UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 27, 2009
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number 1-9444
CEDAR FAIR, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE | 34-1560655 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
One Cedar Point Drive, Sandusky, Ohio 44870-5259
(Address of principal executive offices) (Zip Code)
(419) 626-0830
(Registrants telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Title of Class |
Units Outstanding As Of October 1, 2009 | |
Units Representing Limited Partner Interests |
55,207,944 |
INDEX
FORM 10 - Q
Part I - Financial Information |
||||
Item 1. |
Financial Statements | 3-12 | ||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations | 13-19 | ||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 19 | ||
Item 4. |
Controls and Procedures | 20 | ||
Part II - Other Information |
||||
Item 1A. |
Risk Factors | 20 | ||
Item 6. |
Exhibits | 20 | ||
21 | ||||
22 |
PART I - FINANCIAL INFORMATION
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
9/27/09 | 12/31/08 | |||||||
ASSETS | ||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 56,203 | $ | 13,873 | ||||
Receivables |
30,341 | 8,518 | ||||||
Inventories |
31,799 | 28,591 | ||||||
Prepaids and other current assets |
13,433 | 13,552 | ||||||
131,776 | 64,534 | |||||||
Property and Equipment: |
||||||||
Land |
301,800 | 320,200 | ||||||
Land improvements |
324,954 | 315,519 | ||||||
Buildings |
586,639 | 573,842 | ||||||
Rides and equipment |
1,348,440 | 1,295,076 | ||||||
Construction in progress |
18,743 | 28,110 | ||||||
2,580,576 | 2,532,747 | |||||||
Less accumulated depreciation |
(811,789 | ) | (707,656 | ) | ||||
1,768,787 | 1,825,091 | |||||||
Goodwill |
235,082 | 222,602 | ||||||
Other Intangibles, net |
50,524 | 54,078 | ||||||
Other Assets |
22,924 | 19,778 | ||||||
$ | 2,209,093 | $ | 2,186,083 | |||||
LIABILITIES AND PARTNERS EQUITY | ||||||||
Current Liabilities: |
||||||||
Current maturities of long-term debt |
$ | 16,496 | $ | 17,450 | ||||
Accounts payable |
22,228 | 14,627 | ||||||
Deferred revenue |
27,270 | 17,590 | ||||||
Accrued interest |
10,017 | 3,395 | ||||||
Accrued taxes |
43,656 | 16,581 | ||||||
Accrued salaries, wages and benefits |
28,105 | 17,822 | ||||||
Self-insurance reserves |
21,203 | 20,686 | ||||||
Other accrued liabilities |
20,070 | 7,088 | ||||||
189,045 | 115,239 | |||||||
Deferred Tax Liability |
151,824 | 124,269 | ||||||
Derivative Liability |
127,308 | 128,214 | ||||||
Other Liabilities |
7,101 | 4,950 | ||||||
Long-Term Debt: |
||||||||
Revolving credit loans |
| 22,700 | ||||||
Term debt |
1,583,663 | 1,683,925 | ||||||
1,583,663 | 1,706,625 | |||||||
Partners Equity: |
||||||||
Special L.P. interests |
5,290 | 5,290 | ||||||
General partner |
| (1 | ) | |||||
Limited partners, 55,208 and 55,076 units outstanding at September 27, 2009 and December 31, 2008, respectively |
249,679 | 242,123 | ||||||
Accumulated other comprehensive loss |
(104,817 | ) | (140,626 | ) | ||||
150,152 | 106,786 | |||||||
$ | 2,209,093 | $ | 2,186,083 | |||||
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
3
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit amounts)
Three months ended | Nine months ended | Twelve months ended | |||||||||||||||||||||
9/27/09 (13 weeks) |
9/28/08 (13 weeks) |
9/27/09 (39 weeks) |
9/28/08 (39 weeks) |
9/27/09 (52 weeks) |
9/28/08 (52 weeks) |
||||||||||||||||||
Net revenues: |
|||||||||||||||||||||||
Admissions |
$ | 307,011 | $ | 312,626 | $ | 467,874 | $ | 493,872 | $ | 540,268 | $ | 564,170 | |||||||||||
Food, merchandise and games |
175,591 | 189,490 | 283,072 | 319,342 | 319,647 | 357,205 | |||||||||||||||||
Accommodations and other |
37,311 | 38,206 | 59,559 | 63,744 | 69,864 | 71,030 | |||||||||||||||||
519,913 | 540,322 | 810,505 | 876,958 | 929,779 | 992,405 | ||||||||||||||||||
Costs and expenses: |
|||||||||||||||||||||||
Cost of food, merchandise and games revenues |
45,617 | 47,849 | 74,375 | 81,091 | 83,910 | 93,159 | |||||||||||||||||
Operating expenses |
156,596 | 153,149 | 335,718 | 346,165 | 408,103 | 422,530 | |||||||||||||||||
Selling, general and administrative |
53,233 | 56,961 | 104,321 | 115,752 | 120,451 | 133,530 | |||||||||||||||||
Loss on impairment of goodwill and other intangibles |
| | | | 86,988 | | |||||||||||||||||
(Gain) loss on impairment / retirement of fixed assets, net |
188 | 6,125 | 218 | 9,390 | (747 | ) | 25,070 | ||||||||||||||||
Gain on sale of other assets |
(23,098 | ) | | (23,098 | ) | | (23,098 | ) | | ||||||||||||||
Depreciation and amortization |
66,413 | 60,986 | 113,604 | 111,258 | 128,184 | 124,706 | |||||||||||||||||
298,949 | 325,070 | 605,138 | 663,656 | 803,791 | 798,995 | ||||||||||||||||||
Operating income |
220,964 | 215,252 | 205,367 | 213,302 | 125,988 | 193,410 | |||||||||||||||||
Interest expense |
31,183 | 31,849 | 90,994 | 98,912 | 121,643 | 133,588 | |||||||||||||||||
Net change in fair value of swaps |
3,084 | | 3,084 | | 3,084 | | |||||||||||||||||
Other (income) expense, net |
1,508 | 240 | 1,303 | (208 | ) | 1,102 | (3,010 | ) | |||||||||||||||
Income before taxes |
185,189 | 183,163 | 109,986 | 114,598 | 159 | 62,832 | |||||||||||||||||
Provision (benefit) for taxes |
77,575 | 91,614 | 48,265 | 52,143 | (4,813 | ) | 9,406 | ||||||||||||||||
Net income |
107,614 | 91,549 | 61,721 | 62,455 | 4,972 | 53,426 | |||||||||||||||||
Net income allocated to general partner |
2 | 1 | 1 | 1 | | 1 | |||||||||||||||||
Net income allocated to limited partners |
$ | 107,612 | $ | 91,548 | $ | 61,720 | $ | 62,454 | $ | 4,972 | $ | 53,425 | |||||||||||
Basic earnings per limited partner unit: |
|||||||||||||||||||||||
Weighted average limited partner units outstanding |
55,208 | 55,058 | 55,177 | 55,193 | 55,148 | 55,190 | |||||||||||||||||
Net income per limited partner unit |
$ | 1.95 | $ | 1.66 | $ | 1.12 | $ | 1.13 | $ | 0.09 | $ | 0.97 | |||||||||||
Diluted earnings per limited partner unit: |
|||||||||||||||||||||||
Weighted average limited partner units outstanding |
55,924 | 55,453 | 55,887 | 55,808 | 55,804 | 55,861 | |||||||||||||||||
Net income per limited partner unit |
$ | 1.92 | $ | 1.65 | $ | 1.10 | $ | 1.12 | $ | 0.09 | $ | 0.96 | |||||||||||
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
4
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF PARTNERS EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 2009
(In thousands, except per unit amounts)
Nine Months Ended 9/27/09 |
||||
Limited Partnership Units Outstanding |
||||
Beginning balance |
55,076 | |||
Limited partnership unit options exercised |
24 | |||
Issuance of limited partnership units as compensation |
108 | |||
55,208 | ||||
Limited Partners Equity |
||||
Beginning balance |
$ | 242,123 | ||
Net income |
61,720 | |||
Partnership distribution declared ($0.98 per limited partnership unit) |
(54,062 | ) | ||
Expense recognized for limited partnership unit options |
(26 | ) | ||
Tax effect of units involved in option exercises and treasury unit transactions |
(1,240 | ) | ||
Issuance of limited partnership units as compensation |
1,164 | |||
249,679 | ||||
General Partners Equity |
||||
Beginning balance |
(1 | ) | ||
Net income |
1 | |||
| ||||
Special L.P. Interests |
5,290 | |||
Accumulated Other Comprehensive Loss |
||||
Cumulative foreign currency translation adjustment: |
||||
Beginning balance |
(6,075 | ) | ||
Current period activity, net of tax ($5,514) |
5,092 | |||
(983 | ) | |||
Unrealized loss on cash flow hedging derivatives: |
||||
Beginning balance |
(134,551 | ) | ||
Current period activity, net of tax ($5,425) |
30,717 | |||
(103,834 | ) | |||
(104,817 | ) | |||
Total Partners Equity |
$ | 150,152 | ||
Summary of Comprehensive Income |
||||
Net income |
$ | 61,721 | ||
Other comprehensive income |
35,809 | |||
Total Comprehensive Income |
$ | 97,530 | ||
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
5
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three months ended | Nine months ended | Twelve months ended | ||||||||||||||||||||||
9/27/09 (13 weeks) |
9/28/08 (13 weeks) |
9/27/09 (39 weeks) |
9/28/08 (39 weeks) |
9/27/09 (52 weeks) |
9/28/08 (52 weeks) |
|||||||||||||||||||
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES |
||||||||||||||||||||||||
Net income |
$ | 107,614 | $ | 91,549 | $ | 61,721 | $ | 62,455 | $ | 4,972 | $ | 53,426 | ||||||||||||
Adjustments to reconcile net income to net cash from operating activities: |
||||||||||||||||||||||||
Non-cash expense |
68,463 | 62,598 | 120,090 | 117,912 | 136,792 | 131,375 | ||||||||||||||||||
Loss on impairment of goodwill and other intangibles |
| | | | 86,988 | | ||||||||||||||||||
(Gain) loss on impairment / retirement of fixed assets, net |
188 | 6,125 | 218 | 9,390 | (747 | ) | 25,070 | |||||||||||||||||
Gain on sale of other assets |
(23,098 | ) | | (23,098 | ) | | (23,098 | ) | | |||||||||||||||
Net change in fair value of swaps |
3,084 | | 3,084 | | 3,084 | | ||||||||||||||||||
Excess tax benefit from unit-based compensation expense |
| (42 | ) | | (1,475 | ) | | (1,474 | ) | |||||||||||||||
Net change in working capital |
41,863 | 41,791 | 53,182 | 58,237 | (9,395 | ) | (14,374 | ) | ||||||||||||||||
Net change in other assets/liabilities |
12,329 | 3,917 | 9,826 | 2,684 | (4,667 | ) | 31,597 | |||||||||||||||||
Net cash from operating activities |
210,443 | 205,938 | 225,023 | 249,203 | 193,929 | 225,620 | ||||||||||||||||||
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES |
||||||||||||||||||||||||
Acquisition of Paramount Parks, net of cash acquired |
| | | 6,431 | | 6,431 | ||||||||||||||||||
Sale of Canadian real estate |
53,831 | | 53,831 | | 53,831 | | ||||||||||||||||||
Capital expenditures |
(13,051 | ) | (12,537 | ) | (53,251 | ) | (73,100 | ) | (63,917 | ) | (85,543 | ) | ||||||||||||
Net cash from (for) investing activities |
40,780 | (12,537 | ) | 580 | (66,669 | ) | (10,086 | ) | (79,112 | ) | ||||||||||||||
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES |
||||||||||||||||||||||||
Net borrowings (payments) on revolving credit loans |
(135,800 | ) | (123,451 | ) | (22,700 | ) | (34,086 | ) | | | ||||||||||||||
Term debt payments, including early termination penalties |
(70,887 | ) | (4,363 | ) | (101,216 | ) | (8,725 | ) | (109,941 | ) | (13,087 | ) | ||||||||||||
Distributions paid to partners |
(13,802 | ) | (26,424 | ) | (54,062 | ) | (78,647 | ) | (80,493 | ) | (104,405 | ) | ||||||||||||
Exercise of limited partnership unit options |
| | | 4,538 | | 4,968 | ||||||||||||||||||
Payment of debt issuance costs |
(7,694 | ) | | (7,694 | ) | | (7,694 | ) | | |||||||||||||||
Excess tax benefit from unit-based compensation expense |
| 42 | | 1,475 | | 1,474 | ||||||||||||||||||
Net cash for financing activities |
(228,183 | ) | (154,196 | ) | (185,672 | ) | (115,445 | ) | (198,128 | ) | (111,050 | ) | ||||||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
1,181 | (422 | ) | 2,399 | (896 | ) | (1,206 | ) | (734 | ) | ||||||||||||||
CASH AND CASH EQUIVALENTS |
||||||||||||||||||||||||
Net increase (decrease) for the period |
24,221 | 38,783 | 42,330 | 66,193 | (15,491 | ) | 34,724 | |||||||||||||||||
Balance, beginning of period |
31,982 | 32,911 | 13,873 | 5,501 | 71,694 | 36,970 | ||||||||||||||||||
Balance, end of period |
$ | 56,203 | $ | 71,694 | $ | 56,203 | $ | 71,694 | $ | 56,203 | $ | 71,694 | ||||||||||||
SUPPLEMENTAL INFORMATION |
||||||||||||||||||||||||
Cash payments for interest expense |
$ | 28,847 | $ | 30,170 | $ | 79,661 | $ | 84,099 | $ | 115,357 | $ | 117,643 | ||||||||||||
Interest capitalized |
260 | 151 | 1,104 | 1,006 | 1,489 | 1,756 | ||||||||||||||||||
Cash payments for income taxes |
6,850 | 7,099 | 13,409 | 11,417 | 16,611 | 15,501 |
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
6
CEDAR FAIR, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 27, 2009 AND SEPTEMBER 28, 2008
The accompanying unaudited condensed consolidated financial statements have been prepared from the financial records of Cedar Fair, L.P. (the Partnership) without audit and reflect all adjustments necessary for a fair presentation of the results for the interim periods presented and such adjustments are of a normal recurring nature.
Due to the highly seasonal nature of the Partnerships amusement and water park operations, the results for any interim period are not indicative of the results to be expected for the full fiscal year. Accordingly, the Partnership has elected to present financial information regarding operations and cash flows for the preceding fiscal twelve-month periods ended September 27, 2009 and September 28, 2008 to accompany the quarterly results. Because amounts for the fiscal twelve months ended September 27, 2009 include actual 2008 season operating results, they may not be indicative of 2009 full calendar year operations.
(1) Significant Accounting and Reporting Policies:
The Partnerships unaudited condensed consolidated financial statements for the periods ended September 27, 2009 and September 28, 2008 included in this Form 10-Q report have been prepared in accordance with the accounting policies described in the Notes to Consolidated Financial Statements for the year ended December 31, 2008, which were included in the Form 10-K filed on March 2, 2009. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the Commission). These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Form 10-K referred to above.
(2) Interim Reporting:
The Partnership owns and operates eleven amusement parks, six separately gated outdoor water parks, one indoor water park and five hotels. In order to more efficiently manage its properties, management has created regional designations for the parks. Parks in the Partnerships northern region include Cedar Point and the adjacent Soak City water park in Sandusky, Ohio; Kings Island near Cincinnati, Ohio; Canadas Wonderland in Toronto, Canada; Dorney Park & Wildwater Kingdom near Allentown, Pennsylvania; Valleyfair, near Minneapolis/St. Paul, Minnesota; Geauga Lakes Wildwater Kingdom near Cleveland, Ohio; and Michigans Adventure near Muskegon, Michigan. In the southern region are Kings Dominion near Richmond, Virginia; Carowinds near Charlotte, North Carolina; and Worlds of Fun and Oceans of Fun in Kansas City, Missouri. The western region parks include Knotts Berry Farm, near Los Angeles in Buena Park, California; Californias Great America located in Santa Clara, California; and three Knotts Soak City water parks located in California. Star Trek: The Experience (Star Trek), an interactive adventure in Las Vegas, was included in the western region until its closure on September 2, 2008. The results of operations of Star Trek are not material to the consolidated financial statements. The Partnership also owns and operates the Castaway Bay Indoor Waterpark Resort in Sandusky, Ohio, and operates Gilroy Gardens Family Theme Park in Gilroy, California under a management contract. Virtually all of the Partnerships revenues from its seasonal amusement parks, as well as its outdoor water parks and other seasonal resort facilities, are realized during a 130- to 140-day operating period beginning in early May, with the major portion concentrated in the third quarter during the peak vacation months of July and August.
To assure that these highly seasonal operations will not result in misleading comparisons of current and subsequent interim periods, the Partnership has adopted the following accounting and reporting procedures for its seasonal parks: (a) revenues on multi-day admission tickets are recognized over the estimated number of visits expected for each type of ticket and are adjusted periodically during the season, (b) depreciation, advertising and certain seasonal operating costs are expensed during each parks operating season, including certain costs incurred prior to the season which are amortized over the season, and (c) all other costs are expensed as incurred or ratably over the entire year.
(3) Derivative Financial Instruments:
On January 1, 2009, the Partnership adopted the Financial Accounting Standards Boards (FASB) Accounting Standards Codifications (ASC) 815 Derivatives and Hedging (Statement of Financial Accounting Standards (SFAS) No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133). The adoption of FASB ASC 815 had no impact on the Partnerships condensed consolidated financial statements and only required additional financial statement disclosures. The Partnership has applied the requirements of FASB ASC 815 on a prospective basis. Accordingly, disclosures related to interim periods prior to the date of adoption have not been presented.
7
Derivative financial instruments are only used within the Partnerships overall risk management program to manage certain interest rate and foreign currency risks from time to time. The Partnership does not use derivative financial instruments for trading purposes. Under the original terms of its Credit Agreement, the Partnership was required to swap at least 50% of its aggregate term debt to fixed rates for a period of not less than three years.
The Partnership has effectively converted a total of $1.0 billion of its variable-rate debt to fixed rates through the use of several interest rate swap agreements. Cash flows related to these interest rate swap agreements are included in interest expense over the term of the agreements. The swap agreements outstanding are set to expire in October 2011. The Partnership has designated all of its interest rate swap agreements and hedging relationships as cash flow hedges. The fair market value of these agreements at September 27, 2009 was recorded as a liability of $91.8 million in Derivative Liability on the condensed consolidated balance sheet. No ineffectiveness was recorded in any period presented.
The Partnership has also effectively converted $268.7 million of term debt related to its wholly owned Canadian subsidiary from variable U.S. dollar denominated debt to fixed-rate Canadian dollar denominated debt through the use of cross-currency swap agreements. The Partnership originally designated these cross-currency swaps as foreign currency cash flow hedges. Cash flows related to these swap agreements, which expire in February 2012, are included in interest expense over the term of the agreement. The fair market value of the cross-currency swaps was a liability of $35.5 million at September 27, 2009, which was recorded in Derivative Liability on the condensed consolidated balance sheet. As a result of paying down the underlying Canadian term debt with net proceeds from the sale of surplus land near Canadas Wonderland in August 2009, the notional amounts of the underlying debt and the cross currency swaps no longer match. Because of the mismatch of the notional amounts, the Partnership determined the swaps will no longer be highly effective going forward, resulting in the de-designation of the swaps as of the end of August.
Fair Value of Derivative Instruments in Condensed Consolidated Balance Sheet:
(In thousands): |
Condensed Consolidated Balance Sheet Location |
Fair Value as of September 27, 2009 | |||
Derivatives designated as hedging instruments under FASB ASC 815: |
|||||
Interest rate swaps |
Derivative Liability | $ | 91,759 | ||
Cross-currency swaps |
N/A | | |||
Total derivatives designated as hedging instruments under FASB ASC 815: |
$ | 91,759 | |||
Derivatives not designated as hedging instruments under FASB ASC 815: |
|||||
Interest rate swaps |
N/A | $ | | ||
Cross-currency swaps |
Derivative Liability | 35,549 | |||
Total Derivatives |
$ | 127,308 | |||
8
Effects of Derivative Instruments on Income and Other Comprehensive Income:
(In thousands): |
Amount of Gain (Loss) recognized in OCI on Derivatives (Effective Portion) |
Amount and Location of Gain
(Loss) |
Amount and Location of Gain (Loss) |
|||||||||||||||||||||||||
Derivatives in FASB ASC |
Three months ended 9/27/09 |
Nine months ended 9/27/09 |
Three months ended 9/27/09 |
Nine months ended 9/27/09 |
Three months ended 9/27/09 |
Nine months ended 9/27/09 |
||||||||||||||||||||||
Interest rate swaps |
$ | 5,051 | $ | 23,142 | Interest Expense |
$ | (13,974 | ) | $ | (43,051 | ) | $ | | $ | | |||||||||||||
Cross currency swaps (1) |
(13,566 | ) | (22,067 | ) | Interest Expense |
(1,963 | ) | (6,720 | ) | Net change in fair value of swaps |
(2,680 | ) | (2,680 | ) | ||||||||||||||
Amortization of ineffective swaps |
| | | | Net change in fair value of swaps |
(404 | ) | (404 | ) | |||||||||||||||||||
Total |
$ | (8,515 | ) | $ | 1,075 | $ | (15,937 | ) | $ | (49,771 | ) | $ | (3,084 | ) | $ | (3,084 | ) | |||||||||||
(1) | The cross currency swaps became ineffective in August due to proceeds from a land sale near Canadas Wonderland being used to pay down debt. |
The amounts reclassified from accumulated OCI into income for the three and nine-month periods noted above are in large part the result of the Partnerships requirement to swap at least 50% of its aggregate term debt to fixed rates under the terms of its Credit Agreement.
(4) Contingencies:
The Partnership is a party to a number of lawsuits arising in the normal course of business. In the opinion of management, these matters will not have a material effect in the aggregate on the Partnerships financial statements.
(5) Earnings per Unit:
Net income per limited partner unit is calculated based on the following unit amounts:
Three months ended | Nine months ended | Twelve months ended | ||||||||||||||||
9/27/09 (13 weeks) |
9/28/08 (13 weeks) |
9/27/09 (39 weeks) |
9/28/08 (39 weeks) |
9/27/09 (52 weeks) |
9/28/08 (52 weeks) | |||||||||||||
(In thousands except per unit amounts) | ||||||||||||||||||
Basic weighted average units outstanding |
55,208 | 55,058 | 55,177 | 55,193 | 55,148 | 55,190 | ||||||||||||
Effect of dilutive units: |
||||||||||||||||||
Unit options |
64 | 112 | 71 | 352 | 78 | 417 | ||||||||||||
Phantom units |
652 | 283 | 639 | 263 | 578 | 254 | ||||||||||||
Diluted weighted average units oustanding |
55,924 | 55,453 | 55,887 | 55,808 | 55,804 | 55,861 | ||||||||||||
Net income per unit - basic |
$ | 1.95 | $ | 1.66 | $ | 1.12 | $ | 1.13 | $ | 0.09 | $ | 0.97 | ||||||
Net income per unit - diluted |
$ | 1.92 | $ | 1.65 | $ | 1.10 | $ | 1.12 | $ | 0.09 | $ | 0.96 | ||||||
The effect of out-of-the-money and/or antidilutive unit options on the three, nine, and twelve months ended September 27, 2009, had they not been out of the money or antidilutive, would have been 439,000, 1,338,000, and 1,544,000 units, respectively. The effect of out-of-the-money and/or antidilutive unit options on the three, nine, and twelve months ended September 28, 2008, had they not been out of the money or antidilutive, would have been 47,000, 95,000, and 113,000 units, respectively.
9
(6) Goodwill and Other Intangible Assets:
In accordance with FASB ASC 350-10-05 Intangibles Goodwill and Other (SFAS No. 142, Goodwill and Other Intangible Assets,) goodwill is not amortized, but, along with indefinite-lived trade-names, is evaluated for impairment on an annual basis or more frequently if indicators of impairment exist. Goodwill and trade-names have been assigned at the reporting unit, or park level, for purposes of impairment testing. Goodwill related to parks acquired prior to 2006 is annually tested for impairment as of October 1st. The Partnership completed this review during the fourth quarter in 2008 and determined the goodwill was not impaired. Goodwill and trade-names related to the Paramount Parks (PPI) acquisition in 2006, as further described in Note 3 to the Consolidated Financial Statements for the year ended December 31, 2008, as included in the Form 10-K filed on March 2, 2009, is annually tested for impairment as of April 1st. During the second quarter of 2009, we completed our annual impairment test on goodwill and other non-amortizable intangibles related to the PPI parks, which did not indicate any impairment.
A summary of changes in the Partnerships carrying value of goodwill is as follows:
(In thousands) |
|||
Balance at December 31, 2008 |
$ | 222,602 | |
Translation |
12,480 | ||
Balance at September 27, 2009 |
$ | 235,082 | |
At September 27, 2009, the Partnerships other intangible assets consisted of the following:
September 27, 2009 (In thousands) |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Value | ||||||
Other intangible assets: |
|||||||||
Trade names |
$ | 45,437 | $ | | $ | 45,437 | |||
License / franchise agreements |
13,644 | 8,627 | 5,017 | ||||||
Non-compete agreements |
200 | 130 | 70 | ||||||
Total other intangible assets |
$ | 59,281 | $ | 8,757 | $ | 50,524 | |||
December 31, 2008 (In thousands) |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Value | ||||||
Other intangible assets: |
|||||||||
Trade names |
$ | 43,670 | $ | | $ | 43,670 | |||
License / franchise agreements |
13,750 | 3,442 | 10,308 | ||||||
Non-compete agreements |
200 | 100 | 100 | ||||||
Total other intangible assets |
$ | 57,620 | $ | 3,542 | $ | 54,078 | |||
Amortization expense of other intangible assets for the nine months ended September 27, 2009 and September 28, 2008 was $5.2 million and $1.0 million, respectively. The increase in amortization expense is due to a license agreement expiring on December 31, 2009, that management decided not to renew. This decision triggered the acceleration of amortization of the remaining asset, which will result in the asset being fully amortized by December 31, 2009. The estimated amortization expense for the remainder of 2009 is $4.5 million. Estimated amortization expense is expected to total less than $100,000 per year during 2010 through 2014.
10
(7) Long-Term Debt
On August 12, 2009, the Partnership amended its Credit Agreement, extending $900 million of term debt by two years and increasing interest rate spreads on those term borrowings by 200 basis points (bps). The extended term debt will mature in 2014 and bears interest at a rate of LIBOR plus 400 bps, as long as the Partnerships corporate rating from Moodys is better than B2 or its issuer credit rating from S&P is better than B.
The amendment also allows, among other things, the incurrence of secured debt (in the form of loans or bonds), with proceeds to repay existing term loans; up to $150 million of sales/leasebacks, with 100% of net proceeds used to repay existing term loans ahead of extended term loans; asset sales in aggregate of greater than $250 million in Fair Market Value, with 100% of net proceeds used to repay existing term loans ahead of extended term loans, and includes a revolving credit facility commitment reduction equal to 5% of the net proceeds upon such sale; and additional offerings of credit extensions.
Other terms of the amendment included a reduction in the Partnerships existing $345 million revolving credit facilities, including a $30 million reduction in its U.S. facility and a $5 million reduction in its Canadian facility.
(8) Income and Partnership Taxes:
Under FASB ASC 740-10-05 Income Taxes and FASB ASC 830-740-05 Foreign Currency Matters (SFAS No. 109, Accounting for Income Taxes) income taxes are recognized for the amount of taxes payable by the Partnerships corporate subsidiaries for the current year and for the impact of deferred tax assets and liabilities, which represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. The income tax provision (benefit) for interim periods is determined by applying an estimated annual effective tax rate to the quarterly income (loss) of the Partnerships corporate subsidiaries. For 2009, the estimated annual effective rate includes the effect of an anticipated adjustment to the valuation allowance that relates to foreign tax credit carry-forwards arising from the corporate subsidiaries. The amount of this adjustment has a disproportionate impact on the annual effective tax rate that results in a significant variation in the customary relationship between the provision for taxes and income before taxes in interim periods. In addition to income taxes on its corporate subsidiaries, the Partnership pays a publicly traded partnership tax (PTP tax) on partnership-level gross income (net revenues less cost of food, merchandise and games). As such, the Partnerships total provision (benefit) for taxes includes amounts for both the PTP tax and for income taxes on its corporate subsidiaries.
(9) Fair Value Measurements:
The Partnership adopted FASB ASC 820 Fair Value Measurements and Disclosures and FASB ASC 815-10-05 (SFAS No. 157, Fair Value Measurements), on January 1, 2008. FASB ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under Generally Accepted Accounting Principles (GAAP), certain assets and liabilities must be measured at fair value, and FASB ASC 820-10 and FASB 815-10 detail the disclosures that are required for items measured at fair value. Under FASB ASC 825 Financial Instruments (SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities), entities are permitted to choose to measure many financial instruments and certain other items at fair value. The Partnership did not elect the fair value measurement option under FASB ASC 825 for any of its financial assets or liabilities.
FASB ASC 820-10 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
| Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
A financial instruments categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
11
The table below presents the balances of liabilities measured at fair value as of September 27, 2009 on a recurring basis:
(In thousands) |
Total | Level 1 | Level 2 | Level 3 | ||||||||
Interest rate swap agreements |
$ | 91,759 | $ | | $ | 91,759 | $ | | ||||
Cross-currency swap agreements |
35,549 | | 35,549 | | ||||||||
Total (1) |
$ | 127,308 | $ | | $ | 127,308 | $ | | ||||
(1) | Included in Derivative Liability on the Unaudited Condensed Consolidated Balance Sheet |
Fair values of the interest rate and cross-currency swap agreements are provided by the counterparty. The significant inputs, including the LIBOR and foreign currency forward curves, used by the counterparty to determine fair values are considered Level 2 observable market inputs. In addition, the Partnership considered the effect of its credit and non-performance risk on the fair values provided, and recognized an adjustment reducing the derivative liabilities by approximately $1.0 million as of September 27, 2009. The Partnership monitors the credit and non-performance risk associated with its derivative counterparties and believes them to be insignificant and not warranting a credit adjustment at September 27, 2009.
FASB ASC 825-10-65 (FSP on SFAS No. 107-1 and Accounting Principles Board (APB) 28-1 Interim Disclosures about Fair Value of Financial Instruments), issued in April 2009, requires disclosures about the fair value of financial instruments in interim financial statements, as well as in annual financial statements. FASB ASC 825-10-65 amends FASB ASC 270 Interim Reporting (APB Opinion No. 28, Interim Financial Reporting), to require those disclosures in all interim financial statements. FASB ASC 825-10-65 is effective for interim periods ending after June 15, 2009. The adoption of FASB ASC 825-10-65 did not have a material effect on the Partnerships condensed consolidated financial statements.
The fair value of our term debt at September 27, 2009, was approximately $1,366.4 million, based on borrowing rates currently available to the Partnership on long-term debt with similar terms and average maturities. Under terms of the Credit Agreement and swap agreements, the Partnership may prepay some or all of its debt without premium or penalty at any time.
(10) Subsequent Events:
In connection with the preparation of the condensed consolidated financial statements, the Partnership evaluated subsequent events after the balance sheet date of September 27, 2009 through November 6, 2009, the date the financial statements were available to be issued.
12
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business Overview:
We generate our revenues primarily from sales of (1) admission to our parks, (2) food, merchandise and games inside our parks, and (3) hotel rooms, food and other attractions outside our parks. Our principal costs and expenses, which include salaries and wages, advertising, maintenance, operating supplies, utilities and insurance, are relatively fixed and do not vary significantly with attendance.
In order to efficiently manage our properties, we created regional designations for our parks. The northern region, which is the largest, includes Cedar Point and the adjacent Soak City water park, Kings Island, Canadas Wonderland, Dorney Park, Valleyfair, Geauga Lakes Wildwater Kingdom and Michigans Adventure. The southern region includes Kings Dominion, Carowinds, Worlds of Fun and Oceans of Fun. Finally, our western region includes Knotts Berry Farm, Californias Great America and the Soak City water parks located in Palm Springs, San Diego and adjacent to Knotts Berry Farm. This region also includes the management contract with Gilroy Gardens Family Theme Park in Gilroy, California and, in previous periods, Star Trek, an interactive adventure in Las Vegas, which closed to the public on September 2, 2008, after management concluded it would not renew a contract scheduled to expire on December 31, 2008. The results of operations of Star Trek are not material to the consolidated financial statements.
Critical Accounting Policies:
This managements discussion and analysis of financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which were prepared in accordance with accounting principles generally accepted in the United States of America. These principles require us to make judgments, estimates and assumptions during the normal course of business that affect the amounts reported in the unaudited condensed consolidated financial statements. Actual results could differ significantly from those estimates under different assumptions and conditions.
Management believes that judgment and estimates related to the following critical accounting policies could materially affect our consolidated financial statements:
| Accounting for Business Combinations |
| Property and Equipment |
| Impairment of Long-Lived Assets |
| Long-Lived Intangible Assets |
| Self-insurance Reserves |
| Derivative Financial Instruments |
| Revenue Recognition |
In the third quarter of 2009, there were no changes in the above critical accounting policies previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008.
13
Adjusted EBITDA:
We believe that adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and other non-cash items) is a meaningful measure of park-level operating profitability because we use it for measuring returns on capital investments, evaluating potential acquisitions, determining awards under incentive compensation plans, and calculating compliance with certain loan covenants.
Adjusted EBITDA is provided in the discussion of results of operations that follows as a supplemental measure of our operating results and is not intended to be a substitute for operating income, net income or cash flows from operating activities as defined under generally accepted accounting principles. In addition, adjusted EBITDA may not be comparable to similarly titled measures of other companies. The table below sets forth a reconciliation of adjusted EBITDA to net income for the three, nine and twelve-month periods ended September 27, 2009 and September 28, 2008.
Three months ended | Nine months ended | Twelve months ended | |||||||||||||||||||||
9/27/09 (13 weeks) |
9/28/08 (13 weeks) |
9/27/09 (39 weeks) |
9/28/08 (39 weeks) |
9/27/09 (52 weeks) |
9/28/08 (52 weeks) |
||||||||||||||||||
(In thousands ) | |||||||||||||||||||||||
Net income |
$ | 107,614 | $ | 91,549 | $ | 61,721 | $ | 62,455 | $ | 4,972 | $ | 53,426 | |||||||||||
Provision (benefit) for taxes |
77,575 | 91,614 | 48,265 | 52,143 | (4,813 | ) | 9,406 | ||||||||||||||||
Interest expense |
31,183 | 31,849 | 90,994 | 98,912 | 121,643 | 133,588 | |||||||||||||||||
Depreciation and amortization |
66,413 | 60,986 | 113,604 | 111,258 | 128,184 | 124,706 | |||||||||||||||||
Equity-based compensation |
154 | 181 | 613 | 639 | 690 | 814 | |||||||||||||||||
Loss on impairment of goodwilland other intangibles |
| | | | 86,988 | | |||||||||||||||||
(Gain) loss on impairment/retirement of fixed assets, net |
188 | 6,125 | 218 | 9,390 | (747 | ) | 25,070 | ||||||||||||||||
(Gain) on sale of other assets |
(23,098 | ) | | (23,098 | ) | | (23,098 | ) | | ||||||||||||||
Net change in fair value of swaps |
3,084 | | 3,084 | | 3,084 | | |||||||||||||||||
Other (income) expense |
1,508 | 240 | 1,303 | (208 | ) | 1,102 | (3,010 | ) | |||||||||||||||
Adjusted EBITDA |
$ | 264,621 | $ | 282,544 | $ | 296,704 | $ | 334,589 | $ | 318,005 | $ | 344,000 | |||||||||||
Results of Operations:
Nine Months Ended September 27, 2009
The fiscal nine-month period ended September 27, 2009, consisted of 39 weeks and included a total of 2,195 operating days compared with 39 weeks and 2,170 operating days (excluding Star Trek which closed in September 2008) for the fiscal nine-month period ended September 28, 2008.
14
The following table presents key financial information for the nine months ended September 27, 2009 and September 28, 2008:
Nine Months 9/27/09 |
Nine months 9/28/08 |
Increase (Decrease) | ||||||||||||
(39 weeks) | (39 weeks) | $ | % | |||||||||||
(Amounts in thousands except per capita spending) | ||||||||||||||
Attendance |
18,750 | 20,006 | (1,256 | ) | (6.3 | ) | ||||||||
Per capita spending |
$ | 39.73 | $ | 40.28 | $ | (0.55 | ) | (1.4 | ) | |||||
Out-of-park revenues |
$ | 86,443 | $ | 93,976 | $ | (7,533 | ) | (8.0 | ) | |||||
Net revenues |
$ | 810,505 | $ | 876,958 | $ | (66,453 | ) | (7.6 | ) | |||||
Cash operating costs and expenses |
513,801 | 542,369 | (28,568 | ) | (5.3 | ) | ||||||||
Adjusted EBITDA |
296,704 | 334,589 | (37,885 | ) | (11.3 | ) | ||||||||
Depreciation and amortization |
113,604 | 111,258 | 2,346 | 2.1 | ||||||||||
Equity-based compensation |
613 | 639 | (26 | ) | (4.1 | ) | ||||||||
Loss on impairment/retirement of fixed assets |
218 | 9,390 | (9,172 | ) | N/M | |||||||||
(Gain) on sale of other assets |
(23,098 | ) | | (23,098 | ) | N/M | ||||||||
Operating income |
$ | 205,367 | $ | 213,302 | $ | (7,935 | ) | (3.7 | ) | |||||
N/M - Not meaningful |
Although the nine-month period ending September 27, 2009 had an additional 25 operating days, net revenues for the period decreased $66.5 million to $810.5 million from $877.0 million for the nine months ended September 28, 2008. On a same park basis, excluding revenues from Star Trek, which closed in September of 2008, net revenues decreased $57.0 million.
The decrease in revenues reflects a 6%, or 1.3 million visit, decrease in attendance for the first nine months of 2009 when compared with the same period a year ago. The decrease in attendance was the result of a sharp decline in group sales business, which continues to be 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 at our northern and southern regions. The revenue decline also represents a slight decrease of 1%, or $0.55, in average in-park per capita spending for the period. In-park guest per capita spending represents the amount spent per attendee to gain admission to a park plus all amounts spent while inside the park gates. Through the first nine months of the year, average in-park per capita spending was up slightly in the southern and western regions, but was offset by a decline in the northern region. Excluding the effects of Star Trek, the decrease in per capita spending for the nine month period would have been $0.31, or less than 1%. Over the nine-month period, out-of-park revenues, which represent the sale of hotel rooms, food, merchandise and other complementary activities located outside of the park gates, decreased 8%, or $7.5 million between years, due primarily to declines in occupancy rates at most of our hotel properties.
Excluding depreciation, amortization and other non-cash expenses, operating costs and expenses decreased 5%, or $28.6 million, to $513.8 million for the period ended September 27, 2009 versus $542.4 million for the same period in 2008. The decrease in operating costs is the direct result of the successful implementation of numerous cost savings initiatives across our parks, as a proactive step to largely offset the impact of the negative attendance trends, and to a lesser extent the closing of Star Trek in late 2008.
In late August, we completed the sale of 87 acres of surplus land at Canadas Wonderland to the Vaughan Health Campus of Care in Ontario, Canada as part of our ongoing efforts to reduce debt. 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 / retirement of fixed assets, and all other non-cash costs, operating profit for the period decreased $7.9 million to $205.4 million in 2009 compared with $213.3 million in 2008.
Interest expense for the nine months ended September 27, 2009 decreased $7.9 million to $91.0 million, primarily due to lower interest rates on our variable-rate outstanding borrowings along with lower average debt balances. Since the beginning of the year, weve retired $101.2 million of term debt through regularly scheduled debt amortization payments, as well as the use of available cash from the reduction in our annual distribution rate and the net proceeds from the sale of excess land at Canadas Wonderland.
15
During the first nine months of the year, a provision for taxes of $48.2 million was recorded to account for the tax attributes of our corporate subsidiaries and publicly traded partnership (PTP) taxes. This compares with a $52.1 million provision for taxes for the same fiscal nine-month period in 2008. To determine the interim period income tax provision (benefit) of our corporate subsidiaries, we apply an estimated annual effective tax rate to our year-to-date income (loss). The 2009 estimated annual effective tax rate includes the effect of an anticipated adjustment to the valuation allowance that relates to foreign tax credit carry-forwards arising from our corporate subsidiaries. The amount of this adjustment has a disproportionate impact on our annual effective tax rate that results in a significant variation in the customary relationship between the provision for taxes and income before taxes in interim periods. Cash taxes paid or payable are not impacted by these interim tax provisions and are estimated to be $18-$22 million for the 2009 calendar year.
After interest expense, net change in fair value of swaps, other expense, and the provision for taxes, net income for the nine months ended September 27, 2009 totaled $61.7 million, or $1.10 per diluted limited partner unit, compared with net income of $62.5 million, or $1.12 per unit, for the same period a year ago.
For the nine-month period, adjusted EBITDA decreased $37.9 million, or 11%, to $296.7 million compared with $334.6 million during the same period a year ago. The $37.9 million decrease in EBITDA was attributable to the decline in nine-month revenues resulting largely from decreased attendance and reduced occupancy rates at our resort properties, offset largely by our continued focus on cost controls during the period.
Third Quarter
The fiscal three-month period ended September 27, 2009, consisted of 13 weeks and included a total of 1,255 operating days compared with 13 weeks and 1,191 operating days (excluding Star Trek which closed in September 2008) for the fiscal three-month period ended September 28, 2008.
The following table presents key financial information for the three months ended September 27, 2009 and September 28, 2008:
Three months | Three months | |||||||||||||
ended | ended | |||||||||||||
9/27/09 | 9/28/08 | Increase (Decrease) | ||||||||||||
(13 weeks) | (13 weeks) | $ | % | |||||||||||
(Amounts in thousands except per capita spending) | ||||||||||||||
Attendance |
12,110 | 12,434 | (324 | ) | (2.6 | ) | ||||||||
Per capita spending |
$ | 39.85 | $ | 40.18 | $ | (0.33 | ) | (0.8 | ) | |||||
Out-of-park revenues |
$ | 49,868 | $ | 53,500 | $ | (3,632 | ) | (6.8 | ) | |||||
Net revenues |
$ | 519,913 | $ | 540,322 | $ | (20,409 | ) | (3.8 | ) | |||||
Cash operating costs and expenses |
255,292 | 257,778 | (2,486 | ) | (1.0 | ) | ||||||||
Adjusted EBITDA |
264,621 | 282,544 | (17,923 | ) | (6.3 | ) | ||||||||
Depreciation and amortization |
66,413 | 60,986 | 5,427 | 8.9 | ||||||||||
Equity-based compensation |
154 | 181 | (27 | ) | (14.9 | ) | ||||||||
Loss on impairment / retirement of fixed assets |
188 | 6,125 | (5,937 | ) | N/M | |||||||||
(Gain) on sale of other assets |
(23,098 | ) | | (23,098 | ) | N/M | ||||||||
Operating income |
$ | 220,964 | $ | 215,252 | $ | 5,712 | 2.7 | |||||||
N/M - Not meaningful |
Net revenues for the quarter ended September 27, 2009 decreased 4%, or $20.4 million, to $519.9 million from $540.3 million in 2008, despite the current quarter having an additional 64 operating days. This decrease reflects a 3%, or 324,000-visit, decline in attendance, a 7%, or $3.6 million, decrease in out-of-park revenues, and a less than 1% decrease of in-park per capita spending. As mentioned in the nine-month discussion above, the revenue and attendance declines were primarily due to shortfalls in our group sales business, a result of the poor economy reducing the number of company and group sponsored activities, and a decline in season-pass sales and visits due to the soft economy and cooler than normal temperatures throughout the operating season across our northern and southern region parks. The decrease in out-of-park revenue was primarily due to softness in occupancy rates at most of our hotel properties.
16
Excluding depreciation, amortization and other non-cash expenses, operating costs and expenses for the quarter decreased 1% to $255.3 million from $257.8 million in 2008, offsetting a portion of the decline in revenues, as a result of continued cost control efforts across our parks.
The third quarter results reflect a $23.1 million gain from the sale of 87 acres of surplus land near Canadas Wonderland in Toronto, Ontario as part of our strategy to reduce debt. After the gain on the Canadian land sale, depreciation, amortization, loss on impairment / retirement of fixed assets, and other non-cash costs, operating income for the quarter totaled $221.0 million, up $5.7 million from $215.3 million for the third quarter of 2008.
Interest expense for the third quarter in 2009 compared with the same period in 2008 decreased slightly to $31.2 million from $31.8 million. During the quarter, a provision for taxes of $77.6 million was recorded to account for the tax attributes of our corporate subsidiaries and PTP taxes, compared to a provision for taxes of $91.6 million in the same period a year ago. After interest expense, the net change in fair market value of swaps, other (income) expense, and the provision for taxes, the net income for the period totaled $107.6 million, or $1.92 per diluted limited partner unit, compared with net income of $91.5 million, or $1.65 per unit, a year ago.
For the quarter, adjusted EBITDA decreased 6% to $264.6 million from $282.5 million a year ago. The $17.9 million decrease in EBITDA was attributable to the decline in third-quarter revenues resulting largely from decreased attendance and reduced occupancy rates at our resort properties, offset partially by our continued focus on cost controls during the period.
Twelve Months Ended September 27, 2009
The twelve-month period ended September 27, 2009, consisted of 52 weeks compared with 52 weeks in the twelve-month period ended September 28, 2008, and had a comparable number of operating days.
The following table presents key financial information for the twelve months ended September 27, 2009 and September 28, 2008:
Twelve months | Twelve months | |||||||||||||
ended | ended | |||||||||||||
9/27/09 | 9/28/08 | Increase (Decrease) | ||||||||||||
(52 weeks) | (52 weeks) | $ | % | |||||||||||
(Amounts in thousands except per capita spending) | ||||||||||||||
Attendance |
21,464 | 22,515 | (1,051 | ) | (4.7 | ) | ||||||||
Per capita spending |
$ | 39.63 | $ | 40.30 | $ | (0.67 | ) | (1.7 | ) | |||||
Out-of-park revenues |
$ | 102,386 | $ | 110,246 | $ | (7,860 | ) | (7.1 | ) | |||||
Net revenues |
$ | 929,779 | $ | 992,405 | $ | (62,626 | ) | (6.3 | ) | |||||
Cash operating costs and expenses |
611,774 | 648,405 | (36,631 | ) | (5.6 | ) | ||||||||
Adjusted EBITDA |
318,005 | 344,000 | (25,995 | ) | (7.6 | ) | ||||||||
Depreciation and amortization |
128,184 | 124,706 | 3,478 | 2.8 | ||||||||||
Equity-based compensation |
690 | 814 | (124 | ) | (15.2 | ) | ||||||||
Loss on impairment of goodwill and other intangibles |
86,988 | | 86,988 | N/M | ||||||||||
(Gain) loss on impairment / retirement of fixed assets |
(747 | ) | 25,070 | (25,817 | ) | N/M | ||||||||
(Gain) on sale of other assets |
(23,098 | ) | | (23,098 | ) | N/M | ||||||||
Operating income |
$ | 125,988 | $ | 193,410 | $ | (67,422 | ) | (34.9 | ) | |||||
N/M - Not meaningful |
Net revenues for the twelve months ended September 27, 2009, were $929.8 million compared with $992.4 million for the twelve months ended September 28, 2008, a decrease of $62.6 million. The decrease in net revenues reflects a 5%, or 1.1 million-visit, decrease in attendance, a 2% decrease in average in-park guest per capita spending, and a decrease of 7%, or $7.9 million in out-of-park revenues, primarily due to declines in occupancy levels across our hotel properties. Excluding the effects of Star Trek, which closed in September 2008, net revenues would have decreased $52.5 million, or 5%, on a decrease of less than 1% in average in-park guest per capita spending and a decline in attendance of 4%.
For the twelve-month period, operating costs and expenses, before depreciation, amortization and other non-cash costs, decreased 6%, or $36.6 million, to $611.8 million from $648.4 million for the same period a year ago. For the twelve months ended September 27, 2009, we recognized a $23.1 million gain on the sale of surplus land at Canadas Wonderland (as discussed above), as well as an $87.0 million charge for the impairment of goodwill and other intangible assets relating to the PPI acquisition.
17
During the twelve month period ended September 28, 2008, we also recognized losses of $19.0 million on non-cash impairment charges at Geauga Lake and $6.1 million on retirements of fixed assets. After these losses, the gain on the Canadian land sale, depreciation, amortization and other non-cash expenses, operating income for period totaled $126.0 million compared to operating income of $193.4 million a year ago.
Interest expense for the twelve months ended September 27, 2009 decreased $12.0 million to $121.6 million compared with $133.6 million for the same period in 2008. This decrease is primarily due to lower outstanding balances on our term debt, as weve paid down $109.9 million in term debt borrowings. During the period, we recorded a benefit for taxes of $4.8 million to account for the tax attributes of our corporate subsidiaries and PTP taxes, which compares with a provision for taxes of $9.4 million a year ago.
After interest expense, net change in fair value of swaps, other expense, and provision for taxes, net income for the twelve months ended September 27, 2009 was $5.0 million, or $0.09 per diluted limited partner unit, compared with net income of $53.4 million, or $0.96 per diluted limited partner unit, for the twelve months ended September 28, 2008.
For the twelve-month period, adjusted EBITDA totaled $318.0 million in 2009, representing approximately an 8%, or $26.0 million, decrease from $344.0 million over the same period in 2008. Over this period, our adjusted EBITDA margin was flat compared with same period a year ago. The decrease in adjusted EBITDA in 2009 was primarily due to revenue shortfalls resulting from the difficult prevailing economic climate in 2009, as well as poor weather conditions, particularly cooler than usual temperatures in all of our regions, substantially offset by our continued focus on controlling costs.
October 2009
October operating results have continued to be negatively affected by poor weather conditions, as well as the soft economy. Compared to the record setting performance in October 2008, revenues for the month were down $10.2 million, or 11%. This decrease was in large part the result of a 255,000-visit shortfall in attendance, with flat average in-park per capita spending. Over this same period, out-of-park revenues were down approximately $315,000.
Combined revenues for the first ten months of the year, on a same-park basis (excluding the impact of Star Trek which closed in September 2008), were $912.7 million compared with $983.2 million for the same period a year ago, on 28 more operating days. This is a result of a 6% decrease in attendance to 20.6 million visitors compared with 22.0 million in 2008, a decrease of 1% in average in-park guest per capita spending to $39.65, and a decrease in out-of-park revenues of $8.0 million to $94.5 million, due to declines in hotel occupancy.
Liquidity and Capital Resources:
With respect to both liquidity and cash flow, we ended the third quarter of 2009 in sound condition. The negative working capital ratio (current liabilities divided by current assets) of 1.4 at September 27, 2009 is the result of our seasonal business and careful management of cash flow to reduce borrowings. Receivables and inventories are at normal seasonal levels and credit facilities are in place to fund current liabilities.
At the end of the quarter, we had $1,600.2 million of variable-rate term debt and no outstanding borrowings under our revolving credit facilities, and cash on hand of $56.2 million. After letters of credit, which totaled $11.2 million at September 27, 2009, we had $298.8 million of available borrowings under our revolving credit agreements. Of our total term debt, $16.5 million is scheduled to mature within the next twelve months.
In 2006, we entered into several interest rate swap agreements which effectively converted $1.0 billion of our variable-rate debt to a fixed rate of 7.6%.
In 2007, we terminated two cross-currency swaps, which were effectively converting variable-rate debt related to our wholly owned Canadian subsidiary to fixed-rate debt, and received $3.9 million in cash upon termination. We replaced these swaps with two new cross-currency swap agreements, which effectively converted $268.7 million of term debt, and the associated interest payments, from U.S. dollar denominated debt at a rate of LIBOR plus 200 bps to 6.3% fixed-rate Canadian dollar denominated debt. As a result of paying down the underlying Canadian term debt with net proceeds from the sale of surplus land near Canadas Wonderland in August, the notional amounts of the underlying debt and the cross currency swaps no longer match. Because of this mismatch of the notional amounts, weve determined that the swaps will no longer be highly effective going forward. This resulted in the de-designation of the swaps as of the end of August.
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We entered into these various swap arrangements as a means of reducing the risk associated with volatility in interest rates in order to keep our cash interest costs predictable. The fair market value of these instruments is recorded as a liability of $127.3 million in Derivative Liability on the September 27, 2009 unaudited condensed consolidated balance sheet with the offset of the effective portion of the swaps reducing Partners Equity and the ineffective portion being recorded in the unaudited condensed consolidated statement of operations in Net change in fair market value of swaps. The liability and the amounts in Partners Equity is expected to reverse over time as the swaps approach their maturity dates and continue to serve their purpose of leveling cash interest costs.
In August of 2009, we entered into an agreement with our lenders to amend our credit agreement and extend a portion of our term debt under that agreement. As part of the amendment, $900 million of term debt scheduled to mature in 2012 was extended by two years to 2014. Other terms of the amendment included a reduction of $35 million in our revolving credit facilities. The extended term debt bears interest at a rate of LIBOR plus 400 bps. Further details of the amendment can be found in our Form 8-K filing on August 14, 2009.
We continue to look at a wide range of alternatives to address our capital structure and reduce debt levels. One such alternative examined was our distribution policy. In response to this examination, in March 2009, we announced that we were reducing our annual distribution rate from $1.92 per unit to $1.00 per unit beginning with the distribution declared during the second quarter of 2009. During the first nine months of 2009, we used the cash available from our reduced distributions to retire $39.0 million of term debt.
Also, as part of the March 2009 announcement, we made note of the marketing for sale of three of our amusement parks, as well as the continued marketing efforts to sell excess land. In August 2009, we completed a transaction with the Vaughan Health Campus of Care in Ontario, Canada for the sale of 87 acres of surplus land near Canadas Wonderland. Net proceeds from the sale of the land totaled $53.8 million and were used entirely to retire term debt. The reduction of our distribution, along with the successful execution of selling the Canadian land, has allowed us to retire more than $90 million of term debt during the first nine months of 2009.
Our efforts, although successful, have not been enough to offset the decrease in the 2009 operating performance. Based on trailing twelve month results as of September 27, 2009, preliminary October results and a tightening at December 31st of the maximum consolidated leverage ratio within the Credit Agreement, it is expected that we will suspend distributions beginning in 2010 and the cash flow be redirected to retire term debt. If, as expected, the distribution is eliminated in early 2010, we should be able to reduce our debt by approximately $200 million over the next two fiscal years.
Credit facilities and cash flows from operations are expected to be sufficient to meet working capital needs, debt service and planned capital expenditures for the foreseeable future.
Off Balance Sheet Arrangements:
We have no significant off-balance sheet financing arrangements.
Forward Looking Statements
Some of the statements contained in this report (including the Managements Discussion and Analysis of Financial Condition and Results of Operations section) that are not historical in nature are forward-looking statements within the meaning of Section 27A of the Securities and Exchange Act of 1933 and Section 21E of the Securities and Exchange Act of 1934, including statements as to our expectations, beliefs and strategies regarding the future. These forward-looking statements may involve risks and uncertainties that are difficult to predict, may be beyond our control and could cause actual results to differ materially from those described in such statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Important factors, including those listed under Item 1A in our Form 10-K, could adversely affect our future financial performance and cause actual results to differ materially from our expectations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks from fluctuations in interest rates, and to a lesser extent on currency exchange rates on our operations in Canada and, from time to time, on imported rides and equipment. The objective of our financial risk management is to reduce the potential negative impact of interest rate and foreign currency exchange rate fluctuations to acceptable levels. We do not acquire market risk sensitive instruments for trading purposes.
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We manage interest rate risk through the use of a combination of interest rate swaps, which fix a portion of our variable-rate long-term debt, and variable-rate borrowings under our revolving credit loans. We mitigate a portion of our foreign currency exposure from the Canadian dollar through the use of foreign-currency denominated debt. Hedging of the U.S. dollar denominated debt, used to fund a substantial portion of our net investment in our Canadian operations, is accomplished through the use of cross currency swaps. Translation exposures with regard to our Canadian operations are not hedged.
For derivative instruments that are designated and qualify as cash flow hedges under FASB ASC 815, the effective portion of the change in fair value of the derivative instrument is reported as a component of Other comprehensive income (loss) and reclassified into earnings in the period during which the hedged transaction affects earnings. Changes in fair value of derivative instruments that do not qualify as effective hedging activities under FASB ASC 815 are reported as Net change in fair value of swaps in the consolidated statement of operations. Additionally, the Other comprehensive income (loss) related to interest rate swaps that become ineffective is amortized on a straight-line basis, over the remaining life of the interest rate swap, and reported as a component of Net change in fair value of swaps in the consolidated statement of operations.
After considering the impact of interest rate swap agreements, at September 27, 2009, $1,261.9 million of our outstanding long-term debt represented fixed-rate debt and $338.3 million represented variable-rate debt. Assuming an average balance on our revolving credit borrowings, the cash flow impact of a hypothetical one percentage point change in the applicable interest rates on our variable-rate debt, after the rate swap agreements, would be approximately $4.4 million as of September 27, 2009.
A uniform 10% strengthening of the U.S. dollar relative to the Canadian dollar would result in an approximate $4.1 million decrease in annual operating income.
ITEM 4. CONTROLS AND PROCEDURES
(a) | Evaluation of Disclosure Controls and Procedures - |
The Partnership maintains a system of controls and procedures designed to ensure that information required to be disclosed by the Partnership in its reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Commission and that such information is accumulated and communicated to the Partnerships management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of September 27, 2009, the Partnership has evaluated the effectiveness of the design and operation of its disclosure controls and procedures under supervision of management, including the Partnerships Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Partnerships disclosure controls and procedures are effective.
(b) | Changes in Internal Control Over Financial Reporting - |
There were no changes in the Partnerships internal controls over financial reporting in connection with its 2009 third quarter evaluation, or subsequent to such evaluation, that have materially affected, or are reasonably likely to materially affect, the Partnerships internal control over financial reporting.
PART II - OTHER INFORMATION
There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008.
Exhibit (31.1) | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
Exhibit (31.2) | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
Exhibit (32) | Certifications Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CEDAR FAIR, L.P. | ||||
(Registrant) | ||||
By Cedar Fair Management, Inc. | ||||
General Partner | ||||
Date: November 6, 2009 | /s/ Peter J. Crage | |||
Peter J. Crage | ||||
Corporate Vice President - Finance | ||||
(Chief Financial Officer) | ||||
/s/ Brian C. Witherow | ||||
Brian C. Witherow | ||||
Vice President and Corporate Controller | ||||
(Chief Accounting Officer) |
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Exhibit (31.1) | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
Exhibit (31.2) | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
Exhibit (32) | Certifications Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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