Six Flags Entertainment Corp (FUN) 2006 Q4 法說會逐字稿

Good afternoon. My name is Tony, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cedar Fair fourth quarter and year end earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. [OPERATOR INSTRUCTIONS] Thank you. It is now my pleasure to turn the floor over to your host, Stacy Frole. Ma'am, you may begin your conference.

Thank you. Good afternoon, and welcome to our year end earnings conference call. I'm Stacy Frole, Cedar Fair's Director of Investor Relations. Earlier today we issued our fourth quarter and year end earnings release. A copy of that release can be obtained on our corporate Web site at www.cedarfair.com, or by contacting our Investor Relations offices at (419)627-2233. On the call this afternoon are Dick Kinzel, our Chairman, President and Chief Executive Officer, and Peter Crage, our VP of Finance and Chief Financial Officer. Before we begin, I need to 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 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 in the earnings release, and is also available to investors other Web site via the conference call access page. 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 uncollectively disseminated, all content of the call will be considered fully disclosed. Now let me turn the call over to Dick Kinzel.

Good afternoon, and thank you for joining us on the call today. As you can see from our earnings release, we finished 2006 in a very good shape financially. We had a busy year in 2006 acquiring the Paramount Parks from the CBS Corporation, and 2007 will prove no different as we continue to integrate the new parks into our portfolio of assets. On the call today we will provide you an update on the integration of these new parks, discuss our performance on a combined and same park basis, and provide our near term financial outlook and a broader view of the company going forward.

Starting with the new Cedar Fair Parks, I am proud to say that we have successfully completed the first stage of the integration process that we discussed when we announced the acquisition. As I mentioned in our last call, within 90 days we installed a management team with solid disciplined people from both businesses to integrate our operating philosophy. The new employees have readily accepted this philosophy, and the road to one successful company is well on its way. Corporate overhead redundancies have been eliminated in a professional and respectful manner. Insurance cost savings are being realized and staffing has resized to mirror Cedar Fair's organizational structure resulting in savings even greater than expected. The corporate offices in Charlotte have been closed and the remaining staff, primarily payroll and I.T., have been relocated to our Carowinds Park near Charlotte. The other corporate responsibilities are being consolidated here in Sandusky, Ohio.

As we move forward, we continue to draw on our acquisition experience to effectively realize synergies and cost reductions while improving operations. We are currently in the process of implementing stage two which will include the realization of purchasing efficiencies, exploring pricing and marketing strategies, determining brand strategies and partners, and implementing a company personnel and wage structure. To date we have introduced a junior/senior ticket and a starlight ticket at the new parks. Some of the new parks have also lowered their main gate prices to become more comparable to Cedar Fair pricing structure. We have launched a new Cedar Fair Match Pass that offers the outstanding value of all 12 amusement parks on one seasons pass and is available for sale on line. Our merchandise buyers have returned from their meetings with vendors and are extremely pleased with the new purchasing power that they can leverage with the new parks.

Finally, stage three which we expect to be completed over the next three to five years, includes optimizing pricing and marketing strategies after more experience with the new parks, a fully implemented capital plan, including a blend of thrill and family entertainment on a park by park basis, and the realization of increased returns on these investments. It was a key benefit to take ownership of the new parks during the peak operating season. It allowed our management team to assess the potential for savings and growth at each location, as well as generate significant free cash flow. We see this improvement in our year end results.

In 2006, the combined parks entertained over 19 million visitors and increased average in-park per capita spending by 3%, to $38.71. The result of this was $831 million in combined revenues and $310 million in adjusted EBITDA. On a same park basis without the acquisition, revenues decreased slightly to $566.5 million on a 1% decrease in attendance, a 1% increase in out of park revenues, and average in-park per capita spending which increased slightly. While we always like to see improvement, I am pleased that we were able to maintain our operations at the existing Cedar Fair Parks while acquiring and integrating the new parks into our portfolio of assets.

During the peak of our operating season, we promoted, transferred or introduced new general managers at the majority of our parks. I believe the smooth transition is a testament to the depth, dedication and experience of our employees at all levels. To break the season down on a same park basis, Worlds of Fun in Kansas City had a very strong year, helped greatly by the introduction of a new inverted roller coaster. Dorney Park, Michigan's Adventure, and Knott's Berry Farm also posted strong results. Some of our northern parks have been challenged by soft regional economies coupled with higher gas prices. The state of Michigan leads the country in bad economic news, with high unemployment rates and lack of job creation. This continues to negatively impact Cedar Point, which has traditionally attracted guests from more distant markets, and often with overnight stays. We continued to make progress at Geauga Lake in 2006, with the water park attractions we added, but the park's attendance still fell below expectations. We have more to do to appropriately balance our operating cost and the park size with visitation trends and we will continue to look for additional ways to improve revenues and reduce overhead cost at Geauga Lake.

On a positive note we saw continued growth in our fall season, something I'm very pleased with. Knott's Berry Farm, Cedar Point, Dorney Park and Worlds of Fun all performed well in October. We also experienced solid October results in our new parks. Our fall events have become increasingly important to our overall operating results and we believe our expansion into new, vibrant markets will provide us with additional opportunities during the shoulder months. Now Peter will give you a review of the financial highlights, our recent debt repricing, and an update on our planned equity offering, after which I'll comment on the 2007 season.

Thanks, Dick. As Dick mentioned, we are very pleased with our performance and fact that we were able to finish the year on a positive note. Since this is our first year of operations with the new parks I'll begin by providing with analysis on a combined basis including the new parks since the acquisition. As Dick mentioned, we are very pleased with our performance, and fact that we were able to finish the year on a positive note. Since this is our first year of operations with the new parks, I will begin by providing you with analysis and a combined basis, including the new parks since the acquisition. And for reason of comparison, I'll then discuss our results, excluding the acquisition on a same park basis. As we mentioned on the last conference call, we will continue to detail our results in this way until we can make meaningful year to year comparisons, including the acquisition.

On a combined basis, including the new parks with the six months under our ownership, consolidated net revenues for the year were 831.4 million, broken down as follows: 459.5 million in admissions revenues, 306.9 million in food, merchandise and games revenues, and 65 million in accommodations and other nonpark revenues. Excluding depreciation and other non-cash charges, combined cash operating costs and expenses were 521.1 million, and operating income for 2006 was 219.5 million. Those of you who regularly follow our results know we believe adjusted EBITDA, or earnings before interest, taxes, depreciation and other non-cash items, provides meaningful insight into our operating results since we use it for budgeting and measuring park revenue performance. Because it's important to us, we make it a point of sharing it with investors. For the year, on a combined basis, adjusted EBITDA increased 116.1 million to 310.3 million, principally due to the acquisition of the new parks, offset somewhat by slightly weaker results on a same park basis.

Interest expense for the year was 88.3 million, up from 26.2 million last year. The increased interest expense reflects hiring borrowings to fund the acquisition, and the related refinancing of existing debt. After interest expense, loss on early extinguishment of debt of 4.7 million, and new miscellaneous income of 59,000, pretax income increased to 126.6 million from 111.6 million in 2005. For the year, on a combined basis, a provision for taxes of 39.1 million was recorded to account for our publicly traded partnership taxes, and the tax attributes of our corporate subsidiaries. This compares with the benefit for taxes of 49.3 million in 2005.

Please allow me to remind you, that the benefit for taxes in 2005 was due to the reversal of 62.6 million of contingent liabilities recorded from 1998 through 2004 related to PTP taxes. After provision for taxes, combined net income for the period totaled 87.5 million, or $1.59 per diluted, limited partner unit, compared with net income of 160.9 million, or $2.93 per unit a year ago. Based on these results, our full year cash flow is sufficient to fund our current partnership distribution rate of $1.88 per unit, or approximately $102 million in the aggregate. As is annually done, the Board of Directors will discuss the distribution rate at its next meeting in March of this year.

Now, I will discuss results on a same park basis, excluding the effect of the acquisition in 2006. For the full year in 2006, on a same park basis, revenues decreased less than 1%, or 2.2 million to 566.5 million, broken down as follows: 291.3 million in admissions revenues, 217.8 million in food merchandise and games revenues, and 57.4 million in accommodations and other nonpark revenues. The slight decrease in net revenues for the year was due to a 1% decrease in combined attendance, partially offset by a 1% increase in out of park revenues, and in-park guest per capita spending that increased slightly to $37.82. A slight decrease in attendance and subsequent revenues is primarily due to the challenges we faced at some of our northern region parks, that was mentioned earlier by Dick. Excluding depreciation and other non-cash charges total cash operating cost and expenses, on a same park basis, increased slightly to 376.1 million from 374.5 million in 2005. This increase was attributable to higher operating costs in our southern region, which recognized higher attendance, somewhat offset by reduced operating costs at Geauga Lake, as we continue to look for ways to improve profitability at this park. For the year, on as a same park basis, adjusted EBITDA decreased 3.8 million to 190.4 million, versus 194.2 million in 2005.

I'll now briefly summarize our fourth quarter results. On a combined basis, including the effect of the acquisition, net revenues were 119.9 million, and cash operating costs were 109 million. After depreciation and a small non-cash charge for unit options, operating loss on a combined basis was 1.9 million for the fourth quarter. On a same park basis, excluding the effect of the acquisition, net revenues for the quarter were 5% higher at 82.1 million versus 78 million in 2005. Cash operating costs were 66.4 million versus 65 million, and operating income increased 2.5 million from a year ago to 8.7 million. Our ability to improve on a record fourth quarter in 2005 shows the strength of our fall promotions at the legacy parks. As Dick mentioned earlier, we believe this is an area that we can improve upon at our new parks, especially the parks that are located in strong markets.

Finally, I'll review the balance sheet. At year end, our receivables and inventories were at normally low seasonal levels, and we have the necessary credit facilities in place to fund current liabilities, capital expenditures, and preopening expenses as required. Partners equity totaled 411.2 million our total cash on hand was 30.2 million. At the end of the year, total debt outstanding was 1.78 billion, of variable rate debt, 17.5 million of which is classified as current, and 40.9 million of which is borrowed under our revolving credit facility. As of December 31, 2006, 1.3 billion of our outstanding variable rate, long-term debt has been converted to fixed rate debt through the use of several interest rate swap agreements.

Recently, we went to our lenders requesting a reduction in rate on our long-term debt. I'm happy to announce that the lenders have granted that request and will reduce the rates on our term debt by 50 basis points, subject only to customary closing conditions. The reduced rate will save the company approximately $8 million annually in cash interest costs. This interest rate reduction reflects our lenders strong support of our business plan, given current market dynamics, and provides the company with additional flexibility as we enter the 2007 operating season. In addition, we have communicated our intention last summer, subject to market conditions, to raise approximately 250 million through the issuance of additional equity. We will continue to market, monitor the market conditions, and will act when we can ensure that an optimal capital structure can be attained while avoiding unacceptable levels of dilution to our unit holders. We remain convinced that at some point in the future, expanding our equity capital base, is in the best interest of existing, as well as future unit holders. I'm pleased to report that we finished the year in sound financial condition in terms of both liquidity and cash flow. Our profitability and operating cash flow gives us the capital we need to operate and grow our business, and we look forward to the 2007 season. At this point, I'll turn the call back to Dick for some comments on the upcoming season.

As we look to the coming season, we believe we have a good plan in place to capitalize on opportunities and overcome challenges we might face. With the right mix of capital investment, pricing strategies and marketing, we plan to further grow revenue and cash flow. We will be investing a total of $83 million across our 18 properties, including the addition of world-class roller coasters at Cedar Point, Kings Island, and Valley Fair. We are hopeful that these additions can improve on the soft results we experienced in the northern region this last year. The 2007 program will also include a new water attraction at King's Dominion, and a new family spinning coaster at Knott's Berry Farm. In addition to adding great new thrill rides, we are also investing in other capital improvements across our parks, including additional family rides and attractions, restaurant renovations, new games and other general improvements. Some of these improvements are not very glamorous, restaurants upgrades, utility lines, food equipment, road repair and concrete replacement, but they are necessary to maintain the infrastructure of our parks and provide a great customer satisfaction.

I believe that the Cedar Fair Company is off to a positive start in 2007. We are now a more diversified company, both financially and geographically, operating in eight states and Canada, and with no one park generating more than 25 percent of revenues. For the full year in 2007, we expect to generate revenues of 950 million to $1 billion driven primarily by the first full year of operation with our new parks, improvement in attendance and in-park guest per capita spending, and continued growth and accommodation revenues at our resort properties. Based on these revenue expectations, continued disciplined expense controls, and the realization of additional cost synergies, we hope to generate full-year adjusted EBITDA in the 320 to $340 million range. At that level, we should be well-positioned to achieve our goal of continued reinvestment in our properties, and growth and cash distributions to our unit holders over the long-term.

At this point, I'll conclude our prepared remarks and allow for any questions that you may have. Tony, please open the lines.

Thank you. [OPERATOR INSTRUCTIONS]. Our first question is coming from [Kit Spring] of Stifel Nicolaus. Please go ahead.

This is John [Rand] in for Kit. Just two quick modeling questions. First, if you can give us the pro forma revenue numbers for 1Q and 2Q of '06, assuming you guys had the Paramount Parks back then, and secondly, and just what's a good, both a GAAP and cash tax rate that we should use for modeling 2007? Thanks.

Hi, John. Peter Crage. With respect to the 1Q and 2Q, pro forma revenues, I call your attention to our 8(K) that we filed back in September that provides that data for preacquisition.

Okay.

With respect to cash taxes, we believe about 14 to 18 million, right in the $15 million range is appropriate. With respect to GAAP taxes, we, I don't have a number on that, as you might imagine, a number of moving parts since this is an acquisition of a corporate subsidiary and we are still wading through the various FAS 109 issues that we have on the acquisition.

Yes, all right, thank you.

Thank you. Our next question is coming from [Jed Alabroke] of A.G. Edwards. Please go ahead.

Hello. Thanks for taking my question. Correct if my math is wrong, but I think that adjusted EBITDA for the Paramount Parks was around negative $7 million in the fourth quarter while the core Cedar Fair Parks was about 17.5 million. Can you explain that, and talk about if there is any charges in there for acquisition related things?

Sure, no, there are no charges in there for acquisition related items. The fourth quarter was an opportunity for us to look at costs and cut them where we could. At the same time, as Dick had mentioned, the fall promotions which we've capitalized on and have done well at the Cedar Fair Parks, need to be, we are looking at those at the new parks. So, Dick, I don't know if you want to comment on that affect, but there's upside in the new parks.

Yes, we do feel that the fall promotions that we felt when we did the due diligence, that there was some upside there, and we were very pleased with very little capital going in this year, and due to time restraints and getting things in place, why, with some of the small events and walk throughs that we put in, we were very pleased with the results in the fourth quarter and we are looking even more hopefully that next year's fourth quarter will even be better.

All right, thanks. Thank you, ladies and gentlemen. As a reminder, the floor is still open for questions. [OPERATOR INSTRUCTIONS]. There appear to be no further questions. I would now like to turn the floor back over to management.

Thank you. At this point, if there are no further questions. I would like to thank everyone for joining us on the call today. Should you have any follow-up questions, please feel free to contact me at (419)627-2227. We look forward to speaking with you again in early May to discuss our first quarter results. Thank you.

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