Cedar Fair reports record attendance and EBITDA for 2010

Posted Tuesday, February 15, 2011 11:46 AM | Contributed by Jeff

[Ed. note: The following is an excerpt of a press release. -J]

Cedar Fair (NYSE: FUN), a leader in regional amusement parks, water parks and active entertainment, today announced record results for its fourth quarter and year ended December 31, 2010.

Cedar Fair's operations generated full-year net revenues of $977.6 million and a net loss of $31.6 million, or $0.57 per diluted limited partner (LP) unit. In 2009, the Company achieved net revenues of $916.1 million and reported net income of $35.4 million, or $0.63 per diluted LP unit. Included in the 2010 results are non-cash charges of $62.8 million for the impairment/retirement of fixed assets and $35.3 million for the early extinguishment of debt. The 2009 results include a $23.1 million gain on sale related to the sales of surplus land.

Adjusted EBITDA, which management believes is a meaningful measure of the Company's park-level operating results, increased 13.5% to a record $359.2 million from $316.5 million a year ago. At the end of the third quarter of 2010, the Company had anticipated Adjusted EBITDA for the full year to be in the range of $345 million to $355 million.

The Adjusted EBITDA margin increased 210 basis points to 36.7% from 34.6% in 2009. The increase in margin in 2010 was largely due to increased attendance which led to strong operating results during the peak summer months of July and August, as well as the ever-growing fall season, and continued disciplined cost containment throughout the year. See the attached table for a reconciliation of net income (loss) to Adjusted EBITDA.

The improvement in revenues and Adjusted EBITDA resulted from the record attendance of 22.8 million guests in 2010, an increase of 1.7 million, or 7.8%, from 2009.

"The attendance improvement was largely due to our aggressive marketing efforts to increase the number of season passes sold which, in turn, increased the number of season-pass visits, particularly at our parks in the southern and western regions. In addition, attendance in 2010 benefited from our marketing efforts to raise group sales business, and many of our parks saw the return of a number of group bookings that were lost during the economic downturn in 2009. Favorable weather conditions also helped boost attendance throughout much of the operating season," said Dick Kinzel, president and chief executive officer. "During this same period, we were pleased that average in-park guest per capita spending decreased less than 1%, or $0.35, despite the fact that season-pass visitors typically spend less per visit. Meanwhile, out-of-park revenues increased 6.1%, or $6.2 million, due primarily to an increase in occupancy and average daily room rates at most of our hotel properties."

Kinzel added, "While the economic recovery continues to be slow, we demonstrated the inherent competitive strength of our properties and attractions with record attendance in 2010, exceeding our previous record in 2008. Our ability to continue to deliver the highest standards of customer service, our ongoing strategic investments to improve our parks, and our employees, who are the best in the industry, have been collectively responsible for our success and will continue to make us a strong company for many years to come."

Operating costs increased $15.9 million, or 2.6%, to $632.0 million versus $616.1 million in the prior year. The increase reflects $10.4 million of costs incurred in connection with the terminated merger, an increase in scheduled maintenance expense across the parks of approximately $9.5 million, increases in operating supplies and seasonal wages of approximately $3.2 million and $2.9 million, respectively, and the negative impact of exchange rates on the Company's Canadian operating expenses of approximately $4.5 million during the year. Offsetting these additional costs in 2010 was a reduction of $11.5 million of litigation costs expensed in 2009 for the settlement of a California class-action lawsuit and a license dispute with Paramount Pictures, as well as $5.6 million of costs in 2009 for the terminated merger.

In 2010, depreciation and amortization decreased $5.9 million to $126.8 million from $132.7 million in 2009. This decrease is due primarily to lower amortization expense in 2010 resulting from the accelerated amortization in 2009 of the intangible asset related to the Nickelodeon licensing agreement, which was not renewed at the end of 2009. Additionally in the fourth quarter of 2010, the Company recognized a $62.4 million non-cash charge for impairment/retirement of fixed assets. Although the acquisition of the Paramount Parks in 2006 continues to meet the Company's collective operating and profitability goals, the performance of Great America fell below its original expectation and resulted in this impairment charge. After depreciation, amortization, a loss on impairment of goodwill and other intangibles, and a loss on impairment/retirement of fixed assets, operating income for the period decreased $31.8 million to $153.7 million in 2010 compared with $185.5 million in 2009. Operating income in 2009 was affected by the sale of 87 acres of surplus land at Canada's Wonderland, which resulted in the recognition of a $23.1 million gain during 2009.

In July 2010, the Company refinanced its outstanding debt by issuing $405 million of 9.125% senior unsecured notes and entering into a new $1,435 million credit agreement, resulting in the recognition of a $35.3 million loss during the year on the early extinguishment of the Company's previous debt. As a result of the 2010 financing, as well as the August 2009 amendment that extended $900 million of term debt, interest-rate spreads were higher during 2010 than a year ago. Based on the higher interest-rate spreads, interest expense for 2010 increased $25.6 million to $150.3 million from $124.7 million in 2009. Among other things, the refinancing allowed the Company to greatly improve the financial flexibility needed to fund its growth strategy and create steadily increasing value for its unitholders through a more sustainable distribution.

During 2010, the net effect of the Company's swaps increased $9.0 million due to a non-cash charge to earnings of $18.2 million, reflecting the regularly scheduled amortization of amounts in "Accumulated other comprehensive income" related to the swaps, offset somewhat by gains from marking the ineffective and de-designated swaps to market and foreign currency gains related to the U.S.-dollar denominated Canadian term loan in the current period. During the year, the Company also recognized a $20.6 million benefit to earnings for unrealized/realized foreign currency gains, $17.5 million of which represents an unrealized foreign currency gain on the U.S.-dollar denominated notes issued in July and held at our Canadian property.

For the year, a provision for taxes of $3.2 million was recorded to account for the tax attributes of the Company's corporate subsidiaries and publicly traded partnership taxes, compared with a provision for taxes of $15.0 million in 2009.

Fourth Quarter Results

For the fourth quarter, net revenues increased $24.1 million to $129.7 million from $105.6 million a year ago. The 23% increase in net revenues is a result of a more than 20% increase, or 635,000 visits, in attendance. Operating loss for the quarter was $58.1 million compared with an operating loss of $19.8 million in the fourth quarter a year ago. The increase in operating loss is primarily attributable to the $62.4 million non-cash charge for the impairment/retirement of fixed assets, offset somewhat by the Company's continued focus on controlling costs combined with record attendance in October.

After interest expense, which increased $12.7 million from the fourth quarter of 2009 due to the increase in interest rates on the debt refinancing in July, a $5.3 million non-cash charge for the net change in fair value of swaps, a $12.4 million benefit to earnings for unrealized/realized foreign currency gains, and a $34.1 million benefit for taxes in the period, the net loss for the quarter was $63.2 million, or $1.14 per diluted LP unit, compared with a net loss of $26.3 million, or $0.48 per diluted LP unit, last year.

Balance Sheet

At year end, the Company had $1.16 billion of variable-rate term debt, of which all has been converted to fixed rate through several swap agreements, $399.4 million of fixed-rate debt, $23.2 million of borrowings under its revolving credit facilities, and cash on hand of $9.8 million. Of the total term debt outstanding at the end of the year, none was scheduled to mature within the next 12 months. The Company's credit facilities and cash flow from operations are expected to be sufficient to meet working capital needs, debt service, planned capital expenditures and distributions for the foreseeable future.

Peter Crage, executive vice president and chief financial officer, said, "In terms of both liquidity and cash flow, we are pleased with where we ended 2010. Through the past year we have improved our debt portfolio with longer tenor and widened covenants, reduced debt by approximately $47 million and have significantly improved our leverage ratio, as defined in our credit agreement, to 4.3x debt to Adjusted EBITDA as of December 31, 2010, versus 4.9x as of December 31, 2009, an important factor in ensuring the distribution is sustainable over time.

"In light of our strong performance in 2010, the strengthening of our capital structure and continued improvement in the capital markets, we are currently working with our lenders to amend our Term Loan B agreement to align with current market conditions. This potentially includes lower interest spreads and more flexible distribution payment provisions, however, negotiations are ongoing and the terms are not final. We will make an announcement as new information becomes available, which we hope to be in the very near future."

Distribution Declaration

The Company's Board of Directors also today announced the declaration of a regular quarterly cash distribution of $0.08 per limited-partner unit. The distribution will be paid on March 15, 2011 to holders of record March 3, 2011. "This represents our 25th consecutive year of paying a distribution to investors and is in line with the Board's previously announced intent to raise the 2011 annual distribution to $0.35 per limited partner unit, the maximum allowed under our current debt terms," said non-executive chairman C. Thomas Harvie. "This reflects the improving performance and financial strength of the Company, as well as the Board's commitment to keep the distribution amongst the highest priority and a key component of long-term value creation for unitholders."

2011 Outlook

For the 2011 season, Kinzel reported that the Company will be investing approximately $75 million in capital improvements across its properties, highlighted by the addition of four 300-foot-tall swing rides at its four largest properties: Cedar Point in Sandusky, OH; Knott's Berry Farm in Buena Park, CA; Kings Island near Cincinnati, OH; and Canada's Wonderland near Toronto, Canada. In addition, family attractions will be introduced at Dorney Park, PA, Worlds of Fun, MO and Valleyfair, MN

"We remain committed to investing in new rides and attractions at our parks on an annual basis," said Kinzel. "These strategic investments are one of the reasons we have been able to navigate through the challenges of 2009 and return to record results in 2010.

"We continue to believe a 2% to 3% annual growth rate for revenues and adjusted EBITDA over the next three to five years is achievable with our capital plan as currently configured," continued Kinzel. "We also expect the Company will continue to generate a significant amount of free cash flow during this same period. We remain committed to allocating this free cash flow towards paying an increasing quarterly distribution to our unitholders, strategically investing additional capital into our properties to support growth in our business, and optimizing the capital structure. We are optimistic about the future and expect the positive trends we created in 2010 to continue in our 2011 operating season and beyond."

Read the entire press release from Cedar Fair.

Tuesday, February 15, 2011 1:18 PM

I listened in on the Conference Call today. Amazing what difference a year (or even several months) can make. It was all gloom and doom leading to a potential sale of individual parks and even the company itself and now that we are in the new year they are "always keeping an eye out for new properties", are not putting any of their parks on the market and things are looking up for '11 and beyond.

It REALLY makes you wonder what more was going on behind the scenes last fall.

Windseekers are coming in at $5 million a piece ($20 million) and they are moving toward Camp Snoopy attractions in 3 parks. They also mentioned some Cap Ex in the accommodations area. So, I'm curious to know how all of that adds up to $80 million or so.

I found it interesting that Dick admitted that they learned some things from the Paramount season pass debacle (my word) and are actually taking some of those strategies into their "legacy" parks.

While attendance and out of park revenues were both up (8% and 6% respectively) they also noted the 1% decrease in in park per cap spending. I think what many of us continue to harp on has proven to be true. Park guests are not finding value in either pricing and/or quality of in park restaurants.

I thought the institutional investors might hammer them more on the whole merger and subsequent penalties that had a significant impact on 4th quarter earnings but they let that go. The one question regarding Dick's contract (and any cash payments for losing the Chairman gig) did yield what I thought was an interesting response. Dick, inessence, said there was no significant change and the Chairman has just been given some additional responsibilities. Interesting way of looking at it and makes you really question the "independence" of said Chairman.

Tuesday, February 15, 2011 3:58 PM
Jeff's avatar

The thing about improved results is that we can't credit them to senior management. If they believed these results were possible, they wouldn't have tried so hard to sell the company. This is all economy, and I think the decreasing per cap reinforces that.

Jeff - Editor - CoasterBuzz.com - My Blog - Phrazy

Tuesday, February 15, 2011 4:44 PM

I'm with you for the most part. But admitting failure and reversing course on the Season Pass issue is completely out of character for Kinzel but he did it anyway. And, it was pretty clear on the call that the return to 2009 levels on Season Passes and Group Sales was a major positive on the balance sheet. He had to do it...so common sense says that is no big deal. But, he did it...and Kinzel sense says that is a big deal.

I do think the declining per cap...even at -1% is a red flag indicator that shouldn't go without mention. They were asked to address inflation in food pricing that is expected this summer and he pretty matter-of-factly stated that it would be passed on to the consumer. Well, I think it has been pretty roundly agreed on that their pricing is too high WHILE the quality is too low and if they don't address that then I don't see the per cap getting any better. To take that a step futher, Dick said they were pretty much unaffected by rising gas prices (weather being the more influential issue) but I would suggest that if it costs me more money to get to a park then I'm likely to be more careful about what I spend while IN the park. I think the lower in park per cap pretty much discredits his whole argument that, "they have to eat".

Tuesday, February 15, 2011 5:41 PM
Jeff's avatar

That's what bothers me so much. If raising food prices still results in a loss of per cap, you've blown the price-value curve. You've exceeded the market's tolerance.

Jeff - Editor - CoasterBuzz.com - My Blog - Phrazy

Tuesday, February 15, 2011 7:47 PM

If you are going to aggressively charge for your counter service food, it has to exceed the norm. Cedar Fair's food is 'fair' at best. However, the food at my recent visit to Knott's was darn good. Not sure why they couldn't help struggling parks, like Dorney Park, for example, that clearly need some help.

Wednesday, February 16, 2011 11:48 AM
Jeff's avatar

Rick thinks we should cut Dick and friends some slack. I totally disagree. With a demonstrated lack of leadership, I don't think it's right to stop the activism now.

Jeff - Editor - CoasterBuzz.com - My Blog - Phrazy

Wednesday, February 16, 2011 2:47 PM

I couldn't agree with you more Jeff. These figures were achieved in spite of the leadership of Dick...certainly not as a result of it. If anything his moves can be flagged as direct reasons whey the earnings were not any better. Just imagine what would be if the unitholder revolt did not happen and the company had been sold.

I continue to hang on to my units largely because I know the potential of that company...and the many fine people who are doing their best under difficult circumstances. I liken it to Disney animators or Imagineers who are ready to do amazing things once their "leader" gets out of the way and a new visionary loosens the chains.

Wednesday, February 16, 2011 3:14 PM

wahoo skipper said:
These figures were achieved in spite of the leadership of Dick...certainly not as a result of it.


How does one determine that? If you think the CEO is bad does that mean he can do NOTHING right? Were those results a result of Q Investments' putting 2 members on the board or "in spite" of it? Was CF's growth in the first 20 years of DK's tenue "in spite
of the leadership of Dick" as well?

I have no problems with the arguement that it's time for a change. However facts is facts: CF has had very good EBITDA growth throughout DK's tenure except for the recession years of 08 & 09. But, EBITDA was higher in 10 than it was before the Great Recession. That is BECAUSE of actions taken under DK.

One can argue--very persuasively--that things might have been better without DK. (I find the fact that percap declined showing they screwed up fairly convincing) However, if you want to argue that the increase was entirely due to the economy, why aren't the declines of 08 & 09 also entirely due to the economy, as well?

CF turned out good numbers--better than was expected even with the improved economy. Give DK his due--maybe he should have done better, but not everything he does is wrong.

Just imagine what would be if the unitholder revolt did not happen and the company had been sold.

The company would have been sold too cheaply, but EBITDA would have been the same. Actually, better because there would not have been a termination penalty. Again, DK was wrong to try to sell the parks, but not 100% wrong in how he ran them.

I disagree with many of DK's moves, but that doesn't mean he can't do ANYTHING right. The numbers prove that.

Last edited by Captain Hawkeye, Wednesday, February 16, 2011 3:16 PM

This Isn't A Hospital--It's An Insane Asylum!

Wednesday, February 16, 2011 3:19 PM
Tekwardo's avatar

I don't disagree with what you're saying, and I've yet to see anyone that says the man can't do ANYTHING right...but having said that, those numbers don't necessarily prove that he did something right (or wrong) at this point, as far as I can see.

Maybe it was a result of what Dick did. Maybe it was a result of people going out and spending money and the economy 'getting back to normal' or whatever (other than gas prices, my economy never changed so I can't really comment there).

I don't think the numbers prove either way.

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Wednesday, February 16, 2011 3:31 PM

I didn't say Dick could do nothing right nor have I ever implied it. And, I've likely said more good things than bad about him over the last 15 years. But, over the last 3-5 years I can't really say that.

I think the turmoil, created by Dick (and the powers that be) certainly resulted in many people selling off their units at a loss and I feel for those folks. I don't think there is any question that Dick's "Cedar Point Way" mentality is what hurt the Paramount Parks when it came to season passes and group sales and it was only after he relented that those numbers started to bounce back as evidence by their own reporting this year.

The quote that you went off on Hawkeye was specifically addressing this past fiscal year. Just as Eisner (and Wells) succeeded for the first decade and a half to bring unprecedented growth to Disney...so too did Dick with Cedar Fair.

And, just as Eisner stayed on too long to the point that his legacy is tarnished so too is Kinzel. I would rather remember Kinzel for Magnum and Raptor, the resort expansion, the Knott's aquisition, etc but I'm beginning to believe he will be remembered for nearly selling out, nepotism, and staunch micromangement that is defining the end of his career right now.

Wednesday, February 16, 2011 4:02 PM
Jeff's avatar

I sold my units at a loss. I basically had enough and got tired of waiting. I probably should have waited a little longer, but decided to bail in the previous tax year for a number of reasons.

There is no correlation to any particular actions of senior management to the results. If you look around the industry, you can see that even in a dark economy, it's possible to succeed or mitigate the problems. On a small scale, Holiday World continued to produce record growth every year. On a huge scale, Disney minimized the hurt by adjusting their product pricing mix and kept up their attendance and occupancy. Cedar Fair did neither, and it got so bad that they decided they should sell the company.

As an investor, do you want someone with that track record in charge? What made the situation worse was over-paying for Paramount Parks and buying a doomed park before that (Geauga Lake). Take these big fundamental failures, combine them with an HR bleed and a pricing strategy (one already solved by the previous owners), and ask yourself if this is what you want when the next challenge comes around. I think the answer is obvious.

Jeff - Editor - CoasterBuzz.com - My Blog - Phrazy

Wednesday, February 16, 2011 4:52 PM
Carrie M.'s avatar

Ok, but if you can't prove the positive results are tied to Dick Kinzel's leadership, how can you prove the negative results were? It sounds like a one-sided perspective.

Positive results aren't magical. If people are going to the parks, then something must be happening that is right.

Aside from the poor decision to sell at a ridiculous price, I'm not sure there's anything definitive to suggest poor leadership is tanking the company.

"If passion drives you, let reason hold the reins." --- Benjamin Franklin

Wednesday, February 16, 2011 5:02 PM
Jeff's avatar

I think by example of the rest of the industry during the duration of the recession, that's proof enough. Trying to sell the company is more proof.

The positive results frankly fall in line with consumer spending in general, so that's no surprise.

No one suggested that the company is tanking, only that it has gone through years of mismanagement (for the reasons already stated, many of them concrete, financial reasons) when it didn't have to. That's reason enough for regime change.

Jeff - Editor - CoasterBuzz.com - My Blog - Phrazy

Wednesday, February 16, 2011 5:05 PM

I don't think his leadership is tanking the company. (If I did I would have sold my units too.) But, I do think some of the many examples of what I think is his poor leadership is a drag on the company.

Wednesday, February 16, 2011 5:15 PM

Hasn't already been determined that he's leaving? The search for a new CEO is underway.

Wednesday, February 16, 2011 5:17 PM
Carrie M.'s avatar

Jeff said:
The positive results frankly fall in line with consumer spending in general, so that's no surprise.

I can't get behind that logic. Amusement park spending is not essential; it's discretionary with many competing options. If something (other than what some folks know from the "inside") was being mismanaged, people would more than likely be spending their dollars elsewhere.

Unless you are suggesting that operations are so phenomenal they are countering the impact of the other financial hardships brought on by mismanagement. But, I'm sorry, I don't buy that, either.

The course was off. It seems to be "righted" now. Perhaps it's time to move on from the lynching.

"If passion drives you, let reason hold the reins." --- Benjamin Franklin

Wednesday, February 16, 2011 7:42 PM

I don't view it as a lynching. Plenty of good people on the inside of that company are either now gone or have been handcuffed by Dick for well over a decade. His ego has cost money which has affected unitholder value. The day he resigns and finally walks away for good doesn't end the fallout of some of his questionable decisions over the past 5 years or so.

Wednesday, February 16, 2011 9:42 PM
Jeff's avatar

I look at it more as you don't reward failure. We've talked about the scope of those failures for a long time now.

Holiday spending is discretionary, too, and it was up last year. There's plenty of consumer behavior to correlate there to amusement park spending. But even that metric shows people out in number, but not spending at the level they used to (as indicated by the lower per cap).

Jeff - Editor - CoasterBuzz.com - My Blog - Phrazy

Thursday, February 17, 2011 6:26 AM

Carrie M. said:
Amusement park spending is not essential; it's discretionary with many competing options.

Jeff said:
There's plenty of consumer behavior to correlate there to amusement park spending.


Retail sales rose 0.6 percent in December and 6.6 percent for the full year, representing strong annual growth and the sixth consecutive monthly gain. December’s increase was slightly below private-sector expectations of a 0.8-percent gain. Excluding automobiles, retail sales grew 0.5 percent in December and a strong 5.9 percent for the full year of 2010.

Retail sales statistics are generally good indicators of discretionary spending habits. Cedar Fair's numbers seem to pretty much fall in line with US spending habits outlined by the Department of Commerce (ignoring CF's continually-falling per cap, of course).

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