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(Parenthetical)
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Operations and Comprehensive Income
14: R5 Unaudited Condensed Consolidated Statements of HTML 64K
Partners? Deficit
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16: R7 Unaudited Condensed Consolidated Statements of HTML 121K
Cash Flows
17: R8 Significant Accounting Policies HTML 18K
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(Details)
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Intangible Assets (Details)
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(Details)
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Liabilities Measured at Fair Value on Recurring
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Limited Partner Unit (Details)
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(Exact name of registrant
as specified in its charter)
iDelaware
i34-1560655
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
iOne Cedar Point Drive, iSandusky, iOhioi44870-5259
(Address of principal executive offices) (Zip Code)
(i419) i626-0830
(Registrant’s telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iDepositary Units (Representing Limited Partner Interests)
iFUN
iNew
York Stock Exchange
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. xiYes ☐ No
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). xiYes ☐ No
Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,""accelerated filer,""smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
x
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). i☐ Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
accompanying unaudited condensed consolidated financial statements have been prepared from the financial records of Cedar Fair, L.P. (the "Partnership,""we,""us," or "our") without audit and reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to fairly present the results of the interim periods covered in this report. Due to the seasonal nature of our amusement and water park operations, the results for any interim period may not be indicative of the results expected for the full fiscal year.
(1) iSignificant
Accounting Policies:
Our unaudited condensed consolidated financial statements 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, 2022, which were included in the Form 10-K filed on February 17, 2023. 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 included in the Form 10-K referred to above.
(2)
iInterim Reporting:
We are one of the largest regional amusement park operators in the world with i13 properties in our portfolio consisting of amusement parks, water parks and complementary resort facilities. Our parks operate seasonally except for Knott's Berry Farm,
which is open daily on a year-round basis. Our seasonal parks are generally open daily from Memorial Day until Labor Day. Outside of daily operations, our seasonal parks are open during select weekends, including at most properties in the fourth quarter for Halloween and winter events. As a result, a substantial portion of our revenues from these seasonal parks are generated from Memorial Day through Labor Day with the major portion concentrated 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, we have adopted the following accounting procedures: (a) revenues from multi-use products are recognized over the estimated number of uses expected for each type of product; and the estimated number of uses is reviewed and may be updated periodically during the
operating season prior to the ticket or product expiration, which generally occurs no later than the close of the operating season associated with each product; (b) depreciation, certain advertising and certain seasonal operating costs are expensed over each park’s operating season, including some costs incurred prior to the season, which are deferred and amortized over the season; and (c) all other costs are expensed as incurred or ratably over the entire year. For those operating costs that are expensed over each park's operating season, we recognize expense over each park's planned operating days.
(3) iRevenue
Recognition:
As disclosed within the unaudited condensed consolidated statements of operations and comprehensive income, revenues are generated from sales of (1) admission to our amusement parks and water parks, (2) food, merchandise and games both inside and outside the parks, and (3) accommodations, extra-charge products, and other revenue sources. Admission revenues include amounts paid to gain admission into our parks, including parking fees. Revenues related to extra-charge products, including premium benefit offerings such as front-of-line products, and online transaction fees charged to customers are included in "Accommodations, extra-charge products and other".
i
The
following table presents net revenues disaggregated by revenues generated within the parks and revenues generated from out-of-park operations less amounts remitted to outside parties under concessionaire arrangements for the periods presented.
Due
to our highly seasonal operations, a substantial portion of our revenues are generated from Memorial Day through Labor Day. Most revenues are recognized on a daily basis based on actual guest spend at our properties. Revenues from multi-use products, including season-long products for admission, dining, beverage and other products, are recognized over the estimated number of uses expected for each type of product. The estimated number of uses is reviewed and may be updated periodically during the operating season prior to the ticket or product expiration, which generally occurs no later than the close of the operating season associated with that product. The number of uses is estimated based on historical usage adjusted for current period trends. For any bundled products that include multiple performance obligations, revenue is allocated using the retail price
of each distinct performance obligation and any inherent discounts are allocated based on the gross margin and expected redemption of each performance obligation. We do not typically provide for refunds or returns.
Many products, including season-long products, are sold to customers in advance, resulting in a contract liability ("deferred revenue"). Deferred revenue is typically at its highest immediately prior to the peak summer season, and at its lowest at the beginning of the calendar year following the close of our parks' operating seasons. Season-long products represent most of the deferred revenue balance in any given period.
Due to
the effects of the COVID-19 pandemic and to ensure our passholders received a full season of access, Knott's Berry Farm offered a day-for-day extension of the validity of its 2020 and 2021 season-long products into calendar year 2022 for every day the park was closed in 2021. The extension for the 2020 and 2021 season-long products at Knott's Berry Farm concluded and all related revenue was recognized by the end of the second quarter of 2022. Canada's Wonderland also extended the validity of its 2020 and 2021 season-long products into calendar year 2022, specifically through Labour Day, or September 5, 2022. All Canada's Wonderland 2020 and 2021 season-long product revenue was recognized by the end of the third quarter of 2022. In order to calculate revenue recognized on these extended season-long products, management made significant estimates regarding the estimated number of uses expected for these season-long products
for admission, dining, beverage and other products, including during interim periods.
Of the $i162.7 million of current deferred revenue recorded as of January 1, 2023, i89%
was related to season-long products. The remainder was related to deferred online transaction fees charged to customers, advanced resort reservations, advanced ticket sales, prepaid games cards, marina deposits and other deferred revenue. Approximately $i131 million of the current deferred revenue balance as of January 1, 2023 was recognized during the nine months ended September 24, 2023.
Most
deferred revenue is classified as current within the balance sheet. However, a portion of deferred revenue is typically classified as non-current during the third quarter related to season-long products sold in the current season for use in the subsequent season. Season-long products are typically sold beginning in August of the year preceding the operating season. Season-long products may subsequently be recognized i12 to i16
months after purchase depending on the date of sale. We estimate the number of uses expected outside of the next twelve months for each type of product and classify the related deferred revenue as non-current within "Other Liabilities" in the unaudited condensed consolidated balance sheets. As of September 24, 2023 and September 25, 2022, we had recorded $i22.0 million and $i16.8
million of non-current deferred revenue, respectively. Of the non-current deferred revenue balances, $i13.6 million and $i8.5 million as of September 24, 2023
and September 25, 2022, respectively, related to the non-current portion of season-long products purchased for the subsequent operating season. The remaining non-current deferred revenue balances in both periods represented prepaid lease payments for a portion of the California's Great America parking lot. The prepaid lease payments are being recognized through 2027 following the sale of the land under California's Great America; see Note 4. Prior to the sale, the prepaid lease payments were being recognized through 2039.
Payment is due immediately on the transaction date for most products. Our receivable balance includes outstanding amounts on installment purchase plans which are offered for season-long
products, and includes sales to retailers, group sales and catering activities which are billed. Installment purchase plans vary in length from ithree monthly installments to i12
monthly installments. Payment terms for billings are typically net i30 days. Receivables in a typical operating year are highest in the peak summer months and lowest in the winter months. We are not exposed to a significant concentration of customer credit risk. As of September 24, 2023, December 31, 2022 and September 25, 2022, we recorded a $i18.3
million, $i5.8 million and $i19.7 million allowance for doubtful accounts, respectively, representing estimated defaults on installment purchase plans. The default estimate is calculated using historical default
rates adjusted for current period trends. The allowance for doubtful accounts is recorded as a reduction of deferred revenue to the extent revenue has not been recognized on the corresponding season-long products.
(4) iLong-Lived Assets:
Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances
that would indicate that the carrying value of the assets may not be recoverable. In order to determine if an asset has been impaired, assets are grouped and tested at the lowest level for which identifiable, independent cash flows are available. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decrease in the market price of a long-lived asset; a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition; a significant adverse change in legal factors or in the business climate; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset; past, current or future operating or cash flow losses that demonstrate continuing losses associated with the use of a long-lived asset; and a current expectation that a long-lived
asset will be sold or disposed significantly before the end of its previously estimated useful life. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on the unaudited condensed consolidated financial statements. We concluded no indicators of impairment existed during the first nine months of 2023. We based our conclusions on our financial performance projections, as well as an updated analysis of macroeconomic and industry-specific conditions.
On June 27, 2022, the Partnership sold the land at California's Great America for a cash purchase price of $i310 million,
subject to customary prorations, which resulted in a $i155.3 million gain recorded, net of transaction costs, within "Gain on sale of land" in
the unaudited condensed consolidated statement of operations and comprehensive income during the third quarter of 2022. Concurrently with
the sale, we entered into a lease contract that allows us to operate the park during a isix-year term, see below. As a result, we changed the estimated useful lives of the remaining property and equipment at California's Great America to an approximate i5.5-year period, or
through December 31, 2027. We expect this to result in an approximate $i8 million increase in annual depreciation expense over the i5.5-year period. We may dispose of the remaining property and equipment at California's Great America significantly before
the end of their previously estimated useful lives if the assets are not sold to a third party or transferred for an alternate use. As a result, we tested the long-lived assets at California's Great America for impairment during the second quarter of 2022, which resulted in no impairment. The fair value of the long-lived assets was determined using a replacement cost approach. There were no other indicators of impairment during the first nine months of 2022.
Under the lease contract entered into in connection with selling the land at California's Great America, we can continue to operate the park during a isix-year
term, and we have an option to extend the term for an additional ifive years. The lease is subject to early termination by the buyer with at least itwo years' prior notice. Upon termination of the lease, we will close existing park operations and remove the rides and attractions from the land. The annual base rent under the lease initially
was $i12.2 million and will increase by i2.5% per year. Upon commencement of the lease, we recognized a right-of-use asset and lease liability equal to the annual base rent for the initial isix-year
term and estimated lease payments totaling $i12.8 million to dismantle and remove rides and attractions upon termination of the lease. The discount rate used to determine the present value of the future lease payments was our incremental borrowing rate.
(5) iGoodwill
and Other Intangible Assets:
Goodwill and other indefinite-lived intangible assets, including trade names, are reviewed for impairment annually, or more frequently if indicators of impairment exist. We concluded no indicators of impairment existed during the first nine months of 2023. We based our conclusions on our financial performance projections, as well as an updated analysis of macroeconomic and industry-specific conditions.
During the second quarter of 2022, we concluded the useful life of the trade name, California's Great America, was no longer indefinite due to the then-anticipated sale of the land and the eventual disposal of the remaining assets; see Note 4. As a result, we tested the
California's Great America trade name totaling $i0.7 million for impairment during the second quarter of 2022 resulting in ino impairment. The fair value of the trade name was
calculated using a relief-from-royalty model. We are amortizing the trade name over an approximate i5.5-year period, or through December 31, 2027. There were no other indicators of impairment during the first nine months of 2022.
(1) Trade
name amortization represents amortization of the California's Great America trade name totaling $i0.7 million. Our other trade names are indefinite-lived.
2025
U.S. fixed rate senior secured notes at i5.500%
$
i1,000,000
$
i1,000,000
$
i1,000,000
2027
U.S. fixed rate senior unsecured notes at i5.375%
i500,000
i500,000
i500,000
2028
U.S. fixed rate senior unsecured notes at i6.500%
i300,000
i300,000
i300,000
2029
U.S. fixed rate senior unsecured notes at i5.250%
i500,000
i500,000
i500,000
i2,300,000
i2,300,000
i2,300,000
Less
current portion
i—
i—
i—
i2,300,000
i2,300,000
i2,300,000
Less
debt issuance costs and original issue discount
(i27,039)
(i31,845)
(i34,510)
$
i2,272,961
$
i2,268,155
$
i2,265,490
/
Term
Debt and Revolving Credit Facilities
In April 2017, we amended and restated our credit agreement (the "2017 Credit Agreement") which includes our senior secured revolving credit facility and which included a senior secured term loan facility. During 2022, we made the remaining $i264.3 million of principal payments on the senior secured term loan facility, fully repaying the term loan facility. Prior to repayment, the term loan facility was scheduled to mature on April 15, 2024 and bore interest at London InterBank Offered
Rate ("LIBOR") plus i175 bps.
As of September 24, 2023, our total senior secured revolving credit facility capacity under the 2017 Credit Agreement, as amended, was $i300
million with a Canadian sub-limit of $i15 million. The senior secured revolving credit facility bears interest at Secured Overnight Financing Rate ("SOFR") plus i350 basis
points ("bps") with a SOFR adjustment of i10 bps per annum and a floor of izero, requires the payment of a i62.5
bps commitment fee per annum on the unused portion of the revolving credit facility, in each case without any step-downs, and is collateralized by substantially all of the assets of the Partnership. The senior secured revolving credit facility matures on February 10, 2028, provided that the maturity date will be (x) January 30, 2025 if at least $i200 million of the 2025 senior notes remain outstanding as of that date, or (y) January 14,
2027 if at least $i200 million of the 2027 senior notes remain outstanding as of that date. Prior to an amendment entered into on February 10, 2023, borrowings under the senior secured revolving credit facility bore interest at LIBOR plus i350
bps or Canadian Dollar Offered Rate ("CDOR") plus i250 bps and matured in December 2023. The maximum outstanding revolving credit facility balance during the first nine months of 2023 was $i246.0
million, and there were ino outstanding borrowings under the revolving credit facility as of September 24, 2023. The 2017 Credit Agreement, as amended, also provides for the issuance of documentary and standby
letters of credit. After letters of credit of $i19.9
million, we had $i280.1 million of availability under our revolving credit facility as of September 24, 2023.
In April 2022, $i75
million of the senior secured revolving credit facility capacity under the 2017 Credit Agreement matured, and the outstanding borrowings were repaid. While such $i75 million of senior secured revolving credit facility capacity was available, borrowings under this portion of the revolver capacity bore interest at LIBOR plus i300
bps or CDOR plus i200 bps, and the unused portion of this revolving credit facility capacity required the payment of a i37.5 bps commitment fee per annum.
Notes
In
April 2020, as a result of the anticipated effects of the COVID-19 pandemic, we issued $i1.0 billion of i5.500% senior secured notes due 2025 ("2025 senior notes") in a private placement. The 2025 senior notes and the related guarantees are secured by
first-priority liens on the issuers' and the guarantors' assets that secure all the obligations under our credit facilities. The net proceeds from the offering of the 2025 senior notes were used to repay $i463.3 million of our then-outstanding senior secured term loan facility. The remaining amount was for general corporate and working capital purposes, including fees and expenses related to the transaction. The 2025 senior notes pay interest semi-annually in May and November, with the principal due in full on May 1, 2025. The 2025 senior notes may be redeemed, in whole
or in part, at various prices depending on the date redeemed.
In April 2017, we issued $i500 million of i5.375% senior unsecured notes due 2027 ("2027 senior notes").
The 2027 senior notes pay interest semi-annually in April and October, with the principal due in full on April 15, 2027. The 2027 senior notes may be redeemed, in whole or in part, at various prices depending on the date redeemed.
In June 2019, we issued $i500 million of i5.250%
senior unsecured notes due 2029 ("2029 senior notes"). The 2029 senior notes pay interest semi-annually in January and July, with the principal due in full on July 15, 2029. The 2029 senior notes may be redeemed, in whole or in part, at any time prior to July 15, 2024 at a price equal to i100% of the principal amount of the notes redeemed plus a "make-whole" premium together with accrued and unpaid interest and additional interest, if any, to the redemption date. Thereafter, the
2029 senior notes may be redeemed, in whole or in part, at various prices depending on the date redeemed.
In October 2020, in response to the continuing effects of the COVID-19 pandemic, we issued $i300 million of i6.500%
senior unsecured notes due 2028 ("2028 senior notes"). The net proceeds from the offering of the 2028 senior notes were for general corporate and working capital purposes, including fees and expenses related to the transaction. The 2028 senior notes pay interest semi-annually in April and October with the principal due in full on October 1, 2028. The 2028 senior notes may be redeemed, in whole or in part, at various prices depending on the date redeemed.
As market conditions warrant, we may from time to time repurchase our outstanding debt securities in privately negotiated or open market transactions, by tender offer, exchange offer or otherwise.
Covenants
The 2017 Credit Agreement, as amended, includes
a Senior Secured Leverage Ratio of i3.75x Total First Lien Senior Secured Debt-to-Consolidated EBITDA. This financial covenant is only required to be tested at the end of any fiscal quarter in which revolving credit facility borrowings are outstanding. We were in compliance with the applicable financial covenants under our credit agreement during the nine months ended September 24, 2023.
Our credit agreement and fixed rate note agreements include Restricted
Payment provisions, which could limit our ability to pay partnership distributions. Pursuant to the terms of the indenture governing the 2027 senior notes, which includes the most restrictive of these Restricted Payments provisions, if our pro forma Total-Indebtedness-to-Consolidated-Cash-Flow Ratio is greater than i5.25x, we can still make Restricted Payments of $i100
million annually so long as no default or event of default has occurred and is continuing. If our pro forma Total-Indebtedness-to-Consolidated-Cash-Flow Ratio is less than or equal to i5.25x, we can make Restricted Payments up to our Restricted Payment pool. Our pro forma Total-Indebtedness-to-Consolidated-Cash-Flow Ratio was less than i5.25x
as of September 24, 2023.
The
table below presents the balances of assets and liabilities measured at fair value as of September 24, 2023, December 31, 2022, and September 25, 2022 on a recurring basis as well as the fair values of other financial instruments, including their locations within the unaudited condensed consolidated balance sheets:
Financial assets (liabilities) measured on a recurring basis:
Short-term investments
Other current assets
Level 1
$
i338
$
i338
$
i432
$
i432
$
i279
$
i279
Other
financial assets (liabilities):
2025 senior notes
Long-Term Debt (1)
Level 2
$
(i1,000,000)
$
(i980,000)
$
(i1,000,000)
$
(i985,000)
$
(i1,000,000)
$
(i975,000)
2027
senior notes
Long-Term Debt (1)
Level 1
$
(i500,000)
$
(i470,000)
$
(i500,000)
$
(i476,250)
$
(i500,000)
$
(i460,000)
2028
senior notes
Long-Term Debt (1)
Level 1
$
(i300,000)
$
(i286,500)
$
(i300,000)
$
(i291,000)
$
(i300,000)
$
(i283,500)
2029
senior notes
Long-Term Debt (1)
Level 1
$
(i500,000)
$
(i440,000)
$
(i500,000)
$
(i446,250)
$
(i500,000)
$
(i441,250)
(1)Carrying
values of long-term debt balances are before reductions for debt issuance costs and original issue discount of $i27.0 million, $i31.8 million and $i34.5
million as of September 24, 2023, December 31, 2022 and September 25, 2022, respectively.
/
The carrying value of cash and cash equivalents, revolving credit loans, accounts receivable, accounts payable, and accrued liabilities approximates fair value because of the short maturity of these instruments. There were no assets measured at fair value on a non-recurring basis as of September 24, 2023, December 31, 2022 or September 25,
2022.
(8) iIncome per Unit:
i
Net income per limited partner unit was calculated based on the following unit amounts:
We are subject to publicly traded partnership tax ("PTP tax") on certain partnership level gross income (net revenues less cost of food, merchandise, and games revenues), state and local income taxes on partnership income, U.S. federal, state and local income taxes on income from our corporate subsidiaries and foreign income taxes on our foreign subsidiary. As such, the total provision (benefit) for taxes includes amounts for the
PTP gross income tax and federal, state, local and foreign income taxes. Under applicable accounting rules, the total provision (benefit) for income taxes includes the amount of taxes payable for the current year and the impact of deferred tax assets and liabilities, which represents future tax consequences of events that are recognized in different periods in the financial statements than for tax purposes.
The total tax provision (benefit) for interim periods is determined by applying an estimated annual effective tax rate to the applicable quarterly income (loss). Our consolidated estimated annual effective tax rate differs from the statutory federal income tax rate primarily due to state, local and foreign income taxes, and certain partnership level income not being subject to federal tax.
During
the second quarter of 2022, we received $i77.1 million in tax refunds attributable to the net operating loss in tax year 2020 being carried back to prior years in the United States. We received $i11.1
million in tax refunds attributable to the net operating loss of our Canadian corporate subsidiary being carried back to prior years in Canada during the first quarter of 2022.
Additional benefits from the Coronavirus Aid, Relief, and Economic Security Act included an $i8.2 million deferral of the employer's share of Social Security taxes due in i50%
increments in the fourth quarter of 2021 and the fourth quarter of 2022. As of September 25, 2022, the current portion of the deferral was recorded in "Accrued salaries, wages and benefits" within the unaudited condensed consolidated balance sheet.
Unrecognized tax benefits, including accrued interest and penalties, were not material in any period presented. We recognize interest and penalties related to unrecognized tax benefits as income tax expense.
The Inflation Reduction Act was signed into law on August 16, 2022 and created a new 15% corporate alternative minimum tax ("CAMT") based on adjusted financial statement income. The effective date of the provision was January
1, 2023. We will not be subject to CAMT as our reported earnings for each of the past three years did not exceed $1 billion.
(10) iPartners' Equity:
On August 3, 2022, we announced that our Board of Directors approved a unit repurchase program authorizing the Partnership to repurchase units for an aggregate amount of not more than $i250 million.
There were ii1.5/ million limited partnership units repurchased under the August
2022 repurchase program during the three and nine months ended September 25, 2022 at an average price of $ii43.30/
per limited partner unit for an aggregate amount of $ii66.0/ million. There were i1.4
million limited partnership units repurchased under the August 2022 repurchase program during the nine months ended September 24, 2023 at an average price of $i44.00 per limited partner unit for an aggregate amount of $i62.5 million.
There was ino remaining availability under the August 2022 repurchase program as of September 24, 2023. Accordingly, there were ino
limited partnership units repurchased under the August 2022 repurchase program during the three months ended September 24, 2023.
On May 4, 2023, we announced that our Board of Directors authorized the Partnership to repurchase additional units for an aggregate amount of not more than $i250 million. There were ii0.3/
million units repurchased under the May 2023 repurchase program during the three and nine months ended September 24, 2023 at an average price of $ii38.27/
per limited partner unit for an aggregate amount of $ii12.0/ million. Accordingly, there was a total of i1.7 million
units repurchased under the August 2022 and May 2023 repurchase programs during the nine months ended September 24, 2023 at an average price of $i42.97 per limited partner unit for an aggregate amount of $i74.5
million. There was $i238.0 million of remaining availability under the May 2023 repurchase program as of September 24, 2023.
Subject to applicable rules and regulations, we can repurchase units from time-to-time in the open market or by negotiated transactions. The amount and timing of repurchases are based on a variety of factors, including liquidity, capital needs of the business, market conditions, regulatory
requirements, and other business considerations. No limit was placed on the duration of either repurchase program. The Partnership is not obligated to repurchase any minimum dollar amount or specific number of units, and can modify, suspend, or discontinue the program at any time.
(11) iSubsequent Event:
On November 2, 2023, we announced that we entered into a definitive merger agreement
to combine with Six Flags Entertainment Corporation (“Six Flags”) (NYSE: SIX). Subject to the terms and conditions set forth in the merger agreement, each issued and outstanding unit of limited partnership interest in Cedar Fair will be converted into the right to receive one (1) share of common stock of the new combined entity (subject to certain exceptions and as the same may be adjusted). Following the close of the transaction, the holders of units of Cedar Fair limited partnership interest will own approximately i51.2% of the outstanding shares of the combined company and the holders
of Six Flags common stock will own approximately i48.8% of the outstanding shares of the combined company. The merger is expected to close in the first half of 2024, following receipt of Six Flags' stockholder approval, regulatory approvals, and satisfaction of other customary closing conditions.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to facilitate an understanding of our business and results of operations and should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Form 10-Q. This discussion should also be read in conjunction with our consolidated financial statements and related notes thereto, and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of our Annual Report on Form 10-K for the year ended December 31, 2022.
Business
Overview:
We generate our revenues from sales of (1) admission to our amusement parks and water parks, (2) food, merchandise and games both inside and outside our parks, and (3) accommodations, extra-charge products, and other revenue sources. Our principal costs and expenses, which include salaries and wages, operating supplies, maintenance and advertising, are relatively fixed for a typical operating season and do not vary significantly with attendance.
Each of our properties is overseen by a general manager and operates autonomously. Management reviews operating results, evaluates performance and makes operating decisions, including allocating resources, on a property-by-property basis. Discrete financial information and operating results are prepared at the individual park level for use by the CEO, who is the Chief Operating Decision Maker (CODM),
as well as by the Chief Financial Officer, the Chief Operating Officer, Senior Vice Presidents and the general managers of the parks. We operate within a single reportable segment of amusement/water parks with accompanying resort facilities.
Merger Agreement with Six Flags:
On November 2, 2023, we announced that we entered into a definitive merger agreement to combine with Six Flags Entertainment Corporation (“Six Flags”) (NYSE: SIX). Subject to the terms and conditions set forth in the merger agreement, each issued and outstanding unit of limited partnership interest in Cedar Fair will be converted into the right to receive one (1) share of common stock of the new combined entity (subject to certain exceptions and as the same may be adjusted). Following the close of the transaction, the holders
of units of Cedar Fair limited partnership interest will own approximately 51.2% of the outstanding shares of the combined company and the holders of Six Flags common stock will own approximately 48.8% of the outstanding shares of the combined company. The merger is expected to close in the first half of 2024, following receipt of Six Flags' stockholder approval, regulatory approvals, and satisfaction of other customary closing conditions.
Critical Accounting Policies:
Management’s 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 unaudited condensed consolidated financial statements:
•Impairment of Long-Lived Assets
•Goodwill and Other Intangible Assets
•Self-Insurance Reserves
•Revenue Recognition
•Income
Taxes
In the third quarter of 2023, there were no changes in the above critical accounting policies from those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
Results of Operations:
The following operational measures are key performance metrics in our managerial and operational reporting. They are used as major factors in significant operational decisions as they are primary drivers of our financial and operational performance, measuring demand, pricing and consumer behavior. In-park revenues, in-park per capita spending and out-of-park revenues are non-GAAP measures.
Attendance
is defined as the number of guest visits to our amusement parks and separately gated outdoor water parks.
In-park per capita spending is calculated as revenues generated within our amusement parks and separately gated outdoor water parks along with related parking revenues (in-park revenues), divided by total attendance.
Out-of-park revenues are defined as revenues from resorts, out-of-park food and retail locations, online transaction fees charged to customers, sponsorships and all other out-of-park operations.
Net
revenues consist of in-park revenues and out-of-park revenues less amounts remitted to outside parties under concessionaire arrangements; see Note 3 for a reconciliation of in-park revenues and out-of-park revenues to net revenues.
The
current nine-month period included 1,988 operating days compared with 1,926 operating days for the nine-month period ended September 25, 2022. The 62 operating day increase was attributable to additional operating days in January and February at Carowinds, Kings Dominion and California's Great America, and additional operating days during early season weekdays at some of our mid-sized properties during the second quarter of 2023. These additional days were offset by 17 operating day closures due to inclement weather. Of these 17 closed operating days, ten occurred at our parks in California, Knott's Berry Farm and California's Great America, during the first quarter of 2023. Both parks experienced unusually inclement weather during that quarter.
(Amounts in thousands, except per capita and operating days)
Net revenues
$
1,427,545
$
1,451,389
$
(23,844)
(1.6)
%
Operating
costs and expenses
1,009,706
1,003,317
6,389
0.6
%
Depreciation and amortization
127,711
126,441
1,270
1.0
%
Loss
on impairment / retirement of fixed assets, net
12,779
6,379
6,400
N/M
Gain on sale of land
—
(155,251)
155,251
N/M
Operating
income
$
277,349
$
470,503
$
(193,154)
(41.1)
%
Other Data:
Attendance
20,889
21,603
(714)
(3.3)
%
In-park
per capita spending
$
61.73
$
61.24
$
0.49
0.8
%
Out-of-park revenues
$
180,732
$
173,416
$
7,316
4.2
%
Operating
days
1,988
1,926
62
3.2
%
Net income margin (1)
9.4
%
20.3
%
(10.9)
%
N/M Not
meaningful due to the nature of the expense line-item.
(1) Net income margin is calculated as net income divided by net revenues.
For the nine months ended September 24, 2023, net revenues decreased $23.8 million, or 1.6%, compared with the nine months ended September 25, 2022. The decrease in net revenues reflected the impact of a 0.7 million-visit, or 3.3%, decrease in attendance partially offset by the impact of an 0.8% increase in in-park per capita spending to $61.73, and a 4.2%, or $7.3 million, increase in out-of-park revenues. The decrease in attendance was driven by less season pass attendance as a result of fewer season pass units outstanding. There were fewer season pass units outstanding due to less sales, particularly at our parks in California, as well as due
to the impact of the prior period extension of 2020 and 2021 season-long products at Knott's Berry Farm through May 2022 and Canada's Wonderland through Labour Day 2022. Attendance was also negatively impacted by inclement weather, particularly during the first quarter of 2023. These negative impacts were somewhat offset by the continuing recovery of group sales attendance and the impact of additional operating days during the current period. The increase in in-park per capita spending was attributable to higher levels of guest spending on food and beverage. The increase in food and beverage spending was driven by increases in both the number of transactions per guest and average transaction value. The increase in food and beverage spending was somewhat offset by a decline in admissions spending driven by a reassessment of our pricing strategy at several parks and the recovery of lower priced attendance channels. The increase in out-of-park revenues was largely attributable
to the reopening of Castaway Bay Resort and Sawmill Creek Resort at Cedar Point following temporary closures for renovations in the prior period, offset somewhat by a decrease in out-of-park revenues at Knott's Berry Farm due to inclement weather during the first quarter of 2023 and ongoing renovations at the Knott's Hotel. The decrease in net revenues included a $5.2 million unfavorable impact of foreign currency exchange rates at our Canadian park.
Operating costs and expenses for the nine months ended September 24, 2023 increased $6.4 million, or 0.6%, compared with the nine months ended September 25, 2022. The increase in operating costs and expenses was the result of a $14.9 million increase in selling, general and administrative ("SG&A") expenses partially offset by a
$4.0 million decrease in cost of goods sold and a $4.5 million decrease in operating expenses. The increase in SG&A expenses was primarily attributable to higher advertising costs and higher transaction processing costs. Initial costs associated with the proposed merger with Six Flags were largely offset by prior period consulting costs. The decrease in operating expenses was primarily due to cost savings initiatives resulting in a reduction in seasonal labor hours, and to a lesser extent, less in-park entertainment costs. The decreases were somewhat offset by incremental land lease and property tax costs associated with the sale-leaseback of the land at California's
Great
America, early season maintenance costs, and increased health benefit costs attributable to a planned increase in associate head count. Cost of goods sold as a percentage of food, merchandise and games revenue decreased approximately 1%. The increase in operating costs and expenses included a $3.1 million favorable impact of foreign currency exchange rates at our Canadian park.
Depreciation and amortization expense for the nine months ended September 24, 2023 increased $1.3 million compared with the nine months ended September 25, 2022 due to the reduction of the estimated useful lives of the long-lived assets at California's Great America following the sale-leaseback of the land at California's Great America offset by the full depreciation of certain assets. The loss on impairment / retirement
of fixed assets in the current period included the retirement of a specific asset.
After a $155.3 million gain on the sale of the land at California's Great America during the prior third quarter and the items above, operating income for the nine months ended September 24, 2023 totaled $277.3 million compared with $470.5 million for the nine months ended September 25, 2022.
Interest expense for the nine months ended September 24, 2023 decreased $9.8 million as a result of the repayment of our senior secured term loan facility and the related termination of our interest rate swap agreements during the third quarter of 2022. The reduction in interest expense
was partially offset by interest on additional borrowings on our revolving credit facility in the current period. Prior to the termination of our interest rate swaps, the net effect of our swaps resulted in a benefit to earnings of $25.6 million for the nine months ended September 25, 2022 representing the change in fair value of our swap portfolio. We realized a $5.3 million cash receipt, net of fees, upon termination of our interest rate swap agreements during the third quarter of 2022. In addition, we recognized a $1.8 million loss on early debt extinguishment during the third quarter of 2022 upon the full repayment of our senior secured term debt facility. During the current period, we recognized a $1.6 million net benefit to earnings for foreign currency gains and losses compared with a $24.2 million net charge to earnings in the prior period. Both amounts primarily represented the remeasurement of U.S. dollar denominated
notes to the Canadian entity's functional currency.
During the nine months ended September 24, 2023, a provision for taxes of $40.2 million was recorded to account for PTP taxes and federal, state, local and foreign income taxes compared with $61.4 million for the nine months ended September 25, 2022. The decrease in provision for taxes was primarily attributable to lower pretax income from our taxable subsidiaries in the current period. The prior period included a provision for taxes recorded for the sale of the land at California's Great America.
After the items above, net income for the nine months ended September 24,
2023 totaled $134.5 million, or $2.61 per diluted limited partner unit, compared with $295.3 million, or $5.18 per diluted limited partner unit, for the nine months ended September 25, 2022. Net income margin decreased 10.9% primarily due to the $155.3 million gain on the sale of the land at California's Great America during the prior period.
For the three months ended September 24, 2023, net revenues decreased $1.1 million, or 0.1%, compared with the three months ended September 25, 2022. The variance in net revenues reflected the impact of a 1.5% decrease in in-park per capita spending to $61.65 offset by the impact of a 0.1 million-visit, or 1.0%, increase in attendance and a 1.8%, or $1.7 million, increase in out-of-park
revenues. The decrease in in-park per capita spending was primarily attributable to lower levels of guest spending on admissions. The decrease in admissions spending was driven by a reassessment of our pricing strategy at several parks and the recovery of lower priced attendance channels and was somewhat offset by an increase in food and beverage spending driven by an increase in average transaction value. The increase in attendance was driven by the continuing recovery of group sales attendance. The increase in out-of-park revenues was driven by higher revenue per occupied room, particularly at Cedar Point. The variance in net revenues included a $3.3 million unfavorable impact of foreign currency exchange rates at our Canadian park.
Operating costs and expenses for the three months ended September 24, 2023 decreased $17.2 million, or
3.6%, compared with the three months ended September 25, 2022. The decrease in operating costs and expenses was the result of a $22.0 million decrease in operating expenses and a $3.0 million decrease in cost of goods sold partially offset by a $7.7 million increase in SG&A expenses. The decrease in operating expenses was primarily due to cost savings initiatives resulting in a reduction in seasonal labor hours, and to a lesser extent, less in-park entertainment costs. The increase in SG&A expenses was attributable to higher advertising costs and initial costs associated with the proposed merger with Six Flags. Cost of goods sold as a percentage of food, merchandise and games revenue decreased approximately 2%. The increase in operating costs and expenses included a $1.3 million favorable impact of foreign currency exchange rates at our Canadian park.
Depreciation
and amortization expense for the three months ended September 24, 2023 decreased $1.9 million compared with the three months ended September 25, 2022 due to the full depreciation of certain assets. The loss on impairment / retirement of fixed assets in the prior period included the retirement of a specific asset.
After a $155.3 million gain on the sale of the land at California's Great America during the prior third quarter and the items above, operating income for the three months ended September 24, 2023 totaled $306.6 million compared with $442.2 million for the three months ended September 25, 2022.
Interest
expense for the three months ended September 24, 2023 decreased $0.9 million as a result of the repayment of our senior secured term loan facility and the related termination of our interest rate swap agreements during the third quarter of 2022. The reduction in interest expense was partially offset by interest on additional borrowings on our revolving credit facility in the current period. Prior to the termination of our interest rate swaps, the net effect of our swaps resulted in a benefit to earnings of $3.7 million for the three months ended September 25, 2022 representing the change in fair value of our swap portfolio. We realized a $5.3 million cash receipt, net of fees, upon termination of our interest rate swap agreements during the third quarter of 2022. In addition, we recognized a $1.8 million loss on early debt extinguishment during the third quarter of 2022
upon the full repayment of our senior secured term debt facility. During the current period, we recognized a $5.1 million net charge to earnings for foreign currency gains and losses compared with a $14.4 million net charge to earnings in the prior period. Both amounts primarily represented the remeasurement of U.S. dollar denominated notes to the Canadian entity's functional currency.
During the three months ended September 24, 2023, a provision for taxes of $50.7 million was recorded to account for PTP taxes and federal, state, local and foreign income taxes compared with $61.2 million for the three months ended September 25, 2022. The decrease in provision for taxes was primarily attributable to the prior period including a provision for taxes recorded for the sale of the land at California's
Great America.
After the items above, net income for the three months ended September 24, 2023 totaled $215.5 million, or $4.21 per diluted limited partner unit, compared with $333.1 million, or $5.86 per diluted limited partner unit, for the three months ended September 25, 2022. Net income margin decreased 13.9% due to the $155.3 million gain on the sale of the land at California's Great America during the prior period.
October Update
For the ten months ended October 29, 2023, preliminary net revenues
totaled approximately $1.65 billion and decreased 1%, or $25 million, compared with the ten months ended October 30, 2022. Based on preliminary results for the ten months ended October 29, 2023, attendance totaled 24.2 million visits, down 3%, in-park per capita spending was $61.92, up less than 1%, and out-of-park revenues totaled $202 million, up 4%. Operating days for the ten month periods in 2023 and 2022 totaled 2,171 operating days and 2,103 operating days, respectively, due to additional planned operating days in the first two quarters of 2023.
For the five week period ended October 29, 2023, preliminary net revenues totaled approximately $226 million and decreased less than 1%, or $1 million, compared with the five week period ended
October 30, 2022. Based on preliminary results for the five week period ended October 29, 2023, attendance totaled 3.3 million visits, up 2%, in-park per capita spending was $63.15, down 3%, and out-of-park revenues totaled $21 million, flat to the prior period.
For the ten month periods ended October 29, 2023 and October 30, 2022, preliminary concessionaire remittance totaled approximately $47 million and $50 million, respectively. For the five week periods ended October 29, 2023 and October 30, 2022, preliminary concessionaire remittance totaled approximately $5 million in each period.
Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortization, other non-cash items, and adjustments as defined in our current and prior credit agreements. Adjusted EBITDA is not a measurement of operating performance computed in accordance with generally accepted accounting principles ("GAAP") and should not be considered as a substitute for operating income, net income or cash flows from operating activities computed in accordance with GAAP. Management believes Adjusted EBITDA is a meaningful measure of park-level operating profitability and 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 widely used by analysts, investors and comparable companies in
our industry to evaluate our operating performance on a consistent basis, as well as more easily compare our results with those of other companies in our industry. This measure is provided as a supplemental measure of our operating results and 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 and nine-month periods ended September 24, 2023 and September 25, 2022.
Loss
on impairment / retirement of fixed assets, net
2,018
3,632
12,779
6,379
Gain on sale of land
—
(155,251)
—
(155,251)
Costs
related to proposed merger (1)
5,012
—
5,012
—
Other (2)
385
428
284
1,120
Adjusted
EBITDA
$
388,495
$
361,985
$
438,810
$
464,122
Adjusted EBITDA margin (3)
46.1
%
42.9
%
30.7
%
32.0
%
(1) Consists
of third-party consulting costs related to the proposed merger with Six Flags. See Note 11 for additional information. These costs are excluded from the calculation of Adjusted EBITDA as defined in our current and prior credit agreements and were recorded within "Selling, general and administrative" in the unaudited condensed consolidated statement of operations and comprehensive income.
(2) Consists of certain costs as defined in our current and prior credit agreements. These items are excluded from the calculation of Adjusted EBITDA and have included certain legal expenses, severance and related benefits and contract
termination costs. This balance also includes unrealized gains and losses on short-term investments.
(3) Adjusted EBITDA margin (Adjusted EBITDA divided by net revenues) is not a measurement computed in accordance with GAAP and may not be comparable to similarly titled measures of other companies. We provide Adjusted EBITDA margin because we believe the measure provides a meaningful metric of operating profitability.
For the nine months ended September 24, 2023, Adjusted EBITDA decreased $25.3 million and Adjusted EBITDA margin decreased 1.3% compared with the nine months ended September 25, 2022. The decreases in Adjusted EBITDA and Adjusted EBITDA margin were due to a decrease in net revenues driven by a decline in attendance during the
first six months of 2023.
For the three months ended September 24, 2023, Adjusted EBITDA increased $26.5 million and Adjusted EBITDA margin increased 3.2% compared with the three months ended September 25, 2022. The increases in Adjusted EBITDA and Adjusted EBITDA margin were due to a decrease in costs in the current period as a result of cost savings initiatives, particularly seasonal wages, cost of goods sold and other in-park operating costs.
Our principal sources of liquidity include cash from operating activities, funding from our long-term debt obligations and existing cash on hand. Due to the seasonality of our business, we fund pre-opening operations with revolving credit borrowings. Revolving credit borrowings are reduced with our positive cash flow during the seasonal operating period. Our primary uses of liquidity include operating expenses, capital expenditures, interest payments, partnership distributions, income tax obligations, and recently, limited partnership unit repurchases. As of September 24, 2023, we had cash on hand of $134.4 million and availability under our revolving credit facility of $280.1 million. Based on this level of liquidity, we concluded that we will have sufficient liquidity to satisfy our obligations
at least through the fourth quarter of 2024.
We expect to invest between $210 million and $220 million in capital expenditures during 2023, which includes large-scale updates to major sections of our parks, new roller coasters and other rides and attractions, upgraded and expanded food and beverage facilities, the renovation of the Knott's Berry Farm Hotel and major events to celebrate two 50-year park anniversaries.
We paid a partnership distribution of $0.30 per limited partner unit on September 20, 2023. On November 2, 2023, we announced that our Board declared an additional partnership distribution of $0.30 per limited partner unit, which will be payable on December
20, 2023 to unitholders of record on December 6, 2023.
In August 2022, the Board of Directors approved a unit repurchase program authorizing the Partnership to repurchase units for an aggregate amount of not more than $250 million. As of April 12, 2023, we repurchased all remaining availability under the August 2022 repurchase program resulting in a total of 6.0 million units repurchased at an average price of $41.93 per limited partner unit. On May 4, 2023, we announced that our Board of Directors authorized the Partnership to repurchase more units for an additional aggregate amount of not more than $250 million. From June 26, 2023 through October
31, 2023, we repurchased 0.3 million units under the May 2023 repurchase program at an average price of $38.27 per limited partner unit. See Note 10 for additional information.
We anticipate cash interest payments of approximately $135 million during 2023 of which approximately 75% of the payments will have occurred in the second and fourth quarters. We anticipate cash payments for income taxes to range from $45 million to $50 million in 2023.
As of September 24, 2023, deferred revenue totaled $208.1 million, including non-current deferred revenue. This represented an increase of $20.4 million compared with total
deferred revenue as of September 25, 2022. The increase in total deferred revenue was primarily attributable to higher season-long product sales for the subsequent operating season.
Operating Activities
Net cash from operating activities for the first nine months of 2023 totaled $330.0 million, a decrease of $82.4 million compared with the same period in the prior year. The decrease in net cash from operating activities was primarily attributable to tax refunds received in the prior period attributable to the net operating loss in tax year 2020 being carried back to prior years, and less earnings due to lower attendance during the first six months of 2023.
Investing Activities
Net cash for investing activities for the first nine months of 2023
totaled $169.6 million compared with net cash from investing activities totaling $172.0 million for the same period in the prior year. The variance in net cash (for) from investing activities was due to the prior period sale of the land at California's Great America, as well as a planned increase in capital expenditures for 2023.
Financing Activities
Net cash for financing activities for the first nine months of 2023 totaled $126.6 million, a decrease of $225.9 million compared with the same period in the prior year. The decrease was primarily attributable to $264.3 million of term debt payments in the prior period to fully repay the remaining outstanding balance on our term debt facility. This decrease was somewhat offset by an increase in repurchases of limited partnership units and partnership distributions in the current period.
Contractual
Obligations
As of September 24, 2023, our primary contractual obligations consisted of outstanding long-term debt agreements. Before reduction for debt issuance costs, our long-term debt agreements consisted of the following:
•$1.0 billion of 5.500% senior secured notes, maturing in May 2025, issued at par. The 2025 senior notes and the related guarantees are secured by first-priority liens on the issuers' and the guarantors' assets that secure all the obligations under our credit facilities. The 2025 senior notes may be redeemed, in whole or in part, at various prices depending on the date redeemed. The 2025 senior notes pay interest semi-annually in May and November.
•$500
million of 5.375% senior unsecured notes, maturing in April 2027, issued at par. The 2027 senior notes may be redeemed, in whole or in part, at various prices depending on the date redeemed. The 2027 senior notes pay interest semi-annually in April and October.
•$300 million of 6.500% senior unsecured notes, maturing in October 2028, issued at par. The 2028 senior notes may be redeemed, in whole or in part, at various prices depending on the date redeemed. The 2028 senior notes pay interest semi-annually in April and October.
•$500
million of 5.250% senior unsecured notes, maturing in July 2029, issued at par. The 2029 senior notes may be redeemed, in whole or in part, at any time prior to July 15, 2024 at a price equal to 100% of the principal amount of the notes redeemed plus a "make-whole" premium together with accrued and unpaid interest and additional interest, if any, to the redemption date. Thereafter, the 2029 senior notes may be redeemed, in whole or in part, at various prices depending on the date redeemed. The 2029 senior notes pay interest semi-annually in January and July.
•No borrowings under the $300 million senior secured revolving credit facility under our current credit agreement with a Canadian sub-limit of $15 million. The revolving credit facility bears interest at SOFR plus 350 bps with a SOFR adjustment of 10
bps per annum and a floor of zero, and requires the payment of a 62.5 bps commitment fee per annum on the unused portion of the credit facilities. The senior secured revolving credit facility matures on February 10, 2028, provided that the maturity date will be (x) January 30, 2025 if at least $200 million of the 2025 senior notes remain outstanding as of that date, or (y) January 14, 2027 if at least $200 million of the 2027 senior notes remain outstanding as of that date. The credit agreement provides for the issuance of documentary and standby letters of credit. After letters of credit, which totaled $19.9 million as of September 24, 2023, we had $280.1 million of availability under the revolving credit facility. Our letters of credit are primarily in place to backstop
insurance arrangements.
The 2017 Credit Agreement, as amended, includes a Senior Secured Leverage Ratio of 3.75x Total First Lien Senior Secured Debt-to-Consolidated EBITDA. This financial covenant is only required to be tested at the end of any fiscal quarter in which revolving credit facility borrowings are outstanding. We were in compliance with the applicable financial covenants under our credit agreement during the nine months ended September 24, 2023.
Our credit agreement and fixed rate note agreements include Restricted Payment provisions, which could limit our ability to pay partnership distributions. Pursuant to the terms of the indenture governing the 2027
senior notes, which includes the most restrictive of these Restricted Payments provisions, if our pro forma Total-Indebtedness-to-Consolidated-Cash-Flow Ratio is greater than 5.25x, we can still make Restricted Payments of $100 million annually so long as no default or event of default has occurred and is continuing. If our pro forma Total-Indebtedness-to-Consolidated-Cash-Flow Ratio is less than or equal to 5.25x, we can make Restricted Payments up to our Restricted Payment pool. Our pro forma Total-Indebtedness-to-Consolidated-Cash-Flow Ratio was less than 5.25x as of September 24, 2023.
Financial and Non-Financial Disclosure About Issuers and Guarantors of our Registered Senior Notes
As
discussed within the Long-Term Debt footnote at Note 6, we had four tranches of fixed rate senior notes outstanding at September 24, 2023: the 2025, 2027, 2028 and 2029 senior notes. The 2027, 2028 and 2029 senior notes were registered under the Securities Act of 1933. The 2025 senior notes were sold in a private placement in reliance on exemptions from registration under the Securities Act of 1933. Cedar Fair, L.P., Canada's Wonderland Company ("Cedar Canada"), Magnum Management Corporation ("Magnum"), and Millennium Operations LLC (“Millennium”) are the co-issuers of the 2027, 2028 and 2029 senior notes. Our senior notes have been irrevocably and unconditionally guaranteed, on a joint and several basis, by each wholly owned subsidiary of Cedar Fair (other than
the co-issuers) that guarantees our credit facilities under our credit agreement. A full listing of the issuers and guarantors of our registered senior notes can be found within Exhibit 22, and additional information with respect to our registered senior notes and the related guarantees follows.
The 2027, 2028 and 2029 senior notes each rank equally in right of payment with all of each issuer’s existing and future senior unsecured debt, including the other registered senior notes. However, the 2027, 2028 and 2029 senior notes rank effectively junior to any secured debt under the 2017 Credit Agreement, as amended, and the 2025 senior notes to the extent of the value of the assets securing such debt.
In the event that the co-issuers (except for Cedar Fair, L.P.) or any subsidiary guarantor is released
from its obligations under our senior secured credit facilities (or the 2017 Credit Agreement, as amended), such entity will also be released from its obligations under the registered senior notes. In addition, the co-issuers (except for Cedar Fair, L.P.) or any subsidiary guarantor can be released from its obligations under the 2027, 2028 and 2029 senior notes under the following circumstances, assuming the associated transactions are in compliance with the applicable provisions of the indentures governing the 2027, 2028 and 2029 senior notes: i) any direct or indirect sale, conveyance or other disposition of the capital stock of such entity following which the entity ceases to be a direct or indirect subsidiary of Cedar Fair or a sale or disposition of all or substantially all of the assets of such entity; ii) if such entity is dissolved or liquidated; iii) if we designate such
entity as an Unrestricted Subsidiary; iv) upon transfer of such entity in a qualifying transaction if following such transfer the entity ceases to be a direct or indirect Restricted Subsidiary of Cedar Fair or is a Restricted Subsidiary that is not a guarantor under any credit facility; or v) in the case of the subsidiary guarantors, upon a discharge of the indenture or upon any legal defeasance or covenant defeasance of the indenture.
The obligations of each guarantor are limited to the extent necessary to prevent such guarantee from constituting a fraudulent conveyance or fraudulent transfer under applicable law. This provision may not, however, protect a guarantee from being voided under fraudulent transfer law, or may
reduce the applicable guarantor’s obligation to an amount that effectively makes its guarantee worthless. If a guarantee were rendered voidable, it could be subordinated by a court to all other indebtedness of the
guarantor, and depending on the amount of such indebtedness, could reduce the guarantee to zero. Each guarantor that makes a payment or distribution under a guarantee is entitled to a pro rata contribution from each other guarantor based on the respective net assets of the guarantors.
The following tables provide summarized financial information for each of our
co-issuers and guarantors of the 2027, 2028 and 2029 senior notes (the "Obligor Group"). We presented each entity that is a co-issuer of the registered senior notes separately. The subsidiaries that guarantee the registered senior notes are presented on a combined basis with intercompany balances and transactions between entities in such guarantor subsidiary group eliminated. Intercompany balances and transactions between the co-issuers and guarantor subsidiaries have not been eliminated. Certain subsidiaries of Cedar Fair did not guarantee our credit facilities or senior notes as the assets and results of operations of these subsidiaries
were immaterial (the "non-guarantor"subsidiaries). The summarized financial information excludes results of the non-guarantor subsidiaries and does not reflect investments of the Obligor Group in the non-guarantor subsidiaries. The Obligor Group's amounts due from, amounts due to, and transactions with the non-guarantor subsidiaries have not been eliminated and included intercompany receivables from non-guarantors of $14.1 million and $14.3 million as of September 24, 2023 and December 31, 2022, respectively.
Some of the statements contained in this report (including the "Management’s 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 the federal securities laws, including Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements as to our expectations, beliefs, goals and strategies regarding the future. These forward-looking statements may involve current plans, estimates, expectations and ambitions that are subject to risks, uncertainties and assumptions 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, that our growth strategies will achieve the targeted results, that the proposed transaction will close or that the Company will realize the anticipated benefits thereof. Important risk factors that may cause such a difference and could adversely affect attendance at our parks, our future financial performance, our growth strategies and/or the proposed transaction, and could cause actual results to differ materially from our expectations or otherwise to fluctuate or decrease, include, but are not limited to: general economic conditions, the impacts of public health concerns; adverse weather conditions; competition for consumer leisure time and spending; unanticipated construction delays; changes in our capital investment plans and projects; the expected timing and likelihood
of completion of the proposed transaction, including the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the proposed transaction and Six Flags stockholder approval; anticipated tax treatment, unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, synergies, economic performance, indebtedness, financial condition, losses, future prospects, business and management strategies for the management, expansion and growth of the combined company’s operations and other conditions to the completion of the proposed transaction, including the possibility that any of the anticipated benefits of the proposed transaction will not be realized or will not be realized within the expected time period; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; the outcome of any legal proceedings that may be instituted against Cedar Fair, Six Flags
or their respective directors and others following announcement of the merger agreement and proposed transaction; the inability to consummate the transaction due to the failure to satisfy other conditions to complete the transaction; risks that the proposed transaction disrupts and/or harms current plans and operations of Cedar Fair or Six Flags, including that management’s time and attention will be diverted on transaction-related issues; the amount of the costs, fees, expenses and charges related to the transaction, including the possibility that the transaction may be more expensive to complete than anticipated; the ability of Cedar Fair and Six Flags to successfully integrate their businesses and to achieve anticipated synergies and value creation; potential adverse reactions or changes to business relationships resulting from the announcement or completion of the proposed transaction; legislative, regulatory and economic developments and changes in laws, regulations,
and policies affecting Cedar Fair and Six Flags; potential business uncertainty, including the outcome of commercial negotiations and changes to existing business relationships during the pendency of the proposed transaction that could affect Cedar Fair’s and/or Six Flags’ financial performance and operating results; acts of terrorism or outbreak of war, hostilities, civil unrest, and other political or security disturbances; the impacts of pandemics or other public health crises, including the effects of government responses on people and economies; risks related to the potential impact of general economic, political and market factors on the companies or the proposed transaction; other factors we discuss from time to time in our reports filed with the Securities and Exchange Commission (the "SEC"); and those risks that will be described in the registration statement on Form S-4 and the accompanying proxy statement/prospectus. Additional information on risk factors
that may affect our business and financial results can be found in our Annual Report on Form 10-K and in the filings we make from time to time with the SEC, including this Form 10-Q. We do not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the filing date of this document.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks from fluctuations in interest
rates and 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.
We typically manage interest rate risk using a combination of fixed-rate long-term debt, interest rate swaps that fix variable-rate long-term debt, and variable-rate borrowings under a revolving credit facility. Translation exposures with regard to our Canadian operations are not hedged.
We repaid all of our outstanding variable-rate long-term debt during the third quarter of 2022 and subsequently terminated our interest rate swap agreements.
Therefore, as of September 24, 2023, all of our outstanding long-term debt represented fixed-rate debt except for revolving credit borrowings. Assuming the daily average balance over the past twelve months on revolving credit borrowings of approximately $73.1 million, a hypothetical 100 bps increase in 30-day SOFR on our variable-rate debt would lead to an increase of approximately $0.7 million in cash interest costs over the next twelve months.
A uniform 10% strengthening of the U.S. dollar relative to the Canadian dollar would result in a $6.9 million decrease in annual operating income for the trailing twelve months ended September 24, 2023.
ITEM 4.
CONTROLS AND PROCEDURES
(a)Evaluation of Disclosure Controls and Procedures -
We maintain a system of controls and procedures designed to ensure that information required to be disclosed by us in our 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 management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of September 24, 2023, management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 24, 2023.
(b)Changes in Internal Control Over Financial Reporting -
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended September 24, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM
1A. RISK FACTORS
In addition to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, the following risk factors have been identified as a result of Cedar Fair, L.P. entering into a merger agreement with Six Flags Entertainment Corporation ("Six Flags").
Risks Related to the Proposed Merger
The proposed merger and integration of both companies may be more difficult, costly or time-consuming than expected, and we may fail to realize the anticipated benefits of the merger.
The success of the proposed merger will depend in part on our ability to realize anticipated
revenue and cost synergies and on our ability to successfully integrate the businesses. If we are not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully, or at all, or may take longer to realize than expected. In addition, our ability to achieve the goals for the proposed merger may be affected by future prospects, execution of business strategies, and our ability to manage the various factors discussed within this report, including within the forward-looking statements. The actual benefits of the proposed merger also could be less than anticipated if, for example, completion of the merger and/or integration of the businesses are more difficult, costly or time-consuming than we expect.
We have incurred and expect to incur substantial costs, fees, expenses, and charges related to the merger and integration, and may incur additional
costs we do not currently anticipate.
We have incurred and expect to incur additional costs, fees, expenses, and charges related to the merger and integration. We may incur additional costs that we do not currently anticipate. These costs include and may include legal, financial advisory, accounting, consulting and other advisory fees, retention, severance and employee benefit-related costs, public company filing fees and other regulatory fees, as well as closing, integration and other related costs. Some of the costs are payable regardless of whether or not the merger is completed.
We
may be unable to retain personnel successfully while the merger is pending or after the merger is completed.
The success of the merger will depend in part on our ability to retain key employees while the merger is pending or after the merger is consummated. If we are unable to retain key employees, including management, who are critical to the successful completion, integration and future operation of the combined company, we could face disruption in our operations, loss of key information, expertise or know-how, or unanticipated recruiting costs, which may impact our ability to achieve our goals related to the transaction.
The announcement or completion of the proposed merger may disrupt and/or harm our current plans and operations or those of Six Flags, may divert management’s time and attention and may affect existing business relationships,
any of which may impact financial performance, operating results and/or our ability to achieve the benefits of the merger.
The announcement or completion of the proposed merger may disrupt and/or harm our current plans and operations and/or those of Six Flags. Management’s time and attention also may be diverted on transaction-related issues. There also may be adverse reactions to or changes in business relationships as a result of the announcement or completion of the merger. Any of these factors could affect our and/or Six Flags’ financial performance or operating results, and/or could impact our ability to achieve the benefits of the merger.
Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that affect the anticipated benefits of the merger.
Before
the merger may be completed, various approvals, consents and non-objections must be obtained from regulatory authorities in the United States and Mexico. These approvals could be delayed or not obtained at all, which could disrupt operations, or could delay or adversely affect completion of the merger. The approvals that are granted may impose terms and conditions, including requiring the parties to seek divestitures of substantial assets, limitations, obligations or costs, or place restrictions on the conduct of the combined company's business or require changes to the terms of the transactions contemplated by the merger agreement, which could affect the anticipated benefits of the merger.
The merger agreement may be terminated in accordance with its terms, and the merger may not be completed, which could negatively impact our business, financial results, and/or unit price.
The
merger agreement is subject to a number of conditions which must be fulfilled in order to complete the merger, including approval of Six Flags' stockholders. If the merger is not completed for any reason, there may be adverse consequences and we may experience negative reactions from the financial markets, our customers, our vendors and/or our employees.
Litigation relating to the proposed merger may be filed against Six Flags, us and/or each company's board of directors that could prevent or delay the closing and/or result in the payment of damages.
In connection with the proposed merger, it is possible that the stockholders of Six Flags and/or our unitholders may file lawsuits against Six Flags, us and/or each company's board of directors. Among other remedies, these stockholders and/or unitholders could seek damages and/or to enjoin the
merger. Any such potential lawsuits could prevent or delay the closing and/or result in substantial costs to us. The outcome of any such actions would be uncertain and may create uncertainty relating to the merger and may be costly and distracting to management. Further, the defense or settlement of any lawsuit or claim that remains unresolved at the time of the merger may adversely affect our business, financial condition, results of operations and cash flows or those of the combined entity.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Issuer Purchases of Equity Securities:
The following table summarizes repurchases of Cedar Fair, L.P. Depositary Units representing limited partner interests by the Partnership during the three months ended September 24, 2023:
(a)
(b)
(c)
(d)
Period
Total
Number of Units Purchased (1)
Average Price Paid per Unit
Total Number of Units Purchased as Part of Publicly Announced Plans or Programs (2)
Maximum Number (or Approximate Dollar Value) of Units that May Yet Be Purchased Under the Plans or Programs (2)
(1)All units purchased were either repurchased pursuant to our May 2023 unit repurchase program described in Footnote 2, or were repurchased by the Partnership in satisfaction of tax obligations related to the vesting of restricted units which were granted under the Partnership's Omnibus Incentive Plan. A total of 557 units were reacquired by the Partnership to satisfy such tax obligations.
(2)On May 4, 2023, we announced that our Board of Directors authorized the Partnership to repurchase units for an additional aggregate amount of not more than $250 million. Units repurchased under the May 2023 repurchase program during the three months ended September 24, 2023 were repurchased in open market transactions intended
to satisfy the conditions of Rule 10b-18. See Note 10.
ITEM 5. OTHER INFORMATION
During the three months ended September 24, 2023, no director or officer iiadopted/
or iiterminated/ a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408 of Regulation S-K.
The following materials from the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 24, 2023 formatted in Inline XBRL: (i) the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income, (ii) the Unaudited Condensed Consolidated Balance Sheets, (iii) the Unaudited Condensed Consolidated Statements of Cash Flow, (iv) the Unaudited Condensed Consolidated Statements of Partners' Deficit, and (v) related notes, tagged as blocks of text and including detailed tags.
Exhibit
(104)
The cover page from the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 24, 2023 formatted in Inline XBRL (included as Exhibit 101).
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.
