Six Flags (SIX)

As of March 2008, Six Flags' cash position sits at the end of Q4 with over $28 million in unrestricted cash and $5 million drawn on a $275 million credit line. But, they have preferred stock outstanding that’s mandatory redeemable in August of 2009 for $288 million.

That being said, we can now assume that 2008 will be another year of cash draining operations. When you couple this with mandatory redemptions in both 2009 and 2010 that will each be in excess of the company's current available credit, one must be leery of what lays ahead.

SIX will be forced to exchange the preferred for common (diluting shareholders even further), renegotiate another preferred that, given the current credit environment, will have far less advantageous terms than currently had (higher dividend) or, sell assets that will in effect lower revenues and extend losses. None of these are good.

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.

Six Flags reported a loss after preferred dividends of $132.4 million, or $1.39 per share, compared with a loss of $195.2 million, or $2.07 per share, a year earlier. This would lead folks to think things are getting better.

While the reported loss improved over last year, if we strip out the loss from discontinued operations in 2006, we find the loss from continuing operations in 2007 actually increased to $130.8 million, or $1.43 per share, compared with a loss of $100.5 million, or $1.12 per share a year earlier. So it was actually worse when we take an apple to apples approach.

For the full year, loss from continuing operations rose to $244.1 million, or $2.81 per share, from a loss of $207 million, or $2.43 per share. Essentially this means that what was there in 2006 and is still there in 2007, is performing worse.

Whats more interesting is that, Six Flags' (SIX) annual sales increased to $972.8 million, up 3% from $945.7 million. Here is the thing. If your sales increase, and your loss increases, there are only two options:

1. Your sales level is not high enough to support operations.

2. You are doing a lousy job managing expenses.

That is it. Ignore every other excuse they keep spinning out at you. It is not the weather or anything else they say. Of the two, #2 is the preferable situation. Get in new management that can control costs, and you will see immediate improvement. If it is #1, your only real choice is to spend more cash to draw more people in, or, reduce the consumers costs to keep them coming back. Either of those will cause the bottom line to worsen before it gets better.

Even if SIX does increase attendance by 3% in 2008, which is far from a probability or even likely, the company faces larger financial hurdles ahead in the next two years. If you are thinking of buying shares, currently priced at $1.63 a share, my guess is you could wait a couple years until things iron out either way and still not pay much higher.