Six Flags Entertainment Corporation
Q3 2007 Earnings Call Transcript

Published: 9 Nov 2007

[Operator:]

Good day ladies and gentlemen, welcome to the 3rd quarter 2007 Six Flags Incorporated earnings conference call. I would now like to turn over the call to Miss Sandra Daniels, Director of Corporate Communications. Please proceed.

[Sandra Daniels:]

Good morning, I am Sandra Daniels, Six Flags’ Director of Corporate Communications. This morning the company released its financial and operating results for the 3rd quarter and first nine months of 2007. A copy of the earnings release is available on the company’s web site 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 F-d, a webcast of this call is being made available to the media and the general public as well as analyst 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 risk 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 the website for a detailed discussion of this risk. Because the webcast is open to all constituents and prior notification has been widely and unselectively disseminated, all contents 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 the investors in the earnings release. Now I would like to introduce Jeff Speed, Executive Vice President and Chief Financial Officer of Six Flags.

[Jeff Speed:]

Thank you Sandra, good morning. As you know this morning, we released our operating results for our 3rd quarter and nine months ended September 30. As a reminder, our results from continuing operations exclude a total of 10 parks that we disposed off during the last 15 months, including the sale of seven parks that closed on April 6 of this year. Now with the results. In terms of the top line, our revenues for the 3rd quarter were down $9 million or 2% compared to the 3rd quarter of 2006. This decline reflects $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 tickets and in-park spending, and increased sponsorship revenue 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 begun 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 by over 3% to 2.9 million and season pass revenues increased over 5% to $56 million. As we indicated on our 2nd quarter call, July saw a soft performance and 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 begun 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 at a 4th of July that fell mid-week 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 a 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 3rd 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 costs and expenses for the 3rd quarter increased $22 million to $285 million, driven by increased marketing expense of $10 million, $5 million of increased loss on fixed assets, and $5 million in additional park-wide labor costs, reflecting our continued emphasis in improving the quality of the guest experience. Adjusted EBITDA for the 3rd quarter was $199 million, compared to $217 million in the 3rd 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 a minority interest in the 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 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. Therefore, it has a substantially disproportionate impact on our overall operating results. On the cost and expense front, our costs and expenses for the nine-months increased 2% to $753 million over the prior year period, due to $28 million of additional advertising expenses and $11 million of increased park-wide labor, partially offset by the prior year cost related to the 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 a $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 3rd 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 2nd quarter, our next debt maturity is not until 2010. We are benefiting from reduced interest costs and less restrictive covenants. We have 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 onto our expectations for the full year 2007, we expect to finish with total revenues of $965 to $970 million, attendance roughly stable with the prior year and total revenue per capita growth of 2%. We expect costs of sales to approximate $80 million, cash operating expenses in the $600 to $655 million area, and minority interests and adjusted EBITDA at roughly $45 million. As a result, 2007 adjusted EBITDA is expected to end up at $175 to $180 million, roughly flat to the prior year as reported amount. As we look forward to 2008, and although we are not in the 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 does not include sponsorship and other revenues. As for costs next year, given the progress we have made on the guest experience improvement, we have 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 what the brand and the park experience was. As validated by our record guest satisfaction scores, we have been successful in establishing a quality park experience and improved brand image. For 2008, we are 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 investment made to improve the management of seasonal labor through a systematic real time matching of our labor with demand, some of which we have 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 inefficient 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 would benefit from various corporate savings including third party consulting costs as we have completed various projects related to our website redesign, pricing and market segmentation analysis, seasonal labor optimization and other staffing initiatives. We also expect our legal costs to decline due to reduced litigations including the settlement of the class action lawsuit in California. As a result of the above efforts, we expect to reduce our total cash costs by $50 to $60 million from $665 million in 2007 to $605 to $615 million in 2008. Although this is a meaningful decrease in our recurring costs of doing business to be sure, it should be noted that this level of costs is still approximately $40 million more than the company’s 2005 cash costs and expenses, when this portfolio of parks delivered over 28 million in attendance. Therefore, we believe that it is more than sufficient to continue to deliver and improve guest experience. Some of the efforts we will be implementing for 2008 will result in charges in the 4th 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 4th quarter of approximately $5-$6 million. Additionally we will 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 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 for 6% attendance growth to be free cash flow neutral in 2008. This is before considering potential upsides in 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 7-year average attendance for our current portfolio of parks. With that as a backdrop, I will 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?

[Mark Shapiro:]

Let me start off by touching upfront on the environment. At Six Flags and the entertainment industry as a whole, we are very conscious of what is going on around us, whether it be the housing slump, the credit crunch, rising oil prices, the fallings dollar, and retailers reporting week sales on October. The bottom line is there is 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 turn around and just the genre of our entertainment business as a whole, similar to Disney in their call yesterday. We believe we are well positioned to be somewhat inoculated from this. We are resilient. We are 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, soccer after school, the school plays, and both parents working etc etc. They look for opportunities to get away. Escape is paramount. Six Flags, even more so than Disney, is an easy get-away. We have talked about this on a call before. It is affordable. It is around the corner. It is close to home. You know what you are getting and there is very little competition when it comes to exactly what we do. There is a lot of entertainment competition. But in terms of theme parks and where we are situated, close to major metropolitan markets or in major metropolitan markets, when it comes to that kind of competition, there is nobody that stacks up against us. Not to mention the fact that we have 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 are not immune but we do have a heavy degree of resistance. Evidence to support that lies right in the back half of this season for Six Flags. We have come off essentially a very soft July in which an unprecedented accident took a heavy toll on our business. Over all, accidents took a big toll on the regional theme park industry as a whole, given the multitude of accidents or incidents which has 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 are 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% pure operating days. So we have a strong first quarter, we are killing it in June up 10% attendance. W e got hit with the accident and the bad weather so our July goes soft. We stabilized 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 is going to work in our favor because it is a built in magnet for us. The summer lends itself to get-aways and vacations. The holidays lend themselves to get-aways and vacations. Again evidence to support that

[Jeff Speed:]

All right, let us open it up for questions.

[Operator:]

Your first question comes from the line of Michael Pace with J.P. Morgan. Please proceed.

[Michael Pace:]

Mark, you speak a lot about brand, strengthening the brand over the past couple of years, the customer experience. I guess there are a lot of people that have questions on the call today about 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 could comment on that? And then I have a follow up question for Jeff.

[Mark Shapiro:]

That was literally, I just put out an entire section of that. I do not say that in a derogatory way because I do want to highlight it for you. I cannot stress enough for people on this call. We had totally turned around the quality of our parks in two years and we spent a lot of money, a lot of time, a lot of effort, a lot of blood, sweat and tears to do it. This is a damaged brand with a damaged guest experienced and we put in a lot of money to turn that around. This is a surgical cut. That is all this is. Now, we are 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 did not take advantage of those days when their our attendance was low or weather was bad. You can come to our parks and see it fully staffed as on a bright, sunny, summer August days when it was drizzling rain. The benefit of our business is seasonal labor. “Oh like today, there is a NASCAR race in town, so we are live today. Or the Taste of Chicago is taking away our business in Chicago, or the weather is bad? Punch out.” It is a seasonal business. It is a seasonal labor business. We have a new system. It is called SLTS, that is the acronym that I mentioned, Seasonal Labor Tracking System which allows us to automate it in real time to measure our business. It allowed us primarily to cut out significant expense. We are 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 the entire year of next year, there is no question we cannot take that $15 million and $30 million. Plus, we are taking out some of the slap rides that are just been not worth it. The throughput is not there. They are not popular. Maybe Tilt-A- Whirl was a big ride when you and I were growing up, but it is not anymore. We are being better about being efficient and tracking what is popular in our parks and getting rid of essentially the old scrap. So quality is not going down. The park presidents take so much pride in what we have done these last two years, They are in their positions for a reason. They would not allow it to happen.

[Michael Pace:]

Okay. I guess for Jeff, according to the release, the company has over $340 million in liquidity. Can you just help us out on where that liquidity goes at your peak borrowing? I guess it is 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?

[Jeff Speed:]

We do not 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 are spending to get ready for the full time season, the company will spend anywhere between $175, depending on the capital program in a given year, $200 million of cash need through that low point. So we are very, very well positioned in terms of our current cash and liquidity position.

[Michael Pace:]

Okay. Great. Thank you.

[Operator:]

Your next question comes from the line of Jeremy Kenny with CIBC World Markets. Please proceed.

[Jeremy Kenny:]

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 are heading into and all of the things that we can obviously see happening?

[Mark Shapiro:]

No, any rollback in pricing would not be because of the environment. Let me just say that upfront. I think we are very resistant to the environment. As Labor Day shows you, as August, September, and October demonstrate, pricing is not 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 can do with our water parks that have adjacent theme parks and have 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 do not want to tip my hand right now to the competition. But generally, we expect next year to keep 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 underpriced. In fact, you can get any Great Adventure, what seems like a lot, $89 but really it pays for itself in two visits. So when you have a park like that that is 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 are going to go twice in a year, it pays for itself. So we think there is still considerable growth on the season pass. We just cannot get it all in one year. We have to build it year at a time, year at a time. A little increase each year.

[Jeremy Kenny:]

That is it for me. Thanks.

[Operator:]

Your next question comes from the line of Kit Spring with Stifel. Please proceed.

[Kit Spring:]

What happened in September? Was it just good weather? Any more operating days in September? Any comment you can give on that, that was a positive sign? And let us see here, any appetite for an equity offering?

[Jeff Speed:]

Alright, I will 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. That drove a lot of the performance as Mark mentioned. We are up about 35% in attendance over the three- day Labor Day period and about 50% in revenue, so that was a big driver of the September performance.

[Mark Shapiro:]

As far as the equity offering goes, we have no plans of that whatsoever. Why would we sell equity with the stock where it is? We have no liquidity crisis whatsoever and the thought has not even crossed our minds.

[Kit Spring:]

Okay, thank you.

[Operator:]

Your next question comes from the line of David Miller with SmH Capital. Please proceed.

[David Miller:]

Yes, hey guys. Just a few tidbits here. Mark, over the last couple of 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, I will just call it tepid. I am just wondering why that is, in your opinion? As we get into ’08 here what you plan to do to improve that? And then Mark, just a couple of items on the debt repurchase. You mentioned that $92 million of debt had been repurchased so far this year. Can you detail what that number was in the quarter and then I will follow up. Thanks.

[Mark Shapiro:]

I tell you, on the group sales, candidly, I just think we failed on it, to be very honest with you. I think-- It has not fallen off. It just has been stagnant. This year, group sales, whether it is me personally going on sales calls for big groups only to a buy out day with Pfizer, a buy out day with Ford, a buy out day with Toyota. we have several days with those companies and many of our parks. If it takes me going out on calls to see if we close it, or it means something extra that the CEO is coming in to pitch for the business, that is what we are going to do. We got a bullet on group sales this year. I did not mention it on 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 do not believe ultimately was the right person for that job. We have done a restructuring and we have got a two-man team that is going to be running that division that we are going to announce next week. Actually, two women, if you will. They had been in the business for a long time. They have been with Six Flags collectively almost 30 years. They are really two killers, put it that way. I am excited about where the business is going. I have seen the strategy. I have seen the plan. When you look at how I spend my time in this coming year, there are four main areas that you will 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 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 our sponsorship business. Nobody is more passionate about it than I am. I think it is 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 is a real opportunity out there. I know there is real opportunity. As I mentioned, we are in advanced discussions. It is not just for development. It is for licensing of our brand. It is for managing potential parks overseas with us taking zero risk. Zero risk. So I think that is a huge growth sector for us. 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 water cooler talk. We have to move our sales higher on the “to do” list. We are so high in intent to visit. I am not sure we are really turning the trigger though, pushing the trigger when it comes to actual visit. Our marketing has to strike that core this year and I believe that all of these campaigns will do just that. Jeff?

[Jeff Speed:]

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

[David Miller:]

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 are on the same page here. That includes cost of goods sold, correct?

[Jeff Speed:]

No. That is the cash outbacks excluding cost of goods sold. Cost of goods sold this year is 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 is why we are not giving guidance on cost of goods sold.

[David Miller:]

Okay. Good enough. Thank you.

[Operator:]

Your next question comes from the line of Matthew. Please proceed.

[Patrick:]

Hi. It is Patrick. Mark, you have just mentioned on the end of the call three ways to address PIERS. Could you take us through that?

[Mark Shapiro:]

Jeff, go ahead.

[Jeff Speed:]

I am sorry, could you repeat?

[Mark Shapiro:]

PIERS. Three ways with dealing with PIERS.

[Jeff Speed:]

Yes, there are at least three ways to deal with the PIERS. Obviously, we have a provision in our current credit agreement that specifically allows for a $300 million additional term loan to refinance the PIERS. We also have the ability through a carve out in our credit facility to sell non-core assets, use those proceeds to deal with the PIERS. And then obviously we could always refinance the PIERS 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 PIERS.

[Patrick:]

Is it not mandatory that you take the PIERS out though?

[Jeff Speed:]

Pardon me?

[Patrick:]

It is not mandatory that you take them out?

[Jeff Speed:]

It is mandatory redeemable preferred stock so I am not sure I understand the question.

[Patrick:]

Okay. It is just mandatory that you have to take it out?

[Jeff Speed:]

There is a contractual obligation.

[Patrick:]

Okay. Thank you. That is all I have.

[Operator:]

Your next question comes from the line of Barrett with Brownstone Asset Management. Please proceed.

[Barrett:]

First question, you mentioned that capex can be down 50 to 60. Does that include the marketing decrease of 25 to 30 as well?

[Mark Shapiro:]

Yes. That is broken out 25 to 30 on the marketing side; the other 25 to 30 coming from the full time and seasonal labor efficiencies.

[Barrett:]

And then the capex guidance of 100 for next year. Does that include the spending for new roller coasters?

[Mark Shapiro:]

Absolutely includes.

[Jeff Speed:]

It does and some of that, that is 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 we will come in at about 110 of capex because of the pre spend on the coasters for next year.

[Barrett:]

Alright, and then you sort of touched earlier in terms of your liquidity needs during the low season. I know that your senior secured ratio on your revolver when it is drawn, it steps down about five and three quarters for the first quarter, which gives you a semi-flat line in terms of EBITDA going forward. Note that you can only get, I guess if you are withdraw on $250 million in revolver, you can sort of hit that the five and three quarters ratio. Is that a concern of yours as you look forward?

[Jeff Speed:]

I remember that the ratio is based on the quarterly average for the revolver? [Voice overlap] Not one point in time, and as Mark mentioned, even assuming flat top line performance, the cost savings add $50 to $60 million to our EBITDA for that purpose. So we are very comfortable in terms of our covenant compliance.

[Barrett:]

The 50 or 60 is for next year is not for the time, for the first quarter?

[Jeff Speed:]

Correct. At these levels of 180, we are still fine again because you look at the quarterly average for the revolver.

[Barrett:]

Okay. Thanks.

[Operator:]

Your next question comes from the line of Jane Pereira of Lehman Brothers. Please proceed.

[Jane Pereira:]

Good morning. I just have a couple of questions. I know you have not 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?

[Jeff Speed:]

I do not want to speak to any process because we are 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 1000 acres of excess developable land that could be disposed off. So that is the excess land side of it. We are continuing to work through. I do not want you to get the impression we are not doing anything. We are putting the work through, you know, master planning and getting a better sense of optimal use; particularly for the New Jersey land. But given the real estate market, we do not believe it is an opportune time to pull the trigger on anything there. But we continue 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 are down to 21. So, we have 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 nothing, 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.

[Jane Pereira:]

Once you go through the master planning through 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 a possible sale in the future?

[Jeff Speed:]

Potentially. It all goes to the point of how much a potential buyer is going to discount the price, if they are going to take the zoning risk versus us trying to get that taken cared of ahead of time. So that is part of the analysis we are going through.

[Jane Pereira:]

Okay. That sounds good. Could you just give any more details on the severance cost, specifically in what area are you cutting back on?

[Jeff Speed:]

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. Certain folks took advantage of that. So we have severance related to that program. That is the lion’s share of it.

[Jane Pereira:]

Okay. Alright and then I know you gave a little bit of color on integrating Dick Clark. But can you give us any more details on what you may do with respect to the try outs for “So You Think You Can Dance”? I do not know how far you have worked through that.

[Mark Shapiro:]

We are still in discussions with 19 Entertainment and Dick Clark. The two of us are still discussing the way we are going to roll that out. But at least from a season pass and a ticket promotion standpoint, we are leveraging try outs. The ability to try out for a show or get to another round, for example, through the parks. So we are 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 are potentially looking at. Fourth is really allowing, not just try outs 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 in the tryouts and make your way to Los Angeles early. So we are leveraging in every way possible. Not to mention sponsorship opportunitoes. Anything, whether it is Golden Globes or American Music Awards, anything, we are out there selling for Dick Clark productions. We are also including the assets of Six Flags where it makes sense.

[Jane Pereira:]

Okay. Just one last question. You gave, I do not know if you want to call it guidance, but it sounded like guidance for the year in terms of including Discovery Kingdom. I do not know when they closed. But would that be more of a negative contributor now that you own 100% of it contributing to the 4th quarter loss? Or how do we think about that?

[Jeff Speed:]

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. That is function of, we will pick up EBITDA from the pick up from Dick Clark. But that will be offset by 100% of the 4th quarter loss that we will be picking up from Discovery Kingdom. So for the full year, it will be about $7 million.

[Jane Pereira:]

Okay. That is all I have. Thank you very much.

[Operator:]

Your next question comes from the line of [inaudible] with Bloom Capital. Please proceed.

[Bloom Capital Analyst:]

Thanks. Where were season pass sales in ’08 versus ’07 on a units and sales basis?

[Jeff Speed:]

We are up about 6% of year-to-date. I would say probably a little more than 6%. Total revenue growth was 9%. The lion’s share that was volume versus price. Price was 1 to 2%.

[Bloom Capital Analyst:]

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?

[Mark Shapiro:]

We are still analyzing that calendar and we are going to put it out for publication. Not until early ’08. January and February, we will put it out.

[Bloom Capital Analyst:]

Okay. In the reduction that you have in your costs, does that include keeping the parks open in November?

[Mark Shapiro:]

That is correct. Keep in mind, just the weekends in November, not Monday to Friday.

[Bloom Capital Analyst:]

That is only in select parks.

[Mark Shapiro:]

Correct. It will probably be two parks in total.

[Jeff Shapiro:]

As Mark mentioned, we are still tweaking our operating calendar. We have 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.

[Bloom Capital Analyst:]

I follow you. And then, in regards to your ambitious goal of $100 million in sponsorships 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?

[Mark Shapiro:]

I am not going to break out how we see it annually. A lot depends on how we do in this selling season, and for the ad marketplace, how it continues to increase year by year and the more money people are throwing into toward national or regional advertising. So the bottom line is we think we can be in the $100 million in three to five years. How fast we get there is still to be seen.

[Bloom Capital Analyst:]

Okay. And then last, since you are comfortable with your cash and liquidity position, do you still have an additional appetite for repurchasing bonds, considering they are $0.75 to $1?

[Mark Shapiro:]

I do not want to comment on that.

[Bloom Capital Analyst:]

Alright, fair enough, guys, thanks.

[Operator:]

Your next question comes from the line of Glenn Reid with Bear Stearns. Please proceed.

[Glenn Reid:]

Just a couple of quick ones, I guess following on the sponsorships. So are you not giving guidance for next year in terms of any growth target related to sponsorships? I believe, and correct me if I am wrong, that you are Home Depot deal expires this year, and whether or not what the prospects are for renewing that one? 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, any place in particular, if you could comment or characterize the attendance at those parks?

[Mark Shapiro:]

Two things. First on the Home Depot. Yes, we have a 5-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 is 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. We really want to assess the marketplace for sure to date, before we firmly determine how much at what level, or at all, if they are going to return next year. Secondly, with regard to attendance, yes, the East Coast which is where we usually have the most risks because we have so many parks really on the East Coast, we are great in East Coast. We have great weather and the parks did well with it. It will continue to drive the fact that if weather is good, your brand is good, your customer experience is good, people will come and will keep coming back, and we saw that. The bottom line though is that Atlanta had the worst July since we began recording weather at this company. In Texas parks alone, remember San Antonio and Dallas at any given weekend, basically at every weekend even conservatively they do 40 thousand a day. So that is 80 thousand between the two on a given weekend. If it rains out or even rains, you are talking about 80 thousand turning into 20 thousand. It really is apples to apples because generally, you do not get that weather in the summer at the Texas parks. So it is not we are comparing to bad weather days last year in Texas. We had bad weather 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 the spring which rained out on the East Coast in our New England and New York parks, and then the resurgence in August, September and October. You are looking at months where we really got hurt. But the other parks did do well, to answer your question.

[Glenn Reid:]

So was attendance up on your East Coast parks? I guess that would be your Washington, New York, and Boston parks?

[Mark Shapiro:]

Yes. I mean, I am not going to break out individual park-by-park and what the percentage is, frankly, I do not have that off of the top of my head. But bottom line is that we have six parks. We have Lake George, we have Washington DC, we have New England, we have New York, Atlanta, etc etc. [voice overlap] Other than Atlanta, the other ones did very well, and their attendance and spending were commensurate.

[Glenn Reid:]

Okay. On sponsorships, as far as growth--? [voice overlap]

[Mark Shapiro:]

I mean, obviously just doing the numbers yourself, if it were flat in attendance, with Texas getting rained out, clearly we would have the other parks like in East Coast and Chicago to pick up the slack to at least get us to flat.

[Glenn Reid:]

Got you, got you, okay. As far as sponsorships began for next year, are you expecting to grow sponsorships for next year?

[Mark Shapiro:]

The answer is yes, we are expecting [coughs] more sponsorships for next year. To what level, we will get into more detail in the February call. Right now, we are just taking the selling season kind of our upfront, if you will, and I am uncomfortable putting a bogey on it.

[Glenn Reid:]

Okay great, thank you.

[Operator:]

Your final question comes from the line of Joe Strauss of CRT Capital. Please proceed.

[Joe Strauss:]

In the middle of the call, I have had most of my questions answered. But just real quickly, can you give me a sense of, and I apologize because I am on the call a little late. Could you comment regarding the 3rd quarter, did you draw back on certain expenses? If so, how do you manage that? Where do you look to be able to manage your cost structure relative to weather weakness in July etc?

[Mark Shapiro:]

We can take it up with you afterwards if you want, Joe,. [voice overlap] a good section of it. I want to make sure we give you full details without killing everybody else’s time. But the bottom line , you always need to manage your business so that we are essentially staffing at levels that are appropriate given the attendance or given the weather. We have 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 does not warrant it. That is where you get a lot of your savings. That is where we picked up a bulk of our savings over the course of this season.

[Joe Strauss:]

Okay, fair enough, thank you.

[Operator:]

We thank you all for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a great day.