Six Flags Entertainment Corp (FUN) 2003 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to your Cedar Fair First Quarter 2003 Earnings Conference Call. At this time, all parties have been placed in a listen-only mode and the floor will be open for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host and corporate director of investor relations, Mr. Brian Witherow. Sir, the floor is yours.

Thank you, Dante. Good morning, everyone. Welcome to our first quarter earnings conference call. We issued our earnings release yesterday evening, and a copy of that release can be obtained on our web site, or by contacting our investor relations office at 419-627-2233.

On the call this morning are Dick Kinzel, our President and Chief Executive Officer, and Bruce Jackson, our Vice President of Finance and Chief Financial Officer.

Before we begin, let me caution you that comments made during this call will include forward-looking statements within the meaning of the federal securities laws. These risks may involve risks and uncertainties that could cause actual results to differ materially from those described in such statements. You may refer to filings by the company with the SEC for a more detailed discussion of the risks.

In compliance with SEC regulation FD, this webcast is being made available to the media and the general public, as well as analysts and investors. Because the webcast is open to all constituents, and prior notification has been widely and unselectively disseminated, all contents of the call will be considered fully disclosed.

Now let me turn the call over to Dick Kinzel.

Thank you for joining us on today's call. Before Bruce reviews the details behind the first quarter results, I'd like to take some time and talk about the upcoming season and our expectations for the year.

However, before I do that, I'd like to say how proud I am of the fact that we were able to increase our cash distribution rate again in March. As we mentioned on our last conference call, our board considered another increase in the distribution rate, based on the fact that our 2002 full year results came in above our expectations. After reviewing our solid fourth quarter and full-year results, the board determined that a second increase in the distribution rate, to $1.76 per unit, or 44 cents per quarter, was appropriate. This brings the total increases in the past 12 months to 12 cents per unit, or 7%, and marks our 64th consecutive quarterly cash distribution payment, something we're extremely proud of.

Now to the upcoming operating season. Worlds of Fun, our park in Kansas City, opened its gates for the 2003 season back in early April, and tomorrow both Cedar Point and Dorney Park will open. By Memorial Day Weekend, all of our seasonal properties, including the five water parks, will be open on a daily basis. We've got an exciting mix of new rides and attractions in place this season, and we're confident that they will generate strong interest in each of our markets.

In total, we've invested $48m across our 11 properties this year, highlighted by the addition of the world's tallest and fastest roller coaster at our flagship park, Cedar Point, and the introduction of an exciting new coaster at Valley Fair.

At Cedar Point, we've added to the park's unparalled collection of thrill rides this season with the addition of Top Thrill Dragster, the park's 16th coaster. At 420 feet tall and 120 miles an hour, it's the tallest and fastest roller coaster in the world, and it has completely redefined the Cedar Point skyline. It received tremendous response from the more 1,000 people in attendance at yesterday's media event, including reporters and journalists from across the country and several foreign countries.

Top Thrill Dragster is every bit as exciting to ride as we hoped it would be, and I'm confident that it will be a strong attendance draw for the park this year, as other world-class coasters have been in the past. If you get the opportunity, you may want to read the article on the ride in today's issue of the ``USA Today'' newspaper.

Meanwhile, Valley Fair's new Double Impulse coaster, steel coaster, Steel Venom, is on schedule to debut when the park open its gates for the 2003 season next week. This new ride will be similar to Cedar Point's Wicked Twister, which proved very popular with guests last year, and it will be the park's seventh roller coaster. It is the second major thrill ride added to Valley Fair in the past four years, and I'm confident it will be a strong attendance draw for that park's core market.

In addition to the thrill rides, we have focused on the young family market at several of our other parks. At Knott's Berry Farm, we've followed up the addition of a world-class roller coaster in 2002 with the introduction of a family thrill ride, called The Revolution, and that will open later this summer. In addition, we're adding several new attractions to the Camp Snoopy Family Playland, which is celebrating its 20th anniversary at the park. We're confident that these new attractions will be strong draws for the family market at Knott's. We're also confident that the Accelerator Rollercoaster, with nearly a full year of operation and word-of-mouth advertising under its belt, will continue to be a strong attendance stimulus for the thrill seeker market in 2003.

At Dorney Park, we followed up another record-setting year with improvements to the park's water park that include the introduction of ten new water slides, a complete renovation of the park's giant wave pool, and the addition of a live Peanuts character show. These new attractions, along with the continued drawing power of the park's world-class thrill rides, should allow us to build upon the momentum we've established at Dorney over the past five or six years.

Meanwhile, Worlds of Fun is adding to its already solid collection of water attractions at its adjacent water park, Oceans of Fun, with the introduction of Paradise Falls, a large water funhouse designed for the entire family. The same attraction has proven to be very popular at several of our other water parks, and we're confident that it will receive a strong response in the Kansas City market as well. In 2003, the park will also be expanding its Halloween program, which has become a big attendance draw in the late fall, with the addition of a haunted house and other themed attractions.

Knott's Berry Farm, our only park with significant first quarter operations, has had a little bit of a slow start to the year, as attendance has been negatively impacted by continued soft tourism in Southern California as well as the late Easter season and unusually poor early season weather. However, April attendance at Knott's was fairly strong, and revenues through the end of April are nearly on pace with expectations.

In 2003, all of our parks continue to face the overall uncertainties of the country's economy and the regional economies in which our parks are located, as well as concerns about world events. At this point, there's no clear sign as to how the summer tourism season will evolve. However, with continued aggressive marketing plans in place at each park, and with the new rides and attractions that we've added, including a major new thrill ride at our flagship park, Cedar Point, we are confident that the company is well-positioned to meet these challenges. In addition, our parks remain primarily regional draws that are within easy driving distance of their major markets. On average, at least 80% of each park's attendance lives within a two- to three-hour car trip. This makes our parks an attractive alternative to more expensive, long distance vacation, and makes less vulnerable to soft economic conditions or air travel concerns.

Our properties enjoy strong reputations in each of their markets for quality and guest service, and I believe we can build upon the positive momentum we've established last year.

As we head into the 2003 season, our season's past sales, hotel, and group event bookings and seasonal staffing all look very good, and the parks look great, and we are ready for another good season.

For the full year, we remain cautiously optimistic that we have the right mix of capital programs and marketing plans in place to generate at least a 3% to 5% internal top line growth. Along with a continued emphasis on controlling operating costs, this should translate into an increase in full-year adjusted and EBITDA over last year's level, which would allow us to increase our cash distribution rate again later this year.

At this point, I'll turn the call over to Bruce Jackson to discuss the first quarter numbers in more detail.

Thank you, Dick. Let me begin by emphasizing that virtually all of the revenues from our five seasonal parks and our five water parks are realized during a 130-day operating period, beginning in the second quarter, with the majority of the revenues concentrated in the peak vacations months of July and August. In addition, Knott's Berry Farm, our only year-round park, operates at its lowest attendance level in the first quarter. Thus, I will caution you that the first quarter is not material to the full-year operating results and it's always risky to jump to any conclusions based on first quarter numbers.

Having said that, net revenues in the period decreased from $23.9m a year ago to $21.5m in 2003. This includes admissions revenues of $8.3m, food, merchandise, and games revenues of $10.8m, and accommodations and other revenues of $2.4m. The overall decrease of about 10% in net revenues for the period was primarily due to soft early season attendance at Knott's Berry Farm, caused principally by the late timing of spring break in 2003, as well as poor early season weather.

During the quarter, results at Knott's were negatively impacted by nine days of rain, compared to only four last year. However, as Dick mentioned, April attendance was relatively strong, and revenues today are nearly on pace with expectations.

Consolidated operating results for the first quarter include all the normal off season operating, maintenance, and administrative expenses at our seasonal amusement and water parks, together with those daily operations at Knott's Berry Farm. Total operating costs and expenses in the quarter, excluding depreciation and other non-cash charges, decreased 4.5% to $41.4m from $43.3m in 2002. This decrease in costs was primarily attributable to a strong emphasis on expense controls at each of the parks during the period.

There are a couple of complex accounting matters which don't affect our cash flow, but do impact book income each quarter and need some explanation. First, as I explained in our last quarter's conference call, in order to eliminate the large fluctuations in non-cash unit option expense that we were recognizing under APB 25, we began accounting for unit options under the Fair Value provisions of Statement of Financial Accounting Standards number 123 this year. The adoption of FAS 123 was applied, using the Modified Prospective Provision, and all of our outstanding options and any future grants will now be expensed evenly over their vesting periods, based on their fair values of the data from each grant.

As such, in the first quarter of 2003, we recognized the non-cash charge of $1.2m on all options outstanding, compared to a small credit recognized under APB 25 in the first quarter last year. Had we been accounting for unit options under FAS 123 all along, the unit option charge for the first quarter of 2002 would have been $1.4m.

After depreciation, the option charge, and all other non-cash charges, operating costs decreased $4m, to $45.8m in the first quarter, from $49.8m a year ago. Included in last year's operating costs and expenses was a $3.2m provision for estimated losses on the retirement of certain fixed assets removed from service at our parks.

As we mentioned in our fourth quarter earnings release, at year-end, we recognized a $7.6m charge in other expense, related to the change in fair value of two of our interest rate swap option agreements that could not be designated as effective hedges under the applicable accounting rules. As we emphasized at that time, this was a non-cash charge that would not have any impact on our cash flow or distributions to partners.

In the first quarter of 2003, we recognized a similar non-cash charge and other expense of $185,000, for the change in fair value of the swap option agreements during this period, compared with the $1.5m impact in last year's first quarter. The total amount recognized as other expense to date of $7.8 is purely a timing issue and will completely reverse into income over the next eight quarters, as the swaps continue to serve their purpose of leveling a cash interest cost through their maturity in the first quarter of 2005.

After this charge, an interest expense and a provision for taxes, both of which were comparable between years, the net loss for the quarter decreased to $31.5m, or 62 cents per unit, from $34m, or 67 cents per unit, a year ago.

Turning to our balance sheet for a moment, total debt outstanding at the end of the quarter was $448m, including $240m of fixed-rate term debt, $10m of which is payable this year, and $208m of borrowings under our bank revolver. Of the $208m borrowed under the revolver, $100m has been converted to fixed rates through 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. In addition, at current market prices, we have no immediate plans for buying back any more limited partnership units under our unit repurchase program, nor have we been actively buying back units over the past several quarters.

At the end of the first quarter, partner's equity totaled $253m, and our total cash on hand was $2.7m. We are in strong financial condition and ready for the 2003 season to begin.

At this point, I'll conclude our prepared remarks and allow for any questions you may have. Dante will tell you how to do that.

Thank you very much, sir. The floor is now open for questions. If you do have a question or a comment at this time, please press one, followed by four, on your touch tone phone. If at any point your question is answered, you may remove yourself from the queue by pressing the pound key. Again, ladies and gentlemen, if you do have a question, or a comment at this time, that's one, followed by four, on your touch tone phone.

Our first question is coming from Patrick Diedrickson of H&R Block. Sir, your line is live.

Good morning, gentlemen. I remember when you guys opened Millennium a few years ago. Unfortunately, you had some rather cold and wet weather that season to deal with, which had kind of a dampening impact on attendance at Cedar Point, and given last year weather was pretty warm and sunny for your guys, particularly on the weekends. I was wondering if you had budgeted the difficult weather comparisons into your guidance?

Patrick, this is Dick. Yes, we do. We have no control over the weather, so when it comes to our budgeting process, we just automatically assume there's going to be so many bad days, rainy days. What we hope for is those rainy days do not happy on Saturday or Sunday, which is the bulk of our season. We have no control over that. But we certainly do, and when we budget, we certainly do take into consideration that there's going to be a certain amount of bad weather in our forecasts.

OK. To talk just a little bit about Top Thrill Dragster, how well do you feel that the ride is prepared, logistically, to handle the crowds at the opening. Specifically, given the ride only lasts about 30 seconds, do you have any concerns for how long the guests will have to wait to get on the ride?

Again, historically, we have ride time between two and three hours, when we open a ride, especially one of this magnitude. I can tell you, Patrick, I rode it for the last couple days, and really, we did not undersell it. It is a very, very exciting ride and I think it's going to get tremendous response from the public, especially the young teen market.

Also, historically, we know when we put in a prototype ride of this type, we're going to have some down time problems. That seems to be a factor that we've always had to deal with, because of a new ride. And so consequently, our maintenance department and our operations department is prepared to handle all those situations, and while our maintenance department-- you know, we feel the ride is up and running now, but we just never know what's going to happen, because it is a prototype ride. But the waits in line will probably be, on Sunday, when we open it, will probably be two to three hours.

OK. Do you have any targets for how many people will ride it this year?

I would guess well over three million. We plan to do about 1,500 an hour, and we expect it to be running all the time. One thing I'd like to comment, Patrick, is I think because of the intensity of this ride, and this ride is not going to appeal to everyone. I think it's a teen market type ride, but we've done is we've added bleachers and there's an excellent viewing area for people to watch the ride. It's like going back into the 60s, if you went to the drag races and that, it really is that kind of vision. You can sit there and watch those things take off, you know, for 20 or 30 minutes, and it's pretty exciting. There's sound and music. So it's more than just a rider's type of experience. It really is one that's very visible and I think people will take advantage of those bleachers.

OK, thanks, guys.

You're welcome, Patrick.

Thank you. Our next question is coming from Robert [Ralph] of Natexis Bleichroeder.

Yeah, hi, good morning. Two quick questions. First, I was wondering that given Disney's theme park attendance being down and Universal obviously being affected by the war in Iraq and the SARS situation and all that, I'm wondering, are you guys expecting to see any positive benefit from that, considering that most of your attendance comes from a local area and people may opt to go to your parks, rather than make the trek to one of the larger, international-based theme parks? And second, I'm wondering if you can give us an update on the hotel properties that you have, and whether you have any plans on building hotels at some of your other properties in the future?

Sure. On the California question, Robert, unfortunately, what happened is when the European market-- or when the Asian market dropped off, what Disney has done and what Universal has done, they have also went after our core market, which is the local California market. So consequently, that has affected our admissions per capita, because both Disney and Universal has offered tremendous discounts to basically try to offset some of the international attendance that they've had in the past. So consequently, that has affected us, with lower admissions per capita in the California part.

As far as our hotels go, as I mentioned in our statement, our hotel reservations are doing just fine this year. As expansion goes, we plan to take to the Board, in June, a proposal to expand the cabins we put in two years ago. Those have proved to be very successful and also to add on to the RV sites. So we still are very enthused about the hotel, the accommodations market, and we plan to expand that.

Great. Thank you very much.

You're welcome. Thanks for calling

Thank you. Our next question is coming from Dean Gianoukos of JP Morgan.

Hi, this is actually Mike Fox. I was wondering if you could tell us what the attendance and per capita spending was up, the percent change, during the quarter, at Knott's Berry Farm? Thanks.

We don't break down a lot of that detail, park by park, but basically per capita was up nicely, but attendance was down somewhat, and by April, it all kind of evened out, so the timing of spring break seemed to be the principle factor and that's kind of what we sensed, going into it. We had a couple of soft weeks in March that were very strong last year, and then we had a couple of strong weeks in April that were soft last year, so it did even out, just like we hoped, and we're pretty much right where we want to be.

OK, thanks a lot.

Again, ladies and gentlemen, if you do have any other questions or comments, please press one, followed by four, on your touch tone phone.

Our next question is coming from Kit Spring of Stiefel Nicholas.

Hi. Good morning, guys. Are you sure that none of your negative performance at Knott's Berry Farm is coming from new attractions at your competitors at Disneyland, where I think they have a Buck's World and Aladdin, a bunch of new attractions? They have seen, I believe, attendance increases. I'm wondering if some of the sluggishness at Knott's Berry Farm might be impacted by that? Thanks.

Kit, that certainly could be a possibility, because as I mentioned, Disney has put a lot of emphasis, along with Universal, has put a lot of emphasis on the local Southern California market. We don't have privy to where Disney is getting their attendance from, but we certainly projected a soft economy when we did our projections for this year. As Bruce has mentioned, we're pretty close to where we thought we would be, and we really can't control what Disney is going to do, or where they're going to get their attendance from.

Thanks.

Thank you. Our next question is coming from Russell [Sarachek] of Contra.

Hey, guys, actually it was answered, but may I'll just ask you one other thing. Can you just briefly talk about what you're seeing in the kind of M&A environment, what parks are for sale, and if some of your competitors may let go of a few parks that you guys would be interested in, and kind of U.S., Europe-- any of your views have changed on that? But good job anyway. Thank you.

Thanks for your comments, Russell. Our M&A program is pretty much as it has always been. If the right opportunity presents itself at the right price, we certainly will take a hard look at it, because we are very sensitive to the distribution, it has to be accretive in a very short period of time. As opposed to going overseas, we've always stated that that has not been a-- I'm not saying Canada, but Europe or Asia, that has not been one of our primary goals, and we would have to very seriously think about that. But again, if something came along that we thought was attractive and it would be accretive to our unit holders in the short term, we certainly would do something about it.

Can I just ask you -- I mean, there's been a few, just in some of the trade journals, a few family-run parks that you would think maybe would kind of taking it on the chin here a little bit here, and maybe more willing to sell now, actually, and it seems like you guys would be in an even better position than you've been in historically, for a number of reasons, to buy some of these parks. Is that on your desk right now, or is that kind of down the road? Can you just give a few comments on that?

Well, the only thing I could really say, Russell, is we get calls. Bruce and I both get calls, probably once or twice a month on properties, potential properties that are for sale, that people are looking to sell or looking for investment opportunities, and so far, nothing has came along that really excites us.

Great, thank you.

Again, ladies and gentlemen, if you do have any final questions, or comments, please press one, followed by four, on your touch tone phone. Ladies and gentlemen, there appear to be no further questions at this time.

I would now like to turn the floor back to the management for any closing comments.

Well, if there are no further questions at this point, I'd like to thank everyone for joining us on the call today. Should you have any follow-up questions, you can feel free to contact us .- You can contact me directly at 419-627-2173. As a reminder, we will be, again, releasing our monthly attendance trends during the 2003 season, as we have for the last couple of years. And that will begin with our announcement discussing May comparisons, which should come out on June 2nd. At this point, though, thanks for participating. We look forward to speaking with you again in early August to discuss the second quarter results.

Ladies and gentlemen, thank you very much for your participation. This does conclude today's Cedar Fair First Quarter 2003 Earnings Conference Call. You may disconnect your lines at this time, and have a wonderful weekend.