CEDAR FAIR L P - Quarter Report: 2018 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 23, 2018
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number: 1-9444
CEDAR FAIR, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE | 34-1560655 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
(Address of principal executive offices) (Zip Code)
(419) 626-0830
(Registrant’s telephone number, including area code)
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. Yes x No o
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). Yes x No o
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.
Large accelerated filer | x | Accelerated filer | o | |||
Non-accelerated filer | o | Smaller reporting company | o | |||
Emerging growth company | o | |||||
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Title of Class | Units Outstanding as of October 26, 2018 | |
Units Representing Limited Partner Interests | 56,440,459 | |
Page 1 of 46 pages
CEDAR FAIR, L.P.
FORM 10-Q CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
9/23/2018 | 12/31/2017 | 9/24/2017 | ||||||||||
ASSETS | ||||||||||||
Current Assets: | ||||||||||||
Cash and cash equivalents | $ | 190,756 | $ | 166,245 | $ | 249,946 | ||||||
Receivables | 58,398 | 37,722 | 52,303 | |||||||||
Inventories | 36,549 | 29,719 | 34,240 | |||||||||
Other current assets | 21,875 | 13,297 | 18,624 | |||||||||
307,578 | 246,983 | 355,113 | ||||||||||
Property and Equipment: | ||||||||||||
Land | 272,186 | 271,021 | 272,213 | |||||||||
Land improvements | 435,513 | 421,593 | 416,629 | |||||||||
Buildings | 729,108 | 693,899 | 707,964 | |||||||||
Rides and equipment | 1,817,601 | 1,740,653 | 1,740,826 | |||||||||
Construction in progress | 61,474 | 72,847 | 57,605 | |||||||||
3,315,882 | 3,200,013 | 3,195,237 | ||||||||||
Less accumulated depreciation | (1,727,183 | ) | (1,614,241 | ) | (1,614,727 | ) | ||||||
1,588,699 | 1,585,772 | 1,580,510 | ||||||||||
Goodwill | 182,004 | 183,830 | 185,010 | |||||||||
Other Intangibles, net | 37,131 | 38,064 | 38,532 | |||||||||
Other Assets | 13,536 | 9,510 | 17,407 | |||||||||
$ | 2,128,948 | $ | 2,064,159 | $ | 2,176,572 | |||||||
LIABILITIES AND PARTNERS’ EQUITY | ||||||||||||
Current Liabilities: | ||||||||||||
Current maturities of long-term debt | $ | 3,750 | $ | — | $ | — | ||||||
Accounts payable | 32,989 | 24,621 | 33,710 | |||||||||
Deferred revenue | 102,326 | 86,131 | 83,340 | |||||||||
Accrued interest | 21,893 | 8,124 | 23,928 | |||||||||
Accrued taxes | 48,372 | 43,975 | 78,657 | |||||||||
Accrued salaries, wages and benefits | 30,578 | 18,740 | 30,666 | |||||||||
Self-insurance reserves | 25,923 | 25,107 | 27,549 | |||||||||
Other accrued liabilities | 22,232 | 18,796 | 20,562 | |||||||||
288,063 | 225,494 | 298,412 | ||||||||||
Deferred Tax Liability | 74,637 | 74,798 | 112,671 | |||||||||
Derivative Liability | — | 8,722 | 14,849 | |||||||||
Other Liabilities | 16,292 | 11,684 | 15,732 | |||||||||
Long-Term Debt: | ||||||||||||
Term debt | 720,846 | 723,788 | 723,385 | |||||||||
Notes | 937,440 | 936,727 | 936,241 | |||||||||
1,658,286 | 1,660,515 | 1,659,626 | ||||||||||
Partners’ Equity: | ||||||||||||
Special L.P. interests | 5,290 | 5,290 | 5,290 | |||||||||
General partner | — | — | — | |||||||||
Limited partners, 56,441, 56,359 and 56,238 units outstanding as of September 23, 2018, December 31, 2017 and September 24, 2017, respectively | 78,464 | 81,589 | 74,155 | |||||||||
Accumulated other comprehensive income (loss) | 7,916 | (3,933 | ) | (4,163 | ) | |||||||
91,670 | 82,946 | 75,282 | ||||||||||
$ | 2,128,948 | $ | 2,064,159 | $ | 2,176,572 | |||||||
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
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CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per unit amounts)
Three months ended | Nine months ended | ||||||||||||||
9/23/2018 | 9/24/2017 | 9/23/2018 | 9/24/2017 | ||||||||||||
Net revenues: | |||||||||||||||
Admissions | $ | 358,923 | $ | 361,279 | $ | 590,091 | $ | 598,723 | |||||||
Food, merchandise and games | 210,426 | 205,137 | 361,428 | 356,512 | |||||||||||
Accommodations, extra-charge products and other | 94,354 | 86,273 | 147,227 | 138,570 | |||||||||||
663,703 | 652,689 | 1,098,746 | 1,093,805 | ||||||||||||
Costs and expenses: | |||||||||||||||
Cost of food, merchandise, and games revenues | 53,891 | 52,647 | 94,912 | 92,376 | |||||||||||
Operating expenses | 206,505 | 202,710 | 462,750 | 447,379 | |||||||||||
Selling, general and administrative | 67,114 | 71,663 | 149,837 | 151,142 | |||||||||||
Depreciation and amortization | 74,374 | 70,060 | 132,114 | 126,237 | |||||||||||
Loss on impairment / retirement of fixed assets, net | 3,247 | 1,347 | 7,959 | 3,057 | |||||||||||
Gain on sale of investment | — | (1,877 | ) | — | (1,877 | ) | |||||||||
405,131 | 396,550 | 847,572 | 818,314 | ||||||||||||
Operating income | 258,572 | 256,139 | 251,174 | 275,491 | |||||||||||
Interest expense | 21,464 | 21,638 | 62,563 | 62,472 | |||||||||||
Net effect of swaps | (1,217 | ) | (952 | ) | (5,751 | ) | 3,717 | ||||||||
Loss on early debt extinguishment | — | — | 1,073 | 23,115 | |||||||||||
Loss (gain) on foreign currency | (13,054 | ) | (29,193 | ) | 12,024 | (35,047 | ) | ||||||||
Other income | (698 | ) | (416 | ) | (1,186 | ) | (464 | ) | |||||||
Income before taxes | 252,077 | 265,062 | 182,451 | 221,698 | |||||||||||
Provision for taxes | 38,770 | 73,747 | 33,301 | 63,769 | |||||||||||
Net income | 213,307 | 191,315 | 149,150 | 157,929 | |||||||||||
Net income allocated to general partner | 3 | 1 | 2 | 1 | |||||||||||
Net income allocated to limited partners | $ | 213,304 | $ | 191,314 | $ | 149,148 | $ | 157,928 | |||||||
Net income | $ | 213,307 | $ | 191,315 | $ | 149,150 | $ | 157,929 | |||||||
Other comprehensive income (loss), (net of tax): | |||||||||||||||
Foreign currency translation adjustment | (5,276 | ) | (11,143 | ) | 5,990 | (13,085 | ) | ||||||||
Unrealized loss on cash flow hedging derivatives | 2,116 | 1,994 | 6,250 | 5,981 | |||||||||||
Other comprehensive income (loss), (net of tax) | (3,160 | ) | (9,149 | ) | 12,240 | (7,104 | ) | ||||||||
Total comprehensive income | $ | 210,147 | $ | 182,166 | $ | 161,390 | $ | 150,825 | |||||||
Basic income per limited partner unit: | |||||||||||||||
Weighted average limited partner units outstanding | 56,231 | 56,078 | 56,205 | 56,062 | |||||||||||
Net income per limited partner unit | $ | 3.79 | $ | 3.41 | $ | 2.65 | $ | 2.82 | |||||||
Diluted income per limited partner unit: | |||||||||||||||
Weighted average limited partner units outstanding | 56,696 | 56,591 | 56,753 | 56,631 | |||||||||||
Net income per limited partner unit | $ | 3.76 | $ | 3.38 | $ | 2.63 | $ | 2.79 | |||||||
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
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CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY
(In thousands)
Nine months ended | ||||||||
9/23/2018 | 9/24/2017 | |||||||
Limited Partnership Units Outstanding | ||||||||
Beginning balance | 56,359 | 56,201 | ||||||
Limited partnership unit options exercised | 6 | 9 | ||||||
Limited partnership unit forfeitures | (2 | ) | (3 | ) | ||||
Issuance of limited partnership units as compensation | 78 | 31 | ||||||
56,441 | 56,238 | |||||||
Limited Partners’ Equity | ||||||||
Beginning balance | $ | 81,589 | $ | 52,288 | ||||
Net income | 149,148 | 157,928 | ||||||
Partnership distribution declared ($2.67 and $2.565 per limited partnership unit) | (150,850 | ) | (144,516 | ) | ||||
Reclassification of stranded tax effect | 391 | — | ||||||
Exercise of limited partnership unit options | 125 | — | ||||||
Tax effect of units involved in treasury unit transactions | (3,049 | ) | (2,560 | ) | ||||
Issuance of limited partnership units as compensation | 1,110 | 11,015 | ||||||
78,464 | 74,155 | |||||||
General Partner’s Equity | ||||||||
Beginning balance | — | — | ||||||
Net income | 2 | 1 | ||||||
Partnership distribution declared | (2 | ) | (1 | ) | ||||
— | — | |||||||
Special L.P. Interests | 5,290 | 5,290 | ||||||
Accumulated Other Comprehensive Income | ||||||||
Foreign currency translation adjustment: | ||||||||
Beginning balance | 4,042 | 18,891 | ||||||
Period activity, net of tax $1,247 and $0 | 5,990 | (13,085 | ) | |||||
10,032 | 5,806 | |||||||
Unrealized loss on cash flow hedging derivatives: | ||||||||
Beginning balance | (7,975 | ) | (15,950 | ) | ||||
Period activity, net of tax ($845) and ($1,113) | 6,250 | 5,981 | ||||||
Reclassification of stranded tax effect | (391 | ) | — | |||||
(2,116 | ) | (9,969 | ) | |||||
7,916 | (4,163 | ) | ||||||
Total Partners’ Equity | $ | 91,670 | $ | 75,282 | ||||
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
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CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine months ended | |||||||
9/23/2018 | 9/24/2017 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
Net income | $ | 149,150 | $ | 157,929 | |||
Adjustments to reconcile net income to net cash from operating activities: | |||||||
Depreciation and amortization | 132,114 | 126,237 | |||||
Loss on early debt extinguishment | 1,073 | 23,115 | |||||
Non-cash foreign currency loss (gain) on debt | 13,093 | (39,296 | ) | ||||
Other non-cash expenses | 8,512 | 26,942 | |||||
Net change in working capital | 25,788 | 24,244 | |||||
Net change in other assets/liabilities | 4,704 | 3,447 | |||||
Net cash from operating activities | 334,434 | 322,618 | |||||
CASH FLOWS FOR INVESTING ACTIVITIES | |||||||
Capital expenditures | (145,716 | ) | (152,439 | ) | |||
Proceeds from sale of investment | — | 3,281 | |||||
Net cash for investing activities | (145,716 | ) | (149,158 | ) | |||
CASH FLOWS FOR FINANCING ACTIVITIES | |||||||
Term debt borrowings | — | 750,000 | |||||
Note borrowings | — | 500,000 | |||||
Term debt payments | — | (617,850 | ) | ||||
Note payments, including amounts paid for early termination | — | (515,458 | ) | ||||
Distributions paid to partners | (150,852 | ) | (144,517 | ) | |||
Payment of debt issuance costs and original issue discount | (2,521 | ) | (19,684 | ) | |||
Exercise of limited partnership unit options | 125 | — | |||||
Tax effect of units involved in treasury unit transactions | (3,049 | ) | (2,560 | ) | |||
Payments related to tax withholding for equity compensation | (6,943 | ) | (2,053 | ) | |||
Net cash for financing activities | (163,240 | ) | (52,122 | ) | |||
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | (967 | ) | 5,892 | ||||
CASH AND CASH EQUIVALENTS | |||||||
Net increase for the period | 24,511 | 127,230 | |||||
Balance, beginning of period | 166,245 | 122,716 | |||||
Balance, end of period | $ | 190,756 | $ | 249,946 | |||
SUPPLEMENTAL INFORMATION | |||||||
Cash payments for interest expense | $ | 48,128 | $ | 48,729 | |||
Interest capitalized | 2,173 | 1,770 | |||||
Cash payments for income taxes, net of refunds | 35,403 | 44,090 | |||||
Capital expenditures in accounts payable | 4,333 | 5,582 | |||||
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
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CEDAR FAIR, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED SEPTEMBER 23, 2018 AND SEPTEMBER 24, 2017
The accompanying unaudited condensed consolidated financial statements have been prepared from the financial records of Cedar Fair, L.P. (the Partnership) without audit and reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to fairly present the results of the interim periods covered in this report. Due to the seasonal nature of the Partnership's amusement and water park operations, the results for any interim period may not be indicative of the results expected for the full fiscal year.
(1) Significant Accounting and Reporting Policies:
Except for the changes described below, the Partnership’s unaudited condensed consolidated financial statements for the periods ended September 23, 2018 and September 24, 2017 included in this Form 10-Q report have been prepared in accordance with the accounting policies described in the Notes to Consolidated Financial Statements for the year ended December 31, 2017, which were included in the Form 10-K filed on February 23, 2018. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the Commission). These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Form 10-K referred to above.
The Partnership adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09") effective January 1, 2018 using the modified retrospective method. The adoption of the standard did not have a material effect on the consolidated financial statements. The Partnership's accounting policy as a result of adopting ASU 2014-09 is discussed below:
Revenue Recognition and related receivables and contract liabilities
As disclosed within the consolidated statements of operations and comprehensive income, revenues are generated from sales of (1) admission to the Partnership's 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 the Partnership's parks, including parking fees. Revenues related to extra-charge products, including premium benefit offerings such as front-of-line products, and online advanced purchase transaction fees charged to customers are included in "Accommodations, extra-charge products and other". Due to the Partnership's highly seasonal operations, a substantial portion of the Partnership's revenues are generated during an approximate 130- to 140-day operating season. Most revenues are recognized on a daily basis based on actual guest spend at the 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. The Partnership does not typically provide for refunds or returns.
In some instances, the Partnership arranges with outside parties ("concessionaires") to provide goods to guests, typically food and merchandise, and the Partnership acts as an agent, resulting in net revenue recorded within the income statement. 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" within the income statement, 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. The Partnership estimates variable revenues and performs a constraint analysis using both historical information and current trends to determine the amount of revenue that is not probable of a significant reversal.
Many products, including season-long products, are sold to customers in advance, resulting in a contract liability ("deferred revenue"). Deferred revenue is at its highest immediately prior to the peak summer season, and at its lowest in the fall after the peak summer season and at the beginning of the selling season for the next year's products. Season-long products represent the majority of the deferred revenue balance in any given period.
Of the $86.1 million of deferred revenue recorded as of January 1, 2018, 88% was related to season-long products. The remainder was related to deferred online advanced purchase transaction fees charged to customers, advanced ticket sales, marina deposits, advanced resort reservations, and other deferred revenue. Most deferred revenue outstanding as of January 1, 2018 will be
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recognized by December 31, 2018 with the exception of an immaterial amount of deferred revenue for prepaid products such as gift cards and prepaid games cards. During the nine months ended September 23, 2018, approximately $70.8 million of the deferred revenue balance as of January 1, 2018 was recognized. The difference in the opening and closing balances of the Partnership's deferred revenue balance in the current period was attributable to additional season-long product sales during the current year for both the 2018 and 2019 operating seasons, offset by revenue recognized during the first nine months of 2018.
Payment is due immediately on the transaction date for most products. The Partnership's 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 three monthly installments to twelve monthly installments. Payment terms for billings are typically net 30 days. Receivables are highest in the peak summer months and the lowest in the winter months. The Partnership is not exposed to a significant concentration of customer credit risk. As of September 23, 2018, December 31, 2017 and September 24, 2017, the Partnership recorded a $10.7 million, $2.2 million and $10.6 million allowance for doubtful accounts, respectively, representing estimated defaults on installment purchase plans. The default estimate is calculated using the historical default rate 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.
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 classified as non-current during the third quarter related to season-long products sold in the current season for use in the subsequent season. Season-long products are sold beginning in August of the year preceding the operating season. Season-long products may be recognized 12 to 16 months after purchase depending on the date of sale. The Partnership estimates the number of uses expected outside of the next twelve months for each type of product and classifies the related deferred revenue as non-current.
With the exception of the non-current deferred revenue described above, the Partnership's contracts with customers have an original duration of one year or less. For these short-term contracts, the Partnership uses the practical expedient, a relief provided in the accounting standard to simplify compliance, applicable to such contracts and has not disclosed the transaction price for the remaining performance obligations as of the end of each reporting period or when the Company expects to recognize this revenue. Further, the Partnership has 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, the Partnership has elected not to adjust consideration for the effects of significant financing components in the form of installment purchase plans as the period between when the entity transfers the promised service to the customer and when the customer pays for that service does not exceed one year.
New Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases ("ASU 2016-02"). The ASU requires the recognition of lease assets and lease liabilities within the balance sheet by lessees for operating leases, as well as requires additional disclosures in the consolidated financial statements regarding the amount, timing, and uncertainty of cash flows arising from leases. The ASU does not significantly change the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee, nor does the ASU change the accounting applied by a lessor. ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018. The ASU can be adopted using either the modified retrospective approach, which requires application of the new standard at the beginning of the earliest comparative period presented, or the comparative reporting approach allowable under ASU 2018-11, which requires application of the new standard at the adoption date. The Partnership expects to adopt this standard in the first quarter of 2019 using the comparative reporting approach. While the Partnership is still in the process of evaluating the effect this standard will have on the consolidated financial statements and related disclosures, the Partnership anticipates recognizing a right-of-use asset and corresponding lease liability on the consolidated balance sheet for the Santa Clara land lease, as well as other operating leases, upon adoption.
Other Adopted Accounting Pronouncements
In February 2018, the FASB issued Accounting Standards Update No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Comprehensive Income ("ASU 2018-02"). The ASU allows a reclassification from accumulated other comprehensive income to retained earnings of stranded tax effects resulting from the Tax Cuts and Jobs Act. ASU 2018-02 is effective for fiscal years after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period, and the amendments can be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Partnership elected to adopt ASU 2018-02 in the first quarter of 2018. The amendment was applied in the period of adoption and resulted in a $0.4 million reclassification from accumulated other comprehensive income to limited partners' equity during the first quarter ended March 25, 2018.
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In August 2018, the FASB issued Accounting Standards Update No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract ("ASU 2018-15"). The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The capitalized implementation costs of a hosting arrangement that is a service contract will be expensed over the term of the hosting arrangement. ASU 2018-15 is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period. The amendments can be applied either retrospectively or prospectively to all implementation costs incurred after the adoption date. The Partnership has adopted this standard in the third quarter of 2018 using the prospective method. The Partnership anticipates the standard to lengthen the timing of expense recognition associated with upcoming cloud-based projects.
(2) Interim Reporting:
The Partnership owns and operates eleven amusement parks, two separately gated outdoor water parks, one indoor water park and four hotels. The Partnership's seasonal amusement parks are generally open during weekends beginning in April or May, and then daily from Memorial Day until Labor Day, after which they are open during weekends in September and, in most cases, October for Halloween events. The two separately gated outdoor water parks also operate seasonally, generally from Memorial Day to Labor Day, plus some additional weekends before and after this period. As a result, a substantial portion of the Partnership’s revenues from these parks 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. Five of the seasonal properties are open an additional 20 to 25 days to include WinterFest, a holiday event operating during November and December showcasing holiday shows and festivities. Knott's Berry Farm continues to be open daily on a year-round basis. Castaway Bay is generally open daily from Memorial Day to Labor Day with an additional limited daily schedule for the balance of the year.
To assure that these highly seasonal operations will not result in misleading comparisons of current and subsequent interim periods, the Partnership has adopted the following accounting and reporting procedures for its seasonal parks: (a) revenues from multi-use products are recognized over the estimated number of uses expected for each type of product; and the estimated number of uses is reviewed and may be updated periodically during the operating season prior to the ticket or product expiration, which generally occurs no later than the close of the operating season; (b) depreciation, certain advertising and certain seasonal operating costs are expensed over each park’s operating season, including some costs incurred prior to the season, which are deferred and amortized over the season; and (c) all other costs are expensed as incurred or ratably over the entire year.
(3) 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. 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 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; and slower growth rates. 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 Partnership's consolidated financial statements.
Non-operating assets are evaluated for impairment based on changes in market conditions. When changes in market conditions are observed, impairment is estimated using a market-based approach. If the estimated fair value of the non-operating assets is less than their carrying value, an impairment charge is recorded for the difference.
During the third quarter of 2016, the Partnership ceased operations of one of its separately gated outdoor water parks, Wildwater Kingdom, located near Cleveland in Aurora, Ohio. At the date that Wildwater Kingdom ceased operations, the only remaining long-lived asset was the approximate 670 acres of land owned by the Partnership. This land had an associated carrying value of $17.1 million. The Partnership assessed the remaining asset and concluded there was no impairment during the third quarter of 2016. In the fourth quarter of 2017, the Partnership recorded a $7.6 million impairment charge based on information from ongoing marketing activities. The amount was recorded in "Loss on impairment / retirement of fixed assets, net" in the consolidated statement of operations and comprehensive income. The remaining Wildwater Kingdom acreage, reduced by acreage sold, is classified as assets held-for-sale within "Other Assets" in the unaudited condensed consolidated balance sheet ($9.0 million as of September 23, 2018, $9.0 million as of December 31, 2017 and $16.5 million as of September 24, 2017).
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(4) 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. As of September 23, 2018, there were no indicators of impairment. The Partnership's annual testing date is the first day of the fourth quarter. There were no impairments for any period presented.
A summary of changes in the Partnership’s carrying value of goodwill for the nine months ended September 23, 2018 and September 24, 2017 is as follows:
(In thousands) | Goodwill (gross) | Accumulated Impairment Losses | Goodwill (net) | ||||||||
Balance as of December 31, 2017 | $ | 263,698 | $ | (79,868 | ) | $ | 183,830 | ||||
Foreign currency translation | (1,826 | ) | — | (1,826 | ) | ||||||
Balance as of September 23, 2018 | $ | 261,872 | $ | (79,868 | ) | $ | 182,004 | ||||
Balance as of December 31, 2016 | $ | 259,528 | $ | (79,868 | ) | $ | 179,660 | ||||
Foreign currency translation | 5,350 | — | 5,350 | ||||||||
Balance as of September 24, 2017 | $ | 264,878 | $ | (79,868 | ) | $ | 185,010 | ||||
As of September 23, 2018, December 31, 2017, and September 24, 2017, the Partnership’s other intangible assets consisted of the following:
(In thousands) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | ||||||||
September 23, 2018 | |||||||||||
Other intangible assets: | |||||||||||
Trade names | $ | 36,125 | $ | — | $ | 36,125 | |||||
License / franchise agreements | 3,351 | (2,345 | ) | 1,006 | |||||||
Total other intangible assets | $ | 39,476 | $ | (2,345 | ) | $ | 37,131 | ||||
December 31, 2017 | |||||||||||
Other intangible assets: | |||||||||||
Trade names | $ | 36,531 | $ | — | $ | 36,531 | |||||
License / franchise agreements | 3,360 | (1,827 | ) | 1,533 | |||||||
Total other intangible assets | $ | 39,891 | $ | (1,827 | ) | $ | 38,064 | ||||
September 24, 2017 | |||||||||||
Other intangible assets: | |||||||||||
Trade names | $ | 36,794 | $ | — | $ | 36,794 | |||||
License / franchise agreements | 3,361 | (1,623 | ) | 1,738 | |||||||
Total other intangible assets | $ | 40,155 | $ | (1,623 | ) | $ | 38,532 | ||||
Amortization expense of other intangible assets is expected to continue to be immaterial going forward.
10
(5) Long-Term Debt:
Long-term debt as of September 23, 2018, December 31, 2017, and September 24, 2017 consisted of the following:
(In thousands) | September 23, 2018 | December 31, 2017 | September 24, 2017 | ||||||||
Term debt (1) | |||||||||||
April 2017 U.S. term loan averaging 3.59% (due 2017-2024) | $ | 735,000 | $ | 735,000 | $ | 735,000 | |||||
Notes | |||||||||||
April 2017 U.S. fixed rate notes at 5.375% (due 2027) | 500,000 | 500,000 | 500,000 | ||||||||
June 2014 U.S. fixed rate notes at 5.375% (due 2024) | 450,000 | 450,000 | 450,000 | ||||||||
1,685,000 | 1,685,000 | 1,685,000 | |||||||||
Less current portion | (3,750 | ) | — | — | |||||||
1,681,250 | 1,685,000 | 1,685,000 | |||||||||
Less debt issuance costs and original issue discount | (22,964 | ) | (24,485 | ) | (25,374 | ) | |||||
$ | 1,658,286 | $ | 1,660,515 | $ | 1,659,626 | ||||||
(1) | The average interest rate is calculated over the life of the instrument and does not reflect the effect of interest rate swap agreements (see Note 6). |
In April 2017, the Partnership issued $500 million of 5.375% senior unsecured notes ("April 2017 notes"), maturing in 2027. The net proceeds from the offering of the April 2017 notes, together with borrowings under the 2017 Credit Agreement (defined below), were used to redeem all of the Partnership's 5.25% senior unsecured notes due 2021 ("March 2013 notes"), and pay accrued interest and transaction fees and expenses, to repay in full all amounts outstanding under its existing credit facilities and for general corporate purposes. The redemption of the March 2013 notes and repayments of the amounts outstanding under the existing credit facilities resulted in the write-off of debt issuance costs of $7.7 million and debt premium payments of $15.5 million. Accordingly, the Partnership recorded a loss on early debt extinguishment of $23.1 million during 2017.
Concurrently with the April 2017 notes issuance, the Partnership amended and restated its existing $885 million credit agreement (the "2013 Credit Agreement"), which included a $630 million senior secured term loan facility and a $255 million senior secured revolving credit facility. The $1,025 million amended and restated credit agreement (the "2017 Credit Agreement") includes a $750 million senior secured term loan facility and a $275 million senior secured revolving credit facility. The 2017 Credit Agreement was amended on March 14, 2018 (subsequently referred to as the "Amended 2017 Credit Agreement"). Specifically, the interest rate for the senior secured term loan facility was amended to London InterBank Offered Rate ("LIBOR") plus 175 basis points (bps). The pricing terms for the amendment reflected $0.9 million of Original Issue Discount ("OID") and resulted in the write-off of debt issuance costs of $1.1 million which was recorded as a loss on early debt extinguishment during the first quarter of 2018. The senior secured term loan facility matures April 15, 2024 and amortizes at $7.5 million annually. The facilities provided under the Amended 2017 Credit Agreement are collateralized by substantially all of the assets of the Partnership.
The senior secured revolving credit facility under the Amended 2017 Credit Agreement has a combined limit of $275 million with a Canadian sub-limit of $15 million. Borrowings under the senior secured revolving credit facility bear interest at LIBOR or Canadian Dollar Offered Rate ("CDOR") plus 200 bps. The revolving credit facility is scheduled to mature in April 2022 and also provides for the issuance of documentary and standby letters of credit. The Amended 2017 Credit Agreement requires the payment of a 37.5 bps commitment fee per annum on the unused portion of the credit facilities.
The April 2017 notes pay interest semi-annually in April and October, with the principal due in full on April 15, 2027. Prior to April 15, 2020, up to 35% of the notes may be redeemed with the net cash proceeds of certain equity offerings at a price equal to 105.375% of the principal amount thereof, together with accrued and unpaid interest and additional interest, if any. The 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 notes may be redeemed, in whole or in part, at various prices depending on the date redeemed.
In June 2014, the Partnership issued $450 million of 5.375% senior unsecured notes ("June 2014 notes"). The June 2014 notes pay interest semi-annually in June and December, with the principal due in full on June 1, 2024. The notes may be redeemed, in whole or in part, at any time prior to June 1, 2019 at a price equal to 100% of the principal amount of the notes redeemed together plus a "make-whole" premium together with accrued and unpaid interest, if any, to the redemption date. Thereafter, the notes may be redeemed, in whole or in part, at various prices depending on the date redeemed.
11
The Amended 2017 Credit Agreement includes a Consolidated Leverage Ratio, which if breached for any reason and not cured could result in an event of default. The ratio is set at a maximum of 5.50x Consolidated Total Debt-to-Consolidated EBITDA. As of September 23, 2018, the Partnership was in compliance with this financial condition covenant and all other financial covenants under the Amended 2017 Credit Agreement.
The Partnership's long-term debt agreements include Restricted Payment provisions. Pursuant to the terms of the indenture governing the Partnership's June 2014 notes, which includes the most restrictive of these Restricted Payments provisions, the Partnership can make Restricted Payments of $60 million annually so long as no default or event of default has occurred and is continuing; and the Partnership can make additional Restricted Payments if the Partnership's pro forma Total-Indebtedness-to-Consolidated-Cash-Flow Ratio is less than or equal to 5.00x.
As market conditions warrant, the Partnership may from time to time repurchase debt securities issued by the Partnership, in privately negotiated or open market transactions, by tender offer, exchange offer or otherwise.
(6) Derivative Financial Instruments:
Derivative financial instruments are used within the Partnership’s 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, the Partnership is 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 the Partnership believes poses minimal credit risk. The Partnership does not use derivative financial instruments for trading purposes.
During the first quarter of 2016, the Partnership amended its four interest rate swap agreements to extend each of the maturities to December 31, 2020 and convert $500 million of variable-rate debt to a rate of 4.39%. During the second quarter of 2018, the Partnership entered into four additional interest rate swap agreements that convert the same notional amount to a rate of 4.63% for the period December 31, 2020 through December 31, 2023. None of the interest rate swap agreements are designated as hedging instruments. The fair market value of the swap portfolio was recorded on the unaudited condensed consolidated balance sheets within "Other Assets" as of September 23, 2018 and within "Derivative Liability" as of December 31, 2017 and September 24, 2017 as follows:
(In thousands) | September 23, 2018 | December 31, 2017 | September 24, 2017 | |||||||||
Derivatives not designated as hedging instruments: | ||||||||||||
Interest rate swaps | $ | 4,123 | $ | (8,722 | ) | $ | (14,849 | ) | ||||
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" in the unaudited condensed consolidated statements of operations and comprehensive income. The amounts that were previously recorded as a component of AOCI prior to the de-designation are reclassified to earnings, and a corresponding realized gain or loss is recognized when the forecasted cash flow occurs. As a result of the first quarter 2016 amendments, the previously existing interest rate swap agreements were de-designated, and the amounts previously recorded in AOCI for these agreements are being amortized into earnings through the original December 31, 2018 maturity. As of September 23, 2018, approximately $2.4 million of losses remain in AOCI related to the effective cash flow hedge contracts prior to de-designation, all of which will be reclassified to earnings by December 31, 2018.
The (gains) losses recognized in income on derivatives not designated as cash flow hedges were recorded in "Net effect of swaps" within the income statement for the periods presented as follows:
Three months ended | Nine months ended | |||||||||||||||
(In thousands) | September 23, 2018 | September 24, 2017 | September 23, 2018 | September 24, 2017 | ||||||||||||
Change in fair market value | $ | (3,581 | ) | $ | (3,318 | ) | $ | (12,845 | ) | $ | (3,378 | ) | ||||
Amortization of amounts in AOCI | 2,364 | 2,366 | 7,094 | 7,095 | ||||||||||||
Net effect of swaps | $ | (1,217 | ) | $ | (952 | ) | $ | (5,751 | ) | $ | 3,717 | |||||
12
(7) Fair Value Measurements:
The FASB's Accounting Standards Codification (ASC) 820 - Fair Value Measurements and Disclosures emphasizes that fair value is a market-based measurement that should be determined based on assumptions (inputs) that market participants would use in pricing an asset or liability. Inputs 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, FASB ASC 820 establishes a hierarchal disclosure framework that ranks the quality and reliability of information used to determine fair values. The hierarchy is associated with the level of pricing observability utilized in measuring fair value and defines three levels of inputs to the fair value measurement process. Quoted prices are the most reliable valuation inputs, whereas model values that include inputs based on unobservable data are the least reliable. Each fair value measurement must be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety.
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. The table below presents the balances of assets and liabilities measured at fair value as of September 23, 2018, December 31, 2017, and September 24, 2017 on a recurring basis as well as the fair values of other financial instruments:
(In thousands) | Unaudited Condensed Consolidated Balance Sheet Location | Fair Value Hierarchy Level | September 23, 2018 | December 31, 2017 | September 24, 2017 | ||||||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||
Financial assets (liabilities) measured on a recurring basis: | |||||||||||||||||||||||
Short-term investments | Other current assets | Level 1 | $ | 1,081 | $ | 1,081 | $ | 736 | $ | 736 | $ | 688 | $ | 688 | |||||||||
Interest rate swaps | Other Assets (Derivative Liability) | Level 2 | $ | 4,123 | $ | 4,123 | $ | (8,722 | ) | $ | (8,722 | ) | $ | (14,849 | ) | $ | (14,849 | ) | |||||
Other financial assets (liabilities): | |||||||||||||||||||||||
April 2017 term debt | Long-Term Debt (1) | Level 2 | $ | (731,250 | ) | $ | (734,906 | ) | $ | (735,000 | ) | $ | (742,350 | ) | $ | (735,000 | ) | $ | (740,513 | ) | |||
June 2014 notes | Long-Term Debt (1) | Level 1 | $ | (450,000 | ) | $ | (450,000 | ) | $ | (450,000 | ) | $ | (469,125 | ) | $ | (450,000 | ) | $ | (472,500 | ) | |||
April 2017 notes | Long-Term Debt (1) | Level 1(2) | $ | (500,000 | ) | $ | (485,000 | ) | $ | (500,000 | ) | $ | (525,000 | ) | $ | (500,000 | ) | $ | (527,500 | ) | |||
(1) | Carrying values of long-term debt balances are before reductions for debt issuance costs and original issue discount of $23.0 million, $24.5 million, and $25.4 million as of September 23, 2018, December 31, 2017, and September 24, 2017, respectively. |
(2) | The April 2017 notes were based on Level 1 inputs as of September 23, 2018 and Level 2 inputs as of December 31, 2017 and September 24, 2017. |
Fair values of the interest rate swap agreements are determined using significant inputs, including the LIBOR forward curves, which are considered Level 2 observable market inputs.
As of December 31, 2017, the Partnership measured the remaining land at Wildwater Kingdom, one of the Partnership's separately gated outdoor water parks which ceased operations in 2016, at fair value less cost to sell based on Level 3 unobservable market input. In the fourth quarter of 2017, the Partnership recorded a $7.6 million impairment charge based on information from ongoing marketing activities. This amount was recorded in "Loss on impairment / retirement of fixed assets, net" in the consolidated statement of operations and comprehensive income.
The carrying value of cash and cash equivalents, revolving credit loans, 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 September 23, 2018 or September 24, 2017.
13
(8) Earnings per Unit:
Net income per limited partner unit is calculated based on the following unit amounts:
Three months ended | Nine months ended | ||||||||||||||
9/23/2018 | 9/24/2017 | 9/23/2018 | 9/24/2017 | ||||||||||||
(In thousands, except per unit amounts) | |||||||||||||||
Basic weighted average units outstanding | 56,231 | 56,078 | 56,205 | 56,062 | |||||||||||
Effect of dilutive units: | |||||||||||||||
Deferred units | 46 | 44 | 46 | 41 | |||||||||||
Performance units | — | — | 49 | 48 | |||||||||||
Restricted units | 277 | 284 | 289 | 292 | |||||||||||
Unit options | 142 | 185 | 164 | 188 | |||||||||||
Diluted weighted average units outstanding | 56,696 | 56,591 | 56,753 | 56,631 | |||||||||||
Net income per unit - basic | $ | 3.79 | $ | 3.41 | $ | 2.65 | $ | 2.82 | |||||||
Net income per unit - diluted | $ | 3.76 | $ | 3.38 | $ | 2.63 | $ | 2.79 | |||||||
(9) Income and Partnership Taxes:
Under the applicable accounting rules, income taxes are recognized for the amount of taxes payable by the Partnership’s corporate subsidiaries for the current year and for the impact of deferred tax assets and liabilities, which represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. The income tax provision (benefit) for interim periods is determined by applying an estimated annual effective tax rate to the quarterly income (loss) of the Partnership’s corporate subsidiaries. In addition to income taxes on its corporate subsidiaries, the Partnership is subject to a publicly traded partnership tax (PTP tax) on partnership-level gross income (net revenues less cost of food, merchandise, and games). As such, the Partnership’s total provision (benefit) for taxes includes amounts for both the PTP tax and for income taxes on its subsidiaries.
As of the end of the third quarter of 2018, the Partnership has recorded $0.5 million of unrecognized tax benefits including interest and/or penalties related to state and local tax filing positions. The Partnership recognizes interest and/or penalties related to unrecognized tax benefits in the income tax provision. The Partnership does not anticipate that the balance of the unrecognized tax benefit will change significantly over the next 12 months.
On December 22, 2017, the Tax Cuts and Jobs Act (the "Act"), was signed into law. The Act includes numerous tax law changes, including a reduction in the federal corporate income tax rate from 35% to 21%. The change in tax rates necessitated the remeasurement of deferred tax balances that are expected to reverse following enactment using the applicable tax rates. As a result of the remeasurement of the net deferred tax liability, the Partnership realized a $49.2 million deferred tax benefit during the fourth quarter of 2017. The amounts recorded to reflect the effects of the Act were and remain provisional and are subject to change in accordance with SAB 118. The Partnership expects to complete these calculations and record the final effects of the Act before the end of the fourth quarter of 2018.
(10) Contingencies:
The Partnership is a party to a number of lawsuits arising in the normal course of business. In the opinion of management, none of these matters are expected to have a material effect in the aggregate on the Partnership's financial statements.
14
(11) Changes in Accumulated Other Comprehensive Income by Component:
The following tables reflect the changes in accumulated other comprehensive income (loss) related to limited partners' equity for the three months ended September 23, 2018 and September 24, 2017:
Changes in Accumulated Other Comprehensive Income by Component | |||||||||||||
(In thousands) | Gains and Losses on Cash Flow Hedges | Foreign Currency Translation | Total | ||||||||||
Balance as of June 24, 2018 | $ | (4,232 | ) | $ | 15,308 | $ | 11,076 | ||||||
Other comprehensive income before reclassifications, net of tax ($1,055) | — | (5,276 | ) | (5,276 | ) | ||||||||
Amounts reclassified from accumulated other comprehensive income, net of tax ($249) | 2,116 | — | 2,116 | ||||||||||
Net other comprehensive income (loss) | 2,116 | (5,276 | ) | (3,160 | ) | ||||||||
Balance as of September 23, 2018 | $ | (2,116 | ) | $ | 10,032 | $ | 7,916 | ||||||
Changes in Accumulated Other Comprehensive Income by Component | |||||||||||||
(In thousands) | Gains and Losses on Cash Flow Hedges | Foreign Currency Translation | Total | ||||||||||
Balance as of June 25, 2017 | $ | (11,963 | ) | $ | 16,949 | $ | 4,986 | ||||||
Other comprehensive income before reclassifications | — | (11,143 | ) | (11,143 | ) | ||||||||
Amounts reclassified from accumulated other comprehensive income, net of tax ($371) | 1,994 | — | 1,994 | ||||||||||
Net other comprehensive income (loss) | 1,994 | (11,143 | ) | (9,149 | ) | ||||||||
Balance as of September 24, 2017 | $ | (9,969 | ) | $ | 5,806 | $ | (4,163 | ) | |||||
Reclassifications Out of Accumulated Other Comprehensive Income | ||||||||||
Details about Accumulated Other Comprehensive Income Components | Amount Reclassified from Accumulated Other Comprehensive Income | Affected Line Item in the Statement Where Net Income is Presented | ||||||||
(In thousands) | Three months ended 9/23/2018 | Three months ended 9/24/2017 | ||||||||
Interest rate contracts | $ | 2,365 | $ | 2,365 | Net effect of swaps | |||||
Provision for taxes | (249 | ) | (371 | ) | Provision (benefit) for taxes | |||||
Losses on cash flow hedges | $ | 2,116 | $ | 1,994 | Net of tax | |||||
15
The following tables reflect the changes in accumulated other comprehensive income (loss) related to limited partners' equity for the nine months ended September 23, 2018 and September 24, 2017:
Changes in Accumulated Other Comprehensive Income by Component | |||||||||||||
(In thousands) | Gains and Losses on Cash Flow Hedges | Foreign Currency Translation | Total | ||||||||||
Balance as of December 31, 2017 | $ | (7,975 | ) | $ | 4,042 | $ | (3,933 | ) | |||||
Other comprehensive income before reclassifications, net of tax $1,247 | — | 5,990 | 5,990 | ||||||||||
Amounts reclassified from accumulated other comprehensive income, net of tax ($845) | 6,250 | — | 6,250 | ||||||||||
Net other comprehensive income (loss) | 6,250 | 5,990 | 12,240 | ||||||||||
Reclassification of stranded tax effect | (391 | ) | — | (391 | ) | ||||||||
Balance as of September 23, 2018 | $ | (2,116 | ) | $ | 10,032 | $ | 7,916 | ||||||
Changes in Accumulated Other Comprehensive Income by Component | |||||||||||||
(In thousands) | Gains and Losses on Cash Flow Hedges | Foreign Currency Translation | Total | ||||||||||
Balance as of December 31, 2016 | $ | (15,950 | ) | $ | 18,891 | $ | 2,941 | ||||||
Other comprehensive income before reclassifications | — | (13,085 | ) | (13,085 | ) | ||||||||
Amounts reclassified from accumulated other comprehensive income, net of tax ($1,113) | 5,981 | — | 5,981 | ||||||||||
Net other comprehensive income (loss) | 5,981 | (13,085 | ) | (7,104 | ) | ||||||||
Balance as of September 24, 2017 | $ | (9,969 | ) | $ | 5,806 | $ | (4,163 | ) | |||||
Reclassifications Out of Accumulated Other Comprehensive Income | ||||||||||
Details about Accumulated Other Comprehensive Income Components | Amount Reclassified from Accumulated Other Comprehensive Income | Affected Line Item in the Statement Where Net Income is Presented | ||||||||
(In thousands) | Nine months ended 9/23/2018 | Nine months ended 9/24/2017 | ||||||||
Interest rate contracts | $ | 7,095 | $ | 7,094 | Net effect of swaps | |||||
Provision for taxes | (845 | ) | (1,113 | ) | Provision (benefit) for taxes | |||||
Losses on cash flow hedges | $ | 6,250 | $ | 5,981 | Net of tax | |||||
16
(12) Consolidating Financial Information of Guarantors and Issuers of June 2014 Notes:
Cedar Fair, L.P., Canada's Wonderland Company ("Cedar Canada"), and Magnum Management Corporation ("Magnum") are the co-issuers of the Partnership's June 2014 Notes (see Note 5). The notes have been fully and unconditionally guaranteed, on a joint and several basis, by each 100% owned subsidiary of Cedar Fair (other than Cedar Canada and Magnum) that guarantees the Partnership's senior secured credit facilities. There are no non-guarantor subsidiaries.
The following consolidating schedules present condensed financial information for Cedar Fair, L.P., Cedar Canada, and Magnum, the co-issuers, and each 100% owned subsidiary of Cedar Fair (other than Cedar Canada and Magnum), the guarantors (on a combined basis), as of September 23, 2018, December 31, 2017, and September 24, 2017 and for the three- and nine-month periods ended September 23, 2018 and September 24, 2017. In lieu of providing separate unaudited financial statements for the guarantor subsidiaries, the accompanying unaudited condensed consolidating financial statements have been included.
17
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
September 23, 2018
(In thousands)
Cedar Fair L.P. (Parent) | Co-Issuer Subsidiary (Magnum) | Co-Issuer Subsidiary (Cedar Canada) | Guarantor Subsidiaries | Eliminations | Total | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | 77,878 | $ | 116,511 | $ | (3,633 | ) | $ | 190,756 | |||||||||||
Receivables | — | 991 | 47,193 | 895,263 | (885,049 | ) | 58,398 | |||||||||||||||||
Inventories | — | — | 2,260 | 34,289 | — | 36,549 | ||||||||||||||||||
Other current assets | 293 | 1,170 | 3,594 | 19,546 | (2,728 | ) | 21,875 | |||||||||||||||||
293 | 2,161 | 130,925 | 1,065,609 | (891,410 | ) | 307,578 | ||||||||||||||||||
Property and Equipment, net | — | 811 | 178,522 | 1,409,366 | — | 1,588,699 | ||||||||||||||||||
Investment in Park | 648,414 | 1,205,086 | 259,710 | 246,968 | (2,360,178 | ) | — | |||||||||||||||||
Goodwill | 674 | — | 61,725 | 119,605 | — | 182,004 | ||||||||||||||||||
Other Intangibles, net | — | — | 13,763 | 23,368 | — | 37,131 | ||||||||||||||||||
Deferred Tax Asset | — | 19,870 | — | — | (19,870 | ) | — | |||||||||||||||||
Other Assets | 1,197 | 2,926 | 39 | 9,374 | — | 13,536 | ||||||||||||||||||
$ | 650,578 | $ | 1,230,854 | $ | 644,684 | $ | 2,874,290 | $ | (3,271,458 | ) | $ | 2,128,948 | ||||||||||||
LIABILITIES AND PARTNERS’ EQUITY | ||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||
Current maturities of long-term debt | $ | — | $ | 656 | $ | — | $ | 3,094 | $ | — | $ | 3,750 | ||||||||||||
Accounts payable | 553,952 | 334,696 | 2,868 | 30,155 | (888,682 | ) | 32,989 | |||||||||||||||||
Deferred revenue | — | — | 9,397 | 92,929 | — | 102,326 | ||||||||||||||||||
Accrued interest | 113 | 75 | 7,601 | 14,104 | — | 21,893 | ||||||||||||||||||
Accrued taxes | 1,551 | 38,538 | — | 11,011 | (2,728 | ) | 48,372 | |||||||||||||||||
Accrued salaries, wages and benefits | — | 28,162 | 2,416 | — | — | 30,578 | ||||||||||||||||||
Self-insurance reserves | — | 10,459 | 1,635 | 13,829 | — | 25,923 | ||||||||||||||||||
Other accrued liabilities | 3,292 | 6,796 | 585 | 11,559 | — | 22,232 | ||||||||||||||||||
558,908 | 419,382 | 24,502 | 176,681 | (891,410 | ) | 288,063 | ||||||||||||||||||
Deferred Tax Liability | — | — | 12,562 | 81,945 | (19,870 | ) | 74,637 | |||||||||||||||||
Other Liabilities | — | 968 | 390 | 14,934 | — | 16,292 | ||||||||||||||||||
Long-Term Debt: | ||||||||||||||||||||||||
Term debt | — | 126,800 | — | 594,046 | — | 720,846 | ||||||||||||||||||
Notes | — | — | 445,846 | 491,594 | — | 937,440 | ||||||||||||||||||
— | 126,800 | 445,846 | 1,085,640 | — | 1,658,286 | |||||||||||||||||||
Equity | 91,670 | 683,704 | 161,384 | 1,515,090 | (2,360,178 | ) | 91,670 | |||||||||||||||||
$ | 650,578 | $ | 1,230,854 | $ | 644,684 | $ | 2,874,290 | $ | (3,271,458 | ) | $ | 2,128,948 | ||||||||||||
18
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2017
(In thousands)
Cedar Fair L.P. (Parent) | Co-Issuer Subsidiary (Magnum) | Co-Issuer Subsidiary (Cedar Canada) | Guarantor Subsidiaries | Eliminations | Total | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | 85,758 | $ | 81,582 | $ | (1,095 | ) | $ | 166,245 | |||||||||||
Receivables | — | 1,184 | 15,574 | 857,205 | (836,241 | ) | 37,722 | |||||||||||||||||
Inventories | — | — | 1,891 | 27,828 | — | 29,719 | ||||||||||||||||||
Other current assets | 164 | 28,297 | 3,454 | 10,983 | (29,601 | ) | 13,297 | |||||||||||||||||
164 | 29,481 | 106,677 | 977,598 | (866,937 | ) | 246,983 | ||||||||||||||||||
Property and Equipment, net | — | 835 | 181,673 | 1,403,264 | — | 1,585,772 | ||||||||||||||||||
Investment in Park | 588,684 | 1,045,640 | 238,132 | 234,238 | (2,106,694 | ) | — | |||||||||||||||||
Goodwill | 674 | — | 63,551 | 119,605 | — | 183,830 | ||||||||||||||||||
Other Intangibles, net | — | — | 14,177 | 23,887 | — | 38,064 | ||||||||||||||||||
Deferred Tax Asset | — | 20,956 | — | — | (20,956 | ) | — | |||||||||||||||||
Other Assets | — | — | 40 | 9,470 | — | 9,510 | ||||||||||||||||||
$ | 589,522 | $ | 1,096,912 | $ | 604,250 | $ | 2,768,062 | $ | (2,994,587 | ) | $ | 2,064,159 | ||||||||||||
LIABILITIES AND PARTNERS’ EQUITY | ||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||
Accounts payable | $ | 497,558 | $ | 344,410 | $ | 1,379 | $ | 18,610 | $ | (837,336 | ) | $ | 24,621 | |||||||||||
Deferred revenue | — | — | 6,237 | 79,894 | — | 86,131 | ||||||||||||||||||
Accrued interest | 27 | 18 | 2,055 | 6,024 | — | 8,124 | ||||||||||||||||||
Accrued taxes | 352 | — | — | 73,224 | (29,601 | ) | 43,975 | |||||||||||||||||
Accrued salaries, wages and benefits | — | 17,498 | 1,242 | — | — | 18,740 | ||||||||||||||||||
Self-insurance reserves | — | 10,947 | 1,618 | 12,542 | 25,107 | |||||||||||||||||||
Other accrued liabilities | 3,406 | 5,094 | 157 | 10,139 | — | 18,796 | ||||||||||||||||||
501,343 | 377,967 | 12,688 | 200,433 | (866,937 | ) | 225,494 | ||||||||||||||||||
Deferred Tax Liability | — | — | 13,809 | 81,945 | (20,956 | ) | 74,798 | |||||||||||||||||
Derivative Liability | 5,233 | 3,489 | — | — | — | 8,722 | ||||||||||||||||||
Other Liabilities | — | 873 | — | 10,811 | — | 11,684 | ||||||||||||||||||
Long-Term Debt: | ||||||||||||||||||||||||
Term debt | — | 127,437 | — | 596,351 | — | 723,788 | ||||||||||||||||||
Notes | — | — | 445,156 | 491,571 | — | 936,727 | ||||||||||||||||||
— | 127,437 | 445,156 | 1,087,922 | — | 1,660,515 | |||||||||||||||||||
Equity | 82,946 | 587,146 | 132,597 | 1,386,951 | (2,106,694 | ) | 82,946 | |||||||||||||||||
$ | 589,522 | $ | 1,096,912 | $ | 604,250 | $ | 2,768,062 | $ | (2,994,587 | ) | $ | 2,064,159 | ||||||||||||
19
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
September 24, 2017
(In thousands)
Cedar Fair L.P. (Parent) | Co-Issuer Subsidiary (Magnum) | Co-Issuer Subsidiary (Cedar Canada) | Guarantor Subsidiaries | Eliminations | Total | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | 92,047 | $ | 160,593 | $ | (2,694 | ) | $ | 249,946 | |||||||||||
Receivables | — | 1,285 | 33,158 | 837,594 | (819,734 | ) | 52,303 | |||||||||||||||||
Inventories | — | — | 2,423 | 31,817 | — | 34,240 | ||||||||||||||||||
Other current assets | 275 | 12,843 | 743 | 16,829 | (12,066 | ) | 18,624 | |||||||||||||||||
275 | 14,128 | 128,371 | 1,046,833 | (834,494 | ) | 355,113 | ||||||||||||||||||
Property and Equipment, net | — | 842 | 183,205 | 1,396,463 | — | 1,580,510 | ||||||||||||||||||
Investment in Park | 566,548 | 1,016,857 | 224,464 | 222,953 | (2,030,822 | ) | — | |||||||||||||||||
Goodwill | 674 | — | 64,730 | 119,606 | — | 185,010 | ||||||||||||||||||
Other Intangibles, net | — | — | 14,443 | 24,089 | — | 38,532 | ||||||||||||||||||
Deferred Tax Asset | — | 32,190 | — | — | (32,190 | ) | — | |||||||||||||||||
Other Assets | — | — | 53 | 17,354 | — | 17,407 | ||||||||||||||||||
$ | 567,497 | $ | 1,064,017 | $ | 615,266 | $ | 2,827,298 | $ | (2,897,506 | ) | $ | 2,176,572 | ||||||||||||
LIABILITIES AND PARTNERS’ EQUITY | ||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||
Accounts payable | $ | 478,416 | $ | 345,150 | $ | 6,431 | $ | 26,141 | $ | (822,428 | ) | $ | 33,710 | |||||||||||
Deferred revenue | — | — | 6,876 | 76,464 | — | 83,340 | ||||||||||||||||||
Accrued interest | 292 | 195 | 9,209 | 14,232 | — | 23,928 | ||||||||||||||||||
Accrued taxes | 1,589 | — | 14,910 | 74,224 | (12,066 | ) | 78,657 | |||||||||||||||||
Accrued salaries, wages and benefits | — | 28,306 | 2,360 | — | — | 30,666 | ||||||||||||||||||
Self-insurance reserves | — | 12,090 | 1,725 | 13,734 | — | 27,549 | ||||||||||||||||||
Other accrued liabilities | 2,985 | 7,772 | 499 | 9,306 | — | 20,562 | ||||||||||||||||||
483,282 | 393,513 | 42,010 | 214,101 | (834,494 | ) | 298,412 | ||||||||||||||||||
Deferred Tax Liability | — | — | 19,511 | 125,350 | (32,190 | ) | 112,671 | |||||||||||||||||
Derivative Liability | 8,933 | 5,916 | — | — | — | 14,849 | ||||||||||||||||||
Other Liabilities | — | 1,398 | 261 | 14,073 | — | 15,732 | ||||||||||||||||||
Long-Term Debt: | ||||||||||||||||||||||||
Term debt | — | 127,402 | — | 595,983 | — | 723,385 | ||||||||||||||||||
Notes | — | — | 444,874 | 491,367 | — | 936,241 | ||||||||||||||||||
— | 127,402 | 444,874 | 1,087,350 | — | 1,659,626 | |||||||||||||||||||
Equity | 75,282 | 535,788 | 108,610 | 1,386,424 | (2,030,822 | ) | 75,282 | |||||||||||||||||
$ | 567,497 | $ | 1,064,017 | $ | 615,266 | $ | 2,827,298 | $ | (2,897,506 | ) | $ | 2,176,572 | ||||||||||||
20
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Three Months Ended September 23, 2018
(In thousands)
Cedar Fair L.P. (Parent) | Co-Issuer Subsidiary (Magnum) | Co-Issuer Subsidiary (Cedar Canada) | Guarantor Subsidiaries | Eliminations | Total | |||||||||||||||||||
Net revenues | $ | 71,751 | $ | 182,833 | $ | 81,265 | $ | 613,094 | $ | (285,240 | ) | $ | 663,703 | |||||||||||
Costs and expenses: | ||||||||||||||||||||||||
Cost of food, merchandise, and games revenues | — | — | 7,020 | 46,871 | — | 53,891 | ||||||||||||||||||
Operating expenses | — | 122,455 | 20,145 | 349,145 | (285,240 | ) | 206,505 | |||||||||||||||||
Selling, general and administrative | 185 | 20,666 | 4,582 | 41,681 | — | 67,114 | ||||||||||||||||||
Depreciation and amortization | — | 8 | 8,379 | 65,987 | — | 74,374 | ||||||||||||||||||
Loss on impairment / retirement of fixed assets, net | — | — | — | 3,247 | — | 3,247 | ||||||||||||||||||
185 | 143,129 | 40,126 | 506,931 | (285,240 | ) | 405,131 | ||||||||||||||||||
Operating income | 71,566 | 39,704 | 41,139 | 106,163 | — | 258,572 | ||||||||||||||||||
Interest expense, net | 5,879 | 4,072 | 5,986 | 4,997 | — | 20,934 | ||||||||||||||||||
Net effect of swaps | 265 | (1,482 | ) | — | — | — | (1,217 | ) | ||||||||||||||||
(Gain) loss on foreign currency | — | 15 | (13,069 | ) | — | — | (13,054 | ) | ||||||||||||||||
Other (income) expense | 63 | (28,849 | ) | 1,484 | 27,134 | — | (168 | ) | ||||||||||||||||
Income from investment in affiliates | (153,756 | ) | (100,629 | ) | (16,509 | ) | (56,985 | ) | 327,879 | — | ||||||||||||||
Income before taxes | 219,115 | 166,577 | 63,247 | 131,017 | (327,879 | ) | 252,077 | |||||||||||||||||
Provision for taxes | 5,808 | 12,823 | 6,261 | 13,878 | — | 38,770 | ||||||||||||||||||
Net income | $ | 213,307 | $ | 153,754 | $ | 56,986 | $ | 117,139 | $ | (327,879 | ) | $ | 213,307 | |||||||||||
Other comprehensive income (loss), (net of tax): | ||||||||||||||||||||||||
Foreign currency translation adjustment | (5,276 | ) | — | (5,276 | ) | — | 5,276 | (5,276 | ) | |||||||||||||||
Unrealized gain on cash flow hedging derivatives | 2,116 | 728 | — | — | (728 | ) | 2,116 | |||||||||||||||||
Other comprehensive income (loss), (net of tax) | (3,160 | ) | 728 | (5,276 | ) | — | 4,548 | (3,160 | ) | |||||||||||||||
Total comprehensive income | $ | 210,147 | $ | 154,482 | $ | 51,710 | $ | 117,139 | $ | (323,331 | ) | $ | 210,147 | |||||||||||
21
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Three Months Ended September 24, 2017
(In thousands)
Cedar Fair L.P. (Parent) | Co-Issuer Subsidiary (Magnum) | Co-Issuer Subsidiary (Cedar Canada) | Guarantor Subsidiaries | Eliminations | Total | |||||||||||||||||||
Net revenues | $ | 69,999 | $ | 169,429 | $ | 85,963 | $ | 596,837 | $ | (269,539 | ) | $ | 652,689 | |||||||||||
Costs and expenses: | ||||||||||||||||||||||||
Cost of food, merchandise, and games revenues | — | — | 7,735 | 44,912 | — | 52,647 | ||||||||||||||||||
Operating expenses | — | 118,614 | 19,627 | 334,008 | (269,539 | ) | 202,710 | |||||||||||||||||
Selling, general and administrative | 327 | 21,752 | 4,539 | 45,045 | — | 71,663 | ||||||||||||||||||
Depreciation and amortization | — | 9 | 7,856 | 62,195 | — | 70,060 | ||||||||||||||||||
Loss on impairment / retirement of fixed assets, net | — | — | 87 | 1,260 | — | 1,347 | ||||||||||||||||||
Gain on sale of investment | — | (1,877 | ) | — | — | — | (1,877 | ) | ||||||||||||||||
327 | 138,498 | 39,844 | 487,420 | (269,539 | ) | 396,550 | ||||||||||||||||||
Operating income | 69,672 | 30,931 | 46,119 | 109,417 | — | 256,139 | ||||||||||||||||||
Interest expense, net | 4,857 | 4,305 | 6,152 | 5,973 | — | 21,287 | ||||||||||||||||||
Net effect of swaps | (578 | ) | (374 | ) | — | — | — | (952 | ) | |||||||||||||||
Gain on foreign currency | — | (27 | ) | (29,166 | ) | — | — | (29,193 | ) | |||||||||||||||
Other (income) expense | 62 | (26,676 | ) | 1,163 | 25,386 | — | (65 | ) | ||||||||||||||||
Income from investment in affiliates | (132,699 | ) | (98,522 | ) | (16,843 | ) | (58,378 | ) | 306,442 | — | ||||||||||||||
Income before taxes | 198,030 | 152,225 | 84,813 | 136,436 | (306,442 | ) | 265,062 | |||||||||||||||||
Provision for taxes | 6,715 | 19,526 | 26,432 | 21,074 | — | 73,747 | ||||||||||||||||||
Net income | $ | 191,315 | $ | 132,699 | $ | 58,381 | $ | 115,362 | $ | (306,442 | ) | $ | 191,315 | |||||||||||
Other comprehensive income (loss), (net of tax): | ||||||||||||||||||||||||
Foreign currency translation adjustment | (11,143 | ) | — | (11,143 | ) | — | 11,143 | (11,143 | ) | |||||||||||||||
Unrealized gain on cash flow hedging derivatives | 1,994 | 605 | — | — | (605 | ) | 1,994 | |||||||||||||||||
Other comprehensive income (loss), (net of tax) | (9,149 | ) | 605 | (11,143 | ) | — | 10,538 | (9,149 | ) | |||||||||||||||
Total comprehensive income | $ | 182,166 | $ | 133,304 | $ | 47,238 | $ | 115,362 | $ | (295,904 | ) | $ | 182,166 | |||||||||||
22
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Nine Months Ended September 23, 2018
(In thousands)
Cedar Fair L.P. (Parent) | Co-Issuer Subsidiary (Magnum) | Co-Issuer Subsidiary (Cedar Canada) | Guarantor Subsidiaries | Eliminations | Total | |||||||||||||||||||
Net revenues | $ | 84,921 | $ | 275,214 | $ | 111,184 | $ | 1,023,713 | $ | (396,286 | ) | $ | 1,098,746 | |||||||||||
Costs and expenses: | ||||||||||||||||||||||||
Cost of food, merchandise, and games revenues | — | — | 10,204 | 84,708 | — | 94,912 | ||||||||||||||||||
Operating expenses | — | 258,162 | 40,115 | 560,759 | (396,286 | ) | 462,750 | |||||||||||||||||
Selling, general and administrative | 1,870 | 50,754 | 8,818 | 88,395 | — | 149,837 | ||||||||||||||||||
Depreciation and amortization | — | 24 | 14,319 | 117,771 | — | 132,114 | ||||||||||||||||||
Loss on impairment / retirement of fixed assets, net | — | — | 67 | 7,892 | — | 7,959 | ||||||||||||||||||
1,870 | 308,940 | 73,523 | 859,525 | (396,286 | ) | 847,572 | ||||||||||||||||||
Operating income (loss) | 83,051 | (33,726 | ) | 37,661 | 164,188 | — | 251,174 | |||||||||||||||||
Interest expense, net | 16,519 | 13,031 | 17,637 | 14,565 | — | 61,752 | ||||||||||||||||||
Net effect of swaps | (2,266 | ) | (3,485 | ) | — | — | — | (5,751 | ) | |||||||||||||||
Loss on early debt extinguishment | — | 187 | — | 886 | — | 1,073 | ||||||||||||||||||
Loss on foreign currency | — | 36 | 11,988 | — | — | 12,024 | ||||||||||||||||||
Other (income) expense | 186 | (61,404 | ) | 3,270 | 57,573 | — | (375 | ) | ||||||||||||||||
Income from investment in affiliates | (89,426 | ) | (74,345 | ) | (21,578 | ) | (22,798 | ) | 208,147 | — | ||||||||||||||
Income before taxes | 158,038 | 92,254 | 26,344 | 113,962 | (208,147 | ) | 182,451 | |||||||||||||||||
Provision for taxes | 8,888 | 2,829 | 3,545 | 18,039 | — | 33,301 | ||||||||||||||||||
Net income | $ | 149,150 | $ | 89,425 | $ | 22,799 | $ | 95,923 | $ | (208,147 | ) | $ | 149,150 | |||||||||||
Other comprehensive income (loss), (net of tax): | ||||||||||||||||||||||||
Foreign currency translation adjustment | 5,990 | — | 5,990 | — | (5,990 | ) | 5,990 | |||||||||||||||||
Unrealized gain on cash flow hedging derivatives | 6,250 | 2,085 | — | — | (2,085 | ) | 6,250 | |||||||||||||||||
Other comprehensive income (loss), (net of tax) | 12,240 | 2,085 | 5,990 | — | (8,075 | ) | 12,240 | |||||||||||||||||
Total comprehensive income | $ | 161,390 | $ | 91,510 | $ | 28,789 | $ | 95,923 | $ | (216,222 | ) | $ | 161,390 | |||||||||||
23
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Nine Months Ended September 24, 2017
(In thousands)
Cedar Fair L.P. (Parent) | Co-Issuer Subsidiary (Magnum) | Co-Issuer Subsidiary (Cedar Canada) | Guarantor Subsidiaries | Eliminations | Total | |||||||||||||||||||
Net revenues | $ | 92,672 | $ | 262,739 | $ | 114,141 | $ | 1,019,399 | $ | (395,146 | ) | $ | 1,093,805 | |||||||||||
Costs and expenses: | ||||||||||||||||||||||||
Cost of food, merchandise, and games revenues | — | — | 10,569 | 81,807 | — | 92,376 | ||||||||||||||||||
Operating expenses | — | 248,047 | 37,701 | 556,777 | (395,146 | ) | 447,379 | |||||||||||||||||
Selling, general and administrative | 2,254 | 51,358 | 8,592 | 88,938 | — | 151,142 | ||||||||||||||||||
Depreciation and amortization | — | 26 | 12,869 | 113,342 | — | 126,237 | ||||||||||||||||||
Loss on impairment / retirement of fixed assets, net | — | — | 542 | 2,515 | — | 3,057 | ||||||||||||||||||
Gain on sale of investment | — | (1,877 | ) | — | — | — | (1,877 | ) | ||||||||||||||||
2,254 | 297,554 | 70,273 | 843,379 | (395,146 | ) | 818,314 | ||||||||||||||||||
Operating income (loss) | 90,418 | (34,815 | ) | 43,868 | 176,020 | — | 275,491 | |||||||||||||||||
Interest expense, net | 18,285 | 13,893 | 18,317 | 11,578 | — | 62,073 | ||||||||||||||||||
Net effect of swaps | 2,162 | 1,555 | — | — | — | 3,717 | ||||||||||||||||||
Loss on early debt extinguishment | 11,773 | 8,188 | 198 | 2,956 | — | 23,115 | ||||||||||||||||||
Gain on foreign currency | — | (27 | ) | (35,020 | ) | — | — | (35,047 | ) | |||||||||||||||
Other (income) expense | 187 | (56,623 | ) | 2,640 | 53,731 | — | (65 | ) | ||||||||||||||||
Income from investment in affiliates | (108,835 | ) | (109,414 | ) | (24,389 | ) | (58,648 | ) | 301,286 | — | ||||||||||||||
Income before taxes | 166,846 | 107,613 | 82,122 | 166,403 | (301,286 | ) | 221,698 | |||||||||||||||||
Provision (benefit) for taxes | 8,917 | (1,223 | ) | 23,473 | 32,602 | — | 63,769 | |||||||||||||||||
Net income | $ | 157,929 | $ | 108,836 | $ | 58,649 | $ | 133,801 | $ | (301,286 | ) | $ | 157,929 | |||||||||||
Other comprehensive income (loss), (net of tax): | ||||||||||||||||||||||||
Foreign currency translation adjustment | (13,085 | ) | — | (13,085 | ) | — | 13,085 | (13,085 | ) | |||||||||||||||
Unrealized gain on cash flow hedging derivatives | 5,981 | 1,816 | — | — | (1,816 | ) | 5,981 | |||||||||||||||||
Other comprehensive income (loss), (net of tax) | (7,104 | ) | 1,816 | (13,085 | ) | — | 11,269 | (7,104 | ) | |||||||||||||||
Total comprehensive income | $ | 150,825 | $ | 110,652 | $ | 45,564 | $ | 133,801 | $ | (290,017 | ) | $ | 150,825 | |||||||||||
24
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 23, 2018
(In thousands)
Cedar Fair L.P. (Parent) | Co-Issuer Subsidiary (Magnum) | Co-Issuer Subsidiary (Cedar Canada) | Guarantor Subsidiaries | Eliminations | Total | |||||||||||||||||||
NET CASH FROM OPERATING ACTIVITIES | $ | 95,426 | $ | 13,190 | $ | 41,319 | $ | 188,005 | $ | (3,506 | ) | $ | 334,434 | |||||||||||
CASH FLOWS FOR INVESTING ACTIVITIES | ||||||||||||||||||||||||
Intercompany receivables (payments) receipts | — | — | (31,877 | ) | (21,515 | ) | 53,392 | — | ||||||||||||||||
Capital expenditures | — | — | (16,355 | ) | (129,361 | ) | — | (145,716 | ) | |||||||||||||||
Net cash for investing activities | — | — | (48,232 | ) | (150,876 | ) | 53,392 | (145,716 | ) | |||||||||||||||
CASH FLOWS FOR FINANCING ACTIVITIES | ||||||||||||||||||||||||
Intercompany payables (payments) receipts | 56,394 | (3,002 | ) | — | — | (53,392 | ) | — | ||||||||||||||||
Distributions paid to partners | (151,820 | ) | — | — | — | 968 | (150,852 | ) | ||||||||||||||||
Payment of debt issuance costs and original issue discount | — | (321 | ) | — | (2,200 | ) | — | (2,521 | ) | |||||||||||||||
Exercise of limited partnership unit options | — | 125 | — | — | — | 125 | ||||||||||||||||||
Tax effect of units involved in treasury unit transactions | — | (3,049 | ) | — | — | — | (3,049 | ) | ||||||||||||||||
Payments related to tax withholding for equity compensation | — | (6,943 | ) | — | — | — | (6,943 | ) | ||||||||||||||||
Net cash for financing activities | (95,426 | ) | (13,190 | ) | — | (2,200 | ) | (52,424 | ) | (163,240 | ) | |||||||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | — | — | (967 | ) | — | — | (967 | ) | ||||||||||||||||
CASH AND CASH EQUIVALENTS | ||||||||||||||||||||||||
Net increase (decrease) for the period | — | — | (7,880 | ) | 34,929 | (2,538 | ) | 24,511 | ||||||||||||||||
Balance, beginning of period | — | — | 85,758 | 81,582 | (1,095 | ) | 166,245 | |||||||||||||||||
Balance, end of period | $ | — | $ | — | $ | 77,878 | $ | 116,511 | $ | (3,633 | ) | $ | 190,756 | |||||||||||
25
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 24, 2017
(In thousands)
Cedar Fair L.P. (Parent) | Co-Issuer Subsidiary (Magnum) | Co-Issuer Subsidiary (Cedar Canada) | Guarantor Subsidiaries | Eliminations | Total | |||||||||||||||||||
NET CASH FROM (FOR) OPERATING ACTIVITIES | $ | 61,966 | $ | (3,954 | ) | $ | 40,125 | $ | 227,588 | $ | (3,107 | ) | $ | 322,618 | ||||||||||
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES | ||||||||||||||||||||||||
Intercompany receivables (payments) receipts | — | — | — | (248,190 | ) | 248,190 | — | |||||||||||||||||
Proceeds from returns on investments | 338,000 | 15,500 | — | 146,500 | (500,000 | ) | — | |||||||||||||||||
Proceeds from sale of investment | — | 3,281 | — | — | — | 3,281 | ||||||||||||||||||
Capital expenditures | — | (25 | ) | (5,679 | ) | (146,735 | ) | — | (152,439 | ) | ||||||||||||||
Net cash from (for) investing activities | 338,000 | 18,756 | (5,679 | ) | (248,425 | ) | (251,810 | ) | (149,158 | ) | ||||||||||||||
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES | ||||||||||||||||||||||||
Intercompany payables (payments) receipts | 50,003 | 198,187 | — | — | (248,190 | ) | — | |||||||||||||||||
Payments for returns of capital | — | — | — | (500,000 | ) | 500,000 | — | |||||||||||||||||
Term debt borrowings | — | 131,000 | — | 619,000 | — | 750,000 | ||||||||||||||||||
Note borrowings | — | — | — | 500,000 | — | 500,000 | ||||||||||||||||||
Term debt payments | — | (126,619 | ) | (13,854 | ) | (477,377 | ) | — | (617,850 | ) | ||||||||||||||
Note payments, including amounts paid for early termination | (304,014 | ) | (211,444 | ) | — | — | — | (515,458 | ) | |||||||||||||||
Distributions paid to partners | (145,955 | ) | — | — | — | 1,438 | (144,517 | ) | ||||||||||||||||
Payment of debt issuance costs | — | (1,313 | ) | — | (18,371 | ) | — | (19,684 | ) | |||||||||||||||
Tax effect of units involved in treasury unit transactions | — | (2,560 | ) | — | — | — | (2,560 | ) | ||||||||||||||||
Payments related to tax withholding for equity compensation | — | (2,053 | ) | — | — | — | (2,053 | ) | ||||||||||||||||
Net cash from (for) financing activities | (399,966 | ) | (14,802 | ) | (13,854 | ) | 123,252 | 253,248 | (52,122 | ) | ||||||||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | — | — | 5,892 | — | — | 5,892 | ||||||||||||||||||
CASH AND CASH EQUIVALENTS | ||||||||||||||||||||||||
Net increase for the period | — | — | 26,484 | 102,415 | (1,669 | ) | 127,230 | |||||||||||||||||
Balance, beginning of period | — | — | 65,563 | 58,178 | (1,025 | ) | 122,716 | |||||||||||||||||
Balance, end of period | $ | — | $ | — | $ | 92,047 | $ | 160,593 | $ | (2,694 | ) | $ | 249,946 | |||||||||||
26
(13) Consolidating Financial Information of Guarantors and Issuers of April 2017 Notes:
Cedar Fair, L.P., Canada's Wonderland Company ("Cedar Canada"), Magnum Management Corporation ("Magnum"), and Millennium Operations LLC ("Millennium") are the co-issuers of the Partnership's April 2017 Notes (see Note 5). The notes have been fully and unconditionally guaranteed, on a joint and several basis, by each 100% owned subsidiary of Cedar Fair (other than Cedar Canada, Magnum and Millennium) that guarantees the Partnership's senior secured credit facilities. There are no non-guarantor subsidiaries.
The following consolidating schedules present condensed financial information for Cedar Fair, L.P., Cedar Canada, Magnum, and Millennium, the co-issuers, and each 100% owned subsidiary of Cedar Fair (other than Cedar Canada, Magnum and Millennium), the guarantors (on a combined basis), as of September 23, 2018, December 31, 2017, and September 24, 2017 and for the three- and nine-month periods ended September 23, 2018 and September 24, 2017. In lieu of providing separate unaudited financial statements for the guarantor subsidiaries, the accompanying unaudited condensed consolidating financial statements have been included.
27
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
September 23, 2018
(In thousands)
Cedar Fair L.P. (Parent) | Co-Issuer Subsidiary (Magnum) | Co-Issuer Subsidiary (Cedar Canada) | Co-Issuer Subsidiary (Millennium) | Guarantor Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | 77,878 | $ | 115,323 | $ | 1,188 | $ | (3,633 | ) | $ | 190,756 | |||||||||||||
Receivables | — | 991 | 47,193 | 36,711 | 858,552 | (885,049 | ) | 58,398 | ||||||||||||||||||||
Inventories | — | — | 2,260 | 28,205 | 6,084 | — | 36,549 | |||||||||||||||||||||
Other current assets | 293 | 1,170 | 3,594 | 15,871 | 3,675 | (2,728 | ) | 21,875 | ||||||||||||||||||||
293 | 2,161 | 130,925 | 196,110 | 869,499 | (891,410 | ) | 307,578 | |||||||||||||||||||||
Property and Equipment, net | — | 811 | 178,522 | — | 1,409,366 | — | 1,588,699 | |||||||||||||||||||||
Investment in Park | 648,414 | 1,205,086 | 259,710 | 1,490,666 | 246,968 | (3,850,844 | ) | — | ||||||||||||||||||||
Goodwill | 674 | — | 61,725 | 8,388 | 111,217 | — | 182,004 | |||||||||||||||||||||
Other Intangibles, net | — | — | 13,763 | — | 23,368 | — | 37,131 | |||||||||||||||||||||
Deferred Tax Asset | — | 19,870 | — | — | — | (19,870 | ) | — | ||||||||||||||||||||
Other Assets | 1,197 | 2,926 | 39 | 312 | 9,062 | — | 13,536 | |||||||||||||||||||||
$ | 650,578 | $ | 1,230,854 | $ | 644,684 | $ | 1,695,476 | $ | 2,669,480 | $ | (4,762,124 | ) | $ | 2,128,948 | ||||||||||||||
LIABILITIES AND PARTNERS’ EQUITY | ||||||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||||||
Current maturities of long-term debt | $ | — | $ | 656 | $ | — | $ | 3,094 | $ | — | $ | — | $ | 3,750 | ||||||||||||||
Accounts payable | 553,952 | 334,696 | 2,868 | 23,330 | 6,825 | (888,682 | ) | 32,989 | ||||||||||||||||||||
Deferred revenue | — | — | 9,397 | 66,342 | 26,587 | — | 102,326 | |||||||||||||||||||||
Accrued interest | 113 | 75 | 7,601 | 14,104 | — | — | 21,893 | |||||||||||||||||||||
Accrued taxes | 1,551 | 38,538 | — | 9,569 | 1,442 | (2,728 | ) | 48,372 | ||||||||||||||||||||
Accrued salaries, wages and benefits | — | 28,162 | 2,416 | — | — | — | 30,578 | |||||||||||||||||||||
Self-insurance reserves | — | 10,459 | 1,635 | 11,856 | 1,973 | — | 25,923 | |||||||||||||||||||||
Other accrued liabilities | 3,292 | 6,796 | 585 | 6,937 | 4,622 | — | 22,232 | |||||||||||||||||||||
558,908 | 419,382 | 24,502 | 135,232 | 41,449 | (891,410 | ) | 288,063 | |||||||||||||||||||||
Deferred Tax Liability | — | — | 12,562 | — | 81,945 | (19,870 | ) | 74,637 | ||||||||||||||||||||
Other Liabilities | — | 968 | 390 | 3,304 | 11,630 | — | 16,292 | |||||||||||||||||||||
Long-Term Debt: | ||||||||||||||||||||||||||||
Term debt | — | 126,800 | — | 594,046 | — | — | 720,846 | |||||||||||||||||||||
Notes | — | — | 445,846 | 491,594 | — | — | 937,440 | |||||||||||||||||||||
— | 126,800 | 445,846 | 1,085,640 | — | — | 1,658,286 | ||||||||||||||||||||||
Equity | 91,670 | 683,704 | 161,384 | 471,300 | 2,534,456 | (3,850,844 | ) | 91,670 | ||||||||||||||||||||
$ | 650,578 | $ | 1,230,854 | $ | 644,684 | $ | 1,695,476 | $ | 2,669,480 | $ | (4,762,124 | ) | $ | 2,128,948 | ||||||||||||||
28
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2017
(In thousands)
Cedar Fair L.P. (Parent) | Co-Issuer Subsidiary (Magnum) | Co-Issuer Subsidiary (Cedar Canada) | Co-Issuer Subsidiary (Millennium) | Guarantor Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | 85,758 | $ | 80,430 | $ | 1,152 | $ | (1,095 | ) | $ | 166,245 | |||||||||||||
Receivables | — | 1,184 | 15,574 | 26,130 | 831,075 | (836,241 | ) | 37,722 | ||||||||||||||||||||
Inventories | — | — | 1,891 | 22,528 | 5,300 | — | 29,719 | |||||||||||||||||||||
Other current assets | 164 | 28,297 | 3,454 | 9,341 | 1,642 | (29,601 | ) | 13,297 | ||||||||||||||||||||
164 | 29,481 | 106,677 | 138,429 | 839,169 | (866,937 | ) | 246,983 | |||||||||||||||||||||
Property and Equipment, net | — | 835 | 181,673 | — | 1,403,264 | — | 1,585,772 | |||||||||||||||||||||
Investment in Park | 588,684 | 1,045,640 | 238,132 | 1,392,761 | 234,237 | (3,499,454 | ) | — | ||||||||||||||||||||
Goodwill | 674 | — | 63,551 | 8,387 | 111,218 | — | 183,830 | |||||||||||||||||||||
Other Intangibles, net | — | — | 14,177 | — | 23,887 | — | 38,064 | |||||||||||||||||||||
Deferred Tax Asset | — | 20,956 | — | — | — | (20,956 | ) | — | ||||||||||||||||||||
Other Assets | — | — | 40 | 402 | 9,068 | — | 9,510 | |||||||||||||||||||||
$ | 589,522 | $ | 1,096,912 | $ | 604,250 | $ | 1,539,979 | $ | 2,620,843 | $ | (4,387,347 | ) | $ | 2,064,159 | ||||||||||||||
LIABILITIES AND PARTNERS’ EQUITY | ||||||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||||||
Accounts payable | $ | 497,558 | $ | 344,410 | $ | 1,379 | $ | 13,572 | $ | 5,038 | $ | (837,336 | ) | $ | 24,621 | |||||||||||||
Deferred revenue | — | — | 6,237 | 59,307 | 20,587 | — | 86,131 | |||||||||||||||||||||
Accrued interest | 27 | 18 | 2,055 | 6,024 | — | — | 8,124 | |||||||||||||||||||||
Accrued taxes | 352 | — | — | 6,176 | 67,048 | (29,601 | ) | 43,975 | ||||||||||||||||||||
Accrued salaries, wages and benefits | — | 17,498 | 1,242 | — | — | — | 18,740 | |||||||||||||||||||||
Self-insurance reserves | — | 10,947 | 1,618 | 10,156 | 2,386 | — | 25,107 | |||||||||||||||||||||
Other accrued liabilities | 3,406 | 5,094 | 157 | 5,649 | 4,490 | — | 18,796 | |||||||||||||||||||||
501,343 | 377,967 | 12,688 | 100,884 | 99,549 | (866,937 | ) | 225,494 | |||||||||||||||||||||
Deferred Tax Liability | — | — | 13,809 | — | 81,945 | (20,956 | ) | 74,798 | ||||||||||||||||||||
Derivative Liability | 5,233 | 3,489 | — | — | — | — | 8,722 | |||||||||||||||||||||
Other Liabilities | — | 873 | — | 120 | 10,691 | — | 11,684 | |||||||||||||||||||||
Long-Term Debt: | ||||||||||||||||||||||||||||
Term debt | — | 127,437 | — | 596,351 | — | — | 723,788 | |||||||||||||||||||||
Notes | — | — | 445,156 | 491,571 | — | — | 936,727 | |||||||||||||||||||||
— | 127,437 | 445,156 | 1,087,922 | — | — | 1,660,515 | ||||||||||||||||||||||
Equity | 82,946 | 587,146 | 132,597 | 351,053 | 2,428,658 | (3,499,454 | ) | 82,946 | ||||||||||||||||||||
$ | 589,522 | $ | 1,096,912 | $ | 604,250 | $ | 1,539,979 | $ | 2,620,843 | $ | (4,387,347 | ) | $ | 2,064,159 | ||||||||||||||
29
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
September 24, 2017
(In thousands)
Cedar Fair L.P. (Parent) | Co-Issuer Subsidiary (Magnum) | Co-Issuer Subsidiary (Cedar Canada) | Co-Issuer Subsidiary (Millennium) | Guarantor Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | 92,047 | $ | 158,904 | $ | 1,689 | $ | (2,694 | ) | $ | 249,946 | |||||||||||||
Receivables | — | 1,285 | 33,158 | 32,049 | 805,545 | (819,734 | ) | 52,303 | ||||||||||||||||||||
Inventories | — | — | 2,423 | 26,158 | 5,659 | — | 34,240 | |||||||||||||||||||||
Other current assets | 275 | 12,843 | 743 | 12,874 | 3,955 | (12,066 | ) | 18,624 | ||||||||||||||||||||
275 | 14,128 | 128,371 | 229,985 | 816,848 | (834,494 | ) | 355,113 | |||||||||||||||||||||
Property and Equipment, net | — | 842 | 183,205 | — | 1,396,463 | — | 1,580,510 | |||||||||||||||||||||
Investment in Park | 566,548 | 1,016,857 | 224,464 | 1,370,295 | 222,953 | (3,401,117 | ) | — | ||||||||||||||||||||
Goodwill | 674 | — | 64,730 | 8,388 | 111,218 | — | 185,010 | |||||||||||||||||||||
Other Intangibles, net | — | — | 14,443 | — | 24,089 | — | 38,532 | |||||||||||||||||||||
Deferred Tax Asset | — | 32,190 | — | — | — | (32,190 | ) | — | ||||||||||||||||||||
Other Assets | — | — | 53 | 447 | 16,907 | — | 17,407 | |||||||||||||||||||||
$ | 567,497 | $ | 1,064,017 | $ | 615,266 | $ | 1,609,115 | $ | 2,588,478 | $ | (4,267,801 | ) | $ | 2,176,572 | ||||||||||||||
LIABILITIES AND PARTNERS’ EQUITY | ||||||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||||||
Accounts payable | $ | 478,416 | $ | 345,150 | $ | 6,431 | $ | 21,094 | $ | 5,047 | $ | (822,428 | ) | $ | 33,710 | |||||||||||||
Deferred revenue | — | — | 6,876 | 53,120 | 23,344 | — | 83,340 | |||||||||||||||||||||
Accrued interest | 292 | 195 | 9,209 | 14,232 | — | — | 23,928 | |||||||||||||||||||||
Accrued taxes | 1,589 | — | 14,910 | 9,024 | 65,200 | (12,066 | ) | 78,657 | ||||||||||||||||||||
Accrued salaries, wages and benefits | — | 28,306 | 2,360 | — | — | — | 30,666 | |||||||||||||||||||||
Self-insurance reserves | — | 12,090 | 1,725 | 11,525 | 2,209 | — | 27,549 | |||||||||||||||||||||
Other accrued liabilities | 2,985 | 7,772 | 499 | 4,722 | 4,584 | — | 20,562 | |||||||||||||||||||||
483,282 | 393,513 | 42,010 | 113,717 | 100,384 | (834,494 | ) | 298,412 | |||||||||||||||||||||
Deferred Tax Liability | — | — | 19,511 | — | 125,350 | (32,190 | ) | 112,671 | ||||||||||||||||||||
Derivative Liability | 8,933 | 5,916 | — | — | — | — | 14,849 | |||||||||||||||||||||
Other Liabilities | — | 1,398 | 261 | 2,081 | 11,992 | — | 15,732 | |||||||||||||||||||||
Long-Term Debt: | ||||||||||||||||||||||||||||
Term debt | — | 127,402 | — | 595,983 | — | — | 723,385 | |||||||||||||||||||||
Notes | — | — | 444,874 | 491,367 | — | — | 936,241 | |||||||||||||||||||||
— | 127,402 | 444,874 | 1,087,350 | — | — | 1,659,626 | ||||||||||||||||||||||
Equity | 75,282 | 535,788 | 108,610 | 405,967 | 2,350,752 | (3,401,117 | ) | 75,282 | ||||||||||||||||||||
$ | 567,497 | $ | 1,064,017 | $ | 615,266 | $ | 1,609,115 | $ | 2,588,478 | $ | (4,267,801 | ) | $ | 2,176,572 | ||||||||||||||
30
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Three Months Ended September 23, 2018
(In thousands)
Cedar Fair L.P. (Parent) | Co-Issuer Subsidiary (Magnum) | Co-Issuer Subsidiary (Cedar Canada) | Co-Issuer Subsidiary (Millennium) | Guarantor Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
Net revenues | $ | 71,751 | $ | 182,833 | $ | 81,265 | $ | 474,711 | $ | 189,672 | $ | (336,529 | ) | $ | 663,703 | |||||||||||||
Costs and expenses: | ||||||||||||||||||||||||||||
Cost of food, merchandise and games revenues | — | — | 7,020 | 38,134 | 8,737 | — | 53,891 | |||||||||||||||||||||
Operating expenses | — | 122,455 | 20,145 | 388,158 | 12,276 | (336,529 | ) | 206,505 | ||||||||||||||||||||
Selling, general and administrative | 185 | 20,666 | 4,582 | 34,578 | 7,103 | — | 67,114 | |||||||||||||||||||||
Depreciation and amortization | — | 8 | 8,379 | — | 65,987 | — | 74,374 | |||||||||||||||||||||
Loss on impairment / retirement of fixed assets, net | — | — | — | 422 | 2,825 | — | 3,247 | |||||||||||||||||||||
185 | 143,129 | 40,126 | 461,292 | 96,928 | (336,529 | ) | 405,131 | |||||||||||||||||||||
Operating income | 71,566 | 39,704 | 41,139 | 13,419 | 92,744 | — | 258,572 | |||||||||||||||||||||
Interest (income) expense, net | 5,879 | 4,072 | 5,986 | 12,940 | (7,943 | ) | — | 20,934 | ||||||||||||||||||||
Net effect of swaps | 265 | (1,482 | ) | — | — | — | — | (1,217 | ) | |||||||||||||||||||
(Gain) loss on foreign currency | — | 15 | (13,069 | ) | — | — | — | (13,054 | ) | |||||||||||||||||||
Other (income) expense | 63 | (28,849 | ) | 1,484 | — | 27,134 | — | (168 | ) | |||||||||||||||||||
Income from investment in affiliates | (153,756 | ) | (100,629 | ) | (16,509 | ) | — | (56,985 | ) | 327,879 | — | |||||||||||||||||
Income before taxes | 219,115 | 166,577 | 63,247 | 479 | 130,538 | (327,879 | ) | 252,077 | ||||||||||||||||||||
Provision for taxes | 5,808 | 12,823 | 6,261 | 479 | 13,399 | — | 38,770 | |||||||||||||||||||||
Net income | $ | 213,307 | $ | 153,754 | $ | 56,986 | $ | — | $ | 117,139 | $ | (327,879 | ) | $ | 213,307 | |||||||||||||
Other comprehensive income (loss), (net of tax): | ||||||||||||||||||||||||||||
Cumulative foreign currency translation adjustment | (5,276 | ) | — | (5,276 | ) | — | — | 5,276 | (5,276 | ) | ||||||||||||||||||
Unrealized gain on cash flow hedging derivatives | 2,116 | 728 | — | — | — | (728 | ) | 2,116 | ||||||||||||||||||||
Other comprehensive income (loss), (net of tax) | (3,160 | ) | 728 | (5,276 | ) | — | — | 4,548 | (3,160 | ) | ||||||||||||||||||
Total comprehensive income | $ | 210,147 | $ | 154,482 | $ | 51,710 | $ | — | $ | 117,139 | $ | (323,331 | ) | $ | 210,147 | |||||||||||||
31
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Three Months Ended September 24, 2017
(In thousands)
Cedar Fair L.P. (Parent) | Co-Issuer Subsidiary (Magnum) | Co-Issuer Subsidiary (Cedar Canada) | Co-Issuer Subsidiary (Millennium) | Guarantor Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
Net revenues | $ | 69,999 | $ | 169,429 | $ | 85,963 | $ | 457,530 | $ | 189,586 | $ | (319,818 | ) | $ | 652,689 | |||||||||||||
Costs and expenses: | ||||||||||||||||||||||||||||
Cost of food, merchandise and games revenues | — | — | 7,735 | 36,301 | 8,611 | — | 52,647 | |||||||||||||||||||||
Operating expenses | — | 118,614 | 19,627 | 371,768 | 12,519 | (319,818 | ) | 202,710 | ||||||||||||||||||||
Selling, general and administrative | 327 | 21,752 | 4,539 | 36,021 | 9,024 | — | 71,663 | |||||||||||||||||||||
Depreciation and amortization | — | 9 | 7,856 | — | 62,195 | — | 70,060 | |||||||||||||||||||||
Loss on impairment / retirement of fixed assets, net | — | — | 87 | 738 | 522 | — | 1,347 | |||||||||||||||||||||
Gain on sale of investment | — | (1,877 | ) | — | — | — | — | (1,877 | ) | |||||||||||||||||||
327 | 138,498 | 39,844 | 444,828 | 92,871 | (319,818 | ) | 396,550 | |||||||||||||||||||||
Operating income | 69,672 | 30,931 | 46,119 | 12,702 | 96,715 | — | 256,139 | |||||||||||||||||||||
Interest (income) expense, net | 4,857 | 4,305 | 6,152 | 12,167 | (6,194 | ) | — | 21,287 | ||||||||||||||||||||
Net effect of swaps | (578 | ) | (374 | ) | — | — | — | — | (952 | ) | ||||||||||||||||||
Gain on foreign currency | — | (27 | ) | (29,166 | ) | — | — | — | (29,193 | ) | ||||||||||||||||||
Other (income) expense | 62 | (26,676 | ) | 1,163 | — | 25,386 | — | (65 | ) | |||||||||||||||||||
Income from investment in affiliates | (132,699 | ) | (98,522 | ) | (16,843 | ) | — | (58,378 | ) | 306,442 | — | |||||||||||||||||
Income before taxes | 198,030 | 152,225 | 84,813 | 535 | 135,901 | (306,442 | ) | 265,062 | ||||||||||||||||||||
Provision for taxes | 6,715 | 19,526 | 26,432 | 535 | 20,539 | — | 73,747 | |||||||||||||||||||||
Net income | $ | 191,315 | $ | 132,699 | $ | 58,381 | $ | — | $ | 115,362 | $ | (306,442 | ) | $ | 191,315 | |||||||||||||
Other comprehensive income (loss), (net of tax): | ||||||||||||||||||||||||||||
Cumulative foreign currency translation adjustment | (11,143 | ) | — | (11,143 | ) | — | — | 11,143 | (11,143 | ) | ||||||||||||||||||
Unrealized gain on cash flow hedging derivatives | 1,994 | 605 | — | — | — | (605 | ) | 1,994 | ||||||||||||||||||||
Other comprehensive income (loss), (net of tax) | (9,149 | ) | 605 | (11,143 | ) | — | — | 10,538 | (9,149 | ) | ||||||||||||||||||
Total comprehensive income | $ | 182,166 | $ | 133,304 | $ | 47,238 | $ | — | $ | 115,362 | $ | (295,904 | ) | $ | 182,166 | |||||||||||||
32
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Nine Months Ended September 23, 2018
(In thousands)
Cedar Fair L.P. (Parent) | Co-Issuer Subsidiary (Magnum) | Co-Issuer Subsidiary (Cedar Canada) | Co-Issuer Subsidiary (Millennium) | Guarantor Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
Net revenues | $ | 84,921 | $ | 275,214 | $ | 111,184 | $ | 807,575 | $ | 310,159 | $ | (490,307 | ) | $ | 1,098,746 | |||||||||||||
Costs and expenses: | ||||||||||||||||||||||||||||
Cost of food, merchandise and games revenues | — | — | 10,204 | 69,628 | 15,080 | — | 94,912 | |||||||||||||||||||||
Operating expenses | — | 258,162 | 40,115 | 622,643 | 32,137 | (490,307 | ) | 462,750 | ||||||||||||||||||||
Selling, general and administrative | 1,870 | 50,754 | 8,818 | 73,572 | 14,823 | — | 149,837 | |||||||||||||||||||||
Depreciation and amortization | — | 24 | 14,319 | — | 117,771 | — | 132,114 | |||||||||||||||||||||
Loss on impairment / retirement of fixed assets, net | — | — | 67 | 1,868 | 6,024 | — | 7,959 | |||||||||||||||||||||
1,870 | 308,940 | 73,523 | 767,711 | 185,835 | (490,307 | ) | 847,572 | |||||||||||||||||||||
Operating income (loss) | 83,051 | (33,726 | ) | 37,661 | 39,864 | 124,324 | — | 251,174 | ||||||||||||||||||||
Interest (income) expense, net | 16,519 | 13,031 | 17,637 | 37,539 | (22,974 | ) | — | 61,752 | ||||||||||||||||||||
Net effect of swaps | (2,266 | ) | (3,485 | ) | — | — | — | — | (5,751 | ) | ||||||||||||||||||
Loss on early debt extinguishment | — | 187 | — | 886 | — | — | 1,073 | |||||||||||||||||||||
Loss on foreign currency | — | 36 | 11,988 | — | — | — | 12,024 | |||||||||||||||||||||
Other (income) expense | 186 | (61,404 | ) | 3,270 | — | 57,573 | — | (375 | ) | |||||||||||||||||||
Income from investment in affiliates | (89,426 | ) | (74,345 | ) | (21,578 | ) | — | (22,798 | ) | 208,147 | — | |||||||||||||||||
Income before taxes | 158,038 | 92,254 | 26,344 | 1,439 | 112,523 | (208,147 | ) | 182,451 | ||||||||||||||||||||
Provision for taxes | 8,888 | 2,829 | 3,545 | 1,439 | 16,600 | — | 33,301 | |||||||||||||||||||||
Net income | $ | 149,150 | $ | 89,425 | $ | 22,799 | $ | — | $ | 95,923 | $ | (208,147 | ) | $ | 149,150 | |||||||||||||
Other comprehensive income (loss), (net of tax): | ||||||||||||||||||||||||||||
Cumulative foreign currency translation adjustment | 5,990 | — | 5,990 | — | — | (5,990 | ) | 5,990 | ||||||||||||||||||||
Unrealized gain on cash flow hedging derivatives | 6,250 | 2,085 | — | — | — | (2,085 | ) | 6,250 | ||||||||||||||||||||
Other comprehensive income (loss), (net of tax) | 12,240 | 2,085 | 5,990 | — | — | (8,075 | ) | 12,240 | ||||||||||||||||||||
Total comprehensive income | $ | 161,390 | $ | 91,510 | $ | 28,789 | $ | — | $ | 95,923 | $ | (216,222 | ) | $ | 161,390 | |||||||||||||
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CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Nine Months Ended September 24, 2017
(In thousands)
Cedar Fair L.P. (Parent) | Co-Issuer Subsidiary (Magnum) | Co-Issuer Subsidiary (Cedar Canada) | Co-Issuer Subsidiary (Millennium) | Guarantor Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
Net revenues | $ | 92,672 | $ | 262,739 | $ | 114,141 | $ | 788,737 | $ | 322,763 | $ | (487,247 | ) | $ | 1,093,805 | |||||||||||||
Costs and expenses: | ||||||||||||||||||||||||||||
Cost of food, merchandise and games revenues | — | — | 10,569 | 66,537 | 15,270 | — | 92,376 | |||||||||||||||||||||
Operating expenses | — | 248,047 | 37,701 | 616,134 | 32,744 | (487,247 | ) | 447,379 | ||||||||||||||||||||
Selling, general and administrative | 2,254 | 51,358 | 8,592 | 73,098 | 15,840 | — | 151,142 | |||||||||||||||||||||
Depreciation and amortization | — | 26 | 12,869 | — | 113,342 | — | 126,237 | |||||||||||||||||||||
Loss on impairment / retirement of fixed assets, net | — | — | 542 | 1,511 | 1,004 | — | 3,057 | |||||||||||||||||||||
Gain on sale of investment | — | (1,877 | ) | — | — | — | — | (1,877 | ) | |||||||||||||||||||
2,254 | 297,554 | 70,273 | 757,280 | 178,200 | (487,247 | ) | 818,314 | |||||||||||||||||||||
Operating income (loss) | 90,418 | (34,815 | ) | 43,868 | 31,457 | 144,563 | — | 275,491 | ||||||||||||||||||||
Interest (income) expense, net | 18,285 | 13,893 | 18,317 | 26,747 | (15,169 | ) | — | 62,073 | ||||||||||||||||||||
Net effect of swaps | 2,162 | 1,555 | — | — | — | — | 3,717 | |||||||||||||||||||||
Loss on early debt extinguishment | 11,773 | 8,188 | 198 | 2,956 | — | — | 23,115 | |||||||||||||||||||||
Gain on foreign currency | — | (27 | ) | (35,020 | ) | — | — | — | (35,047 | ) | ||||||||||||||||||
Other (income) expense | 187 | (56,623 | ) | 2,640 | — | 53,731 | — | (65 | ) | |||||||||||||||||||
Income from investment in affiliates | (108,835 | ) | (109,414 | ) | (24,389 | ) | — | (58,648 | ) | 301,286 | — | |||||||||||||||||
Income before taxes | 166,846 | 107,613 | 82,122 | 1,754 | 164,649 | (301,286 | ) | 221,698 | ||||||||||||||||||||
Provision (benefit) for taxes | 8,917 | (1,223 | ) | 23,473 | 1,754 | 30,848 | — | 63,769 | ||||||||||||||||||||
Net income | $ | 157,929 | $ | 108,836 | $ | 58,649 | $ | — | $ | 133,801 | $ | (301,286 | ) | $ | 157,929 | |||||||||||||
Other comprehensive income (loss), (net of tax): | ||||||||||||||||||||||||||||
Cumulative foreign currency translation adjustment | (13,085 | ) | — | (13,085 | ) | — | — | 13,085 | (13,085 | ) | ||||||||||||||||||
Unrealized gain on cash flow hedging derivatives | 5,981 | 1,816 | — | — | — | (1,816 | ) | 5,981 | ||||||||||||||||||||
Other comprehensive income (loss), (net of tax) | (7,104 | ) | 1,816 | (13,085 | ) | — | — | 11,269 | (7,104 | ) | ||||||||||||||||||
Total comprehensive income | $ | 150,825 | $ | 110,652 | $ | 45,564 | $ | — | $ | 133,801 | $ | (290,017 | ) | $ | 150,825 | |||||||||||||
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CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 23, 2018
(In thousands)
Cedar Fair L.P. (Parent) | Co-Issuer Subsidiary (Magnum) | Co-Issuer Subsidiary (Cedar Canada) | Co-Issuer Subsidiary (Millennium) | Guarantor Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
NET CASH FROM OPERATING ACTIVITIES | $ | 95,426 | $ | 13,190 | $ | 41,319 | $ | 136,066 | $ | 51,939 | $ | (3,506 | ) | $ | 334,434 | |||||||||||||
CASH FLOWS FOR INVESTING ACTIVITIES | ||||||||||||||||||||||||||||
Intercompany receivables (payments) receipts | — | — | (31,877 | ) | — | (21,515 | ) | 53,392 | — | |||||||||||||||||||
Capital expenditures | — | — | (16,355 | ) | (98,973 | ) | (30,388 | ) | — | (145,716 | ) | |||||||||||||||||
Net cash for investing activities | — | — | (48,232 | ) | (98,973 | ) | (51,903 | ) | 53,392 | (145,716 | ) | |||||||||||||||||
CASH FLOWS FOR FINANCING ACTIVITIES | ||||||||||||||||||||||||||||
Intercompany payables (payments) receipts | 56,394 | (3,002 | ) | — | — | — | (53,392 | ) | — | |||||||||||||||||||
Distributions paid to partners | (151,820 | ) | — | — | — | — | 968 | (150,852 | ) | |||||||||||||||||||
Payment of debt issuance costs and original issue discount | — | (321 | ) | — | (2,200 | ) | — | — | (2,521 | ) | ||||||||||||||||||
Exercise of limited partnership unit options | — | 125 | — | — | — | — | 125 | |||||||||||||||||||||
Tax effect of units involved in treasury unit transactions | — | (3,049 | ) | — | — | — | — | (3,049 | ) | |||||||||||||||||||
Payments related to tax withholding for equity compensation | — | (6,943 | ) | — | — | — | — | (6,943 | ) | |||||||||||||||||||
Net cash for financing activities | (95,426 | ) | (13,190 | ) | — | (2,200 | ) | — | (52,424 | ) | (163,240 | ) | ||||||||||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | — | — | (967 | ) | — | — | — | (967 | ) | |||||||||||||||||||
CASH AND CASH EQUIVALENTS | ||||||||||||||||||||||||||||
Net increase (decrease) for the period | — | — | (7,880 | ) | 34,893 | 36 | (2,538 | ) | 24,511 | |||||||||||||||||||
Balance, beginning of period | — | — | 85,758 | 80,430 | 1,152 | (1,095 | ) | 166,245 | ||||||||||||||||||||
Balance, end of period | $ | — | $ | — | $ | 77,878 | $ | 115,323 | $ | 1,188 | $ | (3,633 | ) | $ | 190,756 | |||||||||||||
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CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 24, 2017
(In thousands)
Cedar Fair L.P. (Parent) | Co-Issuer Subsidiary (Magnum) | Co-Issuer Subsidiary (Cedar Canada) | Co-Issuer Subsidiary (Millennium) | Guarantor Subsidiaries | Eliminations | Total | ||||||||||||||||||||||
NET CASH FROM (FOR) OPERATING ACTIVITIES | $ | 61,966 | $ | (3,954 | ) | $ | 40,125 | $ | 103,553 | $ | 124,035 | $ | (3,107 | ) | $ | 322,618 | ||||||||||||
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES | ||||||||||||||||||||||||||||
Intercompany receivables (payments) receipts | — | — | — | — | (248,190 | ) | 248,190 | — | ||||||||||||||||||||
Proceeds from returns on investments | 338,000 | 15,500 | — | — | 146,500 | (500,000 | ) | — | ||||||||||||||||||||
Proceeds from sale of investment | — | 3,281 | — | — | — | — | 3,281 | |||||||||||||||||||||
Capital expenditures | — | (25 | ) | (5,679 | ) | (125,726 | ) | (21,009 | ) | — | (152,439 | ) | ||||||||||||||||
Net cash from (for) investing activities | 338,000 | 18,756 | (5,679 | ) | (125,726 | ) | (122,699 | ) | (251,810 | ) | (149,158 | ) | ||||||||||||||||
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES | ||||||||||||||||||||||||||||
Intercompany payables (payments) receipts | 50,003 | 198,187 | — | — | — | (248,190 | ) | — | ||||||||||||||||||||
Payments for returns of capital | — | — | — | (500,000 | ) | — | 500,000 | — | ||||||||||||||||||||
Term debt borrowings | — | 131,000 | — | 619,000 | — | — | 750,000 | |||||||||||||||||||||
Note borrowings | — | — | — | 500,000 | — | — | 500,000 | |||||||||||||||||||||
Term debt payments | — | (126,619 | ) | (13,854 | ) | (477,377 | ) | — | — | (617,850 | ) | |||||||||||||||||
Note payments, including amounts paid for early termination | (304,014 | ) | (211,444 | ) | — | — | — | — | (515,458 | ) | ||||||||||||||||||
Distributions paid to partners | (145,955 | ) | — | — | — | — | 1,438 | (144,517 | ) | |||||||||||||||||||
Payment of debt issuance costs | — | (1,313 | ) | — | (18,371 | ) | — | — | (19,684 | ) | ||||||||||||||||||
Tax effect of units involved in treasury unit transactions | — | (2,560 | ) | — | — | — | — | (2,560 | ) | |||||||||||||||||||
Payments related to tax withholding for equity compensation | — | (2,053 | ) | — | — | — | — | (2,053 | ) | |||||||||||||||||||
Net cash from (for) financing activities | (399,966 | ) | (14,802 | ) | (13,854 | ) | 123,252 | — | 253,248 | (52,122 | ) | |||||||||||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | — | — | 5,892 | — | — | — | 5,892 | |||||||||||||||||||||
CASH AND CASH EQUIVALENTS | ||||||||||||||||||||||||||||
Net increase for the period | — | — | 26,484 | 101,079 | 1,336 | (1,669 | ) | 127,230 | ||||||||||||||||||||
Balance, beginning of period | — | — | 65,563 | 57,825 | 353 | (1,025 | ) | 122,716 | ||||||||||||||||||||
Balance, end of period | $ | — | $ | — | $ | 92,047 | $ | 158,904 | $ | 1,689 | $ | (2,694 | ) | $ | 249,946 | |||||||||||||
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business Overview:
We generate our revenues from sales of (1) admission to our amusement parks and water parks, (2) food, merchandise and games both inside and outside our parks, and (3) accommodations, extra-charge products, and other revenue sources. Our principal costs and expenses, which include salaries and wages, operating supplies, maintenance, advertising, utilities and insurance, are relatively fixed and do not vary significantly with attendance.
Each of our properties is overseen by a park 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 per capita 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, the Executive Vice President of Operations, Regional Vice Presidents and the park general managers.
Critical Accounting Policies:
Management’s discussion and analysis of financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which were prepared in accordance with accounting principles generally accepted in the United States of America. These principles require us to make judgments, estimates and assumptions during the normal course of business that affect the amounts reported in the unaudited condensed consolidated financial statements. Actual results could differ significantly from those estimates under different assumptions and conditions.
Management believes that judgment and estimates related to the following critical accounting policies could materially affect our consolidated financial statements:
•Impairment of Long-Lived Assets
•Goodwill and Other Intangible Assets
•Self-Insurance Reserves
•Revenue Recognition
• | Income Taxes |
We adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09") effective January 1, 2018 using the modified retrospective method. The adoption of the standard did not have a material effect on the consolidated financial statements. Our accounting policy as a result of adopting ASU 2014-09 is discussed below. There were no other changes in the above critical accounting policies from those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017 during the third quarter of 2018.
Revenue Recognition and related receivables and contract liabilities
As disclosed within the consolidated statements of operations and comprehensive income, revenues are generated from sales of (1) admission to our amusement parks and water parks, (2) food, merchandise and games both inside and outside the parks, and (3) accommodations, extra-charge products, and other revenue sources. Admission revenues include amounts paid to gain admission into our parks, including parking fees. Revenues related to extra-charge products, including premium benefit offerings such as front-of-line products, and online advanced purchase 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 are generated during an approximate 130- to 140-day operating season. Most revenues are recognized on a daily basis based on actual guest spend at the 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 our guests, typically food and merchandise, and we act as an agent, resulting in net revenue recorded within the income statement. 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" within the income statement, are recognized over the park operating season which represents the period in which the performance obligations are satisfied. Sponsorship revenues are typically fixed. However,
37
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. For additional information on our revenue recognition and related receivables and contract liabilities, see Note 1.
Income Taxes
The Tax Cuts and Jobs Act (the "Act") was signed into law on December 22, 2017. The Act makes significant changes to U.S. tax law and, among other things, reduces federal corporate tax rates from 35% to 21%. The accounting treatment of these tax law changes is complex, and the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain tax effects of the Act. We recognized the provisional tax impacts related to the reduction in tax rates including the revaluation of deferred tax assets and liabilities in our consolidated financial statements for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory or accounting guidance that may be issued, and actions the Partnership may take as a result of the Act. We expect to complete our analysis of the effects of the Act within the measurement period in accordance with SAB 118.
Adjusted EBITDA:
We believe that Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, other non-cash items, and adjustments as defined in the Amended 2017 Credit Agreement and prior credit agreements) 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 generally accepted accounting principles. 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 income for the three- and nine-month periods ended September 23, 2018 and September 24, 2017.
Three months ended | Nine months ended | ||||||||||||||
(In thousands) | 9/23/2018 | 9/24/2017 | 9/23/2018 | 9/24/2017 | |||||||||||
Net income | $ | 213,307 | $ | 191,315 | $ | 149,150 | $ | 157,929 | |||||||
Interest expense | 21,464 | 21,638 | 62,563 | 62,472 | |||||||||||
Interest income | (530 | ) | (351 | ) | (811 | ) | (399 | ) | |||||||
Provision for taxes | 38,770 | 73,747 | 33,301 | 63,769 | |||||||||||
Depreciation and amortization | 74,374 | 70,060 | 132,114 | 126,237 | |||||||||||
EBITDA | 347,385 | 356,409 | 376,317 | 410,008 | |||||||||||
Loss on early debt extinguishment | — | — | 1,073 | 23,115 | |||||||||||
Net effect of swaps | (1,217 | ) | (952 | ) | (5,751 | ) | 3,717 | ||||||||
Non-cash foreign currency (gain) loss | (13,064 | ) | (29,156 | ) | 12,026 | (34,985 | ) | ||||||||
Non-cash equity compensation expense | 1,906 | 3,126 | 8,054 | 9,728 | |||||||||||
Loss on impairment / retirement of fixed assets, net | 3,247 | 1,347 | 7,959 | 3,057 | |||||||||||
Gain on sale of investment | — | (1,877 | ) | — | (1,877 | ) | |||||||||
Employment practice litigation costs | — | 4,696 | — | 4,696 | |||||||||||
Other (1) | (120 | ) | 49 | (27 | ) | 397 | |||||||||
Adjusted EBITDA | $ | 338,137 | $ | 333,642 | $ | 399,651 | $ | 417,856 | |||||||
(1) | Consists of certain costs as defined in the Partnership's Amended 2017 Credit Agreement and prior credit agreements. These items are excluded in the calculation of Adjusted EBITDA and have included certain legal expenses, costs associated with certain ride abandonment or relocation expenses, and severance expenses. This balance also includes unrealized gains and losses on short-term investments. |
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Results of Operations:
We believe the following are significant measures in the structure of our management and operational reporting, and they are used as major factors in key operational decisions:
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, divided by total attendance.
Out-of-park revenues are defined as revenues from resort, marina, sponsorship, online advanced purchase transaction fees charged to customers and all other out-of-park operations.
Both in-park per capita spending and out-of-park revenues exclude amounts remitted for concessionaire arrangements.
Nine months ended September 23, 2018
The fiscal nine-month period ended September 23, 2018 included a total of 1,710 operating days compared with 1,722 operating days for the fiscal nine-month period ended September 24, 2017. The following table presents key financial information for the nine months ended September 23, 2018 and September 24, 2017:
Nine months ended | Nine months ended | Increase (Decrease) | |||||||||||||
9/23/2018 | 9/24/2017 | $ | % | ||||||||||||
(Amounts in thousands, except for per capita spending) | |||||||||||||||
Net revenues | $ | 1,098,746 | $ | 1,093,805 | $ | 4,941 | 0.5 | % | |||||||
Operating costs and expenses | 707,499 | 690,897 | 16,602 | 2.4 | % | ||||||||||
Depreciation and amortization | 132,114 | 126,237 | 5,877 | 4.7 | % | ||||||||||
Loss on impairment / retirement of fixed assets, net | 7,959 | 3,057 | 4,902 | N/M | |||||||||||
Gain on sale of investment | — | (1,877 | ) | 1,877 | N/M | ||||||||||
Operating income | $ | 251,174 | $ | 275,491 | $ | (24,317 | ) | (8.8 | )% | ||||||
N/M - Not meaningful | |||||||||||||||
Other Data: | |||||||||||||||
Adjusted EBITDA (1) | $ | 399,651 | $ | 417,856 | $ | (18,205 | ) | (4.4 | )% | ||||||
Adjusted EBITDA margin (2) | 36.4 | % | 38.2 | % | — | (1.8 | )% | ||||||||
Attendance | 21,026 | 21,293 | (267 | ) | (1.3 | )% | |||||||||
In-park per capita spending | $ | 47.80 | $ | 47.24 | $ | 0.56 | 1.2 | % | |||||||
Out-of-park revenues | $ | 126,306 | $ | 120,165 | $ | 6,141 | 5.1 | % | |||||||
(1) | For additional information regarding Adjusted EBITDA, including how we define and use Adjusted EBITDA, as well as a reconciliation to net income, see page 38. |
(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 nine months ended September 23, 2018, net revenues increased by $4.9 million, to $1,098.7 million, from $1,093.8 million for the first nine months of 2017. This reflects a $6.1 million increase in out-of-park revenues and a $0.56 increase in in-park per capita spending offset by the impact of a 267,000-visit decrease in attendance. The increase in out-of-park revenues was attributable to increases in resort property revenues driven by higher occupancy rates and an increase in average daily room rates, particularly at Cedar Point. The increase in in-park per capita spending was attributable to higher revenues from our food and beverage programs, extra charge attractions and merchandise. The increase was somewhat offset by a decrease in admission spending due to a higher season pass attendance mix and the expansion of our free season pass program for guests aged 3 to 5 ("Pre-K pass") to three more parks in 2018 for a total of six properties. The decrease in attendance was driven by the impact of inclement weather at our seasonal amusement parks, a decline in season pass sales at Kings Island, and a delayed ride opening at California's Great America. The decrease in attendance largely occurred during the first seven months of 2018 and was partially offset by attendance growth in the months of August and September. The increase in net revenues was net of a $1.8 million unfavorable impact of foreign currency exchange related to our Canadian park.
39
Operating costs and expenses for the nine months ended September 23, 2018 increased 2.4%, or $16.6 million, to $707.5 million from $690.9 million for the first nine months of 2017. The increase was the result of a $15.4 million increase in operating expenses and a $2.5 million increase in cost of goods sold offset by a $1.3 million decrease in SG&A expense. Operating expenses grew by $15.4 million primarily due to increased seasonal wages which were driven by planned hourly rate increases. The increase in operating expenses was also attributable to increased full-time and maintenance labor driven by both planned head count and rate increases, increased employee health benefit claims, and increased operating supplies for personnel related costs including associate housing. We expect to continue to see higher labor costs during the fourth quarter due to both mandated and market wage rate adjustments. The $2.5 million increase in cost of goods sold was primarily related to the growth in our food and beverage programs. Cost of goods sold as a percentage of food, merchandise, and games net revenue was comparable for both periods. The $1.3 million decrease in SG&A expense was primarily attributable to a prior year reserve established for an employment practice claim offset by increased technology related costs and higher merchant fees. The increase in operating costs and expenses was net of an $0.8 million favorable impact of foreign currency exchange related to our Canadian park.
Depreciation and amortization expense for the first nine months of 2018 increased $5.9 million compared with the same period in the prior year due to the change in the estimated useful life of a long-lived asset at Kings Island, as well as growth in capital improvements over the past several years. For the first nine months of 2018, the loss on impairment / retirement of fixed assets was $8.0 million compared with $3.1 million in the prior period. The increase was attributable to the retirement of a specific asset in the second quarter of 2018 and the impairment of two specific assets in the third quarter of 2018. During the third quarter of 2017, a $1.9 million gain on sale of investment was recognized for the liquidation of a preferred equity investment.
After the items above, operating income for the first nine months of 2018 decreased $24.3 million to $251.2 million compared with operating income of $275.5 million for the first nine months of 2017.
Interest expense for the first nine months of 2018 was comparable to the same period in the prior year. We recognized a $1.1 million loss on early debt extinguishment during the first quarter of 2018 in connection with amending our 2017 Credit Agreement, as compared to a $23.1 million loss on early debt extinguishment related to our refinancing in the first half of 2017, as described in Note 5. The net effect of our swaps resulted in a benefit to earnings of $5.8 million for the first nine months of 2018 compared with a $3.7 million charge to earnings for the comparable period in 2017. The difference reflects the change in fair market value movements in our swap portfolio offset by the amortization of amounts in OCI for our de-designated swaps. During the current period, we also recognized a $12.0 million net charge to earnings for foreign currency gains and losses compared with a $35.0 million net benefit to earnings for the comparable period in 2017. Both amounts primarily represent remeasurement of the U.S.-dollar denominated debt recorded at our Canadian entity from the applicable currency to the legal entity's functional currency.
During the first nine months of 2018, a provision for taxes of $33.3 million was recorded to account for PTP taxes and income taxes on our corporate subsidiaries. This compares with a provision for taxes recorded in the first nine months of 2017 of $63.8 million. This decrease in provision for taxes relates to a decrease in pretax income from our corporate subsidiaries and the decrease in the federal statutory income tax rate resulting from the implementation of the 2017 Tax Cuts and Jobs Act.
After the items above, net income for the first nine months of 2018 totaled $149.2 million, or $2.63 per diluted limited partner unit, compared with net income of $157.9 million, or $2.79 per diluted limited partner unit, for the same period a year ago.
For the first nine months of 2018, Adjusted EBITDA decreased $18.2 million to $399.7 million from $417.9 million for the same period in 2017. The decrease in Adjusted EBITDA was attributable to lower attendance and to increased operating costs and expenses associated with labor, especially seasonal wages due to planned rate increases, operating supplies and other planned spending slightly offset by an increase in net revenues attributable to increased out-of-park revenues. Our Adjusted EBTIDA margin for the first nine months of 2018 decreased 180 basis points when compared to the same period in 2017 as a result of expense growth outpacing revenue growth.
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Three months ended September 23, 2018
The fiscal three-month period ended September 23, 2018 included a total of 956 operating days compared with 960 operating days for the fiscal three-month period ended September 24, 2017. The following table presents key financial information for the three months ended September 23, 2018 and September 24, 2017:
Three months ended | Three months ended | Increase (Decrease) | |||||||||||||
9/23/2018 | 9/24/2017 | $ | % | ||||||||||||
(Amounts in thousands, except for per capita spending) | |||||||||||||||
Net revenues | $ | 663,703 | $ | 652,689 | $ | 11,014 | 1.7 | % | |||||||
Operating costs and expenses | 327,510 | 327,020 | 490 | 0.1 | % | ||||||||||
Depreciation and amortization | 74,374 | 70,060 | 4,314 | 6.2 | % | ||||||||||
Loss on impairment / retirement of fixed assets, net | 3,247 | 1,347 | 1,900 | N/M | |||||||||||
Gain on sale of investment | — | (1,877 | ) | 1,877 | N/M | ||||||||||
Operating income | $ | 258,572 | $ | 256,139 | $ | 2,433 | 0.9 | % | |||||||
N/M - Not meaningful | |||||||||||||||
Other Data: | |||||||||||||||
Adjusted EBITDA (1) | $ | 338,137 | $ | 333,642 | $ | 4,495 | 1.3 | % | |||||||
Attendance | 12,371 | 12,428 | (57 | ) | (0.5 | )% | |||||||||
In-park per capita spending | $ | 49.47 | $ | 48.73 | $ | 0.74 | 1.5 | % | |||||||
Out-of-park revenues | $ | 70,129 | $ | 65,103 | $ | 5,026 | 7.7 | % | |||||||
(1) | For additional information regarding Adjusted EBITDA, including how we define and use Adjusted EBITDA, as well as a reconciliation to net income, see page 38. |
For the quarter ended September 23, 2018, net revenues increased by $11.0 million, to $663.7 million, from $652.7 million in the third quarter of 2017. This reflects a $0.74 increase in in-park per capita spending and a $5.0 million increase in out-of-park revenues partially offset by the impact of a 57,000-visit decrease in attendance. The increase in in-park per capita spending was attributable to higher revenues from our food and beverage programs, extra charge attractions and merchandise. This increase was somewhat offset by a decrease in admission spending due to the expansion of our Pre-K pass program to three more parks in 2018 for a total of six properties. The increase in out-of-park revenues was attributable to increases in resort property revenues driven by higher occupancy rates and an increase in average daily room rates, particularly at Cedar Point. The decrease in attendance was driven by less guest visitation in the month of July followed by attendance growth in the months of August and September compared to the same months in 2017. Inclement weather throughout July and the impact of Hurricane Florence in September contributed to the decline. The increase in net revenues was net of a $2.6 million unfavorable impact of foreign currency exchange related to our Canadian park.
Operating costs and expenses for the quarter were comparable to the prior quarter due to a $3.8 million increase in operating expenses and a $1.2 million increase in cost of goods sold offset by a $4.5 million decrease in SG&A expense. Operating expenses grew by $3.8 million primarily due to increased seasonal wages driven by planned hourly rate increases. The increase in operating expenses was also attributable to increased employee health benefit claims, and increased full-time and maintenance labor driven by both planned head count and rate increases. The $1.2 million increase in cost of goods sold was primarily related to the growth in our food and beverage programs. Cost of goods sold as a percentage of food, merchandise, and games net revenue was comparable to the prior quarter. The $4.5 million decrease in SG&A expense was primarily attributable to a prior year reserve established for an employment practice claim. The increase in operating costs and expenses was net of a $1.5 million favorable impact of foreign currency exchange related to our Canadian park.
Depreciation and amortization expense for the quarter increased $4.3 million compared with the same period in the prior year largely due to the change in the estimated useful life of a long-lived asset at Kings Island. For the third quarter of 2018, the loss on impairment / retirement of fixed assets was $3.2 million compared with $1.3 million in the prior period. The increase was attributable to the impairment of two specific assets in the third quarter of 2018. During the third quarter of 2017, a $1.9 million gain on sale of investment was recognized for the liquidation of a preferred equity investment.
After the items above, operating income for the third quarter of 2018 increased $2.4 million to $258.6 million compared with $256.1 million for the third quarter of 2017.
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Interest expense for the third quarter of 2018 was comparable to the same period in the prior year. The net effect of our swaps resulted in a benefit to earnings of $1.2 million for the third quarter of 2018 compared with a $1.0 million benefit to earnings in the third quarter of 2017. Both amounts reflect the change in fair market value movements in our swap portfolio offset by the amortization of amounts in OCI for our de-designated swaps. During the current quarter, we also recognized a $13.1 million net benefit to earnings for foreign currency gains and losses compared with a $29.2 million net benefit to earnings for the third quarter in 2017. Both amounts primarily represent remeasurement of the U.S.-dollar denominated debt recorded at our Canadian entity from the applicable currency to the legal entity's functional currency.
During the third quarter of 2018, a provision for taxes of $38.8 million was recorded to account for PTP taxes and income taxes on our corporate subsidiaries. This compares with a provision for taxes recorded in the third quarter of 2017 of $73.7 million. This decrease in provision for taxes relates to the decrease in the federal statutory income tax rate resulting from the implementation of the 2017 Tax Cuts and Jobs Act and a decrease in pretax income from our corporate subsidiaries.
After the items above, net income for the current quarter totaled $213.3 million, or $3.76 per diluted limited partner unit, compared with net income of $191.3 million, or $3.38 per diluted limited partner unit, for the third quarter a year ago.
For the current quarter, our Adjusted EBITDA increased $4.5 million to $338.1 million from $333.6 million for the same period in 2017. The increase in Adjusted EBITDA was attributable to an increase in net revenues due to increased in-park per capita spending and out-of-park revenues combined with comparable operating costs and expenses.
October 2018
Based on preliminary results, net revenues for the ten months ended October 28, 2018 were up approximately $9 million, or 1%, to $1.25 billion when compared with the ten months ended October 29, 2017. The increase was the result of a 1% increase in in-park per capita spending and a 5% increase in out-of-park revenues, offset slightly by a 1% decline in attendance compared with the prior period.
Liquidity and Capital Resources:
With respect to both liquidity and cash flow, we ended the third quarter of 2018 in sound condition. The working capital ratio (current assets divided by current liabilities) of 1.1 as of September 23, 2018 is the result of normal seasonal activity. Receivables, inventories and payables are at normal seasonal levels. There was a $59.2 million decrease in cash and cash equivalents as of September 23, 2018 compared with the balance as of September 24, 2017. The net cash proceeds from our debt refinancing in the first nine months of 2017 significantly impacted the change in cash position.
Operating Activities
During the nine-month period ended September 23, 2018, net cash from operating activities was $334.4 million, an increase of $11.8 million compared with the same period a year ago.
Investing Activities
Net cash for investing activities for the first nine months of 2018 was $145.7 million, a decrease of $3.4 million compared with the same period in the prior year. This decrease reflects less planned capital expenditures in the current period offset by prior period proceeds from the sale of a preferred equity investment in a non-public entity.
Financing Activities
Net cash for financing activities for the first nine months of 2018 was $163.2 million, an increase of $111.1 million compared with the same period in the prior year. This increase is primarily due to incremental term debt borrowings in the prior year from the April 2017 refinancing.
As of September 23, 2018, our outstanding debt, before reduction for debt issuance costs and original issue discount, consisted of the following:
• | $500 million of 5.375% senior unsecured notes, maturing in April 2027, issued at par. Prior to April 15, 2020, up to 35% of the notes may be redeemed with net cash proceeds of certain equity offerings at a price equal to 105.375% of the principal amount thereof, together with accrued and unpaid interest and additional interest, if any. The 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, if any, to the redemption date. Thereafter, the notes may be redeemed, in whole or in part, at various prices depending on the date redeemed. The notes pay interest semi-annually in April and October. |
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• | $450 million of 5.375% senior unsecured notes, maturing in June 2024, issued at par. The notes may be redeemed, in whole or in part, at any time prior to June 1, 2019 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, if any, to the redemption date. Thereafter, the notes may be redeemed, in whole or in part, at various prices depending on the date redeemed. The notes pay interest semi-annually in June and December. |
• | $735 million of senior secured term debt, maturing in April 2024 under our Amended 2017 Credit Agreement. The term debt bears interest at the London InterBank Offering Rate ("LIBOR") plus 175 basis points (bps), under amendments we entered into on March 14, 2018. The pricing terms for the amendment reflected $0.9 million of Original Issue Discount ("OID"). The term loan amortizes $7.5 million annually. We have $3.8 million of current maturities as of September 23, 2018. |
• | No borrowings under the $275 million senior secured revolving credit facility under our Amended 2017 Credit Agreement with a Canadian sub-limit of $15 million. Borrowings under the senior secured revolving credit facility bear interest at LIBOR or Canadian Dollar Offered Rate ("CDOR") plus 200 bps. The revolving credit facility is scheduled to mature in April 2022 and also provides for the issuance of documentary and standby letters of credit. The Amended 2017 Credit Agreement requires the payment of a 37.5 bps commitment fee per annum on the unused portion of the credit facilities. After letters of credit, which totaled $15.4 million as of September 23, 2018, we had $259.6 million of available borrowings under the revolving credit facility and cash on hand of $190.8 million. |
As of September 23, 2018, we have eight interest rate swap agreements that convert $500 million of variable-rate debt to a fixed rate. Four of these agreements fix our variable-rate debt at 4.39% and mature on December 31, 2020. The other four fix our variable-rate debt at 4.63% for the period December 31, 2020 through December 31, 2023. None of the interest rate swap agreements are designated as cash flow hedges. As of September 23, 2018, the fair market value of our derivatives was $4.1 million and was recorded in "Other Assets".
The Amended 2017 Credit Agreement includes a Consolidated Leverage Ratio, which if breached for any reason and not cured could result in an event of default. The ratio is set at a maximum of 5.50x Consolidated Total Debt-to-Consolidated EBITDA. As of September 23, 2018, we were in compliance with this financial condition covenant and all other financial covenants under the Amended 2017 Credit Agreement.
Our long-term debt agreements include Restricted Payment provisions. Pursuant to the terms of the indenture governing our June 2014 notes, which includes the most restrictive of these Restricted Payments provisions, we can make Restricted Payments of $60 million annually so long as no default or event of default has occurred and is continuing; and we can make additional Restricted Payments if our pro forma Total-Indebtedness-to-Consolidated-Cash-Flow Ratio is less than or equal to 5.00x.
In accordance with the Amended 2017 Credit Agreement debt provisions, on August 1, 2018, we announced the declaration of a distribution of $0.89 per limited partner unit, which was paid on September 17, 2018. Also, on October 30, 2018, we announced the declaration of a distribution of $0.925 per limited partner unit, which will be payable on December 17, 2018.
Existing credit facilities and cash flows from operations are expected to be sufficient to meet working capital needs, debt service, partnership distributions and planned capital expenditures for the foreseeable future.
Off Balance Sheet Arrangements:
We had $15.4 million in letters of credit, which are primarily in place to backstop insurance arrangements, outstanding on our revolving credit facility as of September 23, 2018. We have no other significant off-balance sheet financing arrangements.
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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. Important factors, including those listed under Item 1A in the Company’s Annual Report on Form 10-K, could adversely affect our future financial performance 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks from fluctuations in interest rates, and to a lesser extent on 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 through the use of a combination of fixed-rate long-term debt, interest rate swaps that fix a portion of 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 or were de-designated are reported as "Net effect of swaps" in the unaudited condensed consolidated statements of operations and comprehensive income. Additionally, the "Other comprehensive income (loss)" related to interest rate swaps that have been de-designated is amortized through the original maturity of the interest rate swap and reported as a component of "Net effect of swaps" in the unaudited condensed consolidated statements of operations and comprehensive income.
As of September 23, 2018, on an adjusted basis after giving affect to the impact of interest rate swap agreements, $1,450 million of our outstanding long-term debt represented fixed-rate debt and $235 million represented variable-rate debt. Assuming an average balance on our revolving credit borrowings of approximately $13.2 million, a hypothetical 100 bps increase in 30-day LIBOR on our variable-rate debt (not considering the impact of our interest rate swaps) would lead to an increase of approximately $7.5 million in annual cash interest costs.
Assuming a hypothetical 100 bps increase in 30-day LIBOR, the amount of net cash interest paid on our derivative portfolio would decrease by $5.0 million over the next twelve months.
A uniform 10% strengthening of the U.S. dollar relative to the Canadian dollar would result in a $3.4 million decrease in annual operating income.
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ITEM 4. CONTROLS AND PROCEDURES
(a)Evaluation of Disclosure Controls and Procedures -
We maintain a system of controls and procedures designed to ensure that information required to be disclosed by us in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Commission and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of September 23, 2018, management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 23, 2018.
(b)Changes in Internal Control Over Financial Reporting -
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended September 23, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Freddie Ramos vs. Cedar Fair, L.P., Cedar Fair Management Company
The Partnership and Cedar Fair Management, Inc. are defendants in a lawsuit filed in Superior Court of the State of California for Orange County on November 23, 2016 by Freddie Ramos seeking damages and injunctive relief for claims related to certain employment and pay practices at our parks in California, including those related to certain check-out, time reporting, discharge, meal and rest period, and pay statement practices. The Partnership filed an answer on January 13, 2017 denying the allegations in the complaint and requesting a dismissal of all claims. On January 17, 2017, the Partnership filed a Notice of Removal of the case from the state court to the United State District Court for the Central District of California. The class has not been certified. On August 29, 2017, the Partnership participated in a mediation relating to the claims alleged in the lawsuit. Following this mediation, the Partnership negotiated a $4.2 million settlement with the named Plaintiff on a class wide basis. As part of the settlement, the case will be remanded back to the Superior Court of the State of California for Orange County for a preliminary hearing and final court approval of the proposed settlement. The Partnership and the named Plaintiff are required to file a brief in support of the settlement with the court. The hearing to approve the final settlement is expected to occur in the fourth quarter of 2018. Based upon the information available, the Partnership believes the liability recorded as of September 23, 2018 is adequate and does not expect the terms of the negotiated settlement or final briefing to materially affect its financial results in future periods.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors previously disclosed in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2017.
ITEM 6. EXHIBITS
Exhibit (101) | The following materials from the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 23, 2018 formatted in Extensible Business Reporting Language (XBRL): (i) the Unaudited Condensed Consolidated Statements of Income, (ii) the Unaudited Condensed Consolidated Balance Sheets, (iii) the Unaudited Condensed Consolidated Statements of Cash Flow, (iv) the Unaudited Condensed Consolidated Statement of Equity, and (v) related notes. | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CEDAR FAIR, L.P. | |||
(Registrant) | |||
By Cedar Fair Management, Inc. | |||
General Partner | |||
Date: | October 30, 2018 | /s/ Richard A. Zimmerman | |
Richard A. Zimmerman | |||
President and Chief Executive Officer | |||
Date: | October 30, 2018 | /s/ Brian C. Witherow | |
Brian C. Witherow | |||
Executive Vice President and | |||
Chief Financial Officer | |||
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