Six Flags Entertainment Corp (SIX) 2002 Q3 法說會逐字稿

Good morning, ladies and gentlemen, welcome to the Six Flags third quarter earnings conference call.

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

It is now pleasure to turn the floor over to your host, Mr. Joe Mancy of KCSA.

Sir, you may begin.

Good morning, everyone, thank you for attending this call.

I'm Joe Mancy of KCSA, Six Flags Investor Relations Advisor.

Before I turn the call over to the company's executives, I would like to read the customary Safe Harbor Statement.

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

These statements may involve risks and uncertainties that could cause actual result that is differ materially from those described in such statements.

You may refer to filings by the company with the SCC for more detail discussion of these risks.

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

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

Thank you, Joe.

Good morning, thank you for joining us on today's conference call.

Last evening we published our third quarter and nine-month results and gave guidance on our full-year expectation.

I'll focus most of my remarks this morning on full year performance and our plans for next year.

And after Jim Dannhauser comments on the quarterly and nine-month numbers we'll open the floor to questions.

The result for the three-month and nine-month periods reflect the performance issues we discussed during our August call which negatively affected us in three or four markets in particular, primarily in July.

We experienced an improvement performance trend through the balance of the third quarter, including at our New Jersey, Cleveland, and Dallas parks.

This improved performance in the latter months offset a significant portion of our earlier difficulties.

As a result, revenues for the quarter at our consolidated operations trailed the prior year by 2.4%.

For the nine-month period, revenues were less than 1% behind the prior year at the consolidated parks and 2% systemwide.

We continue to experience strong per capita spending gains, throughout the year at our parks, with total revenue per guest up 7.1% for the nine months, which has helped offset a significant portion of our 7.4% decline in attendance in that period at our consolidated parks compared to the prior year.

We also continue to do a good job carefully controlling our expenses with cash expenses on a same-park basis, lower in the third quarter and year-to-date than last year.

The exception of various weekend and holiday operations in four markets, all of our parks have now concluded their operating seasons.

Our October operations were not quite as strong as we had expected due to difficult weather in several markets in the southwest and northeast.

This constrained what otherwise would have been strong growth over last year.

As a result, we now expect full-year operations excluding our New Orleans park which we acquired on August 23rd, to generate consolidated revenues of approximately 1.04 billion.

Approximately 1% less than last year.

And the adjusted EBITDA 385 million or 4% less than 2001.

As we discussed in August, while a very tough economy generally constrained our performance systemwide, it was really our underperformance in four market where is the economic downturn was particularly sharp, and we're certain of our strategic decisions exacerbated the impact of the economy that prevented us from achieving our performance objectives for the year.

There were, however, a number of very strong positives in 2002, which should enhance our prospects for the 2003 season.

The strong per capita spending gain throughout the year at our parks with total revenue per guest up 7.1 %, reflects solid gains in both admission per capita and in-park spending.

These gains are encouraging in terms of our ability to achieve future increases in 2003 and in years to come.

In the face of a difficult economy and a year in which most European parks experienced a decline, we made excellent progress improving performance at our European parks which have been a disappointment in 2001.

We expect full year EBITDA for this group of parks to increase by approximately $6 million over 2001.

Domestically, other than the performance issues at the parks we discussed, the balance of our portfolio saw reasonable stable performance.

Our investments in our recently acquired parks in Montreal and Seattle produced solid growth in 2002, which we expect to be able to build on in 2003.

We increased our cash sponsorship deals nicely.

And most importantly, consummated the unification of our pouring rights for all our parks with Coca-Cola, which gives us a substantial increase in marketing support in 2003 and beyond.

And the ability for the first time to do national promotions with multiple partners over various marketing channels.

In August, we acquired JazzLand theme park in New Orleans, which had been built by prior owners that had a total cost of over $135 million, we acquired the park by assuming approximately $16 million in debt, and agreeing to invest a total of $25 million over the next three years, which will fit comfortably into our annual Cap Ex target of $125 million to $130 million and give us another engine of growth over the next several seasons.

In our August conference call we described in detail some of the strategic decisions we made which in hindsight hurt our performance in 2002 in a few key markets.

There's no question that the difficult economy magnified the negative impact of those strategies, fortunately, we can correct or modify those discussions for 2003 which along with other opportunities we have to improve our portfolio should enable us to achieve EBITDA growth in 2003 at controlled investment levels.

The basic strategic decisions which hurt us in four or five key markets in the face of a difficult economy involve capital allocation pricing and media levels.

In terms of poor capital decisions in 2002, I want to stress that in the aggregate, we invested ample capital to grow our business, we just allocated it unwisely.

In 2002, we did not add new marketable rides in our four most important markets, New Jersey, Los Angeles, Chicago and Dallas, which together account for over 35% of our systemwide cashflow.

Normally we've never been dark from a marketable capital perspective in more than one or two of these markets in the same year.

At the time we made these capital decisions we were comfortable taking a year off in all four, because we had added a new ride in each market for 2001 and we saw other opportunities for growth in the portfolio.

Clearly we will never be dark in one or two of these markets in any given year in the future.

While we had good growth in L.A. and a reasonable performance in Chicago, we felt the impact of the decision in New Jersey and Dallas, where as part of our general strategy to grow per capita spending, we reduced our discount levels too aggressively.

Also in what was anticipated to be a soft advertising environment in 2002, we believed we could selectively reduce our marketing expenditures and maintain our media wave levels.

However, as the year unfolded, the media market tightened considerably driven primarily by heavy election and automotive spending.

As we added back marketing expenditures during the season in certain markets the cost was higher and the placements not as effective.

The combination of our pricing and media strategies and no new capital in Dallas and New Jersey caused the significant drop in our performance over prior year in those markets.

And we saw similar effects one or two other markets.

As we head into 2003, we've corrected those strategies, we're finalizing what will be a very strong capital investment program for the 2003 season.

We will be investing approximately $125 million including major thrill rides in New Jersey, L.A., Chicago, Dallas and San Francisco, and excellent marketable attractions in several other markets.

All in all, making use of our extensive ride inventory, we expect to make new additions to as many as 12 to 14 of our 18 domestic theme parks.

Including in our $125 million budget as well, are continued investments in in-park spending opportunities, and the continued development of our Seattle and Montreal properties, as well as the rebranding of our New Orleans facility to a Six Flags theme park in 2003.

Our ability to relocate rides from our existing inventory as part of our capital program, means our cash investment of $125 million will actually deliver significantly more in terms of actual marketable attractions added.

As we continue our marketing reviews and budget process for 2003, we're anticipating an economic environment like this year.

We have adjusted our discount strategies where appropriate, and have improved our marketing plans with a concentration on major markets.

I'm also pleased with our group sales efforts for the year, for next year.

Although, very early in the booking process, most of our parks are well ahead of booking pace.

Our discount strategies and marketing and sales efforts, combined with our strong capital plan should restore growth in 2003 and enable us to increase our free cashflow and begin to deliver the company, which is our primary strategy over the next several years.

With that, I'll turn it over to Jim.

Thanks, Kieran.

I'll begin by reviewing the quarterly and year-to-date results which we released yesterday evening.

For the third quarter, we reported revenues of $558.1 million, that's down$13.7 million or 2.4% from the third quarter of 2001.

Reflecting continued focus on expense control, cash expenses for the quarter were $9.1 million less than the year ago period.

That's a reduction of 3.7%.

Including the costs of our newly acquired New Orleans park.

Cash expenses were down $10.6 million or 4.3% from the prior year period, if the costs associated with that New Orleans park were excluded from this year's period.

As a result, EBITDA from consolidate operations for the quarter was $319 million, down $4.5 million, or 1.4% from the 2001 quarter.

Absent the negative contribution from New Orleans, EBITDA from consolidated operations would have been $320 million, 1.1% less than the year ago period.

Adjusted EBITDA, which includes our share of EBITDA from the unconsolidated parks was $345.6 million down $10.5 million or 2.9% from the prior year period.

The lower pickup from the unconsolidated operations reflects performance declines in Dallas and San Francisco year-over-year.

In terms of the breakdown of domestic and international performance at consolidated parks for the quarter, domestic attendance was $14.7 million.

International attendance was $4.4 million.

Domestic per caps were $31.50 and international per caps were $21.06.

Domestic revenues were $464.7 million.

International revenues were $93.4 million.

Domestic park level EBITDA was $276.3 million.

International was $48.5 million.

Net interest expense for the quarter was $56.5 million up $1.2 million from the year ago quarter, largely as a a result of lower interest earnings on cash balances.

Depreciation expense was $38.3 million, up $3.2 million from the year ago period, reflecting the deappreciation expense associated with new capital investments placed in service.

Amortization expense was $476,000 down from $14.6 million a year ago, reflecting the elimination of goodwill amortization expense under FASB-142 and 143.

Equity and operations of theme park partnerships was $22 million versus $26.5 million last year, reflecting the impact of the lower performance at the unconsolidated operations.

Net income applicable to common stock was $134.2 million compared to $142.5 million in the year ago period.

For the nine months, revenues were $955.2 million, down $8.2 million, or 0.9% from the prior year.

Revenues for both periods included all of the operations of SeaWorld of Ohio and Montreal, both of which were purchased prior to the commencement of their 2001 season.

In addition, the 2002 period includes only $400,000 of revenues from New Orleans.

Attendance for the nine months ended September 30 was down 7.4% at the consolidated parks.

Reflecting the performance issues previously discussed, especially in July.

From the end of July on, attendance was only down 4% to the prior year.

Per head revenue was up sharply for the nine months, with a total increase of approximately 7.1% for the nine-month period, reflecting gains both from admission revenue and in-park spending per guest.

And in both our domestic and international operations.

Cash expenses for the period increased by $1.2 million or 0.2% over the prior year.

Excluding the cash expenses at New Orleans, cash expenses were down slightly year-over-year.

And had the SeaWorld and Montreal parks been owned for the full 2001 period, cash expenses this year would have been $4.6 million lower than a year ago.

EBITDA from consolidated operations was $365.4 million for the nine months, prior year EBITDA was $374.8 million.

This year's performance is 2.2% behind the prior year pro forma.

Adjusted EBITDA was $359.9 million for the nine months, down 5.4% from a year ago performance of $418.3 million, reflecting the lower pickup from our unconsolidated operations as discussed earlier.

For the nine months, domestic attendance at the consolidated parks was $24.6 million.

International attendance was $8 million.

Domestic per capita spending was $32.22.

And international was $21.20.

Domestic revenues were $793 million.

And international revenues were $132.1 million.

Domestic park level EBITDA was $332.6 million.

And International $52.5 million.

Net interest expense for the nine months was $172.9 million versus $167.9 million in the prior year period, reflecting interest expense from the senior notes which we issued on January 31 of this year, whose proceeds were used to retire previously outstanding notes when they opened up to voluntary repayment on April 1st.

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

Depression expense was $111.9 million, as compared to $104.4 million in the prior year.

Amortization expense was $1 million, down from $43.3 million a year ago.

Had goodwill amortization expense been excluded from 2001, amortization expense would have been $1 million in each period.

The equity pickup for the 2002 period was $9.6 million below last year.

There are two extraordinary items affecting the nine month numbers, first in the 2002 period we recognized an impairment to our goodwill under FASB-142,143, of $61.1 million.

This impairment recognized as the accumulative effect of change in the accounting principal, related to our European operations, largely arising from our November 1999 acquisition of Movie World Germany.

As consistent with the guidance we provided of our second quarter earnings release.

Second, we had an extraordinary loss relating to the write-off of remaining deferred fees associated with our debt repayment on February 1st of $18.5 million net of tax benefit.

A similar extraordinary loss of $8 1/2 million occurred in the prior year period.

If the goodwill impairment was excluded from this year and the extraordinary losses were excluded from both years, net income applicable to common stock would have been $27.6 million in 2002 versus $18.2 million in 2001.

As for the balance sheet, our working capital revolver was fully paid back in August, remained fully undrawn at September 30, and is fully undrawn today.

We had a cash balance at 9/30 of $103.6 million.

In addition to our $75 million of restricted cash, which becomes unrestricted and fully available to us this coming April 1st.

Our gross debt at September 30 was $2.3 billion and net debt approximately $2.1 billion.

The only current portion of our debt is $4.9 million due in the next 12 months on capital leases and other debt.

We have $1.67 billion in public debt with a blended interest rate of 9 1/2%, and no maturities before 2007.

Our $600 million term loan bears interest at 225 basis points over LYBAR.

We currently have interest rate swaps in place from early 2000, which cause our term loan to be fixed at an all in-rate of 7.71%.

Those swaps expire in March and December of next year, at which time our term loan will revert to a floating rate which should deliver significant interest savings.

Our term loan has no amortization before September 2008, so long as two earlier maturities of our debt are retired or refinanced by year-end 2006.

With our revolving capacity of $300 million, our $100 million backup facility and ample cash balances, we are comfortably positioned from a liquidity point of view and we remain easily in compliance with all bank covenants as we head into next year.

Kieran?

Thanks, Jim.

I think we can open it up to questions.

Thank you, sir.

The floor is now open for questions.

If you do have a question, you may press the numbers 1 followed by 4 on your touch-tone phone.

If at any point your question has been answered, you may remove yourself from the cue by pressing the pound key.

Once again, ladies and gentlemen, that is 1 followed by 4 on your touch-tone phone.

Our first question is coming from Margaret Blaze of Salomon Smith Barney.

Please go ahead with your question.

Hi, good morning, thanks.

Just curious, looking ahead to 2003, could you talk about the outlook for major cost, including insurance and labor and where you see this going.

And then on the revenue side, just without quantifying it, maybe, just whether you think there's more potential upside in attendance or per cap spending next year.

I'll speak, Margaret, this is Jim Dannhauser, to the cost side.

We've finished the renewal of our insurance policies with most of the coverages, with the exception of the liability insurance, which will be rebound in the next couple of days.

On the basis of the insurances put in place as well as the quotes we've received on liability insurance, I would expect that our total premium cost will increase by approximately $5 to $5 1/2 million next year over the cost of this year.

And that leaves us in a position where we'll have all of the same coverages in place with the exception of terrorism insurance coverage on the property lines, which is simply prohibitably expensive at this point in time.

We'll remain in a position where we have excess liability insurance of up to $100 million per occurrence.

So we'll remain amply assured.

The actual total cost relative to this year will, of course, be a function of our loss experience inside of the self-insurance retention levels that we keep on the liability side, which is $1 million per occurrence.

We had an absolutely terrific track record this year, and I would anticipate that if next year we are in the same kind of position, that you'd see roughly a $5 to $5 1/2 million increase in the insurance area, which compares to about $22 1/2 million of expense this year.

The other fixed costs that I would expect to see going up would include our pension expense.

We have a very small pension plan, about $90 million, given investment turns as well as discount rates.

I would anticipate that our book pension expense will increase probably by $2 1/2 to $3 million over the cost we incurred this year, and we may see some increase in real estate taxes on a jurisdiction by jurisdiction basis as state and local governments grapple with ways to try to bridge the gap that they face in their own budgets.

I would anticipate, based upon the conversations we've had with our outside consultants in the area, that we would see an increase in that area, something in the $2 million order of magnitude.

So total fixed cost increase, give or take of about $10 million, we would not -- we haven't finished the budgets process, so we really can't speak to what specifically we would anticipate happening on the labor front, but labor markets continue to be favorable from that point of view, and we don't really see any significant pressure in terms of our labor expenses.

In terms of the revenue side, I mean, I'd say the following, I think we have a lot of opportunity.

One of the things, when we review what took place in 2002, despite a disappointing season, as we've said on a few occasions, you know, most of our issues were isolated to, five, five, six markets, four, five markets.

When I look at our strategies to grow per capita spending, there's no question they were successful.

And directionally, even though we may have gone a little too far with our reduction in discounts in a few selected markets, overall, they were, you know, good strategies that delivered, you know, very good performance, 7% per capita growth.

I wouldn't expect that year-over-year, but I would expect to continue to see, including in 2003 that we'll continue to make progress on per capita spending growth domestically and abroad.

And that that will continue for several seasons, will continue to review our investment opportunity, because there's just no question as we identified before, that investment in our parks works toward helping that.

In terms of attendance, and again without trying to go back over the ground of, you know, the decisions we made and where they cost us, you know, when I look at the falloff because of those decisions in New Jersey, Dallas and to a lesser extent, Chicago, San Francisco, a few markets, we have a very clear opportunity to add back a significant amount of attendance next year.

This is not taking those parks -- most of which are quite mature and have had great track records for 25, 30 years or more.

It's not taking them back to new levels, record levels, it's taking them back to levels consistent with 2001.

And when I look at that, I see great opportunity.

We have excellent capital investment going into all of those markets.

I'm comfortable that we'll be well-priced, and so I think we have significant up side.

The other thing that's, you know, very helpful is that we did add the New Orleans park, you know, I covered that in my remarks, but I would emphasize the fact that we made the decision to brand that to a Six Flags park.

And again, those investment dollars all coming within that $125 million budget.

But nonetheless it enables us next year to have a brand new Six Flags New Orleans park added to the chain, which no question is going to give us some significant uptick in revenues.

Likewise, we were very pleased with our performance in Seattle and Montreal, which we added a year ago.

Both of those parks showed nice growth this year.

Each of those parks is receiving the second or third year of a multicapital program.

We'll see growth in attendance there, I'm sure.

I feel very good about that on that side.

And then in sponsorship, you know, we'll have added for next year several million dollars of cash sponsorship, along with a significant ramp-up in professional and -- promotional and marketing support.

I feel good we'll deliver revenue growth next year.

And as Jim said, I think we'll keep a strong control on our expenses and that should translate into EBITDA growth and the ability for us to start to deliver the company off of our free cashflow.

Thank you.

Thank you.

Our next question is coming from David Miller of Sanders, Morris, Harris.

Please go ahead with your question.

Yeah, hey guys, good morning.

Looking at your per cap spending number for the quarter.

It's actually pretty respectable.

My guess is you're going to tell me about some of the pay as you go initiatives at some of the select parks, if you could detail those for me, that would be great.

And if you could also talk about the low cue system, I believe this was your first year at implementing that system at select parks, if you could talk about the system, how you liked it, what you see for the future, and what, if anything, it contributed to per cap spending.

My guess is that it's de-minimus but I would just like to hear it from you guys.

Thanks a lot.

To give you some specifics, the -- if you look at it on a year-to-date basis, the admission per caps were up by about 7 1/2%.

The in park per caps were up about 5.9%.

The increases in-park over the prior year really came in all areas, a nice increase in the food per cap, a good increase in the games per cap, reflecting the selected markets in which we put new games initiatives in play.

Those up-charge attractions delivered about a 6% per cap.

So it really is a reflection of initiative across the board on the in-park spends as opposed to just the kind of one-shot opportunity you get by adding a pay as you go kind of attraction.

So we feel very good about what that tells us about the future.

In terms of low cue, what we have in place in a number of parks that low cue system.

We also have in place a paper reservation system experimenting with various ways that we can permit people who are prepared to pay for the privilege, to shorten their ride waiting time, and it didn't really contribute significantly to the per capita spending increase in any way this year, those are initiatives which we'll continue to review and refine to make sure we are enhancing our guest experience, without unduly detracting from the experience of those people who are not prepared to pay for it.

So it's a balance, and you never want to have more than a given percentage of customers, in fact, taking advantage of those systems, because it defeats the purpose of the exercise.

Right.

Thanks very much.

Thank you.

Our next question is coming from Cathy Seponius from Prudential Securities.

Please go ahead with your question.

Two questions.

One, could you give us a little bit more detail on your New Orleans acquisition?

Specifically, in the past you've looked to generate a cash-on-cash return of roughly 18% to 20%.

How quickly do you expect to be able to earn that type of return on New Orleans?

And then second, Kieran, a question for you.

There were some comments made recently by Grevins CEO, suggesting that every 2 out of every 10 European parks will collapse in the next 10 years.

It doesn't really go into why he thinks that, but suggests that a central management team that understands the cultural differences in Europe is critical to survival or success.

I was wondering you agree or disagree.

Let me take the first one on New Orleans.

We're very pleased as I said in my comments, you know, to be able to pick up a park that was built for $135 million in a major market in the U.S., and, you know, in effect get it for assumption of $16 million of debt with a capital investment program, you know, over three years at $25 million.

We have a very, very low cost basis there.

So I would expect that park to be delivering, you know it 15% to 20% cash-on-cash return right out of the blocks next year, it will contribute to.

That's a real win for us.

Jim Dannhauser did a particularly excellent job in negotiating that and executing it.

As far as the comments of this guy from Grevin, just so everybody knows, Grevin is actually the park Asterix, park that is in the Paris market, a few years ago they went public on, I think, the secondary exchange there, and they have, you know, since that time, you know, pursued really kind of secondary and are tertiary parks, kind of the $200 to $300,00 or $400,000 in some other types of entertainment assets.

I'm aware of some remarks he made at an industry meeting, and I think that stuff is just crap.

I think that, you know, where he gets it -- I mean, that's just the guy kind of spouting off about what he thinks happens.

I think we've all seen consolidation in a lot of businesses, we've seen it certainly in the theme park business here domestically and abroad.

And, you know, you'll continue, I'm sure to see that trend over the long haul.

But I have to tell you, there are a lot of thriving local theme parks, not only here in the states, beyond the ones owned by the chains like ours, but also, quite a high number in Europe, and I think it's pretty cheeky to be suggesting that those operators are going to, you know, all fade away.

We ourselves already have the model he described of having local native executives running the parks.

Every General Manager of every park that we operate, with the exception of our Madrid where we manage and have some -- a couple of American executives in the direct operation of the park there, but by and large, all the parks we own and operate, we have Europeans running those parks for us.

You know, the lion's share of our corporate staff in Europe are Europeans, so I do agree with that aspect of -- that's the appropriate way to run those assets.

I don't put any credence into his point of view about what's going to happen to all the parks in Europe.

Okay.

Thank you.

Thank you.

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

Please go ahead with your question.

Hi, I think you may have commented about a -- contingency about a 2006 maturity when you were talking about your credit facility?

Can you clarify that?

We have two note issues that would mature prior to the maturity of the term loan.

And under our bank credit facility as we've previously discussed, those two issues, which is the 10s of '08 and 975s of '07 need to be retired or refinanced by year end 2006 or the bank debt would come due at the end of 2006.

The reason for that, obviously, is that the banks are not prepared to be standing behind an earlier maturity, and staying in place.

But that gives us a significant period of time to accomplish the delivering as well as the refinancing of those obligations, when you step back and reflect on it.

So the '08 and '07s have to be taken out by the end of '06, so they must have to be [INAUDIBLE].

And if that happens, the bank facility --

They would be retired in the open market from cash generated from operations.

And then assuming that happens and the bank facility maturity is December of '08, otherwise the bank facility must mature at some point before then.

In the remarks, December 31st of 2006.

Of '06, great.

And additionally, I was wondering if you could tell us what your performance was both with and without the four parks -- I guess we know the with number.

I guess if you could give us some specifics of what your performance would have been per cap or attendance or anything like that, without the four parks that gave you some trouble.

I think as we said previously, if those four or five parks had hit prior year levels, you know, we would have been very much in the $425 to $430 million EBITDA, no question.

So were your other parks --

The other parks in the balance, you know, did the numbers that we needed in order to get there.

And so that would have been -- so they were up versus last year?

Yes.

The other parks were?

Yes.

Yes.

In aggregate.

On an aggregate basis.

Okay.

And then also, Cedar Fair, when they released earnings, attributed good weather October to their results, is it just sort of different locations?

Yeah, I mean, I think primarily, you know, they obviously reported good results, and they're well-managed companies, which we've always acknowledged.

I would point out that they have five main parks, two of which probably, you know, 65, 70% of their revenues.

And those parks are, you know, they're large park, Cedar Point in Cleveland and Knottsberry Farm park in L.A. and the park that does the lion's share of their Halloween activities, you know, is the Knottsberry Farm park.

In fact, they only have Halloween at those two facilities.

So, likewise, the weather was fine in L.A. and we did very well in our park there, which frankly, we were up substantially for the year in that park overall.

The issue is, what you would expect is in the southwest and the northeast in a number of the markets, we had three very tough weekends, we actually given the weather had pretty good strong performance, which encourages me about how solid those Halloween operations are no matter what the weather is.

But we didn't have enough time to get all the way to the number.

Could you talk a little bit about what's going on in Cleveland?

Speaking of that market, if you've seen any real improvement since you released over the summer?

We really did.

We saw the performance there firm, you know, I think to remind people, when we had our Geauga Lake park we branded to Six Flags and then a year ago we bought the SeaWorld park that sits literally sits side-by-side, and we made the decision to combine the parks into one facility so they're a full SeaWorld style sea life park as well as the fully Six Flags Theme Park and Water Park.

We had some hotel and campground activities there.

We expected that would be enabling us to offer a product of tremendous value to the customer.

What seems to happen to us there, as we described, there's still a certain amount of confusion, both in the local market and to some extent in the outer markets of exactly, you know, what is the park and I think that that, you know, was a significant factor in terms of, you know, a decrease, frankly in the aggregate attendance with what the two facilities did independently.

What we did see was a strong response, particularly in the outer markets, as we got into August.

And you know, my own view there is that we're not going to see, you know, a bounce back in one-year at that market, but I think that over the longer haul, you know, the next several seasons, as people continue to experience what is an amazing product, you know, there's -- it's just probably without question the park that has the most things to do at the absolute best value for the customer.

We -- you know, as you recall, we're not able to get our killer whales in before the season, so we weren't able to advertise them, which I think would have made a very big difference for this year.

We were successful in bringing in one of the whales mid-season and we're optimistic we'll have the second one in.

So that will be -- put us in a position where we can market the whales in all of our collateral material and efforts, season pass groups sales, et cetera.

I think our guest service was significantly better this year, and I also would say that, you know, we did a much better job on controlling our expenses after putting the parks together.

So I think that team there led by a new General Manager we brought over from one of our other facilities really did a commendable job this year and put the park on a clear path toward growth.

I just think it will be a longer term building process as the markets come to understand the value of that experience and -- you know, so I'm -- I'm satisfied that we're heading in the right direction there.

And when will the second whale be in?

Well, we don't know, because we have to finalize some of the governmental approval processes, but whether it is or not it would be nice to have, but even if not, we have one animal in place, and it's receiving excellent care, and it can do its shows, and we will be in a position to have that as part of the advertising program for next year.

Whether or not the second whale comes on to the site.

And the important thing is not to be suggesting that the absence of the whale is the explanation for the performance at Cleveland this year.

It was a contributing factor among a number of contributing factors which we've described before.

And clearly, the performance, you know, from the end of July through the end of that operating season was significantly better, attributable to continued word of mouth about the presence of the animal, there was also continued word of mouth about the breadth and scope of things to do.

We expect that trend to continue as we go through the next several seasons.

He's absolutely right about that.

To be clear, this is a very significant facility.

You know, a full Six Flags theme park, water park, sea life park now with the whales, it's an amazing product that I'm convinced overtime is going to be embraced by not only the local market, but by multiple outer markets as well.

It sounds like this park is markets and customer perception in the market?

Absolutely.

And by the way, this park didn't hit the target of cashflow for us this year.

But it's still a very strong cashflow producing property.

And I think again it will take a few seasons to probably hit its potential.

And that's disappointing to us, because we thought we'd be able to be there out of the blocks, and that was the mistaken judgment we had when we made the acquisition and put them together.

But as we watch the trends, the park will get there, and over the next few seasons.

All right.

Great.

Thank you very much.

Thank you.

Our next question is coming from Diane Keith of Pax World Fund.

Please go ahead with your question.

I note that your minimum LTM consolidated EBITDA covenant is $321 million and your guidance now for the year is $350 million.

No, it's not --

Okay, could you correct me on that?

The $325 million is the adjusted EBITDA including consolidations that we would have to do to generate consolidated EBITDA in compliance with the covenants.

Okay.

We are comfortably in compliance with all the covenants, remember that the covenants are tested at the bank borrowing group level, it excludes all of the public debt at the parent company level, the total debt at the bank borrowing group is $633 million.

And as we draw on our revolver, it will probably go to a maximum of $800 million.

We are very comfortably in compliance.

And a $385 million would translate into bank borrowing group EBITDA of $355 to $360 million as compared to the requirement of approximately $300 million that we'd need to remain in covenant compliance.

So we have substantial room available before any issues could possibly arise.

That's helpful with the banks.

But the ancillary question here is, you know, the delivering process is clearly delayed by the performance of this year, and I was wondering what is your comfort level in terms of the speed of delivering and what are the levers that you could pull to accelerate it should the EBITDA line not improve next year?

I understand.

And that's a very fair question.

We have several things available to us, first, we do have a significant period of time built into the capital structure to accomplish that deleveraging.

With no maturities before 2007, and we have a very substantial capacity to generate free cashflow from operations, we are free cashflow positive this year, not to the level we had hoped.

We also have available remember $75 million that sits in a restricted cash account that becomes unrestricted on April 1st, which we would anticipate using to delever during the course of next year.

So as you look out over that four-year period that we face, there is the capacity to accomplish a very substantial amount of delevering, depending upon performance next year.

You could see us in a position where, in addition to the restricted cash that comes off and available to us, as well as the cash from this year's operations, you know, paying down as much as $150 to $175 million in debt for year end '03.

We don't need to take any more radical steps at this juncture in -- because we don't have any external pressures upon us from the perspective of any covenant issues or any near-term maturities.

I understand that, and actually, just to follow this from a portfolio management point of view, because I was talking with one of my fellow portfolio managers about your company, one of the pine points that was raised was, underlying all your parks is actually real estate.

Have you gone through your portfolio park by park and determined whether, you know, development around the park has made it such valuable real estate that it might be its highest best use to sell it to somebody to make it into something else?

Again, I think as Jim was pointing out, you know, we have -- you know, we're obviously -- we had a difficult year this year in a very difficult economic environment.

And so, you know, the last thing we're going to do, particularly because of the prospects that we see in the business, that hopefully we identify for you today in the call.

We're not going to make any rash decisions or, you know -- we have no need to make any moves now based on any sense of pressure.

I think what we're really saying to you is that we are very confident that we're going to see a strong bounce back in our EBITDA and begin growing that EBITDA, and between the sources that Jim identified as well as that free cashflow generation over the next several years, we will begin to delever and in our view, as we continue to grow and delever, in our ability out in 2007 to refinance and then continue to lever is very doable.

To the extent that performance dictates differently, do we have a lot of options in terms of the size of our company and the value of our individual assets and, you know, certain other assets?

Absolutely, and we certainly don't ignore those even in this time frame, in terms of valuation, but I think this is not a time period in which those types of moves are dictated.

Nor would they be the most beneficial or fruitful.

So we feel pretty comfortable that we'll be back on track next year.

And, you know, that certainly is our course of action at the moment.

Thank you.

Thank you.

Our next question is coming from Eric Mark of Goldman Sachs.

Please go ahead with your question.

Slightly following up on the previous call, why you said you wouldn't consider doing anything rash or extreme to adjust the leverage situation, when you look across your portfolio of assets, do you see any noncore assets that is you would consider selling to accelerate deleveraging?

Well, again, I think, you know, we're in a position -- and while we look at our portfolio of 38, 39 parks, we've identified there were a few markets that didn't perform to expectations this year, the reality is all of our parks are generating positive cashflow and are contributing to the company.

So we don't see any of those as being noncore or assets that is we would consider, you know, selling at this point.

And, you know, assuming that, you know, we make the progress that we know we need to make over the next couple of seasons, that would remain the case.

If we didn't make that progress, then we would obviously re-evaluate that.

And I think the thing that you are all identifying is that we have some extraordinarily valuable individual assets.

There's no question about that.

And many of those assets sit on extremely valuable real estate in major metropolitan markets throughout the United States.

While we do have some ancillary real estate in those markets -- we would not make rash decisions in terms of that.

Because we've learned over the 15 to 20 years we've been in business, at times the real estate in future periods becomes extremely valuable, really driving the price of those assets.

So, rest assured that we will evaluate all of that and make appropriate decisions in the future based on performance.

Okay.

Thank you.

Thank you.

Our final question is coming from Kevin Dooley of Deutsche Bank.

My question has been answered.

Thank you.

Gentlemen, I turn the call back over to you for any final comments.

Thank you for joining us on the call today.

As we indicated, we're certainly not satisfied by any stretch with the results of this year, and, you know, we're quite focused and anxious to deliver, you know, an improved performance in 2003, and look forward to talking to you as, you know, the next month unfolds and I have an opportunity to give you an update on those efforts.

Thanks.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time and have a great day.