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Six Flags' Results Land in The Red
CEO Says Firm Is in 'Transition'

By Annys Shin
Washington Post Staff Writer
Thursday, August 3, 2006

Last fall, Redskins owner Daniel Snyder convinced Six Flags Inc. shareholders that the ailing theme park company would be better off if it were overseen by the likes of ESPN programming whiz Mark Shapiro and Hollywood mogul Harvey Weinstein.

Eight months later, Six Flags is still, as Shapiro put it, in "transition." The nation's largest theme park operator yesterday reported a second-quarter loss of $39.6 million (48 cents a share), compared with a profit of $11.1 million (6 cents) for the second quarter of 2005.

Attendance at the company's 30 parks, including one in Largo, was down 14 percent, to 9.6 million from 11.2 million. Attendance figures were adjusted to exclude three parks that the company plans to dispose of.

Moody's Investors Service Inc. downgraded Six Flags' corporate family rating, saying management's new strategy will require higher spending, "challenging the company's already weak financial position." Moody's concluded: "Operational improvement remains uncertain, with evidence of progress unlikely before the end of summer 2007." But Moody's also changed its outlook on the company to "stable" from "negative."

Six Flags' new management, which took the reins late last year, has learned some hard lessons.

When Snyder and Shapiro were fighting for control of the company, they were less than sympathetic when the former management cited "adverse weather" as a reason for poor performance.

During a conference call with analysts yesterday, Shapiro cited all manner of metrological phenomena while discussing the company's second-quarter loss. Rains flooded the East Coast. A heat wave engulfed Dallas and Oklahoma City, which had 15 consecutive days of three-digit temperatures.

Even worse, bad weather often fell on weekends, which are typically peak days for attendance, Shapiro said.

Bad weather has plagued the industry as a whole, said theme park consultant Dennis Speigel.

"It's going to be just one of those seasons, a flat or down season," he said.

Competitor Cedar Fair LP, which acquired Paramount Parks in June, blamed rain and slowing economies in Ohio and Michigan for a 10 percent drop in second-quarter profit, to $11.1 million.

Beyond Mother Nature, higher spending also contributed to Six Flags' wider losses for the quarter.

Much of that money went toward new initiatives aimed at giving the parks more family appeal, such as hiring more cleaning staff, having more costumed characters roam the parks and adding a daily parade, Shapiro told analysts.

The strategy is paying off according to several metrics, Shapiro said, the biggest one being a 15 percent increase in per-capita spending. Fewer people are coming to the parks, but they're spending more when they're there.

Customers also reported higher levels of satisfaction and more said they would return, Shapiro said.

Shapiro said that as a result of improvements, many of the expenses won't be as great next year. "The pain we did, a lot of pain, we're not going to have to do next year," he said.

Planning has already begun for next year, including group ticket and season pass sales, exercises the new management either missed out or got a late start on last year because of the proxy fight.

"We're not running Disney right now. We're never going to be Disney," Shapiro told analysts. "We need to be similar to the Disney experience. We've got a leg up on Disney because we're a drive away."

One obstacle that is not likely to change is the more than $2 billion in debt the company is carrying. Some of its lenders agreed to give the company flexibility in meeting certain financial covenants.

But the Moody's downgrade will make borrowing more expensive, and the increased debt expense will hurt Six Flags' ability to right itself, Speigel said.

But in general, "they're on the right course," he said. "Shapiro has got the right formula. He just needs the money and the time to get it turned around."

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