Six Flags Entertainment Corp (FUN) 2003 Q4 法說會逐字稿

Good morning and welcome to the Cedar Fair fourth- quarter conference call. (OPERATOR INSTRUCTIONS). At this time, it is my pleasure to introduce Brian Witherow. Brian, the floor is yours.

Good morning and welcome to our fourth-quarter conference call. I am Brian Witherow, Corporate Director of Investor Relations for Cedar Fair. Last night we issued our fourth-quarter and full-year earnings release, and a copy of that release can be obtained on our Website, www.cedarfair.com or by contacting the Investor Relations office at 419-627-2233.

On the call this morning are Dick Kinzel, our Chairman, 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 statements 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 these risks.

In addition, in accordance with Regulation G, non-GAAP financial measures used on the 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 the adjusted EBITDA is also available to investors on our Website via the conference call access page. In compliance with SEC regulation FD, this webcast is being made available to the media and other general public, as well as analysts and investors. Become 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.

Good morning and thank you for joining us on the call today. As you can see from our earnings release, we are very pleased with our 2003 full-year results. In spite of a slow start to the season and what continued to be soft economic conditions in a tough competitive environment throughout the year, we're still able to generate record levels of revenues and operating income.

During our last conference call, we mentioned that based on our results through October, we expected to achieve full-year revenues in the $500 to $510 million range and adjusted EBITDA of $170 to $175 million. I am pleased to say that our full-year results came in at the very high-end of both of these ranges, with a solid fourth-quarter performance across our company.

Much of our success in the fourth quarter can be directly attributed to another strong performance by Knott's Berry Farm, as well as solid October weekend results at several of our seasonal parks. During the quarter, attendance at Knott's Berry Farm was up 2 percent over last year, and in-park quest per capita spending at the park improved by 1 percent. Although tourism is still not back to normal in Southern California, Knott's continues to hold its own in that very competitive market.

To summarize the key factors in our 2003 season, effective capital programs and marketing strategies combined with favorable weather late in the year produced solid attendance and revenue figures at most of our parks, and disciplined expense controls dropped most of the revenue increases to the bottom line.

For the year, our flagship park, Cedar Point, performed very well and with the introduction of the park's 16th roller coaster, Top Thrill Dragster (ph). In spite of the slow start and some early operating difficulties with the new ride, full-year attendance at Cedar Point increased 3 percent to 3.3 million guests. Meanwhile, occupancy at the park's resorts hotel was up nicely between years, and hotel revenues improved by more than 5 percent. We are also very proud that Cedar Point was named "The Best Amusement Park in the World" again in 2003 for the six consecutive year by Amusement Today magazine.

As I mentioned, as the only year around park Knott's Berry Farm continues to perform reasonably well, in spite of continued discounting in the very competitive Southern California market. For the full year, revenues at Knott's finished the year down approximately 1 percent from last year on a 4 percent decrease in attendance and a 3 percent increase in in-park guest per capita spending.

In 2003, Valleyfair produced one of its best year's ever at the bottom line. Our Minnesota park, which introduced a new roller coaster last year, enjoyed favorable weather conditions throughout much of the peak season, and attendance at the park totaled 1.1 million guests, up 7 percent from last year.

We are also very pleased with the 2003 performance of our newest park, Michigan's Adventure, which had its best year ever at the bottom line. Attendance increased more than 10 percent to 480,000 guests, and in-park guest per capita spending continued to improve -- all on a very modest capital program.

Results at our other two seasonal parks were negatively impacted by unfavorable weather throughout much of the year. At Dorney Park in eastern Pennsylvania, record rainfall throughout most of the year led to a decline in attendance of more than 10 percent to 1.4 million guests. However, we were able to react to the situation and control costs very well, and the park remained very profitable and still contributed very nicely to our full-year cash flow.

At Worlds of Fun, cool and wet weather in the early season was followed by extreme heat throughout July and August, and park attendance suffered. For the full season, attendance at Worlds of Fun was down 6 percent to 880,000 guests. However, the high temperatures during the peak season, along with the successful debut of a new family activity area, contributed to a record year at our Oceans of Fun water park there in Kansas City.

As whole, our five water parks enjoyed a record year in 2003. High temperatures throughout much of the season were high-yield conditions for several of these parks, and combined attendance across the five water parks increased three percent to 1.55 million guests. Meanwhile, average in-park guest per capita spending at our water park improved 4 percent over last year. We're very pleased with the success we have had in driving growth in guest spending levels in 2003.

In addition to the solid results at our water park, average in-park guest per capita spending at our six amusement parks increased 3 percent between years.

At this point, I would like to turn the call over to Bruce Jackson for a more detailed review of our fourth-quarter and full-year results.

Thank you. As Dick mentioned, we are very pleased with our fourth-quarter performance and the fact that we were able to achieve record results for the full year in spite of the soft economic conditions and the slow start to our season.

For the quarter, consolidated revenues increased $3.2 million or 6 percent to $61.1 million, due in large part to strong performances at our two largest parks, Cedar Point and Knott's Berry Farm. Both parks generated solid operating results in the period, driven primarily by good weather and the success of their late-season promotions. For the quarter, combined attendance increased 6 percent between years, while guest per capita spending increased less than 1 percent. Over the same period, combined out of park revenues were up 4 percent from a year ago, driven primarily by strong increases in resort revenues at Cedar Point.

For the full year, consolidated revenues improved by 1.4 percent to a record $510 million. This included $259 million of admissions revenues, up 3 percent from last year, $201 million of food and merchandising gains revenues, which was essentially flat, and $50 million of combinations of other revenues also essentially flat with last year. The overall increase in net revenues for the year was achieved through a 3 percent increase in overall averaged guest per capita spending and a 1 percent increase in out of park revenues, primarily from higher occupancy levels at Cedar Point's resort hotels. These gains were offset just slightly by a 1 percent decrease in combined attendance.

For the entire season, combined attendance at our 11 properties decreased to 12.2 million guests from a record 12.4 in 2002. At our six amusement parks, combined attendance was down 2 percent from a year ago to 10.7 million guests, due primarily to decreases in attendance at Dorney Park and Knott's Berry Farm. Meanwhile attendance at our five water parks increased 3 percent to 1.55 million guests with solid results at our three California parks and a record year at our Kansas City water park.

As Dick mentioned, growth in averaged guest per capita spending in 2003 was relatively strong. The 3 percent increase was due to improvements in guest spending on admissions and merchandise, as well as a shift in the overall mix of attendance to higher per capita parks, particularly Cedar Point. For the year, average guest per capita spending across our 11 properties increased almost a full dollar to $35.48 from 34.50 a year ago.

Total operating costs and expenses in 2003, before depreciation and other non-cash charges, increased less than 1 percent to $334.3 million. Each of our parks contributed to an excellent job of keeping operating costs in line this year without sacrificing guest service levels. All major costs as a percentage of revenues remain comparable to or below historical levels.

We believe that a very meaningful measure of our operating results, which we use in budgeting and monitoring our park level operating performance, is adjusted to EBITDA, or earnings before interest, taxes, depreciation and other non-cash charges and credits such as option accounting. For the full year, adjusted EBITDA increased $5.6 million or 3 percent to a record $175.7 million due to increases in guest per capita spending levels and out of park revenues coupled with relatively flat operating expenses.

Effective January 1, 2003, we began accounting for unit options using the fair value method under FAS 123. Based on this method, we recognized a non-cash charge of $5.9 million for the full year in 2003. In previous years, we accounted for unit based compensation under APB 25, which required us to only recognize expense on our variable priced options. Under this method, we recorded a non-cash charge of only $4 million in 2002. After depreciation, unit option expense and a $3.2 million non-cash charge recorded in 2002 for asset retirements, operating income in 2003 increased 3 percent to $125.1 million from $121.2 million the year before.

In 2002, we also recorded a $7.6 million non-cash charge in other expense related to the change in fair value of two of our interest rate swap agreements that could not be designated as effective hedges under the applicable accounting rules. This charge was a non-cash item that did not have any impact on our cash flow or distribution store partners. In addition, the charge was purely a timing issue, which would completely reverse the income over the terms of the swaps as they continue to lock in our cash interest costs as intended.

In 2003, we recognized a non-cash credit of $2.7 million for the change in fair value of these swaps during the year. The $4.9 million balance remaining will reverse in the income over the next five quarters as the swaps continue to their maturity. After the non-cash credit and interest expense provisions for taxes, both of which were comparable between years, net income for the year increased $14.5 million to $85.9 million or $1.67 per unit from $71.4 million or $1.39 per unit in 2002.

Based on these results, our full year cash flow is more than sufficient to fund our current partnership distribution rate of $1.76 per unit or approximately $89 million in the aggregate. As we mentioned on our last conference call, our Board will consider another increase in the distribution rate at its March meeting, which it has done before based on the fact that our full-year results came in at the very high-end of the anticipated range.

Turning to our balance sheet for a moment, in late December, we completed two new long-term financing arrangements. We arranged a private placement of $100 million of new term debt that has maturities ranging from six to 15 years at an average fixed interest rate of 5.38 percent. At the same time, we entered into variable rate swap agreements on these borrowings, averaging only 64 basis points over LIBOR in order to establish more favorable interest rates than currently available under our revolving credit agreement on this $100 million. The proceeds from the new term debt were used to reduce borrowings on our revolver, which was then reduced to a new $180 million facility through March of 2007. Together these transactions improved our already very favorable borrowing rates and balance sheet strength.

At the end of the year, total debt outstanding was approximately $369 million, including $331 million of fixed-rate term debt, 20 million of which is classified as current, and $38 million of borrowings under our bank revolver. 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 $309 million, and our total cash on hand was $1.2 million.

At this point, I will turn the call back to Dick for some comments on the upcoming season.

Looking towards the upcoming season, there are several challenges that lie ahead of us. In California, tourism continues to be soft, and discounting in that very competitive market remains aggressive.

On a positive note, we have seen improvement in guest spending levels at our California parks over the past twelve months, and we do not believe the aggressive discounting will continue long-term. In 2004, we also continue to face uncertain economic conditions in several of our key regional parks. However, last year we proved that with the right mix of capital programs and marketing plans in place, our parks could grow the bottom-line in spite of these challenges. We have been cautious in our capital investment plans for the upcoming 2004 season, which we believe is a prudent approach given the current economic and competitive situations.

For the 2004 season, we are investing a modest total of $25 million across our 11 properties, including the expansion of our water park and resort properties at Cedar Point, as well as the addition of new intermediate sized thrill rides at Knott's Berry Farm, Dorney Park, and Worlds of Fun.

Although this is a more moderate capital program than in recent years, we believe this year's capital programs, along with more normal weather patterns at Dorney Park and the strong second-year draw of Top Thrill Dragster at Cedar Point and Steel Venom (ph) at Valleyfair will combine to produce solid results across the Company.

At Cedar Point, CapEx in 2004 is focused back on enhancing the park as a complete resort destination. The park's capital program is highlighted by an expansion to our our Lighthouse Point luxury camping complex and our Soak City water park. At Lighthouse Point, the addition of 44 new lakeside cottages and cabins and 38 new luxury RV sites will add needed capacity to one of the most popular guest accommodation facilities. Meanwhile, the expansion of Soak City will be highlighted by the introduction of a high-energy interactive play area geared toward the entire family. This same type of attraction proved to be very successful in helping Oceans of Fun achieve record results in 2003.

For the upcoming season, we also have an exciting restroom expansion program planned for Cedar Point, which will add three completely new food service experiences for our guests. Highlighting the expansion program is the addition of a Famous Dave's barbecue restaurant, which will be located at the former Boat House Restaurant (ph) in the Cedar Point Marina. We will also be converting an existing in-park restaurant into a sports bar and grill called Game Day Grill and adding a new quick server bakery, which will allow guests to enter the park before opening for an early morning snack. We are confident that these new restaurants will help stimulate further growth in guest per capita spending at the park.

In 2004, capital plans at Knott's Berry Farm and Dorney Park feature the introduction of new midsize thrill rides at each park, while Worlds of Fun is introducing an exciting new family roller coaster -- the first new roller coaster at that park since 1998. Each of these rides will provide strong marketing opportunities for the park and should be popular additions in their core market.

Not included in the $25 million CapEx figure are plans for two other major projects, both of which were already in the works but will not benefit the 2004 season. At Cedar Point, construction is well underway on a $22 million indoor water park, which will convert our present Radisson hotel into a year-round Caribbean-themed family resort called Castaway Bay. Although this is our first venture into the indoor water park business, we are confident that we have the expertise to make this project a success. Castaway Bay will give us the opportunity to entertain families all year-long and will be an ideal complement to our other resort properties at Cedar Point.

In addition, we have also begun construction on a new $16 million world-class roller coaster at Knott's Berry Farm, which will be one of the largest single investments in that park's history. Both Castaway Bay and Silver Bullet are scheduled to open late in 2004 and will not have a significant impact on earnings until 2005. Although it is still too early to accurately forecast 2004's full-year performance, we are confident that each of our investments along with continued momentum from last year's capital programs and new strategic marketing plans will position our parks for a successful year in 2004.

Looking at some of the early season indicators, we are encouraged by several trends. Bookings on our group bodies and season's past sales have done slightly ahead so far, and both are currently trending ahead of last year's levels at this same time. In addition, early season reservations at our resort hotels are looking strong as well, particularly here at Cedar Point. Although these trends are encouraging, we remain cautious in our outlook for 2004, particularly given the continued uncertainty surrounding economic conditions in several of our key markets and our moderate capital program.

For the full year, we're planning for low single digit revenue growth from last year's $510 million level. This can be achieved by maintaining attendance levels at the parks and by generating improvements in guest per capita spending and out of park revenues at our resort properties. We hope to be able to slightly improve full-year EBITDA over last year's $176 million level based on our revenue expectations and a continued focus on controlling costs. With our moderate 2004 capital program, we should be able to increase our cash distribution rate again next year.

At this point, I will conclude our prepared remarks and allow for any questions that you might have.

(OPERATOR INSTRUCTIONS). Robert Routh.

Congratulations, guys. A quick question. Given how well you performed and where the stock is and the lack of liquidity, I am wondering whether you guys have considered splitting it at any time in the recent -- going forward, whether you are considering doing that because I think it would certainly get some investors would like to acquire large blocks of the stock are more interested in the story than they currently are.

Second, I am wondering if you can comment on the industry in general as far as with terrorist activity, etc., and how that is impacting the larger parks such as Disney, and how that is impacting you guys given that you are more locally focused? I would think that you are less impacted and more insulated from any lack of travel that has been effecting the industry recently?

Robert, I will let Bruce adjust the stock split, and then I will talk a little bit about the other subject.

The stock split we have not discussed, and we would I think the last time we split the units, it was up around 40, 41, and we probably would be looking at it somewhere in the high 30s again. But at this point, we have not had any discussions. We appreciate your advice though. That is certainly worth thinking about and keeping an eye on.

As far as the industry goes, Robert, I think you probably saw the same results we saw over Christmas, especially in the Florida properties at Universal and Disney. That is certainly encouraging to us. We certainly do not take anything for granted, whether it be terrorism, and we have certainly taken all the precautions to protect all of our parks along those lines. Certainly we face that on a daily basis. We are certainly cognizant of it. We talk about it all the time. We want to make sure that our guests are safe, and we are following the same procedures whether we are in a high impact zone like or a high zone like Southern California or Florida or any of those areas that get a lot of publicity, we are certainly very much concerned about it. We take every precaution.

Great and just one follow-up. I am wondering if there is anything on the acquisition horizon for you guys considering every two or three years you do like to make an acquisition expand to your park base?

It has been two years, almost three years since we've made an acquisition, and we are constantly looking for the right opportunity. As I said before, we have the balance sheet to support one, and our management team is certainly active or would certainly love to acquire and to get more property. But at this time, we are just still in that stage of looking.

Great. Thank you very much.

(OPERATOR INSTRUCTIONS). Tom Ledki (ph).

Good morning. I have a question with regard to the lack of unit repurchase, and I wonder if there is any regret, not that it is hindsight per se because I was an advocate of the repurchasing years ago, that the stock has obviously traded a more fair value range now than it was a couple of years back. And outside of having the mandatory repurchase from the people at the park, I wonder if you have any regrets over that, and maybe you you will give more consideration to it in the future if the unit prices get depressed?

We've talked a lot about the unit repurchases at board level back in the late 90s and the early 2000 period, and we felt comfortable with the level of repurchases that we have made. But at the point in time that we stopped, two things were in place. One was the unit price was rising quickly, and the other was we were about at the end of the leverage level that we felt comfortable with and that our banks were advising would keep us at investment grade levels.

Maybe with hindsight, we could have gone a little further, but it would have tipped the scale with the banks and lenders to get the credit a higher risk profile, and we just felt that that was a smart place to stop where we did.

Thank you very much.

Dean Gianoukos.

Actually this is Rami Abdel-Mishi. Just actually a housekeeping question first. The 1.28 million reported in the other income line, how much of that is due to the straight swapped change that you had to make? Then, also, should we be modeling in roughly 45 million for CapEx, even though you are guiding to the 25 million for the operating season. Is it right around another 20 million falls in the year just because of the CapEx going towards 2005?

It might be even a little more than the additional 20 because both the Radisson water park will be fully funded by the end of 2004. But also the major coaster at Knott's Berry Farm, which we are considering a 2005 project, as it really won't kick into P&L until 2005. So you might want to add -- I don't know -- 25 or so (inaudible) to the CapEx on top of the 25 that is the number we stated before.

With respect to the derivatives, the only charge or the income in the fourth quarter relates to those old swaps that were accounted for because they were not -- they could not be accounted for as perfect pages. But the new swaps will have no P&L accounting that you would see on a -- along as we keep that perfectly matched with the underlying debt, there won't be any specialty P&L accounting for those.

Okay. So this 1.28 million is not part of the credit kickback?

Yes, it is. I am sorry if I said it confusing. It is part of that -- the entire 2.7 in 2003 is a reversal of part of the 7.6 million booked the year before.

In the quarter, how much of the 1.28 booked in the quarter, how much of that is a credit? The entire amount?

Yes.

Thank you.

(OPERATOR INSTRUCTIONS). There appear to be no further questions at this time.

Well, if there are no further questions, I would like to wrap up the call. Thank you all for participating. I do also want to mention that we are currently in the process of pulling together our year-end tax K-1 packages. Those should be arriving with investors early March and also available on the Cedar Fair Website somewhere around March 8th.

So that being said, thank you again for sitting in on the call, and we look forward to talking to you in the spring with first-quarter numbers.

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