Six Flags Entertainment Corp (SIX) 2003 Q3 法說會逐字稿

Good morning ladies and gentlemen.

Welcome to the Six Flags, Inc. 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 my pleasure to turn the floor over to Mr. Joe Mansi of KCSA.

You may begin.

Good morning, I'm Joe Mansi of KCSA, Six Flags' Investor Relations advisor.

Last night the company released its financial and operating results for the third quarter and first nine months of 2003.

A copy of that earnings release is available on the company's website at www.sixflags.com, under the heading About Us/Investors.

Before I turn the call over to the company's executives, they have asked me to remind you that in compliance with SEC regulation FD a webcast of this call is being made available to the media and 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 are subject to risks and uncertainties that could cause actual results to differ materially from those described in such statements.

You may refer to the company's 2002 annual report on Form 10-K which is also posted on it's website for a detailed discussion of these risks.

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

In addition, in accordance with the newly adopted Regulation G, non-GAAP financial measures used in the company's oral presentation today are required to be reconciled to the most directly comparable GAAP measure.

The required reconciliations are available to investors on the company's website under the same heading.

References by management in this call to EBITDA mean EBITDA adjusted from consolidated operations.

As such term is defined in the earnings release and references to adjusted EBITDA mean adjusted EBITDA including unconsolidated operations, as so defined.

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

Thanks, 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 full-year expectations.

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

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

I would begin by observing that while we are not at all satisfied with our 2003 performance, we are pleased that a significant improvement in performance in the latter part of our season has enabled to us deliver expected full-year performance at the top end of the range we had outlined in August.

As for the specifics of the results for the three and nine-month periods, they do reflect some impact of the performance issues we discussed in detail during our August call.

Issues that negatively after affected nearly all our parks throughout North America, from the beginning of the season through the month of June and into July.

However, we did experience an improved performance trend beginning in July that continued to strengthen through the balance of the third quarter, and into our October operations; especially our Halloween event, which was particularly strong.

At June 30th year-to-date systemwide park-level revenues were down 3.9% from the same period in 2002, driven by a 3.9% decrease in attendance at those parks with per capita revenues flat to the prior year.

In July, systemwide attendance was up slightly for the month and per capita revenues were up approximately 2.2%.

For the period from July 28th through November 2nd our systemwide park-level revenues were approximately $23 million, or 5.3% ahead of the prior year, driven by an attendance increase of 2.1% and per capita revenue growth of 3.1%.

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

As a result, revenues for the third quarter at our consolidated operations improved 1.3% over the prior year.

For the nine-month period, revenues were less than 1% behind the prior year at the consolidated parks, and less than 1.2% behind systemwide.

We continue to experience in-park spending gains this year at our parks, with total in-park per caps up 1% domestically for the nine months.

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

We now expect full-year 2003 attendance at the consolidated parks of approximately $35 million, down approximately 1.6% from the prior year and total revenues from consolidated operations of $1.03 billion, down approximately 0.7% from the prior year.

We have continued to control our variable expenses, but have experienced increases in certain fixed costs such insurance, advertising, real-estate taxes, and pension and medical benefits.

Therefore, we expect full-year 2003 adjusted EBITDA of approximately $330 million; the top end of the range we announced at the time of our call in early August.

At the time of our August conference call we described in detail the factors negatively affecting our early season results.

As we indicated then, weather was clearly the predominant factor constraining our performance through June and early July.

Together with the continued impact of general economic weakness, particularly the significant job losses over the last two years and consumers' fear of further reductions.

Weather and the poor economy affect our walk-up business, as well as our season pass and group sales.

For the year systemwide season pass sales lagged 2002 sales by approximately 7% and hard ticket group sale attendance is off approximately 2% to the prior year.

We've not been alone.

Not only was there widely reported softness in a variety of leisure, recreation, and entertainment sectors, including hotels and vacation destinations this summer; but the theme park industry as a whole struggled, especially in the first half of the year.

Likewise, just as we have experienced a significant improvement in performance at our parks in the latter part of our season, the parks who have commented publicly on performance, and those to whom we have spoken to privately all report having a much stronger second half.

This is clearly an encouraging sign as we close out 2003, and continue to refine our plans for our 2004 season.

It certainly supports our belief that the down-turn which our industry experienced over the last two to three years is cyclical in nature, not a secular problem.

We are deep into the planning and budgeting process for 2004, we're carefully reviewing our performance by market to determine the appropriate pricing and discount strategies, and media levels for 2004.

We are encouraged by our strong finish in 2003, particularly at our Halloween events.

We're hopeful that we will see more normal weather patterns in 2004, and that the recent signs of improvement in the general economy will continue to strengthen.

However, we think it is prudent to assume that it will still be a challenging operating environment, therefore we do not expect to take meaningful gate price increases or materially reduce our discount levels in most markets; nor do we expect that our marketing costs will vary materially from 2003 levels.

We've reached a decision to invest less capital in the business for the 2004 season.

We intend to invest approximately $75 million.

We've made a very substantial investment in our parks over the last five years, including the addition of marketable attractions at 14 of our 19 U.S. theme parks in 2003.

We believe that the prudent course of action is to reduce investment levels until the economic recovery solidifies, and increased investments can have a more meaningful impact on performance.

Of the capital we do invest for the 2004 season, we will be focused on investments aimed at increasing our in-park spending; and improving the overall look and feel of our parks, and appealing to the entire family demographic.

In terms of marketing we conducted an agency review this summer which resulted in our selection of Doner, the largest independent agency in the world.

Doner has achieved an outstanding track record over the last several decades in helping consumer retail brands improve their performance.

Some of their other clients include Blockbuster, Mazda, Serta Mattress, and the Mills Outlet Malls.

We've been very impressed with the firm in the short time we have worked together, and we believe their insights into our business challenges and opportunities; and the integrated creative campaign they have developed for 2004 and beyond, will have a positive impact on our business.

With Doner's help we're analyzing thoroughly all of our media and marketing expenditures, and our brand position and creative strategy to ensure that we're marketing effectively and efficiently.

Our immediate challenge for 2004 is to arrest the attendance decline of the past two seasons and to begin the process of returning our parks' performance levels back closer to historic averages, as the economic environment continues to improve.

We're in the midst of our planning process for next year and it would, therefore, be premature to provide formal guidance for 2004 at this time.

We would expect to experience a more normal weather year, but the economic environment remains uncertain, and visibility in our business is limited.

Given our pricing, marketing, and capital investment decisions; and anticipating an uncertain environment, we expect our performance target to be to deliver EBITDA growth next year in the range of 5 to 6% over the level we achieve in 2003.

We will offer more comprehensive guidance in early 2004 once our internal planning has been completed.

I think it's important to emphasize again that we're convinced that the down-turn experienced across the theme park industry these past two years is cyclical in nature, and not a secular problem.

While there certainly are other factors impacting individual park performance, based on all of our research, the largest factors by far appear to be the extended economic downturn; particularly it's impact on employment levels and consumer confidence and discretionary spending decisions, exacerbated by an unusually difficult weather year.

The marked improvements in our performance and that of most industry participants in the second half of the season supports this view, and is a source of encouragement as well as we look ahead to the 2004 season.

Even at these reduced attendance levels, theme parks in general are still an extremely popular and affordable form of entertainment.

The industry in North America is still expected to entertain nearly 300 million visitors in 2003.

In terms of Six Flags specifically we own large, well-located assets in areas of substantial population with significant barriers to entry.

We own the most recognized brand in the regional theme park industry, one which is particularly popular with teens and young adults; a segment of the population that will continue to grow over the next decade.

Our research indicates that our brand is strong, and our guest satisfaction and intent to visit ratings remain high.

With over $140 million in cash in our balance sheet, $300 million in undrawn working capital lines, and no near-end maturities in our capital structure; we have ample time and financial flexibility to build on these strengths and restore our performance to appropriate levels over the next few seasons, as the economy recovers.

However, I would reiterate what I said at our August call.

The fact that we have ample time and financial flexibility to address our business slowdown without panic or rash action should not imply complacency or a business-as-usual attitude.

Quite the contrary.

We are committed to reestablish the equity value of our company, and will explore in a thorough, careful way all appropriate steps toward that end.

We are continuing our process of rigorous research and in-depth analysis of our business, in order to establish the right course both for 2004 and for the intermediate future to substantially recapture lost revenues; and deliver meaningful free cash flow and affect a substantial period of de-leveraging of our balance sheet.

I'm looking forward to reporting to you in the future regarding the specifics of that course.

With that I will turn it over to Jim Dannhauser to discuss the quarterly and nine-month results.

Thanks, Kieran.

I'll begin by reviewing the results which we released yesterday evening.

For the third quarter revenues from consolidated operations were $565.5 million; up $7.4 million, or 1.3% from the third quarter of 2002.

Cash expenses for the quarter, that is expenses excluding depreciation and amortization and non-cash compensation expense, were $256.5 million as compared to $239.1 million in the 2002 quarter; largely reflecting the impact of currency exchange rates, and full quarter expenses for the New Orleans park which had been acquired the end of August last year; as well as year-over-year increases in insurance, advertising, and fringe benefit expense.

As a result EBITDA from consolidated operations for the quarter was $309 million, down $10 million or 3.1% from the 2002 quarter.

Adjusted EBITDA, which includes our share of the performance of the unconsolidated parks, was $332.6 million; down $13 million, or 3.8% from the prior year period.

The results of the New Orleans park which had been acquired on August 23rd of 2002, were obviously included in the 2002 quarter only from the acquisition date forward.

Excluding New Orleans results from both quarters, and therefore providing a same-park performance comparison, 2003 third quarter revenues were $554.8 million, down $2.7 million, or one-half of 1% from the prior year.

Cash expenses were up $12.7 million, 4.6%; and EBITDA and adjusted EBITDA were $303.7 million and $327.4 million respectively in 2003.

For the quarter, attendance was down 1.8% at the consolidated parks, and 2.1% systemwide.

In terms of the breakdown of domestic and international performance at the consolidated parks for the quarter, domestic attendance was 14.5 million, down 1.3% from the year-ago quarter.

International attendance was 4.3 million, down 3.3%.

Domestic per capita revenues were $31.90 for the quarter, up 1.1% from the prior year; and international per caps were $23.74, up 12.7%, helped significantly by favorable exchange rates.

Domestic revenues were $463.7 million, down 0.2%, and international revenues were $101.8 million, up 9% from the '02 quarter.

Domestic park level EBITDA was $265.7 million, down 3.1% from the prior year.

And international park-level EBITDA was $49.4 million, down 1.9%.

Interest expense for the quarter was $51.4 million, down $5.1 million from the year-ago quarter, largely as a result of reduced interest rate on our outstanding bank term loans.

Depreciation and amortization was $40.8 million, up $2 million from the year ago period, reflecting the expense associated with our new capital investments which were made for '03; and the inclusion of the expense associated with New Orleans.

Equity in operations of theme park partnerships was $18.9 million, versus $22 million in the year-ago period.

As a result, net income applicable to common stock was $134.7 million, compared to $134.2 million in the year-ago period.

For the nine months, revenues were $947.1 million, down $8.1 million, or 0.8% from the prior year.

On a same-park basis, revenues were down $29.1 million, 3.1%.

Attendance for the nine months ended September 30 was down 2.7% at the consolidated parks, reflecting the performance issues previously discussed which mostly affected May, June, and to a lesser extent July.

Per-head revenue was up 1.7% for the nine months.

Park performance improved throughout the third quarter and continued strengthening through October.

From the end of July through the end of our October operations on November 2nd, attendance was up 2.1% to the prior year, per capita revenues were up 3.1%, and park-level revenues were up 5.3%.

Cash expenses for the nine months increased by $29.8 million, that's 5.1% over the prior year.

But foreign currency fluctuations, and the increased expenses from New Orleans accounted for approximately $29 million of expense increases.

So on a same-park constant currency basis, expenses increased only $800,000 in the nine-month period compared to the prior year.

Further, insurance and fringe benefit costs increased expenses by $11.5 million, so all other expenses declined by almost $11 million on a year-over-year basis.

EBITDA from consolidated operations was $327.4 million for the nine months.

Prior year EBITDA was $365.4 million.

Adjusted EBITDA was $352.6 million, down from the year ago period performance of $395.9 million.

For the nine months, attendance at the consolidated parks was 31.8 million versus 32.6 million last year.

Domestic attendance at the consolidated parks was 24 million versus 24.6 million, international was 7.8 million versus 8 million.

Domestic per capita revenues was $32.17, versus $32.22, and international was $22.58, versus $20.21 in the prior year.

Domestic revenues in the nine months was $770.6 million versus $793 million, and international was $176.4 million versus $162.1.

Domestic park-level EBITDA was $291.1 million, versus $328.9 million.

International, $54.4 million versus $52.5 million.

Net interest expense for the nine months was $158.5 million, versus $172.9 million at the prior year period; again reflecting the savings from the lower borrowing costs on the bank term loan.

Our net cash interest expense for the nine months was $134 million, and it's expected to be approximately $185 million for the full year.

Depreciation and amortization expense was $120.1 million, as compared to $113 million in the prior year.

The equity pickup for the 2003 period was $2.3 million below last year.

We had a loss relating to the write-off of remaining deferred fees associated with our debt prepayment earlier this year of $27.6 million.

A similar loss of $29.9 million occurred in the prior year period.

If those losses and the associated tax benefits were excluded from both years, and the goodwill impairment that we recognized in 2002 excluded from the prior year; net income applicable to the common stock would have been $18.4 million in 2003 versus $27.6 million in 2002.

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 would not expect to draw on that $300 million committed facility until mid-December, or even into next year.

We had a cash balance at September 30 of $181.7 million.

Our gross debt at September 30 was $2.3 billion, and net debt approximately $2.15 billion.

The only current portion of our debt is $8.6 million due in the next 12 months on capital leases, and the beginning $1.5 million quarterly amortization on our term loan starting in Q3.

Our blended interest rate today is 9.45%, our earliest debt maturity remains the 9.75's of '07; whose $422 million balance needs to be retired and or refinanced by December '06 to avoid the shortening of the maturity of our $600 million term loan to that date, so we have ample time to address ourselves to the maturities in our debt structure.

With our revolving credit capacity of $300 million, our $100 million back-up facility, and substantial cash balances on the balance sheet; we remain comfortably positioned from a liquidity point of view, and in compliance with all bank covenants.

Kieran?

Thanks, Jim.

I think, operator, we'll open it up to questions.

Thank you, sir.

The floor is now open for questions.

If you do have a question please press 1 followed by 4 on your touch-tone phone.

If your question has been answered, you may remove yourself from the queue by pressing the pound key.

We do ask that while you pose your question that you please pick up the handset to provide optimum sound quality.

Once again ladies and gentlemen, that is 1 followed by 4 to ask a question.

Please hold while we poll for questions .

Thank you.

Our first question is coming from Jill Krutick of Smith Barney.

Thank you very much.

Good morning.

I have three questions.

First, Jim, maybe could you tell us how much currency did actually benefit in the quarter.

Secondly, Kieran, when you talk about an EBITDA growth forecast of 5 to 6% next year, I'm curious what kind of assumptions you're building in for the economy and weather; and then finally, Kieran, in terms of the strategic initiative evaluation I'm curious what stage you'd say you're at in terms of that whole evaluation process.

And what kind of time frame you think that will take.

Thank you very much.

This is Kieran.

I'll start off addressing the 5 to 6%.

As I indicated in my remarks, we're deep into our budgeting process, which is really a bottoms-up park-by-park analysis.

So it would be premature to tell you that, first of all to, say formally that it will be absolutely 5 to 6%, but I think directionally that is the place we're looking.

Likewise, it wouldn't be possible at this time to tell what you we expect that's going to be X% from attendance and Y% from per capitas.

I do think, again, directionally, it's clear that we lost a significant amount of revenues to weather.

That could be as much as $25 to the $30 million.

And we also obviously suffered through a tough economy, like everyone else.

I have no particular crystal ball as to what the economy will look like next year.

We're not going to try to make specific assumptions about that.

We do hope that our experience in the back end of the season, along with the economic indicators that we're all reading about, you know, take hold and strengthen.

But there's not a lot of visibility, and I think, given that we've come through a difficult two-year period industry-wide, that the smart place for us to be is to try to have a kind of balanced conservative view, knowing that there will be a certain amount of expenses that we will probably choose to put back into our operations, that were part of contingencies that we went through to deal with lower than expected revenues this year.

That will be a controlled amount.

To the good, we don't expect that our fixed cost increases, which were somewhat more significant this year in terms of pension and medical insurance and the like, we don't expect any kind of significant increases there.

And so rolling that altogether, we just feel the net of that, you know, should be somewhere in that 5 to 6%, and that we'll speak more specifically in the next few months as to what we think the components are of that.

As far as strategic plan, I don't want to make it sound overly grandiose.

I think what I'm really trying to say is we are not sitting on our hands simply saying things will get better when the economy improves.

We recognize that we have a lot of strengths, that we have outstanding assets, a very deep bench of very experienced theme park professionals.

We think, frankly, that in our work with our agency over the summer, and the review process was very invigorating enlightening having the 10 or 12 agencies that were involved extensively in the review, and receiving a tremendous amount of research and their insight.

We think we have opportunities with our brand, an ability to leverage that brand nationwide, and to take advantage of our footprint in different ways; so we feel we have a lot of strengths, and what we're really trying to do is assess the best way to position ourselves in terms of those strengths.

The other area which we've addressed before, you know, if you think about our performance even in this difficult period, we grew our per caps by nearly 8% last year, we've held on to all of that this year; notwithstanding a much more aggressive discounting strategy compared to '02 and actually grew the per caps somewhat.

I remain convinced that there is a healthy per cap opportunity, one which will involve investment as well as, you know, very important planning.

That is something that, you know, we're engaged in that process, we'll continue to make more investments against our in-park's for '04; but I would hope that by the end of '04 we will have concluded a three to five-year strategic plan against in-park's, which represent half our revenues.

And obviously if we were able to grow our total per caps by $3 to $5 over the next five years that would have a substantial impact on our bottom line, and those as well are obviously revenues that are much more consistent and sustainable in terms of the long term.

And what I mean by that is that if you're investing in specific restaurants or other locations, obviously, unlike marketable rides, which, you know, you come back year-over-year with different marketable attractions, those types of investments, obviously, you know, continue to provide revenues, you know, over a long haul.

So that's an area we're looking hard at.

And we're obviously looking at the other types of things that are available to us from a strategic point of view, and, you know, we'll report on those from time to time as we make decisions.

Jill, in terms of the currency impact in the quarter, revenues increased by $10.9 million, and that would be saying that the '02 revenues would be translated into U.S. dollars at the same rate used for '03.

So there was a net positive impact on the differential of $10.9 million at the revenue line.

Expenses, about $5 million.

So the EBITDA impact for the quarter was $5.9 million.

Thank you very much.

Thank you.

Your next question is coming from Marc Crossman of Lazard.

Hi.

Excuse me, I'm sorry, trying to get over a little cold.

Where do the obligations stands right now on the Six Flags of Georgia and Six Flags of Texas as far as the put-call relationship?

There are several obligation in respect to those partnerships.

First, there is the minimum annual distribution obligation which needs to be satisfied, it remains the case that park performance in the aggregate far outstrips the annual obligations; between the level of capital to be invested as well as the minimum annual distributions that need to be made.

In terms of the annual put rights, it is a once a year event.

It happens in April.

We offer to purchase units in those partnerships at a fixed price.

We could technically be required to purchase up to $184.4 million worth of units next year.

The pattern has been that there have been very few tenders made.

In the case of Six Flags over Georgia there have been no tenders made since 1997.

In the case of Six Flags over Texas there have been a scattered handful of tenders made.

Last year, for example, we could have been made to purchase $154 million worth of units, and we bought $5.7 million worth.

The reason for that in our view is that the limited partners are comfortably getting a 7.4% inflation-indexed yield on the price that they could sell us the units for; that yield is comfortably covered by park performance, it is guaranteed by Six Flags, and it is guaranteed by Time Warner.

In the current yield environment, it would be difficult for individuals to replicate that kind of investment.

We certainly have available to us between cash on the balance sheet, $100 million back-up facility inside of our credit agreement; more than ample sources of funds to satisfy any put obligations that might come down the pike.

Thank you.

Thank you.

Your next question is coming from Bishop Cheen of Wachovia.

Good morning, Kieran and chairman Joe.

Just a couple of housekeeping questions.

The cap ex for Q3, did you give that?

I didn't see that or hear that mentioned.

No, the nine months full period capex was $95.7 million, at the consolidated parks.

We expect fairly small amount of pre-spend in the fourth quarter towards '05.

I would expect that full-year number to be approximately $100 million.

Okay.

Then I think, if I have this right, you have something like $140 million of cash as we speak today.

You had almost $182 of cash at September 30?

We actually have higher cash balance today.

Our cash balance today is slightly over $170 million.

$170 million.

Okay.

And at year end, significant change in your cash balance?

Not expected.

Obviously November and December are periods of time in which the lions share of the parks are not in operation, so we do have negative cash flow in that period, but I would expect to see a cash balance at year end still significantly north of $100 million.

As you look at your budgeting for '04, and I know you do complete budgeting, including your balance sheet, do you have some land or other assets that you would consider selling at this point?

As we've mentioned in previous calls, you know, we don't have any pressures to be required to do anything along those lines, because we have significant period of time to address ourselves to what we believe will be substantial de-leveraging from operations.

There are, in certain markets, segretable parcels is land which are not really a part of the theme park operations and would not likely to be in the intermediate term any source of additional development activity; whether that be the construction of separate gated attractions, destination assets likes hotels and camp grounds and the like, that would not impact neither the current nor long-term strategic application of the parks.

And so we will look in those circumstances to appropriately timed efforts to monetize that land.

Orders of magnitude, however, are in the $20 to $30 million level, in the aggregate, in terms of what we would see near term as being those kinds of transactions.

Right.

Okay.

And then one last question, going back to cap ex.

We began the year when hope springs eternal, with the notion that had you done more on cap ex, it would have attracted better attendance, better per capita, et is -- et cetera, et cetera; and because of the reversal of fortune, you say you're going to try to tighten your belt and spend less on cap ex.

What effect for 2004 on growth and attendance?

I don't know that that characterization is exactly correct.

I think what you're referring to is that when we reviewed our performance in 2002, we work concerned that decisions we had made ahead of 2002 had exacerbated what was clearly now the beginning of a difficult economic period.

And so in coming into '03 we sought to correct that, and what we -- and our issue in '02 wasn't the amount we invested, which was, frankly, higher than '02.

The issue was the allocation of those dollars, against which assets.

And so coming into '02, we developed a capital plan which was about $130 million, in which 14 of the 19 domestic theme parks received marketable attractions, significant rides going into four or five of our larger markets, and, you know, we obviously were optimistic that that would help us recoup some of the attendance shortfalls of the prior year.

We similarly took a very hard look at pricing, which we felt perhaps for 2002 we had pulled back somewhat on discount levels, taken some price increases for '02, and we thought that they, likewise, had hurt us.

And also looked at our media wave level.

I would say that what's occurred, obviously, in '03 muddies the water a little bit in trying to analyze which things worked or didn't.

It's kind of clear that by itself, the capital didn't push through the economic issues; but more importantly, you know, with the weather, you know, really constrained our performance.

Looking ahead, I think what we're saying to you is that, you know, we feel that we have invested substantially in all our assets over the last five years.

There's a tremendous amount of ride product that's gone in.

Our parks have a terrific set of entertainment assets, and as we look toward '03 I'd point out one thing.

Of that $130, $25 million, more or less, was invested in our New Orleans asset.

So if you were really looking, comparing levels of investment for '04 versus '03, we're really moving to about $75 million versus about $100 million across the same set of assets.

And so it is not -- you know, it's not as significant a pull-back as perhaps it would look.

And frankly I would tell you that I think it's that $75 to $100 million range, is the right range of investment for our set of assets over the intermediate term.

It will -- it may be that there's a year where it goes to $120, may be $75 in some years.

Part of that will be the pacing.

Our view is we put a lot of assets to work this year, our audiences didn't have a full opportunity to experience them because of weather patterns and other things; and so going into '04, where there's still uncertainty in the environment, you know, we think it's more prudent to be a little bit more conservative on the investment side and, you know, but still within the range of what we think is appropriate for the assets.

And that's how we're approaching it.

I think I probably haven't expressed enough how, you know, excited we are about the marketing campaign that we'll be undertaking.

I think if you looked at our marketing over the last several years, while we believe we had a lot of effective marketing going on; probably did not have as integrated a brand campaign that we should have.

Now that we've established the Six Flags brand in so many markets and have unified it, and I think the campaign that will come out that will be fully integrated across all lines of our business will be very helpful; and so that's the strategy going into '04, and, you know, we again believe that the net of all of it will be growth in '04 and leading to a sustained growth over the next several years.

All right.

Thank you for the clarification on allocation as opposed to total amount.

Great.

Thank you.

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

Yeah, hi, couple of questions.

Jim, I apologize in advance.

My audio sort of blinked out while you were talking about domestic and international revenue breakdown .

If you can give me that for Q3, I would be much obliged.

Kieran, I thought I heard you say in your prepared remarks that you were not going to institute any price increases at most of the parks in 2004.

If you can just clarify that, do you mean all the parks, some of the parks, the flagship parks like New York;

Los Angeles;

Gurney,Illinois; et cetera?

If you can clarify that, that would be great.

In terms of the revenue break down for the quarter, domestic was $463.7 million, and international was $101.8.

Okay.

Yeah, I mean to, clarify my remarks about pricing, I'd say it as follows.

We're still in the planning stage, so we're going park by park and we're reviewing every channel of business by park, in terms of, you know, redemptions, attendance, and the pricing that we had.

So, you know, we haven't made our final decisions on each markets, but directionally I think it's fair to say that we don't believe, given where we are in the economic cycle, and the uncertainty into next year, that it would be prudent to make significant price increases anywhere.

So I think that we'll look at it on a park by park basis, we'll look at it by category, main gate, season pass, et cetera.

But I think that generally, we will remain in a position where we're not going to make significant price adjustments in '04.

Thanks very much.

Thank you.

Our next question is coming from Kit Spring of Stifle Nicholas.

Hi.

I want to dig down just a little bit on the guidance of 5 to 6%.

That actually sounds a little less than what I would have expected.

I know you don't want to break it down too much, but what do you think is revenue versus expenses; and just addressing expenses, I think it was up 5% in the third quarter, the fourth quarter guidance implies double-digit expenses.

How long will expenses remain at an above-average level?

Thank you.

In terms of the expenses in the fourth quarter, it's not -- if you look at things on a same-park constant currency basis; you would not have anywhere near the expense percentage increases that you have described.

As I indicated before, if you look for the nine-month period, on a constant currency same-park basis, expenses are up $800,000 year-over-year.

In terms of the Q4, and the impact that Q4 will have on the full-year numbers, remember that in comparing it to the last year's Q4, there is the currency shift, the international parks, specifically the European assets, are closed in November and December, generating expenses.

That is an impact upon what the Q4 performance will be.

We will have lower advertising credits coming our way in the fourth quarter this year because of the way that we purchased our media this year as compared to the way it was purchased in '02 and '01.

Specifically, instead of buying on a run of station basis for a particular amount of our television advertising, we bought specific programming; and that results in lower makeup credits on a general basis which hit the fourth quarter.

We're also in the fourth quarter having some one-time expenses, as a result of the transition to the new agency; and a step-up in what has already been significant research expenditures, but higher research expenditures this year.

We had also some property tax savings in the fourth quarter last year, as a result of negotiations and settlements with local tax authorities; which I would not expect to see this year.

So if you looked at, '01, for example, and it's fourth quarter, it was a negative $16 million of EBITDA.

We are expecting a negative $22 million this year.

As Kieran mentioned in his remarks we don't expect significant increases in our fixed costs next year, which is the other element, of course, that we're also going to be experiencing this year in Q4.

We're pretty much through the insurance renewal process.

We don't expect to see significant cost increases there, nor do we expect to see significant increases in our pension expense or the other fixed costs that have afflicted us in 2003.

The expenses that we would expect to see some modification in next year are really operating expense levels, where in reaction to the lower revenues, we did reduce certain levels of operating expenses this year; which we would expect to be restoring when we come into 2004.

It's not guidance for next year.

What we had indicated is that we would expect at this preliminary point that a target for next year's performance would be in the range of 5 to 6% growth over where we ended up this year.

Seems a little low given how easy the weather comparisons are.

But secondly, looks like you had some improved performance on the revenue side in -- since July 28th.

What has been working that has been driving that performance?

Has it been discounting or maintaining prices or just good weather?

What has it been?

Well, I mean, I think that, again, it's always difficult to pull it apart and say, you know, which percentage attributes to which factor.

But it feels to me that, you know, the weather did improve, even though it was erratic across a lot of the third quarter.

It was substantially better than in June, and so that has to have played a factor in the improved performance clearly.

I would draw some connection between the good economic news that we all started to hear over the last few weeks and consumers' confidence in coming out to the parks.

So I think certainly an improving economy probably was there.

Our strategies on pricing and discount were fairly well established at the beginning of the year.

We probably made some adjustments in certain markets as the season went on, but they were fairly modest.

And so I think those strategies once, you know, the weather improved and maybe the economy, you know, got a little bit better; those strategies took hold, so I think the pricing position that we took for our assets in our markets was helpful.

We're obviously looking very closely at that; and I'm sure that, you know, there was some element of pent up demand.

I think people certainly felt like they didn't have a summer in a lot of markets, so there's always that factor.

So those were probably the reasons that we saw the lift.

I guess my response to your suggestion that, you know, the target seems light and that just with weather alone;

I do think that, you know, we've lived through two or three years of very difficult operating conditions, along with a whole bunch of other people, and I think it would be imprudent to simply say, you know, weather will be great next year and the economy will be firm, and, you know, be too aggressive in that regard.

There will be certain expense increases, and we are not going to do our planning based on perfect weather, we're going to do our planning based on historical average weather.

So I think when I net it all out, you know, for '04, you know, may be viewed as a year that begins, you know, a return to historic levels and then hopefully growth beyond that, that's sort of the right turning point in what hopefully has been the bottom of the trough this year.

Great.

Thanks a lot, guys.

Thank you.

Our next question is coming from Tom Shandell of Goldentree Asset Management.

Good morning.

You guys talk about the weather in June and early July being problematic, and living in the northeast I, of course, agree.

But July to September is the quarter, of course, and so for much of that period, the weather, you know, by inference would have been better than what it was June and early July; but yet the same-store revenues and EBITDA were down, so I was wondering what was driving, you know, the year-over-year decline given that for most of the quarter the weather was, you know, not as problematic.

Well, actually, I think the beginning of July was fairly problematic, and I'm not quite sure that the underlying assumptions were necessarily correct.

As we said, you know, if you looked at the period from the end of July through the end of the October operations, attendance was up 2.1%, per capita revenues were up 3.1%, and revenues were up over 5%.

Right.

So why was EBITDA down?

For the reasons that I've described in our remarks.

We had fixed cost increases, we had the presence of New Orleans expenses, we had the presence of the currency fluctuations driving the expenses up.

Okay.

But same-store EBITDA was down as well.

Same store EBITDA for the period from the end of July through the end of October was not down.

Okay.

But it was -- I'm correct that it was for the quarter cut off?

Yes.

Okay.

And secondly, I was wondering, since we see the numbers July to September, and obviously not through November 2nd, I think is the date, could you just talk about patterns, you know, percentage increase, or whatever you're comfortable talking about, from the quarter cut off to November 2nd?

We basically told you how the performance was right through the end of the operating season.

No, I understand, but you have July 28th included in there, so it's apples and oranges, and we can't understand in terms of looking at what the period from quarter end to the end of the season was.

Well, October's results were quite strong, as we had indicated.

That is, post the period.

It is part of what is enabling us to be at the top end of the range that we have indicated we were going to be at.

I would -- October revenue performance was obviously up by approximately 8% on a year-over-year basis.

Was that driven by both attendance and per cap?

Absolutely.

Thank you.

Thank you.

Your next question is coming from Hunt Doring of Oak Tree Advisors.

Hi, good morning.

I apologize if I may have missed this comment but could you just repeat what the nine-month revenue and EBITDA percentage changes are on a same-park constant currency basis?

Yes.

The nine-month same-park constant currency revenues were down 4.9%, expenses were down by $880,000.

And adjusted EBITDA?

Adjusted EBITDA was down by $53.8 million.

And as a percentage?

13%.

And consolidated EBITDA was down $48.3 million, same percentage.

13%.

Okay.

Second question, relates to the trends that you've seen in season pass and group bookings.

Could you just comment on what you saw year-over-year and what might be going on there?

Yeah, I think we indicated that season pass sales year-over-year, you know, for 2003, were off about 7% to the prior year, and our hard ticket group sales were off about 2%.

I think what you saw there were a couple of things.

First, even though a season pass is to some extent the best bargain, if you will, to access our parks, you pay a price typically is less than two times the main gate, and you can access the parks as many times as you like, so it's a great value, no question.

However, for a family of four, you know, on average, it could be a couple hundred dollars, and I do think that what we saw in season pass sales, you know, was the fact that, you know; that was still a discretionary spending item, and I think that-- we did a lot of research toward the end of the summer with people who didn't renew, and people who had and what came up was, love the park, love the product but came through very strongly were the economic concerns on non-renewals.

So I think that the economy hurt us there.

Likewise, in group sales, you know, a couple of things.

When you look at what's happened over the last two or three years, in corporate America, it just impacted a lot of our outings business.

You had companies that, you know, had a lot of difficulties, a lot of layoffs, might have chosen not to have an outing, or if they did have an outing the amount of people that came was lower because of that, so that certainly impacted us; and to a lesser extent, but in the spring business, where we have a lot of our school groups, you know, certain markets, because of the alerts that go on over the terrorism, there were just certain school districts that just said, hey, we're in the doing those kind of outings, or we're not going to have those outings outside certain geographic boundaries, so that affected us.

And where it all gets affected by the weather is the fact that those are the period, April, May, June, where a lot of pass sales occur, and a certain amount of the bookings, and so that affected them.

I think those were sort of the factors that constrained it.

It is way too early now to have any color on what season pass sales or group sales will look like for next year.

We'll just really start the selling season as we get toward the end of the year here, and it really picks up in the first quarter of next year.

Okay.

And as far as the marketing campaign, I understand that you guys have switched agencies.

Is there anything that you can add as far as what the budget for '04 will be versus '03 and '02?

I think when it nets out, again, that's another thing that we're in the process of finalizing, I think we'll generally be flat in terms of total expenditures against marketing in '04 versus '03, and I do not believe that we've underspent in that area to market our parks; but I also don't see that we need to make any substantial increases as well.

Okay.

And last question is if you can add any color on any ongoing conversations with the rating agencies.

Well, right now there are none.

Standard & Poor's has resolved the credit watch as I'm sure everybody is aware.

Reducing by one notch, taking back basically the upgrade that they had given to us in early 2002.

There are no other conversations going on with either S & P or Moody's.

Thank you very much.

Thank you.

Your next question is coming from David Lyons of Prudential Equity Group.

Quick question on the unconsolidated parks.

Looks like you met the $300 million target that you laid out back in August and the variance, the $5 million variance, looks like is coming from the unconsolidated side.

Just curious if there was something specific maybe in Texas or Georgia that you saw that looks like it's going to be improving in the fourth quarter.

Is that just Halloween?

Is there something specific there?

I think it's a mixed issue.

You know, the exact breakdown between the consolidated EBITDA and the adjusted EBITDA is always an estimate at this point.

We've seen the improved performance really across the parks that continued, Dallas and Atlanta did have good strong finishes to their season which obviously helped, but it would be incorrect to isolate on that and say that that was really a unique event.

The parks in general had a good back end of the year.

Thank you.

Thank you.

Your next question is coming from Dean Gianoukos of J.P. Morgan.

Couple of questions.

If you gave these I'm sorry, but did you give domestic attendance and revenue excluding New Orleans?

Secondly, I know it's early, but is there any way you can give us a sense of 2004 season pass or group sales?

Finally, and this may be mistaken, but I thought on your last call you said you expected fixed costs to be up $15 to $20 million in '04.

Is that right, and is that still the case?

First off, on the fixed costs we did not ever say we expect it to be up $15 to $20 million in '04.

That was really an '03 number.

We do not expect the same level of fixed-cost increases heading into next year.

In terms of quarter attendance domestically without New Orleans was 14.1 million and revenues for the quarter were $453 million.

It's way too early to have any kind of read on season pass and group sales.

The group sale bookings really do not begin in earnest until the beginning of next year.

There are small levels of renewal business, but no discernible difference on trends on a year-over-year basis.

Season paces, same story.

People begin to buy those in early December as holiday gifts, but the main selling season for those does not kick off until next year.

Okay.

Thanks.

Thank you.

Our final question will be coming from Anthony DiClemente of Lehman Brothers.

We endeavor to calculate free cash flow on a normalized basis.

What is normalized free cash flow earnings power of the company?

I assume if we get normal regular weather patterns that the '04 adjust EBITDA should represent a normalized number.

I wondered if you could just talk about the cap ex.

I know you have a $75 million cap ex plan and that includes the partnership parks.

Beyond next season what do you view as a normalized level of cap ex for this company going forward?

Thank you.

First off, I'm not sure that we would be agreeing with your assumption that the '04 performance will necessarily be the normalized performance level.

As Kieran indicated both in his prepared remarks as well as in his response to questions, it is, in our view, the year at which we begin the process of returning the parks to average historic performance levels.

So by no means would we be saying that next year would necessarily be the stair-step year that establishes sort of the regular earnings power of the company.

We believe that there will be a stair-step year, but it is likely more to be '05 or '06 than '04.

With that having been said, as we also indicated we believe that in most years we will be spending $75 to $100 million in capital, which will include the expenditure at the unconsolidated operations on a go-forward basis.

Okay.

I guess just a follow up, if you can just elaborate just a little bit more on what the key reasons would be why '04, you know, assuming you get normal weather and improving macro economy, you know, the ride infrastructure seems to be in place, why we shouldn't look at '04 as kind of that normalized earnings year.

What are those key reasons?

I'm sorry if I missed that.

Again, I think that -- I mean, if you make enough assumptions, then I guess you can sort of characterize it.

I'm trying to deal more with to describe to our investors what I think, you know, appropriate assumptions are, and, you know, we hope the economy improves, but we have no better certainty of that than anybody else looking at it.

We do hope and would expect that we would have normalized weather, and, you know, but we also have to factor in the fact that consumers who still, you know, have the option to come based on a discretionary decision; how do they react and how long does it take for them to, you know, have a renewed optimism and that, you know, reflects itself in their spending habits.

There's a whole bunch of those factors, and I think when you go through two or three years like we've had, where, you know, we've fallen back from that roughly $400 million level of EBITDA.

To say that you think that in one year you make it all the way back, I don't think that's a rational set of assumptions, nor do I think, however, which I think was implicit in your question that whatever '04's results are somehow kind of stabilize the performance of the company.

I think that what we will see is a multi-year improvement going back to levels that are not peak levels by any stretch across the board at these parks.

There are a number of these parks that have the ability to go back to average levels that do a lot for our company.

I think we have, you know, a lot to be optimistic about over the longer term, in terms of where the performance of this set of assets and then overtime the ability to take the business; but I think it's, you know, a multi-year view.

But I do think that it's accurate that assuming that our investment levels are roughly in that $75 to $100 million as the average over the next few years; that's a good assumption, then obviously whatever you assume on the top side in terms of the growth of the EBITDA that really tells you the accelerating free cash flow story.

Okay.

Great.

Thanks for that.

Thanks.

Well, listen, thank you very much for being with us on the call.

Again, look forward to reporting to you over the next few months as we finalize our plans going into '04 and we'll be back to you on that.

Thank you.

Thank you.

This does conclude today's teleconference.

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