Finance Institute for Attractions Managers IAAPA Operations and Safety MarketingLeadershipFinance Revenue Operations

Finance

Institute for Attractions ManagersIAAPA

Operations

and Safety

Marketing LeadershipFinance

RevenueOperations

2Finance

Contents

Industry Overview: Global Attractions DataFunWorld Park’s Financial Statement Revenue Theory and PracticeSkills Exercise – Case Study

3Finance

Objectives

Upon completion of this course, attendees will beable to: Broadly describe worldwide spending/attendance

forecasts for the global amusement park and attractions industry

Identify the major players in the industry Define the major income and expense items for facilities Describe the financial metrics that attractions should be

monitoring regularly and why Explain depreciation, amortization, EBITDA, and Cash Flow Explain Capital Budgeting processes and evaluations

modules

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Industry Overview (cont’d)

Global attractions data (cont’d) Key players in the attractions industry

Note: Total 2005 attendance at attractions owned/operated by these companies = 241 Million

* - Estimate

Sources: The Global Theme Park Industry, S. Anton Clavé, 2005

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Why?

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Global attractions data (cont’d) How many

major theme park facilities are thereworldwide?

What is thebreakdown by types of attractions?

Sources: The Global Theme Park Industry, S. Anton Clavé, 2007; TEA/ERA Theme Park Attendance Report, 2007

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Global attractions data (cont’d) Economic impact of the amusement/theme park industry

• In 2004, all travel-related spending* by travelers to U.S. amusement/theme parks directly generated:– 164,500 jobs and $3,529,500 in payroll income– $2,148,600 in federal, state and local tax revenues

• Traveler spending inside U.S. amusement/theme parks directly generated:– 123,800 jobs and $2,318,500 in payroll income– $1,813,200 in federal, state and local tax revenues

• Represents impact of both domestic and overseas travelers• Also indirect/induced positive impacts on suppliers

* Includes transportation, lodging, food services, retail shopping, and other recreational services.Source: The Economic Impact of Domestic and Overseas Travelers Who Visit Amusement/Theme Parks and OtherAttractions in the United States, IAAPA/TIA, 2005 Edition

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Global attractions data (cont’d) Types of

income

Source: Managing Attractions for More Profit: An International Survey of Operational Performance , IAAPA, 2007

Amusement Park Revenue Sources - Worldwide, 2007

3.6%

1.7%

1.1%

1.8%

6.5%

8.9%

16.9%

47.5%

Admissions

F&B

Games

Merchandise

Tenants/Concessions

Sponsorships

Parking

Other

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Global attractions data (cont’d) Types of

expenses

Source: Managing Attractions for More Profit: An International Survey of Operational Performance, IAAPA, 2007

Amusement Park Types of Expenses - Worldwide, 2007

15.8%

4.9%

11.8%

2.5%

1.7%

2.2%

2.9%

3.9%

5.6%

2.2%

3.9%

6.2%

8.1%

21.6%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Operating Margin

Other

Cost of Goods Sold

Taxes & Govt. Fees

Lease/ Rent

Genl. Office & Administration

Insurance

Utilities

Advertising

Entertainment/Special Events

Operating Supplies

Repair and Maintenance

Employee Wages & Benefits -Administration

Employee Wages & Benefits - Operations

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FunWorld Park’s Financial Statement

FunWorld Park revenueFUNWORLD PARK 2009 2009 2008 2008

ACTUALS PER CAPS ACTUALS PER CAPS

CAPITAL IMPROVEMENTS $1,374,252.00 $1,328,469.00

ATTENDANCE 751,565 745,000

REVENUES

TICKETS $13,967,030.00 18.58 $13,484,500.00 18.1

FOOD $2,574,000.00 3.42 $2,495,750.00 3.35

GAMES $1,120,000.00 1.49 $1,043,000.00 1.4

ATTRACTIONS $173,945.55 0.23 $171,350.00 0.23

RETAIL $826,000.00 1.10 $856,750.00 1.15

PARKING $375,620.26 0.50 $357,600.00 0.48

LESSEE/OTHER $119,209.54 0.16 $111,750.00 0.15

SPONSORSHIP $167,072.86 $160,000.00

INTEREST & OTHER INCOME $79,789.90 $75,050.00

TOTALS $19,402,668.12 25.82 $18,755,750.00 24.86

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Income highlights FunWorld Park’s 2009 Income

• Ticket/gate revenue was $13,967,030, or 72.0% of gross revenue

• Total F&B, games, and retail income was $4,520,000, 23.3% of gross revenue

• Per caps: Gate – $18.58; F&B, games, and retail – $6.01

• Per caps growth 2008–2009– Gate: 2.7%– F&B: 2.1%– Games: 6.4%– Retail: –4.3% (decreased)

FunWorld Park’s Financial Statement (cont’d)

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FunWorld Park Other operating characteristics 126 Operating Days Pricing Policy – Regular Adult, $23.99; Child,

$16.99; Senior/Handicap, $12.99• Season pass holders

– Individual, $54.99– Early Bird, $39.99– After 2:00 pm, $16.99

• Discounts– Family of 4 Discount, $15.00/family– Discount tickets, $10.50

• Coupons– Bring the price down to $12.07

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Key metrics These metrics should be monitored daily:

• Per caps• Daily attendance• Planned/budgeted income versus actual• Labor costs (can be hourly labor, or a productivity

metric) Daily, weekly, monthly, quarterly, and annual

tracking of actuals against the budget Increases in daily attendance are worth more to the

bottom line than increased per caps for the same day Good budgeting anticipates known causes of revenue

increases or decreases; e.g., special events that will bring in more guests


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FunWorld Park revenueFUNWORLD PARK 2009 2009 2008 2008

ACTUALS PER CAPS ACTUALS PER CAPS

CAPITAL IMPROVEMENTS $1,374,252.00 $1,328,469.00

ATTENDANCE 751,565 745,000

REVENUES

TICKETS $13,967,030.00 18.58 $13,484,500.00 18.1

FOOD $2,574,000.00 3.42 $2,495,750.00 3.35

GAMES $1,120,000.00 1.49 $1,043,000.00 1.4

ATTRACTIONS $173,945.55 0.23 $171,350.00 0.23

RETAIL $826,000.00 1.10 $856,750.00 1.15

PARKING $375,620.26 0.50 $357,600.00 0.48

LESSEE/OTHER $119,209.54 0.16 $111,750.00 0.15

SPONSORSHIP $167,072.86 $160,000.00

INTEREST & OTHER INCOME $79,789.90 $75,050.00

TOTALS $19,402,668.12 25.82 $18,755,750.00 24.86

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FunWorld Park expenses2009 2009 2008 2008

EXPENSES %Total Rev %Total Rev

SALARIES/WAGES (INCL TAXES) $6,400,000.00 32.99% $6,120,000.00 32.63%

MARKETING $1,170,000.00 6.03% $1,015,000.00 5.41%

TRAVEL/ENTERTAINMENT $75,000.00 0.39% $70,000.00 0.37%

EQUIPMENT RENTAL $100,000.00 0.52% $100,000.00 0.53%

OUTSIDE SERVICES $950,000.00 4.90% $920,000.00 4.91%

REPAIRS & MAINT $1,400,000.00 7.22% $830,000.00 4.43%

OPERATING SUPPLIES $970,000.00 5.00% $950,000.00 5.07%

UTILITIES $600,000.00 3.09% $555,000.00 2.96%

INSURANCE $660,000.00 3.40% $600,000.00 3.20%

PROPERTY & OTHER TAXES $99,084.00 0.51% $80,000.00 0.43%

$12,424,084.00 $11,240,000.00

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Expense highlights FunWorld Park’s 2009 Expenses

• Total cost of goods sold (F&B, games, and retail) was $1,622,980, or 36.0% of revenue from those areas

• Cost of goods sold was a slight decrease from 2005, which was $1,628,943, or 37.1% of revenue

• Total expenses for 2008 were $12,424,084, an increase of 10.5% over 2006


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FunWorld Park’s Financial Statement (cont’d)

Global attractions data (cont’d) Fixed and Variable costs

• Fixed costs - A fixed cost is a cost whose total dollar amount remains constant as the activity level changes.Include rides, facilities, buildings, equipmentThe industry has very high fixed costs – Very capital intensiveFixed items must be paid for whether the park is open or closed;

whether there are guests or not • Variable costs –A variable cost is a cost whose total dollar

amount varies in direct proportion to changes in the activity level.

Include labor (largest component), and all non-capital costs, such as electricity, supplies, etc. A park must cover both its fixed and variable costs out of generated revenue – Once these are paid, the remaining amount is profit

Seasonal facilities lose money when they’re closed – This is why peak season is so critical to these facilities

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FUNWORLD PARK 2009 2008

ACTUALS ACTUALS

REVENUES $19,402,668.12 $18,755,750.00

EXPENSES $12,424,084.00 $11,240,000.00

EBITDA $6,978,584.12 $7,515,750.00

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EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) An approximate measure of a company's operating

cash flow based on data from the company's income statement Calculated by looking at earnings before the deduction of interest expenses, taxes, depreciation, and amortization• Offers an indication of how much cash the company is

generating• Such an earnings measure is of particular interest in

cases where companies have large amounts of fixed assets which are subject to heavy depreciation charges (such as the theme park/amusement/attractions industry)

Theory and Practice

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Theory and Practice (cont’d)

Interest: A Charge made for the use of borrowed Funds; results from a mortgage on a principal or second residence is typically deductible.

Taxes: Real-estate taxes, personal property taxes and state and local income taxes are deductible.

Amortization: The allocation of the cost of intangible assets to the accounting periods benefited.

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Depreciation Measuring the loss in value of an asset In accounting,

the allocation of the cost of an asset over its economic life. Covers deterioration from use, age, and exposure to the elements

Depreciation is a very important factor in the attractions industry, because of the high fixed cost investments in rides and ride machinery, equipment, and buildings

Example: New roller coaster cost: $10 Million

Depreciation period: 10 yearsAnnual depreciation amount: $1 Million

• Second year purchase: $500,000 ride, 5 years• What will the depreciation amount be in the second year?


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Is EBITDA and Cash Flow the Same?

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NO

They Are different

EBITDA does not take into account the actual cash inflows and outflows.

Example: Principle payment is not reflected in EBITDA Account Receivable Collection Accounts Payable Payments


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Skills Exercise Case Study

FunWorld’s Finance Department is planning an investment... What will be the return? How many years should

the loan be for? How is the return calculated? What will be the impact on

revenues and how will that be calculated?

How Do I Decide?

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Skills Exercise Case Study (cont’d)

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Six Stages in Capital Budgeting

Identification Stage – determine which types of capital investments are necessary to accomplish organizational objectives and strategies

Search Stage – explore alternative capital investments that will achieve organization objectives

Information-Acquisition Stage – consider the expected costs and benefits of alternative capital investments

Selection Stage – choose projects for implementation

Financing Stage – obtain project financingImplementation and Control Stage – get projects

under way and monitor their performance

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Asset management and valuing a facility Management should develop a rationale and a set

of well-defined steps to govern the investment process• Take an intelligent approach to investments

HOW?


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Budgeting Methods to Analyze Financial Information


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Net Present Value (NPV) Method

NPV Method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time, using the Required Rate of ReturnBased on financial factors alone, only projects with a zero or positive NPV are acceptable

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Internal Rate of Return (IRR) Method

The IRR Method calculates the discount rate at which the present value of expected cash inflows from a project equals the present value of its expected cash outflowsA project is accepted only if the IRR equals or exceeds the RRR

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Payback Method

Payback measures the time it will take to recoup, in the form of expected future cash flows, the net initial investment in a projectShorter payback periods are preferableOrganizations choose a project payback period. The greater the risk, the shorter the payback periodEasy to understand

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Payback Method (continued)

With uniform cash flows:

With non-uniform cash flows: add cash flows period by period until the initial investment is recovered; count the number of periods included for payback period

Payback Net Initial InvestmentPeriod Uniform Increase in Annual Future Cash Flows=

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Accrual Accounting Rate of Return Method (AARR)

AARR Method divides an accrual accounting measure of average annual income of a project by an accrual accounting measure of its investmentAlso called the Accounting Rate of Return

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AARR Method

Increase in Expected AverageAccrual Accounting Annual After-Tax Operating Income

Rate of Return Net Initial Investment=

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Performance Methods


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Return on Investment (ROI)

ROI is an accounting measure of income divided by an accounting measure of investment

IncomeInvestmentROI =

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Economic Value Added (EVA®)

EVA is a specific type of residual income calculation that has recently gained popularity

Weighted-average cost of capital equals the after-tax average cost of all long-term funds in use

After-tax Weighted-Average Total CurrentOperating Income Cost of Capital Assets Liabilities ) }EVA {= X (

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Residual Income

Residual Income (RI) is an accounting measure of income minus a dollar amount for required return on an accounting measure of investmentRI = Income – (RRR x Investment) RRR = Required Rate of Return

Required Rate of Return times the Investment is the imputed cost of the investment Imputed costs are costs recognized in some situations,

but not in the financial accounting records

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Which method is Best?It Depends!!!

Key:Take an intelligent approach to investments.

Be consistent!!!


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Let's review what new tools we have added to our tool box this morning

Basic Industry DataIdentified Major PlayersLook at major Income and ExpenseDefinitions of Key Accounting TermsSteps to Capital BudgetingEvaluations Methods


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When all else fail you could just roll the dice


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Speaker:Neva Richardson – Larson, Sims Group & Department Chair & Professor of Business for Everest University an

affiliate of Corinthians College.

Managing Attractions for More Profit: An International Survey of Operational Performance, IAAPA, 2007

Books: Introduction to Managerial Accounting 4th Edition; Boston: McGraw-HillCost Accounting 12th Edition; New Jersey: Pearson Prentice Hall

Sources

Documents

Finance Institute for Attractions Managers IAAPA Operations and Safety MarketingLeadershipFinance Revenue Operations