Six Flags Entertainment Corp (SIX) 2002 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

And welcome to your Six Flags fourth quarter earnings and year-end conference call.

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

It is now my pleasure to turn the floor over to your host, Mr. Joe Mansi.

Sir, the floor is yours.

Thanks, Dante.

Good morning, everyone.

I'm Joe Mansi of KCSA, the Six Flags investor relations adviser.

Before I turn the call over to the company's executives, I want to read the customary Safe Harbor statement with which you're all familiar.

The statements made in this conference call other than historical information consists of forward-looking statements within the meaning of sections 27-A of the Securities Act of and section 21-E of the Exchange Act.

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

Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct.

Important factors including general economic conditions, consumer spending levels, adverse weather conditions and other factors could cause actual results to differ materially from the company's expectations.

Now I'd like to introduce Kieran Burke, chairman and chief executive officer of Six Flags.

Thanks, Joe.

Good morning and thank you for joining us for today's call.

We published our 2002 fourth quarter and full-year numbers last night and the results were consistent with the guidance we provided at the end of the third quarter.

I'll focus most of my comments this morning on the outlook for the 2003 season.

Jim Dannhauser, our CFO, in his comments will comment on the fourth quarter and full-year numbers.

We'll both be happy to answer any specific questions you may have about the numbers in the question and answer period after our remarks.

The 2002 operating season was a challenging one for us.

As we have previously commented, we were not satisfied for a number of reasons with our company-wide results in 2002.

We saw modest declines of approximately 1% in consolidated revenues and approximately 3% in adjusted EBITDA compared to 2001.

Our performance difficulties were concentrated in five markets, stemming from an array of factors including misallocation of capital, with no new attractions in any of our four largest markets, too rapid an elimination of certain deep-discount programs particularly in New Jersey and Dallas, and too deep a reduction in media expenditures.

These factors were exacerbated by the economic slowdown, which increased the impact of those actions in the five markets and restrained our other parks from outperforming expectations.

The balance of our parks actually performed reasonably well, given the challenging operating environment, with aggregate performance exceeding the prior year.

The strong per capita spending gains we achieved at most parks, 7.6% of the consolidated parks, coming in both admission per capita and in park spending were particularly encouraging.

Likewise, we were pleased with the very solid performance at our European parks, which experienced a nice improvement over 2001.

With a good array of exciting rides hitting our major markets, and calibrated corrections of our 2002 pricing and marketing missteps in certain markets, we believe we can deliver a successful 2003 season.

We're anticipating generating adjusted EBITDA of 410 million in 2003, representing a 7% growth over 2001 results.

This target is expected to be generated by consolidated revenue growth of 4 to 5% driven by attendance growth of 3.5 to 4%, and a per capita spending increase of 1 to 1.5%.

The expected growth should result from a rebound in performance at the parks which had disappointing seasons last year.

I'm encouraged that to achieve our targets the attendance at our parks does not need to reach beyond levels that they have comfortably exceeded in the last several years.

We will also benefit in 2003 from the performance of our new New Orleans park which will open as Six Flags New Orleans in two weeks.

Our 130 million dollar capital program for 2003 is on schedule and on budget.

It includes a major attraction at each of our four largest parks, a rebranding of the New Orleans park, the continued development of our Seattle and Montreal facilities, and marketable attractions in a large number of other markets.

We are also relocating rides to several parks, significantly stretching our capital dollars and delivering exciting rides to many more parks than we otherwise could.

By taking advantage of our extensive ride inventories, and with this level of cash investment, we will have new marketable attractions in 14 of our 19 domestic theme parks.

We plan to keep our capital investment in a range of 100 to 130 million dollars per year for the foreseeable future.

This should enable us to generate a substantial level of free cash flow this year and in succeeding seasons, which will allow us to reduce outstanding indebtedness over the next several years.

We are in great shape from a liquidity perspective to pursue our business plan.

Last year, we refinanced our two public debt issues nearest in, in terms of maturity and we redid our bank facility.

With those transactions concluded, we now have no public debt maturities until 2007, no meaningful amortization in our bank debt until 2008, and our working capital facilities committed to June 2008.

So we have no debt pressure and ample liquidity and financing in place.

In terms of 2003 performance, our operating season is just getting started with a limited number of parks primarily commencing weekend operations.

We are pleased with the solid opening performance of our seven parks that are in limited operation, and in addition, while it is still very early, we're pleased with where we stand in terms of season pass sales and hard ticket group bookings.

In terms of hard ticket group sales, we are targeting a 6% increase over 2002 actual.

Year to date we have done approximately 37% of our full year group sales budget, and we are 11.5% ahead of 2002 hard ticket group sale bookings.

In terms of season pass sales, systemwide we're targeting a 1.5% growth.

Year to date we have sold about 13% of our season pass goal, slightly ahead of where we were at this time in 2002.

Again, it's far too early in the season to extrapolate definitive conclusions from these numbers but it is a very good beginning given the continued weak economy and the geopolitical uncertainty.

Before turning it over to Jim Dannhauser, I'd just like to mention how very pleased we are that Robert J. McGwire has agreed to stand for election to our board of directions at our shareholders meeting in May.

Mr. McGwire has a broad range of governmental and private sector experience.

He's the former New York City police commissioner, former chairman and chief executive officer of Pinkertons , Inc., and former president of Crowell Associates, Inc.

We believe that Mr. McGwire will make an excellent addition to our board, expanding membership to eight, with five independent directors.

We're honored that he's agreed to join us.

With that, I'll ask Jim Dannhauser to comment on the fourth quarter and 2002 full year numbers.

Thanks, Kieran.

I'll begin by reviewing the fourth quarter and full-year results which we released yesterday.

For the fourth quarter, we reported revenues from consolidated operations of 82.8 million dollars, up 0.2 million dollars from the fourth quarter of 2001.

On a same-park basis excluding the results of the New Orleans park, revenues for the quarter were down half a million dollars from the prior year period.

Adjusted EBITDA for the quarter was a negative 13.3 million, as compared to a negative 15.8 million in the prior year period.

Absent the negative contribution from the New Orleans park in the quarter, adjusted EBITDA was a negative 11.3 million in the 2002 quarter, 4.5 million better than the 2001 period.

Net interest expense for the quarter was 55.1 million, down .4 million from the 2001 quarter.

Depreciation expense for the quarter was 38.5 million dollars, up .9 million from the year-ago quarter, primarily as a result of the depreciation expense associated with capital investments, as well as a small amount of depreciation expense associated with New Orleans.

Amortization expense was down by 14.2 million dollars in the quarter compared to the prior year period as a result of the elimination of the amortization of goodwill under FAS-142.

Net loss applicable to common stock for the quarter was 75.7 million dollars, 82 cents a share, slightly better than the consensus expectation.

As for the full year performance, total consolidated revenues were 1.04 billion dollars, down 8 million dollars or 0.8% from the 2001 performance.

If the performance of the unconsolidated parks were included, revenues were down 1.9% to the prior year.

For the full year, domestic park revenues were down 2.6% from 2001 with per capita spending up 6.2% and attendance down slightly over 8% from the prior year.

Domestic revenues were down 3.4% on a year over year basis including the unconsolidated operations.

Total international revenues were up 8.9% over the prior year, driven by a 17% increase in per capita spending.

Consolidated EBITDA for the year was 348.8 million dollars, 351.5 million absent the negative contribution from the New Orleans park, down 1.6 million from the 358.1 million in the prior year, reflecting continued good expense control.

If the New Orleans expenses were excluded, cash expenses of 2002 were actually slightly below 2001, notwithstanding fixed cost increases in areas like insurance and benefits.

Adjusted EBITDA for the year was 382.6 million, 385.4 million excluding the negative contribution from the New Orleans park, versus 402.5 million in 2001 and right in line with the expectations that we have provided at the time of our third quarter conference call.

Net loss applicable to common stocks for the year was 127.7 million dollars.

Net loss applicable to common stock before the extraordinary loss from the extinguishment of debt and the goodwill impairment charge was 48.1 million dollars or 52 cents a share.

Again, right in line with consensus estimates.

Net cash interest expense for the year was 172.8 million dollars.

As to the balance sheet, gross debt at year end was 2.3 billion dollars including 15 million dollars then drawn on our working capital revolver.

This debt level reflects the interest accretion during 2002 on our discount notes, the refinancing undertaken in January of last year which extended our nearest immaturities, the debt assumed as part of our acquisition of JazzLand , offset by the purchase of approximately 16 million dollars of public notes which we accomplished in open market transactions last December.

Net debt after unrestricted and restricted cash balances was approximately 2.2 billion dollars.

Our current revolver balance is 160 million dollars, as we have been in our peak borrowing period since year end.

While that's higher than our balance at this time last year, that's a timing difference that reflects the impact of the 42.5 million interest payment in January on the notes we issued last year.

In 2001, those new notes replaced instruments which had their interest payments due in April.

I would expect as a result for our draws on the working capital revolver to peak at about the same level as last year -- approximately 170 million dollars against a committed 300 million dollar facility.

We also have our backup 100 million dollar revolver available to us, totally undrawn other than a small amount of letters of credit posted against overseas retail inventory purchases and insurance deductibles, which is consistent with past experience.

We therefore have over 90 million dollars available on the backup facility.

In addition, the 75 million dollar balance in restricted investments becomes unrestricted on April 1st of this year.

Assuming that there are no meaningful limited partner tenders that end the two partnership parks which we will know by the end of April, that we anticipate utilizing this cash balance to reduce outstanding debt.

In addition, we have recently modified our interest rate swap agreements which will substantially reduce the interest costs to us on our 600 million dollar term loan.

The all in rate on that loan is now 5.26% as compared to an average rate of 8.075% last year.

As a result of the significant savings this reflects -- we expect our cash interest expense to be approximately 175 to 180 million this year, a slight increase over last year even though our senior discount notes turned cash pay with the first payment due in October.

That cash interest expense estimate does not reflect the benefit from any debt reduction during the course of the year which we would expect to achieve.

As Kieran mentioned, we have no public debt maturities before 2007.

Maturity spread from 2007 through 2010 with no more than 480 million dollars in indebtedness maturing in any one year and no meaningful amortization in our bank debt before 2008.

With performance expectations for 2003 of 410 million dollars in total EBITDA, anticipated cash interest expense of 175 to 180 million dollars, capital expenditures of 130 million dollars including amounts spent at the unconsolidated parks, and preferred stock dividends of approximately 20 million dollars, we should generate significant free cash flow in 2003.

In terms of corporate governance, as Kieran noted, we'll be seeking shareholder approval at this year's annual meeting for the election of an additional independent director which will result in a board of eight members, five of whom are independent.

We are extremely gratified that Mr. McGwire has agreed to join our board upon shareholder vote.

In addition to this board expansion, we have established a nominating and corporate governance committee of the board composed entirely of independent directors.

This committee led the selection of Mr. McGwire as a board nominee.

We have established a policy for regular meetings of non-management directors without the presence of members of management to take place at least twice a year and as often as the non-management directors should choose.

We're confident that the members of our audit committee, each of whom is an independent director, qualifies a financial expert under the SEC rules pursuant to the Sarbanes-Oxley Act -- Kieran?

Thanks, Jim.

I think with that, Dante, we can open the floor to questions.

Thank you very much.

The floor is now open for questions.

If you do have a question or comment at this time, please press one followed by four on your touch-tone phone.

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

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

Hey, guys, good morning.

Kieran, with the new season coming up, if you can touch on what you guys are doing at the parks in terms of beefing up security, and what the financial impact might be to your operating expense line?

That would be great.

Then also, Jim, if you happen to have had a per cap spending number for the quarter for Q-4, internationally and domestically that would be helpful.

Thanks very much.

Sure.

I mean, I think as we said on other occasions, we're in a position where security is always an important aspect of our daily operations.

And so at all of our parks you find metal detectors at the front gate, and most of our major parks we also do bag checks.

A lot of those types of things which you may be seeing taking place in other public facilities are just part of what has been our core security procedures.

Clearly, we have reviewed them extensively as we did after 9-11.

We continue to be in dialogue with law enforcement agencies and receiving updates.

In terms of any -- so I'm very comfortable that we've taken all the appropriate, meaningful steps.

I am also quite comfortable with where we stand.

But it should not have any material impact on our operating expenses.

There's no significant increase over what we have been spending in those regards to this date.

Okay.

In terms of the per caps for the quarter, the domestic per cap was $33.46, which is compared to $30.42 for the Q4 of '01.

The international was $18.67 compared to $16.06 in 2001's quarter.

Wonderful.

Thank you very much.

Thank you.

Our next question is coming from Bishop Sheen of Wachovia Securities.

Good morning, gentlemen.

Just a couple of questions on the balance sheet, David.

One, can you tell us how much cash you had at year-end and if that amount has significantly changed right now?

And secondly, if I'm not wrong on these -- free cash flow, $40 or 50 million of free cash flow depending on how you want to account the contribution from the complete ownership of the parks.

Where would your priority be in using this free cash flow, you know, among the obvious choices of buying -- stock buying and debt or paying down debt or something else?

To start on the cash balances, year end cash balance of unrestricted cash was $36.6 million.

That is -- we have now as of last Friday about 28, 29 million dollars in cash inside of the company at the various parks. 25 to 30 million dollars is a cash level that we'd typically carry at this time of the year as parks are gearing up for the operating season.

Right.

And so that I think answers that question.

In terms of free cash flow, obviously depending upon performance levels given the fact that the capital number we're talking about includes the investment at the unconsolidated operations, you can pretty much take adjusted EBITDA, subtract out the capital expenditure, the cash interest expense and the dividends, and, you know, depending upon performance if it's at the guidance level you're talking about free cash flow and a range of approximately $80 million.

As we have indicated, it is our expectation that we would primarily utilize that cash to reduce debt.

The choice amongst the various instruments which could be purchased in open market transactions would very much depend upon the pricing at which that could be achieved at the point in time that the cash is available.

In terms of the cash flow from operations, we have full ability under our bank credit agreement to dividend to the parent company up to 75 million dollars of cash flow from operations for the purchase -- for the purpose of retiring indebtedness, which is what we would propose to do with that cash.

And we would obviously endeavor to address ourselves to the nearest immaturities, which are the zero 10s of '08 and the 975s of '07.

But again, that will depend upon the price at which transactions can be accomplished and in the open market when we get there.

And your bank facility does not restrict you from bypassing any kind of revolver or paydown to go to your fixed income -

The working capital revolver as -- is a classic working capital revolver.

It needs to be reduced to zero, and kept at zero for 30 days during each year.

We anticipate based upon the trends of last year's efforts with respect to the revolver that as I said we would be at the maximum borrowings against that in fairly short order, and then as the parks open up and generate their revenues it will decline, we would anticipate being comfortably out of that revolver in the early to mid August time frame which is consistent with prior years.

We're not technically required to use cash generated to pay down the revolver.

Obviously, since we have to reduce the revolver to zero balance, we would anticipate first using cash generated to do that and then be looking to our open market debt purchases.

Very good.

One last question and I'll let you go.

The 75 million becomes unrestricted at end of April, I think?

April 1st.

April 1st, okay.

There's no restriction in the bank agreement with respect to the utilization of that cash.

All right.

And that would go toward the same priorities that you've talked about just now?

Yes.

Obviously, we would also have this flexibility under our credit agreement and the indentures to utilize that to purchase preferred stock.

We will wait until we see what happens as I indicated in my remarks in the limited partner tender process.

That process, the tender offer results we hear by the end of April anticipating very limited numbers of tenders for the reasons we have described.

Previously we would expect them to be utilizing that cash in open market transactions most likely against the instruments that I have described.

Thank you.

I appreciate the color.

Thank you.

Our next question come is coming from Michael Graves of Oppenheimer Funds.

Good morning.

Could you please share with us your strategic -

I'm sorry.

We can't hear you.

Can you hear me now?

Yes, we can hear you now.

You were cutting in and out a little bit.

This should be better?

It's fine now.

Can you share with us your strategic vision?

Is -- you didn't mention anything about major cost cutting, growing through more acquisitions rapidly, diversifying into a completely different line of business.

I don't know.

Where's all this headed?

Well, I think -- look, we would certainly state our priorities as follows.

There is no question that, you know, we feel it's extremely important for us to hit our numbers this year and have a strong season.

So in addition to just a substantial effort that went into our planning process over the course, you know, beginning last summer and into the current moment - I mean, we're absolutely fixated on execution at every one of our operating units at each of the parks.

And so that would be priority number one.

Second, in terms of, you know, what we think is the clearest path to creating equity values for our shareholders it seems to us no question that delevering, using our free cash flow generated to start to delever the company is the clearest path and that is certainly our -- you know, our priority.

You know, we don't believe that there is any single acquisition out there that's going to somehow transform the company, so that is not a high priority for us on any basis, you know, nor in the past, other than the Six Flags acquisition did we ever really do any substantial acquisitions.

It's intended for us to have been individual tuck away acquisitions.

So that's really our priorities.

We're not looking to, you know, expand away from the theme park industry and to related businesses.

We don't think that that is --you know, is really the smart play for us.

I always do like to point out, however, that inside our core competency as theme park and water park operators, we just have a tremendous breadth of operating talent, you know, when you consider the diversity of our parks.

You know, everything from the largest regional theme parks in the world to water parks.

We own and operate hotels, campgrounds, concert amphitheaters.

So there's an awful lot that we do inside our parks and there's clearly many things that we do ancillary on our properties.

So we have a lot of opportunity internally as well as over time as it develops.

But we think that in the near term those are the appropriate priorities, and then clearly, you know, as time evolves we will turn our attention to whatever opportunities present themselves.

Is it fair to characterize the company as one day trip operation?

Do you have any interest in, for example, marketing alliances with hotels, motels that surround the property or is that irrelevant?

No, in fact, you would find - well, first of all, to answer your question, yes, 95% of our customers are really coming via car for a one-day visit.

With that said, there's no question at almost every park you will find some level of overnight visitor, typically staying in the surrounding hotels and motels.

In most of our major parks we have very extensive relationships with all of those hotels and motels, campgrounds, individual restaurants.

All the traffic interceptors you would imagine just as we have extensive exposure on major highways whether it's in our market here in New Jersey Turnpike and Garden State in the New York region.

So we do a lot of extensive work in terms of alliances, relationships, you know, that are layered in with all of our direct marketing or, you know, direct selling or mail programs and our electronic media.

So, you know, those are things that we certainly pay a lot of attention to.

But one of the things -- you know, clearly if you look at this past year -- as disappointing as it was not to hit our numbers and not to grow the business, on a relative basis to the destination players where you can see some groups with cash flow shortfalls, as much as 25% to the prior year, we came very close to holding on to the balance of our cash flow in a very difficult environment.

It is one of the continuing great defensive postures that we have is the fact that we are a local -- you know, local visitation.

But we do a lot of things, taking advantage of our national brands and our extensive footprint.

You know, one of the things we mentioned at year end last year was that we had consolidated all of our parks in terms of beverage pour with the Coca-Cola Company.

That resulted for us, and we will feel the benefits of that, you know, this year coming.

In addition to increased cash sponsorship and some of the other benefits you get, just an unprecedented amount of marketing support in terms of numbers of cans that our parks will appear on co-marketing in electronic media, promotions with other third party vendors from fast foods to convenience stores, et cetera.

So there's a tremendous amount of advantages we have over an individual theme park operator in a market and yet, you know, we do have the advantage that our customers, particularly in this environment are coming generally close in within 150 miles of the park.

I'm confused about one thing.

Are there 38 parks in total of which you characterize 19 as theme parks, or am I off on the first statement?

No.

What we said was -- we were talking about our domestic business of which there are 28 parks, 19 of which are what we would call the full theme parks.

Then we have our associated Water Parks -- I'm sorry?

And some stand-alone water parks

And some stand-alone water parks.

So the rest -- the other ten are basically water parks?

No, no -- yeah.

And there's some international.

Right.

So could you just elaborate that breakdown a little, 28 domestic, 19 are theme, you have some water parks and then how many international?

Well, there's one park in Mexico.

There's one park in Canada and there are eight parks in Europe, including the park in Madrid which we are 5% shareholders and managers.

Okay.

Final thing.

You talked about the need to have a strong season, and to hit your numbers.

Of course, certain things are pretty much out of your control like the level of fear in the populous and things of that nature.

I mean, what are your consumer studies telling you about what will make people come back or what will keep them away and what you can expect -- you know, what's it most highly correlated with?

It is today terror-driven or more a function of the general economic level of activity?

I know I'm going on here, but if you can wrap it into how you were able to increase the spend in the parks which was very impressive and one of the main reasons you didn't have a bad result.

I mean, because you were able to compensate your visitors with higher revenues.

So what's going on there in the macroeconomic front and what's driving consumers one way or the other?

Well, let me try to address your question, because I think there's really two separate questions.

One is sort of, you know, what was driving last year's results.

I think as we have been very clear, yeah, it was an extremely difficult economy last year.

There were a lot of issues.

But at the end of the day, there were just five markets where we had performance issues.

They were largely in the attendance side, and we have been able to identify certain steps that we took, you know, some of which was kind of a company-wide strategy.

Some of which was just individual decisions.

And again, to review those, you know, we made a decision.

We didn't have new capital in four of the major parks.

We probably reduced our discount levels in a couple of markets, New Jersey and Dallas too aggressively, and in anticipation of what was perceived to be a strong advertising market for buyers of advertising, we had reduced some of our advertising expense.

And the combination of those factors in five markets is what prevented us from hitting our expectation.

In the balance of our other markets, we really had relatively good seasons.

And, you know, our strategies on starting to increase our per capita spending, et cetera, worked well notwithstanding a very, very tough economy.

Going into this year, we have certainly addressed the steps that we felt, you know, kind of the decisions that we had made that impacted us.

We have addressed those inside that 130 million dollar capital spend, which is actually a significantly higher cap-ex spend when you add in ride relocations that we are able to accomplish from our extensive inventories of rides, we have a tremendous capital program going.

To have a new, you know, marketable attraction of 14 out of the 19 major theme parks which are really the side of the business that, you know, that responds to capital investment as opposed to the water parks -- that's a great position to be in.

It includes great rides in four or five of the major markets.

You know, four of those five major or the top markets get new roller coasters.

The fifth park in Dallas gets a tremendous giant tower ride.

It also includes inside that number the full rebranding of the New Orleans park to a full Six Flags park.

Continued progress in Montreal and Seattle to newer parks and a number of nice attractions around the horn.

So we have addressed capital allocation last year.

It was not an under spend - it was an allocation issue.

I think we have done a good job reviewing our pricing and I think given the environment we're not assuming any improvement in the economy.

If anything, it will be a worse economy.

In terms of our planning purposes, no one can predict how it all plays out.

So I think our pricing strategies are good.

And I think we have very full marketing budgets that are enhanced by these promotional relationships with the Coca-Cola Company as well as a number of other major marketing partners that we're with.

You're going to see us in a lot of places this summer on packaging in all sorts of other places which will enhance our exposure.

So we have taken those steps.

We had as always -- I mean, I don't think anybody can fault us for our expense control.

We went through our usual rigorous process in which, you know, we have -- you know, screwed down all of the expenses that we can going into the season.

And so, you know, I think that that's -- you know, that's the strategy going in.

Early signs, you know, you can't really count operating performance.

I mean, you know, you'd like to.

But it's only 2% of the season is done already.

So we're off to a nice start.

The presales are a little bit more indicative although also somewhat early.

But to say that you've done 37% of your group sales hard ticket budget and that you're pacing 11.5% ahead of the prior year and you only need to do 6% better for your growth it's a good beginning.

Likewise, you know, we're really not expecting much growth in season pass sales, but we're up over where we need to be to hit our numbers.

So those are all good signs going in.

As you pointed out, there are a couple of factors that we can't control.

I think that we can grow our business with that strategy and program notwithstanding what's happening in the economy.

Challenging economy, but I don't think that that, you know, can prevent us from hitting our numbers if we execute well.

And your consumer surveys didn't show any effect of the geopolitical stuff and the war stuff?

Well, I mean, look, I think we're in uncharted territory when you talk about this particular war.

I can reference you back to '91 and the prior Gulf War.

The core Six Flags parks in that period grew their attendance.

Not significantly, but, you know, they made growth.

And the revenues were up.

So, you know, that's a reference point.

But to be completely fair about it, you know, this is a different scenario and a different time frame, and I think just like every other business, you know, we need to be as alert as we can and try to respond.

We clearly have contingency programs in our expense lines to react to, you know, any fall off in business.

But it is very hard to predict and, you know, so I don't have a better crystal ball than anyone else.

You know, I think we're all going to try to stay as focused as we can on the things that we can control, react in prudent ways, you know, to anything that occurs outside of our control and, you know, obviously hope that these events are short-lived for everyone's benefit.

Thank you.

Thank you.

Our next question is coming from Andrew Berg of Natural Management Advisers.

Financial Management.

Going back to the potential debt buy back, can we just clarify, you have 75 million of restricted cash flow becoming unrestricted.

Plus in addition to that, you have another 75 million dollar carve out under the bank agreement, so in aggregate you have 150?

Correct, except that we used 15 million of the 75 million carve out in December, so that we have 60 million left to go.

Okay.

And that is -- that 60 million is a hard limitation, there's no other carve outs that you can earn to potentially buy back more bonds if you wanted to?

That's correct.

Anything above that would have to be something that was agreed to by the banks.

Okay.

I'm sure it's built into your numbers of your 410 for this year, but can you talk about insurance costs, how much those have gone up and the impact that is has on your numbers?

Sure.

We actually had a terrific year last year in terms of our experience and that enabled us to contain the increase, because you'll recall historically we had had first dollar coverage of up to $100 million per occurrence of liability insurance.

We -- in the '01 renewals took the decision given the hardening in the market generally that had taken place, since those policies had been put in place in '98 to take a self-insurance retention of $1 million per occurrence and to maintain the $100 million of excess liability insurance in place.

As I said, we had a very good season from a loss perspective.

So in '02 our insurance costs went up on a year over year basis and this is all in, including liability insurance, property insurance, et cetera, by only about $6 million.

Coming into this year, the biggest area of increase that we expect to see will be in property insurance as well as in the director and officer liability insurance area not because of our risks but because of the substantial issues that the carriers have had with a few notable places where they're writing some large checks on that coverage.

Our aggregate insurance expense increase on a year over year basis, assuming loss experience consistent with last year would be about 5 million dollars.

Okay.

I might have missed this earlier, what was your cap-ex spend in the year?

Our cap-ex expense for this year will be $130 million.

No, in 2002.

It was about 140 million.

That's a project year basis.

And I don't want to confuse people too far, but obviously when we look at our capital expenditure for a year, we're looking at what we spend to add new rides and attractions for the coming season, some of that money gets spent in the prior year period and -- so that would have been included on a fiscal basis.

Our capital expenditure because of a significantly higher pre-spend in '02 for '03's numbers will reflect itself as higher than the 140 million, but it was 140 million dollar capital program for the project year.

And what's the higher number?

It would be about 155 to 160 million dollars.

Okay.

That's what we'll see in the cash flow statement?

Yes.

Thank you very much, guys.

Thank you.

Our next question is coming from Mike Robadom of J.P. Morgan.

All my questions have been answered.

Thank you.

.

Thank you.

Our next question is coming from Jay Glassman of McMahon Securities.

Good morning.

If you can tell me the bank covenant that is closest to violation and your comfort with not violating it over the course of the year, please?

Sure.

Frankly, there are no covenants that are close to violation to be quite clear.

There are no step-ups in any of the covenants from the levels that were put in place last year.

And as we said last year, as long as we do 325 million dollars of adjusted EBITDA, we would have no covenant issues, and that's versus the 410 million dollar expectation.

Very good.

There's nothing else even remotely as close as that?

That's correct.

Thank you very much.

Thank you.

Our next question is coming from Diane Keefe of Pax World Funds.

A little bit more color on your marketing strategy?

Like what is the break down now between these promotions on packaging versus radio, versus billboard and have you done studies to indicate what really puts people into the parks and what you did last year versus what you're doing this year in the subcategories of promotions?

And also, what you think was the mistake last year in terms of misallocation of capital on the promotional side?

Specifically, you know, in terms of your pricing for entrance to the parks, were you actually lower or higher than competitive parks in the area and what are you going to do this year?

Just to take it in pieces, in terms of the marketing, we did a fair amount of research -- we always do, but, you know, certainly a lot of research over the course of the second half of last year and looking very hard at a number of issues.

And, you know, to start with, I mean, one of things that we looked at very carefully again, it's been a mainstay of our business but the appropriate target for advertising and that -- you know, clearly remains the moms, notwithstanding the fact that we do a lot of teen attendance.

There's no question that while you get nag factor from younger children, and teens influence decisions, moms and families still are significant players in the decision making process even if teens are driving themselves to the parks in terms of giving them permission and cash and the like.

So that sort of just re-established what we understand to be important.

That said, you know, when we look at advertising -- I should separate two things.

All of that promotional effort that we make is not a cash charge to our company.

So in other words, when Coca-Cola puts us on literally billions of soda cans and you see us tag with other people's media, you know, mentioned in spots or included on packaging in a variety of products, those are things that we're not paying for.

And so what I would say is, is that we had good exposure in that regard last year, but our exposure in those promotional channels is substantially enhanced.

Not only in connection with all the efforts from Coca-Cola, but there are certain other vendors that you'll see us on a wider variety and more extensive placement, both on a national basis as well as in our local market efforts, because what we do is while we try increasingly to get as much bang on a national basis with players, each park has full marketing teams and there's a coordinated effort in local markets with the appropriate, you know, grocery store partners, fast food chains, to have as many exposures whether it's end of aisle or on menu tray liners in McDonald's -- all those types of things.

On balance, it's not that I felt that we had any wrong position in any of those things last year.

I think our position was good, but I'm very pleased that we have a substantial increase in the presence and it is particularly gratifying that we're not paying for it.

And I think that speaks to our desirability as a marketing partner and the fact that we have 40 million people coming through our gates or better and the things that we can do.

All that said in terms of the dollars we spend, there's no question that in addition to the appropriate targets that the preferred medium is television, either broadcast or cable.

And we will spend, you know, the -- probably anywhere from I guess 60 to 70% of our media dollars on the airwaves.

The balance of our spend would break down with the majority of the balance going against radio, which is a particularly promotional medium for us which enables us on radio to, you know, do all of the spots that we want to do for special events and special discounts, et cetera.

And then a portion, although a much smaller portion of the spend would go against billboard and other types of outdoor medium.

We also, you know, through our relationship with Coca-Cola and certain theater chains will be on movie screens in some very good placement ahead of movies this summer which is -- I can't say it's a first for us, because it's something that we've done nominally very small, but this would be the first time that would have a significant presence.

So that I think is a very good new initiative for us.

So that's kind of the general approach on the marketing side.

In terms of our decisions last year, you know, I think we've covered it several times but I'm happy to do it again.

You know, it wasn't that we didn't invest enough in our parks last year.

It's just clear that, you know, strategically we were dark in four major markets which we had never done before.

We make those decisions 18 months out.

We thought we had made good decisions because we had had investment, you know, for successive years in those markets.

It clearly clipped us.

I think to be in a position -- I'll use an example in our large park in New Jersey where we didn't have a new ride to carry us, and we cut back somewhat on our media expense because at the time, you know, it was clearly the advice that we received that we could spend less and get the same coverage.

You know, that turned out particularly with all of the automotive advertising, and spot market not to be the case.

And even though we added dollars back in during the course of the year that's never as efficient from a cost or motivation process as it is kind of having your plans executed up front.

But to have those three things happening at once is -- a slight cut back in media, no major ride and then in the pricing we frankly in most markets were primarily in reducing discounts, reducing things from, you know, a $12 off to a $10 off and those types of things.

And frankly, it worked brilliantly -- witness the per capita increase across the board in a couple of markets, and New Jersey was one.

While we offered some substantial deep discounts, you know, in those markets, a program that had been ingrained and quite popular which is a two for one program at certain periods of the week was a program that we backed away from and in retrospect that was a mistake.

And the combination of not having the ride to power you through when we were, you know, moving away from that program hurt us in that market and I would say that's similar in Dallas.

So, you know, those were some of the reasons that we think, you know, our performance was impacted that, you know, are separate and apart from the external economic forces.

We have corrected a number of those things.

We have unprecedented marketing support in our New Jersey facility.

We have a major new roller coaster with innovative technology going in that park.

And, you know, I think we have restored the pricing vehicle there.

And, you know, so I feel very good about it.

That would be the same in the couple of other markets where we took the hits.

In most of the other markets, we went through the same exercise of reviewing pricing, but we're not increasing pricing at the front gates, you know, with the exception of maybe one park where that's done in connection with deeper discount opportunities and, you know, maybe some selective increases in a couple of categories.

But, you know, I think we've got good pricing for the economic environment.

I think we've got excellent capital going and really unprecedented levels of marketing support.

So that's the strategy going in.

Can I just ask knowing that TV is the most expensive of the three, have you actually done studies of people who attend and found that more of them -- like more than in proportion to the amount of money you're spending come because they came -

Yes.

Yes.

-- TV?

Yeah.

Interesting.

Thank you very much.

Thank you.

Our next question is coming from Alex Farlough of MAK Capital.

Yes.

Just to be clear, on the 75 million in unrestricted cash, can that -- that can be used to buy stock, to buy preferred, anything you want?

You're not restricted to buy debt on that, is that correct?

That is correct.

Okay.

On the Atlanta property and the Dallas property, the partnership deals, were they essentially - have a put option at I guess eight times and 8 1/2 times EBITDA for the trailing four years, can you give me an idea as to kind of what kind of value that has now and where you guys look at that and -

The tender price for those units today in the case of Georgia is at 250 million dollars, which was the initial stipulated value back in 1997.

The tender price for the Texas park is at its stipulated value of 375 million dollars.

The EBITDA multipliers have not caught up to that number at this point.

To be -- to remind everybody of the specifics, each year we make an offer to purchase limited partnership units.

The units that we now own, most them were acquired in the initial tenders done in 1997 prior to our acquisition of Six Flags when those partnerships were initially restructured.

So we own 25% of the units in Georgia, we own about 36% of the units in Texas.

In 1998, Six Flags owned 25% of the units in Georgia and 33% of the -- 34% of the units in Texas.

So you can see there have been very few tenders made in these annual offer processes.

Why?

Well, it's our view that those limited partners who wanted to get out of the arrangements took advantage of the unlimited tender in '97 to do so.

The annual distribution to limited partners is a 7.4% inflation indexed yield on the price that they could today sell us the units for, and the yield is comfortably covered by the park performance, especially when you back out the portion of that distribution that goes to the units that comes to us.

It is also guaranteed by Six Flags and guaranteed by AOL Time-Warner.

So in today's yield environment, it's difficult for a limited partner to replicate the yield that they are currently getting, particularly if they have to pay taxes upon the sale of the units.

So we have not seen a significant number of unit tenders.

We can't tell whether that might change given, you know, questions about just the general credit environment, questions about whether the credit enhancement provided by the guarantees is of the same security as it was before.

I think we see tenders as a result of liquidity requirements out of state planning, and whenever we buy units we're buying cash flow and would certainly be happy to buy units if they were tendered to us.

But I wouldn't expect at this juncture that we'd see significant ones coming our way.

Okay.

So - and just to be clear again on that, there's a certain amount per year that you are required to tender for -

Actually, on limited tender, and we can buy as many units as do get tendered to us.

Okay.

But we have a legal obligation to buy 5% of the originally outstanding units per year.

If they're tendered.

If they're tendered.

And the -- if we don't, because there isn't a tender made, then the shortfall in the units actually purchased accumulates.

So that if in year one there are zero tenders in Georgia, for example, then in year two we could be required to purchase up to 10% of the original units outstanding.

That's how it is that our minimum purchase obligation this year could be approximately 158 million dollars.

It's why we will wait to see how the tender process unfolds before utilizing that cash.

We also have built into our credit facility a 100 million backup facility that we don't need other than for the issuance periodically of letters of credit and the free right to borrow under that facility and dividend that cash upstairs to the parent company in the context of unit purchases.

So we've got that potential obligation comfortably covered and if we buy units we're obviously buying cash flow.

Okay.

Great.

Thank you.

Thank you.

Our next question is coming from Uzi Zimmerman of JNG Capital.

Pretty much the questions have been answered but on the same line, questioning this 75 million dollar restricted, whatever is left over, did you say you're going to use that to buy back preferred or you have the flexibility to do - I mean, is it your intention to buy back any preferred?

To be specific, we said we had the flexibility to do that under all of the governing documents.

We have not made the final determination as to what we're going to do.

And you know, frankly, if we publicly announce what we're going to do, the prices happen to move in a direction that doesn't help us.

Exactly.

Okay.

Thanks.

Ladies and gentlemen, unfortunately, due to time constraints we do have time for only one more question.

Our last question is coming from John Pinto of Brightleaf Partners.

I had a quick question just on the season pass and group sales.

How meaningful it is that you're ahead of your schedule on that.

Then also out of the total year -- out of 2002 what were the total percentage of revenues that were due to season pass and to group sales?

That's it.

In terms of what they were in 2002, total attendance, season pass attendance represented 25% of our total attendance.

Okay.

Group sales represented about 35, 36% of our total attendance.

That includes both hard ticket categories and soft ticket categories like consignment sales, VIP distributions and the like.

Roughly 50 to 55% of that group number is in the hard ticket category.

Okay.

And in looking at attendance, the season pass and group in terms of average ticket, or per capita spending, is it above, below, in line with the remaining 45%?

The season pass attendance is obviously the lowest per cap.

First off, just the admission.

Right.

Sure.

If you're using the season pass four times a year, the average admission per capita is going to be lower than any other category that exists.

In terms of the group categories we would tend to see higher per cash, particularly in the catered outing area where we're providing a catered meal to the members of the group who are coming -- that's a very profitable piece of business for us.

Because very often in those categories the organization that's sponsoring the event may be paying for the ticket and the meal in which case, you know, your yield on an individual attendee is quite high because then they're free to spend their dollars in the park.

Okay.

So -- what are the numbers this year versus last year this time?

And at what point will you update again on those numbers?

Yeah.

You know, I think just to cover the numbers again in terms of the group sales hard ticket bookings, we've done about 37% of our full year budget in that category.

I think last year we were at roughly 32%.

So we're about 11.5% ahead of the prior year in the booking pace.

We only need to be 6% full year to hit that category, and while that's extremely encouraging, particularly when I listen to a lot of other businesses that have very difficult visibility in terms of their forward booking and things, that's an encouraging number but I don't want people to overreact to it because it's still very early, you know, we have a long way to go.

I don't think this is an environment in which to sort of conclude that, you know, you're all the way there.

It's an encouraging number.

You can never tell how much is timing.

Bookings coming earlier or as opposed to a net increase.

But it certainly feels good to be where we are.

Right.

In terms of the season pass, you know, we're really almost budgeting flat to the prior year.

Maybe it's 1 to 1.5% up in terms of total sales.

We've done about 11.5% of the full year sales that, you know, that we budgeted and that's slightly ahead of the prior year.

And, you know, we feel good about that program which has been a real mainstay for us and we track very carefully.

So those are good numbers.

In terms of updates, you know, I know that we will be having a call, Jim, I guess in May for our first quarter results, and that will be when we can give, you know, significant color on season pass sales and group sales and the beginning season performance wise.

In terms -

To be clear we're 13% done with our season pass sale objectives for the year.

Right.

Thirteen percent done versus about the same number or slightly lower last year?

We're actually slightly ahead of last year, in fact.

Okay.

And were there any significant or material changes in either the pricing or the marketing advertising for group bookings and season passes versus last year?

No, not really.

I think, you know, there may have been some very modest price increases but primarily haven't changed much in that regard.

You know, the prices again that we put in place for group sales would vary by market but would be consistent with the strategies that we have had in the past.

Year to date, the average revenue per pass sold is up by about 2.5% compared to last year.

Okay.

All right.

Terrific.

Okay.

Listen, thanks, very much for joining us on today's call.

We look forward to speaking again shortly.

Ladies and gentlemen, thank you very much for your participation.

This does conclude today's Six Flags fourth quarter earnings and year-end conference call.

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