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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
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☑ iYes ☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
☐ Yes ☑ iNo
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. ☑ iYes ☐ 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). ☑ iYes ☐ 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
☑
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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. i☑
Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). i☐ Yes ☑ No
The aggregate market value of Depositary Units held by non-affiliates of the Registrant based on the closing price of such units on June 25, 2021 of $46.46 per unit was approximately $i2,593,414,483.
Number
of Depositary Units representing limited partner interests outstanding as of February 4, 2022: i56,865,394 units
iPart
III of this Form 10-K incorporates by reference certain information from the Registrant's definitive proxy statement to be used in connection with its annual meeting of limited partner unitholders to be held in May 2022.
Unless the context otherwise indicates, all references to "we,""us,""our," or the "Partnership" in this Annual Report on Form 10-K refer to Cedar Fair, L.P. together with its affiliated companies.
ITEM 1. BUSINESS.
We are one of the largest regional amusement park operators in the world with 13 properties in our portfolio consisting of amusement parks, water parks and complementary resort facilities. We are a publicly traded Delaware limited partnership
formed in 1987 and managed by Cedar Fair Management, Inc., an Ohio corporation (the "General Partner"), whose shares are held by an Ohio trust.
Our parks are family-oriented, with recreational facilities for people of all ages, and provide clean and attractive environments with exciting rides and immersive entertainment. Our parks include: Cedar Point, located on Lake Erie between Cleveland and Toledo in Sandusky, Ohio; Knott's Berry Farm, near Los Angeles, California; Canada's Wonderland, near Toronto, Ontario, Canada; Kings Island, near Cincinnati, Ohio; Carowinds, in Charlotte, North Carolina; Kings Dominion, near Richmond, Virginia; California's Great America, in Santa Clara, California; Dorney Park & Wildwater Kingdom ("Dorney Park"), in Allentown, Pennsylvania; Worlds
of Fun, in Kansas City, Missouri; Valleyfair, near Minneapolis/St. Paul, Minnesota; Michigan's Adventure, in Muskegon, Michigan; Schlitterbahn Waterpark & Resort New Braunfels in New Braunfels, Texas; and Schlitterbahn Waterpark Galveston in Galveston, Texas. With limited exceptions, all rides and attractions at the parks are owned and operated by us.
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 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 130- to 140-day
operating season with the major portion concentrated in the third quarter during the peak vacation months of July and August.
The demographic groups that are most important to our business are families and young people ages 12 through 24. Families are believed to be attracted by a combination of rides, live entertainment and the clean, wholesome atmosphere. Young people are believed to be attracted by the action-packed rides. We conduct active television, radio, newspaper and internet advertising campaigns in our major market areas geared toward these two groups.
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. Beginning on March 14, 2020, we closed our properties for several months. We ultimately resumed partial operations at 10 of our 13 properties in 2020, operating in accordance with local and state guidelines. Due to soft demand trends upon reopening in 2020, park operating calendars were adjusted for the remainder of 2020, including reduced operating days per week and operating hours within each operating day and earlier closure of certain parks than a typical operating year. We delayed the opening of our U.S. properties for the 2021 operating season until May 2021 and opened our Canadian property in July 2021. Upon opening in 2021, we operated with capacity restrictions, guest reservations, and other operating protocols in place. We removed most capacity restrictions, guest reservation requirements and other protocols at our U.S. properties beginning in July 2021. Canada's
Wonderland operated with capacity restrictions, guest reservations, and other operating protocols in place throughout 2021. We adjusted our park operating calendars in 2021 and may continue to adjust future park operating calendars as we respond to changes in guest demand, labor availability and any state and local restrictions. We currently anticipate returning to full park operating calendars for the 2022 operating season at all of our parks. The lingering effects of the COVID-19 pandemic may impact guest demand and labor availability, and it is uncertain the extent to which those effects will impact our operational and financial results. Our future operations are dependent on factors beyond 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.
Despite a delayed start
and various operating restrictions in place for the 2021 operating season, our 2021 operating results exceeded our initial expectations, driven by greater consumer demand resulting in higher attendance and in-park per capita spending. As a result, we made progress towards our goal to reduce outstanding debt obtained in response to the negative effects of the COVID-19 pandemic by redeeming $450 million of unsecured senior notes in December 2021. The notes redeemed were previously due in 2024.
Cedar Fair's flagship park, Cedar Point, was first developed as a recreational area in 1870. Located on a peninsula in Sandusky, Ohio bordered by Lake Erie between Cleveland and Toledo, Cedar Point is annually rated one of the best amusement parks in the industry by Amusement Today's international survey. Cedar Point serves a six-state region which includes nearly all of Ohio and Michigan, western Pennsylvania and New York, northern West Virginia and Indiana, as well as southwestern Ontario, Canada. Attractive to both families and thrill-seekers, the park features 17 roller coasters, including many record-breakers, and three children's areas. Located adjacent to the park is Cedar Point Shores Water Park, a separately gated water park featuring more than 15 water rides and attractions. Cedar Point also features four hotels, three marinas, an upscale campground, and
the nearby Cedar Point Sports Center which features both indoor and outdoor sports facilities. Cedar Point's four hotels include:
Hotel Breakers - the park's largest hotel and only hotel located on the Cedar Point peninsula, featuring various dining and lounge facilities, a mile-long beach, lake swimming, a conference/meeting center, an indoor pool and multiple outdoor pools;
Castaway Bay Indoor Waterpark Resort - a year-round hotel located adjacent to the entrance to the park featuring tropical, Caribbean themed hotel rooms centered around an indoor water park, as well as a marina and dining facilities;
Cedar Point's Express Hotel - a limited-service seasonal hotel located adjacent to the entrance to the park; and
Sawmill
Creek Resort - a year-round resort lodge located near Cedar Point in Huron, Ohio, featuring a golf course, marina, half-mile beach, dining and shopping facilities, and a conference/meeting center.
Knott's Berry Farm
Knott's Berry Farm, located near Los Angeles in Buena Park, California, first opened in 1920 and was acquired by the Partnership in 1997. The park is one of several year-round theme parks in Southern California and serves a market area centered in Orange County with a large national and international tourism population. The park is renowned for its seasonal events, including a special holiday event, Knott's Merry Farm, and a Halloween event, Knott's Scary Farm, which has been held for more than 45 years and is annually rated one of the best Halloween events in the industry by Amusement
Today's international survey. In 2020, while Knott's Berry Farm was unable to open amusement and water park operations following the first quarter of 2020 due to the COVID-19 pandemic, Knott's Berry Farm was recognized by Amusement Today's international survey for its creative sell-out culinary festivals. Adjacent to Knott's Berry Farm is Knott's Soak City, a separately gated seasonal water park that features multiple water rides and attractions. Knott's Berry Farm also features the Knott's Berry Farm Hotel, a full-service hotel located adjacent to Knott's Berry Farm featuring a pool, fitness facilities and meeting/banquet facilities.
Canada's Wonderland
Canada's Wonderland, a combination amusement and water park located
near Toronto in Vaughan, Ontario, first opened in 1981 and was acquired by the Partnership in 2006. It contains numerous attractions, including 16 roller coasters, and is one of the most attended amusement parks in North America. Canada's Wonderland is in a culturally diverse metropolitan market with large populations of different ethnicities and national origins. Each year the park showcases an extensive entertainment and special event line-up which includes cultural festivals.
Kings Island
Kings Island, a combination amusement and water park located near Cincinnati, Ohio, first opened in 1972 and was acquired by the Partnership in 2006. Kings Island is also one of the most attended amusement parks in North America. The park features a children's area that has been consistently named one of the "Best Kids' Area in the World" by
Amusement Today. The park's market area includes Cincinnati, Dayton and Columbus, Ohio; Louisville and Lexington, Kentucky; and Indianapolis, Indiana. In addition, Cedar Fair manages Kings Island Camp Cedar, a luxury campground near Kings Island. Kings Island Camp Cedar is owned by a third party.
Carowinds
Carowinds, a combination amusement and water park located in Charlotte, North Carolina, first opened in 1973 and was acquired by the Partnership in 2006. Carowinds' major markets include Charlotte, Greensboro, and Raleigh, North Carolina; as well as Greenville and Columbia, South Carolina. The park also features Camp Wilderness Resort, an upscale campground, and a SpringHill Suites by Marriott hotel located adjacent to the park entrance. The SpringHill Suites is a Marriott franchise operated
by Cedar Fair. The hotel is open year-round and features suites, an outdoor pool, fitness center and bar.
Kings Dominion
Kings Dominion, a combination amusement and water park located near Richmond, Virginia, first opened in 1975 and was acquired by the Partnership in 2006. The park's market area includes Richmond and Norfolk, Virginia; Raleigh, North Carolina; Baltimore, Maryland and Washington, D.C. Additionally, the park offers Kings Dominion Camp Wilderness Campground, an upscale campground.
California's Great America, a combination amusement and water park located in Santa Clara, California, first opened in 1976 and was acquired by the Partnership in 2006. The park draws its visitors primarily from San Jose, San Francisco, Sacramento, Modesto and Monterey, among other cities in northern California.
Dorney Park
Dorney Park, a combination amusement and water park located in Allentown, Pennsylvania, was first developed as a summer resort area in 1884 and was acquired by the Partnership in 1992. Dorney Park's major markets include Philadelphia, Lancaster, Harrisburg, York, Scranton, Wilkes-Barre, Hazleton and the Lehigh Valley, Pennsylvania; New York City; and New Jersey.
Worlds of Fun
Worlds
of Fun, which opened in 1973 and was acquired by the Partnership in 1995, is a combination amusement and water park located in Kansas City, Missouri. Worlds of Fun serves a market area centered in Kansas City, as well as most of Missouri and portions of Kansas and Nebraska. Worlds of Fun also features Worlds of Fun Village, an upscale campground.
Valleyfair
Valleyfair, which opened in 1976 and was acquired by the Partnership's predecessor in 1978, is a combination amusement and water park located near Minneapolis-St. Paul in Shakopee, Minnesota. Valleyfair's market area is centered in Minneapolis-St. Paul, but the park also draws visitors from other areas in Minnesota and surrounding states.
Michigan's Adventure
Michigan's
Adventure, which opened in 1956 as Deer Park and was acquired by the Partnership in 2001, is a combination amusement and water park located in Muskegon, Michigan. Michigan's Adventure serves a market area principally from central and western Michigan and eastern Indiana.
Schlitterbahn Waterpark & Resort New Braunfels
Schlitterbahn Waterpark & Resort New Braunfels began as a resort in 1966, was introduced as a water park in 1979 and was acquired by the Partnership in 2019. The park is consistently rated the best water park in the industry by Amusement Today's international survey and is one of the most attended water parks in North America. The park, located in New Braunfels, Texas, features many river rides, water slides and attractions along the Comal River. The Resort at Schlitterbahn
New Braunfels includes hotel rooms, suites, cabins, luxury suites and vacation homes. Schlitterbahn Waterpark & Resort New Braunfels’ major markets include San Antonio, Austin and Houston, Texas.
Schlitterbahn Waterpark Galveston
Schlitterbahn Waterpark Galveston opened in 2006 and was acquired by the Partnership in 2019. The park is one of the most attended water parks in North America. The park, located in Galveston, Texas, features a convertible roof system creating both indoor and outdoor areas. The park features many water attractions including an award-winning water coaster and a one-mile long river system. Schlitterbahn Waterpark Galveston serves a market area centered in Houston, Texas, as well as the tourism population in Galveston Island, Texas, a barrier island on the Texas Gulf Coast.
CAPITAL
EXPENDITURES AND WORKING CAPITAL
We believe that annual park attendance is influenced by annual investments in our properties, including new attractions and infrastructure, among other factors. Capital expenditures are planned on a seasonal basis with most expenditures made prior to the beginning of the peak operating season. Capital expenditures made in a calendar year may differ materially from amounts identified with a particular operating season because of timing considerations such as weather conditions, site preparation requirements and availability of ride components, which may result in accelerated or delayed expenditures around calendar year-end. Due to the effects of the COVID-19 pandemic, some capital expenditures were suspended in 2020 and 2021 in order to maintain flexibility and retain liquidity. The timing and amount of future capital expenditures may differ from typical
calendar years depending on the trajectory of the COVID-19 pandemic.
During the operating season, we carry significant receivables and inventories of food and merchandise, as well as payables and payroll-related accruals. These amounts are typically substantially reduced in non-operating periods. Seasonal working capital needs are typically funded from current operations and revolving credit facilities. Revolving credit facilities are typically established at levels sufficient to accommodate our peak borrowing requirements in April and May as the seasonal parks complete preparations for opening. Revolving credit borrowings are then typically reduced with our positive cash flow during the seasonal operating period.
We compete for discretionary spending with all aspects of the recreation industry within our primary market areas, including other destination and regional amusement parks. We also compete with other forms of entertainment and recreational activities, including movies, sports events, restaurants and vacation travel.
The principal competitive factors in the amusement park industry include the uniqueness and perceived quality of the rides and attractions in a particular park, proximity to metropolitan areas, the atmosphere and cleanliness of the park, and the quality and variety of the food and immersive
entertainment available. We believe that our parks feature a variety of high quality rides and attractions, restaurants, gift shops and family atmosphere to make them highly competitive with other parks and forms of entertainment.
GOVERNMENT REGULATION
Our operations are subject to regulatory requirements, such as those relating to employment practices, environmental requirements, and other regulatory matters. We are subject to extensive federal and state employment laws and regulations, including wage and hour laws and other pay practices and employee record-keeping requirements. We may be required to incur costs to comply with these requirements, and the costs of compliance, investigation, remediation, litigation, and resolution of regulatory matters could be substantial.
We
also are subject to federal, state and local environmental laws and regulations such as those relating to water resources; discharges to air, water and land; the handling and disposal of solid and hazardous waste; and the cleanup of properties affected by regulated materials. Under these laws and regulations, we may be required to investigate and clean up hazardous or toxic substances or chemical releases from current or formerly owned or operated facilities or to mitigate potential environmental risks. Environmental laws typically impose cleanup responsibility and liability without regard to whether the relevant entity knew of or caused the presence of the contaminants. The costs of investigation, remediation or removal of regulated materials may be substantial, and the presence of those substances, or the failure to remediate a property properly, may impair our ability to use, transfer or obtain financing with respect to our property.
Currently,
we believe we are in substantial compliance with applicable requirements under these laws and regulations. However, such requirements have generally become stricter over time, and there can be no assurance that new requirements, changes in enforcement policies or newly discovered conditions relating to our properties or operations will not require significant expenditures in the future.
All rides are inspected daily by both our maintenance and ride operations personnel before being placed into operation for our guests. The parks are also periodically inspected by our insurance carrier and, at all parks except Valleyfair, Worlds of Fun, Schlitterbahn Waterpark New Braunfels, Schlitterbahn Waterpark Galveston and Carowinds' South Carolina rides, by state or county ride-safety inspectors. Valleyfair, Worlds of Fun, Schlitterbahn Waterpark New Braunfels, Schlitterbahn Waterpark Galveston
and Carowinds each contract with a third party to inspect our rides pursuant to Minnesota, Missouri, Texas and South Carolina law, respectively, and submit the third-party report to the respective state agency. Additionally, all parks have added ride maintenance and operation inspections completed by third party qualified inspectors to make sure our standards are being maintained.
HUMAN CAPITAL
We employ approximately 4,000 full-time employees, and employed approximately 42,000 seasonal and part-time employees in 2021, many of whom are high school and college students. We house some of our seasonal employees in dormitories owned by us at Cedar Point, Kings Island, Carowinds, Kings Dominion and Valleyfair, or rented
by us at Dorney Park, Worlds of Fun, Schlitterbahn Waterpark New Braunfels and Schlitterbahn Waterpark Galveston. Approximately 275 of our employees are represented by labor unions. We believe we maintain good relations with our employees.
Our highest priority continues to be the safety and well-being of our guests and employees. In 2021 and in response to the COVID-19 pandemic, we continued safety protocols to protect our employees, including staggering schedules to allow for greater social distancing, increasing hygiene, cleaning and sanitizing procedures, providing incremental personal protective equipment, and enabling employees to work from home where possible and during peaks in local case counts, and restricting business travel. We will continue to monitor the developments of the COVID-19 pandemic, as well as federal, state and local guidelines, and update our safety protocols
based on the most recent recommendations and requirements.
Our employee guidelines and policies are founded on our cornerstones of safety, service and cleanliness and our core values of integrity, courtesy and inclusiveness. We are committed to equal opportunity employment and prohibit harassment or discrimination of any kind. We have adopted an open door policy to encourage an honest employer-associate relationship, which includes a confidential hotline available to all employees. As part of our commitment to our core values, we created a diversity, equity and inclusion ("DE&I") council and provided DE&I training to our employees in 2021.
We maintain training programs for all new employees, including safety training specific to job responsibilities. We participate in the J-1 Visa program providing cultural and educational exchange opportunities for our associates. We also have partnered with Bowling Green State University to create the Cedar Fair Resort and Attraction Management program, a bachelor's degree program, which is housed in downtown Sandusky, Ohio in a facility jointly owned by the Partnership and a third party developer. The bachelor's degree program prepares students for management careers at Cedar Fair parks or a similar establishment. We encourage a promote-from-within policy.
Our executive compensation program is designed to incentivize our key
employees to drive superior results, to give key employees a vested interest in our growth and performance, and to enhance our ability to attract and retain exceptional managerial talent. Our executive compensation program rewards both successful individual performance and the consolidated operating results of the Partnership by directly tying compensation to our performance.
AVAILABLE INFORMATION
Copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K and all amendments to those reports as filed or furnished with the SEC are available without charge upon written request to our Investor Relations Office or through our website (www.cedarfair.com).
We use our websitewww.cedarfair.com as a channel of distribution of information. The information we post through this channel may be deemed material. Accordingly, investors should monitor this channel, in addition to following our news releases, SEC filings, and public conference calls and webcasts. The contents of our website shall not be deemed to be incorporated herein by reference.
The
SEC maintains an Internet site at http://www.sec.gov that contains our reports, proxy statements and other information.
Richard Zimmerman has been President and Chief Executive Officer since January 2018 and a member of the Board of Directors since April 2019. Prior to becoming CEO, he served as President and Chief Operating Officer from October 2016 through December 2017 and served as Chief Operating Officer from 2011 through 2016. Prior to that, he was appointed as Executive Vice President in 2010 and as Regional Vice President in 2007. He has been with Cedar Fair since 2006, when Kings Dominion was acquired. Richard served as Vice President and General Manager of Kings Dominion from 1998 through 2006.
Brian
Witherow has served as Executive Vice President and Chief Financial Officer since 2012. Prior to that, he served as Vice President and Corporate Controller beginning in 2005. Brian has been with Cedar Fair in various other positions since 1995.
Tim V. Fisher
61
Tim Fisher joined Cedar Fair as Chief Operating Officer in December 2017. Prior to joining Cedar Fair, he served as Chief Executive Officer of Village Roadshow Theme Parks International, an Australian-based theme park operator, since March 2017. Prior to this appointment with Village Roadshow Theme Parks International, Tim served as Chief Executive Officer of Village Roadshow Theme Parks since 2009.
Brian
M. Nurse
50
Brian Nurse joined Cedar Fair as Executive Vice President, Chief Legal Officer and Secretary in November 2021. Prior to joining Cedar Fair, he served as Senior Vice President, General Counsel and Secretary for World Wrestling Entertainment, Inc. (NYSE: WWE), an integrated media and entertainment company, from September 2018 to November 2020. Prior to joining WWE, Brian served as Vice President, Associate General Counsel and Secretary at Nestle Waters North America, Inc., a former division of Nestle S.A. which is a multinational food and drink corporation, from 2012 to 2018. Prior to that, he was Senior Legal Counsel for North American beverage/soft drink brands at PepsiCo, Inc. (NASDAQ: PEP), a multinational food, snack and beverage corporation, from 2003 to 2012.
Kelley
S. Ford
57
Kelley Ford has served as Executive Vice President and Chief Marketing Officer since 2012. Prior to joining Cedar Fair, she served as Senior Vice President, Marketing Planning Director for TD Bank from 2010 through 2012. Prior to joining TD Bank, Kelley served as Senior Vice President of Brand Strategy and Management at Bank of America from 2005 through 2010.
Craig A. Heckman
58
Craig Heckman has served as Executive Vice President, Human Resources since January 2020. Previously, he served as Senior Vice President, Human Resources
since January 2017. Prior to joining Cedar Fair, he served as Vice President, Human Resources for Vestis Retail Group, a retail operator, from 2014 through 2016. Prior to joining Vestis Retail Group, Craig served as Vice President, Human Resources - Stores and International for Express/L Brands, a fashion retailer, from 2006 to 2014.
Dave Hoffman has served as Senior Vice President and Chief Accounting Officer since 2012. Prior to that, he served as Vice President of Finance and Corporate Tax since 2010. He served as Vice President of Corporate Tax from 2006 through 2010. Prior to joining Cedar Fair, Dave served as a
business advisor with Ernst & Young from 2002 through 2006.
Charles E. Myers
58
Charles Myers joined Cedar Fair as Senior Vice President, Creative Development in June 2019. Prior to joining Cedar Fair, he held a variety of Senior Leadership roles including Show Design, Production Management and Producing at Walt Disney Imagineering, the research and development arm of the Walt Disney Company, from 2013 to June 2019. Prior to this, he served as Senior Vice President, Licensing, Project Development & Business Development of Paramount Pictures from 2002 to 2013.
The COVID-19 pandemic has adversely impacted our business and may continue to adversely impact our business, as well as intensify certain risks we face, for an unknown length of time. The ultimate extent to which COVID-19 and measures taken in response will impact our business, including our results of operations and financial condition, cannot be reasonably predicted due to the ongoing development and fluidity of the pandemic and its effects.
Since 2020, the COVID-19 pandemic has had a material negative impact on our business. On March
14, 2020, we closed our properties in response to federal and local recommendations and restrictions to mitigate the spread of COVID-19. We were ultimately able to resume partial operations, subject to capacity, social distancing mandates and other governmental restrictions, at 10 of our 13 properties on a staggered basis in 2020. We operated all of our properties in 2021. However, 2021 operating seasons were delayed and certain restrictions remained in place at some of our properties. Because our amusement and water parks are our primary sources of net income and operating cash flows, our business and financial results and condition have been, and could continue to be, adversely impacted by these and any future mandated closures, capacity restrictions and governmental mandates required for operating our parks. There is uncertainty as to whether any future mandated or voluntary closures or other operating restrictions will occur. Our parks are geographically
located throughout the United States and in Canada. The duration and severity of the COVID-19 pandemic and the related restrictions at any one location could result in a potentially disproportionate amount of risk if concentrated amongst our largest properties.
Consumer behavior and preferences may change in response to the effects of the COVID-19 pandemic both in the short term and long term, including impacts on discretionary consumer spending due to significant economic uncertainty caused by the COVID-19 pandemic. In 2020, we experienced lower demand upon reopening our properties resulting in a material decrease in revenues generated. In 2021, demand approached pre-pandemic levels, but we experienced lower demand at certain times and at certain properties. Future significant volatility or reductions in demand for, or interest in, our parks could materially adversely impact attendance,
in-park per capita spending and revenue. In addition, we could experience damage to our brand and reputation due to actual or perceived health risks associated with our parks or the amusement park industry which could have a similar material adverse effect on attendance, in-park per capita spending and revenue.
We may continue to experience operational risks due to the COVID-19 pandemic including limitations on our ability to recruit and train employees in sufficient numbers to fully staff our parks, increases in operating expenses as we sanitize our parks and implement additional hygiene-related protocols, and limitations on our employees' ability to work and travel. Despite our efforts to manage these impacts, their ultimate effect may be material to our financial results.
We have not previously experienced
the level of disruption caused by the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on the risks described above, as well as the other risk factors described herein, depend on factors beyond our knowledge or control, including the duration and severity of the pandemic, success and timing of current and future vaccination programs, the emergence of new variants, as well as any future actions taken to contain the pandemic spread and mitigate public health effects. It is difficult for management to estimate future performance under these conditions, and the ultimate impact of the COVID-19 pandemic on our business, results of operations and financial condition cannot be reasonably predicted. In the event we are unable to generate sufficient revenues from our parks due to a future prolonged period of closure, or experience future significant declines in business volumes, we may not have access to or may be burdened by onerous terms to acquire sufficient
liquidity to meet our obligations.
Instability in economic conditions could impact our business, including our results of operations and financial condition.
Uncertain or deteriorating regional economic conditions, including as a result of the COVID-19 pandemic or during inflationary periods, may adversely impact attendance figures and guest spending patterns at our parks as uncertain economic conditions affect our guests' levels of discretionary spending. Both attendance and in-park spending at our parks are key drivers of our revenues and profitability, and reductions in either can directly and negatively affect revenues and profitability. A decrease in discretionary spending due to a decline in consumer confidence in the economy, an economic slowdown or deterioration in the economy could adversely affect the frequency with which our guests
choose to attend our parks and the amount that our guests spend on our products when they visit.
Periods of inflation or economic downturn could also impact our ability to obtain supplies and services and increase our operating costs. We have begun to see some effects, which may continue or worsen, in the current period of inflation related to domestic and global supply chain issues. In addition, the existence of unfavorable general economic conditions may also hinder the ability of those with which we do business, including vendors, concessionaires and customers, to satisfy their obligations to us. The materialization of these risks could lead to a decrease in our revenues, operating income and cash flows.
The high fixed cost structure of amusement park operations can result in significantly lower margins if revenues do not meet expectations.
A large portion of our expense is relatively fixed because the costs for full-time employees, maintenance, utilities, advertising and insurance do not vary significantly with attendance. These fixed costs may increase at a greater rate than our revenues and may not be able to be reduced at the same rate as declining revenues. If cost-cutting efforts are insufficient to offset declines in revenues or are impractical, we could experience a material decline in margins, revenues, profitability and cash flows. Such effects can be especially pronounced during periods of economic contraction or slow economic growth.
Bad
or extreme weather conditions can adversely impact attendance at our parks, which in turn would reduce our revenues.
Because most of the attractions at our parks are outdoors, attendance at our parks can be adversely affected by continuous bad or extreme weather and by forecasts of bad or mixed weather conditions, which would negatively affect our revenues. We believe that our ownership of many parks in different geographic locations reduces, but does not completely eliminate, the effect that adverse weather can have on our consolidated results.
Our insurance coverage may not be adequate to cover all possible losses that we could suffer, and our insurance costs may increase.
Companies engaged in the amusement park business may be sued for substantial damages in the event of an actual or alleged accident. An
accident occurring at our parks or at competing parks could reduce attendance, increase insurance premiums, and negatively impact our operating results. Although we carry liability insurance to cover this risk, there can be no assurance that our coverage will be adequate to cover liabilities, that we will be able to obtain coverage at commercially reasonable rates, or that we will be able to obtain adequate coverage should a catastrophic incident occur at our parks or at other parks.
Unanticipated construction delays in completing capital improvement projects in our parks and resort facilities, significant ride downtime, or other unplanned park closures could adversely affect our revenues.
A principal competitive factor for an amusement park is the uniqueness and perceived quality of its rides and attractions in a particular market area. Accordingly,
the regular addition of new rides and attractions is important, and a key element of our revenue growth is strategic capital spending on new rides and attractions. Any construction delays, including construction delays in response to business disruptions or due to domestic and global supply chain issues, could adversely affect our attendance and our ability to realize revenue growth. Further, when rides, attractions, or an entire park, have unplanned downtime and/or closures, our revenue could be adversely affected.
There is a risk of accidents or other incidents occurring at amusement and water parks, which may reduce attendance and negatively impact our revenues.
The safety of our guests and employees is one of our top priorities. Our amusement and water parks feature thrill rides. There are inherent risks involved with these attractions,
and an accident or a serious injury at any of our parks may result in negative publicity and could reduce attendance and result in decreased revenues. In addition, accidents or injuries at parks operated by our competitors could influence the general attitudes of amusement park patrons and adversely affect attendance at our parks. Other types of incidents such as food borne illnesses and disruptive, negative guest behavior which have either been alleged or proved to be attributable to our parks or our competitors could adversely affect attendance and revenues.
Risks Related to Our Strategy
Our growth strategy may not achieve the anticipated results.
Our future success will depend on our ability to grow our business, including recovering from the effects of the
COVID-19 pandemic. We grow our business through acquisitions and capital investments to improve our parks through new rides and attractions, as well as in-park product offerings and product offerings outside of our parks. Our growth and innovation strategies require significant commitments of management resources and our investments may not grow our revenues at the rate we expect or at all. As a result, we may not be able to recover the costs incurred in developing new projects and initiatives, or to realize their intended or projected benefits, which could have a material adverse effect on our business, financial condition or results of operations.
We compete for discretionary spending and discretionary free time with many other entertainment alternatives and are subject to factors that generally affect the recreation and leisure industry, including general economic conditions.
Our
parks compete for discretionary spending and discretionary free time with other amusement, water and theme parks and with other types of recreational activities and forms of entertainment, including movies, sporting events, restaurants and vacation travel. Our business is also subject to factors that generally affect the recreation and leisure industries and are not within our control. Such factors include, but are not limited to, general economic conditions, including relative fuel prices, and changes in consumer tastes and spending habits. There may be a material adverse effect on our business, financial condition or results of operations if we are unable to effectively compete with other entertainment alternatives.
The operating season at most of our parks is of limited duration, which can magnify the impact of adverse conditions or events occurring within that operating season.
Twelve of our properties are seasonal, generally open during weekends beginning in April or May, then daily from Memorial Day through Labor Day. After Labor Day, the seasonal properties 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 are typically generated during a 130- to 140-day operating season. Consequently, when adverse conditions or events occur during the operating season, particularly during the peak vacation months of July and August or the important fall season, there
is only a limited period of time during which the impact of those conditions or events can be mitigated. Accordingly, the timing of such conditions or events may have a disproportionate adverse effect upon our revenues.
Risks Related to Human Capital
Increased costs of labor and employee health and welfare benefits may impact our results of operations.
Labor is a primary component in the cost of operating our business. Increased labor costs, due to competition, inflationary pressures, increased federal, state or local minimum wage requirements, and increased employee benefit costs, including health care costs, could adversely impact our operating expenses. In 2021, we experienced a meaningful increase in seasonal labor rate in order to recruit employees in
a challenging labor market. Continued increases to both market wage rates and the statutory minimum wage rates could also materially impact our future seasonal labor rates. It is possible that these changes could significantly increase our labor costs, which would adversely affect our operating results and cash flows.
Our business depends on our ability to meet our workforce needs.
Our success depends on our ability to attract, motivate and retain qualified employees to keep pace with our needs. If we are unable to do so, our results of operations and cash flows may be adversely affected. In addition, we employ a significant seasonal workforce. We recruit year-round to fill thousands of seasonal staffing positions each season and work to manage seasonal wages and the timing of the hiring process to ensure the appropriate workforce is in
place. There is no assurance that we will be able to recruit and hire adequate seasonal personnel as the business requires or that we will not experience material increases in the cost of securing our seasonal workforce in the future, including due to the ongoing effects of the COVID-19 pandemic which resulted in a meaningful increase in labor rate to adequately staff our parks in 2021.
If we lose key personnel, our business may be adversely affected.
Our success depends in part upon a few key employees, including our senior management team, whose members have been involved in the leisure and hospitality industries for an average of more than 20 years. The loss of services of our key employees or our inability to replace our key employees could cause disruption in important operational, financial and strategic functions and have a material
adverse effect on our business.
Risks Related to Our Capital Structure
The amount of our indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from fulfilling our obligations under our debt agreements.
We had $2.6 billion of outstanding indebtedness as of December 31, 2021 (before reduction of debt issuance costs and original issue discount).
The amount of our indebtedness could have important consequences. For example, it could:
•limit
our ability to borrow money for our working capital, capital expenditures, debt service requirements, strategic initiatives or other purposes;
•limit our flexibility in planning or reacting to changes in business and future business operations; and
•make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under the agreements governing other indebtedness.
In addition, we may not be able to generate sufficient cash flow from operations, or be able to draw under our revolving credit facility or otherwise, in an amount sufficient to fund our liquidity
needs, including the payment of principal and interest on our debt obligations. If our cash flows and capital resources are insufficient to service our indebtedness, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Our ability to restructure or refinance our debt in the future will depend on the condition of the capital and credit markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. In addition, the terms of our existing or future debt agreements, including our credit agreement and the indentures governing
our notes, may restrict us from adopting some of these alternatives. In the absence of sufficient operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions for fair market value or at all. Furthermore, any proceeds that we could realize from any such dispositions may not be adequate to meet our debt service obligations then due.
Despite the
amount of our indebtedness, we may be able to incur additional indebtedness, which could further exacerbate the risks associated with the amount of our indebtedness.
Our debt agreements contain restrictions that could limit our flexibility in investing in our business, including the ability to pay partnership distributions.
Our credit agreement and the indentures governing our notes contain, and any future indebtedness of ours will likely contain, a number of covenants that could impose significant financial restrictions on us, including restrictions on our and our subsidiaries' ability to, among other things:
•pay
distributions on or make distributions in respect of our partnership units or make other Restricted Payments;
•incur additional debt or issue certain preferred equity;
•make certain investments;
•sell certain assets;
•create restrictions on distributions from restricted subsidiaries;
•create liens on certain assets to secure debt;
•consolidate, merge, amalgamate, sell or otherwise dispose of all or substantially all our assets;
•enter
into certain transactions with our affiliates; and
Our credit agreement includes: (i) a Senior Secured Leverage Ratio of 4.50x Total First Lien Senior Secured Debt-to-Consolidated EBITDA starting with the first quarter of 2022, 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, with the covenant calculations for the first, second, and third quarters in 2022 to include Consolidated EBITDA from the second, third and fourth quarters of the fiscal year ended December
31, 2019 in lieu of the Consolidated EBITDA for the corresponding quarters in 2021 ("Deemed EBITDA Quarters"); (ii) a requirement that we maintain a minimum liquidity level of at least $125 million, tested at all times, until the earlier of December 31, 2022 or the termination of the Additional Restrictions Period (which generally includes the period from the effective date of the Second Amendment until the delivery of the compliance certificate for the fourth quarter of 2022); and (iii) a suspension of certain Restricted Payments, including partnership distributions, under our credit agreement until the termination of the Additional Restrictions Period. We may terminate the Additional Restrictions Period prior to December 31, 2022 by achieving compliance with the Senior Secured Leverage Ratio covenant as of the end of a fiscal quarter without giving effect
to Deemed EBITDA Quarters for any fiscal quarter.
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.
Variable
rate indebtedness could subject us to the risk of higher interest rates, which could cause our future debt service obligations to increase.
As of December 31, 2021, our indebtedness under our credit agreement accrues variable rate interest that has been swapped to a fixed rate. After the expiration of outstanding interest-rate swap agreements, certain of our borrowings may be at variable rates of interest and expose us to interest rate risk. If interest rates increase, our annual debt service obligations on any variable-rate indebtedness would increase even though the amount borrowed remained the same, and our net income would decrease.
Risks Related to Legal, Regulatory and Compliance Matters
Cyber-security
risks and the failure to maintain the integrity of internal or customer data could result in damages to our reputation and/or subject us to costs, fines or lawsuits.
In the normal course of business, we, or third parties on our behalf, collect and retain large volumes of internal and customer data, including credit card numbers and other personally identifiable information, which is used for target marketing and promotional purposes, and our various information technology systems enter, process, summarize and report such data. We also maintain personally identifiable information about our employees. The integrity and protection of such data is critical to our business, and our guests and employees have a high expectation that we will adequately protect their personal information. The regulatory environment, as well as the requirements imposed on us by the credit card industry, governing information, security and privacy
laws is increasingly demanding and continues to evolve. Maintaining compliance with applicable security and privacy regulations may increase our operating costs and/or adversely impact our ability to market our parks, products and services to our guests. Furthermore, if a person could circumvent our security measures, he or she could destroy or steal valuable information or disrupt our operations. Any security breach could expose us to risks of data loss, which could harm our reputation and result in remedial and other costs, fines or lawsuits. Although we carry liability insurance to cover this risk, there can be no assurance that our coverage will be adequate to cover liabilities, or that we will be able to obtain adequate coverage should a catastrophic incident occur.
Our operations, our workforce and our ownership of property subject us to various laws and regulatory compliance, which may create uncertainty regarding future expenditures and liabilities.
We may be required to incur costs to comply with regulatory requirements, such as those relating to employment practices, environmental requirements, and other regulatory matters, and the costs of compliance, investigation, remediation, litigation, and resolution of regulatory matters could be substantial. We are subject to extensive federal and state employment laws and regulations, including wage and hour laws and other pay practices and employee record-keeping requirements. We periodically have had to, and may have to, defend against lawsuits asserting
non-compliance. Such lawsuits can be costly, time consuming and distract management, and adverse rulings in these types of claims could negatively affect our business, financial condition or results.
We also are subject to federal, state and local environmental laws and regulations such as those relating to water resources; discharges to air, water and land; the handling and disposal of solid and hazardous waste; and the cleanup of properties affected by regulated materials. Under these laws and regulations, we may be required to investigate and clean up hazardous or toxic substances or chemical releases from current or formerly owned or operated facilities or to mitigate potential environmental risks. Environmental laws typically impose cleanup responsibility and liability without regard to whether the relevant entity knew of or caused the presence of the contaminants. The costs of
investigation, remediation or removal of regulated materials may be substantial, and the presence of those substances, or the failure to remediate a property properly, may impair our ability to use, transfer or obtain financing regarding our property.
Our tax treatment is dependent on our status as a partnership for federal income tax purposes. If the tax laws were to treat us as a corporation or we become subject to a material amount of entity-level taxation, it may substantially reduce our available cash.
We are a limited partnership under Delaware law and are treated as a partnership for federal income tax purposes. A change in current tax law may cause us to be taxed as a corporation for federal income tax purposes or otherwise subject us to taxation as an entity. If we were treated as a corporation for federal income tax purposes, we
would pay federal income tax on our entire taxable income at the corporate tax rate, rather than only on the taxable income from our corporate subsidiaries, and may be subject to additional state taxes at varying rates. Further, unitholder distributions would generally be taxed again as corporate distributions or dividends and no income, gains, losses, or deductions would flow through to unitholders. Because additional entity level taxes would be imposed upon us as a corporation, our available cash could be substantially reduced. Although we are not currently aware of any legislative proposal that would adversely impact our treatment as a partnership, we are unable to predict whether any changes or other proposals will ultimately be enacted.
Our status as a partnership for federal income tax purposes
subjects us and our unitholders to additional tax reporting that may be costly and may increase complexity.
Because we are treated as a partnership for federal income tax purposes, we are required to annually report to our unitholders certain partnership items. The nature of these items and the evolving legislation surrounding these reporting requirements may increase our unitholders' compliance cost and the cost of owning our units.
General Risk Factors
Other factors, including local events, natural disasters, pandemics and terrorist activities, or threats of these events, could adversely impact park attendance and our revenues.
Lower attendance may result from various local events, natural disasters, pandemics or
terrorist activities, or threats of these events, all of which are outside of our control.
Charlotte, North Carolina and Fort Mill, South Carolina
400
300
100
Kings
Dominion
Doswell, Virginia
740
280
460
California's Great America
(2)
Santa Clara, California
175
175
—
Dorney Park
Allentown, Pennsylvania
210
180
30
Worlds
of Fun
Kansas City, Missouri
350
250
100
Valleyfair
Shakopee, Minnesota
190
110
80
Michigan's Adventure
Muskegon, Michigan
260
120
140
Schlitterbahn
Waterpark & Resort New Braunfels
New Braunfels, Texas
90
75
15
Schlitterbahn Waterpark Galveston
(3)
Galveston, Texas
40
35
5
(1) Cedar Point and Cedar Point Shores are located on approximately 365 acres, virtually all of which
have been developed, on the Cedar Point peninsula in Sandusky, Ohio. We also own approximately 505 acres of property on the mainland near Cedar Point with approximately 145 acres undeveloped. Cedar Point's Express Hotel, Castaway Bay Indoor Waterpark Resort and an adjoining restaurant, Castaway Bay Marina, seasonal-employee housing complexes, Cedar Point Sports Center and Sawmill Creek Resort are located on this property.
We control, through ownership or an easement, a six-mile public highway and own approximately 40 acres of vacant land adjacent to this highway, which is a secondary access route to Cedar Point and serves about 250 private residences. We maintain this roadway pursuant to deed provisions. We also own the Cedar Point Causeway, a four-lane roadway across Sandusky Bay, which is the principal access road to Cedar Point.
(2) Of
the total acres at California's Great America, approximately 60 acres represent acreage available pursuant to an easement from the City of Santa Clara. The acreage contains a portion of the parking lot at the park.
(3) We lease the land at Schlitterbahn Waterpark Galveston through a long-term lease agreement. The lease is renewable in 2024 with options to renew at our discretion through 2049 and a right of first refusal clause to purchase the land.
All of our property is owned in fee simple and is encumbered by our credit agreement and the 2025 senior notes, with the exception of the land at Schlitterbahn Waterpark Galveston, portions of the six-mile public highway that serves as secondary access route to Cedar Point, and portions of the California's Great America parking lot. We consider our properties
to be well maintained, in good condition and adequate for our present uses and business requirements.
ITEM 5. MARKET FOR REGISTRANT'S DEPOSITARY UNITS, RELATED UNITHOLDER MATTERS AND ISSUER
PURCHASES OF DEPOSITARY UNITS.
Cedar Fair, L.P. Depositary Units representing limited partner interests are listed for trading on The New York Stock Exchange under the symbol "FUN". As of February 4, 2022, there were approximately 4,800 registered holders of Cedar Fair, L.P. Depositary Units, representing limited partner interests. Item
12 in this Form 10-K includes information regarding our equity incentive plan, which is incorporated herein by reference.
Restricted Payments, including partnership distributions, are suspended under our credit agreement until the termination of the Additional Restrictions Period (which generally includes the period from the effective date of the Second Amendment until the delivery of the compliance certificate for the fourth quarter of 2022). We may terminate the Additional Restrictions Period prior to December 31, 2022 by achieving compliance with the Senior Secured Leverage Ratio covenant as of the end of a fiscal quarter without giving effect to Deemed EBITDA Quarters for any fiscal quarter.
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 greater than 5.25x as of December 31, 2021.
Unitholder
Return Performance Graph
The graph below shows a comparison of the five-year cumulative total return (assuming all distributions/dividends reinvested) for Cedar Fair, L.P. limited partnership units, the S&P 500 Index, the S&P 400 Index, and the S&P - Movies and Entertainment Index, assuming investment of $100 on December 31, 2016.
The following table summarizes repurchases of Cedar Fair, L.P. Depositary Units representing limited partner interests by the Partnership during the three months ended December 31, 2021:
(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
Maximum Number (or Approximate Dollar Value) of Units that May Yet Be Purchased Under the Plans or Programs
September 27 - October 31
—
—
—
$
—
November
1 - November 30
—
—
—
—
December 1 - December 31
1,372
$
50.09
—
—
Total
1,372
$
50.09
—
$
—
(1)All
repurchased units were 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.
ITEM 6. RESERVED.
ITEM 7. 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, advertising, utilities and property taxes, 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.
The following table presents certain financial data expressed as a percent of total net revenues and selective statistical information for the periods indicated.
(In thousands, except per capita spending and percentages)
Net revenues:
Admissions
$
674,799
50.4
%
$
67,852
37.4
%
$
795,271
53.9
%
Food,
merchandise and games
432,513
32.3
%
76,921
42.4
%
473,499
32.1
%
Accommodations, extra-charge products and other
230,907
17.3
%
36,782
20.3
%
206,155
14.0
%
Net
revenues
1,338,219
100.0
%
181,555
100.0
%
1,474,925
100.0
%
Operating costs and expenses
1,030,466
77.0
%
483,891
266.5
%
990,716
67.2
%
Depreciation
and amortization
148,803
11.1
%
157,549
86.8
%
170,456
11.6
%
Loss on impairment / retirement of fixed assets, net
10,486
0.8
%
8,135
4.5
%
4,931
0.3
%
Loss
on impairment of goodwill and other intangibles
—
—
%
103,999
57.3
%
—
—
%
Loss (gain) on other assets
129
—
%
(11)
—
%
(617)
—
%
Operating
income (loss)
148,335
11.1
%
(572,008)
(315.1)
%
309,439
21.0
%
Interest and other expense, net
183,732
13.7
%
150,222
82.7
%
98,860
6.7
%
Net
effect of swaps
(19,000)
(1.4)
%
15,849
8.7
%
16,532
1.1
%
Loss on early debt extinguishment
5,909
0.4
%
2,262
1.2
%
—
—
%
Loss
(gain) on foreign currency
6,177
0.5
%
(12,183)
(6.7)
%
(21,107)
(1.4)
%
Provision (benefit) for taxes
20,035
1.5
%
(137,915)
(76.0)
%
42,789
2.9
%
Net
(loss) income
$
(48,518)
(3.6)
%
$
(590,243)
(325.1)
%
$
172,365
11.7
%
Other data:
Attendance
19,498
2,595
27,938
In-park
per capita spending
$
62.03
$
46.38
$
48.32
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. We adjusted our park operating calendars in 2021 and may continue to adjust future park operating calendars as we respond to changes in guest demand, labor
availability and any state and local restrictions. We currently anticipate returning to full park operating calendars for the 2022 operating season at all of our parks. The lingering effects of the COVID-19 pandemic may impact guest demand and labor availability, and it is uncertain the extent to which those effects will impact our operational and financial results. Our future operations are dependent on factors beyond 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. See Risk Factors at Item 1A.
Despite a delayed start and various operating restrictions in place for the 2021 operating season, our 2021 operating results exceeded
our initial expectations, driven by greater consumer demand resulting in higher attendance and in-park per capita spending. As a result, we made progress towards our goal to reduce outstanding debt obtained in response to the negative effects of the COVID-19 by redeeming $450 million of unsecured senior notes in December 2021. The notes redeemed were previously due in 2024.
Management's
Discussion and Analysis of Financial Condition and Results of Operations is based upon our 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 Consolidated Financial Statements and related notes. The following discussion addresses our critical accounting policies, which are those that are most important to the portrayal of our financial condition and operating results or involve a higher degree of judgment and complexity (see Note 3 for a complete discussion of our significant accounting policies). Application of the critical accounting policies described below involves the exercise
of judgment and the use of assumptions as to future uncertainties, and as a result, actual results could differ from these estimates and assumptions.
Impairment of Long-Lived Assets
Long-lived assets, including property and equipment, 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. 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. An impairment loss may be recognized when estimated undiscounted future cash flows expected to result from the use of the asset, including disposition, are less than the carrying value of the asset. The measurement of the impairment loss to be recognized is based on the difference between the fair value and the carrying amounts of the assets. Fair value is generally determined using a combination of a cost and market approach. Significant factors considered in the cost approach include replacement cost, reproduction cost, depreciation, physical deterioration, functional obsolescence and
economic obsolescence of the assets. The market approach estimates fair value by utilizing market data for similar assets. 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.
The determination of whether an indicator of impairment has occurred and the estimation of undiscounted cash flows requires management to make significant estimates and consider an anticipated course of action as of the balance sheet date. Subsequent changes arising from changes in anticipated actions could impact the determination of whether impairment exists, the estimation of undiscounted cash flows and whether the effects could materially impact the consolidated financial statements.
Due to the negative effects of
the COVID-19 pandemic on our forecasted operating results, we tested our long-lived assets for impairment during the first and third quarters of 2020 (see Note 6). Management made significant estimates in performing these impairment tests, including the anticipated time frame to re-open our parks and the related anticipated demand upon re-opening our parks. Actual results could materially differ from these estimates depending on the ultimate extent of the effects of the COVID-19 pandemic. Due to the ongoing development and fluidity of the COVID-19 pandemic, the ultimate extent of the effects of the COVID-19 pandemic cannot be reasonably predicted.
Accounting for Business Combinations
Business combinations
are accounted for under the acquisition method of accounting. The amounts assigned to the identifiable assets acquired and liabilities assumed in connection with acquisitions are based on estimated fair values as of the date of the acquisition, with the remainder, if any, recorded as goodwill. The fair values are determined by management, taking into consideration information supplied by the management of the acquired entities, valuations supplied by independent appraisal experts and other relevant information. The valuations are generally based upon future cash flow projections for the acquired assets, discounted to present value. The determination of fair values requires significant judgment by management. If future operating results do not meet expectations or anticipated synergies are not realized at Schlitterbahn Waterpark & Resort New Braunfels and the Schlitterbahn Waterpark Galveston, the Schlitterbahn reporting unit may become further impaired.
Goodwill
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. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in expected future cash flows; a sustained, significant decline in equity price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and slower growth rates. The fair value of a reporting unit is established using a combination of an income (discounted cash flow) approach and market approach. The income approach uses a reporting unit's projection of estimated operating results and discounted cash flows
using a weighted-average cost of capital that reflects current market conditions. Estimated operating results are established using management's best estimates of economic and market conditions over the projected period including growth rates in revenues and costs, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements. A market approach estimates fair value by applying cash flow multiples to the
reporting
unit's operating performance. The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics of the reporting units.
It is possible that our assumptions about future performance, as well as the economic outlook and related conclusions regarding valuation, could change adversely, which may result in additional impairment that would have a material effect on our financial position and results of operations in future periods.
Due to the negative effects of the COVID-19 pandemic on our forecasted operating results, we tested our goodwill and indefinite-lived intangible assets for impairment during the first and third quarters of 2020 (see Note
7). Management made significant estimates in performing these impairment tests, including the anticipated time frame to re-open our parks and the related anticipated demand upon re-opening our parks. Actual results could materially differ from these estimates depending on the ultimate extent of the effects of the COVID-19 pandemic. Due to the ongoing development and fluidity of the COVID-19 pandemic, the ultimate extent of the effects of the COVID-19 pandemic cannot be reasonably predicted. In conjunction with our annual measurement date, we completed the review of goodwill and other indefinite-lived intangibles as of the first days of the fourth quarter of 2021 and 2020 and determined goodwill and other indefinite-lived intangibles were not further impaired as of these testing dates.
Self-Insurance Reserves
Self-insurance
reserves are recorded for the estimated amounts of guest and employee claims and related expenses incurred each period. Reserves are established for both identified claims and incurred but not reported ("IBNR") claims and are recorded when claim amounts become probable and estimable. Reserves for identified claims are based upon our historical claim experience and third-party estimates of settlement costs. Reserves for IBNR claims are based upon our claims data history. Self-insurance reserves are periodically reviewed for changes in facts and circumstances and adjustments are made as necessary. The ultimate cost for identified claims can be difficult to predict due to the unique facts and circumstances associated with each claim.
Revenue Recognition
As disclosed within the consolidated statements of operations and comprehensive
(loss) income, revenues are generated from sales of (1) admission to our amusement parks and water parks, (2) food, merchandise and games both inside and outside the parks, and (3) accommodations, extra-charge products, and other revenue sources. 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.
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. In addition to the extended validity through 2021, Knott's Berry Farm also offered a day-for-day extension into calendar year 2022 for 2020 and 2021 season-long products for every day the park was closed in 2021, and Canada's Wonderland extended its 2020 and 2021 season-long products through September 5, 2022. In order to calculate revenue recognized on 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. Actual results could materially
differ from these estimates depending on the ultimate extent of the effects of the COVID-19 pandemic. Due to the ongoing development and fluidity of the COVID-19 pandemic, the ultimate extent of the effects of the COVID-19 pandemic cannot be reasonably predicted.
Income Taxes
Our legal entity structure includes both partnerships and corporate subsidiaries. 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 (benefit) provision for taxes includes amounts for the PTP gross income tax and federal, state, local and foreign income taxes. Under applicable accounting rules, the total (benefit) provision 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.
Our corporate subsidiaries account for income taxes under the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future book and tax consequences attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are determined using enacted tax rates expected to apply in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law is recognized in income at the time of enactment of such change in tax law. Any interest or penalties due for payment of income taxes are included in the provision for income taxes.
We record a valuation
allowance if, based on the weight of available evidence, it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. The need for this allowance is based on several factors including the ten-year carryforward period allowed for excess foreign tax credits, experience to date of foreign tax credit limitations, carryforward periods of state net operating losses, and management's long-term estimates of domestic and foreign source income.
There is inherent uncertainty in the estimates used to project the amount of foreign tax credit and state net operating loss carryforwards that are more likely than not to be realized. It is possible that our future income projections, as well as the economic outlook and related conclusions regarding valuation allowances could change, which may result in additional valuation allowance being recorded or may result in
additional valuation allowance reductions, and which may have a material negative or positive effect on our reported financial position and results of operations in future periods.
Adjusted EBITDA
Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortization, other non-cash items, and adjustments as defined in our current and prior credit agreements. Adjusted EBITDA is not a measurement of operating performance computed in accordance with generally accepted accounting principles ("GAAP") and should not be considered as a substitute for operating income, net income or cash flows from operating activities computed in accordance with GAAP. We believe that Adjusted
EBITDA is a meaningful measure as it 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. Further, 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 provided in the discussion of results of operations that follows as a supplemental measure of our operating results and is not intended to be a substitute for operating income, net income or cash flows from operating activities as defined under GAAP. In addition, Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
The
table below sets forth a reconciliation of Adjusted EBITDA to net (loss) income for the periods indicated:
Years Ended December 31,
(In thousands)
2021
2020
2019
Net
(loss) income
$
(48,518)
$
(590,243)
$
172,365
Interest expense
184,032
150,669
100,364
Interest income
(94)
(460)
(2,033)
Provision
(benefit) for taxes
20,035
(137,915)
42,789
Depreciation and amortization
148,803
157,549
170,456
EBITDA
304,258
(420,400)
483,941
Loss
on early debt extinguishment
5,909
2,262
—
Net effect of swaps
(19,000)
15,849
16,532
Non-cash foreign currency loss (gain)
6,255
(12,011)
(21,061)
Non-cash
equity compensation expense
15,431
(209)
12,434
Loss on impairment/retirement of fixed assets, net
10,486
8,135
4,931
Loss on impairment of goodwill and other intangibles
—
103,999
—
Loss
(gain) on other assets
129
(11)
(617)
Acquisition-related costs
—
16
7,162
Other
(1)
1,173
359
1,351
Adjusted EBITDA
$
324,641
$
(302,011)
$
504,673
(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.
We believe the following are key
operational measures in our managerial and operational reporting, and they are used as major factors in significant operational decisions as they are primary drivers of our financial and operational performance:
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 tolls and parking revenues (in-park revenues), divided by total attendance.
Out-of-park revenues are defined as revenues from resort,
out-of-park food and retail locations, marina, sponsorship, online transaction fees charged to customers 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 5).
2021 vs. 2020
Due to the effects of the COVID-19 pandemic, the results for the year ended December 31, 2021 were not directly comparable with the
results for the year ended December 31, 2020. The year ended December 31, 2021 included 1,765 operating days compared with 487 operating days for the year ended December 31, 2020.
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 for 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 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 and the fourth quarter at most of our properties. The year ended December 31, 2021 also included results prior to the May 2021 opening of our parks from limited out-of-park operations, including the operation of some of our hotel properties and a culinary festival at Knott's Berry Farm from March 5, 2021 through May 2, 2021.
For the year ended December 31,
2020 and due to the effects of the COVID-19 pandemic, our properties closed on March 14, 2020. Eight of our 13 properties resumed partial operations on a staggered basis beginning in the second quarter of 2020 with opening dates beginning in mid-June and continuing through mid-July. During this time, we also reopened operations at some of our out-of-park operations, such as hotel operations. Due to soft demand trends upon reopening, park operating calendars were adjusted for the remainder of 2020, including reduced operating days per week and operating hours within each operating day. In addition, some of our reopened parks closed earlier than the park's pre-pandemic operating calendar. Two additional parks reopened on weekends in November and December of 2020. Following March 14, 2020, Knott's Berry Farm's partial operations were limited to culinary festivals
which were classified as out-of-park revenues. The 2020 results also included daily operations at Knott's Berry Farm and 16 operating days at the Schlitterbahn parks prior to the March 14, 2020 closure of our properties. Attendance, in-park per capita spending and operating day statistics for 2020 and 2021 exclude the Knott's Berry Farm culinary festivals.
(Amounts in thousands, except for per capita spending)
Net revenues
$
1,338,219
$
181,555
$
1,156,664
N/M
Operating
costs and expenses
1,030,466
483,891
546,575
113.0
%
Depreciation and amortization
148,803
157,549
(8,746)
(5.6)
%
Loss
on impairment/retirement of fixed assets, net
10,486
8,135
2,351
N/M
Loss on impairment of goodwill and other intangibles
—
103,999
(103,999)
N/M
Loss
(gain) on other assets
129
(11)
140
N/M
Operating income (loss)
$
148,335
$
(572,008)
$
720,343
N/M
Other
Data:
Adjusted EBITDA (1)
$
324,641
$
(302,011)
$
626,652
N/M
Attendance
19,498
2,595
16,903
N/M
In-park
per capita spending
$
62.03
$
46.38
$
15.65
33.7
%
Out-of-park revenues
$
167,978
$
67,375
$
100,603
149.3
%
N/M Not
meaningful either due to the nature of the expense line-item or due to minimal operations in 2020
(1) For additional information regarding Adjusted EBITDA, including how we define and use Adjusted EBITDA, as well as a reconciliation from net (loss) income, see page 20.
Consolidated net revenues totaled $1.3 billion for the year ended December 31, 2021 compared with $181.6 million for 2020. This increase in net revenues was attributable to the 1,278 operating day increase in 2021 resulting in a 16.9 million-visit increase in attendance and a $100.6 million increase in out-of-park revenues. In-park per capita spending for the year ended December 31, 2021 increased 34% to $62.03, which represented
higher levels of guest spending across all key revenue categories, particularly admissions, extra-charge attractions, including front-of-line Fast Lane products, and food and beverage, and was driven by increases in pricing and volume. The increase in net revenues included a $6.5 million favorable impact of foreign currency exchange rates at our Canadian park.
Operating costs and expenses for the year ended December 31, 2021 increased to $1.0 billion from $483.9 million for 2020. This was the result of an $84.5 million increase in cost of food, merchandise and games revenues ("COGS"), a $350.5 million increase in operating expenses, and a $111.6 million increase in selling, general, and administrative expenses ("SG&A"), all of which were largely the result of the 1,278 operating day increase in 2021. While the majority
of the $350.5 million increase in operating expenses was attributable to the increase in operating days, there was also a meaningful increase in seasonal labor rate in order to recruit employees in a challenging labor market, as well as higher full-time wages, including accrued bonus plans. Similarly, the $111.6 million increase in SG&A expense was driven by resumed park operations in 2021. However, the increase in SG&A expense was also driven by an increase in full-time wages, particularly for accrued bonus plans and equity-based compensation plans, as well as consulting fees incurred in 2021 related to a business optimization program. The increase in operating costs and expenses included a $3.4 million unfavorable impact of foreign currency exchange rates at our Canadian park.
Depreciation and amortization expense for the year ended December 31,
2021 decreased $8.7 million compared with 2020 due primarily to the full depreciation of 15-year useful lived property and equipment from our 2006 acquisition in 2021. The loss on impairment / retirement of fixed assets for 2021 was $10.5 million compared with $8.1 million for 2020. The loss on impairment / retirement of fixed assets for 2021 included retirements of assets in the normal course of business, as well as the impairment of a few specific assets in the second half of 2021. The loss on impairment / retirement of fixed assets for 2020 included a $2.7 million impairment charge with respect to the Schlitterbahn parks' long-lived assets triggered by the effects of the COVID-19 pandemic during the first quarter of 2020 (see Note 6), as well as the impairment of two specific assets during the first quarter of 2020. Similarly
triggered by the anticipated effects of the COVID-19 pandemic, the loss on impairment of goodwill and other intangibles for 2020 included a $73.6 million, $6.8 million and $7.9 million impairment of goodwill at the Schlitterbahn parks, goodwill at Dorney Park, and the Schlitterbahn trade name, respectively, during the first quarter of 2020, and an $11.3 million, $2.3 million and $2.2 million impairment of goodwill at the Schlitterbahn parks, goodwill at Dorney Park, and the Schlitterbahn trade name, respectively, during the third quarter of 2020 (see Note 7).
After the items above, operating income for 2021 totaled $148.3 million compared with an operating loss of $572.0 million for 2020.
Interest expense for 2021 increased $33.4 million due to interest incurred on the 2025 senior notes issued in April 2020 and the 2028 senior notes issued in October 2020. The net effect of our swaps resulted in a $19.0 million benefit to earnings for 2021 compared with a $15.8 million charge to earnings for 2020. The difference was attributable to the change in fair market value of our swap portfolio. We recognized a loss on early debt extinguishment of $5.9 million in 2021 related to a full redemption of the 2024 senior notes, and we recognized a $2.3 million loss on early debt extinguishment in 2020 related to the 2020 refinancing events (see Note 8). During 2021, we
also recognized a $6.2 million net charge to earnings for foreign currency gains and losses compared with a $12.2 million net benefit to earnings for 2020. Both amounts primarily represent remeasurement of the U.S.-dollar denominated debt recorded at our Canadian entity from the U.S.-dollar to the legal entity's functional currency.
For 2021, a provision for taxes of $20.0 million was recorded to account for PTP taxes and federal, state, local and foreign income taxes compared with a benefit for taxes of $137.9 million recorded for 2020. The difference in provision for taxes was attributable to a larger pretax loss in 2020 from our taxable subsidiaries, as well as expected benefits from the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which was signed into law on March
27, 2020. The CARES Act resulted in various changes to the U.S. tax law, including, among other things, allowing net operating losses arising in tax years 2018 through 2020 to be carried back to the preceding five taxable years and removing the limitation that such losses only offset 80% of taxable income. As a result of these changes, we expect to recognize two benefits. First, we carried back the tax year 2020 losses incurred by our corporate subsidiaries, which will result in the refund of a portion of federal income taxes paid during the carryback period of approximately $79.7 million. Second, the annual effective tax rate for 2021 and for 2020 included a net benefit of $1.7 million and $18.1 million, respectively, from carrying back the tax year 2020 losses of the corporate subsidiaries. This
tax benefit represents an estimated incremental benefit of tax loss carrybacks for periods when the federal income tax rate was greater than the current 21% rate. The overall benefit of the carryback of losses was decreased by $4.7 million and $16.1 million in 2021 and 2020, respectively, for a projected valuation allowance on foreign tax credits originally utilized during the carryback period which would be released as a result of the loss carryback but which are not expected to be utilized.
After the items above, net loss for 2021 totaled $48.5 million, or $0.86 per diluted limited partner unit, compared with a net loss of $590.2 million, or $10.45 per diluted unit, for 2020.
For 2021, Adjusted EBITDA totaled $324.6 million compared with a $302.0 million Adjusted EBITDA loss for 2020. The increase in
Adjusted EBITDA was primarily due to the impact of COVID-19 related park closures in 2020 and the related improvement in attendance, in-park per capita spending and out-of-park revenues from reopening parks in 2021.
2021 vs. 2019
As described above, the results for the year ended December 31, 2021 were not directly comparable with the results for the year ended December 31, 2020 due to the effects of the COVID-19 pandemic. The results for the year ended December 31, 2021 were more comparable with the results for the year
ended December 31, 2019. As a result, we have included analysis comparing our 2021 results with our 2019 results. However, the 2021 results are also not directly comparable with the 2019 results due to the postponed opening of our parks for the 2021 operating season until May 2021, as well as operating restrictions in place upon opening in 2021, compared with a pre-pandemic operating season in 2019. The year ended December 31, 2021 included 1,765 operating days compared with a total of 2,224 operating days for the year ended December 31, 2019. The following table presents key financial information and operating statistics for the years ended December 31, 2021 and December 31, 2020:
(1) For additional information regarding Adjusted EBITDA, including how we define and use Adjusted EBITDA, as well as a reconciliation from net (loss) income, see page 20.
(2) Adjusted EBITDA margin (Adjusted EBITDA divided by net revenues) is not a measurement computed in accordance with generally accepted accounting principles ("GAAP") or a substitute for measures computed
in accordance with GAAP and may not be comparable to similarly titled measures of other companies. We provide Adjusted EBITDA margin because we believe the measure provides a meaningful measure of operating profitability.
For the year ended December 31, 2021, net revenues totaled $1.3 billion compared with $1.5 billion for 2019. The decrease in net revenues reflected the impact of an 8.4 million-visit, or 30%, decline in attendance partially offset by the impact of a $13.71, or 28%, increase in in-park per capita spending. The decrease in net revenues and attendance was primarily attributable to 459 fewer operating days in 2021. Out-of-park revenues for the year ended December 31, 2021 were comparable to 2019. Lower out-of-park revenues that resulted from the delayed opening of our
parks in 2021 until May 2021 and the temporary closure of two hotel properties for renovations during 2021 were mostly offset by additional out-of-park revenues from the Knott's Berry Farm culinary festival in 2021.
Operating costs and expenses for the year ended December 31, 2021 increased $39.8 million compared with 2019. This was the result of a $56.0 million increase in operating expenses offset by a $13.8 million decrease in COGS and a $2.5 million decrease in SG&A expense, all of which were impacted by the result of fewer operating days in 2021. Operating expenses increased compared with 2019 despite fewer operating days due to a meaningful increase in the seasonal labor rate in order to recruit employees in a challenging labor market, as well as higher full-time wages attributable to an increase in headcount. Seasonal labor
hours declined in 2021 compared to 2019. The decrease in COGS was attributable to fewer operating days in 2021. COGS as a percentage of food, merchandise and games revenue in 2021 was comparable to 2019. The decrease in SG&A expense was primarily due to less advertising expense due to fewer operating days and a more efficient marketing program offset by an increase in full-time wages, particularly for accrued bonus plans and equity-compensation plans.
Depreciation and amortization expense for the year ended December 31, 2021 decreased $21.7 million compared with 2019 due primarily to the full depreciation of 15-year useful lived property and equipment from our 2006 acquisition in 2021, as well as the change in estimated useful life of a long-lived asset at Kings Dominion in 2019. The loss on impairment / retirement of fixed assets
for 2021 was $10.5 million compared with $4.9 million for 2019. The loss on impairment / retirement of fixed assets for 2021 included the impairment of a few specific assets in the second half of 2021.
After the items above, operating income for 2021 totaled $148.3 million compared with operating income of $309.4 million for 2019.
Interest expense for 2021 increased $83.7 million due to interest incurred on the 2025 senior notes and the 2028 senior notes, both of which were issued in 2020. The net effect of our swaps resulted in a $19.0 million benefit to earnings for 2021 compared with a $16.5 million charge to earnings for 2019. The difference was attributable to the change in fair market value of our swap portfolio. We recognized a loss on early debt extinguishment of $5.9 million in 2021 related
to a full redemption of the 2024 senior notes (see Note 8). During 2021, we also recognized a $6.2 million net charge to earnings for foreign currency gains and losses compared with a $21.1 million net benefit to earnings for 2019. Both amounts primarily represent remeasurement of the U.S.-dollar denominated debt recorded at our Canadian entity from the U.S.-dollar to the legal entity's functional currency.
For 2021, a provision for taxes of $20.0 million was recorded to account for PTP taxes and federal, state, local and foreign income taxes compared with a provision for taxes of $42.8 million recorded for 2019. The decrease in provision for taxes was attributable to a decrease in pretax income from our taxable subsidiaries
during 2021.
After the items above, net loss for 2021 totaled $48.5 million, or $0.86 per diluted limited partner unit, compared with net income of $172.4 million, or $3.03 per diluted unit, for 2019.
For 2021, Adjusted EBITDA totaled $324.6 million compared with $504.7 million for 2019. Similarly, our Adjusted EBITDA margin for 2021 decreased compared with the Adjusted EBITDA margin for 2019. The decreases in Adjusted EBITDA and Adjusted EBITDA margin were both largely due to the postponed opening of our parks for the 2021 operating season until May 2021, other COVID-19 related operating calendar changes and restrictions, as well as significantly increased labor costs in 2021 due to labor rate pressures.
In order to provide
a more meaningful comparison of our key operational measures, we have provided comparable same-day statistics for attendance and in-park per capita spending. These supplemental comparisons were used by management for operational decisions during 2021. We believe these supplemental key operational measures provide a more meaningful measure of demand and guest spending trends on an annual basis due to the material variances in operating days between years.
For attendance and in-park per capita spending, the comparable same-day statistics compare the results from 1,695 operating days for the year ended December 31, 2021 with the comparable 1,695 operating days for the year ended December 31, 2019. The 1,695 operating days for the year ended December 31,
2021 included the 1,765 total operating days for the period less 70
operating days from the Schlitterbahn parks which were acquired on July 1, 2019. As a result, on a comparable same-day basis, we excluded $15.4 million of in-park revenues and 0.3 million visits for the year ended December 31, 2021. We also excluded $239.0 million of in-park revenues and 5.3 million visits for the year ended December 31, 2019 to
exclude the results of 2019 operating days without equivalent 2021 operating days. No adjustments otherwise were made to the daily data from either period, including no adjustments to reflect the impact of fewer operating hours within an operating day or operating restrictions in place in 2021.
Attendance for the year ended December 31, 2021 represented approximately 85% of attendance for the year ended December 31, 2019 on a comparable same-day basis driven by season pass attendance and general admission and offset by an expected slower recovery in group sales attendance. In-park per capita spending for the year ended December 31, 2021 represented approximately 127% of in-park per capita spending for the year ended December 31,
2019 on a comparable same-day basis. The increase in in-park per capita spending on a comparable same-day basis was attributable to increases in all key spending categories, particularly admission, extra-charge attractions, including front-of-line Fast Lane products, and food and beverage. Attendance and in-park per capita spending as a percentage of 2019 results on a comparable same-day basis increased from the initial opening of our parks in May 2021 through the end of the year. Due to the nature of out-of-park revenues, we are not able to produce comparable same-day statistics.
2020 vs. 2019
The results for the year ended December 31,
2020 were not directly comparable with the results for the year ended December 31, 2019 due to park closures and operating calendar changes associated with the COVID-19 pandemic. On March 14, 2020, we closed our properties in response to the spread of COVID-19. We ultimately resumed only partial operations at 10 of our 13 properties in 2020. Beginning in the second quarter of 2020, we resumed partial operations at eight properties on a staggered basis with opening dates starting in mid-June and continuing through mid-July. We also reopened operations at some of our out-of-park attractions at this time, such as hotel operations. Attendance upon reopening was impacted by the ongoing effects of the pandemic and was below original expectations. Due to these soft demand trends upon reopening, park operating calendars were adjusted for the remainder of 2020, including
reduced operating days per week and operating hours within each operating day. In addition, some of our reopened parks closed earlier in 2020 than the park's pre-pandemic operating calendar. Two parks, Cedar Point and Kings Island, remained open in 2020 after Labor Day. Two additional parks, Carowinds and Kings Dominion, reopened on weekends in November and December to host abbreviated versions of their traditional WinterFest events. Following March 14, 2020, Knott's Berry Farm's partial operations were limited to culinary festivals. Net revenues from these limited operations at Knott's Berry Farm were classified as out-of-park revenues. Attendance, in-park per capita spending and operating day statistics for 2020 exclude these limited operations at Knott's Berry Farm.
As a result of the effects of the COVID-19 pandemic, the year
ended December 31, 2020 included 487 operating days compared with 2,224 operating days for the year ended December 31, 2019. The following table presents key financial information and operating statistics for the years ended December 31, 2020 and December 31, 2019:
(Amounts in thousands, except for per capita spending)
Net revenues
$
181,555
$
1,474,925
$
(1,293,370)
(87.7)
%
Operating
costs and expenses
483,891
990,716
(506,825)
(51.2)
%
Depreciation and amortization
157,549
170,456
(12,907)
(7.6)
%
Loss
on impairment/retirement of fixed assets, net
8,135
4,931
3,204
N/M
Loss on impairment of goodwill and other intangibles
103,999
—
103,999
N/M
Gain
on sale of investment
(11)
(617)
606
N/M
Operating (loss) income
$
(572,008)
$
309,439
$
(881,447)
N/M
Other
Data:
Adjusted EBITDA (1)
$
(302,011)
$
504,673
$
(806,684)
N/M
Attendance
2,595
27,938
(25,343)
(90.7)
%
In-park
per capita spending
$
46.38
$
48.32
$
(1.94)
(4.0)
%
Out-of-park revenues
$
67,375
$
168,708
$
(101,333)
(60.1)
%
N/M Not
meaningful either due to the nature of the expense line-item or due to minimal operations in 2020
(1) For additional information regarding Adjusted EBITDA, including how we define and use Adjusted EBITDA, as well as a reconciliation from net (loss) income, see page 20.
Consolidated net revenues totaled $181.6 million for the year ended December 31, 2020, decreasing $1.3 billion, from $1.5 billion for 2019. This reflected the impact of a 25.3 million-visit decrease in attendance, a $1.94 decrease in in-park per capita
spending, and a $101.3 million decrease in out-of-park revenues, all of which were heavily impacted by the aforementioned park closures and operating calendar changes. The decrease in attendance was also due to soft initial demand upon re-opening our parks in 2020. However, demand steadily increased from 20-25% of comparable 2019 attendance levels upon initially reopening up to 55% of comparable 2019 attendance levels in September 2020. The decrease in in-park per capita spending was the result of less guest spending on extra-charge products, specifically front-of-line products, and admission attributable to a higher season pass mix. In-park per capita spending on food, merchandise and games increased compared with 2019. The decrease in out-of-park revenues was primarily attributable to a decline in accommodations
revenue related to a decrease in occupancy due to the closures of our parks, as well as a decrease in online transaction fee revenue due to a decline in online sales volume. Net revenues were not materially impacted by foreign currency exchange rates.
Operating costs and expenses for the year ended December 31, 2020 decreased 51.2%, or $506.8 million, to $483.9 million from $990.7 million for 2019. The decrease was the result of a $98.3 million decrease in COGS, a $294.4 million decrease in operating expenses, and a $114.1 million decrease in SG&A expense. The decrease in COGS was due to the decline in sales volume due to park closures, operating calendar changes and soft initial demand at parks that opened in 2020. The $294.4 million decrease in operating expenses was attributable to $167.5 million of seasonal labor savings, as
well as reductions in operating supplies, maintenance supplies, utilities, entertainment-related fees and insurance attributable to closed properties, abbreviated operating calendars and fewer offerings at our parks in 2020. In addition, full-time wages decreased due to a decline in anticipated payout of bonus plans in 2020. The $114.1 million decrease in SG&A expense was attributable to $57.5 million of advertising expense savings, as well as a reduction in transaction fee expense due to a decline in online sales volume, a decline in the anticipated payout of outstanding equity-based compensation and bonus plans, and 2019 acquisition-related costs. Operating costs and expenses were not materially impacted by foreign currency exchange rates.
Depreciation and amortization expense for 2020 decreased $12.9 million compared with 2019 primarily due to the 2019 change in estimated useful
life of a long-lived asset at Kings Dominion. The loss on impairment / retirement of fixed assets for 2020 was $8.1 million compared with $4.9 million for 2019. The loss on impairment / retirement of fixed assets for 2020 included a $2.7 million impairment charge with respect to the Schlitterbahn parks' long-lived assets triggered by the effects of the COVID-19 pandemic during the first quarter of 2020 (see Note 6), as well as the impairment of two specific assets during the first quarter of 2020. Similarly triggered by the anticipated effects of the COVID-19 pandemic, the loss on impairment of goodwill and other intangibles for 2020 included a $73.6 million, $6.8 million and $7.9 million impairment of goodwill at the Schlitterbahn parks, goodwill at Dorney Park, and the Schlitterbahn trade name, respectively, during the first
quarter of 2020, and an $11.3 million, $2.3 million and $2.2 million impairment of goodwill at the Schlitterbahn parks, goodwill at Dorney Park, and the Schlitterbahn trade name, respectively, during the third quarter of 2020 (see Note 7). During the first quarter of 2019, a $0.6 million gain on sale of investment was recognized for additional proceeds from the liquidation of a preferred equity investment.
After the items above, operating loss for 2020 totaled $572.0 million compared with operating income of $309.4 million for 2019.
Interest expense for 2020 increased $50.3 million due to interest incurred on the 2025 senior notes issued in April 2020 and on the 2029
senior notes issued in June 2019. The net effect of our swaps resulted in a $15.8 million charge to earnings for 2020 compared with a $16.5 million charge to earnings for 2019. The difference was attributable to the change in fair market value of our swap portfolio. We recognized a $2.3 million loss on early debt extinguishment related to our 2020 refinancing events (see Note 8). During 2020, we also recognized a $12.2 million net benefit to earnings for foreign currency gains and losses compared with a $21.1 million net benefit to earnings for 2019. Both amounts primarily represented remeasurement of the U.S.-dollar denominated debt recorded at our Canadian entity from the U.S.-dollar to the legal entity's functional currency.
For 2020, a benefit for
taxes of $137.9 million was recorded to account for PTP taxes and federal, state, local and foreign income taxes compared with a provision for taxes recorded for 2019 of $42.8 million. The increase in benefit for taxes was attributable to an increase in pretax loss from our taxable subsidiaries, as well as expected benefits from the CARES Act. The CARES Act resulted in various changes to the U.S. tax law, including, among other things, allowing net operating losses arising in tax years 2018 through 2020 to be carried back to the preceding five taxable years and removing the limitation that such losses only offset 80% of taxable income. As a result of these changes, we expected to recognize two benefits. First, we expected to carryback the 2020 losses incurred by our corporate subsidiaries,
which would result in the refund of a portion of federal income taxes paid during the carryback period of approximately $55.4 million as of December 31, 2020. Second, the annual effective tax rate for 2020 included a net benefit of $18.1 million from carrying back the projected 2020 losses of the corporate subsidiaries. This tax benefit represented an estimated $34.2 million incremental benefit of tax loss carrybacks for periods when the federal income tax rate was greater than the current 21% rate. The estimated $34.2 million benefit was decreased by $16.1 million in 2020 for a projected valuation allowance on foreign tax credits originally utilized during the carryback period which would be released as a result of the loss carryback but which were not expected to be utilized.
After
the items above, net loss for 2020 totaled $590.2 million, or $10.45 per diluted limited partner unit, compared with net income of $172.4 million, or $3.03 per diluted unit, for 2019.
For 2020, Adjusted EBITDA loss totaled $302.0 million compared with a $504.7 million Adjusted EBITDA for 2019. The variance in Adjusted EBITDA was due to decreased net revenues offset somewhat by expense savings attributable to park closures and operating calendar changes as a result of the COVID-19 pandemic.
Our principal sources of liquidity typically 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 typically include operating expenses, partnership distributions, capital expenditures, interest payments and income tax obligations.
Due to the negative effects of the COVID-19 pandemic, we took steps in
2020 to secure additional liquidity and to obtain relief from certain financial covenants including issuing $1.3 billion of senior notes, amending our term debt and revolving credit agreement, reducing operating expenses, including labor costs, suspending capital expenditures, and suspending quarterly partnership distributions. Due to limited open operations, our 2020 and first quarter 2021 liquidity needs were funded from cash on hand from the recently issued senior notes. We began generating positive cash flows from operations during the second quarter of 2021. Despite a delayed start and various operating restrictions in place for the 2021 operating season, our 2021 operating results exceeded our initial expectations, driven by higher consumer demand driving both attendance and in-park per capita spending. As a result, we subsequently redeemed all of our 2024 senior notes in December 2021. We expect to fund our 2022 liquidity needs with cash from operating activities
and borrowings from our revolving credit facility. As of December 31, 2021, we had cash on hand of $61.1 million and $359.2 million of available borrowings under our revolving credit facility. Based on this level of liquidity, we have concluded that we will have sufficient liquidity to satisfy our obligations and remain in compliance with our debt covenants at least through the first quarter of 2023.
As restrictions to mitigate the spread of COVID-19 have largely been lifted and our properties have mostly been able to resume full operations, management is focused on driving profitable and sustainable growth in the business, reducing the Partnership's outstanding debt, and reinstating the quarterly Partnership distribution. We expect to invest between $200 million and $215 million in capital expenditures for the 2022 operating season,
which will include the completion of several resort renovation projects, and 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.
Following the issuance of $1.3 billion of senior notes in 2020 and the redemption of the 2024 senior notes in December 2021, we anticipate $150 million in annual cash interest in 2022 of which 75% of the payments occur in the second and fourth quarter. We are expecting to receive $79.7 million in tax refunds attributable to the tax year 2020 net operating loss being carried back to prior years in the United States and an additional $9.5 million in tax refunds attributable to net operating losses being carried back to prior years in Canada. We anticipate receiving these tax refunds during 2022. In 2022, we anticipate cash payments for
income taxes to range from $45 million to $60 million, exclusive of these tax refunds.
Operating Activities
Net cash from operating activities in 2021 totaled $201.2 million compared with net cash for operating activities of $416.5 million in 2020 and net cash from operating activities of $403.0 million in 2019. The variance between years was attributable to lower earnings in 2020, and to a lesser extent in 2021, as a result of disrupted operations due to the COVID-19 pandemic.
Cash interest payments totaled $174.3 million in 2021 compared with $130.4 million in 2020. The increase in cash interest payments from 2020 was attributable to a full year of interest paid on the 2025 senior notes and 2028 senior notes which were issued during 2020. Cash interest payments
in 2020 increased $44.8 million compared to 2019 due to a partial year of interest paid on the 2025 senior notes in 2020 offset by less outstanding term debt in 2020 following a $463.3 million prepayment in the second quarter of 2020. Cash payments for income taxes totaled $10.1 million in 2021 compared with $1.8 million in 2020 and $40.8 million in 2019. The variance between years for cash payments for income taxes was attributable to the impact of disrupted operations in 2020, and to a lesser extent 2021.
Investing Activities
Net cash for investing activities in 2021 totaled $57.8 million, a decrease of $63.0 million compared with 2020. The decrease from 2020 was attributable to less spending in 2021 as we continued to recover from the effects of the COVID-19 pandemic. Net cash for investing activities in 2020 decreased $479.4 million compared with
2019. The decrease from 2019 was attributable to two causes. First, in 2020 and due to the effects of the COVID-19 pandemic, we reduced our capital spending by approximately $60 million from our initial capital expenditures budget to maintain flexibility and retain liquidity. Second, in 2019, net cash for investing activities included the acquisitions of the Schlitterbahn parks and Sawmill Creek Resort and the purchase of the land at California's Great America from the City of Santa Clara.
Net
cash for financing activities in 2021 totaled $466.4 million compared with net cash from financing activities of $730.9 million in 2020. The variance in net cash (for) from financing activities was due to the full redemption of the 2024 senior notes in 2021 and the April 2020 refinancing events and the issuance of the 2028 senior notes in 2020. Net cash from financing activities in 2020 increased $460.4 million compared with net cash for financing activities in 2019. The increase from 2019 was primarily attributable to the net cash proceeds from the April 2020 financing events and the issuance of the 2028 senior notes in 2020 compared with the 2029 senior notes issuance in 2019. The increase from 2019 was somewhat offset by the suspension of quarterly partnership distributions following the first quarter 2020 partnership distribution.
Contractual Obligations
As
of December 31, 2021, our primary contractual obligations consisted of outstanding long-term debt agreements and related derivative agreements. Before reduction for debt issuance costs and original issue discount, our long-term debt agreements consisted of the following:
•$264 million of senior secured term debt, maturing in April 2024 under the 2017 Credit Agreement, as amended. The term debt bears interest at London InterBank Offering Rate ("LIBOR") plus 175 bps, under amendments we entered into on March 14, 2018. The pricing terms for the 2018 amendment reflected $0.9 million of Original Issue Discount ("OID"). Following a $463.3 million prepayment during the second quarter of 2020, we do not have any required remaining quarterly payments. Therefore,
we had no current maturities as of December 31, 2021.
•$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. Prior to May 1, 2022, up to 35% of the 2025 senior notes may be redeemed with net cash proceeds of certain equity offerings at a price equal to 105.500% of the principal amount thereof, together with accrued and unpaid interest and additional interest, if any. The 2025 senior notes may be redeemed, in whole or in part, at any time prior to May 1, 2022 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 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 any time prior to April 15, 2022 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 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. Prior to July 15, 2022, up to 35% of the 2029 senior notes may be redeemed with the net cash proceeds of certain equity offerings at a price equal to 105.250% of the principal amount thereof, together with accrued and unpaid interest and additional interest, if any. 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 $375 million senior secured revolving credit facility under our current credit agreement with a Canadian sub-limit of $15 million. $300 million of 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 remaining $75 million of the revolving credit facility bears interest at LIBOR plus 300 bps or CDOR plus 200 bps and requires the payment of a 37.5 bps commitment fee per annum on the
unused portion of the credit facilities. $300 million of the revolving credit facility is scheduled to mature in December 2023 and $75 million of the revolving credit facility is scheduled to mature in April 2022. The credit agreement provides for the issuance of documentary and standby letters of credit. After letters of credit, which totaled $15.8 million as of December 31, 2021 and $15.9 million as of December 31, 2020, we had available borrowings under our revolving credit facility of $359.2 million as of December 31, 2021 and $359.1 million as of December 31, 2020. Our
letters of credit are primarily in place to backstop insurance arrangements. We did not borrow on the revolving credit facility during 2021. During the year ended December 31, 2020, the maximum outstanding balance under our revolving credit facility was $140.0 million.
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 further amended the 2017 Credit Agreement in December 2021 to allow for the redemption of the 2024 senior notes.
As
of December 31, 2021 and December 31, 2020, we had four interest rate swap agreements with a notional value of $500 million that convert one-month variable rate LIBOR to a fixed rate of 2.88% through December 31, 2023. This results in a 4.63% fixed interest rate for borrowings under our senior secured term loan facility after the impact of interest rate swap agreements. None of our interest rate swap agreements were designated as cash flow hedges in the periods presented. As of December 31, 2021 and December 31, 2020, the fair market value of our swap portfolio was classified as long-term and recorded in "Derivative Liability" within the consolidated balance sheets.
The
2017 Credit Agreement, as amended, includes: (i) a Senior Secured Leverage Ratio of 4.50x Total First Lien Senior Secured Debt-to-Consolidated EBITDA starting with the first quarter of 2022, 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, with the covenant calculations for the first, second, and third quarters in 2022 to include Consolidated EBITDA from the second, third and fourth quarters of the fiscal year ended December 31, 2019 in lieu of the Consolidated EBITDA for the corresponding quarters in 2021 ("Deemed EBITDA Quarters"); (ii) a requirement that we maintain a minimum liquidity level of at least $125 million, tested at all times, until the earlier of December 31, 2022 or the termination of the Additional Restrictions Period (which generally includes the period from the
effective date of the Second Amendment until the delivery of the compliance certificate for the fourth quarter of 2022); and (iii) a suspension of certain Restricted Payments, including partnership distributions, under the credit agreement until the termination of the Additional Restrictions Period. We may terminate the Additional Restrictions Period prior to December 31, 2022 by achieving compliance with the Senior Secured Leverage Ratio covenant as of the end of a fiscal quarter without giving effect to Deemed EBITDA Quarters for any fiscal quarter. We were in compliance with the applicable financial covenants under our credit agreement during 2021.
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 greater than 5.25x as of December 31, 2021.
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.
Financial and Non-Financial Disclosure About Issuers and Guarantors of our Registered Senior Notes
As discussed within the Long-Term Debt footnote at Note 8, we had four tranches of fixed rate senior notes outstanding at December 31, 2021: 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 (the “registered 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 $14.0 million and $11.5 million as of December 31, 2021 and December 31, 2020, 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 - $13.4 million as of December 31, 2021 and $12.7 million as of December 31, 2020; Non-Current Assets - $2,254.9 million as of December 31, 2021 and $2,201.8 million as of December 31, 2020; and Net revenues - $126.6 million as of December 31, 2021 and $130.3 million as
of December 31, 2020. 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.
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 manage interest rate risk using a combination of fixed-rate long-term debt, interest rate swaps that fix our variable-rate long-term debt, and variable-rate borrowings under our revolving credit facility. Translation exposures with regard to our Canadian operations are not hedged.
None of
our interest rate swap agreements are designated as hedging instruments. Changes in fair value of derivative instruments that do not qualify for hedge accounting are reported as "Net effect of swaps" in the consolidated statements of operations and comprehensive (loss) income.
As of December 31, 2021, on an adjusted basis after giving effect to the impact of interest rate swap agreements, all of our outstanding long-term debt represented fixed-rate debt except for revolving credit borrowings. Assuming no revolving credit borrowings, a hypothetical 100 bps increase in 30-day LIBOR on our variable-rate debt (including term debt and not considering the impact of our interest rate swaps) would lead to an increase of approximately $2.6 million in cash interest costs over the next twelve months.
Assuming
a hypothetical 100 bps increase in 30-day LIBOR, the amount of net cash interest paid on our derivative portfolio would decrease by $2.6 million over the next twelve months.
A uniform 10% strengthening of the U.S. dollar relative to the Canadian dollar would result in a $1.0 million decrease in annual operating income for the year ended December 31, 2021.
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 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, including the timing of any debt paydown or payment of partnership distributions, or that our growth strategies will achieve the targeted results. Important factors, including those listed under Item 1A in this Form 10-K could adversely affect our future financial performance, as well as the timing of any debt paydown or payment of partnership distributions, and our growth strategies, and cause actual results to differ materially from our
expectations. 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information appearing under the subheading "Quantitative and Qualitative Disclosures about Market Risk" under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Report is incorporated herein by reference.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Unitholders and the Board of Directors of
Cedar Fair, L.P.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Cedar Fair, L.P., and subsidiaries (the "Partnership") as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive (loss) income,
partners' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). We also have audited the Partnership's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Partnership as of December 31, 2021 and 2020, and
the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
Basis for Opinions
The Partnership's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Partnership's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective
internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit
committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Deferred Revenues - Refer to Notes 3 and 5 to the consolidated financial statements
Critical Audit Matter Description
The Partnership defers revenue for its multi-use products, including season-long products for admissions, dining, beverages, and other products and recognizes revenues over the estimated number of uses
expected for each type of product. The Partnership estimates a redemption rate for each multi-use product using historical and forecasted uses at each park. Revenue is then recognized on a pro-rated basis based on the estimated allocated selling price of the multi-use product and the estimated uses of that product. During the third quarter of 2021, management began selling multi-use products for the 2022 operating season. These products include providing the customer park access for the remainder of the 2021 operating season. In addition, during the first and second quarters of 2021, the validity of certain multi-use products for two parks purchased for the 2020 and 2021 operating seasons were extended into the 2022 operating season. Deferred revenue as of December 31, 2021 was $187.6 million.
Auditing the amount of deferred revenue associated
with the multi-use products that should be recognized in each fiscal year required a high degree of auditor judgment and increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the estimated park use projections and the recognition of revenue from deferred revenue included the following, among others:
•We tested the effectiveness of controls over revenue recognition related to multi-use products.
•We tested the completeness and accuracy of the year end deferred revenue balance.
•We evaluated the reasonableness of the year-over-year change in deferred revenue.
•We
tested whether revenue relating to the current fiscal year was appropriately recognized.
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.
Despite a delayed start and various operating restrictions in place for the 2021 operating season, our 2021 operating results exceeded our initial expectations, driven by greater consumer demand resulting in higher attendance and in-park per capita spending. As a result, we made progress towards our goal to reduce outstanding debt by redeeming $i450 million
of unsecured senior notes in December 2021. The notes redeemed were previously due in 2024.
Management has made significant estimates and assumptions to determine our liquidity requirements and 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. Our future operations are dependent on factors beyond 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.
(2) iPartnership
Organization:
Cedar Fair, L.P. (together with its affiliated companies, the "Partnership") is a Delaware limited partnership that commenced operations in 1983 when it acquired Cedar Point, Inc., and became a publicly traded partnership in 1987. The Partnership's general partner is Cedar Fair Management, Inc., an Ohio corporation (the “General Partner”), whose shares are held by an Ohio trust. The General Partner owns a i0.001%
interest in the Partnership's income, losses and cash distributions, except in defined circumstances, and has full responsibility for management of the Partnership. As of December 31, 2021, there were i56,854,214 outstanding limited partnership units listed on The New York Stock Exchange, net of i207,769
units held in treasury. As of December 31, 2020, there were i56,706,338 outstanding limited partnership units listed, net of i355,645
units held in treasury.
The General Partner may, with the approval of a specified percentage of the limited partners, make additional capital contributions to the Partnership, but is only obligated to do so if the liabilities of the Partnership cannot otherwise be paid or there exists a negative balance in its capital account at the time of its withdrawal from the Partnership. The General Partner, in accordance with the terms of the Partnership Agreement, is required to make regular cash distributions on a quarterly basis of all the Partnership's available cash, as defined in the Partnership Agreement. Following the closure of our parks in March 2020 in response to COVID-19 health recommendations, the Board of Directors suspended quarterly partnership distributions to maintain flexibility and additional liquidity. The Board of Directors is committed to reinstitute quarterly partnership
distributions in accordance with the Partnership Agreement when it is appropriate to do so, and it is permissible under the 2017 Credit Agreement, as amended, and our other debt covenants.
(3) iSummary of Significant Accounting Policies:
We use the following policies in the preparation of the accompanying consolidated financial
statements.
iPrinciples of Consolidation
The consolidated financial statements include the accounts of the Partnership and its subsidiaries, all of which are wholly owned or the Partnership is the primary beneficiary. Intercompany transactions and balances are eliminated in consolidation.
i
Foreign
Currency
The U.S. dollar is our reporting currency and the functional currency for most of our operations. The financial statements of our Canadian subsidiary are measured using the Canadian dollar as its functional currency. Assets and liabilities are translated into U.S. dollars at the appropriate spot rates as of the balance sheet date, while income and expenses are translated at average monthly exchange rates. Translation gains and losses are included as components of accumulated other comprehensive (loss) income in partners' equity (deficit). Gains or losses from remeasuring foreign currency transactions from the transaction
currency
to functional currency are included in (loss) income. iForeign currency losses (gains) for the periods presented were as follows:
Years
Ended December 31,
(In thousands)
2021
2020
2019
Loss (gain) on foreign currency related to re-measurement of U.S. dollar denominated debt held in Canada
$
i5,986
$
(i9,344)
$
(i22,307)
Loss
(gain) on other transactions
i191
(i2,839)
i1,200
Loss
(gain) on foreign currency
$
i6,177
$
(i12,183)
$
(i21,107)
i
Segment
Reporting
Our properties operate autonomously, and management reviews operating results, evaluates performance and makes operating decisions, including the allocation of resources, on a property-by-property basis. In addition to reviewing and evaluating performance of the business at the property level, the structure of our management incentive compensation systems is centered on the operating results of each property as an integrated operating unit. Therefore, each property represents a separate operating segment of our business with the exception of the Schlitterbahn parks, which are aggregated into ione
segment. Although we manage our properties with a high degree of autonomy, each property offers and markets a similar collection of products and services to similar customers. In addition, our properties have similar economic characteristics, in that they show similar long-term growth trends in key industry metrics such as attendance, in-park per capita spending, net revenue, operating margin and operating profit. Therefore, we operate within a single reportable segment of amusement/water parks with accompanying resort facilities.
/
i
Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during each period. Actual results could differ from those estimates.
i
Fair Value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants, or an exit price. Inputs to valuation techniques used to measure fair value may be observable or unobservable, and valuation techniques used to measure fair value should maximize the use of relevant observable inputs and minimize the use of unobservable inputs. Accordingly, a hierarchical disclosure framework ranks the quality and reliability of information used to determine fair values. The three broad levels of inputs defined by the fair value hierarchy are as follows:
•Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
•Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument.
•Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Assets and liabilities recognized or disclosed at fair value on a recurring basis include our derivatives, debt and short-term investments.
iCash
and Cash Equivalents
We consider all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
iInventories
Our inventories primarily consist of purchased products, such as merchandise and food, for sale to our customers. Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) or average cost methods of accounting at the park level.
iProperty and Equipment
Property and equipment are recorded at cost. Expenditures made to maintain such assets in their original operating condition are expensed as incurred, and improvements and upgrades are generally capitalized. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Depreciation expense totaled $i148.4
million in 2021, $i157.0 million in 2020, and $i169.8 million in 2019.
The estimated useful lives of the assets are as follows:
Land improvements
Approximately
i25
years
Buildings
i25 years
-
i40 years
Rides
Approximately
i20
years
Equipment
i3 years
-
i10 years
/
i
Impairment
of Long-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. 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. An impairment loss may be recognized when estimated undiscounted future cash flows expected to result from the use of the asset, including disposition, are less than the carrying value of the asset. The measurement of the impairment loss to be recognized is based on the difference between the fair value and the carrying amounts of the assets. Fair value is generally determined using a combination of a cost and market approach. Significant factors considered in the cost approach include replacement cost, reproduction cost, depreciation, physical deterioration, functional obsolescence and economic obsolescence of the assets. The market approach estimates fair value by utilizing market data for similar assets. 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.
i
Accounting
for Business Combinations
Business combinations are accounted for under the acquisition method of accounting. The amounts assigned to the identifiable assets acquired and liabilities assumed in connection with acquisitions are based on estimated fair values as of the date of the acquisition, with the remainder, if any, recorded as goodwill. The fair values are determined by management, taking into consideration information supplied by the management of the acquired entities, valuations supplied by independent appraisal experts and other relevant information. The valuations are generally based upon future cash flow projections for the acquired assets, discounted to present value. The determination of fair values requires significant judgment by management.
i
Goodwill
Goodwill
is reviewed annually for impairment, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill is allocated to reporting units and goodwill impairment tests are performed at the reporting unit level. We perform our annual goodwill impairment test as of the first day of the fourth quarter.
We may elect to first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If we do not perform a qualitative assessment, or if we determine that it is not more likely than not that the fair value of the reporting unit exceeds its carrying amount, we calculate the fair value of the reporting unit. The fair value of a reporting unit is established using a combination of an income (discounted cash flow) approach and market approach. The income approach uses a reporting unit's projection
of estimated operating results and discounted cash flows using a weighted-average cost of capital that reflects current market conditions. Estimated operating results are established using management's best estimates of economic and market conditions over the projected period including growth rates in revenues and costs, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements. A market approach estimates fair value by applying cash flow multiples to the reporting unit's operating performance. The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics of the reporting units. If an impairment is identified, an impairment charge is recognized for the amount by which a reporting unit's carrying amount exceeds
its fair value, not to exceed the carrying amount of goodwill.
i
Other Intangible Assets
Our finite-lived intangible assets consist primarily of license and franchise agreements. These intangible assets are amortized on a straight-line basis over the life of the agreement, ranging from two to itwenty
years.
/
Our infinite-lived intangible assets consist of trade names. Our trade names are reviewed annually for impairment, or more frequently if impairment indicators arise. We may elect to first perform a qualitative assessment to determine whether it is more likely than not that a trade name is impaired. If we do not perform a qualitative assessment, or if we determine that it is not more likely than not that the fair value of the trade name exceeds its carrying amount, we calculate the fair value of the trade name using a relief-from-royalty model. Principal assumptions under the relief-from-royalty model include royalty rates, growth rates in revenues, estimates of future expected changes in operating margins, terminal value
growth rates, and a discount rate based on a weighted-average cost of capital that reflects current market conditions. We assess the indefinite-lived trade names for impairment separately from goodwill.
Self-insurance reserves are recorded for the estimated amounts of guest and employee claims and related expenses incurred each period. Reserves are established for both identified claims and incurred but not reported ("IBNR") claims and are recorded when claim amounts become probable and estimable. Reserves for identified claims are based upon our historical claim experience and third-party estimates of settlement costs. Reserves for IBNR claims are based upon our claims data history. Self-insurance reserves are periodically reviewed for changes in facts and circumstances and adjustments are made as necessary. As of December 31, 2021 and December 31, 2020, the accrued self-insurance reserves totaled $i24.6
million and $i22.3 million, respectively.
iDerivative Financial Instruments
We are exposed
to market risks, primarily resulting from changes in interest rates and currency exchange rates. To manage these risks, we may enter into derivative transactions pursuant to our overall financial risk management program. We do not use derivative financial instruments for trading purposes. As of December 31, 2021, we had ino derivatives designated as cash flow hedges. Instruments that do not qualify for hedge accounting or were de-designated are prospectively adjusted to fair value each reporting period through "Net
effect of swaps".
i
Leases
We have commitments under various operating leases. Right-of-use assets and lease liabilities are recognized at the present value of the future lease payments at the lease commencement date. The discount rate used to determine the present value of the future lease payments is our incremental borrowing rate as the rate implicit in most of our leases is not readily determinable. As a practical expedient, a relief provided in the accounting standard to simplify compliance, we do not recognize right-of-use
assets and lease liabilities for leases with an original term of one year or less and have elected to not separate lease components from non-lease components. The current portion of our lease liability is recorded within "Other accrued liabilities" in the consolidated balance sheets.
i
Revenue Recognition and related receivables and contract liabilities
As
disclosed within the consolidated statements of operations and comprehensive (loss) income, revenues are generated from sales of (1) admission to our amusement parks and water parks, (2) food, merchandise and games both inside and outside the parks, and (3) accommodations, extra-charge products, and other revenue sources. Admission revenues include amounts paid to gain admission into our parks, including parking fees. Revenues related to extra-charge products, including premium benefit offerings such as front-of-line products, and online transaction fees charged to customers are included in "Accommodations, extra-charge products and other". 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.
In some instances, we arrange with outside parties ("concessionaires") to provide goods to guests, typically food and merchandise, and we act as an agent, resulting in net revenues recorded within the consolidated statements of operations and comprehensive (loss) income. Concessionaire arrangement revenues are recognized over the operating season and are variable. Sponsorship revenues and marina revenues, which are classified as "Accommodations, extra-charge products and other," are recognized over the park operating season which represents the period in which the performance
obligations are satisfied. Sponsorship revenues are typically fixed. However, some sponsorship revenues are variable based on achievement of specified operating metrics. We estimate variable revenues and perform a constraint analysis using both historical information and current trends to determine the amount of revenue that is not probable of a significant reversal.
Most deferred revenue from contracts with customers is classified as current within the balance sheet. However, a portion of deferred revenue from contracts with customers is typically classified as non-current due to season-long products sold starting 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 in the consolidated balance sheets.
Except for the non-current deferred revenue described above, our contracts with customers typically have an original duration of one year or less. For these short-term contracts, we use the practical expedient applicable to such contracts and have not disclosed the transaction price for the remaining performance obligations as of the end of each reporting period or when we expect to recognize this revenue. Further, we elected to recognize incremental
costs of obtaining a contract as an expense when incurred as the amortization period of the asset would be less than one year. Lastly, we elected not to adjust consideration
for the effects of significant financing components of our installment purchase plans because the terms of these plans do not exceed one year.
iAdvertising
Costs
Production costs of commercials and programming are expensed in the year first aired. All other costs associated with advertising, promotion and marketing programs are expensed as incurred, or for certain costs, over each park's operating season. Certain prepaid costs incurred through year-end for the following year's advertising programs are included within "Other current assets" in the consolidated balance sheets. Advertising expense totaled $i37.0 million in 2021, $i10.5
million in 2020 and $i67.9 million in 2019. Due to the effects of the COVID-19 pandemic, we suspended all advertising costs in 2020 effective April 2020. For those parks which ultimately opened in 2020, we incurred limited incremental advertising expense for the remainder of 2020 to correspond with lower than typical attendance levels and abbreviated park operating calendars. In 2021, we also incurred less advertising costs than in previous years due to fewer operating days in the year, as well as the execution of a more efficient marketing program.
i
Equity-Based
Compensation
We measure compensation cost for all equity-based awards at fair value on the date of grant. We recognize the compensation cost over the service period. We recognize forfeitures as they occur.
i
Income Taxes
Our legal entity structure includes both partnerships and corporate subsidiaries. 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 (benefit) provision for taxes includes amounts for the PTP gross income tax and federal, state, local and foreign income taxes. Under applicable accounting rules, the total (benefit) provision 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.
Neither
financial reporting income, nor the cash distributions to unitholders, can be used as a substitute for the detailed tax calculations that we must perform annually for our partners. Net income from the Partnership is not treated as passive income for federal income tax purposes. As a result, partners subject to the passive activity loss rules are not permitted to offset income from the Partnership with passive losses from other sources.
Our corporate subsidiaries account for income taxes under the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future book and tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are determined using enacted tax rates expected to apply in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law is recognized in income at the time of enactment of such change in tax law. Any interest or penalties due for payment of income taxes are included in the (benefit) provision for income taxes.
iEarnings Per Unit
For
purposes of calculating the basic and diluted earnings per limited partner unit, no adjustments have been made to the reported amounts of net (loss) income. iThe unit amounts used in calculating the basic and diluted earnings per limited partner unit for the years ended December 31, 2021, 2020 and 2019 are as follows:
There
were approximately i0.4 million and i0.3 million
potentially dilutive units excluded from the computation of diluted loss per limited partner unit for the years ended December 31, 2021 and 2020, respectively, as their effect would have been anti-dilutive due to the net loss in the period.
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 simplifies the accounting for income taxes by removing specific exceptions and clarifying and amending existing guidance under Topic 740, Income Taxes. ASU 2019-12 is effective for fiscal years after December 15, 2020 and interim periods within those years. Early adoption is permitted, including adoption in any interim period, but all amendments must be adopted in the same period. The allowable adoption methods differ under the various amendments. We adopted ASU 2019-12 as of January 1, 2021. The standard did not have an effect on the consolidated financial statements and related disclosures.
In
November 2021, the FASB issued Accounting Standards Update No. 2021-10, Disclosures by Business Entities about Government Assistance ("ASU 2021-10"). ASU 2021-10 requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. ASU 2021-10 is effective for financial statements issued for annual periods beginning after December 15, 2021. Early application is permitted. The amendments can be applied either prospectively or retrospectively. We adopted ASU 2021-10 retrospectively by providing the prescribed annual disclosures as part of these financial statements within the Income and Partnership Taxes footnote (see Note 12).
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 are in the process of evaluating the effect these standards will have on the consolidated financial statements and related disclosures.
(4) iAcquisitions:
On
July 1, 2019, we completed the acquisition of itwo water parks and ione resort in Texas, the Schlitterbahn Waterpark & Resort New Braunfels and the Schlitterbahn
Waterpark Galveston ("Schlitterbahn parks"), for a cash purchase price of $i257.7 million. The acquisition increased our presence in growing and attractive markets and further diversified our portfolio of properties. The Schlitterbahn parks are included within our single reportable segment of amusement/water parks with accompanying resort facilities.
The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon management's estimated fair values
at the date of acquisition. To the extent the purchase price exceeded the estimated fair value of the net identifiable tangible and intangible assets acquired, such excess was allocated to goodwill. Based on the fair value of the assets acquired and the liabilities assumed, goodwill of $i178.0 million, property and equipment of $i58.1
million, an indefinite-lived trade name of $i23.2 million, covenants not to compete of $i0.2
million and a net working capital deficit of $i3.3 million were recorded. We also assumed a lease commitment for the land on which Schlitterbahn Waterpark Galveston is located. This land lease resulted in the recognition of an additional right-of-use asset totaling $i6.8
million and an additional corresponding lease liability totaling $i5.3 million. All goodwill is expected to be deductible for income tax purposes.
Due to the negative effects of the COVID-19 pandemic on our forecasted operating results, we tested the long-lived assets, goodwill and indefinite-lived intangible assets of the Schlitterbahn parks for impairment during the first and third quarters of 2020. This resulted in impairment charges at the Schlitterbahn parks of $i2.7
million for long-lived assets, $i73.6 million for goodwill and $i7.9 million for the Schlitterbahn trade name during the first quarter
of 2020, and $i11.3 million for goodwill and $i2.2 million for the Schlitterbahn trade name during the third quarter of 2020 (see Note
6 and Note 7).
The results of the Schlitterbahn parks' operations from the date of acquisition, including $i63.9 million, $i10.9
million and $i42.5 million of net revenues; and $i7.8
million of net income, $i121.7 million of net loss and $i12.0 million
of net income, are included within the consolidated statements of operations and comprehensive (loss) income for the years ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively. If we had acquired the Schlitterbahn parks on January 1, 2019, our results for the year ended December 31, 2019 would have included net revenues and net income of approximately $i69
million and $i11 million, respectively. Related acquisition transaction costs totaled $i7.0
million for the year ended December 31, 2019 and were included within "Selling, general and administrative expenses".
(5) iRevenue Recognition:
As disclosed within the consolidated statements of operations and comprehensive (loss) income, revenues are generated from sales
of (1) admission to our amusement parks and water parks, (2) food, merchandise and games both inside and outside the parks, and (3) accommodations, extra-charge products, and other revenue sources. Admission revenues include amounts paid to gain admission into our parks, including parking fees. Revenues related to extra-charge products, including premium benefit offerings such as front-of-line products, and online transaction fees charged to customers are included in "Accommodations, extra-charge products and other".
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 amounts are not comparable due to the effects of the COVID-19 pandemic.
Years Ended December 31,
(In thousands)
2021
2020
2019
In-park
revenues
$
i1,209,505
$
i120,370
$
i1,349,903
Out-of-park
revenues
i167,978
i67,375
i168,708
Concessionaire
remittance
(i39,264)
(i6,190)
(i43,686)
Net
revenues
$
i1,338,219
$
i181,555
$
i1,474,925
/
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. In addition, four of our parks provided their season pass holders a loyalty reward to be used on purchases within the park during the 2021 operating season. We
identified the loyalty reward as a separate performance obligation and allocated revenue to the season pass and loyalty reward in a manner consistent with other bundled products. The extended validity of the 2020 season-long products, and to a much lesser extent the loyalty reward offering, resulted in a significant amount of revenue deferred from 2020 into 2021.
All 2020 and 2021 season-long product revenue has been recognized as of December 31, 2021 except for season-long product extensions into 2022 at two parks. In the first quarter of 2021, 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, as well as a further extension for out-of-state season pass holders due to more restrictive state guidelines for out-of-state visitors. In
the second quarter of 2021, Canada's Wonderland extended its 2020 and 2021 season-long products through September 5, 2022. No other parks offered similar plans. We expect deferred revenue related to these further extended season-long products to be realized within 12 months from the balance sheet date.
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. Actual results could materially differ from these estimates depending on the ultimate extent of the effects of the COVID-19 pandemic.
Of the $i183.4
million of current deferred revenue recorded as of January 1, 2021, i90% was related to season-long products. The remainder was related to deferred online transaction fees charged to customers, advanced ticket sales, marina deposits, advanced resort reservations, and other deferred revenue. During the year ended December 31, 2021, approximately $i163
million of the deferred revenue balance as of January 1, 2021 was recognized. Typically, all deferred revenue as of January 1, 2021 would have been recognized by December 31, 2021 except for an immaterial amount of deferred revenue for prepaid products such as gift cards and prepaid games cards. The deferred revenue unrecognized from the $i183.4 million of current deferred revenue recorded as of January 1,
2021 was due to the extension of the validity of our 2020 and 2021 season-long products into the 2022 operating season at two of our parks. As of January 1, 2021, we also had recorded $i10.5 million of non-current deferred revenue which largely represented prepaid lease payments for a portion of the California's Great America parking lot. The prepaid lease payments are 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 other select products for specific time periods), 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 December 31, 2021 and December 31, 2020, we recorded a $i5.7
million and $i8.7 million allowance for doubtful accounts, respectively, representing estimated defaults on installment purchase plans. The default estimate is calculated using historical default rates adjusted for current period trends. The allowance for doubtful accounts is recorded as a reduction of deferred revenue to the extent revenue has not been recognized on the corresponding season-long products. Due to the effects of the COVID-19 pandemic and given the uncertainty around the timing of the reopening of our parks, we paused collections on
our installment purchase plans in April 2020. For those parks which opened during the summer of 2020, we resumed collections of guest payments on installment purchase products as each of these parks opened for the 2020 operating season. For those parks which did not open during the summer of 2020, we resumed collections of guest payments in April 2021, except for Canada's Wonderland where we resumed collections in June 2021. As of December 31, 2021, all 2020 and 2021 installment plans had concluded.
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 consolidated financial statements.
We
concluded indicators of impairment did not exist during 2021. We based our conclusion on our financial performance projections, as well as an updated analysis of macroeconomic and industry-specific conditions. During the first and third quarters of 2020 and due to the negative effects of the COVID-19 pandemic on our forecasted operating results, we tested our long-lived assets for impairment. We concluded the estimated fair values of the long-lived assets at the Schlitterbahn parks no longer exceeded the related carrying values during the first quarter of 2020. Therefore, we recorded a $i2.7
million impairment charge equal to the difference between the fair value and the carrying amounts of the assets in "Loss on impairment / retirement of fixed assets" within the consolidated statement of operations and comprehensive loss during the first quarter of 2020. The fair value of the long-lived assets was determined using a real and personal property appraisal which was performed in accordance with ASC 820 - Fair Value Measurement. We performed additional impairment testing during the third quarter of 2020 due to a further decline in our financial performance projections. Our impairment testing during the third quarter of 2020 resulted in no further impairment of our long-lived assets. Management made significant estimates in performing the impairment tests, including the anticipated time frame to re-open our parks and the related anticipated demand upon re-opening our parks. Actual results could materially differ from these estimates depending on
the ultimate extent of the effects of the COVID-19 pandemic.
Remaining acreage from the former WildWater Kingdom, a separately gated outdoor water park located near Cleveland in Aurora, Ohio, was recorded within "Other Assets" in the prior period consolidated balance sheet ($i2.1 million as of December 31, 2020). All remaining acreage from this property was sold during the second quarter of 2021.
(7)
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 2021, we concluded indicators of impairment did not exist. We based our conclusion on our financial performance projections, as well as an updated analysis of macroeconomic and industry-specific conditions. During the first and third quarters of 2020 and due to the negative effects of the COVID-19
pandemic on our forecasted operating results, we tested our goodwill and indefinite-lived intangible assets for impairment. We concluded the estimated fair value of goodwill at the Schlitterbahn parks and Dorney Park reporting units, and the estimated fair value of the Schlitterbahn trade name no longer exceeded their carrying values. Therefore, we recorded a $i73.6 million, $i6.8 million
and $i7.9 million impairment of goodwill at the Schlitterbahn parks, goodwill at Dorney Park, and the Schlitterbahn trade name, respectively, during the first quarter of 2020. We also recorded an $i11.3 million,
$i2.3 million and $i2.2 million impairment of goodwill at the Schlitterbahn parks, goodwill at Dorney Park, and the Schlitterbahn trade
name, respectively, during the third quarter of 2020. The impairment charges were equal to the amount by which the carrying amounts exceeded the assets' fair value and were recorded in "Loss on impairment of goodwill and other intangibles" within the consolidated statement of operations and comprehensive loss. We performed our annual impairment test as of the first days of the fourth quarter in 2021 and 2020, respectively, and concluded there was no further impairment of the carrying value of goodwill or other indefinite-lived intangible assets in either period.
The fair value of our reporting units was established using a combination of an income (discounted cash flow) approach and market approach. The income approach used each reporting unit's projection of estimated operating results and discounted cash flows using a weighted-average cost of capital that reflected current
market conditions. Estimated operating results were established using our best estimates of economic and market conditions over the projected period including growth rates in revenues and costs, estimates of future expected changes in operating margins and cash expenditures, the anticipated time frame to re-open our parks, and the related anticipated demand upon re-opening our parks. Other significant estimates and assumptions included terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements. The market approach estimated fair value by applying cash flow multiples to each reporting unit's operating performance. The multiples were derived from comparable publicly traded companies with similar operating and investment characteristics of the reporting units. The impairment charges recognized were for the amount by which the reporting unit's carrying amount exceeded its fair value.
Our
indefinite-lived intangible assets consist of trade names. The fair value of our trade names was calculated using a relief-from-royalty model. The impairment charges recognized were for the amount by which the trade name's carrying amount exceeded its fair value.
Management made significant estimates calculating the fair value of our reporting units and trade names. Actual results could materially differ from these estimates depending on the ultimate extent of the effects of the COVID-19 pandemic.
U.S.
term loan averaging i1.85% in 2021; i2.70% in 2020 (due 2017-2024) (1)
$
i264,250
$
i264,250
Notes
2024
U.S. fixed rate senior unsecured notes at i5.375%
i—
i450,000
2025
U.S. fixed rate senior secured notes at i5.500%
i1,000,000
i1,000,000
2027
U.S. fixed rate senior unsecured notes at i5.375%
i500,000
i500,000
2028
U.S. fixed rate senior unsecured notes at i6.500%
i300,000
i300,000
2029
U.S. fixed rate senior unsecured notes at i5.250%
i500,000
i500,000
i2,564,250
i3,014,250
Less
current portion
i—
i—
i2,564,250
i3,014,250
Less
debt issuance costs and original issue discount
(i45,314)
(i60,006)
$
i2,518,936
$
i2,954,244
(1)The
weighted average interest rates do not reflect the effect of interest rate swap agreements (see Note 9).
/
Term Debt and Revolving Credit Facilities
In April 2017, we amended and restated our existing credit agreement (the "2017 Credit Agreement") which includes our senior secured term loan facility and senior secured revolving credit facility. The $i750
million senior secured term loan facility under the 2017 Credit Agreement matures on April 15, 2024 and, following an amendment in March 2018, bears interest at London InterBank Offered Rate ("LIBOR") plus i175 basis points (bps). The pricing terms for the March 2018 amendment reflected $i0.9
million of Original Issue Discount ("OID"). In April 2020, as a result of the anticipated effects of the COVID-19 pandemic, we
further amended the 2017 Credit Agreement (the "Second Amendment") to suspend and revise certain financial covenants, and to adjust the interest rate on and reflect additional commitments and capacity for our revolving credit facility. In conjunction with the Second Amendment, we prepaid $i463.3
million of our outstanding senior secured term loan facility. Following the prepayment, we do not have any required remaining scheduled quarterly payments on our senior secured term loan facility. We may prepay some or all of our term debt without premium or penalty at any time. iA schedule of minimum annual maturities for our senior secured term loan facility follows:
(In
thousands)
2022
2023
2024
2025
2026
2027 and beyond
Total
U.S. term loan
i—
i—
$
i264,250
i—
i—
i—
$
i264,250
In
September 2020, in response to the continuing effects of the COVID-19 pandemic, we further amended the 2017 Credit Agreement (the "Third Amendment") to further suspend and revise certain of the financial covenants and extend the maturity of and adjust the terms that apply to a portion of our senior secured revolving credit facility. We also amended the 2017 Credit Agreement in December 2021 to allow for the redemption of the 2024 senior notes. The facilities provided under the 2017 Credit Agreement are collateralized by substantially all of the assets of the Partnership.
In connection with the Second Amendment, we received additional commitments under the U.S. senior secured revolving credit facility of $i100
million bringing our total senior secured revolving credit facility capacity under the 2017 Credit Agreement to $i375 million with a Canadian sub-limit of $i15
million. Senior secured revolving credit facility borrowings following the Second Amendment bore interest at LIBOR plus i300 bps or Canadian Dollar Offered Rate ("CDOR") plus i200
bps and required the payment of a i37.5 bps commitment fee per annum on the unused portion of the revolving credit facility. The revolving credit facility was scheduled to mature in April 2022 under the Second Amendment. In September 2020, the Third Amendment extended the maturity date of $i300
million of the $i375 million senior secured revolving credit facility to December 2023 (which portion of the facility is subsequently referred to as the "2023 Revolving Credit Facility Capacity"). Under the Third Amendment, the 2023 Revolving Credit Facility Capacity bears interest at LIBOR plus i350
bps or CDOR plus i250 bps and requires the payment of a i62.5 bps commitment fee per annum on the unused portion of the 2023 Revolving
Credit Facility Capacity, in each case without any step-downs. The terms of the remaining $i75 million available under the senior secured revolving credit facility remain unchanged from the Second Amendment. Prior to the Second Amendment and Third Amendment, our senior secured revolving credit facility had a combined limit of $i275
million with a Canadian sub-limit of $i15 million and bore interest at LIBOR or CDOR plus i200 bps. The
2017 Credit Agreement also provides for the issuance of documentary and standby letters of credit.
As of December 31, 2021 and December 31, 2020, iino/
amounts were outstanding under the revolving credit facility. After letters of credit of $i15.8 million and $i15.9 million, we had $i359.2
million and $i359.1 million of available borrowings under our revolving credit facility as of December 31, 2021 and December 31, 2020, respectively. We did inot
borrow on the revolving credit facility during 2021.
Notes
In April 2020, as a result of the anticipated effects of the COVID-19 pandemic and in connection with the Second Amendment, 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. Prior to May 1, 2022, up to i35% of the 2025 senior notes may be redeemed with the net cash proceeds of certain equity offerings at a price equal to i105.500%
of the principal amount thereof, together with accrued and unpaid interest and additional interest, if any. The 2025 senior notes may be redeemed, in whole or in part, at any time prior to May 1, 2022 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 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 any time prior to April 15, 2022 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 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. Prior to July 15, 2022, up to i35%
of the 2029 senior notes may be redeemed with the net cash proceeds of certain equity offerings at a price equal to i105.250% of the principal amount thereof, together with accrued and unpaid interest and additional interest, if any. 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 was 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: (i) a Senior Secured Leverage Ratio of i4.50x
Total First Lien Senior Secured Debt-to-Consolidated EBITDA starting with the first quarter of 2022, 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, with the covenant calculations for the first, second, and third quarters in 2022 to include Consolidated EBITDA from the second, third and fourth quarters of the fiscal year ended December 31, 2019 in lieu of the Consolidated EBITDA for the corresponding quarters in 2021 ("Deemed EBITDA Quarters"); (ii) a requirement that we maintain a minimum liquidity level of at least $i125 million, tested at all times, until the earlier of December
31, 2022 or the termination of the Additional Restrictions Period (which generally includes the period from the effective date of the Second Amendment until the delivery of the compliance certificate for the fourth quarter of 2022); and (iii) a suspension of certain Restricted Payments, including partnership distributions, under the credit agreement until the termination of the Additional Restrictions Period. We may terminate the Additional Restrictions Period prior to December 31, 2022 by achieving compliance with the Senior Secured Leverage Ratio covenant as of the end of a fiscal quarter without giving effect to Deemed EBITDA Quarters for any fiscal quarter. We were in compliance with the applicable financial covenants under our credit agreement during 2021.
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 greater than i5.25x
as of December 31, 2021.
(9) 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 December 31, 2020, we had iifour/
interest rate swap agreements with a notional value of $ii500/ million
that convert one-month variable rate LIBOR to a fixed rate of ii2.88/% through December 31,
2023. This resulted in a i4.63% fixed interest rate for borrowings under our senior secured term loan facility after the impact of interest rate swap agreements. iNone
of the interest rate swap agreements are designated as hedging instruments. iThe fair value of our swap portfolio, including the location within the consolidated balance sheets, for the periods presented were as follows:
Instruments that do not qualify for hedge accounting are adjusted to fair value each reporting period through "Net effect of swaps" within the consolidated statements of operations and comprehensive (loss) income.
(10) iPartners'
Equity and Equity-Based Compensation:
Special L.P. Interests
In accordance with the Partnership Agreement, certain partners were allocated $i5.3 million of 1987 and 1988 taxable income (without any related cash distributions) for which they received Special L.P. Interests. The Special L.P. Interests do not participate in cash distributions and have no voting rights. However, the holders of Special L.P. Interests will receive in the aggregate $i5.3
million upon liquidation of the Partnership.
Equity-Based Incentive Plan
The 2016 Omnibus Incentive Plan was approved by our unitholders in June 2016 and allows the awarding of up to i2.8 million unit options and other forms of equity as determined by the Compensation Committee of the Board of Directors as an element of
compensation to senior management, key employees and directors. The 2016 Omnibus Incentive Plan superseded the 2008 Omnibus Incentive Plan which was approved by our unitholders in May 2008 and allowed the awarding of up to i2.5 million unit options and other forms of equity. Outstanding awards under the 2008 Omnibus Incentive Plan continue to be in effect and are governed by the terms of that plan. The 2016 Omnibus Incentive Plan provides an
opportunity for officers, directors, and eligible persons to acquire an interest in the growth and performance of our units and provides employees annual and long-term incentive awards as determined by the Board of Directors. Under the 2016 Omnibus Incentive Plan, the Compensation Committee of the Board of Directors may grant unit options, unit appreciation rights, restricted units, performance awards, other unit awards, cash incentive awards and unrestricted unit awards. The awards granted by the Compensation Committee fall into two categories, Awards Payable in Cash or Equity, and Awards Payable in Equity. The impact of these awards is more fully described below.
i
Equity-based
compensation expense recognized in the consolidated statements of operations and comprehensive (loss) income within "Selling, General and Administrative Expense" for the applicable periods was as follows:
Years Ended December 31,
(In thousands)
2021 (1)
2020
(2)
2019
Awards Payable in Cash or Equity
Deferred units
$
i1,014
$
(i588)
$
i611
Awards
Payable in Equity
Performance units
i10,554
(i5,270)
i5,535
Restricted
units
i4,878
i5,061
i6,375
Total
equity-based compensation expense
$
i16,446
$
(i797)
$
i12,521
(1) Due
to the effects of the COVID-19 pandemic on 2020 results, the 2018-2020 ithree-year performance plan was below the payout threshold. Given that two full years of the program were completed, the 2018-2020 performance unit awards were modified to allow for a payout taking into account 2018-2019 results, management's performance relative to 2020 COVID-19 strategic goals and 2020 pre-COVID-19 forecast, resulting in $i3.9
million of additional expense recognized during the year ended December 31, 2021.
(2) The market value of our deferred unit awards and the anticipated payout of our annual performance unit awards decreased due to the effects of the COVID-19 pandemic resulting in expense reversed during the year ended December 31, 2020.
Deferred
unit awards vest over a ione-year period and the settlement of these units is deferred until the individual's service to the Partnership ends. The deferred units begin to accumulate distribution-equivalents upon vesting and are paid when the restriction ends. The effect of outstanding deferred unit awards has been included in the diluted earnings per unit calculation for the year ended December 31, 2019, as a portion of the awards are expected to be settled in limited
partnership units. As of December 31, 2021, the market value of the deferred units was $i2.8 million, was classified as current and was recorded within
"Other accrued liabilities" within the consolidated balance sheet. As of December 31, 2021, there was ino unamortized expense related to unvested deferred unit awards as all units were fully vested.
(1) Due
to the effects of the COVID-19 pandemic on 2020 results, the 2018-2020 ithree-year performance plan was below the payout threshold. Given that two full years of the program were completed, the 2018-2020 performance unit awards were modified to allow for a payout taking into account 2018-2019 results, management's performance relative to 2020 COVID-19 strategic goals and 2020 pre-COVID-19 forecast, resulting in i82,000
units both granted and vested during the year ended December 31, 2021.
Our annual performance unit awards based upon the 2019-2021 and 2020-2022 ithree-year performance periods are not anticipated to payout due to the effects of the COVID-19 pandemic. The number of performance units issuable under these annual performance unit awards are contingently based upon certain performance targets
over each ithree-year vesting period. The annual performance awards and the related forfeitable distribution-equivalent units generally are paid out in the first quarter following the performance period in limited partnership units.
Of the unvested performance units outstanding as of December 31, 2021, i91,818
represented performance-based other units awarded in 2020 to incentivize optimal executive performance in light of the effects of the COVID-19 pandemic. The number of units issuable were contingently based upon the level of attainment of various performance objectives over a isix-month period with the awards payable in limited partnership units following the ione-year
anniversary of the isix-month performance period, which will occur in the first quarter of 2022. These unit awards do not earn distribution-equivalent units.
The remaining outstanding performance units as of December 31, 2021 represented 2021-2025 performance-based units awarded in 2021. These units
were awarded instead of the traditional annual performance unit awards with ithree-year performance periods due to continued uncertainty related to the COVID-19 pandemic. The number of performance units issuable under the 2021-2025 performance-based unit awards are contingently based upon ithree
separate financial performance targets which can vest over a three to ifive-year period. The performance targets become incrementally higher over the ifive-year
period. The 2021-2025 performance-based unit awards and related forfeitable distribution-equivalent units will be paid out in limited partnership units upon the achievement of each target in the first quarter following the year the target was earned.
The effect of outstanding performance unit awards, for which the performance conditions had been met, have been included in the diluted earnings per unit calculation for the year ended December 31, 2019.
As of December 31, 2021, unamortized compensation expense related to unvested performance unit awards was $i11.1
million, which is expected to be amortized over a weighted average period of i2.0 years. The fair value of the performance units is based on the unit price the day before the date of grant. We assess the probability of the performance targets being met and may reverse prior period expense or recognize additional expense accordingly.
The
majority of our annual restricted unit awards vest evenly over an approximate ithree-year period. However, as of December 31, 2021, i60,582
units outstanding vest following an approximate ithree-year cliff vesting period, and i8,833
units outstanding vest under alternate vesting schedules, all of which approximate ithree years. Restrictions on our restricted unit
awards
lapse upon vesting. During the vesting period for restricted unit awards, the units accumulate forfeitable distribution-equivalents, which, when the units are fully vested, are payable in cash. As of December 31, 2021, the amount of forfeitable distribution equivalents accrued totaled $i0.3 million; $i0.2
million of which was classified as current and recorded within "Other accrued liabilities" within the consolidated balance sheet and $i0.1 million of which was classified as non-current and recorded within "Other Liabilities".
As of December 31, 2021, unamortized compensation expense, determined as the market value of the units on the day before the date of grant, related to unvested restricted unit awards was $i5.5
million, which is expected to be amortized over a weighted average period of i1.8 years.
Unit options are issued with an exercise price no less than the market closing price of the Partnership's units on the day before the date of grant. Outstanding unit options vested over
ithree years and have a maximum term of iten years. As
of December 31, 2021, we had i117,638 fixed-price unit options outstanding under the 2008 Omnibus Incentive Plan. iNo
options have been granted under the 2016 Omnibus Incentive Plan.
The range of exercise prices of unit options outstanding was $i29.53 to $i36.95
as of December 31, 2021. The total intrinsic value of unit options exercised during the years ended December 31, 2021, 2020 and 2019 was $i2.0 million, $i0.0
million, and $i0.1 million, respectively.
We have a policy of issuing limited partnership units from treasury to satisfy unit option exercises and we expect our treasury unit balance to be sufficient for 2022 based on estimates of unit option exercises for that period.
(11)
iRetirement Plans:
We have trusteed, noncontributory retirement plans for most of our full-time employees. Contributions are discretionary and amounts accrued were approximately $i1.8
million and $i4.7 million for the years ended December 31, 2021 and 2019, respectively. For the year ended December 31, 2020, we did not make any discretionary contributions due to the effects of the COVID-19 pandemic on our financial performance. Additionally, we have a trusteed, contributory retirement plan for most of our full-time employees. This plan permits employees
to contribute specified percentages of their salary, matched up to a limit. Matching contributions, net of forfeitures, approximated $i4.7 million, $i3.8
million and $i3.1 million for the years ended December 31, 2021, 2020 and 2019, respectively.
In addition, approximately i275
employees are covered by union-sponsored, multi-employer pension plans for which approximately $i1.9 million, $i2.0
million and $i2.0 million were contributed for the years ended December 31, 2021, 2020 and 2019, respectively. We have no plans to withdraw from any of the multi-employer plans.
(12) iIncome
and Partnership Taxes:
Federal and state tax legislation in 1997 provided a permanent income tax exemption to existing publicly traded partnerships (PTP), such as Cedar Fair, L.P., with a PTP tax levied on partnership gross income (net revenues less cost of food, merchandise and games) beginning in 1998. In addition, income taxes are recognized for the amount of income taxes payable by Cedar Fair, L.P. and its corporate subsidiaries for the current year and for the impact of deferred tax assets and liabilities that represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. As such, the "Provision (benefit) for taxes" includes amounts for both the PTP tax and for federal, state, local and foreign income taxes.
The
2021 tax provision totaled $i20.0 million, which consisted of a $i10.3 million provision for the PTP tax and a $i9.7
million provision for income taxes. This compared with a 2020 tax benefit of $i137.9 million, which consisted of a $i2.5 million provision
for the PTP tax and a $i140.4 million benefit for income taxes, and a 2019 tax provision of $i42.8 million, which
consisted of a $i12.1 million provision for the PTP tax and a $i30.7 million provision for income taxes. The
calculation of the tax provision (benefit) involves significant estimates and assumptions. Actual results could differ from those estimates.
Significant
components of (loss) income before taxes for the years ended December 31, 2021, 2020 and 2019 were as follows:
(In thousands)
2021
2020
2019
Domestic
$
(i3,603)
$
(i675,746)
$
i167,510
Foreign
(i24,880)
(i52,412)
i47,644
Total
(loss) income before taxes
$
(i28,483)
$
(i728,158)
$
i215,154
/i
The
provision (benefit) for income taxes was comprised of the following for the years ended December 31, 2021, 2020 and 2019:
(In thousands)
2021
2020
2019
Current
federal
$
(i21,438)
$
(i61,726)
$
i22,745
Current
state and local
i1,395
(i3,747)
i6,261
Current
foreign
i2,896
(i32,987)
i5,759
Total
current
(i17,147)
(i98,460)
i34,765
Deferred
federal, state and local
i17,870
(i43,220)
(i5,953)
Deferred
foreign
i9,018
i1,287
i1,847
Total
deferred
i26,888
(i41,933)
(i4,106)
Total
provision (benefit) for income taxes
$
i9,741
$
(i140,393)
$
i30,659
/
The
provision (benefit) for income taxes for the corporate subsidiaries differed from the amount computed by applying the U.S. federal statutory income tax rate of 21% to (loss) income before taxes. iThe sources and tax effects of the differences were as follows:
(In
thousands)
2021
2020
2019
Income tax provision based on the U.S. federal statutory tax rate
$
(i5,981)
$
(i152,913)
$
i45,182
Partnership
loss (income) not subject to corporate income tax
i257
i47,631
(i14,031)
State
and local taxes, net
i776
(i20,594)
i4,906
Valuation
allowance
i14,619
i3,150
i196
Expired
foreign tax credits
i888
i2,253
i—
Tax
credits
(i901)
(i426)
(i1,026)
Change
in U.S. tax law
(i1,326)
(i17,983)
i111
Foreign
currency translation losses (gains)
i1,143
(i1,455)
(i4,707)
Nondeductible
expenses and other
i266
(i56)
i28
Total
provision (benefit) for income taxes
$
i9,741
$
(i140,393)
$
i30,659
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
We record a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. The need for this allowance is based on several factors including the carryforward periods for net operating losses and tax credits, prior experience of tax credit limitations, and management's long-term estimates of domestic and foreign source income.
As of December 31, 2021, we recorded a $i24.4
million valuation allowance which was a combination of three items. First, as of December 31, 2021, we had $i20.6 million of tax attribute carryforwards consisting of $i15.5
million for the tax effect of state net operating loss carryforwards, $i2.5 million for the tax effect of business interest limitation carryforwards, $i2.5 million for the tax effect
of Canadian capital loss carryforwards and $i0.1 million for the tax effect of Canadian net operating loss carryforwards. The unused state net operating loss carryforwards will expire from 2025 to 2040. We do not expect to fully realize all of these tax attribute carryforwards. As such, we recorded a $i13.6
million valuation allowance relating to the tax effect of state net operating loss carryforwards as of December 31, 2021. This represented a $i5.4 million increase in the valuation allowance from 2020 due to continuing losses in the corporate subsidiaries. Second, as of December 31, 2021, we recorded an $i8.4
million valuation allowance related to an $i8.4 million deferred tax asset for foreign tax credit carryforwards. This represented a $i6.8
million increase in the valuation allowance from 2020 primarily due to overall foreign losses generated in the carryback period being unavailable to offset foreign branch basket income in the future. Lastly, as of December 31, 2021, we recorded a $i2.4 million valuation allowance relating to Canadian capital losses generated during 2020 that can only offset Canadian capital income. In total, the valuation allowance increased $i14.6
million from 2020 inclusive of the tax effect of state net operating losses, foreign tax credit carryforwards and Canadian capital losses.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law. The CARES Act resulted in various changes to the U.S. tax law, including, among other things, allowing net operating losses arising in tax years 2018 through 2020 to be carried back to the preceding five taxable years and removing the limitation that such losses only offset 80% of taxable income. As a result of these changes, we expect to recognize two benefits. First, we expect to carryback the 2020 losses incurred by our corporate subsidiaries, which will result in the refund of a portion
of federal income taxes paid during the carryback period of approximately $i79.7 million as of December 31, 2021 and $i55.4
million as of December 31, 2020. Second, as of December 31, 2021 and December 31, 2020, the annual effective tax rate included a net benefit of $i1.7 million and $i18.1
million, respectively, from carrying back the projected 2020 losses of the corporate subsidiaries. This tax benefit represents an estimated incremental benefit of tax loss carrybacks for periods when the federal income tax rate was greater than the current 21% rate. The overall benefit of the carryback of losses was decreased by $i4.7
million and $i16.1 million as of December 31, 2021 and December 31, 2020, respectively, for a projected valuation allowance on foreign tax credits originally utilized during the carryback period which would be released as a result of the loss carryback but which are not expected to be utilized.
As
of December 31, 2021 and December 31, 2020, $i79.7 million and $i55.4
million in tax refunds, respectively, attributable to the net operating loss in the 2020 tax year being carried back to prior years in the United States, and an additional $i9.5 million and $i11.9
million in tax refunds, respectively, attributable to the net operating loss of our Canadian corporate subsidiary being carried back to prior years in Canada, were recorded within "Current income tax receivable" in the consolidated balance sheet. We initially anticipated receiving these tax refunds in the fourth quarter of 2021. As of December 31, 2021, we anticipate receiving these tax refunds during 2022. These amounts were offset by accrued tax payments within the same jurisdictions for tax year 2021.
During the year ended December 31, 2020, additional benefits from the CARES Act included an $i8.2
million deferral of the employer's share of Social Security taxes and $i3.7 million in tax benefits from the Employee Retention Credit program. We also received $i0.5
million in tax benefits from the Employee Retention Credit program during the year ended December 31, 2021. The deferral of the employer's share of Social Security taxes is payable in 50% increments in the fourth quarter of 2021 and the fourth quarter of 2022. The current portion of the deferral was included within "Accrued salaries, wages and benefits" and the 2020 non-current portion of the deferral was included within "Other Liabilities" within the consolidated balance sheets. The tax benefits from the Employee Retention Credit program were recorded as a reduction to wage expense within the consolidated statement of operations and comprehensive (loss) income as the benefits were offered to defray labor costs during the COVID-19 pandemic.
We also received $i5.1
million and $i5.0 million from the Canada Emergency Wage Subsidy ("CEWS") during the years ended December 31, 2021 and December 31, 2020, respectively. The CEWS provides cash payments to Canadian employers that experienced a decline in revenues related to the COVID-19 pandemic. We also recorded the CEWS payments as a reduction to wage expense within the consolidated statement of operations and comprehensive (loss) income as the payments
were offered to defray labor costs during the COVID-19 pandemic.
We have recorded a deferred tax liability of $i3.3 million and $i3.2
million as of December 31, 2021 and December 31, 2020, respectively, to account for foreign currency translation adjustments in other comprehensive income.
Our unrecognized tax benefits, including accrued interest and penalties, were not material in any year presented. We recognize accrued interest and penalties related to unrecognized tax benefits as income tax expense.
We
are subject to taxation in the U.S., Canada and various state and local jurisdictions. Our tax returns are subject to examination by state and federal tax authorities. With few exceptions, we are no longer subject to examination by the major taxing authorities for tax years before 2017.
(13) iLease Commitments:
Our most significant lease
commitments include office space for our corporate office in Charlotte, North Carolina and the land on which Schlitterbahn Waterpark Galveston is located. The corporate office space is leased through 2029. The Schlitterbahn Waterpark Galveston land lease has an initial term through 2024 with renewal options through 2049. We have also entered into various operating leases for office equipment, vehicles, storage and revenue-generating assets. As a lessor, we lease a portion of the California's Great America parking lot to the Santa Clara Stadium Authority during Levi's Stadium events. The parking lot lease is effective through the life of the stadium, which we estimate to be approximately i25
years, from the opening of the stadium through 2039. The lease payments were prepaid, and the corresponding income is being recognized over the life of the stadium. The annual lease income recognized is immaterial.
Prior to the second quarter of 2019, our most significant lease commitment was for the land on which California's Great America is located in the City of Santa Clara, which had an initial term through 2039 with renewal options through 2074. On June 28, 2019, we purchased the land at California's Great America from the lessor, the City of Santa Clara, for $i150.3
million.
i
Total lease cost and related supplemental information for the years ended December 31, 2021, 2020 and 2019 were as follows:
Years
Ended December 31,
(In thousands, except for lease term and discount rate)
2021
2020
2019
Operating lease expense
$
i2,711
$
i2,797
$
i5,623
Variable
lease expense
i872
i173
i1,579
Short-term
lease expense
i7,563
i2,205
i6,635
Sublease
income
i—
i—
(i244)
Total
lease cost
$
i11,146
$
i5,175
$
i13,593
Weighted-average
remaining lease term
i14.1 years
i16.8 years
i16.7
years
Weighted-average discount rate
i3.7
%
i4.1
%
i4.2
%
Operating
cash flows for operating leases
$
i2,299
$
i2,679
$
i5,494
Leased
assets obtained in exchange for new operating lease liabilities (non-cash activity)
$
i4,914
$
i1,769
$
i5,512
/
i
Future
undiscounted cash flows under our operating leases and a reconciliation to the operating lease liabilities recognized as of December 31, 2021 are included below:
The
table below presents the balances of assets and liabilities measured at fair value as of December 31, 2021 and December 31, 2020 on a recurring basis, as well as the fair values of other financial instruments, including their locations within the consolidated balance sheets:
Financial
assets (liabilities) measured on a recurring basis:
Short-term investments
Other current assets
Level 1
$
i478
$
i478
$
i280
$
i280
Interest
rate swaps
Derivative Liability
Level 2
$
(i20,086)
$
(i20,086)
$
(i39,086)
$
(i39,086)
Other
financial assets (liabilities):
Term debt
Long-Term Debt (1)
Level 2
$
(i264,250)
$
(i257,644)
$
(i264,250)
$
(i253,680)
2024
senior notes
Long-Term Debt (1)
Level 1
i—
i—
$
(i450,000)
$
(i451,125)
2025
senior notes
Long-Term Debt (1)
Level 2
$
(i1,000,000)
$
(i1,035,000)
$
(i1,000,000)
$
(i1,043,750)
2027
senior notes
Long-Term Debt (1)
Level 1
$
(i500,000)
$
(i513,750)
$
(i500,000)
$
(i507,500)
2028
senior notes
Long-Term Debt (1)
Level 1 (2)
$
(i300,000)
$
(i319,125)
$
(i300,000)
$
(i318,000)
2029
senior notes
Long-Term Debt (1)
Level 1
$
(i500,000)
$
(i513,750)
$
(i500,000)
$
(i505,625)
(1)Carrying
values of long-term debt balances are before reductions for debt issuance costs and original issue discount of $i45.3 million and $i60.0 million
as of December 31, 2021 and December 31, 2020, respectively.
Fair values of the interest rate swap agreements are determined using significant inputs, including LIBOR forward curves, which are considered Level 2 observable market inputs.
Due
to the negative effects of the COVID-19 pandemic on our forecasted operating results, we tested our long-lived assets, goodwill, and indefinite-lived intangible assets for impairment during the first and third quarters of 2020. We concluded the estimated fair value of goodwill at the Schlitterbahn parks reporting unit and the Schlitterbahn trade name, and the estimated fair value of goodwill at the Dorney Park reporting unit no longer exceeded their carrying values. During the first quarter of 2020, we also concluded the estimated fair value of the long-lived assets of the Schlitterbahn parks no longer exceeded their carrying values. Therefore, as of March 29, 2020 and September 27, 2020, these assets were measured at fair value. We recorded a $i2.7
million, $i73.6 million and $i7.9 million impairment charge to long-lived assets, goodwill and the trade name at the Schlitterbahn
parks, respectively, and a $i6.8 million impairment charge to goodwill at Dorney Park during the first quarter of 2020. We also recorded an $i11.3 million and $i2.2 million
impairment charge to goodwill and the trade name at the Schlitterbahn parks, respectively, and a $i2.3 million impairment charge to goodwill at Dorney Park during the third quarter of 2020. The long-lived asset impairment charge was recorded in "Loss on impairment / retirement of fixed assets", and the goodwill and intangible asset impairment charges were recorded in "Loss on impairment of goodwill and other intangibles" within the consolidated statements of operations and comprehensive loss.
The
fair value determination for our long-lived assets, reporting units and indefinite-lived intangible assets included numerous assumptions based on Level 3 inputs. The fair value of our long-lived assets was determined using a real and personal property appraisal of which the principal assumptions included the principal market and market participants upon sale. The primary assumptions used to determine the fair value of our reporting units included growth rates in revenues and costs, estimates of future expected changes in operating margins and cash expenditures, the anticipated time frame to re-open our parks, the related anticipated demand upon re-opening our parks, terminal value growth rates, future estimates of capital expenditures, changes in future capital requirements, and a weighted-average cost of capital that reflected current market conditions. The fair value of our indefinite-lived intangible assets was determined using a relief-from-royalty method of which
the principal assumptions included royalty rates, growth rates in revenues, estimates of future expected changes in operating margins, the anticipated time frame to re-open our parks, the related anticipated demand upon re-opening our parks, terminal value growth rates, and a discount rate based on a weighted-average cost of capital that reflected current market conditions.
The carrying value of cash and cash equivalents, accounts receivable, current portion of term debt, 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 December 31, 2021 or December 31, 2020.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
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 December 31, 2021, management, with the participation of our 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 December 31, 2021.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, it used the criteria described in "Internal Control - Integrated Framework" (2013) issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. As a result of its assessment, management concluded that, as of December 31, 2021, our internal control
over financial reporting was effective. Deloitte & Touche LLP, the independent registered public accounting firm that audited the financial statements included in this Form 10-K, has issued an attestation report on our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fourth quarter of 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM
9B. OTHER INFORMATION.
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Cedar Fair Management, Inc., an Ohio corporation owned by an Ohio trust, is the General Partner of the Partnership and has full responsibility for the management of the Partnership (see Note 2).
A. Identification of Directors:
The information required by this item
is incorporated by reference to the material in our Proxy Statement to be used in connection with the annual meeting of limited partner unitholders to be held in May 2022 (the "Proxy Statement") under the captions "Proposal One. Election of Directors", "Board Committees", and, if required, "Delinquent Section 16(a) Reports".
B. Identification of Executive Officers:
Information regarding executive officers of the Partnership is included in this Annual Report on Form 10-K under the caption "Supplemental Item. Information about our Executive Officers" in Item 1 of Part I and is incorporated herein by reference.
C.
Code of Ethics and Certifications:
In accordance with Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K, we have adopted a Code of Conduct and Ethics (the "Code"), which applies to all directors, officers and employees, including the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. A copy of the Code is available on the Internet at the Investor Relations section of our website (www.cedarfair.com).
We submitted an unqualified Section 303A.12(a) Chief Executive Officer
certification to the New York Stock Exchange on June 14, 2021, stating that we were in compliance with the NYSE's Corporate Governance Listing Standards. The Chief Executive Officer and Chief Financial Officer certifications under Section 302 of the Sarbanes-Oxley Act are included as exhibits to this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference to the material in our Proxy Statement under the captions "Executive Compensation", "Compensation Committee Interlocks and Insider Participation", and "Compensation Committee
Report".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDER MATTERS.
The information required by this item is incorporated by reference to the material in our Proxy Statement under the caption "Security Ownership of Certain Beneficial Owners and Management".
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information concerning units authorized or available for issuance under our equity compensation plan (see Note
10) as of December 31, 2021:
Plan Category
Number of units to be issued upon exercise of outstanding options, warrants and rights
(a) (1)
Weighted-average
exercise price of outstanding options, warrants and rights
(b) (2)
Number of units remaining available for future issuance under equity compensation plans (excluding units reflected in column (a)) (c)
Equity compensation plans approved by unitholders
1,198,765
$
35.27
1,772,259
Equity compensation plans not approved by unitholders
—
—
—
Total
1,198,765
$
35.27
1,772,259
(1)The
units in column (a) include performance awards and deferred unit awards at the maximum number of units issuable, as well as unit options outstanding.
(2)The weighted average price in column (b) represents the weighted average price of 117,638 unit options outstanding. Performance awards and deferred unit awards are excluded from column (b).
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this item is incorporated by reference to the material in our Proxy Statement under the captions "Certain Relationships and Related Transactions", "Board Independence", and "Board Committees".
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this item is incorporated by reference to the material in our Proxy Statement under the caption "Independent Registered Public
Accounting Firm Services and Fees".
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. 1. Financial Statements
The following consolidated financial statements of the Registrant, the notes thereto and the related Report of Independent Registered Public Accounting Firm are filed under Item
8 of this Report:
Page
(i)
Report of Independent Registered Public Accounting Firm
The following materials from the Partnership's Annual Report on Form 10-K for the year ended December 31, 2021
formatted in Inline XBRL: (i) the Consolidated Statements of Operations and Comprehensive (Loss) Income, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Partners' Equity (Deficit), and (v) related notes, tagged as blocks of text and including detailed tags.
104
The cover page from the Partnership's Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline XBRL (included as Exhibit 101).
(+) Management contract or compensatory plan or arrangement.
Pursuant to the requirements of Section 13 or 15(d) 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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
