Cedar Fair takes hit through three quarters, will suspend distribution in 2010

Posted Tuesday, November 3, 2009 10:34 AM | Contributed by Jeff

Net revenues for the nine months ended September 27, 2009, which included 25 additional operating days compared with 2008, decreased $66.5 million to $810.5 million from $877.0 million a year ago. Net income for the first nine months of 2009 decreased $0.8 million to $61.7 million, or $1.10 per diluted limited partner unit, from net income of $62.5 million, or $1.12 per diluted limited partner unit, for the same period in 2008.

Adjusted EBITDA for the nine months ended September 27, 2009, which management believes is a meaningful measure of the Company’s park-level operating results, decreased $37.9 million to $296.7 million from $334.6 million for the same period a year ago. See the attached table for a reconciliation of adjusted EBITDA to net income. “As anticipated, 2009 has been a challenging year for us,” said Dick Kinzel, Cedar Fair chairman, president and chief executive officer. “In spite of 25 additional operating days during the first nine months of the year, our parks have entertained 1.2 million less visitors compared to this time last year. Through the end of the third quarter combined attendance across our parks totaled 18.8 million visits, average in-park guest per capita spending was $39.73 and out-of-park revenues totaled $86.4 million. This compares with attendance of 20.0 million visits, average in-park guest per capita spending of $40.28 and out-of-park revenues of $94.0 million through the first nine months of 2008.

“The decrease in attendance was the result of a sharp decline in group sales business, which continues to be negatively affected by the poor economy and spending cuts at many businesses, schools and organizations,” added Kinzel. “Our attendance figures were also negatively impacted by a decrease in season pass visits resulting from a decline in total pass sales, and by poor weather, particularly cooler than normal temperatures throughout much of the season at our northern and southern region parks.” Kinzel continued by noting that the 8% decrease in out-of-park revenues, which represent the sale of hotel rooms, food, merchandise and other complementary activities located outside of the park gates, was primarily due to declines in hotel occupancy at most of the Company’s hotel properties during the first nine months of the year.

Excluding depreciation, amortization and other non-cash costs, operating costs and expenses for the nine months decreased 5%, or $28.6 million, to $513.8 million compared with $542.4 million for the same period a year ago. “The decrease in operating costs is the direct result of the successful implementation of numerous cost savings initiatives across our parks, as a proactive step to partially offset the impact of the negative attendance trends, and to a lesser extent the closing of Star Trek in late 2008,” said Kinzel.

He also noted that in late August the Company completed the sale of 87 acres of surplus land at Canada’s Wonderland to the Vaughan Health Campus of Care in Ontario, Canada as part of its ongoing efforts to reduce debt. Net proceeds from this sale totaled $53.8 million and resulted in the recognition of a $23.1 million gain during the nine-month period. After the gain on the sale of the Canadian land, depreciation, amortization, loss (gain) on impairment / retirement of fixed assets, and all other non-cash costs, operating income for the first nine months decreased $7.9 million to $205.4 million in 2009 compared with $213.3 million in 2008.

Interest expense over this same period decreased $7.9 million to $91.0 million, primarily due to lower interest rates on the Company’s variable-rate debt, along with a reduction in average borrowings. Since the beginning of the year, the Company has retired $101.2 million of term debt through regularly scheduled debt amortization payments, as well as the use of available cash from the reduction in the annual distribution rate and the net proceeds from the sale of land at Canada’s Wonderland.

A provision for taxes of $48.3 million was recorded for the nine-months ended September 27, 2009 to account for the tax attributes of the Company’s corporate subsidiaries and publicly traded partnership (PTP) taxes. This compares with a $52.1 million provision for taxes for the same period in 2008.

Third Quarter Results

Net revenues for the third quarter ended September 27, 2009, which included 64 additional operating days compared with 2008, decreased 4% to $519.9 million from $540.3 million last year. Net income for the quarter was $107.6 million, or $1.92 per diluted limited partner unit, versus net income of $91.5 million, or $1.65 per diluted limited partner unit a year ago. “In spite of 64 additional operating days in the period, third-quarter revenues fell $20.4 million between years,” said Kinzel. “This decrease reflects a 3%, or 324,000-visit, decline in attendance, a 7%, or $3.6 million, decrease in out-of-park revenues, and a less than 1% decrease in average in-park guest per capita spending.”

October Operations

Based on preliminary October results, revenues for the first ten months of the year, on a same-park basis (excluding the impact of Star Trek: The Experience which closed in September 2008), were $912.7 million compared with $983.2 million for the same period a year ago, on 28 more operating days. This is a result of a 6% decrease in attendance to 20.6 million visitors compared with 22.0 million in 2008, a decrease of less than one percent in average in-park guest per capita spending to $39.65, and a decrease in out-of-park revenues of $8.0 million to $94.5 million, due to declines in hotel occupancy.

For the month of October, revenues decreased 11%, or $10.2 million. This was in large part the result of a 255,000-visit shortfall in attendance and $315,000, or 4%, decrease in out-of-park revenues. Average in-park guest per capita spending was comparable to the same period last year.

“Despite our best efforts, most of the same challenges we faced during the first nine months of the year continued to negatively impact our business in the month of October,” continued Kinzel. “In particular, unseasonably cool temperatures and heavy rain over the past four weekends have softened the positive impact we had expected to get from the very popular Halloween events we had in place at our parks. Over this same period, however, our parks maintained their focus on controlling operating costs, and we’re confident that we were able to offset some of the revenue shortfalls.”

Distribution Outlook

Kinzel stated that based on trailing twelve month results as of September 27, 2009, preliminary October results and a tightening at December 31st of the maximum consolidated leverage ratio within the credit agreement, it is expected that the Company will suspend distributions beginning in 2010 and the cash flow be redirected to retire term debt. “Over the past 12 months we have accomplished initiatives that have reduced debt by approximately $110 million and addressed our capital structure,” said Kinzel. “This has been done through the reduction of our annual distribution rate, the sale of 87 acres of surplus land in Toronto, regular amortization payments and an extension of $900 million of our term debt. We have also considered several alternatives including the sale of selected assets, issuing additional equity in a public or private offering, as well as others, but concluded that, in the current market environment, these are not executable on terms that would be beneficial to the Company and the unitholders

“Our actions, although successful, have not been enough to offset the decrease in operating performance we have experienced in 2009,” continued Kinzel. “We will be reviewing alternatives to improve operating performance and enable unitholders to realize value consistent with our financial performance, including changes to capital structure, corporate structure, the Company’s debt and other strategic options. We will pursue those alternatives that we believe are in the best interest of the Company and the unitholders.” The Company previously announced that a cash distribution of $0.25 per limited partner unit will be paid on November 16, 2009 to unitholders of record on November 4, 2009.

Kinzel concluded by noting that virtually all of Cedar Fair’s revenues from its seasonal amusement parks, water parks and other seasonal resort facilities are realized during a 130- to 140-day operating period beginning in early May, with the major portion concentrated in the peak vacation months of July and August. Only Knott’s Berry Farm and Castaway Bay are open year-round, with Knott’s Berry Farm operating at its highest level of attendance during the third and fourth quarters of the year.

Read the entire press release from Cedar Fair.

Tuesday, November 3, 2009 11:04 AM

Well, I can't say this is a surprise and I think Jeff has even mentioned he was surprised that the suspension of the distribution hasn't come sooner. But, it does lead to the question: why should one invest in Cedar Fair right now?

The annual distribution was probably the greatest carrot for pulling in investors and that is now gone. Couple that with the significant debt and an economy that will continue to stagnate for at least one more operating season and you have to wonder just how stable things are right now.

I know that Dick can't be blamed for all that plaques Cedar Fair right now but I will continue to insist it is time for change at the top and I'm more convinced than ever that they are going to have to look outside for the right person to come in and reinvent the company.

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Tuesday, November 3, 2009 11:44 AM

That distribution was still tantalizing at 10%, now I know why I didn't pull the trigger on some units.

The units are all but worthless now unless the company can show significant progress on a turnaround plan. It was nice while it lasted but I feel sorry for those who still own the company.

The company is in rough shape. They have more debt than the book value of their property plant and equipment. They have more current liabilities than current assets. The only "value" they have is the value of their future cash flow, and does anyone have confidence in that?

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Tuesday, November 3, 2009 11:50 AM

I would be hesitant about investing in any business that depends on its customers (a large number of which live in areas with little, if any, population growth and that have historically lagged behind the rest of the country in terms of economic recoveries) spending discretionary income. And I am also surprised that it took this long to suspend distributions (and declaring one and then 10 days later suspending them seems odd to me).

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Tuesday, November 3, 2009 11:53 AM

I don't own Cedar Fair to become rich. I receive the units as part of an employee benefit and I reinvested the dividends over the years more as a convenience than anything else.

I'll hold on the the units as an emotional connection to the company and, you never know what might happen in the future.

GoBucks...don't most service related buisinesses rely on their customers to spend discretionary income?

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Tuesday, November 3, 2009 12:20 PM

Very interesting, but not really a surprise. Anyone with any tangential experience with Michigan, Indiana, Ohio could tell you just how bad the economy is there, and that it had to impact CF significantly. Kings Island, CP, and MiA are squarely in the cross hairs, and Charlotte was already suffering.

Stock is currently at $8.15, and there is probably very limited upside for the near future.
There is no good news on the horizon, only hopes that the economy and weather improve for next year, but even that won't be enough to help the stock.

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Tuesday, November 3, 2009 12:33 PM

^Actually, Indiana is a lot better than the rest of the midwest!

That said, c'mon, Cedar Fair!! I will pay at least an additional $150 (for 2 people) almost every time I go to Cedar Point or even Kings Island (since I go less now) if you get on board with Lo-Q!!! In addition, lower the food prices some and I'll stop leaving KI for Gold Star, or leaving CP or Dorney for McDonald's. It's a win-win!!

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Tuesday, November 3, 2009 12:51 PM

tigellinus said:
In addition, lower the food prices some and I'll stop leaving KI for Gold Star, or leaving CP or Dorney for McDonald's. It's a win-win!!

This is the part I'd absolutely, positively go for. I've eaten in the park exactly once in the last three years. $6.99 for a funnel cake (before tax) just isn't doing it for me.

At the very least they definitely need a Platinum Pass discount for food/merchandise purchases ala Dollywood. There's simply no PP incentives at KI right now that would make you get a PP over a Gold Pass at KI. Cedar Point allows you the opportunity to get in early with a PP, which is a big enough benefit to upgrade as is, while KI has ZERO incentive to buy a PP because they roll all PP and Gold Pass benefits together.

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Tuesday, November 3, 2009 12:56 PM

with all due to respect, saying Indiana is better than the rest of the midwest is really splitting hairs. They're all basket cases, and I would direct you to the region East of Chicago, running Southeast all the way to Richmond. You can get great deals on light manufacturing facilities, as they are almost all EMPTY. The entire trailer, rv, mobile home, manufactured housing, anything made of aluminum with wheels industry is toast. Those jobs are not coming back. I've taken one out already in 2009, and that isn't even my normal client base.

For anyone not living in the midwest, go look at any mobile home/RV Trailer type sales place in your area. I suspect you'll see them either already closed, or teetering on the edge.


But back to the point of the Cedar Fair news, here's a thread from the early summer, where the Q3 bad news was forecasted. Read the various comments to see just how on target many of the CB'ers were.

http://coasterbuzz.com/Forums/Thread/56192.aspx

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Tuesday, November 3, 2009 1:22 PM

Wahoo -- Various types of businesses/industries selling goods/services fall in different places on the discretionary/non-discretionary demand curve. As a general rule, I think that the entertainment industry falls more toward the discretionary side. And over the last 30-40 years or so, Americans discretionary income has increased substantially (which is a good thing). However as a result, more and more of our economy now depends on discretionary spending which puts more and more businesses and jobs at risk in downturns which has a spiraling effect on the economy as a whole.

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Tuesday, November 3, 2009 1:32 PM

Wow... Cleveland Plain Dealer's headline has a different take on this.

http://www.cleveland.com/business/index.ssf/2009/11/cedar_fair_thir...earni.html

Its funny how you can take the numbers and craft your own headline. And they completely left the suspension of 2010 distributions out of the article.


~Rob

Last edited by HeyIsntThatRob?, Tuesday, November 3, 2009 1:34 PM
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Tuesday, November 3, 2009 1:55 PM

Dick has to go, and if the board doesn't remove him, then the board should be replaced.

I think the results are inexcusable, because they were slow or incapable of making pricing adjustments to respond to the market. Six Flags barely took a ding in attendance (ditto for Disney), because they made adjustments. They almost hung on to per-cap, but the dive in occupancy is the most glaring example of failure I've seen. I was in Breakers last weekend, and it was a ghost town. If I could book a room five days before closing weekend, there was an obvious problem.

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Tuesday, November 3, 2009 3:49 PM

Dick is one of the majority share holders in the company as well as he has hand picked every one of the directors on the board. He is protected 100% by his "inner circle" from losing power until HE decides to let go. Quite a smart move to protect one's job though it is the exact same scam that has ruined a lot of American corporations and left our country dangling on the verge of total collapse. What I enjoy most is that his million plus unit shares make him only worth about 8+ million bucks today versus 30+ million when the economy tanked and the stock began to plummet. He will still be fine no matter what happens, it is the hard working full-time staff that once again are getting the short end of the stick.

The conversations around offices throughout the company today are interesting, I guarantee ya!

Last edited by mlnem4s, Tuesday, November 3, 2009 4:19 PM
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Tuesday, November 3, 2009 4:16 PM

Kinzel owns 1.2m units. That equates to a loss of $3.2m today. Plus his annual income just took a $1.2m hit due to the distribution. I'm guessing he's not popping any champange tonight.

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Tuesday, November 3, 2009 4:54 PM

Dick is not even remotely a "majority" shareholder. There are 55 million units floating around.

The worst part of it is that, to add to the hassle of micromanagement, they previously told folks all over the company that they were going to cut back on things like sick time. For real?

The man has got to go. I'm waiting for one of the institutional shareholders to speak up.

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Tuesday, November 3, 2009 5:22 PM

So Jeff, should we boycott all CF parks or just go to Kinzel's house and hold him hostage until he steps down?

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Tuesday, November 3, 2009 6:26 PM

I like this quote by Dolly Parton in 9-5 - it fits my sentiments best...

"We could hire a couple of wranglers, take him out back, rough him up and beat the SH*T out of him!"

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Tuesday, November 3, 2009 7:31 PM

Maybe Costco is interested in buying some land on the peninsula?

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Tuesday, November 3, 2009 7:38 PM

Jeff's right.. Dick and that whole regime needs to be let loose. They're making too many mistakes and decisions for the company. It's ashame that this will not happen, though.

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Tuesday, November 3, 2009 10:36 PM

Does anyone else think that a $90m cap ex budget that effectively touches 5 parks for the entire season might not be what they need to try to recover in 2010?

So what does $90m get you... two oversized coasters, a log flume, 3 new kids rides and a moved ancient-drop-tower. YIKES!

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