Cedar Fair Entertainment Company Q3 2009 Earnings Call Transcript

| About: Cedar Fair, (FUN)

Cedar Fair Entertainment Company (NYSE:FUN)

Q3 2009 Earnings Call

November 2, 2009; 10:00 am ET

Executives

Richard Kinzel - Chairman, President & Chief Executive Officer

Peter Crage - Vice President of Finance & Chief Financial Officer

Stacy Frole - Director of Investor Relations

Analysts

Scott Hamann - KeyBanc Capital Markets

Joe Stoe - CLT Capital

Joe Lucky - Wells Fargo

Ross Haberman- Haberman Funds

Operator

Ladies and gentlemen thank you for standing by. Welcome to the Cedar Fair third quarter earnings conference call on the 3 November 2009. Throughout today’s recorded presentation all participants will be in a listen-only mode. After the presentation there will be an opportunity to ask questions. (Operator Instructions)

I’ll now hand the conference over to Stacy Frole. Please go ahead Madam.

Stacy Frole

Thank you Kev. Good morning and welcome to our third quarter earnings conference call. I’m Stacy Frole, Cedar Fair’s Director of Investor Relations. Earlier today we issued our third quarter earnings release. A copy of that release can be obtained on our corporate website at www.cedarfair.com or by contacting our Investor Relations offices at 419-627-2233. On the call this morning are Dick Kinzel, our Chairman, President, and Chief Executive Officer, and Peter Crage, our Vice President 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 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 on our website via the conference call access page.

In compliance with SEC regulation FD, this webcast is being made available to the media and the general public as well as analysts and investors. Because the webcast is open to all constituents and prior notification has been widely and unselectively disseminated, all content of the call will be considered fully disclosed.

Now, let me turn the call over to Dick Kinzel.

Richard Kinzel

Good morning and thank you for joining us on the call today. As you can see from our third quarter earnings, 2009 has been a challenging year for us. While we anticipated pressure from the worst economy in decades and rising unemployment rates in many of our regions, we did not anticipate dealing with consistently poor weather.

I typically don’t like to use weather as an excuse for attendance shortfalls. However this has clearly been very unusual year weather wise across many of the regions in which we operate. While our performance is slightly better than many industry peers, it’s certainly disappointing. Through the end of the third quarter, our parks had entertained 18.8 million visitors, down 6% from the same time last year.

During the same period, average in-park guest per capita spending was down 1% or $0.55 to $39.73, and out of park revenues were down $7.5 million. The result is an overall decrease of $66.5 million in net revenues through the first nine months of the year. A sharp decline in group sales business and particularly for our northern and southern parks and a decrease is season’s past sales were the key factors behind our attendance shortfall. Both of these ticket channels have been hit hard by the economy.

How we responded. Cash operating costs and expenses through the third quarter were down $28.6 million offsetting 40% of the decline in revenues. Peter will provide more detailed information behind the third quarter results shortly. Before he does, I would like to take a moment to discuss our performance through this past weekend, which completed the 2009 operating season for the majority of our parks.

The same challenges we face during the first nine months of the year continue to negatively impact results in October, and particularly unreasonably cool temperatures and rain over the past four weekends have softened the positive impact we had expected to get from the very popular Halloween events we have in place at our parks.

Through this past weekend, our parks have entertained 20.6 million guests. This represents a 7% about 1.5 million visit decrease from this time last year on a same-park basis, excluding the impact of Star Trek, The Experience, which closed in September of 2008.

During this same period, average in-park guests per capita spending remained down less than 1% from last year while out of park revenues were down $8 million due almost entirely to declines in occupancy rates at our hotel properties. Based on these preliminary October results, combined revenues for the first ten months of the year, on a same-park basis, were down $70.70 million or 7% from a year ago.

While we faced many challenges this year, I am very proud of the job our management team has done in running the parks and maintaining their focus on controlling operating costs. A cost savings initiative implemented has to substantially offset the attendance and revenue shortfalls. Through the third quarter cash operating costs were down 5% or $28.6 million from last year.

Adjusted EBITDA for the first nine months of the year was down $37.9 million from a year ago and on a trailing 12 months basis, adjusted EBITDA totaled $318 million. However, with the soft results from October just concluded it’s unlikely we’ll be able to achieve that level of EBITDA for the full year of 2009.

With that in mind, and taking into consideration the tightening of the maximum consolidated leverage ratio with credit agreement at December of 31st, we expect that we’ll suspend distributions beginning at 2010. If, as we expected the distribution is suspended, a cash flow that would otherwise be paid to unit holders, will be redirected to retire term debt. We believe this debt reduction will allow unit holders to realize a return on their investment through deleveraging and provide us with greater financial and operating flexibility.

Over the past year, we have accomplished initiatives that have reduced that by approximately a $110 million and addressed per capital structure. This has been done through the reduction of our annual distribution rates in March. The sale of 87 acres of surplus land in Toronto in August, regular amortization payments and an extension of $900 million of our term debt.

We are pleased with the success of these initiatives especially considering the state of the credit markets. I must say this has been one of the most challenging years of my career and the decisions we’ve had to make it have not been easy. While maintaining our focus on the operating performance of the business in a difficult operating environment, we also considered several other alternatives to address the constraints of our current capital structure.

I concluded that in the current market environment these are not executable on terms that would be beneficial to unit holders over the long term. Our actions, although successful, have not been enough to offset the decreases in operating performance we have experienced in 2009.

We’ll be reviewing alternatives to improve operating performance and enable unit holders to realize value consistent with our financial performance including potential changes to capital structure, corporate structure, the company’s debt and other strategic options. We will pursue those alternatives that we believe are in the best interest of the company and the unit holders.

At this point, I would like to turn the call over to Peter, to discuss our financial results in more detail.

Peter Crage

Thanks very much Dick. As Dick said, 2009 has been a very challenging year for us. By most measures the worst economy in 70 years and poor weather throughout most of the year have combined to affect results in most of our parks. For the nine months period ended September 27, 2009, net revenues decreases nearly 8% to $810.5 million from $877 million in 2008.

Sources of revenues are as follows. $467.9 million of admissions revenues, $283.1 million in food, merchandise and games revenues, and $59.5 million of accommodations and other non-park revenues, on a same park basis excluding the results, Star Trek The Experience, which closed in September of 2008, net revenues declined $57 million between years on 25 additional operating days in 2009.

This revenue shortfall is largely the result of an attendance decline of 1.2 million visits between years. Through the first nine months of 2009, our parks entertained 18.8 million guests compared to 20 million guests in 2008. Over this same period, average in-park guests per capita spending was $39.73 and out of park totaled $86.4 million. This compares with average in-park guests per capita spending of $40.28 and out of park revenues of $94 million during the first nine months of 2008.

The decrease in attendance can be directly attributed to a sharp decline in group sales business, and decrease in season pass visits. The decline in group sales business is the direct results of the poor economy and spending cuts at many businesses schools and organizations we have historically counted on as repeat customers.

During the end of the third quarter, we have lost more than 900,000 fruit sales visits company wide. The decline in season pass visits is the result of a decrease in total 2009 pass sales. Through the end of the quarter total season pass visits were off more than 350,000 from this time a year ago.

While we have entertained fewer guests this year, the parks have done a good job of maintaining in-park per capita spending levels in light of the economy. Through the first nine months of the year, average in-park per capita spending was actually up slightly in our southern and western regions, but these gains were 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 only been $0.31 or less than 1%.

A $7.5 million or 8% decrease in out of park revenues which represents, the sale of hotel rooms food, merchandize and other activities located outside of the park gates is primarily due to declines in occupancy rates at most of our hotel properties.

Operating costs and expenses excluding depreciation, amortization and other non-cash costs for the fiscal nine months decreased 5% or $28.6 million to $513.8 million on 25 more operating days in the period. This decrease is the direct result of successful implementation of numerous cost savings initiatives across our parks as a proactive step to offset the impact of a negative attendance trends.

The closing of Star Trek also contributed approximately $7.1 million of the cost savings. Consolidated cash on operating costs for the nine months period are broken down as follows. $74.4 million in cost of food, merchandize and gains revenues, $335.7 million of operating expenses and $103.7 million of selling general and administrative expenses.

Those of you who regularly follow our results know we believe adjusted EBITDA, 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 level performance. Because it’s important to us we make it a point of sharing with investors, through the first nine months of 2009, adjusted EBITDA decreased to $37.9 million to $296.7 million from $134.6 million for the same period a year ago.

Also impacting the nine month operating results, is the sale of the excess land adjacent to our park in Canada in the third quarter. In late August, we completed the sales of 87 acres of surplus land in Canada’s Wonderland as part of our ongoing efforts to reduce debt. Net proceeds from the sales totaled $53.8 million, and resulted in the recognition of a $23.1 million gain during the period. After this gain depreciation and amortization of $113.6 million and all other non cash items operating profit for the period decreased $7.9 million to $205.4 million compared with $213.3 million in 2008.

Over the period, interest expense decrease $7.9 million to $91million primarily attributable to lower rates on our variable rate debt along with lower average term debt borrowings during the period. At the beginning of 2009, we retired $101.2 million of term debt; somewhere offsetting these savings was a $200 basis point increase in interest cost on the $900 million of term debt borrowings that were extended by two years in August.

Although we did increase interest cost on the extended portion, we were pleased to obtain more flexibility to the credit agreement through the amendment process and we have been able to reduce some near term refinancing risk by extending $900 million of term debt by two years.

Our nine month results also reflect a $3.1 million charge for the change in fair value of two cross currency swaps we have in placed that hedge our exposure on US dollar denominated debt, we hold at our wholly owned Canadian subsidiary. Those swaps became ineffective as defined by the accounting rules in the third quarter as a result of paying down the underlying Canadian term debt with net proceeds from the Canadian land sale.

As such, any changes in fair value of these swaps are now required to be reported within the P&L in accordance with the relevant accounting rules. After interest expense, the net change in the fair value of swaps and a $48.3 million provision for taxes net income for the nine months totaled to $61.7 million, or $1.10 per diluted limited partner unit. This compares with net income of $62.5 million or $1.12 per unit for the same period a year ago.

Looking at the third quarter for a moment, the fiscal three months ended September 27, 2009, consisted of a 13 week period and included a total of 1,255 operating days compared with 13 weeks or 1,191 operating days in 2008, excluding the operations of Star Trek.

The 64 additional operating days in the current year quarter is primarily the result of a shift in our operating calendars to correspond with the late timing of Labor Day this year. For the quarter net revenues decreased 4% or $20.4 million to $519.9 million. This is the result of a 3% or 324,000 visit decrease in attendance, a 7% or a $3.6 million decrease in out of park revenues and a decrease of less than 1% in average in-park guest per capita spending.

As I previously mentioned, the decline in attendance was primarily due to short falls in our group sale business and season pass sales. A decrease in the third quarter out of park revenues again reflects a decline in occupancy at our hotel properties. Cash operating cost for the quarter totaled $255.3 million. This represented a decrease of $2.5 million or 1% from a year ago in spite of 64 additional operating days.

Again, this is reflective of the successful result of cost control efforts across parks in response to reduced attendance. For the quarter adjusted EBITDA decreased 6% to $264.6 million from $282.5 million a year ago. The $17.9 million decreases directly attributable to the decline in third quarter revenues partially offset by our cost control efforts during the period.

Operating income for the quarter totaled $221 million up to $5.7 million from the third quarter of 2008, increases due to the $23.1 million gain on the sale of the Canadian committee and land offset by the revenue short fall. Interest expense for third quarter decreased slightly from $31.8 million in 2008 to $31.2 million in 2009. This decrease is principally due to lower average term debt borrowings in the current year offset by the 200 basis point increase in interest cost on the $900 million of extended term debt borrowings.

After interest expense the $3.1 million net change in the fair value of swaps and a $77.6 million provision for taxes net income for the quarter totaled $107.6 million or $1.92 per diluted limited partner unit. This comprised with net income of $91.5 million or $1.65 per unit in the third quarter of 2008.

Finally, I’ll review the balance sheet. At the end of the third quarter, our receivables and inventories were at normal seasonal levels and we have the necessary revolving credit facilities in place to fund current liabilities, capital expenditures and operating expenses as required.

Partner’s equity totaled $150.2 million and our total cash on hand was $56.2 million. As of the end of the quarter total debt outstanding was $1.6 billion of variable rate debt, $16.5 million of which is classified as current. There were no outstanding borrowings on our revolving credit facilities. Of our outstanding variable rate long term debt $1.3 billion has been converted to fixed rate debt through the use of several interest rate swap agreements. As a result, our cost of debt is approximately 7% at the current time.

Based on current trailing 12 month results, our preliminary view of October performance and at December 31 of the maximum consolidated leverage ratio, we expect that we will suspend distributions beginning in 2010. If, as we expect the distribution is suspended, cash flow that would otherwise be paid to unit holders will be redirected to retire term debt. We believe the step reduction will allow unit holders to realize a return on their investment through deleveraging and provide us with greater financial and operating flexibility.

While our results through October are disappointing when compared with our record 2008 results, we are still on track to report strong EBITDA and continued strong margins in light of the current economic environment. All of our parks continue to produce steady positive operating cash flows and our cash position together with existing lines of credit provides sufficient flexibility to manage working capital and support growth through our capital expenditure program going forward.

At this point I would like to turn the call back to Dick for some comments on the 2010 operating season.

Richard Kinzel

As we look forward, it’s likely that material challenges we faced in 2009 will be present in 2010. However, with a strong capital program in place we believe we are well positioned to face these challenges.

Looking forward to 2010, our capital expenditure program will total approximately $90 million and will be highlighted by the addition of two signature roller coasters. These two new world class coasters will be themed around Dale Earnhardt and Nascar and will be similar in style and features to both Diamondback at Kings Island and Behemoth at Canada’s Wonderland.

Roller coasters have proved very successful in these parks over the past two years. First of these coasters, The Intimidator, will be introduced at Carowinds in 2010. The introduction of Intimidator will coincide with the opening of NASCAR Hall of Fame in Charlotte next year, and we are confident will become the signature coaster that park needs to ascend to the next level of profitability.

Second of our new coasters will be The Intimidator 305 at Kings Dominion. A 305 feet tall The Intimidator 305 will be the perfect fit for that park solid collection of thrill rides. It should give Kings Dominion the marketing push it needs to compete in what is arguably one of our most competitive markets.

Our 2010 capital program will include more than just big steel as we also will be focused on family attractions next year. To your point, our flagship park will introduce a new $10 million flume ride that should be a strong marketing draw for the entire family.

We will also be upgrading and rebuilding the children’s areas at five of our parks, while three other parks will be introducing a night time light show on display that proved very popular with guests at Cedar Point this past year. We have found that attractions like this are not capital intensive but resonate well with our guests bringing a new layer of entertainment to our parks.

In 2010, we will also be investing an upgrade to our accommodations and general park appearance. I believe we have an excellent overall entertainment package lined up for our parks for the 2010 season. Fundamentals of our business have not changed. Our parks are a family tradition and we believe they will continue to be for many generations to come.

At this point I will conclude our prepared remarks and allow for any questions that you might have. Kevin open the floor for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Scott Hamann - KeyBanc Capital Markets.

Scott Hamann - KeyBanc Capital Markets

Dick, the first question here. When you talk to the board, I mean, what’s the board’s thinking in what the criteria might be to reinstate the distribution, I mean what types of things would you be looking for over time?

Richard Kinzel

Scott, at this time it’s really premature to make any predictions about the future distribution policy. We continue to evaluate strategic alternatives for improving the business and creating value for the unit holders. The distribution policy is just one of the facets we will consider, are consistent with our focus on total return for the unit orders.

Scott Hamann - KeyBanc Capital Markets

When you talk about those strategic alternatives, is there anything that you are considering that’s different than what you have laid out before in terms of excess land sales in the couple of the parks that you are currently marketing?

Richard Kinzel

No, I think the financial community is pretty well up to date on what our thought processes and what we are trying to accomplish.

Scott Hamann - KeyBanc Capital Markets

Peter is there any potential for an additional or a write down on any of this goodwill associated with the Paramount acquisition?

Peter Crage

Well, potential yes, I guess it depends on what happens in the economy and the business performance of those parks. I will tell you that based on what we have up to this point you don’t see any impairment in the third quarter. So, the fourth quarter we will do our testing in the fourth quarter and of course we will do it next year as well, it’s tough to say at this point what the future holds.

Scott Hamann - KeyBanc Capital Markets

Okay and then finally, just after tax impact of this land sale, do you have a good number for that?

Peter Crage

Yes, I think there is a tax, we will have a tax liability of about $7 or $8 million next year that’s due in early part of 2010, so that came in the high 40s.

Scott Hamann - KeyBanc Capital Markets

Okay. Thanks a lot.

Richard Kinzel

Scott, if you could just add. We certainly realize that our problem is on the balance sheet and our emphasis going forward certainly is going to try to get that debt reduced.

Scott Hamann - KeyBanc Capital Markets

Yes, I understand. I am just wondering if there is a certain debt level or other metric that you might be looking to achieve and then say, we will take a look at reinstating that distribution.

Richard Kinzel

I think it’s just too really to say at this time Scott.

Operator

Your next question comes from [Joe Stoe] - CLT Capital.

Joe Stoe - CLT Capital

Can you help, I guess, help me understand a few things, one; you are taking your CapEx as indicated up to roughly $9 million next year, it’s sort of higher than your average in general, and just generally given sort of the environment especially over the last summer, again with sort of attendance being blind.

How do you think about your capital allocation policy versus the various flexibility that you have in your cost structuring, and how should we think about again sort of the prospects for the business, the underlying business going into 2010 relative, again to your tight capital structure?

Richard Kinzel

Our capital is pretty well dictated a couple of years ahead of time, too cautious that we are putting it next year, actually we ordered two years ago. So, consequently, we had to stick with those and not only we try to stay between $80 and $90 million, we are in that range, unfortunately, up this time last year when the banks were having their problems, we sort of anticipated it was going to be a soft year.

So we really postponed that the $10 million flume that we are putting at Cedar Point this year, we ask our ride manufacturer to put that off for a year. So, consequently, that took us a little bit over what we wanted to do this year in capital, but looking forward, hopefully while the economy is going to start turning around in the first quarter of next year, but again the major emphasis was that we really have those rights ordered.

We really could not get out of them, but hindsight I think it’s going to be a great ride and I think next year could be a very promising year for us.

Joe Stoe - CLT Capital

I appreciate that, but relative of the C2 attendance year to year of C attendance can clearly fluctuate for a number of reasons primarily being whether and then working back through and in terms of cyclical factors, but again, with attendance being tough to get build up some level say strong conviction for it being X or Y.

How do you think about your cost structure and again and some of the flexibility that you have such that if attendance were to come in lower than expectations into 2010, given an unknown sort of global macro situation what you can tweak?

Peter Crage

Joe, this is Peter. Our comments on attendance clearly pointed to the cyclical issues the economic issues.

Joe Stoe - CLT Capital

Sure.

Peter Crage

Group sales was a significant portion of that almost a million. So, assuming the economy comes back that would be great, but if it doesn’t we also in our comments pointed out that we were able to cut almost $30 million in cost. I think the question you are asking, and I hope I answered it the right way is if we continue to see this next year, this group sales business off or what can we do in terms of tweaking our cost, I think we have shown that this year and I think we would continue down that path in 2010.

Joe Stoe - CLT Capital

Right, in that $30 million, can you categorize the particular buckets of which that came from?

Peter Crage

Sure, there was a pretty substantial component in salaries and wages that Dick, I don’t know if you want to comment on the individual components, the layoffs and various other components?

Richard Kinzel

Yes, we had, unfortunately I’m not really pleased to say if we had to reduce some staffing, basically the majority of the staffing was the second look at the Paramount acquisition in ‘06; we went back there and re-streamlined the staffing levels there. Operating supplies and expenses were cut considerably.

Some of those may comeback a little bit next year, because what we were trying to do quite frankly from June onwards to try to preserve the distribution, we did everything in our power to preserve this distribution and we knew that it was going to be a challenge when we open the parks and consequently we took effects right away. Pete, do you have the numbers?

Peter Crage

Sure, sure. On salaries and wages side, we cut over $10 million both including a big portion of that seasonal making adjustments to park level seasonal labor, operating supplies and expense of $5 million, we continued to try to create efficiencies on the utilities line for a couple of million dollars. So, those are just some examples of the things we’ve been able to do this year to cut those costs.

Richard Kinzel

The individuals that we had to release on the layoffs, we don’t expect those to be hired back, we expect to operate thinner next year.

Joe Stoe - CLT Capital

I apologize, I don’t mean to sort of hug the senior, but one final question, can you please remind me the next leverage test that you have this year and what had adjust to in 2010 and any other sort of relevance or covenants that you had to manage towards?

Peter Crage

Right, the maximum consolidated leverage that which governs distribution is at 5.25, it just stand at 475 at the fourth quarter of this year and then adjust down to its lowest level at 450 and stays there at the end of 2010.

Operator

Your next question comes from Joe Lucky - Wells Fargo.

Joe Lucky - Wells Fargo

Can you remind us if there’s any restriction on when the distribution can return under the credit agreement, is there any research, and it doesn’t have to be halted for a certain period of time or can it return once you guys return to compliance?

Richard Kinzel

The strict definition in the credit agreement, allows for the distribution to return once you meet the minimum requirements.

Joe Lucky - Wells Fargo

Dick you had some comments, in your opening remarks right before you talking about the distribution regarding adjusted EBITDA, I missed that, can you repeat what you said, that you didn’t expect it to be, what was it, $318 million, were you comparing it to the trailing 12 months?

Richard Kinzel

Right, mainly because of the weaker than expected October that we had, it’s going to be very difficult I believe for us to maintain the 318, however saying that the level of drop on that would be, not considerably, 2 to, it’s a guess. We hate to guess, we don’t think we can maintain the 318, but it’s a month’s operation.

Peter Crage

The month’s operation and we still have two months at, that’s Berry Farm, which is not the highest, is not their busiest time of the year, but it’s difficult Joe to make a guess as to what that would be, there’s downward pressure on the 318.

Joe Lucky - Wells Fargo

Do you expect it to be EBITDA positive in Q4?

Peter Crage

We don’t know, we need to get through the fourth quarter and we need to look at the numbers, we still, as you know, we still have two months of Farm operations ahead.

Joe Lucky - Wells Fargo

Yes. I guess the question is, you viewed the debt covenants. You think that is in play potentially the 525 at the end of the Q4.

Richard Kinzel

We do not believe at this point in time that we have, we will trip any other covenants.

Joe Lucky - Wells Fargo

Clearly weather is not just an excuse for you guys, clearly impacted the operations year-to-date and in the third quarter. Is there anything you can do to quantify potentially the impact of that either in operating days or some other metric?

Richard Kinzel

You know, Joe, we certainly, we don’t like to use weather as an excuse, but if it was, I just know though, October really hit us hard, but we can slice it and dice it, weather played a part in it, but in all honestly, the recession really hurt us hard.

As Pete pointed out in some of those numbers, our group business was down and that was basically a result in the east and in the mid west, with companies that had layoffs and the companies that historically have brought their employees to the park either for a day outing or for a day outing and a lunch, those are basically eliminated this year. That’s what really contributed to the downfall this year.

Weather certainly played a part in it, but if we were to have I think a normal economy even with this bad weather, I think we could have made the distribution, but that having the worst recession in 70 years and the breakdown in the credit markets and the bad weather combined, it just, it was almost a perfect storm, we just couldn’t make it, but, the bottom line is it was really the economy that got us.

The weather is, we certainly can’t substantiate the weather, the bad days on Saturdays throughout the system, but the bottom line is the economy really what had an affect on us.

Joe Lucky - Wells Fargo

So the economy trump to weather I guess.

Richard Kinzel

Yes, by all means.

Joe Lucky - Wells Fargo

Given the recent transactions we’ve seen, the bush parks, as an example, is there any additional interest in either Valleyfair, Worlds of Fun, can you give us an update there?

Richard Kinzel

No, there has been no action on that, but I can tell you now that what we are trying to do with those parks, we have a lot of confidence in those parks. What we are trying to do is to save the distribution and we felt one way of saving that distribution was to sell some assets. Now that the distribution is cut, we’ll have to take another hard look at it. What we didn’t want to happen, happened.

Now we have to refocus our attentions as to the EBITDA that we can get out of those parks and how successful those parks are. The way I am leaning right now is with the distribution cut, certainly my recommendation to the board was that, we keep our assets, we try to build up the EBITDA retire the debt and hopefully within the two or three years.

Our debt to EBITDA ratio will be down to where it was prior to the PPI acquisition, and will be able to grow the park either through acquiring other properties, again using units or cash, and just growing the company, internally end up -- external through acquisitions, of growing it through building hotels or how we ran the company prior to the PPI acquisition.

Joe Lucky - Wells Fargo

Just finally, a couple of updates here on some timetables, first; can you give me a timetable what you are kind of planning on for recapitalization as far as redoing the credit agreements, term agreement revolver?

Peter Crage

Joe, this is Peter, we are going to be looking at that very closely in the first par of 2010. Revolver goes current on August 30th of 2010, although we don’t have much in the way of borrowings on that late in 2010, we will be looking at doing something there during next year.

The remaining portion, the non extended portion of our tern debt matures in February and August of 2012. So at the same time we will be looking at perhaps putting a package together that might close in the late part of 2010, early part of 2011, but that’s my best guess at this point, as the credit markets continue to flex and we are not immune to them.

Joe Lucky - Wells Fargo

Then last question on update on Santa Clara there has been some news there, can you give us an update on your position with that particular park, and maybe a timetable as far as, down the road?

Peter Crage

Well, we still continue to negotiate with the 49ers and also with the City of Santa Clara, we really, it’s a two edge sword, we have to negotiate not only with the 49ers but also with the parking rights with the City of Saint Clara as to who controls that parking lot.

So those negotiations are ongoing, and the City of Santa Clara is coming in here next week to continue those. So, it’s been a long process but we continue to negotiate and hopefully something can be resolved by the time it has to go to the ballot early next year.

Joe Lucky - Wells Fargo

Okay, so that’s early next year it goes to ballot.

Peter Crage

June of next year.

Operator

Your last question comes from Ross Haberman - Haberman Funds.

Ross Haberman- Haberman Funds

Could you talk about, I guess in the quarter putting aside the weather, were there any other sort of add, and I guess the reduction in group demand, any other less recurring items that surprised you either on the revenue or the cost side?

Richard Kinzel

No, not really Ross. The year went pretty well the way we thought it would, with the decrease in attendance, but per capita spending certainly was a surprise. This is the first time in my years with the parks that across the board merchandize, games and foods were all down consistently at all of the parks, but, there were really no surprises. The factors that we pointed out we think really are what contributed to the disappointing year.

Ross Haberman- Haberman Funds

If we continue to see this tie unemployment rates, 10% plus, say through the spring or into next summer, how would that reflect on your expectations for calendar 2010?

Richard Kinzel

Ross, we are in the process now of doing our budgets, our general managers are working on it, our marketing people are working on them. So, I really don’t have any projections for 2010 at this time.

Peter Crage

Yes Ross, this is Peter. As Dick pointed out, we are going, we just got done with October. We had to take a step back and fully evaluate what happened in October as well. We also need to, as you know, the parks are open and we are making cost cuts real time here.

In November, December we need to take a step back and evaluate what did we do, did it work, did it not, can we sustain that cut and then take a view, as you pointed out of what next year will look like, and now that will all come together in the December-January time frame before we finalize budgets and bring them to the board in February and March. So, difficult to say right now, we need to really do a deep dive on what worked and what didn’t work and then consider that for next year.

Ross Haberman- Haberman Funds

I just have one final question about what you did this past summer considering the softness you saw. During the season as you saw group sales were not unfolding like you had hoped. Did you change the price at all on any of the products at all, either entry fees or the price is pretty stable and demand was really what mattered, whether you changes with the prices 5% or 10% here or there.

Peter Crage

No, Ross from the July the 4th on while we offered numerous discounts for all kinds of promotions going forward in all of our properties and where we have hotels at both Cedar Point and Knott’s Berry Farm, we offered deep discounted packages. Again, we were reacting to the economy, and at some instances that helped. Our hotels were down but from the industry wide they weren’t down as much as a lot of businesses.

So, we did discount our occupancy, we did get back up their we sacrificed a little of the ADR, and answer to your question from the 4th of July on we started actively discounting and promoting the parks very, very strongly in the out of park revenues.

Ross Haberman- Haberman Funds

One technical question, on the hotel occupancy, what’s your run on in average in terms of occupancy during the summer season?

Richard Kinzel

Normally we are at 90% to 95% at Cedar Point, the four hotels that we have here. This year that dropped down to low 80s, and that’s a percentage that really declined like that even with the discounts we are reporting in there.

Ross Haberman- Haberman Funds

But you are still make money at that low 80 occupancies, correct?

Richard Kinzel

Oh absolutely yes, those hotels do very well for us. The one thing that we did notice this year the first time it happened, and again, I’ll use Cedar Point as the example because this is the resort area we had.

Our in market attendance, Detroit, Toledo and Cleveland were actually, even with the reduction the lower gas prices this year of almost a dollar a gallon. Our close ended markets I believe with the discounts and everything were actually up over last year in our out of a 150 mile radius attendance was down this year which was really surprising because of the gas, but again I think it was people reacting and not going anywhere.

So the discounts did draw people from Detroit, Toledo and Cleveland, where we lost them was basically the group event business and seasons pass business.

Ross Haberman- Haberman Funds

And finally, in terms of paying down debt for calendar 2010, what’s your expectation? Could it be $56 million or more based on cash flow?

Richard Kinzel

Before, obviously we need to take a look at where we think it will come out next year, but before the announcement today that it’s likely that the expected distribution to be cut next year, we had expected to pay down through amortization and the redirection of the $0.92 we cut early this year by $68 to $70 million, this would be an additional $50 to $55 million. So, it would be entirely possible to pay down roughly a $100 million again next year.

Ross Haberman- Haberman Funds

$100 million instead of 10, okay.

Richard Kinzel

Perhaps more if we have a better season.

Operator

(Operator Instructions) There appear to be no further questions. Please continue with any other points you wish to raise.

Stacy Frole

Thank you. At this point in time, there are no further questions. I’d 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 February to discuss our fourth quarter and full year results.

Operator

This concludes the Cedar Fair’s third quarter earnings conference call. Thank you for participating. You may now disconnect.

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