QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
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.)
One Cedar Point Drive, Sandusky, Ohio 44870-5259
(Address of principal executive offices) (Zip Code)
(419) 626-0830
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Units Representing
Limited Partner Interests
FUN
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have been prepared from the financial records of Cedar Fair, L.P. (the Partnership) 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 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, 2018, which were included in the Form 10-K filed on February 22, 2019. 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.
Adopted Accounting Pronouncements
The Partnership adopted Accounting Standards Update No. 2016-02, Leases ("ASU 2016-02") effective January 1, 2019 using the comparative reporting approach, which requires application of the new standard at the adoption date. 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 condensed 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 significantly change the accounting applied by a lessor. The adoption of the standard resulted in the recognition of right-of-use assets and corresponding lease liabilities for the Partnership's Santa Clara land lease, as well as its other operating leases, of $73.5 million and the addition of required disclosures; see Note 11. The Partnership elected not to reassess: whether any expired or existing contracts are or contain leases; the lease classification of any expired or existing leases; and the initial direct costs for any existing leases.
(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. In 2019, six of the seasonal properties will be 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.
As disclosed within the unaudited condensed 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 transaction fees charged to customers are included in "Accommodations, extra-charge products and other".
The following table presents the Partnership's revenues disaggregated by revenues generated within the parks and revenues generated from out-of-park operations less amounts remitted to outside parties under concessionaire arrangements, described below, for the periods presented:
Three months ended
(In thousands)
March 31, 2019
March 25, 2018
In-park revenues
$
54,213
$
43,610
Out-of-park revenues
14,761
12,686
Concessionaire remittance
(1,997
)
(1,569
)
Net revenues
$
66,977
$
54,727
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 statement of operations. 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 statement of operations, 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 $107.1 million of deferred revenue recorded as of January 1, 2019, 88% was related to season-long products. The remainder was related to deferred online transaction fees charged to customers, advanced ticket sales, marina deposits, advanced resort reservations, and other deferred revenue. During the three months ended March 31, 2019, approximately $6.2 million of the deferred revenue balance as of January 1, 2019 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 first three months of 2019 for the 2019 operating season, offset by revenue recognized during the first three months of 2019.
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 March 31, 2019, December 31, 2018 and March 25, 2018, the Partnership recorded a $3.9 million, $2.6 million and $3.7 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.
(4) 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 condensed 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. The remaining Wildwater Kingdom acreage, reduced by acreage sold, is recorded within "Other Assets" in the unaudited condensed consolidated balance sheet ($9.0 million as of March 31, 2019, December 31, 2018 and March 25, 2018).
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 March 31, 2019, 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 three months ended March 31, 2019 and March 25, 2018 is as follows:
(In thousands)
Goodwill
(gross)
Accumulated
Impairment
Losses
Goodwill
(net)
Balance as of December 31, 2018
$
258,587
$
(79,868
)
$
178,719
Foreign currency translation
1,220
—
1,220
Balance as of March 31, 2019
$
259,807
$
(79,868
)
$
179,939
Balance as of December 31, 2017
$
263,698
$
(79,868
)
$
183,830
Foreign currency translation
(1,539
)
—
(1,539
)
Balance as of March 25, 2018
$
262,159
$
(79,868
)
$
182,291
As of March 31, 2019, December 31, 2018, and March 25, 2018, the Partnership’s other intangible assets consisted of the following:
(In thousands)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Value
March 31, 2019
Other intangible assets:
Trade names
$
35,665
$
—
$
35,665
License / franchise agreements
3,389
(2,412
)
977
Total other intangible assets
$
39,054
$
(2,412
)
$
36,642
December 31, 2018
Other intangible assets:
Trade names
$
35,394
$
—
$
35,394
License / franchise agreements
3,379
(2,397
)
982
Total other intangible assets
$
38,773
$
(2,397
)
$
36,376
March 25, 2018
Other intangible assets:
Trade names
$
36,188
$
—
$
36,188
License / franchise agreements
3,364
(1,842
)
1,522
Total other intangible assets
$
39,552
$
(1,842
)
$
37,710
Amortization expense of other intangible assets is expected to continue to be immaterial going forward.
Long-term debt as of March 31, 2019, December 31, 2018, and March 25, 2018 consisted of the following:
(In thousands)
March 31, 2019
December 31, 2018
March 25, 2018
Revolving credit facility (due 2022)
$
120,000
$
—
$
40,000
Term debt (1)
April 2017 U.S. term loan averaging 4.25% YTD 2019; 3.83% in 2018; 3.77% YTD 2018 (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
1,805,000
1,685,000
1,725,000
Less current portion
(7,500
)
(5,625
)
—
1,797,500
1,679,375
1,725,000
Less debt issuance costs and original issue discount
(20,925
)
(21,807
)
(24,218
)
$
1,776,575
$
1,657,568
$
1,700,782
(1)
The average interest rates do not reflect the effect of interest rate swap agreements (see Note 7).
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 $7.5 million is payable 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. As of March 31, 2019, $120.0 million was outstanding under the revolving credit facility. 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 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.
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 March 31, 2019, 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.
(7) 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 "Derivative Liability" as of March 31, 2019, December 31, 2018 and March 25, 2018 as follows:
(In thousands)
March 31, 2019
December 31, 2018
March 25, 2018
Derivatives not designated as hedging instruments:
Interest rate swaps
$
(13,083
)
$
(6,705
)
$
(2,730
)
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" within 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 were amortized into earnings through the original December 31, 2018 maturity. Therefore, all losses in AOCI related to the effective cash flow hedge contracts prior to de-designation have been reclassified into earnings as of 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 unaudited condensed consolidated statements of operations and comprehensive income for the periods presented as follows:
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 March 31, 2019, December 31, 2018, and March 25, 2018 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
March 31, 2019
December 31, 2018
March 25, 2018
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
$
492
$
492
$
511
$
511
$
901
$
901
Interest rate swaps
Derivative Liability
Level 2
$
(13,083
)
$
(13,083
)
$
(6,705
)
$
(6,705
)
$
(2,730
)
$
(2,730
)
Other financial assets (liabilities):
April 2017 term debt
Long-Term Debt (1)
Level 2
$
(727,500
)
$
(723,863
)
$
(729,375
)
$
(707,494
)
$
(735,000
)
$
(740,513
)
April 2017 notes
Long-Term Debt (1)
Level 1(2)
$
(500,000
)
$
(505,000
)
$
(500,000
)
$
(475,000
)
$
(500,000
)
$
(494,375
)
June 2014 notes
Long-Term Debt (1)
Level 1
$
(450,000
)
$
(457,875
)
$
(450,000
)
$
(441,000
)
$
(450,000
)
$
(455,625
)
(1)
Carrying values of long-term debt balances are before reductions for debt issuance costs and original issue discount of $20.9 million, $21.8 million, and $24.2 million as of March 31, 2019, December 31, 2018, and March 25, 2018, respectively.
(2)
The April 2017 notes were based on Level 1 inputs as of March 31, 2019 and December 31, 2018 and Level 2 inputs as of March 25, 2018.
Fair values of the interest rate swap agreements are determined using significant inputs, including the LIBOR forward curves, which are considered Level 2 observable market inputs.
The carrying value of cash and cash equivalents, revolving credit loans, accounts receivable, 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 March 31, 2019, December 31, 2018 or March 25, 2018.
Net loss per limited partner unit is calculated based on the following unit amounts:
Three months ended
3/31/2019
3/25/2018
(In thousands, except per unit amounts)
Basic weighted average units outstanding
56,310
56,150
Diluted weighted average units outstanding
56,310
56,150
Net loss per unit - basic
$
(1.49
)
$
(1.49
)
Net loss per unit - diluted
$
(1.49
)
$
(1.49
)
(10) 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.
The Partnership's unrecognized tax benefits, including accrued interest and penalties, were not material in any period presented. The Partnership recognizes interest and penalties related to unrecognized tax benefits as income tax expense.
(11) Lease Commitments and Contingencies:
The Partnership has commitments under various operating leases at its parks. The most significant lease commitment is for the land on which California's Great America is located in the City of Santa Clara, which has an initial term through 2039 with renewal options through 2074. During November 2018, the Partnership exercised its right of first refusal under the Santa Clara land lease to purchase the land at California's Great America from the lessor, the City of Santa Clara, for $150 million. On April 26, 2019, the Partnership entered into a purchase agreement to acquire the land. The Partnership is evaluating different options to finance the purchase and expects to close the transaction during the second quarter of 2019. Following the purchase, the Partnership anticipates its remaining operating lease commitments will be immaterial to the condensed consolidated financial statements.
As of March 31, 2019, prior to the pending acquisition of the land, the Partnership was reasonably certain to exercise renewal options under the Santa Clara land lease through the initial term, or 2039. The lease includes a fixed fee component and a variable fee component based on gross revenues. The right-of-use asset and lease liability only includes the fixed fee component. The discount rate used to calculate the right-of-use asset and lease liability as of the adoption date of the new lease standard, or January 1, 2019, represented the incremental borrowing rate if the Partnership was to acquire the land on that date. The Partnership subleases a portion of the Santa Clara land lease, specifically a portion of the parking lot, to the Santa Clara Stadium Authority which provides for certain parking rights during Levi's Stadium events. The sublease is effective through the life of the stadium, or approximately 25 years, from the opening of the stadium through 2039. The lease payments were prepaid and the corresponding sublease income is being recognized over the life of the stadium.
The Partnership has also entered into various operating leases at its parks for office space, office equipment, vehicles, and revenue-generating assets. These lease commitments are immaterial to the condensed consolidated financial statements. As a practical expedient, the Partnership recognizes lease payments for short-term leases in the statement of operations on a straight-line basis over the lease term and has elected to not separate lease components from non-lease components.
The Partnership's total lease cost and related supplemental information as of March 31, 2019 were as follows:
(In thousands, except for lease term and discount rate)
March 31, 2019
Operating lease expense
$
1,976
Variable lease expense
72
Short-term lease expense
583
Sublease income
(122
)
Total lease cost
$
2,509
Weighted-average remaining lease term
19.9 years
Weighted-average discount rate
5.0
%
Operating cash flows for operating leases
$
1,794
Leased assets obtained in exchange for new operating lease liabilities (non-cash activity)
$
74
Lease expense, which includes short-term rentals for equipment and machinery, for the three months ended March 25, 2018 totaled $3.3 million.
Future undiscounted cash flows under the Partnership's operating leases and a reconciliation to the operating lease liabilities recognized as of March 31, 2019 were as follows:
(In thousands)
March 31, 2019
Undiscounted cash flows
Remainder of 2019
$
5,836
2020
6,580
2021
5,802
2022
5,463
2023
5,374
Thereafter
85,691
Total
$
114,746
Present value of cash flows
Current lease liability
$
7,359
Lease Liability
65,399
Total
$
72,758
Difference between undiscounted cash flows and discounted cash flows
$
41,988
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.
(12) Changes in Accumulated Other Comprehensive Income by Component:
The following table reflects the changes in accumulated other comprehensive income (loss) related to limited partners' equity for the three months ended March 31, 2019 and March 25, 2018:
(In thousands)
Foreign Currency Translation
Cash Flow Hedging Derivative Activity
Total
Balance as of December 31, 2017
$
4,042
$
(7,975
)
$
(3,933
)
Other comprehensive income before reclassifications, net of tax $1,145
4,604
—
4,604
Amounts reclassified from accumulated other comprehensive income, net of tax ($347)
—
2,018
2,018
Reclassification of stranded tax effect
—
(391
)
(391
)
Balance as of March 25, 2018
$
8,646
$
(6,348
)
$
2,298
Balance as of December 31, 2018
$
21,282
$
—
$
21,282
Other comprehensive income before reclassifications, net of tax ($874)
(3,050
)
—
(3,050
)
Balance as of March 31, 2019
$
18,232
$
—
$
18,232
Reclassifications Out of Accumulated Other Comprehensive Income
(13) 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 6). 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 March 31, 2019, December 31, 2018, and March 25, 2018 and for the three-month periods ended March 31, 2019 and March 25, 2018. In lieu of providing separate unaudited financial statements for the guarantor subsidiaries, the accompanying unaudited condensed consolidating financial statements have been included.