Six Flags Entertainment Corp (SIX) 2004 Q3 法說會逐字稿

Good morning, ladies and gentlemen.

And welcome to the Six Flags third quarter earnings release 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's now my pleasure to turn the floor over to your host, Erika Levy.

Ma'am, you may begin.

Thank you.

Good morning.

This Erika Levy of KCSA, Six Flags Investor Relations Advisor.

Last night the Company released its financial and operating results for the third quarter and 9 months of 2004.

A copy of the earnings release is available on the Company's website at www.sixflags.com under the heading Investors.

Before I turn the call over to the Company's executive, they've asked me to remind you that, in compliance with SEC Regulation FD, the webcast is being made available to the media and the general public, as well as analysts and investors.

The Company cautions you that comments made during the call will include forward-looking statements with 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 2003 annual report on Form 10-K, which is also posted on its website, for a detailed discussion of these risks.

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

In accordance with SEC Regulation G, non-GAAP financial measures used in the earnings release and in the Company's oral presentation today are required to be reconciled to the most directly comparable GAAP measure.

Those reconciliations are available to investors in the earnings release and on the Company's website.

References by management in this call to EBITDA mean EBITDA modified, which was formally known as EBITDA adjusted from consolidated operations, but now includes the results of the 4 parks that were previously unconsolidated.

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

Good morning.

Thank you for joining us on today's call.

Last evening we published our third quarter and 9 month results and reiterated our guidance on our full year expectations.

I will focus my remarks this morning on full year performance and our plans for next year.

Then after Jim Dannhauser comments on the quarterly and 9 month numbers, we will open the floor to questions.

I will begin by observing that, while we are not at all satisfied with our 2004 performance, we believe that important progress has been made on several key fronts, which we believe position the Company for significant growth in 2005 and beyond.

At the end of 2003, following two difficult seasons for our Company and the theme park industry generally, we put in motion a comprehensive multi-year plan to restore our parks to average historic performance levels.

As part of that plan in early 2004, we sold under performing assets including our European division and park outside Cleveland and certain excess real estate in the Chicago market.

We focused our 2004 capital investment on infrastructure and guest amenities to improve the look and feel of our parks.

We carefully increased operating expenses to improve the quality of our product and the guest experience.

Based on our guest surveys, we have made great strides in delivering a better quality guest experience in 2004.

We are also encouraged that in park spending increased materially, continuing a multi-year trend.

After extensive search we changed advertising agencies and selected Doner, the largest agency in the world.

Together we developed a break through marketing campaign deployed on a local and national basis, which as confirmed by independent research, has achieved very high levels of likability, recall and brand recognition across a broad demographic spectrum of moms, teens and kids.

Year 2 of that marketing campaign, combined with the addition of powerful rides and attractions in multiple markets, should enable us to enjoy a solid rebound performance next year.

Our performance target for next year remains 300 million in adjusted EBITDA and 325 million for 2006.

In terms of 2004, with the exception of various weekends and holiday operations in 3 markets, all of our parks have concluded their operating seasons.

We now expect full year 2004 attendance of approximately 33.2 million and revenues of approximately 1 billion 23 million to 1 billion 26 million.

While we continue to control our expenses carefully, we did add approximately 15 million in planned operating expenses to enhance the guest experience in 2004, therefore we expect full year 2004 adjusted EBITDA of approximately 250 to 255 million, a level consistent with the expectation set forth in our October 14 press release.

At the time of our August conference call, we described in detail the factors negatively affecting our results in 2004.

It has been a very challenging operating environment for the last several seasons.

While the general economic weakness that has negatively impacted the entire theme park industry, regional and destination parks alike for the last 3 seasons has abated somewhat.

The economic recovery has been inconsistent, both demographically and geographically.

Lower and middle income consumers, who make up the majority of our customers, have not benefited from the economic recovery to the same extent as upper income families.

Job creation and wage growth, the 2 most important economic factors affecting our customers, have been inconsistent.

Further, 2004 weather proved to be as challenging as it was in 2003, just hitting us in different markets at different times.

In addition, certain important long term strategic decisions we made regarding the nature and level of capital investment increased operating expenses to enhance guest experience, which we remain convinced will yield long term benefits, nonetheless put some pressure on short term 2004 performance.

While full year 2004 results are below original expectations, we believe that we have seen the bottom of a difficult period in our industry and our Company's performance.

The destination parks, which had declined first and farthest since 2000 enjoyed a strong rebound in performance in 2004, benefiting from the return of international tourism, the introduction of new rides and attractions, and the economic recovery of higher income families.

The recovery of the destination parks is encouraging and it affirms the continued attractiveness of the theme park experience for the American consumer and suggests that regional parks will benefit with the return of more normal weather patterns and an improvement in the economic conditions affecting our core customers.

We have also seen the beginning emergence of the success of our initiatives.

We drove an increase in our in-park spending per capita by approximately 5%, following on several years of solid in-park spending growth.

Over the past 3 seasons, with controlled investment, our in-park spending per capita has grown by over 12% cumulatively.

We believe with controlled investments, we can continue to drive in-park spending in our parks for several seasons to come.

Although we invested substantially less capital in our parks in 2004, with a direct and meaningful proportion of that investment toward infrastructure and guest amenities, we did made controlled investments in certain marketable attractions with full appeal and had good success.

For example, we saw attendance growth in Atlanta of approximately 5.2%, driven by modest capital expenditure on an addition of family rides and multi-season effort to improve the employee base and guest services.

We drove a 6.3% revenue increase at San Antonio with a ride addition that cost only $1.2 million.

In San Francisco, investments in the killer whale show and the in-park revenue outlets drove 5% increase in revenue.

The addition of $2.8 million shoot-the-shoot giant splash ride helped drive an attendance increase to 100,000 patrons at our Montreal park.

And notwithstanding the external environment, we saw stable perform in our parks in Chicago, L.A., and Dallas, with modest capital additions.

In addition our capital investments in park appearance and guest amenities, combined with increased operating expenses to enhance the guest experience at our parks, are clearly working.

We have seen a significant increase in guest satisfaction based on our customer surveys.

We are convinced that continuing these efforts next year and in subsequent seasons will pay dividends in terms of repeat visitation and positive word of mouth.

The good news is that we believe we are now generally spending appropriate levels to continue to provide appropriate guest service, so we are not anticipating significant operating increases in this regard in 2005.

Our new advertising campaign is another bright spot for us in 2004, although it failed, on its own, to overcome the continued economic weakness and second year in row below average weather.

The new campaign, with an iconic character and signature music, has exceeded any expectations we could have set forth.

Several of the commercials scored in top 10 of new national commercials in terms of recall and likability based on testing by AdAge Magazine and Intermedia Advertising Group.

Our campaign has generated enormous amounts of free p.r., including guest appearances on Good Morning America and the Dave Letterman Show and an extraordinary amount of coverage in the national and local print and electronic media.

The commercials clearly break through the clutter to generate high recall and brand recognition.

This campaign will be an even more valuable tool in our advertising next year, as we use it to introduce and market a powerful set of new rides and attractions at our parks.

We have a comprehensive plan in place to restore our parks' performance and deliver meaningful growth in 2005 and beyond.

This strategy includes continued focus on improving guest service, the continuation of our integrated national and local advertising campaign, and a strong lineup of capital additions to our parks.

The increased operating expenses to improve the guest experience and undertaking a meaningful investment in park infrastructure and guest amenities in 2004, we are now in a position to add substantial family and teen rides over the next few seasons to a wide array of parks.

Our 2005 capital plan encompasses new attractions in 13 of our 18 domestic theme parks, a major new ride in our park in Mexico City, and a new children's area in our Montreal park.

Our largest initiatives are focused in our most significant markets, New Jersey and Chicago.

Chicago will receive a major new state of the art water park.

We enjoy a tremendous market position in Chicago, with no theme park competition in either Milwaukee or Chicago, and no major water park in either DMA.

The addition of this water park should drive several hundred thousand and increase visitation in 2005.

Our New Jersey park is an extraordinary asset.

It comprises over 2200 acres and an excellent location, with great highway access and equal proximity to New York and Philadelphia, the number 1 and 4 DMA's, respectively, in the country.

The complex includes 3 separate attractions, the nation's largest regional theme park with over 100 rides and attractions, a very large, well- themed water park and the largest drive through safari outside of Africa.

In 2004, we undertook significant investment in park improvements, including new or refurbished walkways, landscaping, dress rooms, new sound system and a complete refurbishment of a major stadium with a new stunt show.

In 2005, New Jersey, a market that always responds well to new capital, receives a dramatic new jungle-themed 11 acre entertainment section.

The new section will be anchored by a world record setting roller coaster and will include a new stadium for unique tiger shows, an expansive new children's area, as well as shops and food outlets.

As with our efforts in Chicago, we expect these improvements to drive several hundred thousand in increased visitation in New Jersey, although still well short of this facility's peak attendance in the mid-90s.

We are in the process of master planning the long term development of this asset, which will be a key driver of our Company's future growth.

In San Francisco, we are building on the park's unique animal and marine mammal heritage, by adding a new section which includes several sea life attractions, as well as in-park revenue outlets.

These additions will afford our guests the opportunity to observe, feed, and interact with a variety of sea life up close, in an intimate setting.

We will be expanding our swim with the dolphins program.

We expect that the steel hyper coaster we were adding in Mexico City, the tallest and fastest ride of its kind in Latin and South America, will ignite that market.

The wonderful new children's area in Montreal, which will include over 10 attractions, continues our successful multi-year redevelopment of La Ronde.

And our parks in New England, Atlanta, Washington, D.C., St. Louis, Lake George, Louisville, Seattle and Denver will also be receiving marketable rides.

And our parks in Dallas, San Antonio and L.A. will receive new show product.

We will also continue our investment against in-park spending, where we have seen strong year-over-year growth over the last several seasons.

In all, we expect are capital programs to entail an expenditure of approximately $130 million.

We believe that this capital program, when combined with our break through marketing campaign and enhanced guest service, should yield solid attendance and revenue growth next year and set the stage for meaningful growth the next several years, as we restore park performance to average historic levels.

We continue to make solid progress in both promotions and sponsorship.

Our partnership with Coca-Cola, for instance, is very powerful.

We have park offers on 2.2 billion soda cans each year, at no cost to us.

Coke provides substantial media support.

Further, we distribute 360 million discount coupons systemwide, through various QSR and retail partners.

And having built a national footprint, we are pursuing national promotional relationships with partners who will provide media support that drives both attendance and brand awareness.

We continue to make solid progress in the sponsorship area.

We doubled cash sponsorship revenues from 1998 to 2003.

However, we concluded that we had reached a plateau with our existing external sponsorship agency and, as a result in late 2003, we switched agencies to a group whose executives previously ran Octagon and Momentum Worldwide, the largest sports and entertainment marketing divisions of ICG.

We believe that cash sponsorship is, in time, a 35 to $40 million a year opportunity.

We currently do about 29 million.

We are also having success expanding national and local promotions with co-op media.

These efforts have been substantially aided by our highly visible advertising campaign.

With that I will turn it over to Jim Dannhauser to discuss the third quarter 9 month numbers.

Thanks, Kieran.

I will start by reviewing and providing some greater detail on the quarterly results, which we released yesterday evening.

As a reminder, the reported results now reflect the consolidation of the results of Six Flags over Georgia and Whitewater Atlanta, the nearby water park, Six Flags over Texas, and Six Flags Marine World, all in accordance with financial interpretation number 46.

They also reflect the treatment, as discontinued operations, of our European division and our Cleveland park, with all of those parks results excluded from revenue, expenses and EBITDA and reflected only in a discontinued operations line.

The information in yesterday's release for the 2003 periods has been presented utilizing the same principles.

You will recall that we have also previously provided comparable quarterly information on a historic basis for 2002 and 2003 on our website and also furnished in an 8-K filed earlier this year.

With that having been said, third quarter revenues for 2004 were 527.4 million, down 17.8 million or 3.3% from the third quarter last year.

In the 2004 quarter, our domestic operations achieved $499.2 million in revenues on attendance of 15.6 million, versus 518.1 million in revenues and attendance of 16.5 million in the year ago period.

International operations, which now include only Mexico and Montreal, generated $28.2 million in revenues in the 2004 quarter, as compared to $27 million last year, on attendance of 1.4 million this year, and 1.3 million in 2003.

Cash expenses, including operating expenses, SG&A, and cost of goods sold, but excluding depreciation and amortization, as well as non-cash compensation expense, were $7.2 million higher, that's 3%, in the third quarter than they were in the third quarter of 2003.

This reflects anticipated increases in salary and wage expense, especially seasonal labor and fringe benefits, reflecting the implementation of our plan to make system-wide guest service improvements for the 2004 season, as well as an increase in advertising expenses that hit the quarter.

On an overall basis, expenses for the quarter were in line with plan.

EBITDA, including 100% of the performance of the partnership parks, was $28.1 million, $24.9 million lower than the prior year.

And adjusted EBITDA, excluding the third party share of the performance of the partnership park operations, was 253.8 million, as compared to $277.9 million in the 2003 quarter.

Park level EBITDA from domestic operations, including the partnership parks, was $273.4 million.

Park level EBITDA from international operations was 13.8 million.

Depreciation and amortization expense for the quarter was $37.5 million, as compared to $35.4 million in the prior year period.

Net interest expense was $44.8 million for the quarter, as compared to $51.5 million last year, reflecting the benefit of the aggregate $260 million of debt pay downs that we have affected this year with the proceeds of the sales of the Cleveland park and the European division.

During the quarter, we recognized a non-cash impairment loss in our investment in the Madrid park and related intangible assets of $14.4 million.

The Madrid park's performance has been far below the levels of attendance revenues and cash flow which had been originally anticipated and which are necessary to enable the park to meet its substantial debt obligations.

It's important to remember that we bear no responsibility for any of those debt obligations.

We were nearing completion of negotiations with the other parties involved in this situation, under which we will terminate our management of the park, a position which was generating less than $1.5 million in annual revenues for us, and surrender our 5% ownership interest for nominal consideration.

Since it is more likely than not that we will not hold this investment for the long term, we determined that we should take a write off for our entire investment at this time.

Again, this is a one time non-cash loss, which will have no meaningful impact on going operations.

As a result, income from continuing operations before taxes was $157.5 million for the quarter versus $191.5 million in the year ago period.

Absent the impairment charge, the income from continuing operations this year would have been $171.8 million, as compared to $191.5 million a year ago.

Income tax expense for the quarter was $101.1 million, as compared to $74.4 million in the year ago period.

The income tax expense was increased by a non-cash valuation allowance of $39.2 million, which we determined to create with respect to our financial deferred tax asset in the quarter.

Given the loss incurred in connection with our asset sales earlier in the year, and the unexpected reduction in operating income in the third quarter, we did not believe it probable that the deferred tax asset which would have existed, absent the valuation allowance, would be realized.

This allowance has no affect on our limited current cash tax obligations and does not affect the utilization of our tax loss carry forwards to reduce taxable income that we may generate in the future.

Additionally, approximately 72% of our over $1.3 billion in NOL's do not begin to expire until 2018.

As a result, income applicable to common stock was $50.9 million or 53 cents per share, as compared to $134.7 million in the year ago quarter or 111.5 million without the income from discontinued operations.

Income from continuing operations this year would have been 110.3 million or only $6.8 million less than last year, without the Madrid impairment. the tax valuation allowance, and the net loss on the early repurchase of debt, which we experienced in the quarter.

In terms of the 9 month numbers, revenues were $928.6 million, down 21.8 million or 2.3% from the 9 month period in 2003.

Attendance was down 1.4 million people in the 9 months or 4.5%, while per capita revenues increased by 2.3%.

Cash expenses were up $14.2 million, or 2.4% from planned increases in salary and wage expenses, repair and maintenance expenditures, and a slight increase in advertising expense.

As a result, EBITDA was $311.7 million, down from $347.7 million in '03, and adjusted EBITDA for the 9 months was $265.9 million, down from $303.5 million in the prior year.

Net loss for the period reflects the loss from discontinued operations recognized in the first quarter of $287.6 million, inclusive of tax benefits.

The loss from continuing operations for this year was 67.7 million.

The prior year had income from continuing operations of $4.2 million.

The 2004 period loss also reflects the Madrid impairment and the tax valuation allowance.

And both this year and the prior year periods reflect a loss on early repurchase of debt.

Absent the impairment charge, the valuation allowance, and the early repurchase of debt, the income from continuing operations this year would have been $5.6 million for the 9 months, as compared to 21.4 million in the year ago period, a difference of $15.8 million.

In terms of the balance sheet, gross debt at quarter end was $2.1 billion.

Net debt was 1.9 billion.

We have retired approximately $260 million of permanent debt this year from the asset sales, which will give us pro forma full year interest savings of approximately $20 million.

Our blended interest rate is approximately 8.17%.

We had a cash balance of $177 million at the end of the quarter.

We have no public debt maturities before 2009 and our bank loan does not begin any material amortization until the third quarter of 2008.

So we remain in very comfortable position in terms of liquidity, with a substantial cash balance and no outstanding borrowings on our $300 million committed working capital revolver, as well as the full availability of $100 million backup facility.

Finally, we recently secured an amendment to two of the financial covenants in our credit agreement.

Our leverage covenant was relaxed through 2006 and our fixed charge coverage test was relaxed through 2007.

As a result, depending upon levels of capital expenditures and the amounts which we consider to be discretionary, we would expect to remain in full compliance with the covenants in our credit agreement for 2005, so long as we achieve approximately $250 million of adjusted EBITDA in that year.

We will remain in compliance through 2006, so long as we achieve adjusted EBITDA of approximately 275 to $280 million.

We are very pleased to have put this amendment in place.

We were not out of compliance before the modification, but it does afford a significant cushion as we implement our plans for the intermediate future.

Kieran?

Thanks, Jim.

Before opening the floor to questions, I would like to make a few other observations.

The challenging performance environment over the last several years has affected all industry participants, including both regional and destination parks.

Within the regional industry, the effect of the economic slowdown and adverse weather has been felt differently depending on geographic location and concentration of operations.

These external factors do not excuse our poor performance over the past 3 years.

That said, we believe our Company continues to enjoy a number of substantial and important attributes.

We control a broad footprint of high quality assets, with a presence in numerous major markets and the power of a leading brand.

Our parks are, in effect, regional monopolies.

We have limited competition in most markets and there are no significant barriers -- and there are significant barriers to entry.

We command a leading presence in the theme park industry, a resilient industry which we believe is at an inflection point of recovery after a difficult period over the last few years.

We have a well-developed, comprehensive strategy in place to restore average historic performance levels at our parks over several years beginning in 2005.

This includes a continued focus on improved guest experience at our parks and continued effort at increasing our per capita revenues, both in-park, where we have had good success these past 3 years, and at the gate.

Having increased operating expenses to improve the guest experience and undertaken a meaningful investment in park infrastructure and guest amenities in 2004, we're now positioned to add family and teen rides and attractions over the next few seasons to a wide array of parks.

These exciting additions, when combined with our break through advertising campaign, should fuel solid revenue growth.

With the benefit of the operating leverage in the business, this should lead to a meaningful increase in cash flow for the next several years.

We are convinced that our strategic plan, being implemented by a management team with deep experience in what is an operating-intensive business, is the right one for our Company and will restore our parks' performance in 2005 and beyond.

As performance improves, we will have the ability to begin a sustained period in which we will deliver the balance sheet.

We are in a critical period of implementing our 2005 plan.

Our capital projects are underway, our new commercial is in production, and media schedule is being placed, and our budgeting process is in full swing.

With that, I will open the floor to questions.

Thank you.

The floor is now open for questions. (OPERATOR INSTRUCTIONS) Our first question is coming from Grant Jordan with Wachovia Securities.

Please pose your question.

Good morning.

Couple of housekeeping questions first.

If you can give us the level of CapEx spent in the quarter and then if there's been any debt repurchases since the end of the quarter.

Then my final question is, just kind of looking at your target customers, you talked about how the economic slowdown has hurt lower-middle income families more.

Just wondering, how are you focusing your spending dollars going forward?

Is it more on families or teens?

Or which of those customer segments do you think underperformed the most this year?

In terms of the CapEx for the quarter, it was about $20 million.

Since the end of the quarter, there has been no debt repurchasing going on.

All of the debt reduction is reflected in the balance at September 30.

In terms of where we saw erosion demographically, it actually varies market-by-market, in terms of the type and style of park, what might have been the investment in a particular year.

That said, I think it would probably be accurate to say that, over the last several years we probably had more losses in our family demographic and that probably reflects not only external forces on the family, but perhaps, somewhat, our selection of rides and attractions over the last decade and perhaps as well, the style of our commercials prior to this past year.

In terms of our forward-looking direction, frankly we're targeting the entire spectrum, everybody.

We will look market-by-market in terms of ride and attraction selection, and pick where we think we have the best opportunities, not only near term, but really in order to build the appropriate bases against all of the demos going forward.

What is clear to us is that we think that our advertising campaign, based not only on the research that we have done prior to putting it in place, but all the research that's been conducted over the course of this season, and even some done by independent parties, including a very well respected research firm for Coca-Cola, which came back with incredibly high scores, not only against moms but teens as well.

And we think that overall ad campaign will enable us to reach all demos well and wrap that around our CapEx.

Sir, does that answer your question?

Yes, thank you.

Thank you.

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

Good morning, guys.

Kieran, I was wondering if you could touch a little bit on what is giving you the confidence of the turnaround that's expected next year?

Is it the guest surveys?

Just what you are seeing in the business?

I'm just trying to see how you can quantify, 'cause, with all due respect, the past 3 years, we've always been expecting that improvement that just hasn't materialized yet.

I'm wondering what is different now that we will make '05 different?

We certainly have shared that frustration with results.

I guess I would say it's many things.

First, we really did step back in 2003, due to comprehensive review of the business, took a number of significant steps which I outlined earlier.

Everything from disposing of underperforming assets, changing ad agencies, sponsorship agencies.

Really deciding to take somewhat of a step back in '04 and really address, both from a capital as well as an expense point of view, our levels of guest service and positioning.

So from my point of view, I think a number of those steps really bear fruit over the longer haul.

So I'm confident that we will pick up momentum with those.

Second, while we are disappointed with the results when you look at the revenue shortfall, it is somewhat concentrated in a few markets.

Ones which were the hardest hit by weather and one, in particular, that was very much affected by a regrettable accident at the beginning of its operating season.

So when I look at a number of markets, whether it be Dallas or Chicago or L.A., you know big markets, we actually had very stable performance.

We didn't get the growth we wanted.

But it really has given me a clear sense, along with all of the research we did, which we did a significant amount of research, that we have kind of hit a bottom here.

And I think that the steps that we took really have positioned us and so as, we are coming into next year, we got a great opportunity and I think that the capital that we chosen, first of all, by concentrating very hard against some major markets, where we have just tremendous opportunity, given market size, given our competitive position in both Chicago and New Jersey, and we have selected our capital very carefully.

We have always had huge success with water park additions.

Chicago, again, huge market.

Milwaukee, Chicago.

No other theme parks.

The only major market in the country that doesn't have a major water park.

And so, putting that in place with what is already a great theme park, we think is just going to drive significant growth there, which is just growth to recapture where that park was for several years throughout the '90s.

And very important, where we had some of our losses, close-in to that park and amongst families, this is the exact right type of product to appeal to them.

I feel good about that market.

New Jersey, you are talking about the largest market in the country.

You are talking about an extremely large asset.

The one which, probably from its inception 30 years ago, has never really been given -- while we put great rides in there and prior owners and management teams have as well, never really had the first of anything.

So next year it, first of all, gets an 11 acre section, which is huge.

It's fully themed.

There is going to be a world record setting coaster.

It will be the world's tallest. 460 feet and achieve speeds at 128 miles per hour.

It will electrify the market.

At the same time, it's going in a section that will have a truly unique tiger show stadium, where our trainers are in with the tigers -- swimming themed tigers.

It's going to be a phenomenal product for our families, really exploding style of show that has been successful for us at our San Francisco park.

And then included in that section is a unique children's area, giant climbing structures, wet and dry play, as well as a number of rides, and then, of course, shopping and food outlets, all of which has an integrated team.

I can tell you that I think it will drive enormous performance, but not simply in '05.

I think it's part of a multi-year strategy that sets us up to take full advantage of what is a very unique asset, with over 2200 acres, 3 separate gates.

And I look at that and then, as I was identifying earlier, we are also putting very interesting capital on a whole bunch of other markets.

And so I think that the combination of year 2 of the campaign where we have so successfully established the character, the music and the identity, to be able to wrap that campaign around these marketable attractions and have year 2 of enhanced guest service, I think that's all going to come together to drive the performance that we've set forth and then position us to grow from there in '06.

Next question?

Once again, ladies and gentlemen, due to time restraints, please limit yourself to one question.

Our next question is coming from Leonardo Zraick from Smith Barney.

Good morning, gentlemen.

My question actually has to do with -- I understand the weather has been a determining factor for you guys in terms of markets.

The fact that you are putting -- placing a bet on the new park in Chicago, happens to be a water park.

I understand the water park is even more sensitive to weather shifts and cool weather, et cetera.

Is that a concern?

Do you -- are you concerned that park could under perform expectations because of weather?

Look, weather will always be a factor in the business.

And I think, to be fair, what we have experienced in the last 2 years is probably unseasonable weather 2 years in a row, that's not likely to duplicate itself in a 5 or 10 year patterns.

But that doesn't mean we can predict what the weather is next year.

With that said, Chicago is an extremely large market between Milwaukee and Chicago.

And over the course of the 120-day season, I'm very confident that we are going to do a significant amount of business regardless of whether we get a strong weather year or poor weather year.

And it isn't the only capital strategy that we have at work.

We obviously have what I've described in New Jersey and then in 13 out of our 18 domestic parks, as well as in Montreal and Mexico.

I think that we have a lot of capital spread throughout a number of markets which should hedge us well against wherever weather shows up, which it will.

And yet we got some out-sized opportunity given those market sizes and the types of assets we are putting in play in Chicago and New Jersey.

And our water parks have been very steady performers.

This year, our water parks in the aggregate, will deliver EBITDA just about flat the last year.

That was the case in 2002 as well.

Thank you.

Thank you.

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

Please pose your question.

Kieran, can you detail what Dan Snyder's involvement is, at this time, with your management team and what his intentions might be.

I haven't really heard much about it since he filed his schedule 13-D and I'm skeptical that he really brings anything to the table, in terms of where you guys are right now.

That happens to be my personal opinion.

I would be interested in your feedback there.

And then also, Jim, would it be fair to assume that in 2005, you will be a net cash user on the cash flow statement, given the high CapEx levels.

Thanks.

Listen, we meet regularly with stakeholders in our Company.

We are always open to constructive, value added business -- with Mr. Snyder in early September.

We also facilitated a separate meeting with Mr. Snyder with 5 non-management members of our board, which took place in late September.

Mr. Snyder made some suggestions which, while appreciated, neither the non-management directors nor the Company's management, believed they were likely to enhance shareholder value.

So that's kind of where that sits and I really couldn't speculate further on his intentions.

And David, I would expect that we will be a net cash user.

I expect our cash interest expense next year will be approximately $175 million, reflecting the benefit of the debt pay downs we have achieved this year.

We would expect to have $20 million of preferred dividend expense and $130 million of capital.

So at the performance level that we were indicating, we would be approximately a $25 million net cash user next year.

And just to finish it off, again -- I think it's important to point out that we have 30 different parks spread across North America with very different competitive dynamics, operating over a very long season.

And we're not just a marketing enterprise, rather we're a complex decentralized operating intensive business.

We have a tremendous depth of operating experience throughout the Company in managing that enterprise.

I think the bottom line is that we are convinced that our strategic plan, being implemented by a management team with deep experience in what is an operating intensive business, is the right one for our Company and that it certainly would be destructive of shareholder value to disrupt its implementations.

Our next question is coming from Cathy Styponias with Prudential.

Hi, this is Mike Morris on for Kathy.

Question with respect to sponsorship, which seems to be a bit more resilient to the weather and economy, what is the upside limitation?

I think you mentioned, Kieran, about 30 million or so range with respect to how high you could go on sponsorships.

What would it take for you to expand on existing sponsorships or what opportunities are out there?

Thanks.

Obviously, first of all, I think what we would see is a reasonable target in the next few years is 35 to 40 million of cash sponsorship, which obviously doesn't count what are significant opportunities for us with co-op media and other co-marketing opportunities.

I guess I say several things.

I think it's fair to say that the sponsorship world is changing rapidly along with the rest of advertising.

I think that presents its own challenges for people who are trying to sell sponsorships.

I think, as well, some of the things that might be opportunities in other businesses, perhaps where you are part of national television production, commercials that run, those types of things, naming rights for stadiums, really don't pertain to theme parks, particularly regional theme parks where you are operating long seasons and don't get those types of exposures that you can offer to partners.

That said, I think we have done a good job taking our cash sponsorship revenues from about 14 million in '98 to nearly 30 million now, and I think that what is required is to constantly be pressing on it.

We did switch agencies.

We think we got a great group that's working with us.

We have a number of things in the hopper.

And I think that we have to continue to try to improve what we can deliver to sponsorship partners and to execute on those deliveries.

And to, over time, as we take advantage of our national footprint with our advertising campaign and its recognition, I think that will enable us to build that sponsorship.

Really what we are putting in place is trying to give you a sense of what the cash opportunity is, not to necessarily limit it.

And, of course, from my perspective, I think the non-cash brand extensions in many ways are even more valuable to us, in terms of what we can do to drive brand recognition and attendance into the parks and those are certainly a big part of what we are focused on.

Thank you.

Our next question is coming from Joe Gazarano (ph) with Murray Capital.

Given the -- given that you're going to be a net user in 2005, can you give us some idea of where you will end 2004 in terms of cash and availability?

As you mentioned, the $20 million on the converts, what will change -- what will need to change where you wouldn't pay that out in cash?

In terms of cash and availability, we have been out of our working capital revolver since the first week of August.

I don't expect to be back into that revolver in any material way until the -- near the end of December.

It depends upon the pace of the capital expenditure program and our off-season operating expenses.

But I would expect that, at most, at the end of the year, we'll have a 10 to $15 million balance outstanding on our working capital revolver.

And I would expect that we will have a cash balance in and around 75 to $80 million at the end of the year as well.

We have available, too, the full $100 million backup facility, so I'm very comfortable with where we stand from a liquidity point of view.

And the question I was -- what would need to change for you not to make the preferred dividend in cash?

It's our current expectation that we will see significant growth next year.

Since liquidity is not an issue, we would not anticipate, at this time, paying that dividend in anything other than cash.

We will obviously reassess that, as we always do, on the basis of actual operating results and where that leaves us from a liquidity point of view.

But given the credit amendment that we have achieved, given the levels of liquidity that we have, given the $400 million of backup facility available to us, we have no liquidity issues whatsoever.

Thank you.

Once again, ladies and gentlemen, if you wish to ask a question, please press star, then 1 on your touch-tone telephone at this time.

Our next question is coming from Jacque Cornay (ph) with CIBC.

I just had a question on the covenant changes.

I perceive the divide between your forward-looking statements and your action to seek the covenant amendment.

Could you share your views as to why you chose now to seek the amendments?

Well, we always tried to be very conservative in the structure of the liability side of our balance sheet.

That's why we have no public debt that matures before 2009.

It's why we have no material amortization in our bank facility until late 2008.

We recognize that the bank facility is very well secured because it has a first lien on all of the assets other than our interests in Six Flags Over Georgia and Six Flags Over Texas.

We felt it was prudent in implementing the capital and expenditure program that we have to seek an amendment now, which is a relatively low cost amendment, where we ended up with 95% support from our bank group, to make certain that we have meaningful cushion, so that if the operating results in fact next year are not at the level that we expect, we don't have any issues with respect to our financial covenants.

Just simply a decision born of a prudent outlook to make sure that we have an additional insurance policy.

Thanks.

Thank you.

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

I would like to turn the floor back over to you for any further or closing remarks.

Thank you.

Again, we just appreciate everyone's participation on the call.

And we look forward to implementing the plan that we set forth and reporting to you on our progress as we go forward.

Thank you very much.

Thank you.

This does conclude today's teleconference.

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