Six Flags Entertainment Corp (SIX) 2007 Q3 法說會逐字稿

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

earnings conference call.

My name is Francis and I'll be your operator for today.

At this time all participants are in 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 call over to Ms.

Sandra Daniels, Director of Corporate Communications.

Please proceed.

Good morning.

I'm Sandra Daniels, Six Flags' Director of Corporate Communications.

This morning the Company released its financial and operating results for the third quarter and first nine months of 2007.

A copy of the earnings release is available on the Company's website at www.SixFlags.com under the heading Corporate.

Here with me today are our President and Chief Executive Officer, 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 introduce Jeff Speed, Executive Vice President and Chief Financial Officer of Six Flags.

Thank you, Sandra, and good morning.

As you know, this morning we released our operating results for our third quarter and nine months ended September 30.

And as a reminder, our results from continuing operations exclude a total of 10 parks that we disposed of during the last 15 months including the sale of seven parks that closed on April 6th of this year.

Now to the results.

In terms of the top line, our revenues for the third quarter were down $9 million or 2% compared to the third quarter of 2006.

This decline reflects a $0.39 increase in total revenue per capita and a 3% decline in attendance.

Our total revenue per capita spending includes stable per capita guest spending, which is comprised of ticket and in-park spending, and increased sponsorship revenues for the quarter.

Guest spending per capita was driven by increased spending on food and beverages, parking and games which continue to benefit from the pricing and product enhancements we began last year.

These increases were partially offset by a 2% reduction in ticket per capita spending as we experienced an increased mix of season pass and promotional offer attendance in the quarter.

The reduced attendance for the quarter was driven by non season pass attendance, primarily groups and main gate sales, and was partially offset by solid season pass business.

For the quarter season pass attendance increased over 3% to 2.9 million and season pass revenues increased over 5% to $56 million.

As we indicated on our second-quarter call, July saw soft performance and it ended up driving our drop in attendance for the quarter with a 9% decline in year-over-year attendance impacted by the highest number of July weather days in the last six years when the Company began tracking weather.

The decline was also impacted by one less Saturday in the operating calendar, unfavorable publicity from the ride-related accident at our Kentucky Park, and a Fourth of July that fell midweek in the current year.

The July performance was in direct contrast to the Company's performance for June 2007 which saw a 10% growth in attendance and a 13% total revenue growth on seven fewer park operating days compared to the prior year.

Subsequent to the difficult July performance, August benefited from a more favorable back to school calendar in Texas and delivered 1% growth while September saw growth of 8% in attendance compared to the same periods in the prior year.

To give you an idea of the magnitude of July's weather days, 24% of our total park operating days in the month of July were affected by weather compared to 15% in July 2006.

This represents an increase of 52 weather days which were primarily concentrated at our Texas and Georgia parks.

For the quarter weather affected 17% of our total park operating days versus 15% in the third quarter of 2006, an increase of approximately 20 weather days for the quarter.

The July weather impact was strongly felt on weekends as well as weekdays with 39 weekend park operating days impacted by weather in '07 versus 25 in 2006, a 56% increase.

On the cost side, our total cost and expenses for the third quarter increased $22 million to $285 million driven by increased marketing spend of $10 million, $5 million of increased loss on fixed assets, and $5 million in additional park wide labor costs reflecting our continued emphasis on improving the quality of the guest experience.

Adjusted EBITDA for the third quarter was $199 million compared to $217 million in the third quarter of 2006.

The $18 million difference reflects the quarter's reduced revenues and higher cash expenses partially offset by a $7 million increase in adjusted EBITDA as a result of the Company's purchase of the minority interest in Discovery Kingdom in July and the 40% equity investment in Dick Clark Productions in June of this year.

For the nine months ended September 30, our revenues increased 2% over the prior year period to $861 million.

This increase reflects stable attendance and total revenue per capita growth of 2% to just over $39.

The per capita increase was driven by higher sponsorship revenues and a $0.45 increase in per capita guest spending.

Our attendance was stable for the nine-month period despite 53 or 2% fewer park operating days due to the Company's strategy to leverage our operating expenses by reducing certain park operating days that historically generated little or no profitability.

The stable attendance for the nine months reflects reduced group sales offset by increased season pass attendance.

For the period our season pass attendance increased 5% to $6.1 million and our season pass revenues increased 9% to $116 million.

In terms of the number of weather days for the nine-month period, 16% of our park operating days were affected by weather, on par with the 2006 period.

The unfortunate reality however is that July is the single most important month in our operating season and therefore it has a substantially disproportionate impact on our overall operating results.

On the cost and expense front, our cost and expenses for the nine months increased 2% to $753 million over the prior year due to $28 million of additional advertising expenses and $11 million of increased park wide labor partially offset by the prior year costs related to change in management of $14 million, a reduced loss on fixed assets of $9 million, and lower stock based compensation costs of $7 million.

Adjusted EBITDA for the nine months improved by approximately $1 million to $188 million reflecting the 2% growth in revenues, increased cash expenses and a $7 million increase due to the Discovery Kingdom and Dick Clark Productions acquisitions.

Turning to our cash and liquidity position, we ended the third quarter with over $105 million in unrestricted cash and, excluding letters of credit, no amounts drawn on our $275 million credit line.

With the successful completion of our new credit facility in the second quarter our next debt maturity is not until 2010 and we're benefiting from reduced interest costs and less restrictive covenants.

We've also repurchased a total of $92 million of debt so far this year which will further serve to lower our annual interest costs.

The bottom line is we remain very comfortable with our current cash and liquidity position.

Moving on to our expectations for the full year 2007, we expect to finish with total revenues of $965 million to $970 million, attendance roughly stable with the prior year, and total revenue per capita growth of 2%.

We expect cost of sales to approximate $80 million, cash operating expenses in the $665 million area, and minority interest and adjusted EBITDA at roughly $45 million.

As a result 2007 adjusted EBITDA is expected to end up at $175 million to $180 million, roughly flat to the prior year as reported amount.

As we look forward to 2008, and although we're not in a position to provide guidance on sponsorship revenues as our sales teams are in the midst of the key selling season, we are targeting 2% growth in per capita guest spending which doesn't include sponsorship and other revenues.

As for costs next year, given the progress we've made on guest experience improvement, we've been diligently working to optimize our cost model to reduce our cash expenditures in 2008 while maintaining high guest satisfaction and sufficient marketing programs to grow attendance.

As you know, we really had to shock the system, so to speak, in 2006 and 2007 with increased operating costs, product enhancements, staffing initiatives and marketing spend given where the brand and the park experience was.

As validated by our record guest satisfaction scores, we've been successful in re-establishing a quality park experience and improved brand image.

For 2008 we're focused on expenses that can be reduced without adversely affecting our guest satisfaction.

Our strategy to achieve these cost reductions is based on the following four key elements.

First, reducing full-time staff and a more efficient deployment of our seasonal staffing.

This strategy will be greatly aided by recent investments made to improve the management of seasonal labor through a systematic real-time matching of our labor with demand, some of which we already realized this year in a few parks.

Second, reducing labor, operating costs, and repairs and maintenance by closing and/or removing rides, shows and attractions that are in efficient due to significant downtime, high operating costs, and/or low throughput.

Third, with respect to media, we similarly had to shock the system in terms of image and brand advertising over the last two years.

At this point we believe we can pull back on that type of advertising and focus on retail oriented programs designed to stimulate demand while utilizing more efficient channels such as online.

We also expect to realize production and agency cost efficiencies.

And fourth, we will benefit from various corporate savings including third party consulting costs as we've completed various projects related to our website redesign, pricing and market segmentation analyses, seasonal labor optimization and other staffing initiatives.

We also expect our legal costs to decline due to reduced litigations including our recent settlement of the class-action lawsuit in California.

As a result of the above efforts we expect to reduce our total cash cost by $50 million to $60 million from $665 million in 2007 to $605 million to $615 million in 2008.

Although this is a meaningful decrease in our recurring cost of doing business to be sure, it should be noted that this level of cost is still approximately $40 million more than the Company's 2005 cash cost and expenses when this portfolio of parks delivered over $28 million in attendance.

Therefore we believe it is more than sufficient to continue to deliver and improve guest experience.

Some of the efforts we'll be implementing for 2008 will result in charges in the fourth quarter of 2007.

For example, although we expect to save significant full-time labor costs in 2008, this will give rise to severance costs in the fourth quarter of approximately $5 million to $6 million.

Additionally, we'll be required to write off certain rides and attractions that we will be closing and/or removing.

This write-off will be in the neighborhood of $30 million and will be largely non-cash.

Based on our targeted 2% guest spending increase, cash costs of $605 million to $615 million, capital expenditures of approximately $100 million which plus or minus $10 million will continue to be our run rate for CapEx, and assuming for this purpose flat sponsorship and other revenues we would need to deliver attendance of approximately 26.3 million or a 6% attendance growth to be free cash flow neutral in 2008.

This is before considering potential upsides and sponsorship and other revenue opportunities that Mark will touch on in a moment.

As a matter of reference, $26.3 million in attendance is approximately $1 million less than the seven-year average attendance for our current portfolio of parks.

With that as a backdrop I'll now turn the call over to Mark for his commentary on the business, the 2007 season, and our outlook and opportunities for the future.

Mark?

Thank you, Jeff.

Let me start off by touching up front on the environment.

At Six Flags and the entertainment industry as a whole we're very conscious of what is going on around us, whether it be the housing slump, the credit crunch, rising oil prices, the falling dollar, retailers reporting weak sales in October -- the bottom line is there's a fear out there that consumer confidence is dwindling.

Everyone is worried about how this is going to affect the consumer.

Big box retailers are pushing Christmas discounts as if Christmas was tomorrow.

Having said all that, I want to be clear on the fact that we believe we are well positioned given the status of our turnaround and just the genre of our entertainment business as a whole.

Similar to Disney in their call yesterday, we believe we're well positioned to be somewhat inoculated from this, we're resilient.

We're simply -- we're not immune, but we have a heavy degree of resistance.

The bottom line is that people need to get away, they always have.

They want vacations.

Families want vacations.

More and more, given just how much the family is split up these days with all the time crunches and all the obligations and soccer after school and the school play and both parents working, etc., etc., they look for opportunities to get away.

Escape is paramount.

And Six Flags, even more so than Disney, is an easy get away.

We've talked about it on this call before -- it's affordable, it's around the corner, it's close to home, you know what you're getting and there's very little competition when it comes to exactly what we do.

There's a lot of entertainment competition, but in terms of theme parks and where we're situated, close to major metropolitan markets or in major metropolitan markets, when it comes to that kind of competition there's nobody that stacks up against us.

Not to mention the fact that we've rebuilt a powerful brand.

In every time of crisis in American history -- gas prices, gas shortage, war, you name it -- people have always looked at entertainment as a distraction, whether that be vaudeville, movies, theme parks, entertainment is always necessary to a certain degree.

So we're not immune, but we do have a heavy degree of resistance.

Evidence to support that lies right in the back half of the season for Six Flags.

We've come off essentially a very soft July in which an unprecedented accident took a heavy toll on our business.

Overall it actually took a big toll on the regional theme park industry as a whole given the multitude of accidents or incidents that just happened to plague our industry this past summer.

But in August our attendance and our revenue was slightly up stabilizing from the accident.

In September we're full force back, our attendance was up 8%, our revenue was up 5%.

In October, although we were flat in revenue, keep in mind we had 11% fewer operating days.

So we have a strong first quarter, we're killing it in June up 10% -- 10% in attendance, Jeff, right?

-- 10% in attendance.

We get it with the accident and the bad weather so our July goes soft, we stabilize in August, we kill it in September and we have a strong October.

Not to mention the fact when considering this environment, the American calendar is always something that's going to work in our favor because it's a built-in magnet for us.

The summer lends itself to getaways and vacations.

The holidays lend themselves to getaways and vacations.

Again, evidence to support that, our Labor Day weekend attendance was up 35%.

In the midst of the credit crunch, in the midst of the housing slump, in the midst of gas price already being high our attendance was up 35% for that three-day weekend.

Our revenues were up almost 50%, 5-0.

So the summary of that short story is that Six Flags is very much on the consumer's summer to do list.

Now how high you are on that to do list depends on four main indicators that I want to talk about.

One, your brand strength; two, the customer experience you deliver; three, your marketing and how effective it is, is it resonating, is it making noise, is it watercooler talk; and four, your capital plan.

So I want to go through this one by one.

First of all -- and it also will serve to really be a primer for a report card Six Flags and how we've done in the first two years of this turnaround.

Let's start with customer experience.

We flat out turned around the quality of our product and the image of our brand.

Again, let's look at the evidence.

We have record high guest satisfaction scores.

Our crowds came back beginning in August despite the weather and despite the accident, demonstrating once again we're a resilient business and a brand that people and families will come back to.

Remember, we plan to be flat in attendance overall this year despite 51 fewer park operating days and, of course, the horrific accident.

I'm not even going to mention the weather in July because there's always some kind of whether impact so I'm not going to use that as an excuse.

Our guests are staying longer, they're spending more.

In fact, since we've arrived, since the new management team took over in early 2006 and we made guest spending our Chief priority, we're up 16% in revenue per guest over the two years.

Our strategy of bringing in big-name consumer brands is on track, high quality brands that people trust; they work like magnets in our park.

Food and beverage per cap spending in particular is up 16% since 2005.

And the brands are also strong for us because of the marketing benefits they bring and the brand association we get from them on the street.

They give us good street credibility.

We diversified our product offering and it's resonating with the family.

We now have just as much for the family, the toddler, the tweens as we do the teens.

In parks like Great Adventure in New Jersey or Great America in Chicago, they now have three or four strictly devoted kids' areas ages 1 to 10.

Wiggles World was a homerun for us.

In Six Flags New England we did almost 1 million rides, 1 million rides in just Wiggles World.

Thomas Town has been a homerun for us.

In fact, our 3 to 11 demo, ages 3 to 11 across the Company is up 5%.

Now that's of course on flat attendance so it demonstrates that the shift, the family strategy is omnipresent.

Our Thursday night concert series has been a winner with our teams and tweens, so much so that we're adding a Sunday night installment next year.

The concert series has flat out proven to be appointment programming for us.

And finally, Tony Hawk has delivered and proven that you don't have to spend $20 million on a coaster to bring people in.

What makes the Tony Hawk roller coaster so good and so important for us is it's what we call a hybrid ride.

So it's every bit as much attractive to the tween as it is the teen.

It brings in the families without alienating the teens.

Again evidence -- we put it in two places this year as a test, San Antonio and St.

Louis.

Despite the rain that plagued San Antonio this year, their attendance was up 5% with the largest gains in the 8 to 11 demo and the 12 to 17 demos.

In St.

Louis teens and young adults saw double-digit attendance increases of 18%.

Both of those parks also had a concert series, the Thursday night concert series.

So you can use those parks as a model for the strategy working and our basis and means to replicate it next year.

Keep in mind we're also putting in the Dark Knight posters next year, these are indoor roller coasters, very much patterned after Tony Hawk in the sense that they appeal to the entire family and will be piggy backing on the $300 million Warner Bros.

will be spending -- $200 million to $300 million, whatever it might be at the end of the day -- to promote the next Batman movie in their series which comes out late summer next year.

To round out the customer experience, as you know, our guest satisfaction scores are at an all-time high, and two of the metrics driving those scores -- I thought it was important to point those out.

Beyond cleanliness and friendliness, which are scoring extremely high, and beyond the enforcement of our new code of conduct policy, which is scoring extremely high, our hourly ride throughput, meaning the number of people we're putting on rides per hour, how fast we're getting people on those rides -- because of course nobody likes standing in line -- is way up.

And our maintenance -- our maintenance downtime, meaning rides that are down because of maintenance needs, has decreased significantly from 2005.

These are tangible results of our investments in labor paying off.

And finally, when it comes to safety, the number one priority of the guest, understandably so, the number of ride-related incidents has severely declined over the last two years.

So despite a freakish and tragic accident in Kentucky, it's accurate to say that across our entire system of parks we're safer than ever.

Let's turn to the second of those indicators, capital.

We've previously announced that we have an historic and unprecedented capital plan in-store for 2008.

Now it's not historic in terms of how much we're spending, I want to be clear about that.

Jeff and I have told you we have a run rate on CapEx, it's $100 million and in any year it could be plus or minus $10 million, and that's where it's going to stay.

It's historic because we're putting eight coasters in eight of our largest parks, coasters such as the Tony Hawk hybrid which is going into Discovery Kingdom San Francisco and of course coasters such as the Batman ride that we're putting into Great Adventure in New Jersey, New England in Agawam, Massachusetts, Six Flags New England and of course Great America in Chicago.

Those rides are all anywhere from $5 million to $7 million, the Batman ones tend to be a little higher at like $7 million to $8 million.

But that's the arena, that's the space we should be playing in.

And the reason why it's so important, first of all it rounds out our strategy.

Year one in capital was about asset maintenance, get in and clean up the parks.

Keep in mind, we pretty much inherited the capital plan our first year.

The coasters that they were building for $22 million each were already on tap, we couldn't undo those, they were already on the ground being built.

But the money we could move around we put into cleaning up the parks.

Year two capital was on family rides, balancing out the parks, which we had to do in almost every park with the exception of St.

Louis and San Antonio which already had a good arsenal of kids' rides.

So in those other parks we put in family rides, balanced the parks, bring in the younger kids.

We can't market to them if we have nothing for them to come ride of course.

This year is about the thrill rides, now that we've got the balance, now that we've cleaned up the parks, now that the maintenance downtime has decreased; bring everybody back with big thrill rides and big capital opportunities that you can market.

Again the evidence, we're early, very early.

I don't want to get anybody too excited here, I don't want to type this whatsoever.

Generally we aim to do 2.2 million to 2.5 million in season passes annually -- 2.2 million units to 2.5 million units, that's generally where we aim to come out.

So at this point in the year we've only sold 100,000 approximately, 100,000 season passes for 2008.

But where we are today on that approximate 100,000 is 32% higher than at this point last year.

So that shows the Batman rides, some of other things we're doing in terms of promotions which I'll get into are resonating and people are buying their season passes upfront.

It also underscores what I said earlier about the economy -- times are tight, credit crunch is here, oil prices are rising, but despite the environment people are planning ahead for Six Flags next year.

It underscores the fact that going to a theme park is, for many families, a summer ritual.

Turning to marketing, the third, if you will, of the indicators that affect how high you are on that summer to do list.

We've built a comprehensive internal database; we've overhauled our website.

As Jeff mentioned, we've finished our pricing and segmentation analysis that we endeavored all season long with Mercer and we're now well positioned to realize a substantially lower cost per acquisition next year.

Additionally, with a more balanced and diversified media mix we'll be leveraging more digital and social networking platforms including more online spending and less radio combined with a creative direction that emphasizes hard-core retail messaging versus brand messaging.

We'll be online heavy and diversified -- My Space [hyper targeting].

We'll be having a company profile page in FaceBook.

And much of what you read about earlier this week with some of the new advertising plans for FaceBook such as the social advertising platform that they've launched; we'll be on that as well.

We're also concentrating our media to a much shorter window.

This is something we clearly learned here -- we need to heavy up our media in May, June and July to get the momentum going and ratchet it way down in August.

If you don't have momentum by the time you enter August your season is shot anyway.

So we're going to be concentrating that media to make more noise in the early parts of the season.

All of this adds up to a reduction of $25 million to $30 million in marketing expenses.

To simplify it once again -- it's more online, less on radio, a lower cost per acquisition, no media devoted exclusively to brand messaging because we've done that hard for two years, and a much more concentrated media spend window and that's how we're going to get the $25 million to $30 million in savings.

Finally, the fourth of those indicators -- determining how high you are in the summer to do list, what's the strength of your brand?

And I should mention the strength of the brand is of the utmost importance when it comes to corporate alliances.

So let me breakaway for a brief second before I talk about what the research is telling us about our brand.

When we came on board we inherited $16 million in sponsorship, we built up a team, we got out on the street selling in May 2006 -- not until May 2006 were we firmed up and on the street selling.

Here we are 16 months later already at $38 million in sponsorship, 38 and change actually.

How have we done it?

That's the best part.

Lou Koskovolis and his team have done it by offering static.

If you think about it it's just static.

You're selling outdoor advertising, you're selling product sampling, you're selling experiential marketing, you're capitalizing on the 25 million to 30 million people that come to all of the Six Flags parks in this tight window and it's a captive audience.

Now when you go in and you add a Six Flags television network where does that get you?

Plasmas throughout the parks built in two phases -- next year we'll do half the parks and in 2009 we'll do the second half of the parks.

But we have these people, they're in line -- I'm clearly very passionate about this point here because it's such a growth track for us, it's a huge revenue stream ultimately.

They're in line, they're captive, most of them can't even have cell phones because it's dangerous to take loose articles like that on a ride.

So they've got to put their stuff in lockers.

So you have them doing nothing but twiddling their thumbs.

Now you go ahead and put plasma screens everywhere throughout the queue line, you put content, some of which you've acquired through the Dick Clark acquisition, you add in commercials to advertisers that are more and more looking for nontraditional advertising and you build yourself a big business.

And that's why we'd like to see this business grow to $100 million in the next three to five years.

This is what we call the in person media business.

It's a first mover play for us and we have a unique advantage.

Keep in mind, DVRs are on the rise, TiVos are permeating, and now there's concrete evidence that television viewers are doing what everybody always knew they were doing and that's skipping commercials.

55% of television households will have a DVR by 2011 according to Forrester Research, and we're positioning Six Flags with the advertising marketplace as a solution to the DVR dilemma.

Now moving back to the brand research.

Here's what we've learned -- we just concluded an amazing amount of research, three months of research.

Hell of an investment in our marketing budget, if you will, to really understand and analyze all aspects of Six Flags.

Here's what we've learned -- awareness of Six Flags is high; intent to visit Six Flags is high; knowledge, meaning the buzz about our guest satisfaction improvements, is high.

Now who were the pool, people that we did the research with?

A fair amount of that research was with teens, young adults and moms that haven't been to the park in 24 months.

We went in with a goal, the mission of understanding and determining what was the barrier to entry.

A good deal of that feedback was that there are still plenty of consumers, despite the awareness being high, despite the intent being high, despite the knowledge about our guest satisfaction improvements being high, that are taking a wait and see approach on the turnaround before they visit.

And we believe that with a strong capital plan and the right media mix that tide will turn next season.

I should also mention that our brand will lead a new growth section for this company in the coming years, whereby we're currently in advanced discussions involving several international development, management and licensing opportunities.

It's the brand that's generating these opportunities and that goes back to why the investments we made over the last two years, including the increased marketing investment just so we could advertise pure branding messages, was so important.

Six Flags means something to consumers and that is now resonating with the international marketplace.

In terms of other growth initiatives that reflect well on the brand and allow us to stretch our business, I should update you that the Dick Clark investment is paying off for us in two specific areas thus far.

First, promotion and sweepstakes, we're now able to do promotional tie-ins surrounding the American Music Awards for this November -- it's actually next week -- and ultimately for November of '08, are helping drive our 2008 season pass sales.

Secondly, the investment itself, just the pure investment is already paying off.

We're only four months into this investment and we already anticipate the Dick Clark business will deliver double-digit growth in operating earnings in 2008.

It's also a good story for us that the biggest brand arguably in the Dick Clark portfolio, the Golden Globe Awards, sits in a good position with the announcement yesterday that the premier of 24 on Fox has been canceled due to the writers strike, so the Golden Globe's will now have less competition when it airs in January.

Those are the four elements -- brand, capital, marketing and customer experience -- that raise Six Flags higher on the summer to do list.

Each of those levers by itself take intent to visit to actual visit -- intent to visit to actual visit -- and that's why I'm so confident about 2008.

We're well positioned on each lever.

I want to underscore that while many consumer companies are retrenching, they're pulling in, they're scaling back development, we're doing exactly the opposite.

But we're going so in an efficient way.

We're managing growth CapEx; this company no longer foolishly spends CapEx.

We're expanding in the high margin/low capital businesses -- sponsorship, international development, brand extensions.

And as if that wasn't enough, we have a stronger expense model long-term because of the two-year investment we've put in in the short-term.

As Jeff articulated, our expense model will be at least $55 million better than it is today.

So just doing the math here, if we're going to finish the year flat to where we were last year at approximately $180 million in EBITDA, the expense efficiencies put us at $235 million for '08.

And if you believe we can get our 2% increase in guest spending, and our track record is pretty good on that, you're now at $250 million.

That means that it comes down to three main triggers to get us to our three-year goal of free cash flow breakeven for the first time in the history of the Company.

International development, sponsorship increase or increased attendance, that's the bet here.

Of course the attendance can do it all by itself.

And keep in mind we have a good start on that attendance in the sense that I'm going to announce that we're stretching the season through November for a couple of our parks next year which are yet to be announced.

And we're actually going to launch our popular December Holiday in the Park offering in one of our Northeast parks next year, the 19-day December Holiday in the Park offering.

We know it's cold out there but we're taking a risk here, we're experimenting and we're going to see if it hits for us.

It's a conservative risk.

All right, before I open it up to Q&A I do want to leave you with four takeaways, four final bases, if you will.

The first base is I really need to highlight in blinking colors and lights what Jeff said about not compromising our product.

The expense model we've built over the last few years was what we needed to do to shock the system.

In my estimation that's what you do when you take over the management of a company that has a damaged brand and diminishing consumer faith.

But now we are healthy from an image standpoint.

The product is healthy and involving, our guest satisfaction scores are high, the demo is shifting, our safety records remain incredibly strong -- even stronger, our guests are spending more time and money with us, and we've invested in systems like our seasonal labor tracking system that's automated and real-time that will allow us to increase our labor productivity.

Plus, taking out more flat rides that have low throughput will allow us to cut back on some of that seasonal labor.

As Jeff mentioned, we came in $15 million below our expense guideline for this year, primarily by implementing midstream that real-time automated labor scheduling system.

I guarantee we will get more out of that from an entire season next year of using that system.

This is about being efficient and managing our business in real-time with regard to attendance and weather.

But we're not going to harm the product.

I'll be damned if we went through all that pain, discipline, investment -- which clearly took a toll on our earnings -- and then not reap the reward next year.

There should be no concern about the product dropping off.

Our portfolio of park presidents are the best in the business and we've made guest service -- they've made guest service our number one priority, that will stand pat.

As if that wasn't enough, you should know for context, even with the cuts we're still going to be spending $40 million more on a comparable park basis than we did in 2005.

Second take away -- this is no longer a three-year turnaround.

A lot of folks have said to us in a lot of investor meetings, I can't wait three years; I don't want to wait three years, on and on and on.

Well, it's not about three years anymore, get that out of your mind.

Next year is the culmination of the three-year turnaround plan.

Third base -- upon conclusion of this call we're putting out a release on much of what we've said here.

You'll of course have the transcript as well, but think of it as a cliff notes version of our strategy.

And finally, rounding home -- we're going to have an investor day on April 29th, investor day on April 29th at our Great Adventure park in Jackson, New Jersey.

Interested investors and analysts, not just those that want to ride rides, can sign up to receive information on a specific website we've set up which will be in the after release that we're putting out post call.

And last but not least, I think it's important to highlight and reiterate what Jeff said about our liquidity situation.

We have a $275 million revolver that we haven't touched at the present time.

We have over $100 million of cash on our books at quarter end.

We have no near-term debt maturity until 2010.

We have three ways of dealing with the 2009 peers.

And I've just laid out a path for you, a viable path, to free cash flow breakeven or positive.

So we don't have a liquidity crisis whatsoever.

We have sufficient runway to execute our strategy.

Thank you.

All right, let's open it up to questions.

(OPERATOR INSTRUCTIONS).

Michael Pace, JPMorgan.

Thank you.

Mark, you speak a lot about brand -- strengthening the brand over the past couple years for the customer experience.

I guess there are a lot of people who have questions on the call today about you're lowering your cost next year.

Is there a risk that those two items could potentially weaken by reducing staff, by shutting down shows and rides and reducing advertising?

If you to comment on that and then actually I'll follow-up with a question for Jeff.

That was literally -- I just did an entire section on that.

I don't say that in a derogatory way because I do want to highlight it for you.

I can't stress enough to people on this call -- we have totally turned around the quality of our parks in two years.

And we've spent a lot of money, a lot of time, a lot of effort, a lot of blood, sweat and tears to do it.

This was a damaged brand with a damaged guest experience and we put in a lot of money to turn that around.

This is a surgical cut, that's all this is.

Now we're actually in the 21st century and Six Flags has electronic systems that are being put into use to better manage our system.

I know this sounds crazy, but in the past this company didn't take advantage of those days when either attendance was low or weather was bad.

And you could come to a park and see it fully staffed for a bright sunny summer August day when it was drizzling rain.

The benefit of our business is seasonal labor.

Oh, we're light today?

There's a NASCAR race in town so we're light today?

Or the Taste of Chicago is taking away our business in Chicago or the weather is bad?

Punch out -- it's a seasonal business, it's a seasonal labor business.

And we have a new system; it's called SLTS, that's the acronym which I mentioned, Seasonal Labor Tracking System, which allows us automated in real-time to measure our business.

It allowed us primarily to cut out significant expense.

We're coming in at 665 on our expense where we gave guidance at 680.

And I will tell you the bulk of that is being driven by being more productive and being more efficient with the systems we have in place.

For an entire year of that next year there's no question we can't take that 15 million to 30 million.

Plus, we're taking out some of these flat rides that are just -- they're not worth it.

The throughput isn't there, they're not popular.

Maybe Tilt-a-Whirl was a big ride when you and I were growing up, but it's not anymore.

And we're being better about being efficient and tracking what's popular in our parks and getting rid of essentially the old scrap.

So quality is not going down -- and the park presidents take so much pride in what we've done these last two years and they're in their positions for a reason, they won't allow it to happen.

Okay.

And then I guess for Jeff.

According to the release, by our count here you have about $340 million in liquidity.

Can you just help us out on where that liquidity goes at your peak borrowing?

I guess it's typically right before you open up the parks in May.

Where should we expect that to go before your next operating season?

Is the Company thinking or willing to sell assets to help that liquidity situation?

We don't believe that we have any need to sell any assets in the short-term in terms of our liquidity needs.

Typically from January through around May, which is kind of our low point as we're spending to get ready for the full-time season, the Company will stand anywhere between $175 million to -- and depending on the capital program in the given year -- $200 million of cash need through that low point.

So we're very, very well positioned in terms of our current cash and liquidity position.

Okay, great.

Thank you.

Jeremy [Kenny], CIBC World Markets.

Good morning.

I was wondering if there was any chance that you would have to roll back some of the pricing that you took given the consumer environment that we're heading into and all of the things that we can obviously see happening?

No, any roll back of pricings wouldn't be because of the environment, let me just say that upfront.

I think we're very resistant to the environment, as Labor Day shows you, as August and September and October demonstrate, pricing isn't a detriment to attendance or visitation I should say because of the environment.

We think there are some opportunities given competition and some strategic pairings we could do with our water parks that have adjacent theme parks and kind of multi-tickets if you will, buddy passes if you will.

There will be some solid changes we announce as we get closer to the parks opening.

I don't want to tip my hand right now to the competition.

But generally we expect next year ticket per cap to be in line with where it is this year.

Secondly, I would say that season pass we still believe is incredibly undervalued, incredibly under priced.

The fact that you can get into Great Adventure -- well, it seems like a lot $89, but really it pays for itself in two visits.

So when you've got a park like that that's open 150 days or 160 days, some of our parks are open 140 days, some of our parks are open 180 days.

Look at Los Angeles, that park is open year-round and you can get a season pass for $59.99.

So if you think you're going to go twice in a year, it pays for itself.

So we think there's still considerable growth on the season pass, we just can't get it all in one year, we have to build it a year at a time, a year at a time, a little increase each year.

That's it for me.

Thanks.

Kit Spring, Stifel Nicolaus.

What happened in September?

Was it just good weather, any more operating days in September?

Any comment you could give on that, that was a positive sign.

And let's see here, any appetite for an equity offering?

I'll take the first one on September.

Operating days were on par year-over-year, so no change there.

We had very, very good weather in September, particularly over the Labor Day weekend largely across our portfolio and that drove a lot of the performance, as Mark mentioned.

We were about 35% in attendance over the three-day Labor Day period and about 50% in revenue.

So that was a driver of the September performance.

As far as the equity offering goes, we have no plan for that whatsoever.

Why would we sell equity with the stock where it is?

We have no liquidity crisis whatsoever and the thought hasn't even crossed our mind.

Okay, thank you.

David Miller, SMH Capital.

Just a few tidbits here.

Mark, over the last couple years you guys have done very well with season pass sales, both in marketing the units and just in terms of pricing and the way you market it and the results and so on and so forth.

But the group sales effort, at least just by my account, seems to be let's just call it tepid.

And I'm just wondering why that is in your opinion.

And as we get into go '08 here what you plan to do to improve that.

And then, Mark, just a couple items on the debt repurchase.

You mentioned that $92 million of debt has been repurchased so far this year.

Can you detail what that number was in the quarter?

And then I have a follow-up?

Thanks.

I'll tell you on the group sales, candidly I just think we failed on it to be very honest with you.

I think it's -- it hasn't fallen off, it's been stagnant.

And this year group sales, whether it's me personally going on sales calls for big groups when we do a buyout day with Pfizer or a buyout day with Ford or a buyout day with Toyota and we have several days with those companies in many of our parks -- if it takes me going out on calls to see that we close it or it means something extra that the CEO is coming in to pitch for the business that's what we're going to do.

We've got a bullet on group sales this year.

I didn't mention it in the call because I plan on speaking in more detail in February, but the bottom line is the leader that I had in that position I don't believe ultimately was the right person for that job and we've done a restructuring.

And we've got really a two man team that's going to be running that division that we're going to announce next week, actually two women if you will.

And they've been in the business for a long time.

They've been with Six Flags collectively almost 30 years.

They're really two killers, put it that way.

And I'm excited about where that business is going, I've seen the strategy, I've seen the plan.

And when you look at how I spend my time in this coming year, there are four main areas that you'll find me at any time doing -- number one is group sales and seeing that we get the goal that we put on it, the bullet we've put on it, the increase we expect to get out of it this year spending my time on the group sales strategy.

Two, corporate alliances, building that sponsorship business.

Nobody's more passionate about it than I am.

I think it's absolutely the solution for those folks that are getting stymied with television advertising and the decline of people watching commercials -- the rapid decline of people watching commercials.

Three is international development.

I think there's real opportunity out there; I know there's real opportunity.

As I mentioned, we're in advanced discussions, it's not just for development, it's for licensing of our brand, it's for managing potential parks overseas with us taking zero risk, zero risk.

So I think that's a huge growth sector for us.

And fourth of course is marketing.

Our message has got to be loud, our message has got to make noise, our message has got to stir watercooler talk.

We've got to move ourselves higher on the to do list.

We're so high on intent to visit, I'm not sure we're really turning the trigger though, pushing the trigger when it comes to actual visit.

And our marketing has to strike the cord this year and I believe that Ogilvy's campaign will do just that.

Jeff?

On the debt repurchases, the total of $92 million of debt repurchase this year, as we had indicated in the second quarter we had bought back $85 million, so about $7 million in the third quarter was the total amount.

Okay.

And then Jeff, on the cash operating expense guidance, the range that you gave, 605 to 615, I just want to make sure we're on the same page here -- that includes cost of goods sold, correct?

No, that's the cash OpEx excluding cost of goods sold.

If it's sold this year it's going to come in at about $80 million and, obviously depending upon the volume we deliver next year, that will drive cost of goods sold.

So that's why we're not giving guidance on cost of goods sold.

Good enough.

Thank you.

Matthew [Gluwaski], Quadrangle.

It's Patrick Bartels from Quadrangle.

Mark, you just mentioned on the end of the call three ways to address the peers.

Could you just take us through that?

Jeff, go ahead.

There are at least three ways to deal with the peers.

Obviously we have a provision in our current credit agreement that specifically allows for a $300 million additional term loan to refinance the peers.

We also have the ability through a carve-out in our credit facility to sell noncore assets, use those proceeds to deal with the peers.

And then obviously we can always refinance the peers with a similar security.

So those are kind of the three opportunities that we have at our disposal and obviously we have two full seasons before we get to the maturity of the peers.

It's not mandatory that you take the peers out though?

It is [mandatorially] redeemable preferred stock, so I'm not sure I understand the question.

Okay, it's just mandatory that you have to take it out?

There is a contractual obligation.

Okay, thank you.

That's all I have.

[Bharad Enyun], Brownstone Asset Management.

First question, you mentioned that OpEx was going to be down 50 to 60, does that includes the marketing decrease of 25 to 30 as well?

Yes, that's broken out 25 to 30 on the marketing side, the other 25 to 30 coming from the full time and seasonal labor efficiencies.

All right.

And then the CapEx guide of 100 for next year, does that include the spending on the new roller coasters of like the 65 million area?

Absolutely, it includes it.

It does and some of that -- that's why we say plus or minus 10 million in a given year.

Given the nature of the capital program you may have to spend -- pre-spend in the calendar year before the following season.

So this year will come in at about 110 of CapEx because of the pre-spend on the coasters for next year.

All right.

And then you sort of touched on it earlier in terms of your liquidity needs during the low season.

And I know that your senior secured ratio on your revolver when it's drawn steps down about 5.75 for the first quarter, which if you assume you flat line in terms of your EBITDA going forward you can only -- I guess you'd be drawing 250 million on your revolver you'd be sort of hitting that 5.75 ratio, is that a concern of yours as you look forward?

No, you've got to remember that the ratio is based on a quarterly average for the revolver, not (multiple speakers) a one point in time.

And as Mark mentioned, even assuming flat top-line performance the cost savings add $50 million to $60 million to our EBITDA for that purpose.

So we're very comfortable in terms of our covenant compliance.

But the 50 to 60 is for next year, not for the first quarter?

Correct.

Right.

Okay.

At these levels of 180 we're still fine, again because you look at the quarterly average for the revolver given it's seasonality.

Okay, thanks.

That's all I have.

Jane Pedreira, Lehman Brothers.

Good morning.

Just had a couple of questions -- I know you haven't talked much about asset sales, but can you in any way shed light on what process you might be going through in the future to make any kind of determination of what real estate you may have that would be excess real estate that could theoretically add to liquidity down the road?

I don't want to speak to any process because we're not envisioning one at this point in time, but we have indicated that in terms of the potential assets that could be candidates, obviously we have excess land at two of our parks, a significant amount of excess land at two of our parks -- our Jackson, New Jersey park next to Great Adventure and our DC park in Largo, Maryland.

Combined we have about 1,000 acres of excess developable land that could be disposed of.

So that's the excess land side of it.

We're continuing to work through -- I don't want you to get the impression we're not doing anything -- we're continuing to work through master planning and getting a better sense of optimal use, particularly for the New Jersey land, but given the real estate market we don't believe it's an opportune time to pull the trigger on anything there, but we're continuing to work through that process.

In terms of parks, as you look at our portfolio, when we came on board we had about 31 parks, now we're down to 21.

So we've shed I think the lion's share of the parks that we believe were not necessarily critical to our strategy.

There may be two or three other parks that could be candidates, but we have no formal process, no intention at this point to sell any parks.

We obviously get a lot of inquiry and we listen to folks, but nothing to report on that front.

Once you go through the master planning for the parks and determine optimal use of excess land, then would you take the next step to try to get a portion of it rezoned for possible sale in the future?

Potentially.

It all goes to the point of how much a potential buyer is going to discount the price, if they're going to take the zoning risk versus us trying to get that taken care of ahead of time.

So that's part of the analysis we're going through.

Okay, that sounds good.

And then could you just give any more details on the severance cost and specifically what areas are you cutting back on?

Yes, we implemented an early retirement program for a certain class of employees that was voluntary and that was across the Company at the park level as well as at corporate and certain folks took advantage of that, so we have severance related to that program.

That's the lion's share of it.

Okay.

All right, and then I know you gave a little bit of color on integrating Dick Clark, but can give us any more details on what you may do with respect to the tryouts for So You Think You Can Dance?

I don't know how far you've worked through that.

We're still in discussions with 19 Entertainment and Dick Clark; the two of us are still discussing the way we're going to roll that out.

But at least from a season pass and a ticket promotion standpoint we're leveraging tryouts, the ability to try out for the show or get to another round for example through the parks.

So we're leveraging the assets in terms of content that we may show on the screen, stage shows that we may be doing and a tour that we're potentially looking at, and fourth is really allowing not just tryouts to happen for the show, but essentially buy a ticket or buy a season pass and get entered in a drawing to kind of skip around to the tryouts and make your way to Los Angeles early.

So we're leveraging it in every way possible, not to mention sponsorship opportunities.

Anything -- whether it's Golden Globes or American Music Awards -- anything we're out there selling for Dick Clark Productions we're also including the assets of Six Flags where it makes sense.

Okay.

Then just one last question.

You gave some -- I don't know if you want to call it guidance, but it sounded like guidance for the year in terms of like including Discovery Kingdom.

I don't know when they close, but would that be more of a negative contributor now that you own 100% of it contributing to the fourth-quarter loss or how do we think about that?

The combined Dick Clark and Discovery Kingdom acquisitions contributed about $7 million to our adjusted EBITDA for the third quarter, and that will remain relatively flat.

So for the full year this year it will be $7 million.

And that's a function of we will pick up EBITDA from the pickup from Dick Clark, but that will be offset by the 100% of the loss, the fourth-quarter loss that we'll be picking up from Discovery Kingdom, so for the full year it will be about $7 million.

Okay.

That's all I have.

Thank you very much.

[Drey Wine], Boone Capital.

Just a couple questions.

Where were season pass sales in '08 versus '07 on a units and sales basis?

We were up about 6% year-to-date, actually probably a little more than 6% -- total revenue growth was 9%, the lion's share of that was volume versus price, price was 1 to 2%.

Okay.

And then in '08 in regards to park operating days, where is that going to fall relative to '07.

You were down '07 versus '06 overall, where is '08 going to be?

We won't be lower, we're still analyzing that calendar and we're going to put it out for publication probably the next -- really not until early '08, January/February we'll put it out.

Okay.

And then in the reduction that you have in your cost, does that include keeping the parks open in November?

That's correct.

I'd say November -- keep in mind, it's just the weekends in November.

It's not Monday through Friday.

And it's only select parks.

Correct, it will probably be two parks in total.

Yes, and we -- again as Mark mentioned, we're still tweaking our operating calendar.

We've also taken the opportunity in other parks, again, taking the strategy of days that have little or no profitability, still reducing some of those to fund these other extension opportunities.

I follow you.

And then in regards to your ambitious goal of 100 million in sponsorship over the next three to five years, how do you expect that business to ramp up over that period?

Should it be more front or back end loaded in terms of the growth there?

I'm not going to break out how we see it annually, a lot depends on how we do in this selling season and where the ad market plays, how it continues to increase year-by-year and the more money people are throwing towards nontraditional advertising.

So bottom line is we think we can be at 100 million in three to five years, how fast we get there is still to be seen.

Okay.

And then last, since you're comfortable with your cash and liquidity position, do you still have an additional appetite for repurchasing bonds considering they're $0.75 on the $1.00?

I don't want to comment on that.

All right, fair enough, guys.

Thanks.

Glen Reid, Bear Stearns.

Just a couple quick ones.

I guess following on the sponsorship, so are you not giving guidance for next year in terms of any sort of growth target?

And I guess related to sponsorship, I believe -- and correct me if I'm wrong -- that your Home Depot deal expires this year?

And whether or not -- what the prospects are for renewing that one?

And I guess the second question is in terms of park attendance, clearly weather was awful in Texas, but where weather was decent, to the extent that it was anyplace in particular, if you could comment or characterize attendance at those parks?

Thanks.

Two things.

First, on the Home Depot, yes, we have a five-year deal with Home Depot.

We have an option at the end of the two years and both of us are currently assessing what the future is going to be with Home Depot and to what level, if any of course because, as you can imagine, there are a lot of department stores out there that do what Home Depot does that are interested in pursuing a partnership with us.

And of course Home Depot has their own chief rival that does exactly what they do right now.

And we really want to assess the marketplace, I'm sure as do they, before we firmly determine how much, at what level or at all if they're going to return next year.

Secondly, with regard to the attendance, yes, the East Coast, which is where we us usually have the most risk because we have so many parks really on the East Coast, we had a great East Coast.

We had great weather and the parks did well with it.

It continues to drive the fact that if weather is good your brand is good, your customer experience is good, people will come and they'll keep coming back and we saw that.

The bottom line though is that Atlanta had their worst July since we began recording weather at this company.

And the Texas parks alone -- remember San Antonio and Dallas on any given weekend, basically on every weekend even conservatively they do 40,000 a day.

So that's 80,000 between the two on a given weekend.

If it rains out or even rains you're talking about 80,000 turning into 20,000.

And it really is apples to apples because generally you don't get that weather in the summer at the Texas parks.

So it's not like we're compared to bad weather days last year in Texas.

When we have bad weather it's generally not in Texas.

So this was a total anomaly and it hurt us.

But still at the same time the fact that May, June, April are strong, even with a spring which rained out on the East Coast in our New England in New York Park, and then the resurgence in August, September and October, you're looking at a month where we really got hurt.

But the other parks did do well, to answer your question.

So was attendance up on your East Coast parks?

I guess that would be your Washington, New York and Boston parks?

I'm not going to break out individual park by park and what the percentage is frankly because I don't have that off the top of my head, Joe, but the bottom line is that -- I'm sorry, Glen -- is that we have six parks.

We have Lake George, we have Washington D.C., we have New England, we have New York, Atlanta, etc., etc., and other than Atlanta the other ones did very well.

And their attendance and spending were commensurate.

Okay.

And then, sorry, again on sponsorship, as far as growth --

Obviously, just doing the numbers yourself, if we're flat in attendance with Texas getting rained out, clearly we had to have other parks like the East Coast and Chicago that picked up the slack to at least get us to flat.

Got you.

okay.

And then as far as sponsorship again for next year, are you expecting to grow sponsorship for next year?

The answer is yes, we are expecting to grow sponsorship for next year.

To what level?

We'll get into more detail on the February call.

Right now we're just picking the selling season, kind of our up front if you will, and I'm uncomfortable putting a bogey on it.

Okay, great.

Thank you.

Joe Stauff, CRT Capital.

It's been a long call, I've had most of my questions answered.

But just real quickly, can you give me a sense of -- and I apologize, I got on the call a little late -- but could you comment, regarding the third quarter did you dial back on expenses?

And if so how do you may image that, where do you look to sort of be able to manage your cost structure relative to obviously the weather weakness in July, etc.?

We can take it up with you afterwards if you want, Joe.

We did spend a good section of it -- I want to make sure we give you full detail without killing everybody else's time.

But the bottom line is you always need to manage your business so that we're essentially staffing at levels that are appropriate given the attendance or given the weather.

And we've installed technical and electronic systems, namely our new seasonal labor tracking system which all of our parks are now using collectively that allow us automated and real time to cut back when the attendance doesn't warrant it.

And that's where you get a lot of your savings and that's where we picked up a bulk of our savings over the course of this season.

Okay, fair enough.

Thank you.

Thank you.

And thank you all for your participation in today's conference.

This concludes the presentation.

You may now disconnect and have a great day.