sixx – ValuePlays

Six Flags (SIXF) CEO Mark Shaprio is at it again. He issued a letter to employees and in it was, for me, a startling paragraph.

The letter is below but there is one paragraph you really have to read:

Unfortunately, however, as you know, we inherited an unsustainable $2.4 billion debt load from the previous management team. To put it into context, even if you have a record year and make approximately $275 million as we did last year, when you have to pay out approximately $175 million in interest expense on your debt and $100MM in park improvements to maintain and keep up with the business, that’s a balancing act you just can’t risk year in and year out. Furthermore, we have over $400 million of debt coming due within the next 12 months that cannot be refinanced in these financial markets.

Let’s look at it. Shapiro is saying that he “inherited” the current situation (that seems to be the excuse of the moment recently?). But, he didn’t. Daniel Snyder waged a proxy contest in 2005 against the management team at Six Flags. He was successful at placing Shaprio in as the head of the company. Shapiro and his team sought out the situation they are currently in, they did not “inherit” it.

Proof?

In 2005 Snyder, when he proposed Shaprio and himself be named to the board at Six Flags said in an SEC filing:

Although we believe the entire Board should be held accountable to stockholders and removed for the Company’s underperformance, we are seeking only a non-majority position on the Board due to the approximately $2.6 billion in poison debt and preferred stock (collectively, the “poison debt”) the Company has put in place over the years. The Company’s approximately $2.6 billion in “poison debt” permits the holders of such securities to either accelerate the outstanding amounts or require the Company to offer to repurchase the securities if we (or any other party) were to obtain a majority position on the Board. For this reason, if elected, our Nominees will not be able to cause the Board to take (or not take) any specific actions, but we are confident that our Nominees will use their best efforts to influence the Board and management and bring about changes that in their judgment are in the best interests of all Six Flags’ stockholders.

We believe that with the right management team in place, Six Flags can implement measures to increase revenue and decrease expenses, eventually outperform its peers in the amusement, recreation and leisure industry and maximize stockholder value. Therefore, on or about the time we file our definitive consent solicitation statement with the SEC, we plan to commence a fully funded cash tender offer (the “Offer”) to purchase up to 34.9% of the Company’s outstanding Shares (the calculation of such percentage to include any Shares we own at the time we accept Shares for purchase pursuant to the Offer) at a price of $6.50 per share. The Offer will be on the terms and subject to the conditions to be set forth in an offer to purchase and related letter of transmittal which we plan to file with the SEC at the commencement of the Offer.

Six Flags answered Snyder by saying:

Red Zone contends that the Company’s strategies must be completely overhauled. Yet, the evidence, in our judgement, shows that our plan is working. Starting in late 2003, the Company launched a series of initiatives to improve performance, including targeted capital expenditures, improved guest services and the aggressive launch of a new advertising program. Early results of the turnaround include significant increases in attendance, per capita spending and cash flow. The Company recently reported that year-to-date revenues through August 1 of this year were 9.8% higher than in the comparable period of the prior year, on an attendance increase of 6.3%. This compares to a 1.8% decrease in revenues in the comparable 2004 period over the prior year and an attendance decrease of 4.2%.

If any of that reasoning sounds familiar, it should. It is the same lame attempt at painting a rosy picture for a money losing operation Shaprio has been using every quarter since he assumed control. Read the letter below, it is there…

Also from the “other guys playbook”. Snyder in his letters chiding previous management said they “cannot continue to blame bad weather for poor results”. Yet, in 2007, Shaprio rolled out he very same excuse.

Let’s just say Shapiro inherited nothing, he got exactly what he and Snyder wanted. It should be noted here that over he last two years, current management added net $240 million of debt onto the company’s exhisting debt load.

Now, am I defending prior management? No. Six flags has been doomed for years and the above paragraph in Shaprio’s letter seems to admit it . The letter is stunning in that it openly admits even in a record year, Six Flags will be a money loser. In his haste to blame previous management, he in effect lays a question mark on anything he has said about “increasing shareholder value” in the past.

Daniel Snyder is on record saying Shapiro and his team’s performance “exceeded expectations”. Well, if a record year that exceed expectations resulted in a loss and an admission that the situation was unsustainable, then how did they ever really expect to turn a profit?

When all is said and done, despite all the rhetoric, Six Flags performance has gone nowhere. In 2005 the company had operating income of $129 million on revenues of $956 million and debt of $2.24 billion and lost $1.17 a share. In 2008, the company made $143 million from operations on $1.02 billion in revenues while carrying $2.36 billion in debt and losing $1.11 a share. Flat-lined….

Shaprio & Co. did increased liabilities by $600 million while decreasing assets by $400 million and increasing share count by 4 million. If you are wondering, none of these are good. Want more? Cash from operations, $120 million in 2005, fell to $66 million in 2008. In 2005 the company repaid $46 million of debt while in 2008 it added $275 million. Again, both of these bad…

I think in retrospect one would have a hard time arguing that an unfettered buyout process proposed in 2005 by pre-Snyder management, at the near height of the Private Equity buying bonanza may just have resulted in shareholders getting a far better deal when all was said and done…

Six Flags Letter to Employees

Publish at Scribd or explore others: Finance Business & Law six flags bankruptcy

Disclosure (“none” means no position):None

Six Flags (SIX) CEO Mark Shaprio is the kind of guy who could urinate on you and tell you with smile he is “rinsing some dust off you”.

From the NY Times:

The amusement park company Six Flags is seeking Chapter 11 bankruptcy protection, saying it needs to reorganize and shed $1.8 billion of debt.

Mark Shapiro, the New York-based company’s chief executive officer, says the move won’t affect the operation of its 20 theme parks in the U.S., Mexico and Canada.

Six Flags says it actually had a great year in 2008. It saw 25 million visitors and posted record revenues. But executives are trying to lighten a $2.4 billion debt load that they say is unsustainable.

Saturday’s bankruptcy filing came after an earlier plan to negotiate an out-of-court deal with creditors failed.

Six Flags shares have traded below $1 since September. They closed at 26 cents on Friday.

A “great year”. Now while the $1.11 a share they lost last year is better than the $2.49 and $2.43 they lost the previous two years, I think only the pathologically incompetent would call it “a great year”. For those of you wondering, since Daniel Snyder took over the company, they never made a dime…..or a penny.

Here is a brief review of some thoughts on Six Flags here from the past:
It is an interesting timeline of events as I go back through the old posts. You can see some them in order here, here, here, here and finally here.

Just recently in March I wrote:

Now, the story of Six Flags is not one of a bad economy, although it is certainly a factor. The main story is a poorly run operation saddled with far too much debt and a lousy consumer experience.

Teenagers love the place, just ask any of them. It is designed for them from the rides to the entertainment to the layout. But, teenagers are not where the money is. It is families that are. Six Flags is quite possibly the least family friendly place I have ever been too. That is their downfall.

Since my boys were born we have done Disney (DIS), Hershey Park (HSY), Sesame Place, Canobie Lake (NH), Storyland (NH) and Santa’s Village (NH). All were incalculably better experiences than Six Flags. Talking to other folks, this is not an uncommon experience.

Six Flags will go under, of that there has never been a doubt, I wish the next owners better luck. They have great properties, they just need better people to run them.

The bankruptcy filing will wipe out the ownership stake of Washington Redskins owner Daniel Snyder, who took control of Six Flags in a public and contentious proxy fight in late 2005 and brought in his own management team who have finished the company off.

“Stockholders would have been better off hiding their money under a mattress” than investing in the company under the prior management, Mr. Snyder wrote in a letter to Six Flag shareholders in October 2005, during the proxy battle. At the time, Six Flags shares were trading at about $7.25, today they are worthless.

There is nothing left here for shareholder, they are done. Debtholders will assume the company and the only thing left to decide is whether to break it up, sell it, or make a go off it.

Don’t get me wrong, I like trying to enjoy myself with my <6 yr. old children while avoiding the cursing and smoking teenage mobs who run rampant in the park as much as the next guy, but I think it tends to put a damper on most folks day.

Whatever the new owners decide to do, who ever picks up the pieces and tries to make a go of it, I have one word for them …..FAMILY…

Disclosure (“none” means no position):None