Debt load forced Cedar Fair's hand for sale

Who said the outcome would be good? I never did. The pundits and analysts at the time of the Paramount Parks acquisition felt they over-paid. I don't believe that the outcome was ever good, and you could see the negatives in the first year when they had to admit they screwed up in the season pass pricing at the PP's. In the first year they admitted they had not "fully realized" cost efficiencies in the new parks.

And don't even get me started about how buying Geauga Lake was a bad idea. That was a train wreck years before they bought it.

So yeah, I'd love to know who thinks the outcome was good at any stage.

You said it, Jeff, when you referenced that things were peachy despite the bad decisions.... a couple of posts ago.

Its also not only what they paid for the parks, its what they did with them after they bought them more than anything, I think. They did the usual "Cedar Point way" with them, especially KI, and it absolutely killed any hope of keeping positive momentum from what Paramount was doing. They threw out the Paramount talent and resources without second thought, and what they did keep was largely wasted on Kinzel and co. Quite possibly the biggest evidence of this is that after 3 years they have gone through 3 different season pass variations and still can't get it right! Paramount had things humming along at their gates for years, and now Cedar Fair has managed to come in and break the entire system. Not to mention MiA which, unless things have changed very recently, doesn't even have an up to date gate system capable of using Gate Central.

Despite those problems, things still looked good from the outside, and evidently to some on the inside with rose colored glasses. Some of us said things weren't good, but couldn't really find any numerical evidence to that effect, so things must have been good despite that. But now we find out that things were actually bad on the inside. Allow me to probably completely butcher an analogy. Ever bitten into a fruit/vegetable that looks fine on the outside only to find its turning bad? This is what we have here, I think.

Looks like no other bidders. Board moving forward with Apollo deal. Will be interesting to see what the stock price does now.

http://www.canadianbusiness.com/markets/market_news/article.jsp?content=D9DFG3D00

http://www.sec.gov/Archives/edgar/data/811532/000119312510012450/ddefa14a.htm

Interesting to see what happens to the vote if the unit price stays above the $11.50 offer, even after this.

Carrie M. said:
You said it, Jeff, when you referenced that things were peachy despite the bad decisions.... a couple of posts ago.

Which post was that?

Jeff said:
That's because in either case, they got here by a series of bad decisions that were still bad decisions even when things were peachy.

With all due respect to both view points - I don't associate "peachy" with "good"... In fact I use the term rather derogatorily... "I'm just peachy! Thanks!!!" when I am often irked....

By "things" I meant the economy. Nothing was every peachy with Cedar Fair.

Oh, I see.

Even after all the turmoil and poor decisions, it fascinates me to see who is in the hot seat after its all said and done.

The worst part is when the same mistakes are made over and over again, and the people taking the finger pointing don't own up to their mistakes.

Carrie M. said:
Hmmm... interesting concept. So, they were bad decisions even when the outcome was good, but now that the outcome is bad, they are definitely the cause? I don't really think it works that way.

When was the outcome ever good? Buying Paramount at that price was idiotic and things started going downhill pretty quickly after the sale, though CF hid that from a lot of people fairly well. Hell, I sold my units less than a year after the Paramount purchase because I could see things heading south.

Where were all the "synergies" they talked about? The only thing I ever saw was that they branded the shopping bags as "Cedar Fair" and the life guard shirts as "Cedar Fair Lifeguard", presumably because it is cheaper to print one style. They got burned because they thought they could run Paramount more efficiently but they really couldn't. The layoffs, budget cuts, etc. were just unimaginative ways to put lipstick on a pig. This is really starting to look so much like the old Six Flags, right down to ride rotations. Demon Drop to Dorney as the new attraction? Yeah, an old 1980's ride is so marketable, especially considering they already have a taller drop tower. George Roose, Emil Legros and Robert Munger I'm sure would be furious at the state of the company they built so competently during their reign if they were still alive today.

Pete said:

When was the outcome ever good? Buying Paramount at that price was idiotic and things started going downhill pretty quickly after the sale, though CF hid that from a lot of people fairly well.

Now we are getting somewhere. How did CF hide that things were going south? That's the information I'm after. If the numbers looked good, what were they doing to massage things into a better picture?

I just want to understand how, if the numbers didn't/don't reflect it, we are supposed to now realize that the company has been failing operationally all along.

Without that information, it appears as though the economy is the obstacle that they can't surmount and this acquisition is an "easy way out" of the sticky market situation.

The only real metric I'm using for good/failure is revenue and profit. I understand the debt is a problem, but I don't think we can look beyond the credit market as the reason for it. Even if they overpaid for the parks, refinancing would have allowed them the space they need to manage the debt.

Without the ability to do that, it debilitates the company - and would have at any price they paid for the parks. Unless the claim is that the parks are not carrying much of an asset value at this point in time. Is that what is being said?

Carrie, I think you're on the right track, but I think there is something else you need to consider, and that's attendance.

How long have we heard the same song and dance about how attendance was down, but per caps were up and therefore revenue was flat? What happened to the days when all three numbers could go up? How much growth can you get out of increased per-caps and reduced expenses if attendance is falling?

The good news is that attendance didn't exactly go off a cliff. But the reliance on fewer people to spend more money made the company more vulnerable to outside economic influences. Because with flat attendance and rising per-caps, what happens when those people who have been paying more and more per visit decide to economize?

--Dave Althoff, Jr.

Carrie M. said:

Pete said:

When was the outcome ever good? Buying Paramount at that price was idiotic and things started going downhill pretty quickly after the sale, though CF hid that from a lot of people fairly well.

Now we are getting somewhere. How did CF hide that things were going south? That's the information I'm after. If the numbers looked good, what were they doing to massage things into a better picture?

Carrie, let me clarify. They did NOT hide things as in a coverup. All the information was in the reports and was accurate. I should have said they put a spin on the results to direct people's attention away from the bad news and towards the "good" news. Again, nothing illeagal. Matter fact, the CFO even talked about possible covenant issues during one of the conferences but it did not seem to cause much of a stir.

The numbers were in plain view for anyone to see, and IMHO they did NOT look good. I'm not a financial wiz, but to me it was pretty clear that comparing the amount of debt they paid off with the ratios specified by the covenants would get them in trouble unless something drastic happened to allow them to pay off more debt. Nothing happened, so welcome to Six Flags Part Two.

I've said this before, but if you like the parks and want them to thrive, vote for the Apollo deal. If the deal falls through, I can see the shares going down to 2 or 3 dollars with a very real possibility of a BK. This isn't about screwing Kinzel, he will be gone in due time regardless of the deal happening. It's about giving the parks the resources to operate properly and keep to keep adding new things, and about keeping the talented people at the parks employed.

Dave, I see your point. Attendance is really the only red flag I think there could have been. Do you think the attendance reduction was/is a trend, though, rather than just a dip? How does the economy factor in? I'm sure it's a mixed bag of things.

But I guess what I really want to know, as general opinion has started to paint the picture of CF as a failed/on-the-verge-of-bankruptcy company (which I don't agree with), is whether that attendance issue is an irrecoverable thing.

Pete, are you saying that you think the debt problem was more than just not being able to refinance it?

See, I take a lot of issue with comparing CF to Six Flags. Six Flags had a major operations issue when it started to go south. The product was bad. That's just not the case for CF.

And if I held shares of this company (this is speaking generally to folks) I would be the last person coming out here and talking about this company as a failed business venture. That just isn't wise for protecting the value of your investment.

Attendance had been flat or declining since 2004 for the most part. That is when we started seeing and hearing more and more about per-cap revenue and the reliance on it. People were saying back then that it could end up being bad, and after a few seasons of hearing it, people really did start voicing that opinion. It was nowhere near the din that you're hearing now, but I do recall discussing that point on several occasions at PointBuzz from about 06 onward.

If you can't see where things have started to go south in both operations and other areas like food and entertainment (i.e. the Red Garter last season, and the general canning of music), then I don't know what to tell you. Even in the short time span from 05-08, I kept seeing marked decline in such areas (the exception being entertainment in the Garter and Centennial until last season) during my visits to the parks. I think the Six Flags comparison is very valid, especially with the financial situation. Things may not be as bad operationally at the park level, but they are certainly headed there if past seasons are any indication (and they are).

maXairMike said:
Attendance had been flat or declining since 2004 for the most part. That is when we started seeing and hearing more and more about per-cap revenue and the reliance on it. People were saying back then that it could end up being bad, and after a few seasons of hearing it, people really did start voicing that opinion. It was nowhere near the din that you're hearing now, but I do recall discussing that point on several occasions at PointBuzz from about 06 onward.

This 2008 President's Letter shows that attendance has been on the rise for the Cedar Fair organization as a whole. Where did your information about a decline since 2004 come from?

If you can't see where things have started to go south in both operations and other areas like food and entertainment (i.e. the Red Garter last season, and the general canning of music), then I don't know what to tell you. Even in the short time span from 05-08, I kept seeing marked decline in such areas (the exception being entertainment in the Garter and Centennial until last season) during my visits to the parks.

I don't define "going south" on a metric that involves my own personal preferences. If people are still going to the parks and still spending money, then things aren't going south even if there's a preference for different meals or music/entertainment.

I think the Six Flags comparison is very valid, especially with the financial situation. Things may not be as bad operationally at the park level, but they are certainly headed there if past seasons are any indication (and they are).

Again, I don't see any numbers that suggest things are headed there operationally. Where are your numbers coming from? Maybe I'm missing something that was published.

Yes, the economy matters, of course. The core issue was still paying too much for Paramount Parks, and buying Geauga Lake at all. The failure that doesn't make its way into financial reports is that they bought a great asset, and then gutted it. PP was on a hell of a great success streak, which former employees describe as being well above the expected contribution profit to CBS (and Viacom before that).

So if you buy a nice car, maybe pay a little much for it, do you take out the engine and not replace it? That's effectively what they did.

Yeah, and I completely agree that's a bad decision. Terrible, in fact. I just don't see that it draws a causal line to the place they are in right now.

There's just no way to determine that if the credit market weren't bad they wouldn't be able to recover from/correct those bad decisions and be successful OR that had those decisions not been made they would have been able to weather this bad credit market without an issue. That's all I'm trying to say.

Incidentally, why were PP being sold when they were yielding so well for CBS and Viacom before that? I'm just curious. It doesn't sound like it was a good decision to sell them given they were doing so well.