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Six Flags, Inc. (NYSE:SIX)

Q4 2008 Earnings Call

March 16, 2009 9:00 am ET

Executives

Sandra Daniels - Vice President of Communications

Mark Shapiro - President and CEO

Jeff Speed - Executive Vice President and Chief Financial Officer

Analysts

Joe Stauff - CRT Capital

John Brecker – Longacre Management

[Steve Gidumal – Burgess Capital]

Barrett Naylor – Brownstone Asset Management

[John Weng] – Trust Company of the West

Howard Bryerman – Evergreen Investments

Operator

(Operator Instructions) Welcome to the Six Flags, Inc. Fourth Quarter 2008 Earnings Conference Call. I would now like to turn the presentation over to your host for today's call, Ms. Sandra Daniels, Vice President of Communications.

Sandra Daniels

On March 10, 2009, the company released its financial and operating results for the fourth quarter ended December 31, 2008. A copy of the earnings release is available on the company’s website at www.SixFlags.com under the heading Investors.

Here with me today are our President and CEO, Mark Shapiro, and our Executive Vice President and Chief Financial Officer, Jeff Speed. Before I turn the call over to them, they have asked me to remind you that in compliance with SEC Regulation FD, a webcast of this call is being made available to the media and the general public as well as analysts and investors.

The company cautions you that comments made during the call will include forward looking statements within the meaning of the Federal Securities Laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in such statements. You may refer to the company’s 2008 Annual Report on Form 10-K which is also posted on its website for a detailed discussion of these risks.

Because the webcast is open to all constituents and prior notification has been widely and unselectively disseminated, all contents of the call will be considered fully disclosed. In accordance with SEC Regulation G, non-GAAP financial measures used in the earnings release and in the company’s oral presentation today are required to be reconciled to the most directly comparable GAAP measure. Those reconciliations are available to investors in the earnings release and on our website.

Now I would like to turn the call over to Mark Shapiro, our President and CEO.

Mark Shapiro

As I mentioned on our third quarter earnings call, upon the installation of our current management team in early 2006 we set out to implement a three year turnaround plan while leveraging our nearly 50 year history and internationally recognized Six Flags brand name. Since then, we have worked tirelessly to diversify and grow revenues and increase our operational efficiency and cash flows. As a result of these initiatives, and despite a challenging economic environment in 2008, Six Flags achieved the five key strategic objectives that my teams set out to achieve by the end of its third year.

In other words, we accomplished our mission. We answered the call. First, we cleaned up the parks, improved the overall guest experienced, and repositioned the brand by diversifying the product offering. For the second year in a row our key guest satisfaction scores were at or above all time highs. We were cleaner, delivered a more broad based entertainment package, enforced the code of conduct for our guests, and had better trained employees to deliver a better standard of service. Our commitment to safety and security was heightened as well. Bottom line is that we succeeded in bringing the family back to Six Flags.

Secondly, we created and grew a new high margin and low capital sponsorship and licensing business that achieved annual revenues in excess of our targeted goal of $50 million. In 2008 we achieved sponsorship and licensing revenue from these initiatives of approximately $59 million, an increase of 53% over the previous year.

Third, we exceeded our target of $40 per capita and achieved more then 20% cumulative growth from 2005. Goal number four, we improved our modified EBITDA margin by 6.2% over 2007 but more importantly we operated at an EBITDA margin of 30.1% in 2008 which was one of the five key strategic objectives.

Finally, fifth and last, we generated positive free cash flow for the first time in our company’s history. During 2008 we were free cash flow positive with a record adjusted EBITDA of $275.3 million representing a 45% increase year over year. This was the best year ever for the company. The company has never had better performance for this portfolio of parks.

The operational side of our business is extraordinarily healthy. I am proud of the work of our 30,000 employees who believed in our vision and executed the strategy. Morale is strong at this company because after a great many years of hard times the employees of Six Flags have something to cheer about.

Turning to 2009, I don’t need to remind anyone of the difficult economic environment, particularly in the area of discretionary consumer spending. Yet I remain cautiously optimistic that our 2009 plan which is well designed to offer an exciting entertainment package at value pricing, will resonate with our guests in this challenging environment. This plan includes exciting new and improved rides including two new coasters. One at Magic Mountain in Los Angeles themed after the new Terminator Salvation movie, and one at Six Flags Mexico themed after The Dark Knight blockbuster film.

Two other coasters being re-launched and repackaged at Six Flags New England and Six Flags Great Adventure in New Jersey. We’ve already opened a new Wiggles World in San Antonio. We have an expansion of our popular summer concert series and our Glow in the Park Parade. We’ll have an increase in our operating days and hours and an exciting marketing campaign featuring the reintroduction of our iconic Mr. Six character and efficient marketing campaign that is taking advantage of lower ad rates in the marketplace.

Moreover, in this the third year of our staffing initiatives I expect us to have the best qualified, trained, and most highly motivated park staff in our company’s history, designed to deliver even higher levels of guest satisfaction.

Turning to our balance sheet, first let me give you some historical context. When my team and I joined the company in early 2006 we inherited a highly leveraged company with significant associated debt service requirements as a result of poor investments by prior management.

Since the management change we have sought to improve the company’s balance sheet and debt profile by, among other means, selling non-core assets for almost $400 million, entering into a new $1 billion credit facility with much more favorable rates, covenants and extended maturities, and completing a transaction last year in which we exchanged approximately $530 million of existing notes for approximately $400 million of new notes maturing in 2016 thus reducing debt by $130 million and further extending our debt maturities. Despite these significant achievements we of course remain highly leveraged.

As I mentioned on our third quarter earnings call, we are exploring all options in order to reduce debt and comprehensively clean up our balance sheet once and for all. The first step to fixing this company was turning around the operation and restoring faith in our brand. The next step was always the balance sheet.

Given the current negative conditions in the economy generally, and the credit markets in particular, there is substantial uncertainty that we will be able to affect a refinancing of our debt in the near term or our preferred stock prior to its redemption date on August 15, 2009, as indicated in our 10-K filing. We simply can’t refinance our debt with the markets being what they are and we can’t sell excess real estate in this environment and expect to get something even close to full value.

Therefore, like many other companies we are exploring a number of alternatives which in any event is expected to include a significant debt for equity exchange and we have thus retained Houlihan Lokey as our financial advisor along with council for the company and for the Board. Together with Houlihan Lokey we’ve held a number of discussions with most of our large debt holders.

While many of our debt holders have been generally supportive of our efforts to reach a consensual out of court deal, one of our principal debt holders who holds a significant amount of our senior notes due 2010 has thus far resisted a consensual restructuring. In fact, the portfolio manager of that principal who holds the 2010 has refused to even meet with me in person. The auto companies have an easier time getting a meeting with the United Autoworkers then I do of getting a meeting with this particular portfolio fund manager. It makes no sense.

Still, we stand ready, willing, and able to work with them towards a resolution. In the meantime we will continue to explore all options to right the balance sheet. At this time what I want to assure all of our partners, vendors, guests, and employees, all of the stakeholders at Six Flags, is that no matter what route we choose our guests will not see a difference in our product offering this summer. In fact, they will only continue to see significant improvements.

As I mentioned earlier, we are full steam ahead on new rides in every park. We will have the best concert lineup nationwide that we’ve ever had. New attractions themed after movie franchises such as Terminator Salvation, The Dark Knight, The Mummy, and the upcoming feature Fame. New advertising partners such as T-Mobile, and of course Mars with their new in park M&M emporiums.

Current partners that are actually expanding their relationships with us like American Express, Chrysler, Papa John’s, Johnny Rockets, and Coca Cola. Season pass and group sales which to date are brisk. Our longest season ever at several of our parks, and our everyone pays kids pricing strategy which has deeply resonated with the consumer. We are open at Six Flags, figuratively, and literally and we will be at full throttle.

Our balance sheet initiatives are purely back of house issues that deal exclusively with our holding companies and their creditors. Our park operations are on solid footing and highly profitable. Our brand has reemerged. The connection between Six Flags and the consumer has been reestablished and our 30,000 employees that have worked tireously over the last three years to make it all happen remain faithful and confident.

For those of you who are visitors, those of you who come with your friends, your children, your grand children, those of you who are fans, those of you who are looking for ageless entertainment that is affordable and close to home this summer, those of you who are stakeholders of Six Flags in any way at any level I want you to know that regardless of what you’ve read or heard about the company, regardless of what you might hear in the coming days, know that the product you witnessed us rebuild is strong and will move forward. The guests will only see an even better experience.

Further to that point, while I’ve gone in a great detail on our enhancement and investments to the parks this season I’d add that we’re deep into planning for our 50th anniversary in 2011. We will launch new major attractions in every Six Flags park for our 50th anniversary season and we will continue to clean up, rehab and improve the portfolio of attractions we inherited when the new management team came on board in 2006.

Just one example to illustrate the uniqueness and comprehensive nature of our celebration plan is that we intend to close the legendary wooden roller coaster named the Giant which was built 18 years ago at Six Flags Over Texas for the entire season in 2010 so that it can undergo a $10 million renovation in time to reopen for our 50th anniversary season in 2011.

This would be the largest ride renovation in the history of the company. New trains, a more comfortable ride, a faster ride with additional features all with the intention of restoring this famed coaster to world class status. The take away of our 50th anniversary planning process is that the business and brand of Six Flags is safe and strong and we’re going to stay around.

Finally, speaking directly to all of our vendors and all of our partners, I want you to know that we ended the 2008 calendar year with over $200 million in cash. We are on solid footing when it comes to liquidity. Your bills are being paid and your bills will continue to be paid.

Turning to Jeff Speed to take you through our financials.

Jeff Speed

By now I’m assuming you’ve all had adequate time to read our earnings release and 10-K that we filed last week. I’m going to quickly spend some timing reviewing our results for 2008 including the fourth quarter providing some perspectives on 2009 and then we’ll open the call up for Q&A.

Starting with our full year revenues, we reported a 5% or $50 million increase compared to 2007. The revenue growth reflects continued strength in our sponsorship and licensing business which grew by over $20 million in 2008 to $59 million in revenue. Our per capita guest spending also contributed to the revenue growth increasing by $0.53 due to higher spending on rentals, food and beverage, parking, admissions, and retail.

In terms of volume, our 2008 full year attendance increased 400,000 to 25.3 million. This was comprised of a 900,000 increase in paid attendance, partially offset by planned reductions and complementary and free promotional visits. For the 2008 fourth quarter our revenues also increased 5% driven by a 9% increase in attendance as well as increased sponsorship and licensing revenues.

Contributing to our fourth quarter performance was a more favorable operating calendar resulting in additional park operating days for our Fright Fest and Holiday in the Park products compared to the fourth quarter of 2007. However, I should note that the fourth quarter increase in park operating days effectively offset the loss of park operating days we experienced in our third quarter compared to last year.

Per capita guest spending decreased 7% in the 2008 fourth quarter reflecting lower spending on admissions and in park items. This decrease was primarily attributable to an increased mix of season pass visitation in proportion to one day visitors who tend to spend more. Season pass visitation accounted for approximately two thirds of the attendance increase for the quarter.

With regard to our operating costs and expenses, 2008 was a good story for us. We achieved strong revenue growth, maintained record customer satisfaction scores while simultaneously reducing our operating costs and expenses by a meaningful amount. For the full year 2008 our operating costs and expenses excluding depreciation, amortization, stock based comp and loss on disposal of assets decreased almost $30 million. The lower costs were driven by targeted reductions in marketing as well as outside service costs, labor, supplies and travel related expenses.

These reductions were partially offset by increased cost of sales due to higher sales volumes, incentive based comp, insurance costs and utility expenses. As for the rest of the income statement, our interest expense decreased compared to the prior year by $7 million for the quarter and $21 million for the full year reflecting a lower level of long term debt and reduced interest rates.

The company’s 2007 refinancing of its senior secured credit facility, interest rate swap put in place in February 2008, as well as the June 2008 exchange of new senior unsecured notes due in 2016, were the drivers of the interest expense reduction. The refinancing transactions also drove the year over year change in net gain or loss on debt extinguishment which was a net loss of $13 million in 2007 and a gain of $108 million in 2008.

During the fourth quarter we experienced a $7 million increase in other expense compared to the 2007 quarter. The 2008 fourth quarter other expense reflects a non-cash mark to market charge of $15 million for an interest rate hedge that ceased to qualify for hedge accounting treatment under the accounting rules.

For the 2008 full year other expense decreased from $20 million to $15 million primarily due to the prior year costs of settling a California labor class action lawsuit that originated in 2005. Also contributing to the full year change were severance and benefits costs related to the early retirement program we implemented in the prior year, partially offset by the non-cash mark to market charge in the current year.

Our provision for income tax is increased for the full year 2008 reflecting the impact of a $111 million non-cash charge to increase the valuation allowance against our principal deferred tax asset, our tax net operating loss carry forwards. As you may know, income tax accounting is balance sheet based which means that any change in our tax valuation allowance flows directly to our income statement on a current basis.

The increased valuation allowance was the result of us no longer assuming that a tax planning strategy such as a hypothetical sales and lease back of excess real estate would be implemented to prevent the future expiration of net operating losses. The change in our valuation allowance is arguably academic as any restructuring transaction that we implement will likely impose a limitation on and/or reduction of our tax net operating loss carry forwards. This is more fully discussed in our Form 10-K.

For ease of reference, in our earnings release, we provided income loss from continuing operations and related per share information excluding the impact of the non-cash income tax charge and the non-cash mark to market charge that both occurred in the fourth quarter 2008.

Clearly the headline for our 2008 performance is that our increased revenues and reduced costs resulted in adjusted EBITDA growth of 45% to over $275 million enabling the company to generate positive free cash flow for the first time. There aren’t too many companies these days reporting increased revenues, significantly reduced costs and capital expenditures, a $170 million improvement in free cash flow while at the same time improving their product and image and expending their brand both domestically and internationally.

It’s a significant accomplishment for our company to be sure and more then anything else, as Mark mentioned, it’s a testament to the talent and commitment of our 30,000 employees who’ve worked extremely hard to deliver this record performance, evidenced by the fact that every single one of our parks contributed to the improved performance.

Now as we turn the page to 2009 like most companies these days, our visibility with respect to the top line remains very limited. At this point we’re looking to remain relatively flat on ticket and in park per capita spending, notwithstanding some downward pressure from foreign exchange impacts on our Mexico and Montreal park revenues.

On our sponsorship and licensing front, as you know we’re right in the midst of our selling season so we’re not going to provide guidance on where we see that business going until our Q1 call in a few months. What I can tell you is that through the end of February, which historically only comprises about 2% of our annual top line, revenues have remained stable notwithstanding the adverse foreign exchange impact in the period compared to the prior year period.

In terms of season pass and groups we’re much too early in the season to draw any definitive conclusions; however, I can tell you they are holding relatively stable as well.

On the cash operating expense front, we’re continuing to squeeze efficiencies out of marketing where we’re benefiting from attractive ad buys as well as other cash expenses. For 2009 we decided to reinvest those savings into the product and the expansion of our operating calendar and operating hours to provide more value to our guests particularly season pass holders.

However, we will see some increases on our expense line in 2009 primarily attributable to non-discretionary items such as minimum wage, pension and utilities costs. As a result, we expect our 2009 cash operating expenses to increase approximately 3% over the 2008 level. Finally, with respect to CapEx we’re planning to spend approximately $100 million as we continue to add marketable attractions, fulfill our annual maintenance CapEx requirements, and continue to implement our multi-year IT reinvestment plan.

I should also point out that our Q1 results this year will be impacted by the timing of Easter break which was in Q1 last year and will shift to Q2 this year which, depending upon school calendar and obviously weather can account for upwards of 200,000 to 300,000 in attendance.

With regard to our cash and liquidity position, you’ll recall that in October of last year we drew the $244 million remaining available on our revolving credit facility to ensure the availability of funds for the 2009 off season. As a result, as Mark mentioned earlier, we ended 2008 with $210 million of unrestricted cash to fund our off season costs, expenses and CapEx.

With that I’ll now turn the floor back over to our host to commence the Q&A portion of the call.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Joe Stauff - CRT Capital

Joe Stauff - CRT Capital

Can you remind me just generally when the parks are officially opened to the public? I heard your remarks regarding sponsorship revenue and I understand that, with respect to the historical contracts that you have with certain sponsors, of the $59 million that you booked last year is there a certain percentage of that that reoccurs this year regardless given the contract length?

Mark Shapiro

Generally our full time operating season as you know is Memorial Day to Labor Day. We have about five parks that are open now, generally just on weekends and of course Spring Break periods. The way you can look at it is Magic Mountain is pretty much a year round operational, although in the off months, the winter months, and its weekends only.

Mexico is pretty much a year round operation as well. In San Antonio, Dallas, and San Francisco are open now, again just on weekends and we opened them earlier this year trying to take advantage of some expected or hopeful good weather. Then also we have Six Flags over Georgia. Basically the parks start opening in early March on the weekends. That continues gradually into the spring.

For example at the beginning of April that’s when Great Adventure in New Jersey opens up. That’s when Six Flags New England opens up. Again, they’re open on the weekends up until for the most part Memorial Day. We do a lot of group outings, we do a lot of school days up till them but full time is Memorial Day till Labor Day. Then September goes weekends and then October of course is weekends for Fright Fest.

Regarding your other question, yes there’s a lot of business that is recurring, a ton of business. As we stated before some sponsorship deals are one year tests, some are three years, the biggest one we have a few of them are five year deals. The term and the length and the deliverables vary deal by deal. You walk into a year usually down a few million on ones that are up for renewal or expiring. You try and renew then and then go out and get new business.

Operator

Your next question comes from John Brecker – Longacre Management

John Brecker – Longacre Management

Can you give us an idea of the timing of the refinancing? Secondly, talk about your marketing strategy in regards to refinancing and how you’re going to convince your customers that the parks are safe and that everything’s the same. How do you expect to express that message?

Jeff Speed

In terms of the timing obviously the outside date, our next obligation that comes due which is the mandatory redemption date of our peers in August. As we’ve indicated in our 10-K we are certainly looking to reach resolution on the path we choose well in advance of that date. That’s about as definitive as we can be at this point given we’re in the midst of negotiations.

Mark Shapiro

Short answer to your question, the way you do it is through heavy advertising and a communications blitz, bottom line. That’s what you do, you spend money, you get the word out there you’re an all channels, radio, TV, social media, and digital online out of home print you name it. What I can tell you is no matter what happens the outcome put the product aside for a minute. No matter what the outcome is the word is out on Six Flags restructuring.

Obviously big article on this past Saturday in the New York Times and clearly when something goes in the Times, especially all the homework that that reporter did, it’s going to spread. What I can tell you is the word is out on the street and we’re out there making sure people understand that this isn’t going to affect our park operations.

End of story, not whatsoever, this is a back of house issue, its something that the parent company is dealing with, something we’re dealing with here in New York but all of our parks are profitable, coming off great seasons, all seeing season passes selling, all seeing sponsorship selling, all seeing group outings renew and even new groups coming on board in this economy where group outings are being cut back.

Had a strong weekend this past weekend in those parks that didn’t have any inclement weather. Despite the press reports that are out there our 10-K and everything else. We’re open for business, we’re at full throttle, we’re going to stay that way and I would argue our product will not only be better because that’s our goal to make it better every year, but it’ll be that much more dynamic for two reasons.

One, we know guests are staying closer to home, in this economy just less travel. You can see that in future bookings at hotels and of course airlines. Secondly, because the buzz of restructuring is out there we have to work that much harder to deliver great product so that it spawns terrific word of mouth.

John Brecker – Longacre Management

Given the economy do you expect you’re going to have to be more promotional then in the past to drive traffic into your parks?

Mark Shapiro

No, as Jeff mentioned, again it’s just the first two months, we don’t do much business, its 2% of our top line, but so far so good. This business is a resilient business. This business is akin to the movie theaters and as you’ve seen gross receipts are up 12% through this weekend. More importantly attendance at the movie theaters is up 15%. People are staying close to home, they’re looking for value, they’re looking for affordability, they’re looking for convenience, and they’re looking for something for all ages.

When you can go to Six Flags Over Georgia one of our top parks with a terrific reputation, been around for almost 50 years actually and get a season pass for the longest season ever with more hours then ever for $49.99 you just simply can’t beat that value. Its up to us, the onus is on us to get that word out there. We feel very good about our everyone pays kids pricing strategy. More importantly we feel even better about the value that comes with the daily ticket strategy and the value, especially that comes with our season pass package.

Operator

Your next question comes from [Steve Gidumal – Burgess Capital]

[Steve Gidumal – Burgess Capital]

Your first statement was that the portfolio manager of the largest holder of the 2010 refused to meet with you. Should I assume, I’m just going by the holdings list that that’s Fidelity is that the group that’s not talking to you.

Mark Shapiro

I think I said one of our largest, one of our principal holders. I’m not going to confirm or deny anything that was written in the New York Times on Saturday.

[Steve Gidumal – Burgess Capital]

I didn’t see that story so I apologize. Did they mention Fidelity?

Mark Shapiro

Yes they did.

[Steve Gidumal – Burgess Capital]

Fidelity as an institution owns 90 million shares of Disney could that be the strategy of this portfolio manager that there’s sort of a collusion within the house of Fidelity to bring you guys down so that they can improve the value of their holdings at Disney? If that’s the case, then that would probably even actionable item from any number of stakeholders here at Six Flags.

Mark Shapiro

I would underscore for you that I’m not hanging anybody out there. I’m trying to be candid about.

[Steve Gidumal – Burgess Capital]

I’m prepared to hang the guy out there. I’m putting in my words. I’ll take the full brunt of that. I’m saying from your standpoint to the extent that that is the case then you really should be beating this drum much more publicly and taking this directly to. Fidelity is basically a public institution; they have basically the funding from millions of Americans, many of whom are out of work right now because of people on the investment side taking advantage of their good offices to put you guys into bankruptcy because of the gross negligence of a single individual manager. That’s something that needs to be brought to the public attention and put this guy under the white hot poker of scrutiny, don’t you think?

Mark Shapiro

Two things I would say that beyond all the folks that are unemployed out there in this environment, we have 30,000 employees ourselves. No matter who it is, again, I’m not going to talk about any one institution. If there’s an out of court deal that can be done, that clearly is in the best interest of all the stakeholders and the employees of the company we should be rushing to that.

Our operations are in good shape; our cash situation is in good shape. Our employees are safe and sound but certainly nobody needs this cloud over their head. We don’t need any kind of long term damage that could potentially be done by this whole process.

Secondly, I think most importantly, I just want to underscore for you and anyone else is that while we sit out here trying to get an out of court deal done one that easily could have been done in January, and quite frankly, we expected to get done, that was our goal in January and February to come to some lockups with our lenders. We’re out there spending, we’re making interest payments, interest payments we really shouldn’t have had to make, interest payments that are tightening up the cash position.

While we’re in good shape with the cash position we’re still spending money we shouldn’t have to spend. The longer that goes and the more cash we spend ultimately our options get diminished.

[Steve Gidumal – Burgess Capital]

Let me just add to your 30,000 employees there are also 25 million Americans that basically do attendance at your parks and I would assume a good chunk of those 25 million are basically people that put money into Fidelity Investment Funds even on the stock or equity side including those shares of Disney that they seem to be in love with.

I think you should be much more visible with this, much more public with it and I think it’s a travesty personally. I would say my understanding is if you start putting this guy under scrutiny I can’t imagine he could withstand this level of public scrutiny. In unconscionable what’s going on if he’s not even taking your calls.

The next topic, on the preferred, you guys have been out there saying that you don’t have the $298 million of cash to redeem them. They’re trading at $0.50 and there are basically 11.5 million shares. Please tell me that you have some sort of plan other then the redemption in August and that you guys are moving forward.

Personally I would say if you hung out there a tender thing where people can tender in and get a dollar in cash for example you would have plenty of tenders like today. I’d encourage you and your financial advisors to put a bucket out there that people can go tender into and you can get your 50.1% much faster. That one I would say that’s on your financial advisors for not being more proactive on that side.

Jeff Speed

The fact of the matter is even if one assumes that we could address the peers at some highly discounted level even equitize them in some way, shape or form the fact of the matter is even when you take that out of the equation we’re at $2.1 billion of debt even off of our record performance in 2009 that’s nine times levered. Long are the days that that’s an appropriate amount of leverage on any company let alone a company that has to continue to reinvest in its business each year.

[Steve Gidumal – Burgess Capital]

That’s fair but we’re just talking about, you guys have been out there last week talking about the August short term issue. My point is that if you saw the August issue then it becomes a Fidelity January issue. If you solve that issue then it becomes a 2013 issue and by that time we probably don’t have a problem.

Jeff Speed

We’ve made the decision and our Board has made the decision that given, like I said, the magnitude of leverage even taking the peers, even taking the stub 2010’s off the table you eight to nine times levered its just not a sustainable capital structure. We are looking to address this balance sheet issue comprehensively once and for all and not kick the can and potentially run the risk of having to do it next year and the year after. That’s the approach we’re taking.

Mark Shapiro

Especially when you figure, we feel pretty confident about our position right now. As we did last summer, when everybody said we were in trouble because of gas prices and the economy was going south I guess they went south to us. At the same time, there’s still so much uncertainty about this summer and this year. Put aside restructuring there’s just uncertainty with the economy and discretionary spending overall.

I don’t want to put this company in a position where you think you fixed the situation as you indicated or suggested for the short term then you go ahead and you have a bad season and you find yourself right back in the mix.

[Steve Gidumal – Burgess Capital]

On that topic, do you think the general year over year decline in gas prices will be a benefit to you guys?

Mark Shapiro

I honestly can’t tell you that it will. To be consistent other then one of our parks where we had research that showed that the high gas prices were having an adverse impact on one of our parks I specifically said it was Magic Mountain in Los Angeles who by the way had a terrific year last year, fantastic park and the efforts that Jay Thomas and his team have done to turn around that park. Of course we reengineered a big coaster last year which drew a lot of attendance.

Really, that never played out. Gas prices are high, okay, so that made airline tickets very expensive and people started traveling less. Still driving within 50 miles which is where we get 75% to 80% of our attendance for a day at Six Flags, cheap nights stay at a hotel nearby and get a two day stay out of it, take advantage of the season pass at a low price. We didn’t see any adverse impact by the gas prices.

More importantly, we didn’t see any adverse impact on our in park spending which of course went up. That’s holding true this year. Granted it’s very early, we’re only open on weekends in some warm weather parks but when we have good weather we’re seeing the attendance. When we have good weather we’re still seeing spending.

We’ve guided to be much more conservative in these uncertain times but never the less the business is sound. The business is healthy. Once we get this balance sheet taken care of this company’s going to fly.

[Steve Gidumal – Burgess Capital]

I’ve visited a number of your parks but as many of the guys on the call are close to the New York area, where do you rank that Great Adventure Park, you mentioned the Magic Mountain is one of your best parks. Is the Great Adventure in the middle, one of your better ones, one of your worst ones? How would you rate that one just so we understand the experience on a national level?

Mark Shapiro

When we came on three years ago we internally set up an in house Oscars if you will. We wanted to give out national corporate awards for each of our parks every year. We have an offsite in January where the senior leaders of the company come together, senior leaders from each park, we get on the same page, strategy session, go through the plan, go through the blueprint, talk about what we’re doing poorly, talk about what we can do better, talk about what we’re doing well, we share best practices. I’m sure you’ve been through a million of these in your career.

If its offsite one night we host what we call the Golden Flag Awards which is essentially our Oscars and we have nominations that come out a month in advance and we give out awards where people are measured by certain financial metrics, but also qualitative metrics. We have categories ranging from park president of the year to the best park of the year, to the cleanest park of the year to the best guest service of the year to the best operations team of the year, the best food team of the year, you name it.

These parks compete and you can imagine how competitive it gets. We give out big trophies, it’s a star studded event full suit and tie, and you name it. The winner last year for the park of the year was Great Adventure. I take great pride in, by the way, I don’t vote on this, our corporate staff goes out, we do audits and then they vote hidden ballot if you will.

I take great pride in this because I will tell you candidly this park was in arguably the worst shape of any park we inherited which is so sad at the value that was destroyed given just the location of the park and the fact that it draws from not only New York but New Jersey but Philadelphia and Connecticut as well. This is a park that once did four million in attendance in a single year. When Bob Pittman was running this park, or had the oversight of it, it was one of the best.

I’m proud to say that Mark Kane is the park president there and his team has elevated it right back to at least the award gave it the best park in our portfolio.

[Steve Gidumal – Burgess Capital]

When we go and see that experience we’ll see that’s how the other parks are being measured against.

Mark Shapiro

No question. As an investor or a stakeholder in anyway I’d extend the invitation to meet Mark Kane and have him take you around some of the changes. The first year of this park I used to send people to Six Flags New England when they asked can we get an idea of what you’re doing in the turnaround and what represents your vision. I would steer them clear of Great Adventure because Great Adventure needed a turnaround, needed a lot of investment, a lot of training, a lot of hiring, a lot of firing. It took two years but last year they were exceptional and that’s just going to get better each year.

[Steve Gidumal – Burgess Capital]

Mark and Jeff you guys are doing a great job. Thanks so much and my final comment would be I think you’re being way too generous in passive to the guys at Fidelity. You should really be much more aggressive.

Operator

Your next question comes from Barrett Naylor – Brownstone Asset Management

Barrett Naylor – Brownstone Asset Management

What’s your average ticket price now if you walk up to the gate the day of?

Mark Shapiro

They vary park to park. It’s different depending on what region you go to but with our everyone pays kids pricing which is how most people buy online or in market if you will at the grocery store or fast food. We’re synced up where its $29.99 across the board.

Barrett Naylor – Brownstone Asset Management

Are there any details you can provide on the reorg plan, I know its preliminary but I keep seeing things drove out through the press saying other details. I’ve seen 85% equity for all the bond holders but is there anything beyond that you can disclose right now?

Jeff Speed

We really can’t. As I mentioned, we’re in the midst of discussions, negotiations, it just wouldn’t be appropriate to comment or to validate what’s been reported out there given the position we’re in right now. Certainly as soon as we have something definitive to say we’ll obviously be out with it promptly.

Barrett Naylor – Brownstone Asset Management

I know you said before you’re not going sign any distressed prices but are assets sales from you still contemplated given the right multiple?

Jeff Speed

Asset sale are not part of the equation. The portfolio of parks that we have right now we’re very comfortable with. As you may know since we’ve come on board we got rid of about 10 parks “non-core parks”, got a nice multiple on those parks, almost 11 times, $400 million worth of proceeds. We’re comfortable with the portfolio we have. We do have excess land but as you know, the real estate market is just not receptive to any sort of value that would make sense for that.

Mark Shapiro

We’re always looking. That’s our responsibility but we’re not actively out there pursuing any asset sales.

Barrett Naylor – Brownstone Asset Management

On the sponsored revenues for ’09 did you guys disclose what you expect those to be?

Jeff Speed

We’re going to give you guidance on our Q1 call. Lou Koskovolis and his team are right in the heart of their selling season, renewals and new business and we’ll have a better gauge on where we’re going to come out on our Q1 call.

Barrett Naylor – Brownstone Asset Management

Do you expect any free cash flow positive given you had a great year last year but its much more challenging this year do you expect to have the same sort of success?

Mark Shapiro

We’re not going to give out EBITDA guidance just as we didn’t last year. What I would tell you it’s interesting to be in this restructuring phase yet our business is on the way up. The momentum is very clear. It’s such an uncertain economy I honestly couldn’t forecast it. We have concerns, there’s no question and that’s why our guidance is as flat as it is with regard to in park spending.

Barrett Naylor – Brownstone Asset Management

You do expect OpEx up 3% year over year?

Jeff Speed

Right, we do expect OpEx to be up which obviously last year we had a $30 million reduction in OpEx, this year we’re getting hit with some primarily non-discretionary items in terms of minimum wage, the impact on our pension given what’s gone on in the marketplace as well as utility costs. We’ve got that nut to overcome. At the same time there’s uncertainty on both the volume and spending front as we look forward. However, to date, things have remained relatively stable on the tope line.

Barrett Naylor – Brownstone Asset Management

Why are utility costs going up?

Jeff Speed

We had multi-year contracts at several of our large parks that were three and four year contracts. We obviously benefited from those contracts for the last several years and even though this year we expect utility costs to be down from last year these parks were benefiting from a long term contract such that the costs are going to be higher versus what that contract rate was.

Barrett Naylor – Brownstone Asset Management

On pension, how much is that going to hurt you this year?

Jeff Speed

It depends on ultimately where the asset values go but we have to fund to the 75% level by September of this year. If you look at our end of year ’08 values that would suggest somewhere close to $5 to $10 million.

Operator

Your next question comes from [John Weng] – Trust Company of the West

[John Weng] – Trust Company of the West

Can you provide a little update on your expansion opportunities into Dubai and Qatar? In light of everything that’s going on what impact if any this made on any future opportunities?

Mark Shapiro

So far so good. I’m not going to say cross my fingers because luck has nothing to do with this. A lot of hard work has gone into this that Andrew Schleimer and his team they run our International Division and they’re out there pounding the pavement. I’ve just returned with Andrew a trip, a four country swing. First we went to Dubai to meet with our partners there. No news. I know people are asking and wondering about is the park still going to happen, delay or whatever it might be.

I just want to tell you, nothing definitive yet. We’re for sure continuing with the park. We don’t have any definitive delays there yet. I expect we probably will maybe 12 months or so. Nothing definitive yet. We’re still in our design and development phase. No decision really has to be made there yet. I like what I see there. Obviously Dubai has tons of issues but I like what I see there with regard to Six Flags.

On Qatar we’re still in our design stage there but I believe that a water park, theme park and Six Flags hotel resort is in the cards for the future. After Qatar we went to South Africa where we’re in discussions on a 250,000 square foot Six Flags complex also a theme park, hotel and water park. I think we’ll have something to announce there by the summer.

Finally, Korea, which is really the most we’re in discussions on a design arrangement for a park in South Korea. Not sure if we’ll actually end up building it but we’re in discussions on closing a contract where we design a bunch of concepts and they would lock up the Six Flags name for the next 12 months while they tried to finish putting the money together to build a park there.

So far the restructuring conversations haven’t had any adverse impact on our international expansion and we’re just out there pounding the pavement. I would tell you of all the parts of our business that’s not just the most active but I’m the most optimistic about that area.

Operator

Your next question comes from Howard Bryerman – Evergreen Investments

Howard Bryerman – Evergreen Investments

I’m sure you guys are working with restructuring experts who understand financial engineering much better then I do. Maybe this is a naïve question but the 8 7/8 which seems to be the problem security here, I’ll make the assumption that that is the hurdle that you’re trying to get over in terms of getting an out of court restructuring complete is only $131 million and its apparently callable.

Whoever this manager is why not just, I realize its expensive and this manager probably bought these things cheap, why don’t you circumvent them completely and I realize you’ll have to burn some cash, maybe you could even get assistance in terms of capital contribution from some of the people you’re negotiating with. Why not just take the 8 7/8 debt and move around this guy move forward already?

Jeff Speed

For $0.20 on the dollar?

Howard Bryerman – Evergreen Investments

No, they’re currently callable. Obviously there’s a windfall here. If you’re confronted with bankruptcy versus moving forward I don’t think you can look at what the market value of your bonds are.

Jeff Speed

We’ve got $870 million of bonds at our parent company that all rank with that 2010 bond. They’re all trading about $0.20 on the dollar. It would make absolutely no sense, zero, to spend $130 million of our cash to take out a stub maturity that’s trading at $20 million. It would make absolutely no sense. We’re not going to do it.

Mark Shapiro

We’re you’re staring at a restructuring of this nature I’m curious, staring at it, we’re in it. We’re in it, you get headlines that we’re getting we’re being forced into this position. We shouldn’t even be seeing headlines like this. Our 10-K should have read very differently. We’ve been at this for a long time. There’s a lot of gamesmanship I can imagine. There’s a lot of bluffing, negotiating, I’m not sure but at this point its absurd given what would happen not just to us but to the 2010 in an in court process.

Howard Bryerman – Evergreen Investments

Can you buy bonds in the open market? Do you have the latitude to do that?

Jeff Speed

No.

Howard Bryerman – Evergreen Investments

I realize what I’m saying and I realize what you’re looking at. I just seems that the headlines always seem to buy narrate. Its restructuring or bankruptcy which to me it’s not that black and white. You made your point. You explained why you’re not going to go after these.

Jeff Speed

Liquidity is key too for us.

Howard Bryerman – Evergreen Investments

To reiterate Steve’s comments and not to stroke you too much but it’s clear. You guys have done a phenomenal job on the operating side of it. Its just time to get the capital structure fixed and moved on already. One pat on the back for Mark Kane who I’ve met a number of times, he’s a phenomenal manager; he’s done a great job.

Mark Shapiro

I’m not going to be able fit his head into the park after this call.

Operator

There are no other questions at this time. I would like to hand the call to Mark Shapiro for closing remarks.

Mark Shapiro

I want to thank everyone for joining us. We will not only make ourselves available today and of course the coming days but we will keep you abreast timely and candidly as things play out. Have a great week.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.

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Source: Six Flags, Inc. Q4 2008 Earnings Call Transcript
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