Cedar Fair (NYSE: FUN), a leader in regional amusement parks, water parks and active entertainment, today announced results for its fourth quarter and year ended December 31, 2009.
Cedar Fair’s operations generated full-year net revenues of $916.1 and net income of $35.4 million, or $0.63 per diluted limited partner (LP) unit. In 2008, the Company achieved net revenues of $996.2 million and reported net income of $5.7 million, or $0.10 per diluted LP unit. Adjusted EBITDA, which management believes is a meaningful measure of the Company’s park-level operating results, decreased 15.7% to $299.9 million from $355.9 million a year ago. See the attached table for a reconciliation of adjusted EBITDA to net income.
Included in the 2009 adjusted EBITDA of $299.9 million is approximately $5.6 million of cash costs related to the proposed merger with affiliates of Apollo Global Management. In addition, the 2009 results reflect a $9.0 million settlement of a California class-action lawsuit and a $2.0 million settlement of a licensing dispute with Paramount Pictures. Excluding these non-recurring charges, our adjusted EBITDA for 2009 would have totaled $316.5 million, down $39.4 million, or 11%, from 2008.
The decrease in revenues and adjusted EBITDA is a result of a 1.6 million-visit, or 7%, decrease in attendance to 21.1 million guests in 2009. “The decrease in attendance was primarily the result of a sharp decline in group sales business, which was negatively affected by the poor economy; a decrease in season pass visits due to a decline in season pass sales during the year; and poor weather, particularly cooler than normal temperatures throughout much of the season in both our northern and southern regions, ” said Dick Kinzel, Cedar Fair’s chairman, president and chief executive officer. “During this same period average in-park guest per capita spending decreased 1%, or $0.57. Out-of-park revenues, which represent the sale of hotel rooms, food, merchandise and other complementary activities located outside the park gates, decreased 7%, or $7.3 million, between years, due primarily to lower occupancy rates at most of our hotel properties.”
Cash operating costs decreased $24.1 million, or 3.8%, to $616.2 million versus $640.3 million in the prior year. The decrease is the result of the successful implementation of numerous cost-savings initiatives, a reduction in variable costs due to a decrease in attendance, and the closing of Star Trek: The Experience in late 2008. Together, these items reduced core operating costs by approximately $40.7 million, or 6.4%, in 2009. This reduction in operating costs was offset somewhat by $16.6 million of non-recurring charges during the year, including the deal-related costs and litigation settlements discussed above.
In late August, as part of its ongoing efforts to reduce debt, the Company completed the sale of 87 acres of surplus land at Canada’s Wonderland to the Vaughan Health Campus of Care in Ontario, Canada. Net proceeds from this sale totaled $53.8 million and resulted in the recognition of a $23.1 million gain during the period. After the gain on the sale of the Canadian land, depreciation, amortization, loss on impairment of trade-names and all other non-cash costs, operating income for the period increased $51.6 million to $185.5 million in 2009 compared with $133.9 million in 2008. The increase in operating income was affected by the recording in 2008 of non-cash charges of $79.9 million and $7.1 million for impairment of goodwill and trade-names, respectively, that were originally recorded when the Company acquired the Paramount Parks in 2006.
“Although the Paramount Parks acquisition continues to meet our collective operating and profitability goals, the performance of certain acquired parks has fallen below our original expectation, which when coupled with a higher cost of capital, resulted in these impairment charges, ” added Kinzel. “It is important to note that each of the acquired parks remains cash flow positive, and that the goodwill and trade-name write-downs do not affect cash, EBITDA or liquidity.”
In 2009, depreciation and amortization increased $6.9 million from 2008, due to an increase in amortization expense of $8.4 million. The increase in amortization expense reflects the accelerated amortization of the intangible asset related to the Nickelodeon licensing agreement. During the year, management determined it would not be renewing the licensing agreement, which expired on December 31, 2009, thus triggering the accelerated amortization in 2009.
For the year, interest expense decreased $4.9 million to $124.7 million due to lower interest rates on the Company’s variable-rate outstanding borrowings along with lower average debt balances, offset slightly by a 200 basis point increase in interest costs on $900 million of term-debt borrowings that were extended by two years in August. “During 2009, we retired $161.3 million of term debt, ” added Kinzel. “This was done through the use of available cash from the reduction in our annual distribution, the net proceeds from the sale of excess land at Canada’s Wonderland, as well as regularly scheduled debt amortization payments and the use of our revolving credit facility.”
In 2009, the net change in fair value of swaps and other (income) expense, net, increased $10.8 million compared with 2008. This increase was primarily a result of recording a $9.2 million non-cash charge to income for the change in the mark-to-market valuations of the Company’s swaps that had gone ineffective for hedge accounting during the year, as well as the related amortization of amounts previously recorded in Other Comprehensive Loss. In the prior year, the swaps were highly effective and the change in the mark-to-market valuations were appropriately recorded in Other Comprehensive Loss.
For the year, a provision for taxes of $15.0 million was recorded to account for the tax attributes of the Company’s corporate subsidiaries and publicly traded partnership (PTP) taxes, compared to a benefit of $935, 000 in 2008. After interest expense and the provision (benefit) for taxes, combined net income for the year totaled $35.4 million, or $0.63 per LP unit. In 2008, the Company reported net income of $5.7 million, or $0.10 per LP unit.
Fourth Quarter Results
For the fourth quarter, net revenues decreased $13.7 million to $105.6 million from $119.3 million a year ago. The 11.5% decrease in net revenues is a result of a 12% decrease, or 328, 000 visits, in attendance. “Most of the same challenges we faced during the first nine months of the year continued to negatively impact our business during the fourth quarter, ” said Kinzel. “In particular, unseasonably cool temperatures and heavy rain during the month of October softened the positive impact we had expected to get from the Halloween events we had in place at our parks, which are traditionally very popular.”
The operating loss for this same period was $19.8 million compared with an operating loss of $79.4 million in the fourth quarter a year ago. The decrease in operating loss is primarily attributable to the $87.0 million non-cash charge for impairment of goodwill and other intangible assets recognized during the fourth quarter of 2008.
After interest expense, which increased $3.1 million between years due to the increase in interest costs on the debt extension in August, a $6.1 million non-cash charge for the net change in fair value of swaps, and a benefit for taxes in the period, net loss for the quarter was $26.3 million, or $0.47 per LP unit, in 2009 compared with a net loss of $56.7 million, or $1.02 per LP unit, last year.
Balance Sheet
At year end, total debt outstanding was $1.54 billion of variable-rate term debt, $16.0 million of which is classified as current, and $86.3 million of which reflects borrowings under the revolving credit facilities. As of December 31, 2009, $1.2 billion of the Company’s outstanding variable rate long-term debt has been converted to fixed-rate debt through the use of several interest rate swap agreements. Based on interest rates in effect at year-end for variable-rate debt, the Company expects its aggregate average cost of debt to approximate 8.4% in 2010.
The 2009 Amended Credit Agreement includes customary covenants to monitor operating performance, as well as liquidity ratios that govern the Company’s distributions. The most restrictive of these ratios is the Maximum Consolidated Leverage Ratio, which applies only to the ability to declare and pay distributions. Pursuant to the 2009 Amended Agreement, this ratio decreased to 4.75x debt-to-EBITDA at December 31, 2009. Based on its 2009 results, the Company does not meet this ratio and therefore suspended distributions as of December 31, 2009. The Company was in compliance with all other terms of the credit agreement as of year-end.
Merger Transaction
As previously announced on December 16, 2009, the Company entered into a definitive merger agreement to be acquired by an affiliate of Apollo Global Management, a leading global alternative asset manager. Under the terms of the agreement, Cedar Fair unitholders will receive $11.50 in cash for each Cedar Fair LP unit that they hold, representing a 28% premium over the closing unit price on December 15, 2009.
The board of directors of Cedar Fair Management, Inc. has unanimously approved the merger agreement and recommends that Cedar Fair limited partnership unitholders adopt the agreement. The Company has scheduled a Special Meeting of Unitholders to be held on March 16, 2010, at which unitholders as of the close of business on February 12, 2010 will be entitled to vote. The Company has commenced mailing proxy materials to Cedar Fair unitholders.
About Cedar Fair
Cedar Fair is a publicly traded partnership headquartered in Sandusky, Ohio, and one of the largest regional amusement-resort operators in the world. The Partnership owns and operates 11 amusement parks, six outdoor water parks, one indoor water park and five hotels. Amusement parks in the Company’s northern region include two in Ohio: Cedar Point, consistently voted “Best Amusement Park in the World” in Amusement Today polls and Kings Island; as well as Canada’s Wonderland, near Toronto; Dorney Park, PA; Valleyfair, MN; and Michigan’s Adventure, MI. In the southern region are Kings Dominion, VA; Carowinds, NC; and Worlds of Fun, MO. Western parks in California include: Knott’s Berry Farm; California’s Great America; and Gilroy Gardens, which is managed under contract.
