a $30,853 reduction in the operating loss for our Missouri Park, and a $4,379 reduction in interest expense, partially offset by a $101,670 increase in Corporate spending and a $3,300 increase in income taxes.
Financial Condition, Liquidity and Capital Resources
Financial Condition and Liquidity
Our primary sources of liquidity are cash generated by operations and borrowings under our loan agreements. Our slow season starts after Labor Day in September and runs until Spring Break, which typically begins toward the end of March. The first and second quarters of our fiscal year have historically generated negative cash flow and require us to borrow to fund operations and prepare our Parks for the busy season during the third and fourth quarters of our fiscal year.
We believe that our performance has improved to the point that annual cash flow from operations will be sufficient to fund operations, make debt-service payments and spend modestly on capital improvements in the near-term. During the next twelve months, our focus will continue on increasing Park attendance revenues. Any slowdown in revenue or unusual capital outlays may require us to seek additional capital.
Our working capital was $1.34 million as of January 1, 2017, compared to $1.40 million as of October 2, 2016. This decrease in working capital primarily reflects seasonal operating cash flow offset by capital expenditures and scheduled payments on our term debt during the first three months of our 2017 fiscal year.
Total loan debt, including current maturities, as of January 1, 2017 was $3.19 million compared to $3.22 million as of October 2, 2016. The decrease in total loan debt was a result of scheduled payments against our term loan during the three month period ended January 1, 2017. Our LOC balance was $0 as of January 1, 2017 and October 2, 2016, respectively.
As of January 1, 2017, we had equity of $5.53 million and total loan debt of $3.19 million, resulting in a debt to equity ratio of 0.58 to 1.0. Our debt to equity ratio was 0.58 to 1.0 as of October 2, 2016.
Net cash used in operating activities was $372,399 for the three month period ended January 1, 2017, compared to $244,525 for the three month period ended January 3, 2016. Excluding the $372,416 of restricted cash paid out for the Harper judgment award, cash flow related to operating activities improved by $244,542 for the three month period ended January 1, 2017, primarily as a result of an increase in net income and lower working capital requirements.
Net cash provided by investing activities was $314,940 for the three month period ended January 1, 2017, compared net cash used in investing activities of $139,714 for the three month period ended January 3, 2016. Excluding the one-time reduction in restricted cash associated with the payout of the Harper judgment award, investing activities in property and equipment were $141,552 for the three month period ended January 1, 2017, compared to $139,714 in the comparable period in the prior year.
Net cash used in financing activities was $30,869 for the three month period ended January 1, 2017, compared to $27,028 for the three month period ended January 3, 2016, an increase of $3,841. In each period, the only financing activities were scheduled payments on our term loan.
On January 30, 2017, an Order Denying our Motion for Preliminary Injunction or Alternatively, Application for Pre-Judgment Writ of Attachment was entered in connection with our ongoing litigation against a former officer and director of the Company. For more information regarding this Order see "NOTE 9. COMMITMENTS AND CONTINGENCIES" herein.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity or capital expenditures.
Critical Accounting Policies and Estimates
The preceding discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements included elsewhere in this Quarterly Report. Our significant accounting policies are set forth in "NOTE 2. SIGNIFICANT ACCOUNTING POLICIES" of the Notes to the Consolidated Financial Statements (Unaudited) included in this Quarterly Report, which should be reviewed as they are integral to understanding results of operations and financial position. The Parks! America, Inc. Annual Report on Form 10-K for the fiscal year ended October 2, 2016 includes additional information about us, our operations, our financial condition, our critical accounting policies and accounting estimates, and should be read in conjunction with this Quarterly Report.
Feb 09, 2017