Six Flags Entertainment Corp (FUN) 2002 Q4 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Cedar Fair 4th quarter 2002 earnings conference call. At this time, all parties have been placed on listen-only mode, and the floor will be open for questions and comments following the presentation. I would like to turn the floor over to your host, Mr. Brian Withrow. Sir, the floor is yours.

[MISSING AUDIO]-- last night. A copy of the release can be obtained at our website at cedarfair.com, or by contacting our investor relations offices at 419-627-2233.. On the call this morning are Dick Kinzel, our President and Chief Executive Officer, and Bruce Jackson our Vice President-Finance and Chief Financial Officer.

Before we begin, let me caution you the comments made during this call will include forward looking statements within the meaning of Federal Securities laws. They may involve risk and uncertainties that could cause actual results to differ materially from those described in such statements. You may refer to the filings by the company with the SEC for a more detailed discussion of these risks. In compliance with SEC regulation FD, this webcast is being made available to the media and the general public, as well as analyst and investors. Because the webcast is open to all constituents, a prior notification has been widely and unselectively [INAUDIBLE] and contents of the call will be considered fully disclosed. Now let me turn the call over to Dick Kinzel.

Good morning. As you can see from our earnings release, we are very pleased with our 2002 full year results; in light of what is soft economic conditions throughout the year, we were extremely pleased with the record levels of attendance and revenues that we were able to achieve, as well as a record level of operating cash flows we generated in 2002. During the last conference call, we mentioned that preliminary October results were strong, particularly at Knott's Berry Farm, and based on the start to the fourth quarter, we expected to achieve full year revenues in the range of 490 to 500 million dollars and adjusted EBITDA of between 160 to 170 million.

I am pleased to say our full year results came in slightly above the high end of both ranges, with the solid 4th quarter performance across our company. Much of our success in the fourth quarter can be attributed to the strong performance of Knott's Berry Farm, as well as solid results from the Halloween promotions at several of our seasonal parks. During the quarter, attendance at Knott's was up 8% over last year, and in park per capita spending improved by 6%. Combined October weekend attendance at our seasonal parks was also increased significantly. For the full year, effective capital programs and marketing strategies, combined with good weather throughout the season at most of our parks produced solid attendance and revenue figures. At our flag ship park, Cedar Point, the introduction of the park's 15th roller coaster and the addition of the Peanut's themed ice show led to a 5% increase in attendance to three million, two hundred fifty thousand guests.

Occupancy at the park's resort hotels was also up nicely between years and hotel revenues improved by more than 10%. At Knott's Berry Farm, the introduction of the Accelerator roller coaster in July and a strong Halloween haunt promotion in October contributed to a strong second half of the season. For the full year, attendance at Knott's finished up almost 2% to 3.6 million guests, in spite of the continued soft tourism market in Southern California. In 2002, Dorney Park in Pennsylvania set another attendance record on a very moderate capital program. Attendance finished the year up 4% over last year at 1.6 million guests, due in large part to favorable weather and the strong second year draw of the Talon roller coaster. Results at our other three seasonal amusement parks were also solid in 2002. At Worlds of Fun, the introduction of our new intermediate ride produced a 2% increase to 940,000 guests.

At Valley Fair attendance fell slight below expectations, due to record rainfall at most of the park's core markets. Although Valley Fair finished the year essentially flat with 2001 at one million, forty thousand guests, and with cost containments , were still able to contribute nicely to the bottom line. Our newest park, Michigans Adventure, performed reasonably well in its first year as a Cedar Fair park. For the year, both revenue and guest per capita spending showed strong improvement on essentially flat attendance of approximately 420,000 guests. We were also pleased with the performance of our five water parks in 2002. High temperatures throughout much of the season were ideal conditions for several of these parks, and combined attendance across the five water parks increased 15% to 1.5 million guests.

We also achieved very strong numbers at Camp Snoopy at the Mall of America, which we manage for the owners. In 2002, in park guest per capita spending at our parks fell somewhat short of expectations. In light of soft economic conditions and increased competition, more aggressive promotions were offered and efforts made to increase season pass sales at several of our parks, including Cedar Point. These efforts proved successful, but contributed to somewhat softer per capita spending levels at those parks. At this point, I would like to turn the call over to Bruce Jackson for a more detailed review of the fourth quarter and full year results.

Good morning. Thanks to all of you who are with us this morning. It's really a pleasure to have such good numbers to report for 2002. As Dick mentioned, we are very pleased with our strong fourth quarter performance and the fact that we were able to achieve improved results for the full year in spite of softer economic condition and a relatively modest capital program. For the quarter, consolidated revenues increased 9.8 million or 20% to 57.8 million dollars, due it in large part to strong performances at the three largest parts. Cedar Point, Knott's Berry Farm, and Dorney Park. All three parks generated solid operating results in the period, driven primarily by good weather and growing success of our Halloween promotions. For the quarter, combined attendance at our 11 parks increased 13% between years, while guest per capita spending increased 8%. Over the same period, out of park revenues were up 11% from a year ago. For the full year, consolidated revenues improved 5% to a record $502.9 million.. Including admissions revenues of $252 million, up 5%. Food, merchandise, and games revenues of $201 million, up 4%. And accommodations and others of $50 million, up 11%.

The overall increase of net revenues for the year was achieved through a 4% increase and combined attendance, a slight increase in the buying in park guest per capita spending, and a 9% increase in out of park revenues, which was driven primarily by healthy improvements in occupancy levels at Cedar Point's resort hotels. For the entire season, combined attendance at our 11 properties improved 4% to a record 12.4 million people, from 11.9 million in 2001. At our 6 amusement parks, combined attendance was up 3% from a year ago to 10.9 million guests, due entirely to internal growth at our existing parks. Meanwhile, attendance at our five water parks increased 15% to 1.5 million guests, due in part to the full year contribution of the Palm Springs Water Park, which was acquired in late May of 2001. Excluding that water park, water park attendance was still up 10% from a year ago. As Dick mentioned, our guest per capita spending levels in 2002 were impacted by the soft economy, as well as a shift in the overall mix in attendance from lower per capita parks, such as our water parks.

For the year, average guest per capita spending increased only slightly, to $34.50, from $34.41 in 2001. Total costs and expenses in 2002 before depreciation and other non cash charges increased just 2.5% to $332.7 million. A portion of this increase was attributable to the 2001 mid-year addition of our two newest parks. Each of our parks did an excellent job of keeping operating costs in line this year, without sacrificing guest service levels, which was our goal. All major cost as a percentage of revenues remain comparable to or below historical levels. Consistent with prior periods, we marked our variable priced unit options to market at the end of the 4th quarter. Based on additional vesting of the options, along with the change of the market price of our units from the end of third quarter to the end of the fourth, we recorded a noncash charge of $1.0 million in the current quarter, compared to $9 million in last year's fourth quarter.

This brought the total charge for 2002 to 4.0 million or 8 cents a unit, compared to last year's noncash charge of 11.7 or 23 cents per unit. After depreciation, unit option expense at 3.2 million noncash charge in the first quarter for asset retirements, and operating income in 2002 increased 23% to 121.2 to 98.6 million a year ago. As you can see from our release, at year end, we reclassified $7.6 million from other comprehensive income, which is an equity account, into the other expense in the income statement. This is a noncash required under under extremely complex accounting principles that govern the accounting treatment of [INAUDIBLE], including interest rate hedges.

Based on the accounting rules, two interest rate swap options we had been accruing through other comprehensive income could not be treated as effective hedges, and thus the reclassification was made. As I mentioned, this is a noncash charge and does not have impact on the partnerships cash flow or distributions to our partners. In addition, the $7.6 million charge is a purely a timing issue that will completely reverse into income in 2003 and 2004, as the hedges continue to lock in our cash interest costs as they mature to expiration. Although the impact of the swap options in the first three quarters was not recognized in expense because it was not material, we have elected to adjust our quarterly results in order to more clearly reflect the timing of the charge throughout the year. After the $7.6 million charge and interest expense provision for taxes, both of which were up slightly between years, net income for the year increased to $71.4 or $1.39 per unit from $57.9 million, or $1.13 per unit in 2001.

We believe a very useful measure of our park level operating results and the ability to generate cash flow to fund the distribution to unit holders is adjusted EBITDA or earnings before interest, taxes, depreciation, and other non cash charges and credits, such as the option account. For the full year, adjusted EBITDA increased more than $17 million at 11% to a record $170.1 million from 152.7 million in 2001. Our park management teams did a great job in 2002 and these results are tangible proof. Based on these results, our full year cash flow is more than sufficient to fund our current partnership distribution rate of $1.68 per unit or approximately $85 million on the aggregate.

As we mentioned on our last conference call, our board may consider further increase in the distribution rate at its March meeting, which it did twice before, based on the fact that our full year results came in at the high end of our anticipated range. Turning to our balance sheet for a moment, total debt outstanding was $375 million, including 240 million of fixed rate term debt, 10 million of which is classified as current, and $135 million of borrowings under our bank revolver, 100 million of which is effective with the [INAUDIBLE] fixed rates, using the interest rate swaps. With our favorable borrowing rates and balance sheet strength, we remain comfortable with our current debt levels, and have no immediate plans or needs to significantly pay down debt at this time.

At the end of the year, partners equity totaled $305 million, and our total cash on hand was 2.1 million. Before turning the call back to Dick for a look at the 2003 season, I would like to take a moment to discuss our approach on accounting for unit options. Since our first unit options were granted in 2000, we have been accounting for options under APB 25. This accounting methodology required us to mark our variable priced options to market at the end of each quarter as they vest over five years, and often led to large fluctuations in the noncash unit option expense from quarter to quarter. In order to eliminate these large fluctuations, we decided to adopt Statement of Financial Accounting Standards Number 123 as of January 1, 2003.

Under the provisions of SFAS 123 and its amendments, all of our outstanding options and any future grants will now be expensed evenly over their vestment periods, based on fair value at the date of grant. Thus, we will no longer have to mark our variable price options to market each quarter, but will still be recognizing noncash compensation on a straight line basis on our options outstanding, not just the variable priced optioned. Going forward, we anticipate taking a non cash charge for unit options of approximately $1.3 million per quarter, or 5.2 million a year, on existing outstanding options. At this point, I will turn the call back to Dick for some comments on the upcoming season.

As we look forward to 2003, there are several challenges that lie ahead of us. In California, tourism continues to be soft, and the aggressive competitive discounting that began back in 2001 continues. Although we believe this level of discounting will not continue long-term, we have adjusted the pricing in advertising at our parks to maintain our strong position in the Southern California market.

In 2003, we also continue to face uncertain economic conditions in each of our core regional markets. Although last year we proved that with the right mix of capital programs and marketing plans in place, our parks could thrive and grow the bottom line in spite of these uncertainties. We believe that we have strong business plans in place again for the upcoming season. This year, we will continue to build on our reputation of providing the finest thrill rides, family attractions, and guest satisfactions and value the user park industry has to offer. This year's capital program totals $48 million across our 11 properties, and will be highlighted by the addition of three new roller coasters at both Cedar Point and Valley Fair. At Cedar Point, we are taking thrill riding to new levels with the addition of Top Thrill Dragster.

At 420 feet tall, and 120 miles an hour, it will be the tallest and fastest roller coaster in the world. It will be the park's 16th roller coaster, more than any other park. It will strengthen Cedar Point's position as the top-rated amusement park in the world. We are confident that Top Thrill Dragster will be received with great enthusiasm by Cedar Point's core market and the thrill rider's segment in particular. Initial reaction to the announcement of the new ride last month was incredible. At Valley Fair, we are introducing a coaster that will be similar to Cedar Point's Wicked Twister, which proved very popular this past season. The new coaster, which is called Steel Venom, will be the first new roller coaster added at Valley Fair since 1996, and it will give the park a whole new look and marketing push for the upcoming season. In 2003, capital spending will also be focused back to our water parks, which proved very profitable last year.

At Worlds of Fun, capital expenditures will be highlighted by the addition of a large, interactive water fun house called Paradise Falls, while Dorney Park will add to its water attractions with the addition of 10 new water slides and a complete renovation of the park's Giant Wave Pool. Capital expenditures at Knott's Berry Farm will be modest, and will feature the addition of a mid-sized family thrill ride. However, we are also confident that Accelerator will continue to be as strong as a [INAUDIBLE] in 2003 as it proved to be during the second half of last year. Meanwhile, Michigans Adventure will concentrate its moderate capital budget on general park improvements. Although it's still too early to accurately forecast 2003's full year performance, we are confident that each of these investments, along continued momentum from last year's capital programs and strategic marketing plans, will position our park for an exciting and successful year in 2003.

For the full year, we are planning for consolidated net revenues of between 515 and 525 million dollars. That represents growth of approximately 3-5% over 2002 results. This growth will be achieved primarily through increases and attendance at both Cedar Point and Valley Fair, as well as improvements in guest per capita spending across all 11 parks. Based on revenue expectations and a continued focus on controlling cost, we anticipate being able to improve four-year EBITDA over last year's levels. Along with our moderate 2003 capital program, this growth and cash flow should allow us to increase our cash distribution rate again next year. Before we open up the call for questions, I would like to take a moment to address the issue of corporate governance.

In light of the increased focus and many questions being asked by the investment community concerning this subject, I want to emphasize that Cedar Fair remains dedicated to the highest standards of corporate governance and full compliance with current and proposed guidelines from the FCC and New York Stock Exchange. As some of you may have read in a recent press release, in an effort to reinforce the independence of our Board of Directors, we recently elected two new members; and both of these new members bring a great deal of experience to our board, as well as complete independence. I also want to emphasize that based on our commitment to accurate financial reporting, as well as the integrity of our people and the internal controls and procedures, I can say with confidence that both Bruce and I remain more than willing to sign off and certify Cedar Fair's financial statements, as regulators now require us to do. At this point, I will conclude our prepared remarks and allow for any questions you might have.

Ladies and gentlemen, the floor is now open for questions. If you do have a question or comment at this time, you may press 1 and 4 on your touch tone phone. Questions will be taken in the order received and we ask that while you pose your question, if you can pick up your hand set for optimum sound quality. If at any point your question is answered, you can remove yourself from queue by pressing pound key. One moment while we poll for questions. Our first question is from Patrick Deidrickson of HR Block financial. Patrick, your line is live.

Good morning. I was wondering how much are you guys budgeting for the gate increases this year?

Across-the-board, Patrick, somewhere between $1-2 a park.

Okay, and your group rates are a reflection of that, correct?

That's correct. Usually the group rates are a percentage off the front gate.

Okay. And how about lodging, how much are you budgeting for lodging room rate increases this year at Cedar Point?

As you can see we had a great year last year at Cedar Point, and we are basically budgeting our ADR is pretty well going to be flat with 2002's numbers.

Really? Yeah, you mentioned you had a nice year in the hotels. What was the average occupancy at Cedar Point last year?

It's usually between 80 and 85%. It's a little bit softer in the shoulder periods, Patrick, but then once you get into the last week in June and through the last weekend of August, we are pretty well 100% full throughout all of our properties, at least at that property.

Okay. Are you potentially expecting any new hotel supply and industry in the surrounding area?

We do, we are looking at it and we are very pleased with accommodation and revenues and operating profit on that. We are looking at expanding a couple of areas. The Breaker's Express can be added on to which is our moderately priced hotel right off of the peninsula, right at the entrance of the park, but off of the peninsula. Also the tremendous success we had in the campgrounds. We are looking to expand the cabins and the cottages that we put in two years ago.

Okay. Did you have to relocate any of the rides or attractions to fit Top Thrill Dragster in there?

Yes, we did, Patrick. Actually, one ride was taken out of the park and the two others that were involved in placing Top Thrill Dragster were relocated to another area of the park.

Okay, and how was attendance at the ice show last season?

The Snoopy Ice Show proved -- we put it in to attract a family audience. With the exception of the first show and the last show, I can say all the shows were full. It got tremendous response and our in-park survey showed it was a great show. If possible, we will try to expand that concept to some of our other parks in the future.

Okay. Maybe I missed this. What was total CapEx last year?

Mid-40's, I think, last year. 344.

Okay, and you are budgeting 48 for 2003?

Correct.

Okay, and second, I was just looking back a few years and noticed in '99 it was 80 million, in 2000 it was 93 million, '01 it was 48 million, again, it was mid-40's. You are targeting 48. Obviously, with a moderate economic environment I can certainly see that. That's great for uniholders because it generates free cash flow, but if the economy decides to improve next year, or looking long-term, are you possibly looking at getting back to the 80-90 million range?

Well Patrick, if you look at the 80 and 90, it's a function. Back in 2000 we actually put $130 million in the parks. That was spread out over a couple of years. The normal capita, we feel comfortable with to stimulate attendance and keep guest satisfaction up, is somewhere between 40 and $50 million. I believe those units you were talking about was basically a function of balancing out the 130 we put in 2000, and the reason for that is we put in millennium force and we knew, or at least we anticipated, we were going to have a great year, so we added some hotels, we added a hotel in California, and a water park in California. So that really is a function of the 130 million that was put in in the year 2000.

Just a one-time bump in the capital spending?

Patrick, I can tell you that we are very, very comfortable somewhere between 40 and $50 million in normal cash flow to keep our maintenance facilities strong and give good rides and attractions to the public to give them incentive to come back, is right n the ballpark for us.

Okay, great. Good job, guys.

Thank you. Once again ladies and gentlemen, if you do have a question, you may press 1 followed by 4 on your touch-tone phones at this time. Gentlemen, there appear to be no further questions.

Well, thank you very much for joining us today. Yeah, if there no further questions, I will I guess conclude the call. If anyone does have any follow-up questions, feel free to give us a call. I can be reached at 419-627-2173, or you can e-mail us a question at investing@cedarfair.com, and we look forward to speaking with you all again on the 1st quarter conference call in early May. Thanks.

Thank you ladies and gentlemen for your participation. You may disconnect lines at this time and have a wonderful weekend.