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

Posted | 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.