Cedar Fair has weak 2Q, with decline in attendance and per capita spending

Posted Tuesday, August 4, 2009 9:53 AM | Contributed by Jeff

Cedar Fair generated net revenues of $264.1 million in the second quarter and net income of $7.4 million, or $0.13 per diluted limited partner unit. For the same period last year the Company reported net income of $14.7 million, or $0.26 per diluted limited partner unit, on net revenues of $296.2 million.

Net revenues for the fiscal six months ended June 28, 2009, which included 39 fewer operating days compared with 2008, were $290.6 million and the net loss for the period was $45.9 million, or $0.83 per diluted limited partner unit. This compares with net revenues of $336.6 million and a net loss of $29.1 million, or $0.53 per diluted limited partner unit, for the six-months ended June 29, 2008.

Adjusted EBITDA, which management believes is a meaningful measure of the Company’s park-level operating results, decreased to $32.1 million for the six months ended June 28, 2009 from $52.0 million during the same period last year. See the attached table for a reconciliation of adjusted EBITDA to net income (loss).

As mentioned above, it is important to note the Company’s 2009 operating calendar had 39 fewer operating days during the first six months of the year when compared with the same period a year ago. This will reverse itself during the last half of the operating season as the Company adds 70 operating days, for a total of 31 additional operating days in 2009 when compared with 2008.

“Our performance through the first half of the year has been a challenge for us,” said Dick Kinzel, Cedar Fair’s chairman, president and chief executive officer. “Through the end of the second quarter our parks entertained 6.6 million visitors, average in-park guest per capita spending was $39.50 and out-of-park revenues totaled $36.6 million. This compares with attendance of 7.6 million, average in-park guest per capita spending of $40.45 and out-of-park revenues of $40.5 million through the second quarter of 2008.

“The decrease in attendance was the result of a decline in group sales business at most of our parks due to the continued economic uncertainty and spending cuts at corporations and other organizations,” added Kinzel. “First-half results were also impacted by a decline in the number of season passes sold for the year, combined with a reduction in season pass visits due to fewer operating days in the first half. Finally, while weather will typically average itself out over an operating season, we believe early-season results were negatively impacted by poor weather, in particular cooler than normal temperatures at most of our parks.”

Excluding depreciation, amortization and other non-cash expenses, cash operating costs and expenses were $258.5 million for the six-month period ended June 28, 2009 versus $284.6 million for the same period in 2008. The lower operating costs were primarily due to the closure of Star Trek: The Experience in late 2008, as well as the Company’s continued focus on controlling cash operating costs across the parks in the face of decreased revenues. After depreciation, amortization and all other non-cash costs, the operating loss for the period was $15.6 million in 2009 compared with an operating loss of $1.9 million for the same period in 2008.

Interest expense decreased to $59.8 million from $67.1 million a year ago. The decrease in interest expense is attributable to lower interest rates on the Company’s variable-rate debt, along with lower average term-debt borrowings during the period. A credit for taxes of $29.3 million was recorded during the first half of 2009 to account for the tax attributes of the Company’s corporate subsidiaries and publicly traded partnership (PTP) taxes. This compares with a $39.5 million credit for taxes for the same period in 2008.

Read the entire press release from Cedar Fair.

Tuesday, August 4, 2009 11:42 AM

$59 Million down from $67 Million in interest alone.... wow! In contrast, the total interest on my Mortgages last year was about $12,300 for over $195,000 in loans at various rates.

They are making headway on those loans, though. I can't help but wonder if they contemplated Filing for Chapter 11 to reduce that debt.

Last edited by john peck, Tuesday, August 4, 2009 11:42 AM
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Tuesday, August 4, 2009 11:45 AM

I guess I'll buy that the group sales and weather have been relevant factors. That doesn't mean they're going to get any better though. He doesn't mention a reason why per caps are down $1.05.

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Tuesday, August 4, 2009 12:09 PM

While the amount of the reduction in interest expense might seem large based on your (and my) personal situation, I wouldn't call that making headway. They still have a HUGE amount of debt, that just isn't moving fast enough.

Some quick points:

1) Six Flags (which had a Horrible Q2), still sucked even after the boost of the Easter week into Q2. Notice no mention of Easter in the FUN release.

2) economy in the Midwest (Michigan, Northern Indiana, Northern Ohio, Northeast PA continues to suck on a level that is unimaginable to people who don't live there. There is NO immediate change to this, which means that FUN's parks there (CP, MiA, KI) are all looking at horrible prospects for the remainder of the season, and next year.

3) The company has CHAIN WIDE started to offer 4 tix for $99 or some similar price point. That is a HUGE reduction off of the normal gate (yes I know, no one pays normal gate, but still $25-$29 per person is dirt cheap for peak summer).

4) $30 million EBITDA (before Interest Expense and Depreciation) in Q2 is not great, and points to bad news for Q3.

5) When interest rates start to shoot up, which is going to happen given the US economic policy, FUN will be hurt by the variable component of their debt. Selling off a few acres in Canada, is not going to bring down the debt to a manageable level.

6) Notice no commentary on the proposed sale of Wof and other parks. (There are no buyers)

7) July wasn't any better. Thus they only have 40% of the operating season left to go, and so far it has SUCKED. School is already starting in the midwest (as it does this time every year), and the grains are quickly falling through the hourglass for this year.

8) Halloween had better be phenomenal, with perfect weather in Sandusky, and Cincinnati.

Last edited by CreditWh0re, Tuesday, August 4, 2009 12:14 PM
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Tuesday, August 4, 2009 1:14 PM

They need to lower food prices... (At least at Cedar Point).

There *seems* to be a point in which prices become so high you LOOSE money. Cotton Candy for example, they charge what, $3-4 for it? What if you sell it at 1.50 or $2... You make less per unit sold, but you will sell quite a bit more. Why don't they approach the food sales like this? They could follow suit with Dippin' Dots, Subway, etc... The prices are insane. I don't see how they can think this makes them more money in the long run. Price gouging does not help once you hit a certain level.

I have not bought a *single* thing at Cedar Point all year. I used to buy stuff once and while when it was only moderately overpriced, now its ridiculous. I always go out of the park to nearby places to eat and get a full meal, full service for the same price as a slice of pizza and drink inside the park. I have not seen so many people tailgate to eat before like I have these past few weekends. This is potential money you loose out on.

I just want some cheaper cotton candy, is that too much to ask??? I miss the .25 cent days.... *sigh*

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Tuesday, August 4, 2009 1:36 PM

CreditWh0re said:
5) When interest rates start to shoot up, which is going to happen given the US economic policy, FUN will be hurt by the variable component of their debt. Selling off a few acres in Canada, is not going to bring down the debt to a manageable level.

It reads as if selling the land in Canada allowed them to get to a point where they had more leverage in renegotiating their debt.

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Tuesday, August 4, 2009 4:21 PM

jive2 said:
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It reads as if selling the land in Canada allowed them to get to a point where they had more leverage in renegotiating their debt.


Maybe I missed something but I see no such quote, comment or inference in the press release. I saw at least two mentions of the impending NEED to renegotiate the debt that comes due in 2011-2012. I didn't see anything that references that the sale of the land actually accomplished anything towards any renegotiations. There has been no other releases or SEC filings indicating that any debt refinancings have happened.

Honestly, making a $50Million reduction in a debt load of over $1.6Billion, is not going to get any bank excited about refinancing FUN's debt. Especially when that $50million is a one off, non-operations related sale of an idle asset. Combine that with horrible short term operational performance and an inability to sell reasonably useful assets (WoF), and you have a problem.

$50 Million on $1.6Billion is roughly 3% of the net outstanding debt. That's like an underwater homeowner paying down his down his $200K mortgage by 6 thousand dollars. That still doesn't get the homeowner righted, and does nothing to improve the homeowner's situation going forward.

Also, don't forget that the debt covenants get tighter and tighter next year. having a bad year, with lower attendance AND lower per-caps is not going to do much to improve your debt measurement metrics.

Last edited by CreditWh0re, Tuesday, August 4, 2009 4:22 PM
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Tuesday, August 4, 2009 5:05 PM

I don't think any of us can predict what the credit market will be like in two years. With economists starting to agree that we're now at the bottom, well, we're at the bottom. If the unemployment bleeding could just stop, perhaps next year is the start of the turn around.

I've heard that CP is actually having higher than expected attendance the last couple of weeks, though occupancy is still low (thus the deals they just announced). The east parks and CW are at least hitting numbers as well. I'm not so sure that this quarter will be gloomy. Not particularly good, but not gloomy either, especially with the heavy shift of attendance into the last few months of the season.

The per cap number being down isn't the kind of significant nose dive I expected, what with my protesting of the food pricing. I think the biggest problem is that they've been too stubborn to adjust the pricing to what the market would bare until just the last few weeks. Compare this to Disney which took a huge hit, but they're still getting the business to keep butts in the parks with the discounting. Come on, Dick, it's not like you couldn't see this coming. One more reason why he's gotta go.

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Tuesday, August 4, 2009 7:10 PM

Valid points all, Jeff.

The problem is, even with any improvement in the "remaining 40% of the season", we've got the Covenants to worry about.

Those are on a rolling (Trailing Twelve) basis. Q1 2010 is looking pretty scary right now. Q4 2009 will be tight, but there are several mechanisms to be used to mitigate actual poor performance. Q1 2010, when the targets go up again, is the one I'm focused on.

As such, Hallo-weekends and Haunt weekends, need to be fantastically crowded with good fair weather.

Any string of back to back rainy October weekends in Ohio, and god forbid any El Nino West Coast weather, as some (hysterical) predictions have hinted at, could be real game changers.

The bottom line, things continue to get ominous

Last edited by CreditWh0re, Tuesday, August 4, 2009 7:26 PM
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Tuesday, August 4, 2009 11:56 PM

And the thing is, and tell me if I'm right or wrong, is that pre-Paramount Cedar Fair would be doing just fine in this economy. Probably down for sure, but the company would be able to survive the storm just fine with only the original parks and without the massive debt they have now.

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Wednesday, August 5, 2009 12:31 PM

“Given the current uncertainty of the credit marketsand our need to refinance our debt over the next few years, we continue to lookat a wide range of alternatives to address our capital structure and reducedebt levels,” continued Kinzel. “I’m pleased to say we have finalized anagreement with the Vaughan Health Campus of Care in ’sWonderland park. Net proceeds from the sale of the land will totalapproximately $50 million and will be used entirely to pay down termdebt. The reduction of our distribution that we announced in Marchof this year, along with this transaction, will have a positive impact on ourleverage ratio, which in turn should benefit upcoming debt refinancing efforts.

jive2 said:
It reads as if selling the land in allowed them to get to apoint where they had more leverage in renegotiating their debt.

I'm sure that there was a magic number with regards torefinancing and it reads as if they've done what they can to get to thatnumber. That doesn't guarantee that they'll get the refi deal that they wantbut it sounds like they've got themselves into the position that they want tobe in.

Last edited by jive2, Wednesday, August 5, 2009 12:32 PM
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Wednesday, August 5, 2009 4:58 PM

In an earlier press release, CF said that the money from the sale of the land at Canadas Wonderland would go solely towards paying down thier Canadian Term Debt. This means they have debt secured against Canadas Wonderland, which would be easier to get as the credit markets and banks are far better off in Canada than in the US. Also the park is very profitable and easy to secure debt against. Since they've had only one Cap Ex at CW since taking ownership, spending $26 million on Behemoth, and they have more than $50 million in Canadian term debt, it's fair to say they were leveraging Wonderland to fund operations or Cap Ex at thier other parks.

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Thursday, August 6, 2009 10:56 PM

Jeff,

Not trying to turn this into an economic discussion, but just wanted to say that while most TV and political economists are saying we are near a bottom, they tend to be the same that missed the crisis brewing to begin with. Most those who have been on top of it for a couple years think we aren't even close.

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Thursday, August 6, 2009 11:06 PM

So you've surveyed them all before and after and assessed their track records?

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Friday, August 7, 2009 12:27 AM

The softer-than-expected decline in per-caps is perhaps not as unexpected as you might think. After all, people gotta eat, right? And there are some segments of their audience (particularly those who overrun the place in the first couple of weeks of the season...) who are almost completely insensitive to price...because someone else is footing the bill and/or they have (as a group) NO financial sense whatsoever.

I think there are two other numbers that will more accurately reflect what is going on as a result of the pricing insanity inside the park. One of those numbers we kind of get, and that's the attendance. There are people who go to the park, are put off by $4 drinks and $12 subs, and respond by not making that second trip this year (those are the "canaries") and by not coming back next year...or ever again unless the park comes up with something really fantastic to bring them back.

The other number, we don't get, and I don't know if the park actually has any good way to estimate it. That's the length of stay. For Disney, it is easy because they measure it in 'days'. But for Cedar Fair, that number is almost always going to be a matter of *hours*. And if they get a lot of people who have visits like I had to Great America (3 hours was really too long) and * Gardens (2 hours wasn't nearly enough) they aren't going to sell many sandwiches or drinks (though I did buy a stuffed garlic dude). Okay, so that's a far from normal case. But I suspect we are seeing shorter visits to Cedar Fair parks this year. I would suspect that the exceptions might be Kings Island, Knotts, and Canada's Wonderland, where it would be interesting to see the trend (if any) in park and (more important) parking lot re-entries, as those parks have nearby commercial strips.

I honestly think that their in-park pricing program is driving down in-park spending a little, but the two places where it hits them a lot harder are in attendance, and in driving their increasing dependence on capital expenditures to keep bodies coming in the gate.

--Dave Althoff, Jr.

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Friday, August 7, 2009 5:20 PM

Fair enough Jeff. My list is certainly not that comprehensive.

Let me rephrase and say that many of the same "economists" I saw on TV 2 years ago talking about how high we would ago, then about how everything was contained and under control, and then about the turn around happening, are the same ones I've seen puppet this as a bottom (and not for the first time). Meanwhile others, whom I've read explaining why housing prices were going to have to plummet back down, why the big banks were in real trouble, and why deflation was at least a likely short term outcome inspite of all the inflation talk are signing a different tune (not to suggest we can't have a short period of recovery, but the fundamentals haven't changed).

I might be giving too much weight to a few economists whom I trust, but this is not the first time a bottom has been called, and I'll be suprised if it's the last.

P.S. Sorry if I'm getting too far away from the topic.

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Friday, August 7, 2009 10:02 PM

There are good sound reasons that economic forecasters rarely call the top of the mountain but often call the market "bottomed out". First, because a rising tide does in fact raise all boats, so economic expansion is a good thing for everyone - analysts want to have a bustling bull market, or a robust recovery. Second, the market is actually based to a huge degree on expectations, so we WANT people to anticipate growth (whether or not it actually happens, the belief itself will improve the economy more or less, because on the margin, people react to what they expect to happen).

So...do economists lie to us? Yes, but mostly because we want them to... :)

"Step 3 - Profit. Get it?" ;)

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Saturday, August 8, 2009 1:02 PM

I agree we all do want to hear about the economy improving and that's incentive for them to say so. I don't think it's a good thing though. Avoiding panics that are worse than the problems is good, but that only works if the problems are going to improve regardless.

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Saturday, August 8, 2009 11:51 PM

Careful; the problems WILL improve regardless.

The only question is how quickly. Crisis comes from instability in a system that is inherently stable. The way a market works is to seek equilibrium. Of course the problem is that the market is amoral, and does not share the values of the people who participate in it, which means that there are a lot of opportunities for people who want to control the market to do stupid things to try and manipulate it, which usually causes Bad Things to happen...and yes, even outcomes that often appear to be desirable are usually Bad Things.

After all, wasn't it great that just about anybody regardless of income could easily get an affordable, low (adjustable) interest loan to buy a house that cost 3x what he could afford?

--Dave Althoff, Jr.

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