Cedar Fair posts small net loss for 2007, largely attributed to Geauga Lake

Huh? maybe financially CF is much more responsible but I thought operations were far better under Paramount.

Chuck

I know that as a unitholder, I would want to know about the performance of each park. Was Geauga Lake a drain on the company, or would it have contributed to the bottom line had a ridiculous amount of money not been spent on building a new waterpark that wasn't needed and relocating rides to other parks? Did Geauga Lake "pay" for the relocation of X-Flight to Kings Island, therefore allowing that park to post a more significant profit?

This has nothing to do with being bitter over the closing of GL, it has to do with Cedar Fair being very selective about what it tells people, therefore opening the door for suspicions. Like I said, it's pretty easy to put the right spin on certain numbers.

They'd be silly NOT to "spin" the numbers in such a way as to make GL look like the major culprit. That way investors (read: Wall St.) would be more likely to view NEXT YEAR in a more positive light, since GL will basically come off the books... Share price is largely determined by expectations about the future, so pinning "blame", so to speak, on GL is a smart move. Much better than SF's weather claims.

Please don't take this as bitterness towards CF, or about GL, more along the lines of "all accounting is flexible, so take advantage of that to make your company look as attractive as possible". Maybe I'm just cynical? ;)

Rob, you're being too much of a conspiracy theorist. Geauga Lake has been a drain on the company since they acquired it. They should have never bought it, and yes, that's a mistake that almost everyone should admit.

I find it hard to believe that the waterpark wasn't needed. Even with the animals, Six Flags Worlds of Adventure's attendance was dropping each year. When Cedar Fair removed the animals, that was the final nail in the coffin. Cedar Fair did what they thought would make a difference, and that was build a waterpark. It was, however, a mistake to cut back the scope of that new waterpark.

One of the reasons they wanted to grow in the first place was to diversify and not be tied to the success or failure of any one park. Weather and local economies will vary year to year, market to market. I agree that to unit holders, the individual park performance is not that important, and especially not something they want to share when they're negotiating with Santa Clara or fending off special taxes in other markets (including Mason, OH). The last thing you need is the local market feeling your park has deep pockets and can "afford" a new parking or admissions tax.

I'm all for transparency, but there are very specific reasons to keep somethings off the radar.

But you don't have to read between the lines much to see that the Paramount Parks took a hit. If they increased attendance, they would have most certainly come out and said so. That's where I fault them, because wholesale regime change worked as well as it did in Iraq.

Note the line about "performance based compensation". There is an additional half mill there.

Note also the line in the comparison of "excluding acquisition and Corporate costs". Their corporate structure has been forced to grow to deal with the larger company. Neither company had "regional vice presidents" before, now they have at least two. That's probably good for an additional half to 3/4 mill in expenses that neither company had before. And of course there were raises all around for the top of the existing corp structure when the acquisition happened.

I'm confused. If you put the 54 mill back in, their net is still less than their net for last year. Am I missing something?

It will be interesting to see what it looks like next year, but they are going to have to reduce that debt. It's not clear from this statement if they paid any on the principal.

But you don't have to read between the lines much to see that the Paramount Parks took a hit. If they increased attendance, they would have most certainly come out and said so. That's where I fault them, because wholesale regime change worked as well as it did in Iraq.

Is this where I restate my argument that Paramount was considerably better than CF in one major area...."hospitality". Paramount may not have been Busch or anything (food was as bad as CF food), but the landscaping, the general *feel* of the Paramount Parks, was IMO superior to that which I found at CF parks. Not really even close. WoF was one of the best CF parks in that area for a regular guest on a regular day, yet still that placed them below every park in Paramount save PGA. The reason Gonch's theory applies so well (he's still just taking credit from his wife, LOL) - you're not selling roller coasters, you're selling hospitality.

SF sold roller coasters. Lost their shirts. ;)

"I'm confused. If you put the 54 mill back in, their net is still less than their net for last year. Am I missing something?"

Yeah--their interest expense shot up.

"It will be interesting to see what it looks like next year, but they are going to have to reduce that debt. It's not clear from this statement if they paid any on the principal."

They may not have to pay any principal in the near term.

This is purely hypothetical and I'm sure their financial structure is vastly different, but the theory is correct:

If we assume CF would issue 20 year bonds that only require interest payments and then need to be paid off or rolled over in 2028 and we assume cash flow & capex each grow by 4% per year and the distribution grows by 1% per year we see this:

2018: Cash Flow=$505m minus capex of $131m minus interest of $145m minus distribution of $116 leaves $113m to pay down debt in 2028.

2019: $525m-$136m-$145m-$117m leaves $127m more to pay down debt.

2020: $546-$141-$145-$118=$142m

2021: $567-$147-$145-$119=$156m

2022: $589-$152-$145-$120=$172m

2023: $612-$158-$145-$121=$188m

2024: $636-$164-$145-$122=$205m

2025: $661-$170-$145-$123=$224m

2026: $687-$177-$145-$125=$240m

2027: $714-$184-$145-$126=$259m

2028: $743-$191-$145-$126=$281m

Add that up and they have $1.994b to pay down approx $1.8b of bonds.

And note, that assumes they spend every cent they make between now and 2018, and that the surplus is burried in Dick Kinzel's garden and not earning interest of it's own.

If you have fixed rate debt, inflation is your friend--if you are cash flow positive.
*** This post was edited by Captain Hawkeye 2/7/2008 8:01:54 PM ***

And expenses will stay flat?

Here's what the Motley Fool has to make of Cedar Fair's 2007 season:

http://www.fool.com/investing/dividends-income/2008/02/07/roller-coaster-regrets.aspx

"And expenses will stay flat?"

No. Cash flow increases by 4% per year--that includes expenses.

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I thought operations were far better under Paramount.

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I don't mean guest-facing issues. I mean operating costs/margins. And, the Fool article talks about this.

But, the hospitality issues are likely contributing to the top-line issues.

*** This post was edited by Brian Noble 2/7/2008 10:48:32 PM ***

I think Rick's analysis is spot on, and kind of aligns with my comment that you can't just apply the same concept all over. GL didn't work even after they Dorney-ized it. Kings Island didn't work after they Cedar Point ticket strategized it. Being financially conservative is one thing, but acting like every market has the same challenges, and worse, letting go the people who understood those markets, has been a disaster. I guess that's why I feel like it could've been a lot worse.

As for the continuing price hikes, remember that Cedar Point cut prices the year before, and it didn't help attendance. So I suspect if you asked them why they keep bringing them up despite lagging attendance, they'll tell you it didn't help when they did cut them.

I still think there's a better economy of scale, so to speak, if you price food at a better value point and make up for it on volume. Not to mention you don't piss every one off and make them feel raped.

Agent Johnson is going on record and says "Geauga Lake" will be closed for good within 3 seasons as this waterpark shing-dig.

"No. Cash flow increases by 4% per year--that includes expenses."

And what happens when the libor rate increases? The interest on all of that debt is variable, not fixed.

I was in the industry for 20 years, 10 of that with Paramount - with the aging of the baby boomers, and the next 2 generations turning to video games instead of rides, I'm not sure that they are going to be able to depend on 4% growth in cash flow year-on-year for 20 years.

As the economy in Michigan continues to weaken, their flagship will probably fall to second or third place within the next 2 years.

The debt is a serious issue. To put it in perspective, it's like taking out a second mortgage on 105% of the value of your home, and borrowing against your 401k. When your boss cuts your overtime, or you get that unexepected illness, there's nothing left to fall back on.

"And what happens when the libor rate increases? The interest on all of that debt is variable, not fixed."

I was using an example of how CF could issue fixed rate bonds to refinance their debt, not claiming that they had

However, according to their 10-Q report: "During the third quarter of 2006, the Partnership entered into several interest
rates swap agreements as a means of converting a portion of its variable-rate debt into fixed-rate debt. Cash flows related to these interest rate swap agreements are included in interest expense over the term of the agreements,"

So, if interest rates go up they are protected, if rates go down, they reap the benefit.

"I'm not sure that they are going to be able to depend on 4% growth in cash flow year-on-year for 20 years."

That is, of course, the $1.8b question. But 4% growth per year on average over 20 years is a fairly low bar. Raising ticket prices by $2 per year is a 5% increase right there

I don't agree with you that Cedar Point will fall from flagship status. In a Toledo Blade article on 2/7/08 Kinzel said this:

"The Ohio/Michigan economy has suffered terribly, but nevertheless, we've had record results from Cedar Point," the company's flagship park in Sandusky, he said.

The article can be found here.

They also said that the record results were based on revenue - not attendance. Now, at Cedar Point, that may not be a problem. Perhaps the money is being made more in the resorts and that's what is fueling the revenue. However, I fear that it's likely food and other in-park spending that is fueling these records. I don't know how long that will last.

On the other hand , how long have we all been saying that it can't last forever? Seems like it's still going strong.

Yeah, from what I understand, they barely eeked out higher year-over-year attendance at Cedar Point. I'm not sure there's much they can do about that in that market.

They also pay about $25 million in principle as well during the year. It is one of the last line of the table.

2006 long-term debt: $1,777,163,000

2007 long-term debt: $1,752,911,000

*** This post was edited by otterkpr 2/8/2008 8:20:40 PM ***