Steady dividends, then slow growth forecast for Cedar Fair

Wednesday, 24 May 2006

By BENJAMIN ROODE
benjaminroode@sanduskyregister.com

SANDUSKY - Stockholders should expect their dividends to remain steady for the next year or two while five Paramount Parks pay for themselves, according to a financial presentation from Cedar Fair Monday and interviews with officials Tuesday.

The dividends could start climbing slowly in 2008 and more after that, pending success through Cedar Fair's purchase of Paramount Parks.

The more than 54 million units, in essence stock, owned by about 75,000 investors, already earn $1.88 per share annually through the company's dividend program, said Cedar Fair vice president and corporate controller Brian Witherow. About 30 percent of those investors are in Ohio.

Extra cash generated from daily park operations at the five Paramount Parks will eventually pay debt, interest and other fees from the $1.24 billion purchase, Witherow said.

After those liabilities disappear, dividend increases are on the table.

"We believe that will begin to happen more slightly in 2008 and more in '09, '10 and beyond," he said.

The company is considering selling more units after this purchase; they expanded their share availability after buying Geauga Lake in 2004.

Those shares could be a safe, but hot, commodity; shareholders in Cedar Fair have received dividends from their stock for 19 straight years. That trend will continue, Witherow said, but any dividend increase would depend on the success of the merger. If other pressing matters demand the excess cash that would pay for an increase, the windfall will be delayed.

The company's track record should keep investors at ease, said one analyst.

"I think Cedar (Fair) has a good quality conservative management team that will continue to move forward," said Patrick Murray with Smith Barney Investments. "The existing strategy is enhancing shareholder value. They're certainly qualified to do this."

Those attractive dividends did not attract shareholders Tuesday. Cedar Fair (FUN) opened Tuesday on Wall Street at $27.49 per share. After climbing to as much as $27.89, the stock ended Tuesday trading down by 65 cents, or about 2.37 percent, to $26.74 per share. FUN gained 25 cents to reach $27.39 on the day of the announcement, with the highest value reaching $27.39 and the lowest at $26.69.

Cedar Fair officials used projected revenue and attendance figures to dispel any fears investors might have at the purchase. The company should generate about $1 billion per year after the merger and serve about 25 million customers per year at the 12 amusement, five water and one indoor waterpark it would own after the deal, President and CEO Dick Kinzel said during a Monday teleconference.

"This transaction offers a unique opportunity for us to acquire a world-class asset portfolio," Kinzel said.

Adding more parks would eliminate dependence on one large park, Cedar Point, and the company's only year-round park, Knott's Berry Farm in southern California. Now, no single park will generate more than 22 percent of the company's revenue, Kinzel said Monday.

Revenue aside, Cedar Fair will accumulate liabilities from the move. The purchase will grow the company's debt to almost $2 billion, with annual interest payments reaching about $100 million. Cedar Fair paid about $26 million on debt interest in 2005. Added revenues from the Paramount Parks, as well as reducing expenditures such as further expansion and park acquisition, will fund much of that debt, Kinzel said.

Cedar Fair officials expect little in the way of maintenance and refurbishment costs for the five Paramount Parks; Cedar Fair spent $3 to $4 million on such expenses after buying Geauga Lake from Six Flags in 2004. Paramount won't cost nearly as much, Witherow said.

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