Six Flags Entertainment Corp (SIX) 2003 Q4 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Six Flags fourth quarter earnings year-end 2003 conference call.

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

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

Sir, you may begin.

Thank you, Maria.

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 fourth quarter and the year ended December 31st, 2003.

A copy of the 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 the general public, as well as analysts and investors.

The Company cautions you that comments made curing 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 its 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 the call will be considered fully disclosed.

In addition, in accordance with SEC 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 in the earnings release on the Company's website.

References by management to the call of EBITDA mean EBITDA modified which was formerly known as EBITDA adjusted, from consolidated operations, but now includes the results of the four parks that were previously unconsolidated.

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

Thank you, Joe.

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

We published our 2003 fourth quarter and full-year numbers last night.

The results were slightly better than the guidance we provided at the end of the third quarter.

I will focus most of my comments this morning on our outlook for the 2004 season.

Jim Dannhauser in his remarks will comment on the fourth quarter and full-year numbers.

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

2003 operating season was a very challenging one for us, as we have previously commented, we were not satisfied with our company-wide results in 2003 which saw a decline of a half of 1% in revenues resulting from a 1.8% decline in attendance, offset by a 1.4% increase in total per capita revenues.

We continued to control our variable expenses in 2003 but experienced the significant increase in certain fixed costs, such as, insurance, real estate taxes, and pension and medical benefits.

Increases which we do not expect to see in 2004.

As a result, adjusted EBITDA excluding the minority interest in EBITDA from the parks previously accounted for by the equity method was $331.2 million in 2003 as compared to $382.6 million in 2002.

As to the specifics of the results of the full-year period they do reflect the significant attendance decline caused by a persistent economic slowdown and very poor weather in a number of markets in the first half of the season.

At June 30th, 2003, system-wide park level revenues were down 3.9% from the same period in 2002, driven by a 3.9% decline in attendance at those parks with per capita revenues flat to the prior year.

In July, system-wide attendance was up slightly and per capita revenues for the month were up approximately 2%.

Performance improved markedly as the season unfolded from there with park operating revenue increasing by 5.3% from the end of July through November 2nd, the end of our core operating season.

The improved performance in the latter months of the season offset a portion of our poor start and provides an encouraging sign as we move into 2004.

Just as we experienced significant improvement in performance in the latter part of our season as weather returned to more normal patterns and the economic outlook began to improve, the other theme park operators who have commented publicly on performance and those to whom we have spoken privately, all report having a much stronger second half to their 2003 seasons.

Indications are that destination theme parks have enjoyed a continued strengthening in performance in the months since our season ended.

All of this supports our conviction that the downturn which our parks and the industry generally experienced over the last two to three years is cyclical in nature and not a secular problem.

We have completed our operating budgets for the 2004 season and our capital investment program is proceeding nicely.

We are encouraged by the strong finish in 2003, particularly at our Halloween events, and we are hopeful that we will see more normal weather patterns in 2004 and that the general economy will continue to strengthen.

However, because the economic environment remains uncertain, we have not taken material gate price increases or materially reduced our discount levels in most markets.

We do expect increased per capita revenues flowing from our investments in in-park spending opportunities.

We're investing less capital in the business for the 2004 season, approximately $75 million.

That is still a significant level of investment, particularly in light of the fact that we have 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 continue to believe that the prudent course of action is to reduce investment levels somewhat until the economic recovery solidifies and increased investments can have a more meaningful impact on performance.

Our capital program for 2004 includes marketable rides and attractions at a number of parks, investments aimed at increasing our in-park spending, as well as expenditures for general park appearance and guest amenities improving the overall look and feel of the parks and appealing to the entire family demographic.

To give you a flavor for a few of the marketable ride attractions we are adding for the 2004 season, in Chicago we're installing five new rides and a newly themed Mardi Gras section to the park.

The rides include two terrific family rides, two exciting teen rides, and the park's 13th coaster, named the Ragin' Cajun, great spinning family coaster.

Our park in Georgia is receiving five new rides, a new show, and several other park attractions and amenities for the entire family demographic.

The extensive package includes an expansion of the children's area and the park's 10th coaster themed around the Warner Brothers Looney Toon character Wile E. Coyote.

Our Denver park is receiving an exciting new half-pipe ride, where passengers repeatedly spin 360 degrees on a 16-passenger vehicle on their way to the rim of a ten-story tall half-pipe track.

Our Montreal park receives a giant splash boat ride.

We do not expect to experience in 2004 the significant fixed cost increases in areas like insurance, real estate taxes and pension and medical benefits that hurt us in 2003.

We are, however, adding back some significant operating expenses at our parks as part of our strategy to improve the guest experience.

We believe this is an essential step for us, one which will pay significant long-term dividends.

In terms of marketing, during our November call we described the agency review process we undertook last summer and our selection of Doner as our new agency of record.

Doner is the largest independently-owned agency in the world with 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, The May Company, and most recently, hotels.com.

We continue to be very pleased with their insights into our business challenges and are excited about the media and creative strategies they have developed for 2004.

Our new integrated advertising campaign has begun airing in a few markets where our parks will soon open for weekends.

It will break nationally the week of March 15.

This is the first time we will have a significant national media schedule in addition to our traditional spot buys in local park markets.

We will still have the strong local market media presence, but the overlay of this national media will extend our reach into every market of the country.

In addition, we're instituting a number of new marketing strategies which we believe will have a positive impact on our business in 2004 and beyond.

We're pleased to accomplish all this without increasing our marketing costs materially from 2003 levels.

As to our outlook for the year, 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 anticipated generating adjusted EBITDA of $345 to 350 million in 2004.

This is based on expected revenue growth of 4 to 5% driven by attendance growth of 2.5% and a per capita revenue increase of 2%.

Our operating season is just getting started with a limited number of parks commencing weekend operations.

Those parks in operation are performing in line with expectations.

In addition, while it is still very early, we are pacing in line with our targets for season pass sales and hard ticket group bookings.

With that I'll ask Jim Dannhauser to comment on the fourth quarter and 2003 full year numbers.

Thanks, Kieran.

Before I turn to the specifics of those financial results, I would like to point out that as indicated in our press release, we have as required adopted FIN 46 as of December 31st of 2003.

Under that interpretation, we consolidate Six Flags over Texas, Six Flags over Georgia, White Water, Atlanta, and Six Flags Marine World in our financial statements.

That includes our income statement, balance sheet, and statement of cash flows.

We have also presented the 2002 results on a consistent basis to provide meaningful period to period comparisons.

We will continue to provide historical information prepared with the application of FIN 46 throughout 2004.

Finally, we have also presented our income statement in the release as it would have been had FIN 46 not been applicable to assist those who are accustomed to looking at our performance on that basis.

I'll also review those performance statistics as I proceed with my remarks.

It's important to note FIN 46 does not change our adjusted EBITDA or our net income.

With that having been said, I'll turn to a review of the fourth quarter and full-year results which we released yesterday.

For the fourth quarter we reported revenues of $113 million, up $9.6 million, or 9.3%, from the fourth quarter of 2002.

On a same-park basis, excluding the results of the New Orleans park from both quarters, revenues were up $7.4 million, or 7.2% from the prior year period.

Had FIN 46 not been applied, revenues for the quarter would have been $91.4 million, up $8.6 million, or 10.4%, and up $6.4 million, 7.8%, on a pure same-park basis.

Adjusted EBITDA for the quarter was a negative $21.4 million as compared to a negative $13.3 million in the prior year period.

Net interest expense for quarter was $54.3 million, down $1.4 million from the 2002 quarter.

The impact of FIN 46 on interest expense was negligible, less than $600,000 in the quarter.

That reflects the very small amount of third-party debt at the partnership parks.

The municipal bond debt at Six Flags Marine World is not consolidated since we have no liability for that indebtedness.

Depreciation and amortization expense for the quarter was $49.6 million, up $5.4 million from the year-ago quarter, primarily as a result of the depreciation expense associated with our capital investments for 2003.

Absent FIN 46, depreciation and amortization expense for the quarter would have been $43.9 million, up $5.1 million from the 2002 period.

Net loss applicable to common stock for the quarter was $85 million, or 92 cents a share.

As for the full-year performance, total revenues were $1,237,000, down $5.6 million, or 0.5% from the 2002 performance.

Same-park revenues were down $28.8 million, or 2.3%.

The revenue decline for the year reflected a 1.8% decline in system-wide attendance, which was 3.8% decline calculated on a same-park basis.

That attendance decline was offset by a 1.4% increase in per capita revenues.

On a same-park basis, per capita revenues increased 1.6%.

Domestic full-year attendance was 32.9 million, down 465,000, or 1.4%, from 2003 levels.

Same-park domestic attendance was down 4%.

Domestic revenues were $1.38 billion, down $20.9 million or 2%.

Same-park domestic revenues for the year decreased by $44.1 million.

Total international revenues for the year were $198.3 million, up 8.3% over the prior year's performance of $183.1 million, driven by favorable exchange rate differentials.

International attendance was down 3.3% for the year and per capita revenues were up by 12.1%.

On a constant currency basis, international per caps were up 1% and revenues year-over-year were down by $4.8 million, or 2.4%.

Had FIN 46 not been applied to the 2003 numbers, consolidated revenues would have been essentially flat to the prior year at $1.04 billion, and down $22.7 million, or 2.2%, on a same-park basis.

Attendance at parks which had previously been classified as the consolidated parks, would have been down 1.7% year-over-year and per capita revenues up 1.4%.

Domestic attendance at the parks we had previously classified as consolidated would have been 26.2 million people for 2003, down 1.2% from the prior year level.

Domestic revenues would have been $840.1 million, down $14.8 million, or 1.7%, and domestic per capita revenues would have been $32.11, down 0.6%.

On a same-park basis, domestic attendance would have been down 1.2 million, domestic revenues down $38 million, and per capita revenues flat year-over-year.

International park performance was unaffected by FIN 46 because all of our reported operations there are, in fact, wholly owned.

Other than the interest in Spain which is reported on the equity method, it is only a 5% equity stake.

EBITDA for the year was $372.9 million, down $52.7 million from $425.6 million in the prior year.

Without the application of FIN 46, EBITDA from consolidated operations would have been $301.5 million, down $47.3 million from the 2002 figure.

Adjusted EBITDA for the year was $331.2 million, versus $382.6 million in 2002.

There is no difference in adjusted EBITDA under FIN 46 from that which would have been the result had FIN 46 not been applicable.

Net interest expense for the year was $214.5 million, down from $230.7 million in 2002.

Depreciation and amortization expense was $186.5 million up from $173 million in 2002.

Net loss applicable to common stock for the year was $83.7 million or 90 cents a share.

Net loss applicable to common stock, absent the loss from debt extinguishment, was $66.6 million, or 72 cents a share.

Net cash interest expense for 2003 was $186.3 million, $184.4 million without the interest expense from the partnership parks.

As to the balance sheet, gross debt at year end was $2.7 billion, and net debt was $2.25 billion.

Gross debt included the $422.6 million balance on our 9.75% notes due '07 which had been called for repayment in December.

It also includes the $325 million 9-5/8 notes due in 2014 which had been issued in December to fund a portion of that call.

Pro forma for the repayment of the '07 notes which occurred in January 2004, the issuance of the senior notes due 2014, and the $130 million expansion of our term loan which also occurred in January and funded balance of that call, gross debt at year end would have been $2.37 billion, and net debt $2.28 billion.

We had at year end $115.1 million of unrestricted cash and $317.9 million held in escrow for the retirement of the 2007 notes.

Our revolver balance was zero at the end of the year.

It is now at $95 million.

As you know we have $300 million committed on our revolver.

We also have approximately $80 million committed and available to us on our reducing revolver which is totally undrawn except for certain letters of credit issued under that facility, so we continue to enjoy quite substantial liquidity.

With our term loan expansion and the retirement of the '07 notes, our blended average interest rate excluding the working capital revolver, is 8.1%.

We expect our cash interest expense to be approximately $195 million this year.

With our December and January financing activities, we have no public debt maturing before the 9.5's of '09 which need to be retired by August 1st of 2008, and no meaningful amortization in our bank debt before September of 2008.

We also secured in the fourth quarter meaningful relaxation in our leverage and fixed charge covenants, as a result, we will remain comfortably in covenant compliance this year.

All that we need to do is achieve $295 million in adjusted EBITDA to remain in compliance.

With performance expectations for 2003 of $345 to $350 million in adjusted EBITDA, anticipated cash interest expense of $195 million, capital expenditures of $75 million, and preferred dividends of approximately $20 million, we should generate significant free cash flow in 2004 as we enter into a period of what should be sustained de-leveraging.

Kieran.

Thanks, Jim.

With that, Maria, we'd open the floor to questions.

Thank you.

The floor is now open for questions.

If you do have a question, you may press the number one followed by four on your touch-tone telephone at this time.

If at any point 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 your handset to provide optimum sound quality.

Once again, ladies and gentlemen, that is one followed by four on your touch-tone telephone at this time.

Your first question is coming from Grant Jordan of Wachovia Securities.

Please pose your question.

Good morning, Kieran, Jim, and Joe.

First question is, on Capex for 2003, what was the total number for that?

The total number on the cash flow statement for the full year was $112.9 million.

That now includes the capital expenditures at the previously classified partnership parks.

Okay.

So the $75 million outlook for '04 also includes the investments at the partnership parks?

That is correct.

Okay.

Just looking forward, as you're thinking about your Capex budget, I know you haven't given guidance out past '04, but do you think the $75 million is the right number, kind of two, three years from now, or is it just hard to tell?

I think the answer to that is that it's going to be a range, and I think that range is 75 to $100 million.

There may be a year at some juncture where we might invest $120, $125 million, but generally that range of $75 to $100 million is our target for now.

Okay.

And then finally, just thinking in terms of cash flows for '04, are there any significant cash inflows or outflows, tax refunds, land sales that we should be thinking about?

Well, as I think most people are aware we do not pay any material amount of cash taxes, given the level of NOLs that we have on the balance sheet, as well as the fact that in our industry we are entitled to depreciate for tax purposes all capital investments other than administrative buildings, over a seven-year period.

So we would not expect to be paying material taxes on a go-forward base for many years.

Similarly would not expect to see any significant level of refunds.

In terms of land sales, as we have indicated, we do in a couple of markets have excess land which is neither integral to the operation of the park as it exists, nor a part of the strategic long-term potential development opportunities at the parks, and we will look to monetize those.

We've made some progress in the Chicago market, for example.

I would expect that we would see some inflows from that transaction during the course of this year, but would not expect, as we've indicated, that there would be material inflows from those exercises.

We might, over a period of 18 months, see orders of magnitude in the $20 to $25 million range.

Great.

Thank you very much.

Thank you.

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

Please pose your question.

Yeah, good morning.

Jim, on the guidance, I would think that at first glance 4 to 5% revenue growth going into the new year, coupled with the fact that the pension costs that you mention in your prepared remarks, will be lighter going into the new year, that the EBITDA guidance looks a little conservative.

Can you comment on that or is there something I'm missing there?

And then I have a couple of follow-ups.

Thanks.

David, this is Kieran.

I think what I want to point out is that it is true in '03 we were faced with some significant fixed-cost increases in health, medical, pension, real estate taxes, insurance, and gratefully we don't face those steep increases in '04.

However, I think it's important to point out, as I mentioned in my prepared remarks, that we are adding back in at the park level some significant expenses in order to improve and enhance the guest experience, the ambiance of the park, and so I think that is part of why the flow-through to the EBITDA line in '04 will not be as significant on the revenue increase as it might in future years.

We think that's an important part of our long-term strategy, fitting in with a whole bunch of things that we're doing, including our marketing approach, our new media campaign, et cetera.

The other thing I would say, we're not being conservative for conservative sake, or to manage expectations.

What we're really trying to do is give our best look at what we think will happen in '04 based on what continues to be uncertainty around the economy and the strategies that we've put in place, as well as our experience in terms of how our business responds after what we hope is the conclusion of two or three years of a difficult economic environment.

We are being thoughtful about, for instance, season pass and group sales targets, we don't expect much more than 1 to 1.5% growth in those categories.

In particular, in group sales we think the recovery in those categories will be a little bit slower than in our walk-up business, as companies begin to feel a little bit better, our expectation is that they're not all going to flow back in terms of outings and things, and that that will take more time to come back, so that's really the reason for what our point of view is about expectations for the season.

Obviously, we'll work hard to meet or exceed those goals, but we think that's a fair view.

Okay.

And as of today, how many parks are in operations at this time, and also if you guys can quantify where your group bookings stand right now relative to last year at this time that would be great.

Right.

There really are only two parks in operation right now, our Los Angeles park, which has been in weekend operation since the end of the year, as well as our Mexico City park.

We will start to see parks open this weekend in our southeast and southwest markets, so we'll kind of rapidly start to see parks open as March progresses, they will be in weekend operations until we get close to Memorial Day, then we go full-time in terms of the openings.

As it relates to the group sales bookings, remember that at this point in time in the year we are tracking only the hard ticket group categories.

Right.

Which accounts for about half of the aggregate group business.

It is also, I point out, a couple of weeks early, our call this year, as compared to the time frame of last year.

Against our goal of 1 to 1.5% growth, we're doing well.

We have year to date 4% growth.

We've only done about a third of the full year expected bookings.

Obviously, that's a good trend but it's difficult to extrapolate from that as is the case with season pass sales, both they and group sales, really it is the next couple of months that will be the most important periods for those exercises.

It is at this juncture I would classify it as good news, but it is far too early to declare victory on that category.

Okay.

Thanks very much.

Thank you.

Thank you.

Our next question is coming from Anthony DiClemente with Lehman Brothers.

Please pose your question.

Hi, Jim, hi, Kieran.

My question pertains also to those hard ticket group sales, then also the group business.

If you could just tell us in '03 versus '02, what was the year-over-year decline in the hard ticket group sales, and then also what was the year-over-year decline in the season pass group sales?

And then following up to that, given your targets of 1 to 1.5% growth, what would be just a rough idea of what percentage of the total year attendance come from those two categories, please?

Thank you.

In terms of the decline in '03 compared to '02, our ticket group sales is off about 6% in '03 and the season pass sales off about 7%.

In terms of the total that those represent, season pass attendance represents about 25 to 26% of the attendance at the park.

Group sales represent as much as 33 to 35%.

That includes both the hard ticket group categories, as well as the soft ticket group categories like consignment sales and the like.

Coupons.

So that the hard ticket categories are roughly --.

Half that.

Okay.

Half of that, that's correct.

Gotcha.

And then one other follow-up.

I look at the 4Q, if you assume that FIN 46 had not been adopted, and the cost line is roughly $117 million versus $99 million in '02, just wondering if you could give us what the dollar amount that is attributable to the New Orleans park so we can kind of get a normalized year-over-year growth in cost and expenses there.

The New Orleans park was purchased in August of 2002, so we haven't -- the reason I gave same park performance numbers in the fourth quarter earlier was that obviously New Orleans benefited this year from a material capital program, and so not looking at the revenue growth backing out New Orleans is a little bit -- not tainting a true picture of the performance.

So we had the expenses in both quarters, but this year obviously we had a slightly higher level of expense that was about $750,000 increase from there.

Most of the increase in the quarter expenses was really timing.

We did have currencies accounting for about $3 million of expense increase.

We obviously continued to have the proportional share of the fixed-cost increases that drove the increases that you'll see.

I think it's a better picture, frankly, to look at it on a full-year basis, where if we had an increase in aggregate cost of goods sold, SG&A and operating expenses of about $47 million year-over-year in '03 versus '02, and I'm now speaking on a basis of including the expenses at the partnership parks but it's not a material difference, New Orleans accounted for $15.8 million of that increase, currency modifications accounted for $16.5 million, so you're at over $32 million of increase from those two categories.

We had an increase in our insurance costs system-wide of over $9 million in '03, over $3 million in real-estate taxes, a little bit over $5 million in terms of the fringe benefit expense increase which include pension planning, Workers' Comp, and the like.

So if you take those categories of fixed cost increases together with New Orleans and the currency impact you're at slightly over $50 million of expense increase.

The total gross expense is actually only increased by $47.1 million.

That's great.

Thank you.

Thanks, Anthony.

Thank you.

As another reminder if you do have a question, you may press the number one followed by four on your touch-tone telephone at this time.

Our next question is coming from John Coats with Omega Advisors.

Please pose your question.

Good morning, Jim.

Hi, John.

More of a follow-up on David's question.

The midpoint of your guidance implies EBITDA margins, or adjusted EBITDA margins of about 35% on incremental revenue.

Can we talk about the nature of these add-backs to operating expense?

If they are successful in improving the guest experience in '04, why won't these be recurring in '05?

So what do you expect the margins on incremental revenues going forward beyond '04 to be?

Thank you.

Yes.

I think what I would point out is that the expenses that we are adding in to impact the guest experience in '04 would continue in '05 but they would not be necessarily increased because we think that we're taking the right types of steps that would be generally the levels of expenditures at those parks, so they don't increase.

And I would say that as a consequence on a go-forward basis that increased revenues would, therefore, flow through at about 65% to the EBITDA line.

Thank you.

Thank you.

Our next question is coming from Kit Spring of Stifel Nicolaus.

Please pose your question.

Couple of questions.

First, the attendance forecast of 2.5% seems like it could be conservative to me given how easy the comparisons are.

Just wondering if you could just comment on that.

And also what you think the long-term attendance growth is in a normalized economy.

Is it in line with the population or higher or lower?

And then if, indeed, attendance growth is higher than the 2.5%, do you expect most of that to flow through to the bottom line or what do you expect that you need to increase your variable costs to account for the higher attendance?

Thanks.

Well, I guess what I would say is the following, I really don't think in this coming year that the environment suggests that necessarily there are easy comps, and I think we've acknowledged some of the external forces that impacted our performance in '03, our response is that we're taking to them, but I would continue to argue that there will -- the way our business will come back hopefully as the economy sustains its improvement and hopefully as we have normal weather patterns, not great weather, but just normal patterns, it doesn't all come back in one fell swoop, so I think that those targets for attendance increases are the appropriate ones.

They've been vetted very carefully on a park-by-park basis based on the individual parks competitive set, the dynamics in those markets in terms of the group sale bookings and season pass and pricing et cetera.

So I think that's a very intelligent, educated point of view about the attendance increases.

As far as on a go-forward basis, I suppose one could say that you could try to look at what are the sort of gross percentages by which attendance will increase as the economy stabilizes, et cetera.

But I would frankly say the better way to look is that we do have a number of major markets, New Jersey, Chicago, Los Angeles, which had been really impacted by the last two to three years in terms of the external forces where they have not had anything regarding the overall performances of those parks or their other characteristics that would prevent them from penetrating their markets in the future at levels that they have on average penetrated the markets, whether you take five-year averages, ten-year averages, in some cases 15-year averages, so we actually have quite a lot of attendance growth to grow back to historic levels in really the big markets that will drive our business.

So while I think that the recovery will be somewhat muted in '04 because of all the factors we described, I think that over the three to five-year horizon we've got a great opportunity in North America to really just go back to historic averages which, given the flow-through to EBITDA as we get that operating leverage rolling, will be impactful, and that's really one of the reasons we're pretty encouraged about the long-term horizons of the Company.

We will not have to make significant expense increases to handle higher flows of attendance because these parks have ample attractions and have handled much higher attendance levels over the course of their history, so we're in good shape on that front.

Thank you.

Our next question is coming from Bill Moore of Hamilton Investment.

Please pose your question.

Actually my questions are on the '04 guidance and the attendance, so it's been covered.

Thanks.

Thank you, Bill.

Once again, ladies and gentlemen, if you do have a question, you may press the number one followed by four on your touch-tone telephone at this time.

Our next question is coming from John Maxwell of Merrill Lynch.

Please pose your question.

Good morning.

Couple of questions, if I could.

Just on the group sales, Kieran, when you talk about, you're pretty confident that the business is not in a secular decline but just the effect of the economy, do you expect that group sales for the people that didn't book to come back, or are you going to be targeting possibly different groups to market to?

Well, it's both, of course, and I think that what we certainly are not just sitting back waiting for the economy to just improve, and so, we continue to direct our sales teams and our telemarketing and direct marketing approaches to go after new areas of group sales opportunity, as well as to continue to go hard against traditional clients.

And so I do think that as the next couple of years emerge we're going to see our group sales come back, but I think, again, given the environment, that we'll come back gradually, although we'll keep a very hard effort against it and I think we'll do okay there.

Okay.

Great.

And, Jim, I guess, based on your estimates of roughly around $60 million of free cash flow in '04 what's the use of that going to be?

As we've indicated, we would anticipate using the lions share of that to reduce outstanding leverage.

Okay.

Great, thank you.

Thank you.

Thank you.

Our next question is a follow-up question from Kit Spring of Stifel Nicolaus.

Please go ahead.

Are you still seeing discounting in Los Angeles?

Thanks.

From competitors and unique discounting relative to other markets.

Thanks.

Well, I think as we've indicated in the past, Los Angeles is probably next to Orlando, the most competitive market in the country for theme parks, and it's really our most competitive market but we have an outstanding park there in the Six Flags Magic Mountain, a great niche, and our business, notwithstanding the opening of the second gated attraction at Disney and really aggressive discounting over the last three to five years has held up very well and we would expect it to and we've responded in innovative ways to maintain our market share there.

But no doubt, the competitors there continue to have similar discount levels as they have, and I think that is consistent with what I said earlier.

I don't think anybody else is expecting that all the business comes back in one year or that is emboldened to either increase prices materially or shrink back discounts materially.

So that remains a competitive environment but one in which we certainly will hold our own.

Thanks.

And year to date, we're pretty much in line with last year's performance, in fact slightly ahead.

Right.

Thank you.

Gentlemen, I'm showing no further questions at this time.

I would like to hand the floor back over to you for any closing remarks.

Thank you very much.

Appreciate everyone's attention.

We look forward to speaking with you probably in May as we have our next conference call and have substantially greater operating performance and sales under our belts to be able to speak more about the '04 season.

Thank you.

Thank you.

This does conclude today's teleconference.

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