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Operations and Comprehensive Income (Loss)
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Partners? Deficit
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Accounting Policies
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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). ☐ Yes ix 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) iDescription
of the Business and Significant Accounting Policies:
Impact of COVID-19 Pandemic
The novel coronavirus (COVID-19) pandemic had a material impact on our business in 2020, had a continuing negative impact in 2021 and may have a longer-term negative effect. On March 14, 2020, we closed our properties in response to the spread of COVID-19 and local government mandates. We ultimately resumed only partial operations at i10 of our i13
properties in 2020. Due to soft demand trends upon reopening in 2020, park operating calendars were adjusted, including reduced operating days per week and operating hours within each operating day and earlier closure of certain parks than a typical operating year. Following March 14, 2020, Knott's Berry Farm's partial operations in 2020 were limited to culinary festivals.
In May 2021, we opened all of our U.S. properties for the 2021 operating season on a staggered basis with capacity restrictions, guest reservations, and other operating protocols in place. Our 2021 operating calendars were designed to align with anticipated capacity restrictions, guest demand and labor availability, including fewer operating days in July and August at some of our smaller properties and additional operating days in September and the fourth quarter
at most of our properties. As vaccination distribution efforts continued during the second quarter of 2021 and we were able to hire additional labor, we removed most capacity restrictions, guest reservation requirements and other protocols at our U.S. properties beginning in July 2021. We were also able to open our Canadian property, Canada's Wonderland, in July 2021. Canada's Wonderland operated with capacity restrictions, guest reservations, and other operating protocols in place throughout 2021.
All of our properties opened for the 2022 operating season without restrictions as planned. We currently anticipate maintaining full park operating calendars for the remainder of the 2022 operating season. However, we have and may continue to adjust future park operating calendars as we respond to changes in guest demand, labor availability and any federal, provincial, state and local restrictions.
Our
future operations are dependent on factors outside of our knowledge or control, including the duration and severity of the COVID-19 pandemic and actions taken to contain its spread and mitigate its public health effects. Furthermore, management has made significant estimates and assumptions to estimate the impact of the COVID-19 pandemic on our business, including financial results in the near and long-term. Actual results could materially differ from these estimates depending on the ultimate extent of the effects of the COVID-19 pandemic.
Significant Accounting Policies
Except for the changes described below, 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,
2021, which were included in the Form 10-K filed on February 18, 2022. 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.
i
New
Accounting Pronouncements
In March 2020, the FASB issued Accounting Standards Update No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). ASU 2020-04 provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022. In January 2021, the FASB amended ASU 2020-04 by issuing Accounting Standards Update No. 2021-01, Reference Rate Reform Scope
("ASU 2021-01"). ASU 2021-01 clarifies the scope of optional expedients and exceptions to derivatives that are affected by the discounting transition. We do not expect the standard to have a material effect on the unaudited condensed consolidated financial statements and related disclosures.
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 typically open daily on a year-round basis. Our seasonal parks are generally open during weekends beginning in March, April or May, and then daily from Memorial Day until Labor Day. After Labor Day, our seasonal parks are open during select weekends in September and, in most cases, in
the fourth quarter for Halloween and winter events. As a result, a substantial portion of our revenues from these seasonal parks typically are generated during an approximate i130- to i140-day operating season with the major portion concentrated in the third quarter during the peak vacation months of July and August. COVID-19 impacted our parks' operating
calendars in 2021 as described within Note 1.
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; (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 (loss), 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. The nine month results are not comparable due to the effects of the COVID-19 pandemic.
Due
to our highly seasonal operations, a substantial portion of our revenues typically are generated during an approximate i130- to i140-day operating season. 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. 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, we extended the validity of our 2020 season-long products through the 2021 operating season in order to ensure our season pass holders received a full season of access to our parks. The extended validity of the 2020 season-long products resulted in a significant amount of revenue deferred from 2020 into 2021. All 2020 and 2021 season-long product revenue had been recognized as of December 31, 2021 except for season-long product extensions into 2022 at two parks. Knott's
Berry Farm offered a further day-for-day extension into calendar year 2022 for 2020 and 2021 season-long products 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 had been recognized by the end of the second quarter of 2022. Canada's Wonderland extended its 2020 and 2021 season-long products through September 5, 2022. All Canada's Wonderland 2020 and 2021 season-long product revenue had been 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 $i187.6 million of current deferred revenue recorded as of January 1, 2022, i91%
was related to season-long products. The remainder was related to deferred online transaction fees charged to customers, advanced ticket sales, prepaid games cards, advanced resort reservations, marina deposits and other deferred revenue. Approximately $i156 million of the current deferred revenue balance as of January 1, 2022 was recognized during the nine months ended September 25, 2022.
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 25, 2022 and September 26, 2021, $i8.5 million and $i13.9
million of the total non-current deferred revenue balance, respectively, represented redemptions expected to occur and be recognized outside of the twelve months following the end of each period. As of September 25, 2022 and September 26, 2021, we had recorded $i16.8 million and $i24.0
million of total non-current deferred revenue, respectively, which largely represented the non-current portion of season-long products purchased for the subsequent operating season and 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 25, 2022, December 31, 2021 and September 26, 2021, we recorded a $i19.7
million, $i5.7 million and $i14.4 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.
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 assets" 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 also 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. We concluded no other indicators of impairment existed during the first
nine months of 2022 and 2021, respectively. We based our conclusions on our financial performance projections, as well as an updated analysis of macroeconomic and industry-specific conditions.
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 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. The annual base rent under the lease initially is $i12.2 million and
will increase by i2.5% each year. Upon termination of the lease, we will close existing park operations and remove the rides
and attractions from the land. During the third quarter of 2022, we recognized an $ii82.8/ million
right-of-use asset and lease liability for the lease, which included $i12.8 million of estimated costs 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. 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 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 no impairment charges. 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.
We concluded no other indicators of impairment existed during the first nine months of 2022 and 2021, respectively. We based our conclusions on our financial performance projections, as well as an updated analysis
of macroeconomic and industry-specific conditions.
U.S. term loan averaging i2.56% YTD 2022, i1.85%
in 2021; i1.86% YTD 2021 (1)
$
i—
$
i264,250
$
i264,250
Notes
2024
U.S. fixed rate senior unsecured notes at i5.375%
i—
i—
i450,000
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
i2,564,250
i3,014,250
Less
current portion
i—
i—
i—
i2,300,000
i2,564,250
i3,014,250
Less
debt issuance costs and original issue discount
(i34,510)
(i45,314)
(i50,207)
$
i2,265,490
$
i2,518,936
$
i2,964,043
(1)
The average interest rates do not reflect the effect of interest rate swap agreements (see Note 7). The 2022 year-to-date interest rate reflects borrowings prior to full repayment of the term loan facility during the third quarter of 2022.
/
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. We made the remaining $i264.3
million of principal payments on the senior secured term loan facility during 2022, and the term loan facility was repaid in full with final payments that we made during the third quarter of 2022. As a result, we recognized a $i1.8 million loss on early debt extinguishment during the third quarter of 2022, inclusive of the write-off of debt issuance costs and original issue discount. 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 basis points (bps).
As of September 25, 2022, 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 LIBOR plus i350
bps or Canadian Dollar Offered Rate ("CDOR") plus i250 bps, requires the payment of a ii62.5/
bps commitment fee per annum on the unused portion of the revolving credit facility, in each case without any step-downs, is collateralized by substantially all of the assets of the Partnership and matures in December 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. The maximum outstanding revolving credit facility balance during the first nine months of 2022 was $i185.0
million, and there were ino amounts outstanding under the revolving credit facility as of September 25, 2022. 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 25, 2022.
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 June 2014, we issued $i450
million of i5.375% senior unsecured notes due 2024 ("2024 senior notes"). The 2024 senior notes paid interest semi-annually in June and December, with the principal due in full on June 1, 2024. On December 17, 2021, we redeemed all of the 2024 senior notes at a redemption price equal to i100.896%
of the principal amount plus accrued and unpaid interest. As a result, we recognized a $i5.9 million loss on early debt extinguishment during the fourth quarter of 2021, inclusive of debt premium payments of $i4.1
million and the write-off of debt issuance costs of $i1.8 million.
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. Prior to October 1, 2023, up to i35% of the 2028 senior notes may be redeemed with the net cash proceeds of certain equity
offerings at a price equal to i106.500% of the principal amount thereof, together with accrued and unpaid interest, if any. The 2028 senior notes may be redeemed, in whole or in part, at any time prior to October 1, 2023 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 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 i4.50x
Total First Lien Senior Secured Debt-to-Consolidated EBITDA, which will step down to i4.00x in the second quarter of 2023 and which will step down further to i3.75x
in the third quarter of 2023. The 2017 Credit Agreement, as amended, included an Additional Restrictions Period to provide further covenant relief during the COVID-19 pandemic. We terminated the Additional Restrictions Period during the first quarter of 2022 by achieving compliance with the Senior Secured Leverage Ratio covenant as of the end of the fourth quarter of 2021. We were in compliance with the applicable financial covenants under our credit agreement during the nine months ended September 25, 2022.
Our 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 under our fixed rate note agreements, 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 25, 2022.
(7) iDerivative Financial Instruments:
Derivative financial instruments are used within our overall risk management program to manage certain interest rate and foreign currency risks. By utilizing a derivative
instrument to hedge exposure to LIBOR rate changes, we are exposed to counterparty credit risk, in particular the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, hedging instruments are placed with a counterparty that we believe poses minimal credit risk. We do not use derivative financial instruments for trading purposes.
As of December 31, 2021 and September 26, 2021, we had iifour/
interest rate swap agreements with a notional value of $ii500/ million
that converted one-month variable rate LIBOR to a fixed rate of ii2.88/% through December 31,
2023. This resulted in a ii4.63/% fixed interest rate for borrowings under our then-outstanding senior secured
term loan facility after the impact of interest rate swap agreements. iiNone/
of the interest rate swap agreements were designated as hedging instruments. We terminated our interest rate swap agreements during the third quarter of 2022 following the full repayment of our senior secured term loan facility, resulting in a $i5.3 million cash receipt, net of fees. iThe
fair value of our swap portfolio, including the location within the unaudited condensed consolidated balance sheets, for the periods presented were as follows:
Derivatives not designated as hedging instruments:
Interest Rate Swaps
Derivative Liability
$
i—
$
(i20,086)
$
(i28,504)
Instruments
that do not qualify for hedge accounting are adjusted to fair value each reporting period through "Net effect of swaps" within the unaudited condensed consolidated statements of operations and comprehensive income (loss).
The table below presents the balances of assets and liabilities measured at fair value as of September 25, 2022, December 31, 2021, and September 26, 2021 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
$
i279
$
i279
$
i478
$
i478
$
i561
$
i561
Interest
rate swaps
Derivative Liability
Level 2
i—
i—
$
(i20,086)
$
(i20,086)
$
(i28,504)
$
(i28,504)
Other
financial assets (liabilities):
Term debt
Long-Term Debt (1)
Level 2
i—
i—
$
(i264,250)
$
(i257,644)
$
(i264,250)
$
(i258,965)
2024
senior notes
Long-Term Debt (1)
Level 1
i—
i—
i—
i—
$
(i450,000)
$
(i454,500)
2025
senior notes
Long-Term Debt (1)
Level 2
$
(i1,000,000)
$
(i975,000)
$
(i1,000,000)
$
(i1,035,000)
$
(i1,000,000)
$
(i1,040,000)
2027
senior notes
Long-Term Debt (1)
Level 1
$
(i500,000)
$
(i460,000)
$
(i500,000)
$
(i513,750)
$
(i500,000)
$
(i514,375)
2028
senior notes
Long-Term Debt (1)
Level 1
$
(i300,000)
$
(i283,500)
$
(i300,000)
$
(i319,125)
$
(i300,000)
$
(i322,500)
2029
senior notes
Long-Term Debt (1)
Level 1
$
(i500,000)
$
(i441,250)
$
(i500,000)
$
(i513,750)
$
(i500,000)
$
(i512,500)
(1)Carrying
values of long-term debt balances are before reductions for debt issuance costs and original issue discount of $i34.5 million, $i45.3 million and
$i50.2 million as of September 25, 2022, December 31, 2021 and September 26, 2021, respectively.
/
Fair values of the interest rate swap agreements
are determined using significant inputs, including the LIBOR forward curves, which are considered Level 2 observable market inputs.
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 25, 2022, December 31, 2021 or September 26, 2021.
(9) iIncome
(Loss) per Unit:
i
Net income (loss) per limited partner unit was calculated based on the following unit amounts:
There
were approximately i0.7 million potentially dilutive units excluded from the computation of diluted loss per limited partner unit for the nine month period ended September 26, 2021, as their effect would have been anti-dilutive due to the net loss in the period.
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. The refunds were recorded as a receivable as of December 31, 2021 in "Current income tax receivable" within the consolidated balance sheet.
Additional benefits from the CARES 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. The current portion was recorded in "Accrued salaries, wages and benefits" and the non-current portion as of September 26, 2021 was recorded in "Other Liabilities" 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.
(11) iPartners' Equity:
On August 3, 2022, we announced that our Board of Directors approved
a unit repurchase plan authorizing the Partnership to repurchase units for an aggregate purchase price of not more than $i250 million. The unit repurchase program is subject to Rule 10b-18 of the Securities Exchange Act of 1934. Subject to applicable rules and regulations, we may 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 corporate
considerations. No limit was placed on the duration of the repurchase program. The unit repurchase program does not obligate the Partnership to repurchase any minimum dollar amount or specific number of units, and the program may be modified, suspended, or discontinued at any time.
There were ii1.5/
million limited partnership units repurchased 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 was $i184.0 million of remaining availability under the repurchase program as of September 25, 2022. There were ino
unit repurchases in 2021.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
Along with attendance and in-park per capita spending statistics, 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.
Impact of COVID-19 Pandemic
The novel coronavirus (COVID-19) pandemic had a material impact on our business in 2020, had a continuing negative impact in 2021 and may have a longer-term negative effect. On March 14, 2020, we closed our properties in response to the spread of COVID-19 and local government mandates. We ultimately resumed only partial operations at 10 of our 13 properties in 2020. Due to soft demand trends upon reopening in 2020, park operating calendars were adjusted, including reduced operating days per week and operating hours within each operating day and earlier closure of certain parks than a typical operating year. Following March 14, 2020, Knott's Berry Farm's partial operations in 2020 were limited to culinary
festivals.
In May 2021, we opened all of our U.S. properties for the 2021 operating season on a staggered basis with capacity restrictions, guest reservations, and other operating protocols in place. Our 2021 operating calendars were designed to align with anticipated capacity restrictions, guest demand and labor availability, including fewer operating days in July and August at some of our smaller properties and additional operating days in September and the fourth quarter at most of our properties. As vaccination distribution efforts continued during the second quarter of 2021 and we were able to hire additional labor, we removed most capacity restrictions, guest reservation requirements and other protocols at our U.S. properties beginning in July 2021. We were also able to open our Canadian property, Canada's Wonderland, in July 2021. Canada's Wonderland operated with capacity restrictions,
guest reservations, and other operating protocols in place throughout 2021.
All of our properties opened for the 2022 operating season without restrictions as planned. We currently anticipate maintaining full park operating calendars for the remainder of the 2022 operating season. However, we have and may continue to adjust future park operating calendars as we respond to changes in guest demand, labor availability and any federal, provincial, state and local restrictions. Our future operations are dependent on factors outside of our knowledge or control, including the duration and severity of the COVID-19 pandemic and actions taken to contain its spread and mitigate its public health effects.
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. Beyond estimates in the normal course of business, management has also made significant estimates and assumptions related to the COVID-19 pandemic to estimate the impact on our business, including financial results in the near and long-term. 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 2022, 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, 2021.
We believe the following are key operational measures 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:
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).
Due to the effects of the COVID-19 pandemic, the results for the nine months ended September 25, 2022 were not directly comparable with the results for the nine months ended September 26, 2021. The current nine-month period included 1,926 operating days compared with 1,381 operating days for the nine-month period ended September 26, 2021. In the prior period and due to the effects of the COVID-19 pandemic, we postponed the opening of our parks for the 2021 operating season to May 2021, when all of our properties opened on a staggered basis except our Canadian property, Canada's Wonderland, which opened in July 2021. Upon opening in 2021, park operating calendars were reduced, guest reservations were required and some operating restrictions were in place. We removed most
capacity restrictions, guest reservation requirements and other protocols at our U.S. properties beginning in July 2021. Operating restrictions remained in place at our Canadian property throughout the third quarter of 2021. We adjusted our 2021 operating calendars to reflect anticipated changes in guest demand, labor availability and state and local restrictions by including fewer operating days in July and August at some of our smaller properties and by including additional operating days in September. The 2021 period also included the results from limited out-of-park attractions prior to the May 2021 opening of our parks. Limited out-of-park attractions included some of our hotel properties and a culinary festival at Knott's Berry Farm from March 5, 2021 through May 2, 2021.
(Amounts in thousands, except per capita and operating days)
Net revenues
$
1,451,389
$
987,283
$
464,106
47.0
%
Operating
costs and expenses
1,003,317
749,242
254,075
33.9
%
Depreciation and amortization
126,441
112,906
13,535
12.0
%
Loss
on impairment / retirement of fixed assets, net
6,379
5,873
506
N/M
Gain on sale of assets
(155,251)
(2)
(155,249)
N/M
Operating
income
$
470,503
$
119,264
$
351,239
294.5
%
Other Data:
Attendance
21,603
14,178
7,425
52.4
%
In-park
per capita spending
$
61.24
62.26
$
(1.02)
(1.6)
%
Out-of-park revenues
$
173,416
$
134,054
$
39,362
29.4
%
Operating
days
1,926
1,381
545
39.5
%
N/M Not meaningful due to the nature of the expense line-item.
For the nine months ended September 25, 2022, net revenues totaled $1.5 billion compared with $987.3 million for the nine months ended September 26, 2021. The increase in net revenues was attributable
to a 545 operating day increase in the current period resulting in a 7.4 million-visit increase in attendance and a $39.4 million increase in out-of-park revenues. In-park per capita spending for the nine months ended September 25, 2022 decreased 1.6% to $61.24, which was largely due to lower levels of guest spending in extra-charge products driven by lower sales volume. While the majority of the increase in out-of-park revenues was attributable to the 545 operating day increase in the current period, out-of-park revenues also increased due to the reopening of Castaway Bay Resort and Sawmill Creek Resort at Cedar Point following temporary closures for renovations, offset somewhat by the prior period culinary festival at Knott's Berry Farm. The increase in net revenues included a $3.9 million unfavorable impact of foreign currency exchange rates at our Canadian park.
Operating costs and expenses for the nine months ended September 25, 2022 increased to $1.0 billion from $749.2 million for the nine months ended September 26, 2021. This was the result of a $47.6 million increase in cost of goods sold, a $180.2 million increase in operating expenses and a $26.3 million increase in SG&A expense, all of which were largely the result of the 545 operating day increase in the current period. The majority of the $180.2 million increase in operating expenses was attributable to the increase in operating days. Additionally, the increase in operating expenses was due to an increase in full-time wages primarily related to a planned increase in head count at select parks, an increase in the maintenance labor rate, and incremental land lease and property tax costs associated with
the sale-leaseback of the land at California's Great America. The increase in operating costs and expenses included a $1.8 million favorable impact of foreign currency exchange rates at our Canadian park.
Depreciation and amortization expense for the nine months ended September 25, 2022 increased $13.5 million compared with the nine months ended September 26, 2021 due primarily to recent capital expenditures and 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. The loss on impairment / retirement of fixed assets for both periods was due to retirement of assets in the normal course of business.
After
a $155.3 million gain on the sale of the land at California's Great America during the third quarter of 2022 and the items above, operating income for the nine months ended September 25, 2022 totaled $470.5 million compared with $119.3 million for the nine months ended September 26, 2021.
Interest expense for the nine months ended September 25, 2022 decreased $21.0 million primarily due to the redemption of the 2024 senior notes in December 2021. The net effect of our swaps resulted in a benefit to earnings of $25.6 million for the nine months ended September 25, 2022 compared with a $10.6 million benefit to earnings for the nine months ended September 26,
2021. The difference was attributable to the change in fair value of our swap portfolio. We terminated our interest rate swap agreements during the third quarter of 2022 following the full repayment of our senior secured term loan facility resulting in a $5.3 million cash receipt, net of fees. In addition, we recognized a $1.8 million loss on early debt extinguishment upon full repayment of our senior secured term debt facility during the third quarter of 2022. During the current period, we also recognized a $24.2 million net charge to earnings for foreign currency gains and losses compared with a $1.7 million net benefit for the nine months ended September 26, 2021. The amounts primarily represented the remeasurement of U.S. dollar denominated debt to the Canadian entity's functional currency.
During the nine months ended September 25,
2022, a provision for taxes of $61.4 million was recorded to account for PTP taxes and federal, state, local and foreign income taxes compared with $16.9 million for the nine months ended September 26, 2021. The increase in provision for taxes was primarily attributable to higher pretax income from our taxable subsidiaries in the current period.
After the items above, net income for the nine months ended September 25, 2022 totaled $295.3 million, or $5.18 per diluted limited partner unit, compared with a net loss of $21.3 million, or $0.38 per diluted limited partner unit, for the nine months ended September 26, 2021.
As described above, the results for the nine months ended September 25, 2022 were not directly comparable with the results for the nine months ended September 26, 2021 due to the effects of the COVID-19 pandemic. Therefore, we included a comparison of our current period results with the nine months ended September 29, 2019. While the 2019 results are more comparable to our 2022 results, the 2022 results are also not directly comparable with the 2019 results due to the acquisition of Schlitterbahn Waterpark and Resort New Braunfels and Schlitterbahn Waterpark Galveston ("Schlitterbahn parks") on July
1, 2019. The current nine-month period included 1,926 operating days compared with a total of 1,862 operating days for the nine-month period ended September 29, 2019. There were 98 incremental operating days at the Schlitterbahn parks in the current period compared with the corresponding 2019 period. Excluding the Schlitterbahn parks, operating days for the nine months ended September 25, 2022 decreased 34 operating days compared with the nine months ended September 29, 2019 due to a planned reduction of early-season operating days at some of our properties in the current period.
(Amounts in thousands, except per capita and operating days)
Net revenues
$
1,451,389
$
1,217,679
$
233,710
19.2
%
Operating
costs and expenses
1,003,317
784,060
219,257
28.0
%
Depreciation and amortization
126,441
137,828
(11,387)
(8.3)
%
Loss
on impairment / retirement of fixed assets, net
6,379
3,781
2,598
N/M
Gain on sale of assets
(155,251)
(617)
(154,634)
N/M
Operating
income
$
470,503
$
292,627
$
177,876
60.8
%
Other Data:
Attendance
21,603
22,864
(1,261)
(5.5)
%
In-park
per capita spending (1)
$
61.24
$
48.73
$
12.51
25.7
%
Out-of-park revenues (1)
$
173,416
$
140,452
$
32,964
23.5
%
Operating
days
1,926
1,862
64
3.4
%
N/M Not meaningful due to the nature of the expense line-item.
(1) Net revenues as disclosed within the statements of operations and comprehensive income (loss) consist of in-park revenues and out-of-park revenues less amounts remitted to outside parties under concessionaire arrangements. In-park per capita spending is calculated as in-park revenues divided by
total attendance. In-park revenues and concessionaire remittance totaled $1.1 billion and $37.0 million, respectively, for the nine months ended September 29, 2019.
For the nine months ended September 25, 2022, net revenues totaled $1.5 billion compared with $1.2 billion for the nine months ended September 29, 2019. The increase in net revenues reflected the impact of a 26% increase in in-park per capita spending to $61.24, and a 23%, or $33.0 million, increase in out-of-park revenues. These increases were offset by the impact of a 6%, or 1.3 million-visit decline in attendance. The increase in in-park per capita spending was driven by higher guest spending across all key revenue categories, particularly admissions, food and beverage and extra-charge spending. The increase in
food and beverage and extra-charge spending was driven by both increased pricing and increased sales volume. The increase in out-of-park revenues was attributable to increased online transaction fees charged to customers, higher revenues at our Cedar Point resort properties, higher sales at Knott's Berry Farm's Marketplace, as well as revenues from the Resort at Schlitterbahn New Braunfels which was acquired in July 2019. The decline in attendance was driven by an expected slower recovery in group sales attendance, the planned reduction of low-value ticket programs, and an overall decline in single-day attendance. The increase in net revenues included a $3.6 million favorable impact of foreign currency exchange rates at our Canadian park.
Operating costs and expenses for the nine months ended September 25, 2022 increased $219.3 million
compared with the nine months ended September 29, 2019. This was the result of a $27.1 million increase in cost of goods sold, a $172.1 million increase in operating expenses and a $20.0 million increase in SG&A expense. Cost of goods sold as a percentage of food, merchandise and games revenue increased 0.8%. The increase in operating expenses was attributable to a significant increase in seasonal labor rate, higher full-time wages primarily related to a planned increase in head count at select parks, higher related employee benefits, the inclusion of the results of the Schlitterbahn parks, and higher costs for supplies. The increase in SG&A expense was largely due to an increase in full-time wages, including an increase in accrued bonus and equity-based compensation plan expenses, as well as an increase in transaction fees and IT-related costs. These increases in SG&A expense were offset by a decline in advertising
costs driven by a more efficient marketing program. The increase in operating costs and expenses included a $2.0 million unfavorable impact of foreign currency exchange rates at our Canadian park.
Depreciation and amortization expense for the nine months ended September 25, 2022 decreased $11.4 million compared with the nine months ended September 29, 2019 due primarily to the prior period change in estimated useful life of a long-lived asset at Kings Dominion, as well as the full depreciation of 15-year useful lived property and equipment from our 2006 acquisition. The loss on impairment / retirement of fixed assets for the nine months ended September 25, 2022 and September 29, 2019 included
retirements of assets in the normal course of business.
After a $155.3 million gain on the sale of the land at California's Great America during the third quarter of 2022 and the items above, operating income for the nine months ended September 25, 2022 totaled $470.5 million compared with $292.6 million for the nine months ended September 29, 2019.
Interest expense for the nine months ended September 25, 2022 increased $43.6 million compared with the nine months ended September 29, 2019 due to interest incurred on the 2025 senior notes, 2028 senior notes and 2029 senior notes offset in part by the impact
of the redemption of the 2024 senior notes in December 2021 and the prepayment of term debt in 2020. The 2025
senior notes and the 2028 senior notes were issued in 2020 to supplement liquidity in response to the impacts of the COVID-19 pandemic, and the 2029 senior notes were issued at the end of the second quarter of 2019 in coordination with the acquisition of the Schlitterbahn parks. The net effect of our swaps resulted in a benefit to earnings of $25.6 million for the nine months ended September 25, 2022 compared with a $21.1 million charge to earnings for the nine months ended September 29,
2019. The difference was attributable to the change in fair value of our swap portfolio. We terminated our interest rate swap agreements during the third quarter of 2022 following the full repayment of our senior secured term loan facility resulting in a $5.3 million cash receipt, net of fees. In addition, we recognized a $1.8 million loss on early debt extinguishment upon full repayment of our senior secured term debt facility during the third quarter of 2022. During the current period, we also recognized a $24.2 million net charge to earnings for foreign currency gains and losses compared with a $12.5 million net benefit for the nine months ended September 29, 2019. The amounts primarily represented the remeasurement of U.S. dollar denominated debt to the Canadian entity's functional currency.
During the nine months ended September 25,
2022, a provision for taxes of $61.4 million was recorded to account for PTP taxes and federal, state, local and foreign income taxes compared with $43.5 million for the nine months ended September 29, 2019. The increase in provision for taxes was primarily attributable to an increase in pretax income from our taxable subsidiaries.
After the items above, net income for the nine months ended September 25, 2022 totaled $295.3 million, or $5.18 per diluted limited partner unit, compared with $169.6 million, or $2.98 per diluted limited partner unit, for the nine months ended September 29, 2019.
The current three-month period included 1,088 operating days compared with 988 operating days for the three-month period ended September 26, 2021. There were negative effects of the COVID-19 pandemic in the prior period. All of our properties were open during the third quarter of 2021, and we removed most capacity restrictions, guest reservation requirements and other protocols at our U.S. properties beginning in July 2021. However, operating restrictions remained in place at our Canadian property throughout the third quarter of 2021. We also adjusted our third quarter 2021 operating calendars to reflect anticipated changes in guest demand, labor availability and state and local restrictions by including
fewer operating days in July and August at some of our smaller properties and by including additional operating days in September.
(Amounts in thousands, except per capita and operating days)
Net revenues
$
843,063
$
753,404
$
89,659
11.9
%
Operating
costs and expenses
484,673
423,791
60,882
14.4
%
Depreciation and amortization
67,805
77,461
(9,656)
(12.5)
%
Loss
on impairment / retirement of fixed assets, net
3,632
2,397
1,235
N/M
Gain on sale of assets
(155,251)
—
(155,251)
N/M
Operating
income
$
442,204
$
249,755
$
192,449
77.1
%
Other Data:
Attendance
12,304
10,769
1,535
14.3
%
In-park
per capita spending
$
62.62
64.26
$
(1.64)
(2.6)
%
Out-of-park revenues
$
97,302
$
83,074
$
14,228
17.1
%
Operating
days
1,088
988
100
10.1
%
N/M Not meaningful due to the nature of the expense line-item.
For the three months ended September 25, 2022, net revenues totaled $843.1 million compared with $753.4 million for the three months ended September 26, 2021. The increase in net revenues was attributable
to prior period operating restrictions at Canada's Wonderland and a 100 operating day increase in the current period resulting in a 1.5 million-visit increase in attendance. In-park per capita spending for the three months ended September 25, 2022 decreased 2.6% to $62.62, which was largely due to lower levels of guest spending in extra-charge products attributable to lower sales volume and guest spending in admissions driven by a higher season pass mix. Out-of-park revenues increased $14.2 million mostly due to the reopening of Castaway Bay Resort and Sawmill Creek Resort at Cedar Point following temporary closures for renovations. The increase in net revenues included a $3.2 million unfavorable impact of foreign currency exchange rates at our Canadian park.
Operating costs and expenses for the three months ended September 25,
2022 increased to $484.7 million from $423.8 million for the three months ended September 26, 2021. This was the result of a $13.6 million increase in cost of goods sold, a $50.0 million increase in operating expenses and a $2.7 million decrease in SG&A expense. Cost of goods sold as a percentage of
food, merchandise and games revenue increased 1.5%. The majority of the increase in operating expenses was the result of prior period operating restrictions and the 100 operating day increase in the current period. Additionally, the increase in operating expenses was due to an increase in full-time wages
primarily related to a planned increase in head count at select parks, an increase in the maintenance labor rate, and incremental land lease and property tax costs associated with the sale-leaseback of the land at California's Great America. The decrease in SG&A expense was attributable to a decrease in accrued bonus compensation plan expense driven by company performance expectations offset by an increase in transaction fees driven by higher online sales. The increase in operating costs and expenses included a $1.2 million favorable impact of foreign currency exchange rates at our Canadian park.
Depreciation and amortization expense for the three months ended September 25, 2022 decreased $9.7 million compared with the three months ended September 26, 2021 due to a lower percentage
of total planned operating days in the third quarter of 2022 compared with the percentage of total planned operating days in the third quarter of 2021, somewhat offset by 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. We recognize depreciation expense over planned operating days for the majority of our assets. The loss on impairment / retirement of fixed assets for both periods was due to retirement of assets in the normal course of business.
After a $155.3 million gain on the sale of the land at California's Great America during the third quarter of 2022 and the items above, operating income for the three months ended September 25, 2022 totaled $442.2 million compared with $249.8 million for the three months ended
September 26, 2021.
Interest expense for the three months ended September 25, 2022 decreased $9.2 million primarily due to the redemption of the 2024 senior notes in December 2021. The net effect of our swaps resulted in a benefit to earnings of $3.7 million for the three months ended September 25, 2022 compared with a $3.2 million benefit to earnings for the three months ended September 26, 2021. The difference was attributable to the change in fair value of our swap portfolio. We terminated our interest rate swap agreements during the third quarter of 2022 following the full repayment of our senior secured term loan facility resulting in a $5.3 million cash receipt, net of fees. In addition,
we recognized a $1.8 million loss on early debt extinguishment upon full repayment of our senior secured term debt facility during the third quarter of 2022. During the current period, we also recognized a $14.4 million net charge to earnings for foreign currency gains and losses compared with a $15.2 million net charge for the three months ended September 26, 2021. The amounts primarily represented the remeasurement of U.S. dollar denominated debt to the Canadian entity's functional currency.
During the three months ended September 25, 2022, a provision for taxes of $61.2 million was recorded to account for PTP taxes and federal, state, local and foreign income taxes compared with $43.8 million for the three months ended September 26, 2021. The increase
in provision for taxes was primarily attributable to an increase in pretax income from our taxable subsidiaries in the current period.
After the items above, net income for the three months ended September 25, 2022 totaled $333.1 million, or $5.86 per diluted limited partner unit, compared with $148.0 million, or $2.60 per diluted limited partner unit, for the three months ended September 26, 2021.
Due to continued effects of the COVID-19 pandemic on the 2021 period, we also included a comparison of our current period results with the three months ended September 29, 2019. The current three-month period included 1,088 operating days compared with a total of 1,035 operating days for the three period ended September 29, 2019. The 53 operating day increase was attributable to a four day calendar shift from 2019 to 2022.
(Amounts in thousands, except per capita and operating days)
Net revenues
$
843,063
$
714,512
$
128,551
18.0
%
Operating
costs and expenses
484,673
369,180
115,493
31.3
%
Depreciation and amortization
67,805
68,335
(530)
(0.8)
%
Loss
on impairment / retirement of fixed assets, net
3,632
1,675
1,957
N/M
Gain on sale of assets
(155,251)
—
(155,251)
N/M
Operating
income
$
442,204
$
275,322
$
166,882
60.6
%
Other Data:
Attendance
12,304
13,189
(885)
(6.7)
%
In-park
per capita spending (1)
$
62.62
$
49.94
$
12.68
25.4
%
Out-of-park revenues (1)
$
97,302
$
76,347
$
20,955
27.4
%
Operating
days
1,088
1,035
53
5.1
%
N/M Not meaningful due to the nature of the expense line-item.
(1) Net revenues as disclosed within the statements of operations and comprehensive income (loss) consist of in-park revenues and out-of-park revenues less amounts remitted to outside parties under concessionaire arrangements. In-park per capita spending is calculated as in-park revenues divided by
total attendance. In-park revenues and concessionaire remittance totaled $658.6 million and $20.5 million, respectively, for the three months ended September 29, 2019.
For the three months ended September 25, 2022, net revenues totaled $843.1 million compared with $714.5 million for the three months ended September 29, 2019. The increase in net revenues reflected the impact of a 25% increase in in-park per capita spending to $62.62, and a 27%, or $21.0 million, increase in out-of-park revenues. These increases were offset by the impact of a 7%, or 0.9 million-visit decline in attendance. The increase in in-park per capita spending was driven by higher guest spending across all key revenue categories, particularly admissions, food and beverage and extra-charge spending. The increase
in food and beverage and extra-charge spending was driven by both increased pricing and increased sales volume. The increase in out-of-park revenues was largely attributable to increased revenues at our Cedar Point resort properties and increased online transaction fees charged to customers. The decline in attendance was driven by an expected slower recovery in group sales attendance, the planned reduction of low-value ticket programs, and an overall decline in single-day attendance. The increase in net revenues included a $1.8 million favorable impact of foreign currency exchange rates at our Canadian park.
Operating costs and expenses for the three months ended September 25, 2022 increased $115.5 million compared with the three months ended September 29, 2019. This was the result of
a $14.6 million increase in cost of goods sold, a $95.8 million increase in operating expenses and a $5.1 million increase in SG&A expense. Cost of goods sold as a percentage of food, merchandise and games revenue increased 0.7%. The increase in operating expenses was largely attributable to a significant increase in seasonal labor rate, higher full-time wages primarily related to a planned increase in head count at select parks, higher costs for supplies, and incremental land lease and property tax costs associated with the sale-leaseback of the land at California's Great America. The increase in SG&A expense was primarily due to an increase in transaction fees, an increase in full-time wages, including an increase in accrued bonus compensation plan expense, as well as an increase in IT-related costs. These increases in SG&A expense were offset by a decline in advertising costs driven by a more efficient marketing program. The increase in operating costs
and expenses included a $0.6 million unfavorable impact of foreign currency exchange rates at our Canadian park.
Depreciation and amortization expense for the three months ended September 25, 2022 did not fluctuate materially compared to the three months ended September 29, 2019. The loss on impairment / retirement of fixed assets for the three months ended September 25, 2022 and September 29, 2019 included retirements of assets in the normal course of business.
After a $155.3 million gain on the sale of the land at California's Great America during the third quarter of 2022 and the items above, operating
income for the three months ended September 25, 2022 totaled $442.2 million compared with $275.3 million for the three months ended September 29, 2019.
Interest expense for the three months ended September 25, 2022 increased $9.1 million compared with the three months ended September 29, 2019 due to interest incurred on the 2025 senior notes and 2028 senior notes offset in part by the impact of the redemption of the 2024
senior notes in December 2021 and the prepayment of term debt in 2020. The 2025 senior notes and the 2028 senior notes were issued to supplement liquidity in response to the impacts of the COVID-19 pandemic. The net effect of our swaps resulted in a benefit to earnings of $3.7 million for the three months ended September 25, 2022 compared with a $3.9 million charge to earnings for the three months ended September 29, 2019. The difference was attributable to the change in fair value of our swap portfolio. We terminated our interest rate swap agreements during the third quarter of 2022 following the full repayment of our senior secured term loan facility resulting in a $5.3 million cash receipt, net of fees. In addition, we recognized a $1.8 million loss on early debt extinguishment upon full repayment of our senior secured term debt facility during the third quarter of
2022. During the current period, we also recognized a $14.4 million net charge to earnings for foreign currency gains and losses compared with a $5.6 million net charge for the three months ended September 29, 2019. The amounts primarily represented the remeasurement of U.S. dollar denominated debt to the Canadian entity's functional currency.
During the three months ended September 25, 2022, a provision for taxes of $61.2 million was recorded to account for PTP taxes and federal, state, local and foreign income taxes compared with $48.8 million for the three months ended September 29, 2019. The increase in provision for taxes was attributable to an increase in pretax income from our taxable subsidiaries.
After
the items above, net income for the three months ended September 25, 2022 totaled $333.1 million, or $5.86 per diluted limited partner unit, compared with $190.0 million, or $3.34 per diluted limited partner unit, for the three months ended September 29, 2019.
October Update
Due to the effects of the COVID-19 pandemic, we postponed the opening of our parks for the 2021 operating season to May 2021. Therefore, we compared the results for the ten months ended October 30, 2022 to the ten months ended November 3, 2019. For the ten months ended
October 30, 2022, preliminary net revenues totaled approximately $1.68 billion and increased 22%, or $306 million, compared with the ten months ended November 3, 2019. Based on preliminary results for the ten months ended October 30, 2022, attendance totaled 24.9 million visits, down 4% or 0.9 million visits from 2019, in-park per capita spending was $61.72, up 27% from 2019, and out-of-park revenues totaled $195 million, up 26% or $40 million from 2019. Operating days for the ten month periods in 2022 and 2019 totaled 2,103 operating days and 2,028 operating days, respectively. Excluding the Schlitterbahn parks, there were 13 fewer operating days in the current period due to a planned reduction of early-season operating days at some of our properties.
Net
revenues consist of in-park revenues and out-of-park revenues less amounts remitted to outside parties under concessionaire arrangements. In-park per capita spending is calculated as in-park revenues divided by total attendance. Preliminary in-park revenues and concessionaire remittance totaled approximately $1.53 billion and $50 million, respectively, for the ten months ended October 30, 2022. In the comparable period, in-park revenues and concessionaire remittance totaled approximately $1.26 billion and $40 million, respectively, for the ten months ended November 3, 2019.
Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortization, other non-cash items, and adjustments as defined in our current and prior credit agreements. 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. 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. 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 (loss) for the three- and nine-month periods ended September 25, 2022, September 26, 2021 and September 29, 2019. Due to the effects of the COVID-19 pandemic on our 2021 results, we included comparisons to 2019 in addition to comparisons to 2021.
Loss
on impairment / retirement of fixed assets, net
3,632
2,397
1,675
6,379
5,873
3,781
Gain
on sale of assets
(155,251)
—
—
(155,251)
(2)
(617)
Acquisition-related costs
—
—
6,292
—
—
7,238
Other
(1)
428
650
499
1,120
1,157
782
Adjusted EBITDA
$
361,985
$
333,368
$
355,188
$
464,122
$
251,466
$
450,091
(1) 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 and severance expenses. This balance also includes unrealized gains and losses on short-term investments.
For the three months ended September 25, 2022, Adjusted EBITDA increased $28.6 million compared with the three months ended September 26, 2021. The increase was primarily due to prior period operating restrictions, a 100 operating day increase in the current period, and the related improvement in attendance offset somewhat by an increase in expenses incurred, particularly for labor and cost of goods sold. As compared with the three months ended September 29, 2019,
Adjusted EBITDA increased $6.8 million for the three months ended September 25, 2022. This increase was due to higher net revenues in the current period attributable to higher in-park per capita spending and increased out-of-park revenues, which were somewhat offset by increased costs in the current period, particularly labor costs.
For the nine months ended September 25, 2022, Adjusted EBITDA increased $212.7 million compared with the nine months ended September 26, 2021. The increase was primarily due to a 545 operating day increase in the current period and the related improvement in attendance and out-of-park revenues offset somewhat by an increase in expenses incurred, particularly for labor and cost of goods sold. As compared with
the nine months ended September 29, 2019, Adjusted EBITDA increased $14.0 million for the nine months ended September 25, 2022. This increase in Adjusted EBITDA was due to higher net revenues in the current period attributable to higher in-park per capita spending, increased out-of-park revenues and the inclusion of the Schlitterbahn parks, which were somewhat offset by increased costs in the current period, particularly labor 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 typically fund pre-opening operations with revolving credit borrowings. Revolving credit borrowings are typically reduced with our positive cash flow during the seasonal operating period. Our primary uses of liquidity include operating expenses, partnership distributions, capital expenditures, interest payments, income tax obligations, and recently, limited partnership unit repurchases.
We have funded and expect to fund our remaining 2022 liquidity needs with cash from operating activities and borrowings from our revolving credit facility. As of September 25, 2022, we had cash on hand
of $288.4 million and $280.1 million of availability under our revolving credit facility. 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 2023. Due to limited open operations in early 2021 and in response to the negative effects of the COVID-19 pandemic, our first quarter 2021 liquidity needs were funded from cash on hand from senior notes issued in 2020. We began generating positive cash flows from operations during the second quarter of 2021.
Management has been focused on driving profitable and sustainable growth in the business, reducing the Partnership's outstanding debt, reinstating the quarterly partnership distribution, and accelerating the return of capital to our unitholders.
–We
expect to invest between $170 million and $180 million in total capital expenditures for the 2022 operating season, which includes the completion of two resort renovation projects, investments to expand our park offerings and develop new revenue centers, and technology enhancements, such as cashless parks, touch-free transactions and labor management tools.
–On June 27, 2022, the Partnership sold the land at California's Great America for a cash purchase price of $310 million, subject to customary prorations, see Note 4.
–We have made progress towards our goal of reducing our outstanding debt. In December 2021, we redeemed $450 million of 5.375%
senior unsecured notes due 2024 ("2024 senior notes"). In addition, we repaid the remaining outstanding principal amount on our senior secured term loan facility in 2022 ($264.3 million), completing the full repayment of the term loan during the third quarter of 2022.
–We paid our first partnership distribution since March 2020 of $0.30 per limited partner unit, which was paid on September 15, 2022. On November 2, 2022, we announced that our Board declared an additional partnership distribution of $0.30 per limited partner unit, which will be payable on December 15, 2022 to unitholders of record on December 1, 2022.
–Lastly, on
August 3, 2022, we announced that our Board of Directors approved a unit repurchase plan authorizing the Partnership to repurchase units for an aggregate purchase price of not more than $250 million, see Note 11. There were 1.5 million limited partnership units repurchased during the nine months ended September 25, 2022 at an average price of $43.30 per limited partner unit for an aggregate amount of $66.0 million. There was $184.0 million of remaining availability under the repurchase program as of September 25, 2022. Through October 31, 2022, there were 2.8 million limited partnership units repurchased for an aggregate amount of $115.5
million.
We anticipate between $145 million and $150 million in annual cash interest for 2022 of which 75% of the payments occur in the second and fourth quarters. In the second quarter of 2022, we received $77.1 million in tax refunds attributable to the tax year 2020 net operating loss being carried back to prior years in the United States. We received $11.1 million in tax refunds attributable to net operating losses being carried back to prior years in Canada during the first quarter of 2022. In 2022, we anticipate cash payments for income taxes to range from $40 million to $50 million, exclusive of these tax refunds.
As of September 25, 2022, deferred revenue totaled $187.7 million, including non-current deferred revenue. This represented a decrease
of $22.8 million compared with total deferred revenue as of September 26, 2021. The decrease in total deferred revenue was largely attributable to approximately $30 million of 2020 and 2021 season-long product extensions at Knott's Berry Farm and Canada's Wonderland in 2021 into the 2022 operating season. Excluding the prior period deferred revenue associated with product extensions, deferred revenue increased 4% as of September 25, 2022 compared with deferred revenue as of September 26, 2021. Virtually all 2022 season-long products will be recognized by December 31, 2022.
Operating Activities
Net cash from operating activities for the first nine months of 2022 totaled $412.4 million,
an increase of $182.3 million compared with the same period in the prior year. The increase in net cash from operating activities was primarily attributable to the delayed opening of our parks in the prior period to May 2021 resulting in less cash generated in the first nine months of 2021.
Investing Activities
Net cash from investing activities for the first nine months of 2022 totaled $172.0 million compared with $38.1 million of net cash for investing activities in the same period in the prior year. The variance in net cash from (for) investing activities was due to the current period sale of the land at California's Great America and the prior period planned reduction in capital spending to retain liquidity following the impacts of the COVID-19 pandemic.
Net cash for financing activities for the first nine months of 2022 totaled $352.4 million, an increase of $346.3 million compared with the same period in the prior year. The increase was attributable to $264.3 million of term debt payments in the current period to fully repay the remaining outstanding balance on our term debt facility, as well as repurchases of limited partnership units and a $0.30 per unit partnership distribution, both of which occurred during the third quarter of 2022.
Contractual Obligations
As of September 25, 2022, our primary contractual obligations consisted of outstanding long-term debt agreements. Before reduction for debt issuance costs and original issue discount, 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. Prior to October 1, 2023, up to 35% of the 2028 senior notes may be redeemed with the net cash proceeds of certain equity offerings at a price equal to 106.500% of the principal amount thereof, together with accrued and unpaid interest and additional interest, if any. The 2028 senior notes may be redeemed, in whole or in part, at any time prior to October 1, 2023 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 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 LIBOR plus 350 bps or Canadian Dollar Offered
Rate ("CDOR") plus 250 bps and requires the payment of a 62.5 bps commitment fee per annum on the unused portion of the credit facilities. The revolving credit facility is scheduled to mature in December 2023. 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 25, 2022, we had $280.1 million of availability under the revolving credit facility. Our letters of credit are primarily in place to backstop insurance arrangements.
On December 17, 2021, we redeemed $450 million of 5.375% senior unsecured notes, which otherwise would have matured in June 2024, at a redemption price equal to 100.896% of the principal amount plus accrued and unpaid interest. We repaid the remaining
outstanding balance on our senior secured term loan facility in 2022 ($264.3 million in principal amount), completing the full repayment of the term loan during the third quarter of 2022. Subsequently, we also terminated our interest rate swap agreements.
The 2017 Credit Agreement, as amended, includes a Senior Secured Leverage Ratio of 4.50x Total First Lien Senior Secured Debt-to-Consolidated EBITDA, which will step down to 4.00x in the second quarter of 2023 and which will step down further to 3.75x in the third quarter of 2023. The 2017 Credit Agreement, as amended, included an Additional Restrictions Period to provide further covenant relief during the COVID-19 pandemic. We terminated the Additional Restrictions Period during the first quarter of 2022 by achieving compliance with the Senior Secured Leverage Ratio covenant as of the end of the fourth quarter of 2021. We were in compliance
with the applicable financial covenants under our credit agreement during the nine months ended September 25, 2022.
Our 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 under our fixed rate note agreements, 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 25, 2022.
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 25, 2022: the 2025, 2027, 2028 and 2029 senior notes. The 2024 senior notes were fully redeemed on December 17, 2021. The 2024, 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"), and Magnum Management Corporation ("Magnum") were the co-issuers of the 2024 senior notes. Cedar Fair, L.P., Cedar Canada, 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 our 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 2024, 2027, 2028 and 2029 senior notes (the "Obligor Group"). We presented each entity that is or was a co-issuer of any series of the registered senior notes separately. The subsidiaries
that guarantee the 2027, 2028 and 2029 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. The subsidiaries that guaranteed the 2024 senior notes included the guarantor subsidiary group, as well as Millennium. Millennium is a co-issuer under the 2027, 2028 and 2029 senior notes and was a guarantor under the 2024 senior notes. 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 $14.0 million as of September 25, 2022 and December 31, 2021, respectively.
(1) With respect to the 2024 senior notes, if the financial information presented for Millennium was combined with that of the other guarantor subsidiaries
that have been presented on a combined basis, the following additional intercompany balances and transactions between Millennium and such other guarantor entities would be eliminated: Current Assets and Current Liabilities - $13.6 million as of September 25, 2022 and $13.4 million as of December 31, 2021; Non-Current Assets - $2,062.7 million as of September 25, 2022 and $2,254.9 million as of December 31, 2021; and Net revenues - $18.9 million as of September 25, 2022 and $126.6 million as of December 31, 2021. Combined amounts for all guarantors of the 2024 senior notes for all other line items within the table would be computed by adding the amounts in the Millennium and
Guarantor Subsidiaries columns.
Forward Looking Statements
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 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 risks and uncertainties that are difficult to predict, may be beyond our control and could cause actual
results to differ materially from those described in such statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct or that our growth strategies will achieve the targeted results. Important factors, including the impacts of the COVID-19 pandemic, general economic conditions, adverse weather conditions, competition for consumer leisure time and spending, unanticipated construction delays, changes in our capital investment plans and projects and other factors we discuss from time to time in our reports filed with the Securities and Exchange Commission (the "SEC") could adversely affect our future financial performance and our growth strategies and could cause actual results to differ materially from our expectations or otherwise to fluctuate or decrease. 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 25, 2022, all of our outstanding long-term debt represented fixed-rate debt. Assuming the daily average balance over the past twelve months on revolving credit borrowings of approximately $52.7 million, a hypothetical 100 bps increase in 30-day LIBOR on our variable-rate debt would lead to an increase of approximately $0.5 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 $7.2 million decrease in annual operating income for the trailing twelve months ended September 25, 2022.
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 25, 2022, 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 25, 2022.
(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 25, 2022 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
There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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 25, 2022:
(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)
June 27 - July 31
—
—
—
—
August
1 - August 31
750,365
$
43.58
750,260
$
217,300,956
September 1 - September 25
773,042
$
43.02
773,042
$
184,041,646
Total
1,523,407
$
43.30
1,523,302
$
184,041,646
(1)All
repurchased units were either units repurchased pursuant to our share repurchase program described in Footnote 2, or units reacquired 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.
(2)On August 3, 2022, we announced that our Board of Directors approved a unit repurchase plan authorizing the Partnership to repurchase units for an aggregate purchase price of not more than $250 million. No limit was placed on the duration of the repurchase program. See Note 11 for additional information.
The
following materials from the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 25, 2022 formatted in Inline XBRL: (i) the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (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 25, 2022 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.
