Six Flags Entertainment Corp (FUN) 2003 Q2 法說會逐字稿

Good morning, ladies and gentlemen and welcome to your Cedar Fair second quarter 2003 earnings conference call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments would follow the presentation. It's now my pleasure to turn the floor over to your host, Brian Witherow. Sir, the floor is yours.

Thank you Ashley. Good morning. Welcome to your second quarter earnings conference call. I'm Brian Witherow, the Corporate Director of Investor Relations for Cedar Fair. Last night we issued our second quarter and six-month earnings release. A copy of that release can be obtained on our Corporate Web site www.cedarfair.com or by contacting our Investor Relations offices at 419-627-2233. On the call this morning are Dick Kinzel, our Chairman, President and CEO and Bruce Jackson, our VP, Finance and CFO.

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

In addition, in accordance with newly adopted regulation G non-GAAP financial measures used on the conference call today, are required to be reconciled to the most directly comparable GAAP measures. During today's call we will make reference to adjusted EBITDA as defined in our earnings release. The required reconciliation of adjusted EBITDA is also available to investors on our Web site via the conference call access page. In compliance with SEC regulation FG, this Web cast is being made available to the media and the general public as well as Analysts and Investors. Because the Web cast is open to all constituents and prior notification has been widely and unselectively disseminated, all contact of the call will be considered fully disclosed. Now let me turn the call over to Dick Kinzel.

Thank you for joining us on the call today. The first half of the 2003 season has been a frustrating and difficult one for all of us. Poor weather as well as the overall weakness in the economy has continued to negatively impact our operating results. In the eastern half of the country, below-normal temperatures and frequent rainfall have led to attendance short falls at several of our seasonal parks. Through the first seven months of this year combined attendance across our 11 properties was down 5% from 2004 and, average in-park guests per capital spending was up 4%. Over the same period, combined out of park revenues were essentially flat between years.

We're pleased with and encouraged by the growth in average in-park guests per capita spending as well as consistently high occupancy rates at our hotels at Cedar point. In addition, attendance levels have been relatively good when weather conditions have been favorable. There just have been too many bad weather days this spring and summer. At the individual park level, Valley Fair has performed very well this season with the introduction of a new steel roller coaster called Steel Venom. It's the second major thrill ride added at Valley Fair in the past four years and attendance at that park through the end of July was up 6% from 2002 with strong guest per capita spending. Unfortunately, our other seasonal parks have not fared as well and attendance at those parks have remained below our expectations.

At Cedar point, the addition of Top Thrill Dragster has been received very well by the parks guests, although we have experienced several aggravating technical problems with the rights prototype technology that have kept it out of operation periodically. Unfortunately, the introduction of this world record-breaking coaster has been met with one of the wettest summers in recent years and park attendance has not reached out our own internal expectations. Through the first seven months of the year, attendance at Cedar Point was down approximately 1% from last year. On a positive note, however, occupancy rates at the park's resort properties have remained strong in spite of the weather and soft economy and out of park revenues were up nearly 2% through the first seven months of the year.

Our second largest seasonal park, Dorney Park, continues to be impacted the most by poor weather in 2003. Through the end of July, attendance at the park was down more than 10% from last year's record level, which benefited from outstanding weather throughout the majority of the operating season. At our other two seasonal parks, the lack of a major new attraction this year, along with inconsistent weather conditions has hurt attendance. Both Worlds of Fun and Michigan's Adventure introduced new rides in 2002 and in 2003, the parks have not been able to match last year's attendance levels. Through the first seven months of the year, attendance at Worlds of Fun and Michigan's Adventure was down 7% and 2% respectively. Our only year-round park, Knott's Berry Farm, a weak economy in aggressive discounting by several of the destination park in Southern California have led to lower-than-expected attendance, down 7% through the end of July.

However in-park guests' per capita spending at Knott's improved by 5% through the first seven months of the year. At our five water parks, the comparisons coming into the current year were very difficult as weather conditions in 2002 were ideal at several of the parks, very hot and very dry. Through the end of July, combined attendance at our five waters parks was down 7% from last year while in-park guests per capita spending was up with 6% making water park revenues nearly flat between years. We've been very pleased with the ability of the individual parks to control their operating costs this year. With our industry continuing to face overall uncertainty of the country's economy, and the poor weather conditions we've experienced so far in 2003, we've made a concentrated effort to control costs while not sacrificing guests service. The result was a 1% reduction in cash operating costs and expenses through the first six months of the year and continued excellent guests satisfaction ratings.

With the month of August and our important Halloween season still ahead of us, I am hopeful that we can still recoup some of our attendance shortfalls. However, we have seen no signs of any long-term improvements in weather patterns in several of our key markets. Based on this fact and our preliminary July results which indicate the revenues for the month were essentially even with last year, we now expect to achieve full-year revenues of between $490 and $500 million and adjusted EBITDA of $160 to $165 million. Although slightly lower than last year, this level of operating cash flow combined with our moderate capital expenditure program in 2003 would still allow us to at least maintain our cash distribution rate, which has already increased once this year back in March. At this point, I'll turn the call over to Bruce Jackson to discuss the second 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 were realized during a 130-dayoperating period beginning in early May, with the majority of our revenues concentrated in the third quarter during the peak vacation months of July and August.

In addition Knott's Berry Farm our only year-round park operated at its highest level of attendance in the third quarter. Thus I will caution you that it's always risky to jump to any conclusions about our full-year results based on second-quarter numbers alone.

That being said, net revenues in the second quarter decreased 1.6% to $145.2 million including $70.4 million in admissions revenue, $60.2 million in food merchandise and games revenue and $14.6 million in accommodations and other out of park revenues. The second quarter revenue decrease between years was the result of a 6% decrease in combined attendance, a 5% increase in average in-park guests per capita spending, and essentially flat out-of-park revenues including our resort hotels. For the quarter, earnings before interest, taxes, depreciation and amortization and non-cash and non-recurring items were adjusted to EBITDA decreased 7% to $44.8 million due to the shortfall on attendance caused principally by the poor weather in the period.

Total cash, operating cost and expenses for the quarter before depreciation and other non-cash charges increased just slightly to $100.4 million from $99.4 million for the same quarter a year ago. After depreciation and a $1.8 million non-cash charge for unit options, compared to a $1.4 million charge in last year's second quarter, operating income in the period decreased $4.8 million to $27.6 million. In the current quarter, we recognize the non-cash credit to income of $469,000 for the change in fair value of two interest rate swap agreements in the period. This compares with an expense of $1.9 million in last year's second quarter. These amounts represent purely a timing issue and $7.4 million expense in 2002 remains to reverse in the income over the next seven quarters as the swaps continue to serve their purpose of leveling cash interest costs through their maturity in the first quarter of 2005, after the non-cash credit and after interest expense and a provision for taxes, both of which were comparable between years.

Net income for the quarter was $16.7 million or 33 cents per diluted limited partner unit compared to $18.8 million or 37 cents per unit a year ago. For the six-month period, net revenues decreased 3% to $166.7 million from $171.5 million in 2002 on a 7% decrease in combined attendance, a 5% increase in average in-park guests per capita spending and relatively flat out of park revenues.

Over the same period adjusted EBITDA decreased $3.9 million to $25 million. Excluding depreciation and other non-cash charges, operating costs and expenses through the first six months of the year actually decreased 1% to $141.7 million due to a strong emphasis on expense controls at each of the parks. After higher depreciation and $3.1 million non-cash charge for unit options, operating costs and expenses for the first half of the year totaled to $163.5 million, down slightly from $165 million in 2002.

For the month of July, operating results improved slightly from our early season trends, although poor weather continued to be a drag on attendance at several of our properties, including our two largest seasonal parks, Cedar Point and Dorney Park. For the month, consolidated revenues were essentially flat between years on a 3% decrease in combined attendance offset by a 3% increase and average in-park guests per capita spending and flat out-of-park revenues.

As Dick mentioned, based on these preliminary July results we now expect full revenues and adjusted EBITDA to come in flat to down a few percent from last year's levels. However due to the amounts and timing of non-cash accounting charges related to unit options, interest rate swap agreements and losses on the retirement of assets, 2003 full-year net income may actually exceed the prior year's net income of $71.4 million or $1.39 per diluted limited partner unit.

Turning to our balance sheet for a moment, total debt outstanding at the end of the quarter was $444 million, almost identical to the debt level a year ago, including $240 million of fixed rate term debt, $10 million of which is payable later this month and $204 million of borrowings under our $275 million bank revolving credit agreement. Of the $204 million under the revolver, $100 million 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 buy-back program nor have we been actively buying back units over the past several quarters.

At the end of the quarter, partners' equity totaled $250 million and our total cash on hand was $11.7 million, both amounts in line with normal seasonal levels. At this point, I'll conclude our prepared remarks and allow for any questions that you might have. Ashley.

Thank you. The floor is now open for questions. If you have a question, please press the number 1 followed by 4 on your touch-tone phone at this time. If at any point, your question has been answered, you may remove yourself from the queue by pressing the # key. We do ask that while you pose your question that you pick up your handset to provide optimum sound quality. Once again, to ask a question, please press the number 1 followed by 4 on your touch-tone phone at this time. Our first question is coming from Patrick Diedrickson of H&R Block Financial. Please go ahead with your question.

Good morning, gentlemen.

Good morning.

Good morning.

What do you believe is driving the increase in your guests' per capita spending?

It's mainly food merchandise and games are up just slightly this year. I believe that admission is pretty well flat, but up a little bit in some of our markets. We tried down to hold the admission price as much as we could this year.

OK.

Mainly in in-park spending.

OK. Approximately how much of this season has Top Thrill Dragster been open and running?

That's been a very disappointing ride for us so far, Patrick. It's been up, I would say, we actually pulled our advertising from June 3rd until almost 4th of July. While it was running periodically during that time we were trying to work the bugs out of it. We reopened it shortly on the 4th of July weekend and it's been running sporadically since that time. And as we are speaking now, the ride is running, however it certainly has not performed up to the expectations that we would expect it to do, but we are going to work on it this summer and certainly have it running 100% for next summer.

OK. What's been the problem with it that's caused it to shut down?

Patrick, it's a prototype -- type ride. When you go 400 feet and 120 miles an hour, it started out on the hydraulics, we had problems with the hydraulics. They got those problems resolved. They are comfortable with those. We now had problems with the catch car system. Again, things that come up that we didn't expect, just heat on the vehicle that generates the train at 120 miles an hour. There was so much heat generated there, that was causing us problems.

We're finally in the process now of putting almost like air conditioner type units on that. That was completed last night. So, we're working through these problems as they come up. But again, with the prototype ride that the ride does so much that it just seems like it's one problem after another. But I can tell you this. When the ride is in operation, it certainly creates a sense of energy and excitement in the Park like no other we've ever had.

Yeah, I rode it on Media day. It was pretty phenomenal. But it is fixable. It's not going to cause you to write-off your $20 million investment. Is it?

Absolutely not. The one thing I can say for (inaudible) and our maintenance department, they certainly have all hands on deck for this project. They're working 24 hours a day, seven days a week on it. And we've made the commitment that even though the Park may close on in October, we're going to get back, keep that ride running if it has to run on Christmas Eve until it is running right. So when we open the Park next May, the ride will be running the way we expect it to be running.

OK. Do you think the fact that it has been shut down so much, it's had a negative impact on guest satisfaction?

I don't think so much guest satisfaction. Perhaps disappointment, because we still have four other major coasters in the Park, but certainly they're discouraged when they come, because -- but we have pulled the ads. There are signs in front of the park that the ride will not be running that day or it will be running intermittently. But they're certainly disappointed because when you just have the scent of that ride, it is an exciting ride and people want to see it operating.

OK. I'd be remised if I didn't ask this. You already raised your distribution once this year, and you stated you expect to at least maintain the distribution based on your cash flow targets. But historically, you've tended to raise it around the November distribution, for the November distribution, which is usually the conclusion of the summer season. But based on your decreased cash flow projections, what is the risk that you will not increase the distribution at the end of this season?

You are right Patrick. Every September - at our September Board meeting for the last 15 years, we've always increased the distribution. And at this point, I don't think that the distribution is at risk. If we can just maintain or have a normal August, I think we'll be all right. But at this point, it does not look likely that we will increase the distribution in September of this year.

OK. Thanks, guys.

You're more than welcome, Patrick.

Thank you. Our next question is coming from Robert Routh from Natexis Bleichroeder. Please go ahead with your question.

Actually this is Marie Johnson in for Rob. Most of my questions were answered. The only follow-up I have is do you have any internal projections for CAPEX for 2003 or '04?

Marie, we are reviewing those and those decisions will be made and the announcements of those will be made very shortly.

OK. Thank you.

OK.

As a reminder, if you do have a question or a comment, please press the number 1 followed by 4 on your touch-tone phone at this time. Our next question is coming from Dean Gianoukos from J.P. Morgan.

This is actually Rami Abdel-Misih for Dean. Just wanted to know if you guys could give us any color on group sales and also if you could comment on season pass sales as well.

On the group sales, they're about flat with last year, maybe down just a little bit in some of the bigger parks. Again, I think that's a reflection of the economy. Rami, I didn't hear the second part of your question. I'm sorry.

Just season pass sales.

Season pass sales are very strong especially at Cedar Point. Dorney Park is down just a little bit. But at Cedar Point they're very strong. At Valley Fair, they're very strong. And at Worlds of Fun they're about normal with last year.

OK. Thanks a lot.

Welcome.

As a reminder, if do you have a question or a comment, please press the number 1 followed by 4 on your touch tone phone at this time. Ladies and gentlemen, there appear to be no further questions in the queue at this time. I'd like to turn the floor back over to the presenters for any closing remarks.

Thanks, Ashley. At this point if there are no further questions, I'd like to thank every one for joining us on the call today. Should you have any follow-up questions please feel free to contact us at 419-627-2173. As a reminder, our next monthly attendance release will be September 2 to discuss trends through the Labor Day weekend. We will look forward to speaking with you again in early November to discuss our third-quarter results. Thanks.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.