Six Flags Entertainment Corp (SIX) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2007 Six Flags Inc.

earnings conference call.

My name is Katina and I will be your coordinator for today.

At this time, all participants are in a listen-only mode.

We will conduct a question-and-answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Ms.

Wendy Goldberg, Senior Vice President of Communications.

Please proceed.

Good afternoon.

I am Wendy Goldberg, Six Flags' Senior Vice President of Communications.

This evening, the Company released its financial and operating results for the second quarter and six months ended June 30, 2007.

A copy of the earnings release is available on the Company's website at 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 2006 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 content in 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.

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

Mark?

Thank you, Wendy, and good afternoon, everyone.

Briefly, off the top, wanted to mention that Jeff is going to kick off the call right now.

Wanted to remind you this call is about the second quarter primarily -- the second quarter only.

Very much like our first-quarter call, we are not going to give partials.

We're not giving year-to-date numbers.

We're here to talk about the second quarter and the second-quarter results.

I will shed some light -- I think it is only appropriate to shed some light and give some color on July, if you will, but I'm not going to get into any specific numbers or financials.

I wanted to make sure that was clear off the top.

Now, turn it over to Jeff.

Thanks, Mark.

As Wendy mentioned a short while ago, we released our operating results for the second quarter and six months ended June 30, 2007.

My discussion this afternoon is going to focus on the Company's results from continuing operations, which excludes a total of 10 parks that we disposed of during the last 12 months, including the sale of the seven parks that closed on April 6 of this year.

As a point of reference, based on historical performance, the first half of the calendar year can represent 35% to 40% of our business, while the third quarter can represent 50% or more of annual revenues.

I also want to point out that compared to the prior-year second quarter and first half, the results for the Company through June 30 reflect 4% fewer parks operating days, due to our decision to leverage operating expenses by reducing certain park operating days having marginal attendance and/or profitability, with the intention of recapturing that attendance, primarily consisting of season pass and groups, on other days that the parks are open.

With that as a backdrop, let's turn to the results for the period.

Let me start by saying that during the second quarter, our parks on a system-wide basis benefited from a modest improvement in overall weather conditions compared to the prior-year period, although regionally, Texas suffered from an extended period of recurring rain and flooding.

Nonetheless, compared to the prior-year quarter, our total revenue per capita increased 3% and attendance also increased 3%.

Our total revenue per capita spending included a 2% increase in per capita guest spending and the impact of a $3 million increase in sponsorship revenues for the quarter.

Our guest spending per capita increase was driven by higher per person spending on admissions, food and beverage, parking and various other in-park offerings, reflecting the impact of pricing and product enhancements that are new this year, as well as improved quality and quantity of staffing.

The attendance increase of approximately 300,000 or 3% reflected the Company's enhanced marketing and promotional programs, including increased media spending.

The attendance growth was primarily driven by season pass and promotional attendance, and to a lesser extent, groups.

Overall, our revenues were up over 6% compared to the second quarter of 2006, with a balanced contribution of both spending and volume.

Total costs and expenses for the quarter included a planned increase in marketing spend of approximately $14 million and additional in-park costs, reflecting the Company's continued emphasis on improving the quality of the guest experience.

The current-year quarter also included a $10.4 million charge related to debt extinguishment.

Specifically, this represents the writeoff of capitalized debt issuance costs associated with our recently refinanced senior secured credit facility, as well as issuance costs related to the $85 million of senior unsecured debt that we recently repurchased.

The debt extinguishment charge is net of gains the Company achieved by repurchasing that senior unsecured debt at a discount to its face amount.

With regard to our results for the six months ended June 30, our revenues were up a solid 8% of the prior-year period, reflecting attendance growth of 3% and total revenue per capita growth of 4%.

This was driven by 3% growth in per capita guest spending and a $6 million increase in sponsorship revenues for the period.

Total costs and expenses for the six months were down approximately 1%.

The drivers of this change were a reduction in loss on fixed assets of $14 million, the prior-year management change costs of $12 million, as well as a reduction in stock-based compensation of $6 million.

These reductions were partially offset by planned increases in marketing expense of $18 million and increases in labor, depreciation and other costs of approximately $7 million.

Adjusted EBITDA for the six months improved by approximately $19 million, reflecting growth in revenues that outpaced growth in cash expenses.

Excluding the prior-year management change cost of approximately $12 million, adjusted EBITDA improved by $7 million.

As far as our cash and liquidity situation, we ended the second quarter with over $80 million in unrestricted cash and no amounts drawn on our $275 million revolving credit line.

With the successful refinancing of our senior secured credit facility, we have extended our debt maturities by several years, reduced our annual interest cost and lightened the burden of certain restrictive covenants.

We are comfortable with our current cash and liquidity position.

In terms of guidance for the full year, it is still too early to draw any definitive conclusions, as the majority of our business is yet to come.

Accordingly, we're not modifying our prior guidance.

As a reminder, we are targeting total revenue per cap growth of 3%, driven by in-park per cap growth of 4% to 5% and relatively flat ticket per cap growth of 0% to 1%.

Included in the total revenue per cap growth of 3% is our target for sponsorship revenues of $38 million for the year 2007.

For total cash operating costs and SG&A, excluding cost of sales and the prior-year management change costs, we are still targeting a total increase of $55 million, representing increased marketing costs of $25 million and $30 million in other cash expenses, primarily increased labor.

Through June 30, our cash expenses were up approximately $21 million.

Before turning the call back to Mark, I would like to briefly review the recent strategic moves that the Company has made to improve its earnings, cash flow and future growth prospects.

In April 2007, we sold seven parks that generated 2006 EBITDA of approximately $30 million.

We sold those parks for $275 million in cash, plus a $37 million note.

With the refinancing of our credit facility, plus $180 million of net investment, which represents less than 60% of the gross proceeds from the sale of the seven parks, we have been able to more than replenish the annual cash flow impact of the parks that we sold.

Specifically, we purchased for a net cash investment of $40 million, a 40% interest in dick clark productions, which had a pro forma adjusted EBITDA for its most recent year of approximately $17 million, making the Company's share approximately $7 million.

We refinanced the Company's senior secured credit facility, extending its maturity well into the next decade and reducing the interest rate by 100 basis points, resulting in annual interest savings of $8 million.

We repurchased $85 million of secured debt, providing annual interest savings of approximately $8 million.

And we will be closing on the buyout of Six Flags Discovery Kingdom for $52 million, acquiring approximately $7 million in annual EBITDA and cash flow based on that park's 2006 results.

The combined impact of these efforts is approximately $14 million in additional adjusted EBITDA and $16 million in reduced cash interest payments, totaling to $30 million of annual impact.

We also firmly believe that our investments in dick clark productions and Discovery Kingdom have more strategic value and represent much better growth prospects compared to the parks that we sold.

With that, I will turn the call back over to Mark.

Mark?

Thanks, Jeff.

Before we take questions, I want to break this up into really a tale of two cities, give you some perspective on year to date, and then shed some color on July action.

First of all, just to put it in perspective, bottom line, the way we view the first six months, I think that there's encouraging results -- I don't think that; I know that -- across the board.

Guest spending is at an all-time high for this Company.

Our guest satisfaction was probably -- which is probably what I am most proud of, given all the training we have put in, all the money and investment we have put into staffing and improving the operation, improving the look of the parks, improving our reputation.

If we don't improve our reputation first, our brand will never turn around.

And if our brand doesn't turn around, we will never win back the guest or the consumer for a long period of time.

So I am proud that guest satisfaction across the board -- most of you saw our June press release.

Our overall visit rating is at its highest ever.

Park cleanliness -- highest ever.

Nonsmoking policy -- highest ever.

Obviously, that is a new thing we have put in, but versus last year.

Our code of conduct in terms of enforcing the code of conduct -- highest score ever.

Diversified entertainment, which is so important -- meaning is there enough to do for the family?

And historically, this has been a very low score for the Company, because with the Company so tailored to teenagers and thrill rides, we got low marks -- we received low marks on something to do for the entire family.

So it is good to see that number being so high.

Employee service, all the training we have put in, all the retention efforts, all the recruiting efforts, clearly paying off.

The recognition of the costumed characters, whether it be Looney Tunes or the Super Friends, Justice League -- that is paying off, and we believe that ultimately leads and is leading to an increase in in-park spending.

And our speed of rides lines -- as most of you know, we have talked about -- we've put money into putting groupers back in the rides lines, getting more single rides lines, getting these trains filled up and getting them out as fast as we can.

And our guests are recognizing us for that.

So those are tremendous metrics, people working very hard, and clearly the results are showing us something.

Our repeat attendance is terrific.

Guests who come to the park three times, at least three times, is up 10% year over year.

And guests that are coming four times is up 17%.

Number of guests, or I should say percentage of guests that say they will definitely recommend Six Flags to a friend is at an all-time high of 77%.

As Jeff mentioned, we are on pace for our $38 million in corporate alliances.

Our season passes are up 8% in units over last year, 8% to 10% in revenue over last year.

Our groups are forecast to be up 3%.

And in the first half, January through June, this Company witnessed record revenues.

This is of course all in the face of 4% less operating days and record rain in Texas.

And I think it is just worth mentioning -- Dallas alone in the second quarter lost 150,000 in attendance, approximately -- 150,000 in attendance -- in just the second quarter in Dallas.

So while we all sit here in New York and knock on wood, we are very, very pleased with the weather on the East Coast, and given that we are East Coast-centric, if you will, in terms of our geographic spread of parks, we need the East Coast to stay sunny and warm -- that is most important.

Unfortunately, Texas is throwing that off.

The word-of-mouth is turning and the brand is coming back.

That is this story for the first six months.

When moving on to July, a tough July for us.

First and foremost, just the human aspect -- put aside the business -- we had a very terrible, terrible, unimagined, freak, tragic accident in Louisville, Kentucky.

And because it was so freak and so humanistic and so sad, it made national news for a good solid -- at least two weeks after the accident.

On top of that, it has really been a summer of accidents for the entire industry.

As you know, here in Connecticut, Rye Playland, one of the attendants was killed on the Scrambler ride there.

In Santa Clara, Cedar Fair had a drowning of a young child.

There was a Christian festival in Oshkosh, Wisconsin, where a bungee jump broke on July 14 and a person was killed.

A 13-year-old girl sustained severe head injuries on a Teacup ride, of all things, in Dania Beach, Florida.

So needless to say, it has just been a summer of accidents.

And that is not helpful -- of course, most importantly, not good for any family, but most important -- secondly -- for any business.

In terms of the weather, really just Texas -- put in perspective, this was the wettest January through July -- and we're not even done with July -- the wettest January through July in recorded history for the city of San Antonio.

They have had more rain January through July than they have on average for a full year.

You can't make this stuff up.

But often I get asked, how much research -- how much are you guys paying attention to the weather?

What are you studying?

Can you take insurance out?

Et cetera, et cetera.

Just one of those nuggets for you -- in the month of June, the sunlight -- I kid you not here -- the sunlight in San Antonio shone during the daylight hours, was 37% versus 88% in 2006.

Bottom line is, Texas isn't used to this kind of rain.

And in Dallas, the period of May through June was the wettest on record since 1898, since they began recording their statistics.

So we have battled that.

And obviously, July, that trend continued, even though we are battling it.

So you take all those factors into consideration, our attendance was soft in the first three weeks of July across the system.

On the flip side, our per cap spending and our revenue are still strong and on target with our guidance.

We're now moving into the heart of the summer.

Obviously, three weeks doesn't make a quarter; three months does, and we will move forward.

We had a very strong weekend last weekend, and we are hopeful it simply won't keep raining in Texas.

Our program is working.

Our strategy is taking hold.

We just have to stick to our plan.

Our plan is great guest service, enforcing our code of conduct on our guests.

If we do those more than anything else, the tide will turn for this Company.

The guests are responding.

In fact, we just finished focus groups -- we just commissioned focus groups in New Jersey and in New York City.

We will be doing more focus groups in August in St.

Louis, Chicago, San Francisco and Los Angeles.

What we learn from the focus groups -- we did teens, we did young adults and we did parents.

The teens said Six Flags is as relevant as ever.

It's just as cool, it's just as hip, didn't have a problem with our code of conduct, didn't have a problem with our no smoking, and most importantly, didn't have any problem that we were putting in rides like Wiggles playlands or Wiggles Worlds in Great Adventure, which is our New York/New Jersey park.

So they have no problem with the direction we are going.

That was good news for us.

As you know, these focus groups are ones where you sit on the other side of the wall, they don't know where you are -- they don't know you're there, or they're not supposed to, and you have an independent moderator.

In terms of the parents and the young adults, their position was we hear everything that is going on -- this was unaided -- we hear they have a new no-smoking policy, we hear they are going back to the families, we hear code of conduct -- bottom line, prove it to us.

We're not going to go until they prove it to us.

Well, how are we going to prove it to you if you don't go, or how is Six Flags going to prove it to you if you don't go?

And the answer was, our friends -- just got to hear a trusted word.

So our takeaway from that is keep doing what we are doing; word will spread.

It just takes time.

We are encouraged by the guest feedback.

Our July feedback in terms of our guest satisfaction scores -- we put out a press release, as I said, in June for our June results.

We will be putting out one for July.

That should be out in seven to 10 days.

I am thrilled with the way the parks look.

I know we're doing the right things.

And I am most pleased with the fact that morale has remained, in the face of all this, very strong.

There is good energy and there is renewed pride in our workforce.

With that, I will open it up to questions.

(OPERATOR INSTRUCTIONS).

Dave Miller, SMH Capital.

A couple questions, Jeff, for you.

Could you just talk topically about the current credit crunch and what's going on in the market and how you perceive that it is affecting you versus how the market perceives that it should affect you?

And what I mean by that is you have refinanced your credit facility, LIBOR plus 2.25.

I believe that is 100 basis points lower than what it used to be.

I don't think you have any maturities on the paper until 2010.

And yet there seems to be this scope creep that has crept into the stock regarding refinancing risk.

And I am wondering if you can touch on that and assuage any investors that might be concerned about that.

Then I have a follow-up.

Obviously, the market across the board has been hit pretty hard.

Certainly, the leveraged loan market and the high-yield market are getting hit even harder.

Unfortunately, our balance sheet suffers from a tremendous amount of leverage.

We all acknowledge that.

And therefore, the risk profile in these markets obviously is something of concern to investors.

And to the extent these investors are getting hit with the subprime mortgage fallout and have to rebalance portfolios, I can't expect -- I am just sort of anecdotally commenting on what could be happening, but obviously our bonds have traded off.

We feel very good about our liquidity position and our maturity profile.

As you point out, we don't have a debt maturity until 2010 and we're sitting on $80 million of cash with nothing drawn on our revolver.

So we feel good about where we are at.

Obviously, we need to turn the business around.

And that is a long-term strategy that we have here.

We've said it is a three- to four-year period.

But in terms of the balance sheet, we feel very good about what we have achieved this year, and having refinanced our closest-in maturity, which was our senior secured credit facility and pushing that out, the term loan, to 2015, we are feeling pretty good about that.

So that is about all the color I can give.

The market is obviously incredibly volatile right now.

And then just a quick follow-up.

Jeff, back in December, when you gave expense guidance for 2007, in your opinion, other than cost of goods sold, what might have been a little bit more variable than what has gone on so far?

In other words, what might have been padded to either add to or subtract from original guidance, if you know what I mean?

The marketing spend, the $55 million in guidance, it had and has $25 million of marketing spend, and we are on pace for that.

We've spent -- that tends to be more front-loaded, the marketing spend, throughout the year.

So we have spent approximately $18 million of that $25 million through the first half and we've still got the peak summer period, July and August, to go, and then $30 million in other costs, which is repairs and maintenance, labor -- primarily labor, repairs and maintenance and those sort of things.

Obviously, as we have said before, we are a relatively fixed-cost business on the upside in terms of volume.

On the down side on volume, you can do things with seasonal labor.

But I wouldn't suspect or expect that we are going to be doing anything drastic on the cost side at this point because we are seeing the traction on the guest experience.

And we think that is going to be, in terms of long-term value and long-term impact on our guests, as Mark alluded to in the focus groups, we have to continue to impress upon the people that come to the park that it is a quality guest experience, they tell their friends and come back.

So at this point, I don't want to tell you that there is pad in that guidance.

I think at this point, that is the guidance we are sticking with.

David, I would just add to that, that that is what this Company has annually, year over year, been guilty of -- get in trouble, get some bad weather, they don't have the attendance or they don't have the per caps or whatever it is, and just whacks the expense -- get the people off the streets, get a dirty park, get lines that are moving slower, take away from the experience.

We have got to have one full year of our plan to put it in, gain the traction with those families so that we can build this business year after year and we can get loyalty and affinity and volume going.

And to strip it back because of whatever it might be -- you want to be higher or you want to get more attendance, you have had bad weather or a terrible accident, whatever it might be, is the wrong thing to do for the brand and the wrong thing to do for the long-term health of the business.

And I am proud of the fact that my Board understands that.

We are doing the right things this year.

And I think you will end the summer -- I know you will end the summer with people taking away a different perspective, which will allow us to come in and have the '08 we think we're going to have and the '09 we think we're going to have, which is why we have always said, this is a three- to four-year turnaround.

Kit Spring, Stifel Nicolaus.

This is Nathan Jones for Kit.

I've got one for Mark and one for Jeff.

Firstly, Mark, with relation to dick clark, I understand it is a strategic investment, but when do you think you will be able to implement that into your parks and see some tangible benefits for it?

And for Jeff, we are always sitting around here talking about the weather.

Is it possible for you to or have you thought about using weather derivatives to hedge the risk?

I will take the first part of it.

We're already moving with synergies between dick clark productions, inc.

and Six Flags, working very closely with, obviously, Dan Snyder and Terry Bateman, who is the CEO there.

We will be offering sweepstakes and promotions of our folks that buy season passes next year to win a trip to the American Music Awards or potentially the Academy of Country Music Awards.

We had one initial sit-down with our partner, 19 Entertainment, on the hit series on Fox, So You Think You Can Dance, so that we can set up clinics, tours and auditions next year, which we believe will drive attendance.

And we are in the process -- I believe there is going to be some OpEx savings to our business next year because we will be taking some shows out of our theaters and replacing them with videos, if you will.

Next year is the 35th anniversary of the American Music Awards.

And we're putting together a 20-minute -- just a terrific piece, real sizzle tape, and fortunately having some folks from ESPN and that television production background, I'm confident of what we can put together, that we can play a nice show, taking people through the years, chronicling the great moments of the American Music Awards.

Really, in our parks in the summer, when folks go into our theaters, it is not so much -- and don't get me wrong; we have some good shows -- but it is not so much that they are dying to see one of our shows.

More importantly, they are looking for shade, they're looking for air conditioning, they are looking to sit down and have a little snack and a Coke and get a breather or a relaxation point, if you will, before going back into the park.

So if we can strip out in each park one or two shows and replace them with best-of programs -- American Music Awards, Golden Globes, Academy of Country Music Awards -- that's a lot less OpEx and it is just as entertaining.

So we're moving fast on those synergies.

On the weather, we constantly are looking at various forms of insurance or other derivative products in terms of mitigating our weather risk.

I can't tell you today that we have found the panacea to solve the problem.

What typically we end up concluding is the cost side of any of those products just are unduly expensive relative to the risk that you're mitigating.

Perfect case here, I don't think anybody would have been hedging rain risk in Dallas in the summer.

So clearly, any risk management program we would have put in place probably wouldn't have contemplated that.

But the short answer is, we are constantly analyzing and looking at new and improved products.

And hopefully, someday something will line up that makes sense both from a risk management perspective and a cost perspective.

So you just can't find anything that you think provides enough value to hedge that risk?

Yes, we haven't to date.

When I was at Disney, we looked at this.

It is a tough one.

There's insurance out there, obviously, that people will write, but it is just not a terribly efficient market right now.

Pat Dyson, Credit Suisse.

A question just on July, not to -- I don't want to parse your words too much, but you mentioned that -- you characterized it as soft.

And is July soft relative to the trends that you experienced in the second quarter?

Or are the trends consistent?

What does soft mean in the context of July?

Without throwing out numbers, I mentioned it was soft for the first three weeks of July.

Soft -- nothing compared to the second quarter.

I think second quarter, we are solid.

We are where we wanted to be, especially on fewer operating days and having the Texas weather.

So we felt really good about that.

You walk into July, and for the reasons I mentioned, you get really an unprecedented and horrific accident, like we had in Kentucky, that makes the kind of national news it did -- I mean, I don't need to tell you folks, but we averaged, for two weeks after that, 37 newspapers a day were writing about that accident.

So it is going to take hold.

It just is.

Maybe it gives people pause; maybe it makes them delay their trip to Six Flags or another theme park.

Who knows?

But I think when you add that, plus the accidents in the industry that you couldn't get away from, plus the weather in Texas, ultimately, I think, that is what brings you your softness, if you will.

The good news is that, as I said, last weekend we had a strong weekend.

This week we are having a good week.

And we think we are in a good position.

We're doing the right things to build this business for the long term.

And we will survive and we will grow and prosper from it.

Then following up on that a little bit, then, as you look back at the second quarter and if you, say, focus specifically on the East Coast, where the weather was good, has attendance been tracking at your expectations, ahead of your expectations?

What have you seen on that front?

Been tracking in line with our expectations.

And then Jeff, to you -- on the bond buybacks, have you executed any additional buybacks since the end of the quarter?

Yes, we have, but I don't want to get into the amounts at this stage.

But yes, there have been some buybacks that overlapped the end of the quarter.

Well, there are some things that are still a little bit cheaper out there today, so there is more to do.

We see it.

Mike Pace, JPMorgan.

Mark, for you, I guess big picture, when we think about the potential for advertising revenues, even additional sponsorship revenues, how do you think about monetizing the eyeballs that come through the park, I guess the attendance figures?

That is number one.

Number two, is labor and headcount where you want it?

And then a couple of follow-ups for Jeff.

On the corporate alliance side, we inherited on a comparable park basis $16 million in terms of sponsorship.

And as you know, the bulk of that was the Coca-Cola deal.

In fact -- well, I won't get into that, but that was in the $16 million.

So then a year later, it was about six months of having my team together, we took it to $26 million.

And now, in our first full year of Lou Koskovolis having his entire team together, they are on pace for $38 million.

So I feel really good about the opportunities there.

And we're getting more and more candidates, more and more advertisers, and more and more phone calls.

I'm sure as you know, the second largest growing advertising category is outdoor billboards, outdoor advertising.

Internet is number one, outdoor is number two, on pace to do $7 billion in advertising this year.

So I think that is going to continue to grow.

And not only are we an outdoor advertiser, but we are not like a car that you (technical difficulty); we are a place where you spend some time.

It's seamless.

It's integrated.

People aren't spending their time on their cellphones or the PDAs.

They are playing with their kids.

They are playing with their friends.

They are spending as much as 10 hours a day in the park.

So we are going to continue to leverage that.

We are going to continue to monetize that.

Best of all, the relationships we have with our current partners, soup to nuts, is extraordinary.

I am confident telling my guys, we are in the business of overdelivering, because advertising in a theme park isn't the first place people think to advertise.

So we have to blow our partners away and overdeliver, and then come back and rightfully get the increases we're looking for in the coming years.

Plus, with the fact that we're adding Six Flags TV next year in a number of our parks and Six Flags Radio, whereby we will have monitors, plasma screens in crowded ride lines and crowded food lines -- that opens up a whole new, a whole new revenue stream for us with regard to folks paying us to run their media.

So this was a big part of the strategy that Dan and I had when we came in here.

We are executing it.

We're moving quickly.

And I am very pleased with the results.

So we will keep pegging that.

I think on our next call, our third-quarter call, we will look to give some guidance on next year, expense guidance, et cetera, et cetera.

We will look to give you guys a number on corporate alliances.

I guess just labor headcount for you, Mark?

Labor headcount -- we are where we need to be.

We are not going to be adding, that is for sure.

And as I mentioned before, with the synergies and the acquisition of dick clark productions and what that can do from an entertainment perspective, I think there is real opportunity to actually cut back on some of our OpEx.

That was part of the plan in making that acquisition.

So we put $100 million or so into this company to get it where we thought it needed to be to, one, have the infrastructure to grow at the corporate level, and two, at the ground level, at the park level, to deliver the experience to get these families back, not just to get them, but to get them back.

Fortunately this year, we're doing it.

The guest satisfaction scores were there.

It is night and day.

That will carry over into next year.

That word-of-mouth will carry over.

We will come in with an equal base, if not less expense.

But we will not be taking expenses up at all next year, not even inflationary.

And then I guess for Jeff or for Mark, when we look at the $82 million in cash that you have on the balance sheet -- I guess just a housekeeping here -- where exactly does that cash sit in the capital structure, number one?

Where would you take that cash balance down, putting in perspective the full availability of your revolver and your free cash flow outlook for this Company over the next 18 months or so?

How much lower does that cash balance -- or would you tap into your revolver to continue to repurchase unsecured debt?

I don't want to get into what we may or may not do.

This marketplace is volatile.

And obviously, we're focused on the season right now.

We do have the $80 million of cash.

At the end of the second quarter, typically a decent amount of that is at our partnership parks because they accumulate the cash to make their semi-annual distributions, and not an insignificant piece of that that is at the partnership parks.

The rest is just corporate cash and cash at the park level for working capital.

But we have the revolver available to us.

That is something that we intend to use during the low season.

That is our working capital revolver during our low season in Q1 and Q2.

And as we have said, we are expecting that -- we are not expecting to be free cash flow positive this year, so we're going to need some cash and liquidity for just the current-year cash burn.

But I don't want to get into specifying what we may draw on the revolver and what, if anything, we may do additionally on the debt buyback.

It just wouldn't be appropriate at this point.

Then just finally, you gave us some color on marketing being up $14 million in the second quarter.

Can you give us some same color on the incremental labor costs and the incremental marketing?

Is that all -- how much has been spent, I guess, on the labor side incrementally versus last year?

And then is the rest of that going to be spent in Q3?

Yes, through the six months, our cash OpEx -- this is excluding cost of sales, so vis-a-vis the $55 million of guidance -- we are up about $21 million.

And $18 million is marketing.

$3 million is the labor and other stuff.

But the bulk of that increase in the labor and other stuff is going to occur in the July/August periods, because that is the bulk of our season.

Joe Stauff, CRT Capital.

A couple questions, please.

First is sponsorship revenue -- can you tell us generally how it is booked, and it is included in the food, merchandise and other line, correct?

That is correct.

And how is it booked, given your 37 for the year -- is it just sort of an allocation?

What we do is deals that are multi-year, obviously if they were existing last year and we've got a certain stipulated amount that applies to this year, we recognize that revenue ratably throughout the year, so equal amounts throughout the year.

Any new deals that are signed in the current year, we recognize the revenue allocable to this year ratably from the point we sign the contract through the remainder of the year.

So that is how we recognize it.

And how much have you booked year to date for the first six months?

Year to date, we're up about $12 million year to date for the first six months.

That is the increase over last year.

And you will recall last year for the full year, we did $26 million.

So we are again on pace to the $38 million.

So just to be clear, $12 million incremental over last year, where you did $26 million for the year.

So is it fair to call it -- $25 million is already booked?

I'm sorry?

Is it fair to say that $25 million total sponsorship revenue dollars were booked in the first half of this year?

No, that is not fair.

So it is something less?

Yes, because $38 million for the full year, even if you recognize -- even if all these were deals that had rolled over, you would have only recognized $19 million through the first half.

Two other questions I had is how should we think about the adjusted EBITDA impact for dick clark?

You said $7 million for 40% interest -- $7 million for the full year -- is it going to be roughly half that for the second half, and same with Discovery Kingdom?

There is some seasonality to, obviously, Discovery Kingdom, and even to dick clark in terms of the lion's share of their revenues, which are license fees.

But you can assume it is roughly half and half, that we would get half of it this year.

Discovery Kingdom won't be half, by the way, just because that is not expected to close until the end of this month.

The end of July.

The end of -- yes.

And then two quick questions -- Texas, what percentage of your total revenue is both Texas parks?

And how would you rank the months, the summer months, in terms of importance -- July being the biggest in terms of attendance, then June or August?

How do we think about that?

We don't want to -- we just don't give out separate numbers on each of the parks.

But in terms of the months, July is certainly, based on historical performance, the most important or the largest month, followed by August and then June.

Zvi Rhine, Boone Capital.

Jeff, following up on the Texas attendance, Mark, you had mentioned it was about a 150,000 shortfall.

So if we were to assume that it was just flat year over year, basically it was a 1.5% to 2% hit on total attendance, so your attendance would have been up 4.5% to 5%?

Am I doing my math right there?

Yes, you are doing your math there.

I do want to clarify one thing, Zvi.

I am glad you brought that up.

The approximately 150,000 was the year to date.

Obviously, much of that does fall in the second quarter, because it's not like we have a -- we're not open every day in March and February in Dallas, obviously.

So much of it falls into that second quarter, but I just didn't want to be on the record as saying approximately 150,000, approximately, in that second quarter.

But yes, you are looking at it right.

And Jeff, in the Q is it going to break out exactly which tranches of your bonds that you repurchased?

You probably won't see that until the K, because we just show the total debt balances, and in the K we stipulate the separate tranches.

So you probably won't see it until the K.

And then the $85 million that you repurchased -- that was through the second quarter.

Did that include any of the repurchase that you made subsequent to the quarter?

That is correct.

And then Mark, in regards to the sponsorship revenue going forward, is it still on the table to possibly break that out in terms of revenue and EBITDA contribution from sponsorship revenues, are you able to conclude?

On the sponsorship, other than the sales staff, there's really -- and some modest activation costs to activate these deals inside of our parks, the margin on that, you can assume the margin on that business is90%.

Joe Galzerano, Murray Capital.

Mark, I know you have given a substantial amount of anecdotal evidence about how your program is working.

But I was trying to figure out -- can you provide any information regarding -- excluding Dallas or excluding Dallas and San Antonio, so we can really feel that everything that you are attempting to do is actually working in the other parks?

So is there any way to break it out and say, if this wasn't there, here is what the results were, or here is an example of parks that are up X percent or whatever the numbers may be?

We appreciate that.

We just don't break out park by park.

I tried to give one that was more than just anecdotal -- it was a fact-based example with the approximately 150,000 that we lost year to date in Dallas because of the weather.

Obviously, we think San Antonio has been impacted by weather as well.

It rained all day, as an example, there yesterday.

So there's no telling what ultimately -- forget about what Dallas might lose.

It is what it could have done.

Or forget about what San Antonio, where they're at, which is pretty equal with prior year, but it is what they could have done.

What I can tell you is in the face of all this, San Antonio has sold 30,000 to 40,000 more season passes than they did last year.

And part of that is just getting out in front of it early.

We ran a big program in Fright Fest.

They've done a great job of selling it.

We've really incented the employees there.

And we gave them a ride that is very much like the future of where we are going.

It is what I call a hybrid.

That Tony Hawk spinning coaster appeals to the adults and it also appeals to the teens, and the tweens love it.

So it works for everybody.

And at the same time, it only costs us $5 to $6 million.

And that is the direction we are going.

Dallas, despite having all this rain as well, they are up 10,000 season passes plus over last year.

So it not only hurts you when it rains because people don't come to the park and the spending in the park isn't there, but also you don't have the chance to upsell these people to a season pass.

So the weather is bad on all fronts.

It's just we're not used to it in Texas.

And those parks, on any given Saturday, combined on a Saturday will do 50,000 to 60,000 people.

So these are some of our peak performers.

And I think maybe just touching on this a little bit -- so could we say, though, is it fair to say, then, the rest of the -- excluding Dallas and the second quarter, the parks were up 4% or 4.5%, and per cap would have been X?

Is there any of that information you can give us?

Yes.

It was really the same answer we just gave Zvi, with all due respect.

Yes, it would be fair to say you're up 4.5%, 5% because of rain, but to be fair, it usually rains somewhere -- not obviously all the time, not to the level of what Texas had.

But I don't think you can discount the rain completely because you are going to get it somewhere.

I don't want to just dump it all on the weather.

You are going to get it somewhere.

Well, I don't think what I was trying to say was, like, Dallas, even if -- I think as you were just saying, it is flat.

So assuming there was some rain in there, then if the rest of the parks were up 4%, then Dallas would have been up --

You are right.

You're absolutely right to look at it that way.

San Antonio was flat.

But with 40,000 more season passes, you can bet they would be up.

Dallas was down 150,000 year to date.

But they came out of the gates very strong this year, and right when our capital, if you will, launched -- as you know, in Dallas, we didn't put a new ride in.

We put a new show in.

We put a Cirque show.

And when that was to open, which was June 16, ever since then, we are getting pounded.

And obviously, an outdoor show in an amphitheater with rain, doing acrobats -- needless to say, that is something that we don't do.

So that has really hurt us really hard.

But again, we have more of July.

We have a strong August.

We get an extra week of school because Dallas schools go back to school later.

So hopefully, you pick some of that back up.

Also, I do want to mention, we do break out our guest satisfaction scores park by park.

So I can look at Atlanta or Dallas or San Antonio week to week, weather it be overall visits, feeling of safety from crime, ride safety, smoking policy, park cleanliness, code of conduct -- I am reading off of a list here -- variety of food, on and on, all the way down the line.

The independent company we hired, Delta Research, they break it down park by park.

So we can get a feel week to week, park by park, who's doing what.

And across the board, our feedback is, from the guests, that it is a different experience.

I know I'm trying to beat this to death, but Dallas was down 1.5% or whatever the number was.

And then San Antonio was flat, which would imply the other parks were up 5%?

6%?

Something like that.

And then you had mentioned earlier that attendance was trending -- was tracking expectations in the north.

So would that be the expectations -- 5%, 6%?

No, we are not giving attendance guidance.

We've said from the beginning of the year we're not doing that.

Again, put out the 1.5%.

All I said was San Antonio's attendance has been flat to prior year, despite more rain in six months than they usually have in a given year.

Dallas' attendance, not using percentages, was down 150,000 year to date with the second wettest June in recorded history.

I don't want to put words in your mouth, but that seems to be reasonable to me or that seems to be decent results.

And yet you seem to be -- you don't want to say that for some reason?

No, as I said -- look back in the transcript -- this is a long-term turnaround.

I feel very good about where we are.

We're encouraged by the second-quarter results, not to mention just the way the park looks and the response we are getting.

But the repeat attendance, the fact that folks are recommending to friends or they intend to do it, where sponsorship is, where season pass is, where groups are -- I don't want to come off as just gladhanding everybody.

We did have a first three weeks in July that were soft for various reasons, but yes, we feel very good about the second quarter and we are very encouraged and optimistic at how those trends and the perception of the Six Flags branded experience will ultimately translate for the rest of the year, for next year and for 2009, which is what we were brought on to do -- turn the Company around.

And it just doesn't happen overnight.

Carney Hawks, [Brookgate] Capital.

Two questions -- first of all, can you talk a little bit about how the traffic is, the drive in traffic that is coming from 100, 150 miles away, if you have seen any impact from increasing energy prices on that traffic?

What I would tell you, and when you look at just our U.S.

theme parks, we have had a nice increase from 51 to 100 miles.

So we are seeing -- that has been very encouraging, a high-single-digit increase on folks driving 51 to 100 miles to go to Six Flags.

We have seen a decrease, a smaller decrease, from those driving 101 to 150 miles.

However, I wouldn't read too deep into it in terms of the long drive.

And the reason is it isn't just the state of Texas that got whacked with the weather, it is Oklahoma.

And one of the parks we have where folks do the most driving, as you can imagine, is, of course, Six Flags Over Texas, because there isn't another theme park like it within 400 miles, and it has been there for 45 years.

And it's got an infrastructure around it, if you have ever been there, of hotels and restaurants.

It is a staple.

It is an institution.

So we get a lot of attendance from Louisiana.

We get a lot of attendance from Oklahoma.

We get a lot of attendance from New Mexico.

And obviously, when it is raining all around there and people read that it is flooding in Texas, you are going to lose some of that radius, if you will, some of that reach.

So we are not reading too much into it.

We are pleased that folks are driving the 50 to 100 miles, which would correlate to the fact that people have less discretionary income.

Maybe they're not going to take the big trips, but they will take the trips they can get in their car and drive to -- the regional, shorter daycations, as we call them.

And while the numbers aren't as high as we want from 101 to 150 miles, it is not much -- we're down let's say 50,000 people there.

And I'm telling you, most of that is going to be the Texas parks.

Okay, great.

And I guess second question -- I am just looking at the spending you guys have been doing.

Clearly, looking back prior to when current management was in place, EBITDA margins were a lot higher.

Those have come down because of the spending and because we haven't seen the EBITDA improvement that goes along with it.

Listening to the call, you would think that you would have seen substantial EBITDA improvement since every other metric seems to be up, and yet it is down.

So help me out -- why is the EBITDA margin of this business, or maybe the other way to look at it, the spending needs to be so high vis-a-vis someone like Cedar Fair, which has margins in the mid-30s?

I think part of the answer is actually the Cedar Fair ticket per caps explain a big chunk of the margin improvement.

And that is a big chunk.

But as well, given our parks are located in the major metropolitan areas, our cost of labor is higher and we are in a turnaround situation, quite frankly.

We are sort of making up for prior issues in our parks and spending to do that.

And another chunk of it, not only the labor, is the marketing spend.

The other side of the equation is we have taken our capital expenditures down by $70 million over two years at the same time we've put a total of $100 million of OpEx.

So net, that is a $30 million increase over a two-year period in terms of the cash investment.

So we are trying to right the ship here in terms of the experience.

The Cedar Fair folks, they are great operators, and they drive nice margins out of their parks.

Obviously, they are in different parts of the country.

That has an impact as well on the wage base and what you have got to pay.

But it is both the marketing and the labor side and the ticket per cap.

Those are the three factors driving the differences.

So with the -- your EBITDA doesn't currently cover your fixed charges, and you've obviously put a lot of investment to try to drive that.

So when do you anticipate we are going to start to see meaningful improvements in EBITDA as a result of the money you have been spending?

The things that we have targeted that we can control, which is the per cap, the sponsorship and the costs, we are on plan.

At this point, it is all about volume.

So it's more -- I am guessing from what I am hearing that it is more of an '08 sort of thing, given that the volumes have been weak in July so far.

No, I am not saying that.

Again, we have decided consciously not to give attendance guidance.

But we are on track with our expenses, we are on track with our per cap spending, and we are on track with sponsorship.

So the remaining variable is attendance.

That is going to be a determinant on the magnitude of growth this year, next year and beyond.

Really, just also pointedly, in a different way of answering, from day one we have told our shareholders, we have told our stakeholders, we have told the markets, we have told our employees that we are going to do what is best for the long haul.

And we're looking at this company as a three- to four-year turnaround.

Now, by definition, to your point of when you are going to get that meaningful EBITDA return, that would go hand-in-hand with three to four years.

So whether that is 2008, you can kind of read into your own answer there.

From day one, we have never told anybody, hey, we're going to go in and we're going to change the experience -- that is what we're going to do.

We are not going to do this overnight.

We've got a lot of training to do.

We've got hiring to do.

We've got cleanup to do.

We've got asset maintenance to do.

We need to bring the family back -- this is how long it is going to take.

And for us, that really answer the question, because our definition of turning it around is the same as your definition, which is meaningful EBITDA return and getting, more importantly, this Company to free cash flow positive.

James Taylor, Banc of America Securities.

Just a couple of housekeeping things.

In terms of the EBITDA in the press release from last year, did that include the management change and proxy expense from last year?

Is that before or after that expense?

The press release we gave out today?

Yes, the $58.6 million last year.

Yes, that includes the management change costs for the prior year.

In the quarter, the management change costs were only about $1 million in the second quarter.

They were about $11 million in the first quarter.

And the proxy costs are below the EBITDA line.

They are in other expenses in the second quarter of last year.

In terms of the -- the dick clark acquisition closed, correct?

Yes.

That acquisition closed at the latter part of June, that is correct.

And I think when we discussed on the update call about dick clark, was the cash outflow for you guys $60 million?

Yes, it was approximately $62 million, with the expectation -- and should close shortly -- of refinancing the existing debt at dick clark.

And we will get $22 million back.

So our net investment is $40 million, and we are expecting to see that shortly.

And that deal is still on track, despite the distraction in the credit markets and lenders pushing back?

You guys haven't had any pushback at all?

They are running that out of dick clark.

Obviously, we are a shareholder, and our understanding is that it is going to be closing shortly.

Oversubscribed.

And just in terms of -- I don't know if maybe I missed this -- did you guys give where group and season pass sales stand either through the end of the quarter or through right now?

8%.

We are 8% up year over year on season pass units.

We gave that earlier, yes.

Season pass units are up 8%.

And what is the pricing on the season passes?

How is that?

We did get some low-single-digit pickup on the per cap there.

So we ended the quarter at around 9% to 10% revenue increase.

So through the first six months of the year?

Yes.

Okay, and how about group sales?

Forecasted to be up 3% on group sales.

And where are you right now?

We are going to hit our forecast of 3%.

Groups explain part of the attendance increase for the six months.

So we are on track.

And then you said that you would give the update on -- I guess we won't see the bonds you have been buying back until the 10-K.

Yes.

Jane Pedreira, Lehman Brothers.

You made a comment earlier that you were selling less groups this year and more season passes.

Is that because you are deemphasizing group sales or just because you have been successful in selling more season pass sales this year?

I'm sorry, I don't think we said that.

What I said in terms of the channels that were driving the growth in attendance, it was primarily driven by season pass and promotional attendance, and to a lesser extent, groups, just in terms of the drivers of the attendance increase.

And then can you just clarify, in the case of Dallas, is that not one of the partnership parks where you own about a third of it, so that the economic impact would be less than some of the other parks?

That is correct.

We own about 37% of the theme park.

We own 100% of the water park, and obviously we own 100% of the San Antonio park.

So in terms of the top line, in terms of attendance and per cap, it doesn't show.

But you have a minority interest adjustment that economically limits your exposure to the 37%.

And then in terms of your policy when it rains, do you have the ability to send your employees home for the day?

Or how do you typically compensate them?

Or do you just leave them on staff all day and hope that the rain clears up?

No, to tell you the truth, I think historically that is what the Company did.

But spending -- putting in the investment we did, with supervisors and hiring Mercer and putting in an entire seasonal labor tracking report and summary, by the hour, these parks are now measuring how efficient they are with labor and how to schedule labor and how to let labor go home.

That is one of the benefits, of course, of having so much seasonal labor is that it is hourly.

And if you get heavy and you need to bring more people in, you can.

If you get light, you can let people go.

And I can tell you, whether it is weather or not, that is the way we are managing our parks now.

So when it rains in San Antonio, like yesterday, where it poured all day and I think overall we only did 3000 people, we had a very, very slim staff there.

We don't want to let go of the experience, but with 3000 people, you need less than half of what you are used to having.

And then Jeff, can you just remind us, to get to bank EBITDA from consolidated with Marine World or Discovery Kingdom now being brought into the bank group, can you give us what the delta is going to be on an annualized basis between adjusted EBITDA and bank EBITDA?

Yes, Discovery Kingdom, as I alluded to, based on '06, it represented about $7 million of the reduction in the minority interest line.

So that will be $7 million less.

So we would reduce that -- that should be subtracted from bank EBITDA or added to?

No, that will be added to bank EBITDA.

And then just one final question -- not to beat a dead horse here, but in terms of the bonds that you are buying back, can you give us any sense for whether you are buying bonds that have the greatest impact to your EPS or the greatest impact to your free cash flow?

All I will say there is what we have said before -- we have been opportunistic and we have picked spots along the curve.

And I just want to leave it at that.

Jane, I thought you weren't going to beat a dead horse.

You can't blame me for trying.

Ben Singer, Clinton Group.

I think my question has already been answered, but I just want to ask it again -- can you not give us any flavor for what bonds you have been repurchasing in the open market?

You are right.

The question has been answered.

No, we are not going to do that at this point in time.

(multiple speakers)?

Front-end stuff?

Long-end stuff?

We have been active across the curve.

David Miller, SMH Capital.

A couple follow-ups.

Mark, excluding the first three weeks of July, how would you just describe the overall tone qualitatively of the total revenue per cap?

Is it meeting your expectations?

Higher sequentially?

Better than last year?

Worse than last year?

It is obviously higher than guidance, I can tell that from your tone of voice.

But how would you describe it qualitatively?

And then also separately, the last time the stock was at these levels, Dan Snyder, I believe, was in the open market supporting the stock.

I believe there were a couple of other of you internally buying on the inside.

I am wondering how you guys feel about that, and can you speak to Mr.

Snyder's intentions vis-a-vis where the stock is right now?

Well, I think you have a meeting coming up with, David, from what I can see from the calendar, so you can ask him straight up.

I can't speak for Dan's intentions.

Obviously, I can't speak for the rest of management.

At this price, personally, I would find it very attractive.

Let's just leave it at that.

As far as total rev per cap, I would first say, we are not above, we are not below.

We are in line with our guidance on that.

I am proud of where we are with that.

And I am bullish about it.

We have been at this Company for 18 months.

We inherited the prior management's plan, if you will, for our first year.

We then executed, we tweaked it as much as we could.

Obviously, we changed a lot of things midstream, and that was part of the transition, and also the transitional problems we ran into trying to do it midstream.

But in the space of two years, we are on track to be up 17% in total revenue per capita.

And that includes sponsorship, but of course, the bulk of it is guest spending.

These folks -- they are not just paying higher prices; they've got more services, they've got more initiatives, they are having a better guest experience, they are staying longer.

And by the way, our demo is shifting to family.

You are saying up 17% through the year, correct?

Over two years.

Over the two seasons.

Remember, 14% last year.

We were 14% total rev per cap last year, 13% just in park, but 14% total rev per cap.

Right, just wanted to make sure I heard you correctly.

This year, now you are talking three, so that is year on top of year, you are looking at 17%.

And that is where we need to be, which is stop giving our brand away.

Stop discounting our brand.

Stop giving tickets away, and charge as long as you are providing a quality, high-end, good-value guest experience.

And we are now doing that.

And when you do that, and when that spending comes, ultimately that word of mouth will follow and we will get the volume, which will answer the question that everybody wants answered, which is when are you getting the free cash flow, when is that EBITDA getting jacked up?

And the volume is just something we have to be patient for.

We are pleased on where it is through the second quarter.

And it is going to build and build and build until through the three to four years, we get it to where we -- we're getting the kind of results from a cash flow perspective and an EBITDA perspective.

So total rev per cap is a good story for us.

Volume is still to come.

Joe Galzerano, Murray Capital.

I just had a quick follow-up.

You had mentioned you did $80 million cash at the end of June.

But then you just recently said that you're going to refinance the dick clark, I think it was, at [$0.2 billion].

So (inaudible) you had on a pro forma basis over $100 million of cash?

Well, the dick clark hasn't closed in terms of the financing.

We expect that shortly.

And as I mentioned, a significant proportion of that money is at our partnership parks and gets distributed in July as part of the partnership semi-annual distributions.

So some of that $80 million has gone out the door already, because it is at our partnership parks and it has to fund the semi-annual distribution, some of which we get, by the way.

There are no further questions at this time.

Ladies and gentlemen, I would like to thank you for your participation in today's conference.

This concludes your presentation.

You may now disconnect.

Have a good day.