Six Flags Entertainment Corp (SIX) 2002 Q2 法說會逐字稿

Good morning, ladies and gentlemen, welcome to your Six Flags second quarter earnings release conference call.

At this time, all parties have been placed on a listen-only mode, and the floor will be open for questions and comments following the presentation.

It is now my pleasure to turn the floor over to your host, Miss Sarah Sheppard.

And the floor is yours.

Thank you Dante.

Good morning, I am Sarah Sheppard of KCSA, Six Flags Investor Relations adviser.

Before I turn over the call over to the Company's executives I would like to read the customary Safe Harbor statement.

In compliance with S.E.C. 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 comments made during the call will include forward-looking statements within the meaning of the federal securities laws.

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Statements may involve risks and uncertainties that can cause actual results to differ materially from those described in such statements.

You may refer to filings by the Company with the S.E.C. for a more detailed discussion of these risks.

Because this webcast is open to all constituents, and prior notification has been wildly and unselectively disseminated, all contents of the call will be considered fully disclosed.

Now, I would like to introduce Kieran Burke, Chairman and Chief Executive Officer of Six Flags.

Thank you, Sarah.

Good morning.

Thank you for joining us on today's conference call.

Last evening we published our second quarter and six-month results and gave guidance on our full-year expectations.

We are disappointed with those results and more importantly with the performance of the quarter closed in July and what that means in terms of performance for the year.

The primary problem has been a significant decline in attendance in three parks which has not been offset by what has been a significant increase systemwide in per capita spending.

In what has been an uneven year the last three weeks of July were our most challenging period from an attendance perspective.

Fortunately, we have seen more positive attendance trends in the first part of August with continued strong per capita growth over 2001.

Based a thorough park by park view of attendance and per capita spending trends, season pass base and group bookings for the balance of August and September and October, we expect to continue to make up ground and finish the full year approximately flat to prior year adjusted EBITDA of $400 million.

With the $30 million shortfall to our original pre-season projection of $430 million concentrated primarily in three parks.

Assuming we achieve that full-year performance we will deliver approximately $65 million in free cash flow after cash interest expense, dividends and capital expenditures.

Equally important, as we will discuss more fully in a moment, two of the three markets that have most constrained our performance in 2002 have historically been consistently strong performers, and should back -- bounce back nicely in 2003.

In addition, with continued investment and in-park revenue opportunities we should be able to grow per capita spending further, which is a key to our long-term revenue growth.

Per capita spending growth has been the clear bright spot in a difficult season, and in a poor economy which has clearly restrained performance across the board.

Sponsorship revenue led by our recently announced exclusive beverage contract with Coca-Cola company will contribute to revenue growth beginning in 2003.

With capital investment for 2003 in the range of $125 million, we will deliver significant free cash flow and continue our strategy of harvesting that free cash flow and paying down debt.

As everyone on this call is aware the second quarter is not the most meaningful period for us.

The third period is the period in which we do the majority of our business.

All of you are interested therefore not in a review of the published numbers but in a thorough discussion of our year-to-date performance and full-year prospects.

With that in mind I will let Jim Dannhauser review the quarter and six-month numbers in detail and focus my comments primarily on year-to-date performance, the trends to prior year we are seeing and most importantly our view of full-year performance targets.

I will address the level of performance we need to achieve for the balance of the season in relation to prior year and current year trends in order to hit our revised full-year performance target.

As you will hear, the performance we need to achieve from August forward to hit our full-year forecast is very attainable.

Basically, from today forward we need only to exceed prior year revenues by approximately $25 million or 5.5%, to hit our forecast.

Given the impact of 9/11 on last year's numbers, and the fact that our group bookings for the balance year exceed prior year actual by a comfortable margin with normal weather, we should make our revised forecast.

I will speak more specifically today about certain individual park performance than we normally do for competitive reasons, in order to thoroughly explain year-to-date performance and to underscore not only certain positives but to demonstrate why 2002 results are not indicative of the Company's future growth prospects.

As you can see from the press release, after a reasonably promising first quarter, our overall second quarter results were disappointing.

With the exception of strong per capita spending growth systemwide and a good turnaround in our European division.

As a result, for the six months of 2002 we had revenues of $397.1 million, compared to $391.6 million for the comparable period of 2001.

This 1.4% increase was driven by a 9.6% increase in total per capita spending at the consolidated parks offset by a 7.5% decline in attendance.

Excluding depreciation and noncash compensation expense, cash operating costs and expenses were $350.7 million in 2002, and $340.4 million in 2001. $4.3 million of that expense increase is attributable to the inclusion for the full 2002 period of the two parks, Sea World of Ohio and LaRonde in Montreal, acquired during the first six months of 2001.

Assuming the two facilities have been owned for the full 2001 period, cash operating and expenses increased just $6 million, or 1.7% in 2002, as compared to the proforma prior-year period.

Adjusted EBITDA for the 2002 six-month period including the Company's share of EBITDA from the parks accounted for by the equity method was $50.3 million as compared to $62.2 million in the prior-year period.

Again, assuming the Montreal and Ohio parks have been owned for the full 2001 period adjusted EBITDA for the first six months of 2002 was $7.6 million less than in the prior year proforma period.

And while the first six months were not as strong as we would have liked they were negatively affected by tough weather at several parks in the spring, with reasonably good performance in a number of markets where weather was more favorable.

Leaving us positioned as we headed into our two most important months to reach our goals with good results in the balance of the year.

But July proved a difficult month for us from an attendance point of view particularly in last three weeks.

For the month of July, attendance systemwide was down 12% from the prior year with per-head spending up 7%.

So systemwide we lost approximately $25 million in revenues to the prior year in the month.

Regardless of whether some of the July attendance shortfall was deferred into later months of the season, perhaps in circuit markets where we experienced -- in Texas where rain in the early part of the month, clearly like a number of other leisure and retail businesses we are feeling the effects of a very difficult economy, a substantial stock market decline and some concern about tourism, mostly around the July 4th holiday.

The first two weeks of August have seen a firming in attendance and a continuation of our strong per capita spending growth.

Combined with higher group bookings for the balance of the year compared to 2001 actual, and easy comps two prior year, with reasonable weather we expect to continue to make up ground.

While there is not enough season remaining to hit our original EBITDA expectation of $430 million, we presently expect to finish approximately flat to last year, which was $402 million.

Having laid out the performance in general terms I would like to spend a few moments describing why we think the season has unfolded the way it has and what it means for the future.

Let me begin by summarizing our strategy going into 2002.

Coming off of 2001 season where we estimate that our revenues and cash flow declined by as much as $25 million in the aftermath of September 11th, and where the performance of our European operations was a clear disappointment, we set the following strategy for 2002.

In general, we were looking to increase revenues by approximately 6% coming from a 1.5 to 2% increase in attendance, and a 4% increase in per capita spending.

Driving that revenue growth in part was a systemwide $140 million capital expenditure program and continuing to control our operating expenses in order to deliver $430 million in EBITDA.

And generate significant free cash flow and use that free cash flow to reduce debt.

Specifically, we expected to achieve that growth in 2002 by, one, recovering a substantial portion of the business we lost post-9/11.

Two, taking several steps to turn around in our European operations.

Three, deploying our $140 million capital program to increase revenues by helping to maintain our attendance base in a number of more mature markets and achieving attendance growth in others where parks were underperforming their markets particularly in our more recently acquired parks.

And allocating a larger portion of that capital investment program to take advantage of inpark revenue opportunities to help increase inpark spending.

As part of a multi-year strategy we expected to begin to increase our per-head ticket revenue without increasing adult main gate prices by carefully reducing the discount levels in various ticket categories.

We took modest season pass increases of $2 to $5 per test depending on the market to increase per season pass revenue and to shift some season pass attendance into other higher-paying categories.

Our strategy was to use our targeted change in ticket mix and our capital investment in inpark revenue opportunities to help increase per capita spending.

Although attendance growth opportunities exist in a number of our domestic and international markets per capita spending growth is an important component of our sustainable, long-term internal growth strategy.

So, that was the strategy going into 2002, in light of year-to-date performance and our revised full-year expectations, the appropriate questions are what has worked, what hasn't and why.

We will start with the successes.

In Europe we -- where economic conditions remain sluggish we made good progress on several counts.

Per head spending has increased sharply by 10% year-to-date on a constant currency basis.

Our two Six Flags branded European parks in Holland and Brussels continue to do well, and our smaller market facilities have benefited from modest capital investment and marketable rise.

We have been doing a better job controlling our expenses.

Our strategy in increasing per capita spending has worked very well across the board.

Year-to-date, systemwide, our total per head spending is up 6.7% over 2001, and ticket per caps are up 7.6%.

On the inpark spending increases it is abundantly clear that our investment in inpark revenue opportunities has yielded excellent return and is a very viable opportunity for us for revenue growth in future years.

Given our attendance declines in certain markets one might ask whether our strategy of increasing ticket per caps may have cost us attendance.

It is difficult to draw conclusions without full-year results for each market.

And the analysis is further complicated by the the need to sort out other factors, determining the impact of attendance, on attendance of the economy and significant stock market declines, lingering concerns about tourism, the allocation of capital investment and in one or two markets, competitive factors.

However, we firmly believe our ticket pricing strategy is absolutely the right long-term direction, and we will continue to analyze discount levels and season pass pricing market by market, and certainly refine our pricing strategies in every market for next season.

We are convinced with the exception of two markets, this year's pricing did not cost us material attendance, and our per head spending gains far outweigh any modest trade-off in attendance.

And even in the two markets where in retrospect we probably have reduced discount levels too far in one season the general pricing strategy is still correct, we need to move more gradually.

Given the generally difficult economic environment, it is very encouraging to point out that most of our year-to-date shortfall and most of the shortfall of our revised full-year estimate to original expectation is primarily based on attendance declines in three domestic markets which we will address next season.

Two of those three problem parks are major market facilities and consistently strong performers.

Ticket pricing was probably a factor in both of those parks, both also did not have marketable rides this season and were clearly hurt by the economy, particularly in group sales.

With exciting new rides being added next year and refinement of ticket pricing strategy both these parks should see significant recovery in attendance and deliver revenue and EBITDA growth next year and consistently thereafter.

The third park that saw attendance declines from prior year and where we were actually projecting growth in 2002 was Six Flags Worlds of Adventure in the Cleveland market.

When we acquired Sea World of Ohio last May, we combined it with our adjacent Six Flags Ohio theme park and Water Park to create three parks for one gate price.

Our integration of the facilities last year so close to the season created substantial confusion about our product offering in the core and outer markets.

The removal of the three trademark killer whales which were not included in the sale also hurt performance.

This year with the hoped-for addition of two killer whales for opening day and a full season to market the integrated product offering we expect attendance and revenue growth over 2001 levels.

Unfortunately year-to-date we experienced a significant decline in attendance.

Discount levels were kept generally flat for the prior year, so it has nothing to do with our pricing and discount strategies.

The difficult economy in the Cleveland market has significantly hurt group sales, a particularly important component of this park's attendance.

Likewise, what is one of the few competitive markets where we are not the market leader, the Cedar Point park is experiencing a better season based in part of the addition of a major roller coaster.

More significantly, it appears that our decision to combine the parks and offer a tremendous product and price value relationship with three parks for the price of one is actually hurting our attendance in the short term.

There continues to be a lingering confusion and lack of awareness in both the local and outer markets as to the product offering and the combined park's new name.

Because of regulatory delays we were unable to bring both killer whales to the facility or to advertise them prior to start of the season.

We now have one whale on site and hope to have the second before year end.

In addition, some percentage of visitors who in the past would visit both parks each season are only coming one time.

This is certainly helping our overall guest length of stay and contributing to the 6.3% increase in guest spending this season but the per capita in spending increase is not enough to offset the attendance decline.

Long term this park will be a strong performer for us.

It is a tremendous product and outstanding value.

While I expect growth in 2003, particularly with the whales in place for the full season, I believe it will take several seasons of continued marketing before the core and outer markets fully understand the entire product and value and come in the numbers we believe this park is capable of producing.

Along the way we believe our guest spending will continue to grow because of the excellent length of stay.

So while in the balance of our portfolio of 38 parks, some parks are having better seasons than others, and probably all are feeling some effects of the economy, the major source of our shortfall is limited to these three markets.

There is not a systemwide issue or a flaw in basic strategy or future growth prospects.

And for the reasons I mentioned we expect a quick bounceback in two of these parks next year and a gradual build-up at our Ohio facility.

Now, to discuss some of the other factors we see affecting the business, I will spend a few moments on capital expenditures.

We are pleased that we delivered our $140 million program on time and on budget, in evaluating capital decisions against the backdrop of expected performance I would offer the following observations.

Our inpark investments have worked out very well.

Likewise, our decision to make controlled investments in less expensive but marketable rides in a number of our secondary and tertiary markets in the U.S. and Europe has worked out well and as with our inpark revenue investments we will continue these investment initiatives in future seasons.

Our investment programs to begin the repositioning of our Montreal and Seattle acquisitions has been very successful producing good attendance and revenue gains in both parks, each of which have significant further growth potential.

Our investments in Europe have on balance delivered their expected results.

In terms of other ride additions in certain of our domestic markets, it seems clear to us that the stubborn economy has constrained the growth we expected, but they have performed well in the face of that challenging environment.

In retrospect while I am very comfortable that the aggregate amount of capital we deployed was the right range of investment to deliver growth I would have allocated a portion of it differently.

For a variety of reasons we decided not to put new rides in four of our major parks this season, those four parks account for as much as one-third of our Company's cash flow.

In most years we have rides going into at least two of those parks.

Because of expected opportunities in other markets, and our feeling that substantial prior season capital would have legs, we made our decision to be dark in all four this year.

Given the severity of the economic environment, in retrospect we would probably have been better served to have allocated rides in the larger and more consistent markets.

We have done reasonably well in two of those markets but we have felt the effects of the absence of new attractions in the other two where discount levels were too sharply changed.

As part of next year's systemwide $125 million Cap Ex program, we will be adding major rides in all four markets and on a going forward basis we will not be dark in more than two of those markets in any single season.

Now in terms of other factors affecting this year's performance, clearly the economy has hurt us.

While we have always been relatively less affected by economic factors than many other businesses, we are not immune.

The duration and severity of the economic downturn add the stock market declines have taken their toll on us along with a number of other leisure and entertainment businesses.

We have seen the most meaningful effect in our group sale business.

At the time of our first quarter call we reported that we were as a percentage of full-year sales 2 to 3% behind the prior years' booking pace.

As the season has unfolded we have seen additional erosion in group sales with some long-time customers in certain markets not returning.

And many groups bringing lower numbers than in prior years.

This too has been concentrated in a few markets, including Cleveland.

As you would expect, our biggest challenge has been in corporate outings, particularly buyouts.

It is difficult to replace this type of business during the season, but we are confident we can restore those levels in future seasons.

Fortunately, our group sale problems are largely behind us for this year and systemwide our bookings for the balance of the year exceed prior year actual by a comfortable margin.

In terms of season pass sales, we increased prices from $2 to $5, depending on this -- depending on the park, to increase revenue per pass, and to shift some attendance into higher paying categories.

To date we have achieved 91% of our pass sales targets for the year and 93% of our revenue targets.

Past sales have been some -- came somewhat later this season, which I would attribute in part to the economy and consumer uncertainty.

More significantly, while it has been a reasonable weather year overall, we caught a lot of unseasonably cool wet weather early, which not only depressed spring attendance but also delayed and cost us season pass sales.

That said we have moved our season pass sales pricing in the right direction and have achieved the lion's share of our target.

We expect to achieve 95% of our full-year revenue target for season pass.

Certainly our base is more than sufficient to hit the balance of the year's attendance targets.

On the cost side we have done a very good job controlling expenses so I don't anticipate any negative surprises in that area.

With that I will turn it over to Jim Dannhauser.

Thank you, Kieran.

For the second quarter we reported revenues of $347.8 million, down $8.6 million, or 2.4% from the second quarter of 2001.

Cash expenses for the quarter were up slightly, $200,000 from the prior year.

From the 2001 quarter excluded the expenses of Montreal prior to our acquisition of that park in early May.

As a result, EBITDA from consolidated operations for the quarter was $109.6 million, down $8.9 million or 7.5% from the 2001 quarter.

Adjusted EBITDA was $124 million for the quarter, down $14.4 million, or 10.4% from 2001.

Reflecting the shortfall in consolidated performance as well as a lower pick-up from the unconsolidated operations.

Net interest expense for the quarter was $56.5 million flat for the prior quarter.

Depreciation expense was $37 million, up $1.9 million from the year-ago quarter reflecting the depreciation expense associated with new capital investments.

Amortization expense in the 2002 quarter was $287,000, down from $14.6 million a year ago.

Reflecting the elimination of goodwill amortization expense under the new accounting rules.

There had been $14.3 million of goodwill amortization expense in the year-ago quarter.

Equity and operations of theme park partnerships was $9.9 million, down from $14.3 million in 2001, reflecting lower performance at the Texas park primarily.

We recognize an extraordinary loss on the retirement on April 1 of this year of $450 million of public notes representing the elimination of the remaining balance of the unamortized deferred financing fees from the 1998 issuance of those retired notes.

Those notes you will recall were retired on April 1 with the proceeds of the $480 million [inaudible] notes that we issued in early February this year.

As a result, net loss applicable to common stock was $11.5 million.

As compared to $7.7 million of income last year.

Absent the extraordinary loss, the net income applicable to common stock for the year's quarter would have been $7.1 million, down $600,000 from the prior year period.

For the six-month period revenues were $397.1 million, up $5.4 million, or 1.4% from the 2001 period.

Revenues for both six-month periods included all of the operations of Sea World of Ohio and Montreal.

Both of which were purchased before the commencement of their 2001 operating seasons.

Attendance at June 30 was down 1.1 million people or 7.5% at the consolidated parks reflecting difficult performance at a handful of parks and slower than expected group sales and season pass sales as well as the impact of some difficult weather in April, May and early June in the northeast and midwest.

Per head revenue was up sharply by 9.6%, with gains coming from admission revenue as well as inpark spending and from both international and domestic operations.

Cash expenses for the six-month period increased by $10.3 million over last year.

Had the Sea World in Montreal park been owned for the full 2001 period cash expenses this year would have been $6 million or 1.7% higher than last year, reflecting primarily anticipated insurance and property tax increases and some timing issues, offset by savings in advertising and other areas.

EBITDA from consolidated operations was $46.4 million for the six-month period, down $4.9 million, or 9.5% from 2001.

Proforma for the acquisition of Montreal and Sea World Ohio as if they had been owned from 1/1/2001, the 2001 period EBITDA would have been $46.9 million and 2002 period EBITDA would have been only $600,000 or 1.2% below last year.

Adjusted EBITDA for the period was $50.3 million compared to $62.2 actual and $57.9 million proforma in 2001.

Net interest expense for the six months was $116.4 million up $3.8 million from the prior year, reflecting exclusively the interest expense from the notes issued early in the year, the proceeds were used to retire older issues of notes only on April 1.

This will have no impact on cash interest expense for the year, which will still be approximately $170 to $175 million.

Depreciation expense for the six months was $73.6 million, up $4.4 million.

Amortization expense was $563,000, down from $28.7 million in the year ago period.

Had goodwill amortization been excluded from 2001, amortization expense would have been a half a million dollars in the year ago period as well.

The equity pickup for 2002 was a negative $5.2 million as compared to a negative $77,000 last year.

Net loss applicable to common stock was $125.1 million in the 2002 period, as compared to a loss of $132.9 million last year.

As to the balance sheet, at quarter end, excluding outstandings under our working capital revolver, growth debt was approximately $2.8 billion and net debt was approximately $2.1 billion.

The working capital revolver balance at June 30 was $155 million, virtually all of the current maturities of long-term debt we had in place at June 30.

The revolver outstandings have been steadily reduced since then, will be down to $55 million by the end of this week, and fully paid off in the next two to three weeks.

We have no other current maturities of any consequence.

Our blended interest rate excluding the revolver is 9.22%.

In addition in the beginning of July we finalized a replacement bank facility which had been launched in early June.

This transaction accomplished several things.

First, the maturity of our $600 million term loan was significantly extended, meaningful amortization now only begins in September 2008 so along with earlier maturities of public debt are refinanced commencing at year end 2006.

We maintained our full $300 million committed working capital revolver capacity and reduced the size-of-our backup facility to a hundred million dollars.

The commitment period for each of those facilities was extended to June of 2008, with the backup facility committed amount subject to reduction beginning at year end 2004.

We were also able to reduce our borrowing spread over libor 75 bases points as part of the transaction.

With this amendment in place, we now have no debt maturities in our capital structure at all before 2007.

And ample liquidity to continue to fund our ongoing operations.

Finally as we announced in our press release we have now concluded the first step in the analysis of potential goodwill impairment mandated by the new accounting standards.

We have concluded an impairment is indicated for our European operations only, largely arising out of our November 1990 transaction including the acquisition of movie world Germany and securing the licenses for the Time Warner intellectual property for Europe and Latin and South America.

We are now in the process of measuring that impairment which will be in the range of up to no more than $65 million.

We expect to conclude that evaluation during the third quarter, and will reflect the impairment in the third quarter financials as the cumulative effect of an accounting change.

Kieran.

Thanks Jim.

Before opening the floor to questions let me discuss a couple of other matters briefly.

In terms of acquisitions, we have made significant progress in connection with our proposed purchase of the Jazzland theme park in New Orleans, this park was built two years ago for an investment of over $130 million including state grants and a substantial loan from Hud and the city of New Orleans.

Despite the significant investment the park which was not built by experienced industry players was undercapitalized and had certain product and service deficiencies.

The owner filed for bankruptcy after last season.

We were appointed manager of the park during the season by the bankruptcy court and have been working diligently to acquire the park.

The park's plan of reorganization based on our acquisition proposal has been approved by the federal bankruptcy court and the city council, and subject to the favorable completion of a few more legal steps we should close our acquisition of the park within the next couple of weeks.

The deal calls for us to acquire a 75-year lease of the 140-acre park, in consideration of our assumption of a $13 million first mortgage and a capital lease of approximately $2 million.

And our agreement to pay an annual lease payment to the city of New Orleans equal to 4.77% of revenues, in lieu of payment of all real and personal property taxes.

We have also agreed to invest a total of $25 million in the park by the end of the 2005 season.

And as part of that investment program, we will brand this park a Six Flags park.

The capital investment will be staged over the next three seasons and fits comfortably within our companywide annual Cap Ex target of $125 million.

If completed this will be a good acquisition for us, one which is consistent with our policy of only pursuing accretive acquisitions, which do not require significant incremental annual investment on a relative basis which would impede our goal of increasing annual free cash flow generation.

In terms of corporate governance issues, Jim Dannhauser and I have certified our financials and in light of the strong controls we've had in place historically, we are both comfortable doing so.

With that Dante, I will open the floor for questions.

Thank you.

The floor is now open for questions.

If you have a question, or a comment at this time, you may press 1 followed by 4 on your touchtone phone.

If at any point your question is answered, you may remove yourself from the queue by pressing the pound key.

Once again, ladies and gentlemen, if you do have a question or a comment, please press 1 followed by 4 on your touchtone phone.

Our first question is coming from David Miller of Sanders.

Yeah, hi, good morning.

Jim, the 9.6% increase in total per cap spending at the parks, you know, that is quite a contrast relative to the 7.5% decline at those parks.

In your opinion, or Kieran, in your opinion, how much of that is due to the implementation of the low queue system at the trial parks?

Thanks.

I am not exactly sure of the contrast you made, but the low queue system which for people on the phone is one of our ways of doing fast-pass or offering to our guests the opportunity to, you know, enter rides, you know, with shorter lines, that is absolutely nothing to do with anything in terms of attendance and in terms of our total per capita is a very de minimis amount in terms of the increase.

It is a good situation over long-term, but it has not been part of why our per caps have grown so nicely.

Okay.

Then can you expound on why the per cap increases is such a nice contrast relative to the attendance decline in the quarter?

Again as we said in our remarks, that was a strategy going into the season, I think that in terms of the inpark piece of that, you know, as we said before the year we were going to continue to make investments in inpark revenue opportunities, those were primarily focused on our games operation which, you know, in a variety of our parks as well as some other pay-as-you-go type attractions like go-karts and those things, it is clear that those investments have generated a very nice return, and, you know, again, verify the fact that that's a great avenue for us going forward.

We have a lot of opportunity.

That's not a one-year situation.

We hardly put a dent in the opportunity there.

The other thing is ticket mix helps even the inpark spending so as we did shift, some people in the higher paying categories, that also brings up the spends of people who are more committed to their visit, they stay longer, the length of stay.

On the ticket side we went in and very carefully park-by-park tried to reduce our various discount levels, these are relatively small reductions.

Just to give you an example in a number of our casual discounts in major markets where we might have for certain periods offered $12 off a main gate price and we might have moved those prices back to $10 off, and, you know, we also increased slightly our season pass prices anywhere from $2 to $5 a pass depending on the market.

And it is very clear that those combined strategies have driven great per cap growth overall and are really a path toward long-term growth for us.

Now, you know, I think what is, you know, abundantly clear to me as I have reviewed these numbers is that that strategy has worked very well.

In two out of our 38 markets we probably miscalculated in terms of how quickly we moved some of our discount levels, and as I mentioned those were also two markets where we happen to be off-stride in terms of marketable attractions.

If you take those two parks, with the situation that we have on our hands in Cleveland, you know, that in effect accounts for the entire miss that we have year-to-date as well as for the full year, but the strategy -- that is what creates the strategy that created the price increases and we are very encouraged by that because on a go-forward basis we know we have a lot of room in our per head spending and the fact that we could move it that way is very encouraging.

Thanks very much.

Our next question comes from Jill Critic of Sullivan.

Good morning.

I have three questions.

First, on capital spending, I know your goal is to drive free cash flow but it seems that pulling back on capital spending has not really been a wise move.

Can you talk a little bit about, you know, not even spending at a couple of key parks next year, how that will be beneficial to your overall performance?

Secondly talking about how revenue needs to exceed last year by 5.5 per cent for the balance of the season and you are anticipating normal weather within the context of your outlook for the balance of the season, how can we really assume normal weather when weather never seems to be normal?

Obviously, you face easy comps but isn't that sort of an aggressive assumption in the face of this climate?

And finally, third, why you think your park performance should balance next year given that it seems like really strong performance at certain parks continuously gets offset by weaker performance at other parks?

Thank you.

Let me take them one at a time.

You know, in terms of the Cap Ex, I think, you know, what is very clear to us is that our Cap Ex levels this year, and the reactions in the market to those, you know, are not problematic and really to say the pullback in Cap Ex, I think our Cap Ex levels in prior years when we were branding a number of parks involved a lot of capital investment in facilities and branding that, you know, we knew would not be recurring Cap Ex requirements and that would position those parks, you know, for the long term.

You know, when I look out and I look at the parks that have performed well and we have a lot of parks that are performing well, whether it is Denver, which is up, you know, 4 or 5% from the prior year in revenues, L.A. up 6%, without any capital investment, our Louisville park, no Cap Ex investment up 6%, D.C., no Cap Ex investment, up nearly 9%, St. Louis, a modest Cap Ex investment up 3 to 4%.

When I look at that, you know, what that is telling me is that you, you know, -- and I look at really the three markets where we had our issues, and Cleveland being one where obviously, you know, we brought, you know, what is a very marketable situation that we just because of regulatory issues could get our whales in on time, I look at the other two markets with an allocation issue, you know, we made a mistake, we make these decisions of what our investment for the next year is, you know, usually by April/May the year before, in terms of our visibility last April/May, because of the Cap Ex we had going into, you know, four of our major markets, you know, we felt comfortable that, you know, and so the upside in some other markets that we went dark in those four, and that was a unique experience, we had not done that before.

And that, to some extent, along with the pricing decisions in two of those markets that bit us.

It didn't bite us in L.A.

Again, where, you know, we have seen very nice performance.

Likewise, you know, even in other markets, Chicago, they lost a hundred thousand in buyout business including Arthur Andersen and a few others and that is just abysmal weather in the beginning of the year.

We will come close to prior year's EBITDA in that park.

So I really am convinced that the Cap Ex levels that we have put in place this year were absolutely fine.

The Cap Ex levels of about $125 million going forward, are more than ample.

I think, you know, we have to own up to the fact that in retrospect we allocated against a couple of markets where given what we were doing pricing we should have allocated against New Jersey and Dallas but that is a mistake, we made it and it's cost us here.

In terms of, you know, looking at, you know, the revenue target to reach our projected goal for the year, you know, to outperform the prior year by $25 million, frankly when I talk about normal weather there I wasn't talking about exceptional weather or better weather than last year I was just simply talking about the normal kind of weather we get in September and October which is uneven across the board.

And I would tell you that, you know, I am -- you know, I am comfortable that we have a projection here that given what we lost last year to 9/11 and given, you know, the comfortable margin that we have in booked group business compared to last year's actually and frankly, given how nice the bounceback has been, the first couple of weeks here in August, you know, I am comfortable with that assessment and I don't think it is a progressive one or based on any kind of aggressive assumptions, I think we can't -- we don't have a crystal ball for all factors for the next three months but I can tell you that was based on a very thorough review and with, you know, good, firm projections.

Kieran, if I could just follow up on that one point, you talked about easy comps versus 9/11, but, you know, it seems that with July 4 being a real weak spot for tourist years why wouldn't we see a revisit of similarly weak performance?

Don't misunderstand my suggestion about July 4, I think we saw weakness on the day.

Frankly, we saw great weakness for the first few hours of operation and I think as people sort of expressed, you know, kind of a collective sigh of relief we saw strong numbers in the evening.

We had the following day good performance, so, you know, it was really the couple of days leading up to July 4 and the day itself where things seemed erratic.

I think that September 11th is a weekday, it is not a huge day of operation for us, I doubt we have very many parks even open, so I am not suggesting that, you know, I am not suggesting that, you know, that we are going to see any kind of impact, you know, on a go-forward basis because of, you know, the 9/11.

I think it is an opportunity for us, you know, to really pick up, because as you recall, after 9/11 last year we had four solid weeks of bad performance, and I just don't see, barring any, you know, additional tourism events, I don't see any reason that, you know, the memorial around 9/11 is going to not let us recover a big chunk of those four solid weeks of bad performance.

In terms of your last question about, you know, the bounceback for next year and, you know, performance off in some markets always being offset by others, you know, I certainly understand that, you know, we are missing our numbers here for three seasons in a row so I can only tell you that when I look at, you know, the situation in Cleveland, you know, I understand that decisions that we made probably have hurt us from a short-term performance point of view but I am very comfortable that over a period of several years that park is going to deliver performance and be a contributor.

As far as the other two markets, Dallas and New Jersey, you know, there is just no doubt in my mind, with the opportunity we have with new capital and our pricing strategy that we are going to see a strong performance back and the balance of the portfolio really performed very well in a very difficult economic environment.

You know, we have got very strong assets here, very stable cash flows, so when I add all of that in and I consider the -- you know, the continued benefits of per cap growth which is so clear here, from our -- you know, our inparks and when I look at the upside that we have in sponsorship, you know, I am really comfortable, you know, that we are going to see a good solid growth next year.

Thank you.

Thank you.

The next question is coming from Kathy Siponeous of Prudential Securities.

Please state your question.

Hi, thanks, a couple of questions.

Kieran and/or Jim, when we -- when you look at your decision to decrease the amount of discounting this year, it sounds eerily similar to back in 1998 when you first picked up the six flags parks and the prior management team had done -- had undertaken a similar strategy and you were able to reverse some of that midway through the season by increasing the discounts, or increasing the amount of discounting.

In achieving your $25 million, are you going to be doing any of that?

The second question is with respect to the write-down on the European park, in particular Movie World, could you walk us through what has changed in your -- it could be qualitative if you like, in your growth assumptions on Germany in particular and in Europe in general and, you know, what this means about acquisition opportunities in Europe going forward?

And then finally, given the underperformance this season and/or in the last couple of years, Jim, I am wondering if you can update us on when you look at the acquisitions you made over the last few years what is your cash on cash return look like now?

Thanks.

In terms of the strategy on changing discount approach, you referred to 1998 in the prior management of Six Flags, I think, you know, just as a clarification there, the strategy that they had implemented going into the season, you know, involved a very significant walk away from certain and very important programs, including season pass, which is 25% of the business, and pretty dramatic reductions in discount levels across the board.

And we recognized quite clearly at that point that, you know, that was far too radical and too aggressive and yes, we very early in the season, in the May/June period as we took control made changes in that and, you know, were able to do that.

In terms of the approach that we took going into the season, it was much more surgical, and much more modest changes in discount levels, that is why I was trying to refer a couple before and even the season pass price increases.

No question that in a couple of markets, we probably, in some deeper discount programs, where we made some eliminations in the two markets I referred to, that, you know, that certainly hurt us.

We have come back in carefully in those two markets, actually really just one of them, because of the -- you know, the amount of operating season left, really just in New Jersey we carefully added back in some levels of discount on a control basis, which, you know, again, I think is helping us here.

We have seen a response, but we have stayed the course across the balance of the portfolio, and I think that, you know, that has been the right strategy.

And coming into next year, we will look very carefully and all the parks and refine the ticket strategy, and paying careful attention obviously in the couple of markets where we went a little too far, but, you know, I am pretty comfortable and it would be foolhardy for us to try to throw a bunch of discounts across the board.

That would be, you know, a huge mistake, because what we have achieved in the pricing and what we have achieved in the overall per head spending is going to really pay dividends long-term for the Company, and, you know, the fact that we may have in a couple of markets not executed perfectly, I take responsibility for that, but it really would be a mistake to, you know, generally abandon the strategy and we will not be for next year either.

In terms of Europe, I am just going to speak real quickly on, you know, a couple of overall things and let Jim answer the more specific issues about the impairment.

You know, we were quite frank last year about what we felt was our underperformance in Europe after two or three good solid years, and took a number of clearly defined steps there, and I think notwithstanding a tough economy over there as well we have seen those steps bear nice fruit in this season.

So overall, you know, I it continue to be quite optimistic about our long-term prospects in Europe, it is quite clear that our Six Flags brand in the two markets where we applied it has taken hold and is helping us quite a bit.

Some of our strategies in some of the smaller parks, you know, again working well.

We have not seen quite the level of performance in the Germany park that we expected when we made the acquisition in 1999.

It is important to point out that that acquisition in 1999 involved, as well acquiring the licenses for all the Warner intellectual property throughout Europe and Latin and South America, as well as the rights to use the Warner Brothers name in parks which we have extended through our management deal in Madrid, and obviously, and Jim will talk about it, you know, the impairment analysis is based on discounted cash flows, so it is a little bit, you know, difficult necessarily to take the long-term value of some of those, you know, intellectual property assets.

I think in Germany, one of the reasons that, you know, we have not hit the levels we would have liked has been, you know, some fairly intense competition in some of the markets in Germany.

And, you know, that will ebb and flow in terms of other people's, you know, capital plans and things that they do, but overall I feel pretty good in Europe.

Kathy, I think Kieran has expressed well the -- to remind people of what the November 1999 transaction was, it was not just the acquisition of the individual park, it was also a strategic transaction which enabled us to get the exclusive rights to use the Warner Brothers' characters in parks throughout all of Europe and Latin and South America.

That said, it's clearly the case that the German park in particular has not performed up to the level of the original expectations when we acquired it.

And that is the primary reason why you see a goodwill impairment charge being made when we do a realistic discounted cash flow analysis under the -- under the new accounting principles, it is simply difficult to be comfortable that off of last year's performance base at that park, we will be able to drive material enough growth to justify the level of intangible asset associated with it on our balance sheet currently.

It doesn't really reflect anything other than that transaction, it is not a function of our being disappointed on a broader base with our position in Europe and our ability to continue to grow that position, particularly internally, as Kieran indicated.

In terms of returns on acquisitions, that have been made, I think it is -- it is fair to say that while the return on that particular transaction and obviously the Sea World of Ohio acquisition have been disappointing, by and large, when you look at the individual park acquisitions that we have made over the last several years, their performance is quite good.

Montreal is having an excellent year as part of its first stage of our significant efforts to transform the park, similarly Seattle is having an excellent year, the Mexican park continues to be a very solid performer for us, so I think when you look at those acquisitions as a whole, we are achieving appropriate levels of return.

The aggregate Company cash on cash returns are suffering as a result of one or two transactions which have not turned out as we would have hoped.

As a quick follow-up, Jim could you give us a sense of what you mentioned that they're achieving appropriate required returns, what kind of [inaudible] rates do you have for those types of parks?

Well, you know when we look at those individual park transactions we have always tried to be in a position where in a three or four-year period when we have acquired an underperforming park and are driving its performance that we get a cash on cash returns on our net investment in a 20% order of magnitude.

I am very comfortable that you will see that in Mexico, I am very comfortable you will see that at Montreal, Seattle, I am very comfortable that if we are successful you will see that out of the New Orleans park as well.

Thank you.

The next question is from Ashley Craig from Morgan Stanley.

Please state your question.

Hi.

First of all, I wonder if you could help us out a little bit with the guidance.

When I look at what you have booked so far in EBITDA specifically, and then kind of look at what that would mean you would have to achieve for the third quarter in particular because I guess we all know that fourth quarter is typically a small loss, $16 million or so is about what you had last year in loss, it seems like you have a -- have a pretty big hill to climb and just in the next month or two, if I run the numbers correctly it looks like you did about $50 million if adjusted EBITDA in the first half of the year and it was $16 million I think was your EBITDA loss on an adjusted basis for the fourth quarter of last year.

If we just assume that is flat that would be about $34 million for those three quarters, in order to achieve the $402, you would have to generate about $368 million in EBITDA in the third quarter of this year and that's versus $356, or an increase of about $12 million last year.

And it seems like based on the guidance you have given us that I am guessing you are off maybe like $10 million so in July, I am just sort of assuming that the third quarter is evenly split amongst the three months, which I think may be a little bit too generous of an assumption, say it is like $10 million, right there that is about $22 million that would have to be made up in August and September and I understand what you are saying that September is somewhat of an easy comp but I would think September is also somewhat of a slower month, particularly than July.

Are you -- do you -- does that, you know, just sort of running the math very simply like that it seems to me like you may be setting yourself up for another disappointment.

First of all to say that September is a slower month doesn't make sense when you compare year-over-year performance.

That is really the guts of your question is what do you have to do to prior year in order to make the number, and I think again, you know, I will let Jim comment on specific breakout, but if you look at it in terms of needing to perform in total the prior year by $12 million which I think is the number you used, when I look at what we lost last year after 9/11 over four weeks, when you look at what we have, you know, begun to achieve here in August, again in, you know, a lot more specific park-by-park analysis, you know, I am quite comfortable that, you know, we can make those numbers, and in fact, you know, we scrubbed it pretty hard because we are not looking to have, you know, another announcement of a disappointment.

But Jim if you want to ---

I also think, Ashley, it is important to remember the last year's impact was not just the third quarter, it was also the fourth quarter.

Because the first part of October was a very difficult period of operation for us, you will remember, that what we said was post-September 11 last year we lost $25 to $30 million in revenues.

That was not all in the third quarter, it was also spilled over into the fourth quarter.

So if you look at 2000, for example, you know our adjusted EBITDA loss in the fourth quarter was less than a million dollars.

And that is a very significant difference from the 2001 number which you quoted of a loss of about $16 million.

And so if we hit a fourth quarter like we hit in 2000, you know, we can very comfortably achieve the guidance we have provided you.

We looked carefully at what it is from a revenue perspective that we need to achieve in order to hit this revised forecast.

And, you know, you can never be certain of anything, but quite clearly, in going through this exercise, we pushed very hard to make sure that we were providing to the market guidance that we are comfortable that we can achieve.

There can't be any assurances in life.

You could have a slow September, we could have bad weather in September and October, but I think when you look at the track record of the fourth quarter and the third quarter as opposed to just looking at last year you will see that these are imminently achievable forecasts.

What you are saying then is that your -- is that maybe a good $12 million of the, you know, roughly $22 million hole is -- is, could easily be made up in the fourth quarter alone, and that -- and that, you know, on the $25 million revenue loss, say, or on a $20 million revenue loss based on September 11 alone then maybe there is another $10 million there or something?

Is that -- is that --

That is part of it.

Plus we are seeing outperformance in August.

We are probably two and a quarter, 2.5%, through Sunday, in terms of ahead of last year's revenues so all of those things taken together are what drives us to that place.

I would say it the following way -- we had roughly a $25 million revenue hole, we have gone through the expenses quite carefully, I think, you know, historically, everybody recognizes that we have done a good job in terms of expense control.

So that in effect is the hole we have to fill.

And between the outperformance in August as well as the easy comp in September and October where we stand from a group sale perspective, you know, that is our best judgment today of what our performance is going to be.

But your margins were down quite a bit in the -- in year-to-date as well as for the quarter, I think you were -- you know you were off 300 bases points.

You have to look at that on a normalized basis including the -- if you add back the expenses in the preoperating period of Sea World of Ohio, as well as in the Montreal park.

If you looked at our year-to-date EBITDA margins at the end of the six months, we were at 14.6% versus 15.7% a year ago.

Okay, what percentage of your business is a group business?

Well, that will vary park to park and group includes a lot of categories, it includes catered outings, noncatered outings, consignment tickets and cash groups, but --

How about for the total company?

Sales can be 30 to 35%.

Okay.

And how do you look versus covenants, particularly the bank covenants.

We have no covenant issues whatsoever.

What would you say is your tightest?

Coverage or leverage number?

Let me put it to you this way so long as we do about $325 to $330 million of EBITDA we will not have a covenant issue.

Lastly, your revolver that you mentioned, the one -- the $155 million drawn on the working cap revolver, is that -- that's the one that is -- has been reduced to a hundred million or it is the backup?

Down to $55 million outstanding.

I am sorry you renegotiated that.

Is that still that size, 300 million?

To be clear, we didn't renegotiate the revolving credit facility.

All we did was extend its term.

The working capital revolver is $300 million, like it has been since November of 1999.

At June 30, there was $155 million outstanding under that working capital revolver.

As we speak, this week, there will be $55 million outstanding under that revolver, the balance will be paid off in full in the next two to three weeks, so we will have $300 million of committed working capital revolver available to us, we will have a hundred million dollars of backup credit facility available to us so we have in addition to a hundred million dollars of cash on the balance sheet we have $400 million of credit facilities available to us.

Okay.

And I am sorry, just one other clarification point, you said cash interest expense of $175 million for the year; is that right?

Correct.

Great, thanks.

Thank you.

The next question is coming from Tom Ray of Inflective.

Please state your question.

It has been asked and answered already, thank you.

Thank you.

The next question is coming from Blaine Mortar of LRL Capital.

Please state your question.

Hi.

A couple questions if I might.

First, back to Joe's question about the Cap Ex next year, you are getting kind of below levels of depreciation now, at what point do you take another structural look at the organization and say perhaps we need to, you know, increase Cap Ex at certain parks or perhaps think about structurally shutting down some additional parks?

Could that potentially be in the works?

Absolutely not.

There is absolutely no thought to shut any parks down.

We don't -- having said that park performance disappointed us in three markets in particular, those are still parks contributing substantial cash flow to the Company.

You know we don't really gear our Cap Ex decisions to what our depreciation is or amortization, we gear the Cap Ex decisions to what we think is sufficient to both sustain performance in, you know, more mature markets as well as to take advantage of growth in markets where we are underpenetrating.

I will remind everyone that, you know, we spend a healthy percentage of our revenues on the repair and maintenance and other types of things that keep the product fresh and so when we talk about capital we are talking about new rides and attractions, restaurants, games, facilities and the like.

I have to say that I think that the $125 level for the parks that we own, including New Orleans as we bring that on-line is a very comfortable level for us to drive growth off of this season and beyond, and, you know, and I think that yes, we -- you know we look at that number every year, we look at our investment opportunity, but we've run our scenarios several seasons in terms of what we think are the appropriate levels and which markets we will be addressing.

And while that shifts based on performance a little bit and our individual decisions in any given year, the general level is more than sufficient -- well, is very comfortable to continue to grow the business.

And I don't see us making any, you know, material change in that level and it certainly won't have any direct impact on how we approach any of our markets.

Can you do anything on the fixed cost side for the rest of the year to kind of bolster cash flow, if you will?

Well, I think that we have certainly gone in and, you know, reduced expenses where we saw opportunity.

Again, a little bit like the pricing strategy, you know, it would be a mistake for us, you know, for the sake of simply one-year performance to make any expense changes which we would perceive as being, you know, a negative from a long-term perspective.

But clearly we have gone in, you know, where we can very carefully as we do constantly, and I think, you know, have found the right level of expense reduction that will not hurt our, you know, performance on a go forward basis but I don't see any additional material opportunities for this season that, you know, would dramatically change our guidance for the year end cash flow number.

Okay.

And finally, the cash flow number, $65 million, how much of that $65 million do you actually expect to go to pay down debt versus go for buyouts or other things?

What do you mean by buyouts?

In terms of investments that your mandatory kind of cash spend in taking in certain investments and that sort of thing, et cetera?

None of that will go towards any mandatory purchases.

We did spend about $14 or $15 million in the context of the modification and extension of the bank facility, we will earn that back in a 2.5-year period by virtue of the reduction in the spread over libor.

The balance of it will go towards the reduction of debt.

Thank you.

Thank you.

The next question is coming from Jean of J.P. Morgan.

Please state your question.

Our next question is coming from Peter Erhart of AIM.

Getting to the number, the $65 million in free cash flow that is on a cash basis for interest.

At the end of next year I guess the 10% bonds go cash pay; is that correct?

That's correct, the 10% bonds go cash pay the next year, the first installment is due in October.

So on an absolute sense our cash interest expense next year would be $20 million higher.

But we have secured the reduction in the libor spread which I described earlier, we will be accomplishing debt reductions, so I would expect that our expense cash interest expense next year would probably only go up by about $10 million.

Okay, and so this $65 million is just a free cash flow, it is not the debt paydown, if you back out what debt increases because of the zero amortization?

That is correct.

That is purely cash being generated above our fixed obligations.

Okay.

In terms of the bank deal, what are the banks -- what is their reaction to this?

Obviously the bond market's taken your bonds at 12%, and your equity is cut in half, I wouldn't imagine they are too happy about the new deal they just cut, do they know what the numbers are?

Do they know -- what the guidance was heading into that new deal that they just signed?

We lost that new deal in June.

As we indicated at the end of June, and the first part of July, we were comfortable we were going to be able to achieve our performance for the year.

The banks are in a very good position, because, you know, there is -- that is virtually the only debt at the operating Company level, there is reliable cash flow comfortably able to accomplish the satisfaction of our obligations, and I don't expect any issues in that regard.

Okay.

Not to pound on it but to go back on the covenants again, so what you are saying is if the Company improves to say 3.25, 3.30 of EBITDA, that that's the tightest thing you have got to deal with, going out to how many years out?

A couple of years.

For a couple years, all right.

Thanks very much.

Thank you.

The next question is coming from Seth Singerman of Gem Investors.

Please state your question.

Good morning.

This is I guess some of -- somewhat of a follow-up to the last question.

In regards to certain covenants, are there any issues you foresee going forward and specifically the preferred right now is trading at 21% yield to maturity, is there any thought about potentially purchasing some of that in the open market instead of potentially using the proceeds towards additional park acquisitions right now?

Well, I think we discussed our acquisition strategy to the extent that appropriate transactions can be seen where we would drive good growth for the Company we would certainly entertain them, but the primary focus of the management team is to generate cash flow with which we will reduce indebtedness.

We are constrained by various covenants from undertaking any open market purchases of equity in the Company.

In regards specifically to some of the cash flow coverages, is there any specific covenants that you foresee being triggered right now under the current conditions?

I can't say it more clearly, absolutely, unequivocally, no.

Okay, thank you.

The next question is coming from Dean J.P. Morgan.

Please go ahead.

This is actually Romney [Inaudible] for Dean, we got disconnected.

Could you guys give us the revenue for the partnership parks this quarter versus last and also if you can give the attendance and per cash for the partnership parks?

Jim is going to grab the revenue,.

I don't think we will go into specific attendance and per capita at those two parks because that is not something we ever do on an individual park level.

As I said earlier, I did speak a little more specifically about park performance than we might from a competitive point of view but I will let Jim react to the rest of your question.

On the six-month performance from the unconsolidated parks was about $105 million of revenue last year for the six months, $93 million this year.

Okay, on the quarter?

On the quarter was about $93 million last year, $82.3 million this year.

Okay, thank you.

The next question is from Edward O'Kine of BKO Capital.

Please go ahead with your question.

My question was answered, thank you.

Thank you.

Our next question is coming from Ashley Craig of Morgan Stanley.

Please pose your question.

Two quick questions, anything on cash taxes, will that remain de minimis?

Yes.

It will remain de minimis.

Are you restricted on buy-back bonds?

Not from cash from the company.

I'm sorry?

Not with cash that is at the parent company.

Obviously to buy in or to prepay indebtedness at the parent company level with cash we would have to get approval of the bank.

Thank you.

Thank you.

Our next question is coming from Media Group Research.

Please pose your question.

Can you tell us what percentage of your second quarter revenues that you just reported was attributable to June?

I would imagine it is much bigger than April and May.

That is certainly the case.

Generally, the June -- the month represents about 19% of our full year, that is probably twice what the May performance would have been.

So given that you blamed a lot of your poor second quarter attendance on weather and you said at a New York conference that memorial day was okay, it would seem that you were kind of behind the eight-ball pretty early on in the quarter so I am interested in -- to know why you didn't preannounce in June, let's say?

Well, actually what we said quite clearly publicly was that in a number of markets we had some difficult early season weather.

That that was in April and May and we also had some difficulties in the early part of June.

The way that our business works as Kieran indicated the second quarter is not the most material quarter, we were standing there at June 30 in a position where with the two major months to go, an opportunity to be achieving our performance goals for the year.

Now, the July and August taken together by themselves are over 40% of the business.

And I think historically that is, you know, we speak to the markets when we are speaking to the markets now, because it gives us that period to really understand how the full season is going to play out.

Okay.

I guess I am most shocked and obviously displeased by the July performance, because, you know, we -- I think do a pretty good, thorough job trying as best we can to track the weather in your major markets and have you ever had better summer weather than you enjoyed this season?

It seems like it has been fantastic both through the week and especially on the weekends in virtually every market, particularly in June and July, and August thus far.

I mean, I can't imagine it getting better than this.

Well, I think -- I don't think you have heard us say that the issue that we had July was weather.

I think just to be clear, the period where we talk about weather having some impact was in the early going and the way that played off a little bit in our spring break and the way season pass sales got affected but by and large if has been a fine summer.

I think what happens to some extent you always catch some weather some place and, you know, I think we identified, you know, in Dallas and some of the Texas parks and things, but weather is not been an impact this year in terms of our being unable to hit the numbers.

We have been quite clear, you know, I think that, you know, we are seeing more of an impact from the economy, you know, this time around, than we might have expected.

And very clearly, in the three markets which account for, you know, really a hundred percent of the miss, you know, we have identified what those issues are and we are not saying that the issue in New Jersey or in Cleveland has anything to do with weather.

You know, so we have I think identified what we think the issues were in those markets.

So, are we setting ourselves up next summer for hearing that we've improved the pricing and discounting and the per cap strategy and yet we got screwed again by the weather next year?

You characterize this year as the perfect weather year.

You know, we get a lot of people that talk about weather.

What tends to happen is people look at, you know, the market they are in and they have an impressionistic reaction to the weather.

This was a decent weather year.

It was not a year in which, you know, weather was going to constrain us generally, and it would probably be more typical of summer weather across our system.

So I don't really see this year as being an exceptionally good weather year, and it certainly was not a bad weather year, and, you know, the only year in which I think weather was, you know, pretty much the complete villain for us in performance was in 2000 when we clearly had, you know, historically poor weather in so many major markets that we were not able to get all the way home.

We are not going to be coming back and trying to use weather as the excuse and certainly not this year.

Okay.

Quickly, you said that there were four parks that comprised a significant chunk of your revenue but you didn't identify those four parks.

I think you said, "Four parks are a third of our cash flow."

Sorry, what are those four parks?

Those parks would be Chicago, L.A., New Jersey, and Dallas.

And how big could this Ohio park be, then?

That it actually underperforms to the degree that it drags down total corporate?

Well, again if you -- if -- just to follow out what we are saying, we are saying our expectation today is we will come in flat to last year about $402 million of EBITDA was last year's number.

Our guidance was $430 million, and what we are saying is that that $30 million miss is really concentrated in those three parks, and obviously two of those are Dallas and New York.

Where we discussed the fact that we probably moved pricing, you know, too far in those markets.

Also, we were off-stride in terms of capital in those markets, and so they certainly comprise in this, and really in Cleveland, you know, you get the balance of it based on what we certainly expected was going to be the contribution from that park, which is not a small market.

Having said the other four major markets certainly, you know, that was a decent-sized market where we had expectations of growth and didn't get the growth and actually fell back.

Okay, thanks.

Thank you.

The next question is coming from Chris Cox of Goldman Sachs.

Please go ahead with your question.

Can you guys give a sense of, maybe to quantify -- either quantify it or give us a sense of the magnitude of what the revenue declines and EBITDA declines were for those three specific parks?

I think, Chris, if you look at it, you know, compared to the revenue expectations for the year, and the cash flow expectations for the year, those three parks will comprise a hundred percent of the mix.

Okay.

And can you guys give us a sense of what you are thinking about next year in terms of EBITDA growth, if at all?

Well, look, I think, you know, it is probably, you know, premature for us to take a position on that right now.

I think -- uncomfortable just as this year, you know, the balance of our portfolio, because, you know, following up on Jim's answer to your previous question, you know, if a hundred percent of the miss of the revenue and EBITDA was in those three markets it says very good things about the balance of the portfolio, because, you know, there were ups and downs, you know, markets that had whatever factors, but, you know, on balance, every place else, you know, in the aggregate got to where it needed to be.

We do have some, you know, nice positives on the sponsorship side and not simply just the cash but some great opportunity promotionally now with our entire system aligned not only with Coke but the opportunities that gives us with fast food and convenience stores and video stores and theaters, you know, the market on a national basis so we see a lot of, you know, good opportunities there.

I can't tell you how confident I am that we will be able to go, you know, to come back very strongly in Dallas and New Jersey.

It is just aberrational years in those two markets.

Cleveland will be a longer building process, but whatever its performance is from the levels that it hits this year is not going to, you know, impact the balance of the portfolio, so, you know, we certainly would expect to see, you know, growth both in revenues and EBITDA.

Our Cap Ex, you know, on target, not in reaction to this year, you know, comes in about $125 million, which is exactly where we said last year we would be coming in this year.

So, you know, from a free cash flow point of view I think it would certainly be hopefully in excess of a hundred million dollars coming into next year.

And we will obviously give more clarification on that, you know, when we are speaking after the main season is over and we have had a full opportunity.

We are beginning our marketing reviews and our budgeting for next year already so we would like to go through that process before we speak specifically.

Okay, thanks.

Our next question is coming from Lisa Gaffney of J.P. Morgan.

Please state your question.

Good morning, I had a couple questions.

One is, are you saying that essentially if you took out the results on Dallas, Cleveland and New Jersey that EBITDA would have been flat year-to-date through July?

And also could you give us the attendance year-to-date change versus last year at those parks and my other two questions were if you could provide us with what group and season pass sales normally represent as a percentage of total?

And then finally, are you now saying that New Jersey and Dallas, at least in the last two to three weeks have been performing in line with the rest of the system?

Your very first question where you asked if we were to back out the miss at the three parks, New Jersey, Dallas, and Cleveland, would we have been flat to the prior year for the balance of the portfolio, EBITDA and the answer to that is absolutely, yes.

And revenue as well.

I think your last question was what are the percentage of season pass and group sales?

Collectively it is usually about 55% systemwide.

It will vary, you know, slightly market by market, but that is the basic percentage.

And I am not sure I remember the other questions sandwiched in between.

New Jersey has performed better and more consistently with the balance of the portfolio, Dallas is still a little bit weaker.

And then finally, what attendance would have been year-to-date through July for the system ex- those three parks?

The attendance year to date through the end of July ex- those three parks would have been, just bear with me for a moment.

It would have been about 6% behind last year's attendance.

But recognize that because of the substantial per head spending increases across the board and obviously in the balance that we would have been flat from a revenue and EBITDA point of view.

Okay, thank you.

Our next question is coming from Alia Swarzman of State Street.

Please go ahead with your question.

Hi, I apologize if you gave this, did you give the cash interest for the first half of the year?

No, I'm sorry, I did not.

For the full year it will be $175 million.

For the first six months in the year, it was $88 million gross, $87 million net.

And just you went through some of the proforma EBITDA numbers relatively quickly at the start of the call, I was trying to get a sense of what the -- with the parks that were acquired last year just what the actual change in the EBITDA on a proforma basis was, I guess, just for the six months?

For the six-month period, EBITDA last year would have been, adjusted EBITDA would have been $57.9 million in 2001.

Okay.

It was $50.3 million this year.

Okay.

Okay.

Thanks.

Our next question is coming from Ken Goldberg of Merrill Lynch.

Please go ahead with your question.

Can you give us the attendance figures for -- just for August with and without the three parks you keep referring to?

Yeah, for August the attendance performance has been significantly better.

We are trailing last year only by 4.5%.

In terms of -- that is through last Sunday which obviously is the material portion of the week.

That is all of the parks.

Including New Jersey, Cleveland and Dallas.

Correct.

If you took out those parks -- bear with me for a moment.

New Jersey was ahead of last year after the period through -- through last Sunday, and by about 2%, Dallas was actually flat to last year, the Cleveland park continued to have significant decline, it was about 12% behind in terms of last August.

In terms of this August compared to last year same period.

It is why we are encouraged, we are seeing the firming not only in Dallas but certainly in New Jersey.

Our projection for the balance of the year in Cleveland, you know, did not anticipate any kind of change in the trend, so we have factored that in to our full-year analysis.

The price changes less aggressive discounting, is that for group and daily passes, everything?

No question, yeah, we looked -- we didn't change the main gate pricing for adults in -- I don't think in any park, but in terms of all the other categories yeah, well looked at every single category.

It doesn't mean there was a change in every category, nor a change in every single park but, you know, in all of the categories have a relationship to each other in terms of what your main gate and what your casual discounts group and season pass and so we, you know, we changed our pricing strategy sort of category by category market by market.

And finally, on the per capita increase, can you give us a little color on what drove it?

Do you think that level is sustainable that you showed in the quarter?

You know, I don't know that I would necessarily hang my hat on, you know, on that level, you know, for several years, but I think, you know, what do you think, Jim, 3 to 4% is certainly a very sustainable level over the next, you know, few years, and, you know, what is driving it again is, you know, partly that recalibration of discount levels which again, you know, I think worked very well in the majority of our markets.

We went a little too far in two of them and then had some of the other factors in those markets, tough economy, plus what we -- mistake probably made in allocating capital, not the right amount but where we put it for the those two parks, and, you know, so I -- I am pretty comfortable that, you know, you are seeing that pricing strategy working, I think you are absolutely seeing the investments that we make in parks, which, you know, frankly, in aggregate dollars is probably only, you know, maybe $15 million bucks, system wide, so, you know, we are very pleased to see the level of growth we have from an inpark point of view which again is impacted not simply by those investments, but also by the ticket mix and, you know, the type of ticket that a customer comes in on because again it is counterintuitive, the lower you pay for your price to come into the park, the less time you tend to spend in the park and the less amount of money you spend in the park.

And so, you know, we are definitely seeing inpark the benefits of our ticket mix as well as, you know, the continuing strategy of investing against, you know, games and pay-as-you-go attractions and making modifications to our food venues, adding carts, and the nice part of that is on the investment inpark is we just have an enormous opportunity to continue to do that.

It is not like we even really scratched the surface of the areas we could attack across 38 parks.

We feel good about the sustainable increasing in the per cap and obviously think that when Dallas and New Jersey we had aberrational years based on, you know, the mistake in the execution of our overall strategy and -- which we regret but certainly is very fixable for next year.

In Cleveland we are committed to that market and, you know, we are going to bang away there.

Thank you.

I would like to turn the floor back to management at this time.

Well, listen, we appreciate everyone's attention, obviously, you know, we are disappointed to having to be delivering this, the news about performance, again I don't want to restate everything that we said directly or in response to questions, but I have to say that, you know, we remain very optimistic about, you know, our ability to drive the business next year and forward, and, you know, appreciate people's patience, you know, in what has obviously been a difficult quarter and a tough season and we look forward to speaking to you again in the fall.

Thank you for your participation.

This does conclude today's teleconference.

You may disconnect at this time and have a wonderful day.