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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 26, 2021
or
| | | | | |
| ☐ | 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 |
Depositary 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. x Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | | x | | Accelerated filer | | ☐ |
| Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
| | | | | | | | |
| Title of Class | | Units Outstanding as of October 29, 2021 |
| Depositary Units (Representing Limited Partner Interests) | | 56,842,303 |
Page 1 of 33 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)
| | | | | | | | | | | | | | | | | | | | |
| | | September 26, 2021 | | December 31, 2020 | | September 27, 2020 |
| ASSETS | | | | | | |
| Current Assets: | | | | | | |
| Cash and cash equivalents | | $ | 562,661 | | | $ | 376,736 | | | $ | 225,470 | |
| Receivables | | 61,749 | | | 34,445 | | | 40,305 | |
| Inventories | | 36,861 | | | 47,479 | | | 50,733 | |
| | | | | | |
| Current income tax receivable | | 63,178 | | | 69,104 | | | 6,208 | |
| Other current assets | | 23,922 | | | 26,747 | | | 17,794 | |
| | 748,371 | | | 554,511 | | | 340,510 | |
| Property and Equipment: | | | | | | |
| Land | | 443,001 | | | 442,708 | | | 438,893 | |
| Land improvements | | 485,435 | | | 467,176 | | | 463,838 | |
| Buildings | | 857,610 | | | 849,404 | | | 832,067 | |
| Rides and equipment | | 1,994,977 | | | 1,962,324 | | | 1,954,787 | |
| Construction in progress | | 44,415 | | | 75,507 | | | 83,472 | |
| | 3,825,438 | | | 3,797,119 | | | 3,773,057 | |
| Less accumulated depreciation | | (2,095,666) | | | (1,995,138) | | | (1,959,443) | |
| | 1,729,772 | | | 1,801,981 | | | 1,813,614 | |
| Goodwill | | 267,216 | | | 266,961 | | | 263,860 | |
| Other Intangibles, net | | 50,127 | | | 50,288 | | | 49,717 | |
| Right-of-Use Asset | | 14,061 | | | 13,527 | | | 13,021 | |
| Other Assets | | 4,940 | | | 6,144 | | | 20,796 | |
| | $ | 2,814,487 | | | $ | 2,693,412 | | | $ | 2,501,518 | |
| LIABILITIES AND PARTNERS’ EQUITY | | | | | | |
| Current Liabilities: | | | | | | |
| | | | | | |
| Accounts payable | | $ | 49,085 | | | $ | 14,272 | | | $ | 16,305 | |
| Deferred revenue | | 186,526 | | | 183,354 | | | 156,488 | |
| Accrued interest | | 58,919 | | | 33,718 | | | 50,666 | |
| Accrued taxes | | 14,706 | | | 10,775 | | | 13,307 | |
| Accrued salaries, wages and benefits | | 63,641 | | | 24,975 | | | 20,696 | |
| Self-insurance reserves | | 24,286 | | | 22,322 | | | 22,037 | |
| Other accrued liabilities | | 19,440 | | | 10,565 | | | 17,864 | |
| | 416,603 | | | 299,981 | | | 297,363 | |
| Deferred Tax Liability | | 47,538 | | | 39,595 | | | 2,525 | |
| Derivative Liability | | 28,504 | | | 39,086 | | | 38,713 | |
| Lease Liability | | 11,146 | | | 10,483 | | | 9,873 | |
| Non-Current Deferred Revenue | | 24,037 | | | 10,508 | | | 36,180 | |
| Other Liabilities | | 5,261 | | | 5,952 | | | 6,260 | |
| Long-Term Debt: | | | | | | |
| | | | | | |
| Term debt | | 257,559 | | | 255,025 | | | 256,358 | |
| Notes | | 2,706,484 | | | 2,699,219 | | | 2,405,576 | |
| | 2,964,043 | | | 2,954,244 | | | 2,661,934 | |
| Partners’ Deficit | | | | | | |
| Special L.P. interests | | 5,290 | | | 5,290 | | | 5,290 | |
| General partner | | (7) | | | (7) | | | (6) | |
Limited partners, 56,842, 56,706 and 56,706 units outstanding as of September 26, 2021, December 31, 2020 and September 27, 2020, respectively | | (689,662) | | | (674,319) | | | (570,922) | |
| Accumulated other comprehensive income | | 1,734 | | | 2,599 | | | 14,308 | |
| | (682,645) | | | (666,437) | | | (551,330) | |
| | $ | 2,814,487 | | | $ | 2,693,412 | | | $ | 2,501,518 | |
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per unit amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 26, 2021 | | September 27, 2020 | | September 26, 2021 | | September 27, 2020 |
| Net revenues: | | | | | | | |
| Admissions | $ | 381,777 | | | $ | 33,411 | | | $ | 480,849 | | | $ | 60,728 | |
| Food, merchandise and games | 235,619 | | | 34,462 | | | 326,810 | | | 57,269 | |
| Accommodations, extra-charge products and other | 136,008 | | | 19,584 | | | 179,624 | | | 29,681 | |
| 753,404 | | | 87,457 | | | 987,283 | | | 147,678 | |
| Costs and expenses: | | | | | | | |
| Cost of food, merchandise, and games revenues | 59,502 | | | 11,638 | | | 85,438 | | | 20,028 | |
| Operating expenses | 273,426 | | | 100,818 | | | 495,525 | | | 274,169 | |
| Selling, general and administrative | 90,863 | | | 28,145 | | | 168,279 | | | 76,681 | |
| Depreciation and amortization | 77,461 | | | 67,436 | | | 112,906 | | | 127,447 | |
| Loss on impairment / retirement of fixed assets, net | 2,397 | | | 727 | | | 5,873 | | | 8,530 | |
| Loss on impairment of goodwill and other intangibles | — | | | 15,818 | | | — | | | 103,999 | |
| Gain on sale of investment | — | | | (11) | | | (2) | | | (11) | |
| 503,649 | | | 224,571 | | | 868,019 | | | 610,843 | |
| Operating income (loss) | 249,755 | | | (137,114) | | | 119,264 | | | (463,165) | |
| Interest expense | 46,270 | | | 40,376 | | | 136,371 | | | 104,341 | |
| Net effect of swaps | (3,186) | | | (1,558) | | | (10,582) | | | 19,780 | |
| Loss on early debt extinguishment | — | | | 317 | | | 4 | | | 2,013 | |
| Loss (gain) on foreign currency | 15,163 | | | (9,567) | | | (1,741) | | | 11,984 | |
| Other income | (243) | | | (28) | | | (348) | | | (337) | |
| Income (loss) before taxes | 191,751 | | | (166,654) | | | (4,440) | | | (600,946) | |
| Provision (benefit) for taxes | 43,764 | | | (30,393) | | | 16,859 | | | (116,156) | |
| Net income (loss) | 147,987 | | | (136,261) | | | (21,299) | | | (484,790) | |
| Net income (loss) allocated to general partner | 2 | | | (1) | | | — | | | (5) | |
| Net income (loss) allocated to limited partners | $ | 147,985 | | | $ | (136,260) | | | $ | (21,299) | | | $ | (484,785) | |
| | | | | | | |
| Net income (loss) | $ | 147,987 | | | $ | (136,261) | | | $ | (21,299) | | | $ | (484,790) | |
| Other comprehensive income (loss), (net of tax): | | | | | | | |
| Foreign currency translation adjustment | 7,912 | | | (4,820) | | | (865) | | | 4,562 | |
| | | | | | | |
| Other comprehensive income (loss), (net of tax) | 7,912 | | | (4,820) | | | (865) | | | 4,562 | |
| Total comprehensive income (loss) | $ | 155,899 | | | $ | (141,081) | | | $ | (22,164) | | | $ | (480,228) | |
| Basic income (loss) per limited partner unit: | | | | | | | |
| Weighted average limited partner units outstanding | 56,628 | | | 56,497 | | | 56,601 | | | 56,469 | |
| Net income (loss) per limited partner unit | $ | 2.61 | | | $ | (2.41) | | | $ | (0.38) | | | $ | (8.58) | |
| Diluted income (loss) per limited partner unit: | | | | | | | |
| Weighted average limited partner units outstanding | 57,009 | | | 56,497 | | | 56,601 | | | 56,469 | |
| Net income (loss) per limited partner unit | $ | 2.60 | | | $ | (2.41) | | | $ | (0.38) | | | $ | (8.58) | |
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ DEFICIT
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended | Limited Partnership Units Outstanding | | Limited Partners’ Deficit | | General Partner’s Deficit | | Special L.P. Interests | | Accumulated Other Comprehensive Income (Loss) | | Total Partners’
Deficit |
| Balance as of June 28, 2020 | 56,707 | | | $ | (436,275) | | | $ | (5) | | | $ | 5,290 | | | $ | 19,128 | | | $ | (411,862) | |
| Net loss | — | | | (136,260) | | | (1) | | | — | | | — | | | (136,261) | |
| Partnership distribution declared | — | | | 2 | | | — | | | — | | | — | | | 2 | |
| Limited partnership units related to equity-based compensation | (1) | | | 1,612 | | | — | | | — | | | — | | | 1,612 | |
| Tax effect of units involved in treasury unit transactions | — | | | (1) | | | — | | | — | | | — | | | (1) | |
Foreign currency translation adjustment, net of tax $(711) | — | | | — | | | — | | | — | | | (4,820) | | | (4,820) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance as of September 27, 2020 | 56,706 | | | $ | (570,922) | | | $ | (6) | | | $ | 5,290 | | | $ | 14,308 | | | $ | (551,330) | |
| Balance as of June 27, 2021 | 56,829 | | | $ | (840,663) | | | $ | (9) | | | $ | 5,290 | | | $ | (6,178) | | | $ | (841,560) | |
| Net income | — | | | 147,985 | | | 2 | | | — | | | — | | | 147,987 | |
| | | | | | | | | | | |
| Limited partnership units related to equity-based compensation | 13 | | | 3,096 | | | — | | | — | | | — | | | 3,096 | |
| Tax effect of units involved in treasury unit transactions | — | | | (80) | | | — | | | — | | | — | | | (80) | |
Foreign currency translation adjustment, net of tax $1,083 | — | | | — | | | — | | | — | | | 7,912 | | | 7,912 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance as of September 26, 2021 | 56,842 | | | $ | (689,662) | | | $ | (7) | | | $ | 5,290 | | | $ | 1,734 | | | $ | (682,645) | |
| | | | | | | | | | | |
| For the nine months ended | Limited Partnership Units Outstanding | | Limited Partners’ Deficit | | General Partner’s Deficit | | Special L.P. Interests | | Accumulated Other Comprehensive Income (Loss) | | Total Partners’
Deficit |
| Balance as of December 31, 2019 | 56,666 | | | $ | (25,001) | | | $ | (1) | | | $ | 5,290 | | | $ | 9,746 | | | $ | (9,966) | |
| Net loss | — | | | (484,785) | | | (5) | | | — | | | — | | | (484,790) | |
Partnership distribution declared ($0.935 per unit) | — | | | (53,020) | | | — | | | — | | | — | | | (53,020) | |
| Limited partnership units related to equity-based compensation | 40 | | | (6,354) | | | — | | | — | | | — | | | (6,354) | |
| Tax effect of units involved in treasury unit transactions | — | | | (1,762) | | | — | | | — | | | — | | | (1,762) | |
Foreign currency translation adjustment, net of tax $1,201 | — | | | — | | | — | | | — | | | 4,562 | | | 4,562 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance as of September 27, 2020 | 56,706 | | | $ | (570,922) | | | $ | (6) | | | $ | 5,290 | | | $ | 14,308 | | | $ | (551,330) | |
| Balance as of December 31, 2020 | 56,706 | | | $ | (674,319) | | | $ | (7) | | | $ | 5,290 | | | $ | 2,599 | | | $ | (666,437) | |
| Net loss | — | | | (21,299) | | | — | | | — | | | — | | | (21,299) | |
| | | | | | | | | | | |
| Limited partnership units related to equity-based compensation | 136 | | | 7,597 | | | — | | | — | | | — | | | 7,597 | |
| Tax effect of units involved in treasury unit transactions | — | | | (1,641) | | | — | | | — | | | — | | | (1,641) | |
Foreign currency translation adjustment, net of tax $(145) | — | | | — | | | — | | | — | | | (865) | | | (865) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance as of September 26, 2021 | 56,842 | | | $ | (689,662) | | | $ | (7) | | | $ | 5,290 | | | $ | 1,734 | | | $ | (682,645) | |
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.
CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | |
| | Nine months ended |
| | September 26, 2021 | | September 27, 2020 |
| CASH FLOWS FROM (FOR) OPERATING ACTIVITIES | | | |
| Net loss | $ | (21,299) | | | $ | (484,790) | |
| Adjustments to reconcile net loss to net cash from (for) operating activities: | | | |
| Depreciation and amortization | 112,906 | | | 127,447 | |
| Loss on early debt extinguishment | 4 | | | 2,013 | |
| Loss on impairment of goodwill and other intangibles | — | | | 103,999 | |
| Non-cash foreign currency (gain) loss on debt | (1,930) | | | 13,647 | |
| Non-cash equity based compensation expense (benefit) | 11,910 | | | (1,842) | |
| Non-cash deferred income tax provision (benefit) | 7,779 | | | (78,296) | |
| Net effect of swaps | (10,582) | | | 19,780 | |
| Other non-cash expenses | 13,873 | | | 12,408 | |
| Changes in assets and liabilities: | | | |
| (Increase) decrease in receivables | (27,292) | | | 22,712 | |
| (Increase) decrease in inventories | 10,634 | | | (17,950) | |
| (Increase) decrease in tax receivable | 9,908 | | | (41,993) | |
| (Increase) decrease in other assets | 2,374 | | | (2,727) | |
| Increase (decrease) in accounts payable | 31,313 | | | (3,499) | |
| Increase (decrease) in deferred revenue | 16,631 | | | 32,235 | |
| Increase (decrease) in accrued interest | 25,181 | | | 29,380 | |
| Increase (decrease) in accrued salaries, wages and benefits | 38,659 | | | (8,796) | |
| Increase (decrease) in other liabilities | 10,059 | | | 820 | |
| Net cash from (for) operating activities | 230,128 | | | (275,452) | |
| CASH FLOWS FOR INVESTING ACTIVITIES | | | |
| Capital expenditures | (39,548) | | | (120,883) | |
| | | |
| Proceeds from sale of investment | 1,405 | | | 2,109 | |
| | | |
| Net cash for investing activities | (38,143) | | | (118,774) | |
| CASH FLOWS (FOR) FROM FINANCING ACTIVITIES | | | |
| | | |
| | | |
| Note borrowings | — | | | 1,000,000 | |
| Term debt payments | — | | | (465,125) | |
| | | |
| Distributions paid to partners | — | | | (53,020) | |
| Payment of debt issuance costs | (132) | | | (35,738) | |
| Payments related to tax withholding for equity compensation | (4,583) | | | (4,624) | |
| Other | (1,371) | | | (1,650) | |
| Net cash (for) from financing activities | (6,086) | | | 439,843 | |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | 26 | | | (2,399) | |
| CASH AND CASH EQUIVALENTS | | | |
| Net increase for the period | 185,925 | | | 43,218 | |
| Balance, beginning of period | 376,736 | | | 182,252 | |
| Balance, end of period | $ | 562,661 | | | $ | 225,470 | |
| SUPPLEMENTAL INFORMATION | | | |
| Cash payments for interest expense | $ | 102,682 | | | $ | 69,780 | |
| Interest capitalized | 1,457 | | | 1,961 | |
| Net cash payments for income taxes | 5,578 | | | 7,533 | |
| Capital expenditures in accounts payable | 6,560 | | | 1,146 | |
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
CEDAR FAIR, L.P.
INDEX FOR NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CEDAR FAIR, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have been prepared from the financial records of Cedar Fair, L.P. (the "Partnership," "we," "us," or "our") without audit and reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to fairly present the results of the interim periods covered in this report. Due to the seasonal nature of our amusement and water park operations, the results for any interim period may not be indicative of the results expected for the full fiscal year.
(1) Description of the Business and Significant Accounting Policies:
Impact of COVID-19 Pandemic
The novel coronavirus (COVID-19) pandemic had a material impact on our business in 2020, had a continuing negative impact in 2021 and may have a longer-term negative effect. On March 14, 2020, we closed our properties in response to the spread of COVID-19 and local government mandates. We ultimately resumed only partial operations at 10 of our 13 properties in 2020. Due to soft demand trends upon reopening in 2020, park operating calendars were adjusted, including reduced operating days per week and operating hours within each operating day. Following March 14, 2020, Knott's Berry Farm's partial operations in 2020 were limited to culinary festivals.
In May 2021, we opened all of our U.S. properties for the 2021 operating season on a staggered basis with capacity restrictions, guest reservations, and other operating protocols in place. Our 2021 operating calendars were designed to align with anticipated capacity restrictions, guest demand and labor availability, including fewer operating days in July and August at some of our smaller properties and additional operating days in September. As vaccination distribution efforts continued during the second quarter of 2021 and we were able to secure additional labor, we removed most capacity restrictions, guest reservation requirements and other protocols at our U.S. properties beginning in July 2021. We were able to open our Canadian property, Canada's Wonderland, in July 2021. Canada's Wonderland is operating with capacity restrictions, guest reservations, and other operating protocols in place. We adjusted and may continue to adjust our 2021 operating calendars as we respond to changes in guest demand, labor availability and any state and local restrictions. Our future operations are dependent on factors outside of our knowledge or control, including the duration and severity of the COVID-19 pandemic and actions taken to contain its spread and mitigate its public health effects. Furthermore, management has made significant estimates and assumptions to determine our liquidity requirements and estimate the impact of the COVID-19 pandemic on our business, including financial results in the near and long-term. Actual results could materially differ from these estimates depending on the ultimate extent of the effects of the COVID-19 pandemic.
Significant Accounting Policies
Except for the changes described below, our unaudited condensed consolidated financial statements included in this Form 10-Q report have been prepared in accordance with the accounting policies described in the Notes to Consolidated Financial Statements for the year ended December 31, 2020, which were included in the Form 10-K filed on February 19, 2021. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission"). These financial statements should be read in conjunction with the financial statements and the notes included in the Form 10-K referred to above.
Adopted Accounting Pronouncements
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 simplifies the accounting for income taxes by removing specific exceptions and clarifying and amending existing guidance under Topic 740, Income Taxes. ASU 2019-12 is effective for fiscal years after December 15, 2020 and interim periods within those years. Early adoption is permitted, including adoption in any interim period, but all amendments must be adopted in the same period. The allowable adoption methods differ under the various amendments. We adopted ASU 2019-12 as of January 1, 2021. The standard did not have an effect on the condensed consolidated financial statements and related disclosures.
New Accounting Pronouncements
In March 2020, the FASB issued Accounting Standards Update No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"). ASU 2020-04 provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022. We are in the process of evaluating the effect this standard will have on the unaudited condensed consolidated financial statements and related disclosures.
(2) Interim Reporting:
We are one of the largest regional amusement park operators in the world with 13 properties in our portfolio consisting of amusement parks, water parks and complementary resort facilities. Our parks operate seasonally except for Knott's Berry Farm, which is typically open daily on a year-round basis. Our seasonal parks are generally open during weekends beginning in April or May, and then daily from Memorial Day until Labor Day. After Labor Day, our seasonal parks are open during select weekends in September and, in most cases, in the fourth quarter for Halloween and winter events. As a result, a substantial portion of our revenues from these seasonal parks typically are generated during an approximate 130- to 140-day operating season with the major portion concentrated in the third quarter during the peak vacation months of July and August. COVID-19 impacted our parks' operating calendars in 2020 and 2021 as described within Note 1.
To assure that these highly seasonal operations will not result in misleading comparisons of current and subsequent interim periods, we have adopted the following accounting procedures: (a) revenues from multi-use products are recognized over the estimated number of uses expected for each type of product; and the estimated number of uses is reviewed and may be updated periodically during the operating season prior to the ticket or product expiration, which generally occurs no later than the close of the operating season; (b) depreciation, certain advertising and certain seasonal operating costs are expensed over each park’s operating season, including some costs incurred prior to the season, which are deferred and amortized over the season; and (c) all other costs are expensed as incurred or ratably over the entire year. For those operating costs that are expensed over each park's operating season, we recognize expense over each park's planned operating days. In 2020, pre-COVID-19 budgeted operating days represented each park's planned operating days. Pre-COVID-19 budgeted operating days more accurately reflected incurred expense, resulted in greater consistency between parks and with historical results, and was more consistent with our interim reporting accounting procedures compared with updating our procedures to recognize expense over the much fewer actual operating days in 2020.
(3) Revenue Recognition:
As disclosed within the unaudited condensed consolidated statements of operations and comprehensive income (loss), revenues are generated from sales of (1) admission to our amusement parks and water parks, (2) food, merchandise and games both inside and outside the parks, and (3) accommodations, extra-charge products, and other revenue sources. Admission revenues include amounts paid to gain admission into our parks, including parking fees. Revenues related to extra-charge products, including premium benefit offerings such as front-of-line products, and online transaction fees charged to customers are included in "Accommodations, extra-charge products and other".
The following table presents net revenues disaggregated by revenues generated within the parks and revenues generated from out-of-park operations less amounts remitted to outside parties under concessionaire arrangements for the periods presented. The amounts are not comparable due to the effects of the COVID-19 pandemic.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| (In thousands) | | September 26, 2021 | | September 27, 2020 | | September 26, 2021 | | September 27, 2020 |
| In-park revenues | | $ | 692,013 | | | $ | 61,764 | | | $ | 882,679 | | | $ | 106,008 | |
| Out-of-park revenues | | 83,074 | | | 29,051 | | | 134,054 | | | 46,705 | |
| Concessionaire remittance | | (21,683) | | | (3,358) | | | (29,450) | | | (5,035) | |
| Net revenues | | $ | 753,404 | | | $ | 87,457 | | | $ | 987,283 | | | $ | 147,678 | |
Due to our highly seasonal operations, a substantial portion of our revenues typically 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 our properties. Revenues from multi-use products, including season-long products for admission, dining, beverage and other products, are recognized over the estimated number of uses expected for each type of product. The estimated number of uses is reviewed and may be updated periodically during the operating season prior to the ticket or product expiration, which generally occurs no later than the close of the operating season. The number of uses is estimated based on historical usage adjusted for current period trends. For any bundled products that include multiple performance obligations, revenue is allocated using the retail price of each distinct performance obligation and any inherent discounts are allocated based on the gross margin and expected redemption of each performance obligation. We do not typically provide for refunds or returns.
Many products, including season-long products, are sold to customers in advance, resulting in a contract liability ("deferred revenue"). Deferred revenue is typically at its highest immediately prior to the peak summer season, and at its lowest at the beginning of the calendar year following the close of our parks' operating seasons. Season-long products represent most of the deferred revenue balance in any given period.
Due to the effects of the COVID-19 pandemic, we extended the validity of our 2020 season-long products through the 2021 operating season in order to ensure our season pass holders received a full season of access to our parks. In addition, four of our parks provided their season pass holders a loyalty reward to be used on purchases within the park during the 2021 operating season. We identified the loyalty reward as a separate performance obligation and allocated revenue to the season pass and loyalty reward in a manner consistent with other bundled products. The extended validity of the 2020 season-long products, and
to a much lesser extent the loyalty reward offering, resulted in a significant amount of revenue being deferred into 2021. In the first quarter of 2021 and in addition to the extended validity through 2021, Knott's Berry Farm also offered a day-for-day extension into calendar year 2022 for 2020 and 2021 season-long products for every day the park was closed in 2021, as well as a further extension for out-of-state season pass holders due to more restrictive state guidelines for out-of-state visitors. In the second quarter of 2021, Canada's Wonderland extended its 2020 and 2021 season passes through September 5, 2022. No other parks offered similar plans. We expect deferred revenue related to our outstanding 2020 and 2021 season-long products to be realized within 12 months from the balance sheet date. In order to calculate revenue recognized on 2020 season-long products, management made significant estimates regarding the estimated number of uses expected for these season-long products for admission, dining, beverage and other products for the 2021 and 2022 operating seasons. Actual results could materially differ from these estimates depending on the ultimate extent of the effects of the COVID-19 pandemic.
Of the $183.4 million of current deferred revenue recorded as of January 1, 2021, 90% 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. Approximately $141 million of the current deferred revenue balance as of January 1, 2021 was recognized during the nine months ended September 26, 2021. We also had recorded $10.5 million of non-current deferred revenue as of January 1, 2021 which largely represented prepaid lease payments for a portion of the California's Great America parking lot. The prepaid lease payments are being recognized through 2039.
Most deferred revenue from contracts with customers is classified as current within the balance sheet. However, a portion of deferred revenue from contracts with customers is typically classified as non-current during the third quarter related to season-long products sold in the current season for use in the subsequent season. Season-long products are typically sold beginning in August of the year preceding the operating season. Season-long products may subsequently be recognized 12 to 16 months after purchase depending on the date of sale. We estimate the number of uses expected outside of the next twelve months for each type of product and classify the related deferred revenue as non-current within "Non-Current Deferred Revenue" in the unaudited condensed consolidated balance sheets. As of September 26, 2021, $13.9 million of the total non-current deferred revenue balance represented estimated fourth quarter 2022 usage of 2022 season-long products. As of September 27, 2020 and due to the extension of the validity of the 2020 season-long products into 2021, $27.1 million of the total non-current deferred revenue balance represented estimated fourth quarter 2021 usage of both 2020 and 2021 season-long products. The remainder of the non-current deferred revenue balance in both periods was largely attributable to the lease of a portion of the California's Great America parking lot.
Payment is due immediately on the transaction date for most products. Our receivable balance includes outstanding amounts on installment purchase plans which are offered for season-long products (and other select products for specific time periods), and includes sales to retailers, group sales and catering activities which are billed. Installment purchase plans vary in length from three monthly installments to 12 monthly installments. Payment terms for billings are typically net 30 days. Receivables are typically highest in the peak summer months and lowest in the winter months. We are not exposed to a significant concentration of customer credit risk. As of September 26, 2021, December 31, 2020 and September 27, 2020, we recorded a $14.4 million, $8.7 million and $8.5 million allowance for doubtful accounts, respectively, representing estimated defaults on installment purchase plans. The default estimate is calculated using historical default rates adjusted for current period trends, including an adjustment for the impact of the COVID-19 pandemic on our customers' ability to pay based on collection rates since March 2020. The allowance for doubtful accounts is recorded as a reduction of deferred revenue to the extent revenue has not been recognized on the corresponding season-long products. Due to the effects of the COVID-19 pandemic and given the uncertainty around the timing of the reopening of our parks, we paused collections on our installment purchase plans in April 2020. For those parks which opened during the summer of 2020, we resumed collections of guest payments on installment purchase products as each of these parks opened for the 2020 operating season. For those parks which did not open during the summer of 2020, we resumed collections of guest payments in April 2021, except for Canada's Wonderland where we resumed collections in June 2021.
(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 unaudited condensed consolidated financial statements.
We concluded indicators of impairment did not exist during the first nine months of 2021. We based our conclusion on our financial performance projections, as well as an updated analysis of macroeconomic and industry-specific conditions. During the first and third quarters of 2020 and due to the negative effects of the COVID-19 pandemic on our expected future operating results, we tested our long-lived assets for impairment. We concluded the estimated fair values of the long-lived assets at Schlitterbahn Waterpark & Resort New Braunfels and Schlitterbahn Waterpark Galveston (collectively "the Schlitterbahn parks") no longer exceeded the related carrying values during the first quarter of 2020. Therefore, we recorded a $2.7 million impairment charge equal to the difference between the fair value and the carrying amounts of the assets in "Loss on impairment /
retirement of fixed assets" within the unaudited condensed consolidated statement of operations and comprehensive loss during the first quarter of 2020. The fair value of the long-lived assets was determined using a real and personal property appraisal which was performed in accordance with ASC 820 - Fair Value Measurement. We performed additional impairment testing during the third quarter of 2020 due to a further decline in our financial performance projections. Our impairment testing during the third quarter of 2020 resulted in no further impairment of our long-lived assets. Management made significant estimates in performing the impairment tests, including the anticipated time frame to re-open our parks and the related anticipated demand upon re-opening our parks. Actual results could materially differ from these estimates depending on the ultimate extent of the effects of the COVID-19 pandemic.
Remaining acreage from the former WildWater Kingdom, a separately gated outdoor water park near Cleveland in Aurora, Ohio, was recorded within "Other Assets" in the prior period unaudited condensed consolidated balance sheets ($2.1 million as of December 31, 2020 and $7.5 million as of September 27, 2020). All remaining acreage from this property was sold during the second quarter of 2021.
(5) 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. During the first nine months of 2021, we concluded indicators of impairment did not exist. We based our conclusion on our financial performance projections, as well as an updated analysis of macroeconomic and industry-specific conditions. During the first and third quarters of 2020 and due to the negative effects of the COVID-19 pandemic on our expected future operating results, we tested our goodwill and indefinite-lived intangible assets for impairment. We concluded the estimated fair value of goodwill at the Schlitterbahn parks and Dorney Park reporting units, and the estimated fair value of the Schlitterbahn trade name no longer exceeded their carrying values. Therefore, we recorded a $73.6 million, $6.8 million and $7.9 million impairment of goodwill at the Schlitterbahn parks, goodwill at Dorney Park, and the Schlitterbahn trade name, respectively, during the first quarter of 2020. We also recorded an $11.3 million, $2.3 million and $2.2 million impairment of goodwill at the Schlitterbahn parks, goodwill at Dorney Park, and the Schlitterbahn trade name, respectively, during the third quarter of 2020. The impairment charges were equal to the amount by which the carrying amounts exceeded the assets' fair value and were recorded in "Loss on impairment of goodwill and other intangibles" within the unaudited condensed consolidated statement of operations and comprehensive loss.
The fair value of our reporting units was established using a combination of an income (discounted cash flow) approach and market approach. The income approach used each reporting unit's projection of estimated operating results and discounted cash flows using a weighted-average cost of capital that reflected current market conditions. Estimated operating results were established using our best estimates of economic and market conditions over the projected period including growth rates in revenues and costs, estimates of future expected changes in operating margins and cash expenditures, the anticipated time frame to re-open our parks, and the related anticipated demand upon re-opening our parks. Other significant estimates and assumptions included terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements. The market approach estimated fair value by applying cash flow multiples to each reporting unit's operating performance. The multiples were derived from comparable publicly traded companies with similar operating and investment characteristics of the reporting units. The impairment charges recognized were for the amount by which the reporting unit's carrying amount exceeded its fair value.
Our indefinite-lived intangible assets consist of trade names. The fair value of our trade names was calculated using a relief-from-royalty model. The impairment charges recognized were for the amount by which the trade name's carrying amount exceeded its fair value.
Management made significant estimates calculating the fair value of our reporting units and trade names. Actual results could materially differ from these estimates depending on the ultimate extent of the effects of the COVID-19 pandemic.
Changes in the carrying value of goodwill for the nine months ended September 26, 2021 and September 27, 2020 were:
| | | | | | | | |
| (In thousands) | | Goodwill |
| Balance as of December 31, 2020 | | $ | 266,961 | |
| | |
| Foreign currency translation | | 255 | |
| Balance as of September 26, 2021 | | $ | 267,216 | |
| | |
| Balance as of December 31, 2019 | | $ | 359,654 | |
| Impairment | | (93,929) | |
| Foreign currency translation | | (1,865) | |
| Balance as of September 27, 2020 | | $ | 263,860 | |
As of September 26, 2021, December 31, 2020, and September 27, 2020, other intangible assets consisted of the following:
| | | | | | | | | | | | | | | | | |
| (In thousands) | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Carrying
Value |
| September 26, 2021 | | | | | |
| Other intangible assets: | | | | | |
| Trade names | $ | 49,511 | | | $ | — | | | $ | 49,511 | |
| License / franchise agreements | 4,262 | | | (3,646) | | | 616 | |
| Total other intangible assets | $ | 53,773 | | | $ | (3,646) | | | $ | 50,127 | |
| | | | | |
| December 31, 2020 | | | | | |
| Other intangible assets: | | | | | |
| Trade names | $ | 49,454 | | | $ | — | | | $ | 49,454 | |
| License / franchise agreements | 4,259 | | | (3,425) | | | 834 | |
| Total other intangible assets | $ | 53,713 | | | $ | (3,425) | | | $ | 50,288 | |
| | | | | |
| September 27, 2020 | | | | | |
| Other intangible assets: | | | | | |
| Trade names | $ | 48,764 | | | $ | — | | | $ | 48,764 | |
| License / franchise agreements | 4,257 | | | (3,304) | | | 953 | |
| Total other intangible assets | $ | 53,021 | | | $ | (3,304) | | | $ | 49,717 | |
(6) Long-Term Debt:
Long-term debt as of September 26, 2021, December 31, 2020, and September 27, 2020 consisted of the following:
| | | | | | | | | | | | | | | | | |
| (In thousands) | September 26, 2021 | | December 31, 2020 | | September 27, 2020 |
| | | | | |
| | | | | |
U.S. term loan averaging 1.86% YTD 2021; 2.70% in 2020; 2.85% YTD 2020 (1) | $ | 264,250 | | | $ | 264,250 | | | $ | 264,250 | |
| Notes | | | | | |
2024 U.S. fixed rate senior unsecured notes at 5.375% | 450,000 | | | 450,000 | | | 450,000 | |
2025 U.S. fixed rate senior secured notes at 5.500% | 1,000,000 | | | 1,000,000 | | | 1,000,000 | |
2027 U.S. fixed rate senior unsecured notes at 5.375% | 500,000 | | | 500,000 | | | 500,000 | |
2028 U.S. fixed rate senior unsecured notes at 6.500% | 300,000 | | | 300,000 | | | — | |
2029 U.S. fixed rate senior unsecured notes at 5.250% | 500,000 | | | 500,000 | | | 500,000 | |
| 3,014,250 | | | 3,014,250 | | | 2,714,250 | |
| | | | | |
| | | | | |
| Less debt issuance costs and original issue discount | (50,207) | | | (60,006) | | | (52,316) | |
| $ | 2,964,043 | | | $ | 2,954,244 | | | $ | 2,661,934 | |
(1) The average interest rates do not reflect the effect of interest rate swap agreements (see Note 7).
Term Debt and Revolving Credit Facilities
In April 2017, we amended and restated our existing credit agreement (the "2017 Credit Agreement") which includes our senior secured term loan facility and senior secured revolving credit facility. The $750 million senior secured term loan facility under the 2017 Credit Agreement matures on April 15, 2024 and, following an amendment in March 2018, bears interest at London InterBank Offered Rate ("LIBOR") plus 175 basis points (bps). The pricing terms for the March 2018 amendment reflected $0.9 million of Original Issue Discount ("OID"). In April 2020, as a result of the anticipated effects of the COVID-19 pandemic, we further amended the 2017 Credit Agreement (the "Second Amendment") to suspend and revise certain financial covenants, and to adjust the interest rate on and reflect additional commitments and capacity for our revolving credit facility. In conjunction with the Second Amendment, we prepaid $463.3 million of our outstanding senior secured term loan facility. Following the prepayment, we do not have any required remaining scheduled quarterly payments on our senior secured term loan facility. In September 2020, in response to the continuing effects of the COVID-19 pandemic, we further amended the 2017 Credit Agreement (subsequently referred to as the "Third Amended 2017 Credit Agreement" or "Third Amendment") to further suspend and revise certain of the financial covenants and extend the maturity of and adjust the terms that apply to a portion of our senior secured revolving credit facility. The facilities provided under the Third Amended 2017 Credit Agreement are collateralized by substantially all of the assets of the Partnership.
In connection with the Second Amendment, we received additional commitments under the U.S. senior secured revolving credit facility of $100 million bringing our total senior secured revolving credit facility capacity under the 2017 Credit Agreement to $375
million with a Canadian sub-limit of $15 million. Senior secured revolving credit facility borrowings following the Second Amendment bore interest at LIBOR plus 300 bps or Canadian Dollar Offered Rate ("CDOR") plus 200 bps and required the payment of a 37.5 bps commitment fee per annum on the unused portion of the revolving credit facility. The revolving credit facility was scheduled to mature in April 2022 under the Second Amendment. In September 2020, the Third Amendment extended the maturity date of $300 million of the $375 million senior secured revolving credit facility to December 2023 (which portion of the facility is subsequently referred to as the "2023 Revolving Credit Facility Capacity"). Under the Third Amendment, the 2023 Revolving Credit Facility Capacity bears interest at LIBOR plus 350 bps or CDOR plus 250 bps and requires the payment of a 62.5 bps commitment fee per annum on the unused portion of the 2023 Revolving Credit Facility Capacity, in each case without any step-downs. The terms of the remaining $75 million available under the senior secured revolving credit facility remain unchanged from the Second Amendment. Prior to the Second Amendment and Third Amendment, our senior secured revolving credit facility had a combined limit of $275 million with a Canadian sub-limit of $15 million and bore interest at LIBOR or CDOR plus 200 bps. The Third Amended 2017 Credit Agreement also provides for the issuance of documentary and standby letters of credit. As of September 26, 2021, no borrowings were outstanding under the revolving credit facility.
Notes
In April 2020, as a result of the anticipated effects of the COVID-19 pandemic and in connection with the Second Amendment, we issued $1.0 billion of 5.500% senior secured notes due 2025 ("2025 senior notes") in a private placement. The 2025 senior notes and the related guarantees are secured by first-priority liens on the issuers' and the guarantors' assets that secure all the obligations under our credit facilities. The net proceeds from the offering of the 2025 senior notes were used to repay $463.3 million of our then-outstanding senior secured term loan facility. The remaining amount is to be used for general corporate and working capital purposes, including fees and expenses related to the transaction.
The 2025 senior notes pay interest semi-annually in May and November, with the principal due in full on May 1, 2025. Prior to May 1, 2022, up to 35% of the 2025 senior notes may be redeemed with the net cash proceeds of certain equity offerings at a price equal to 105.500% of the principal amount thereof, together with accrued and unpaid interest and additional interest, if any. The 2025 senior notes may be redeemed, in whole or in part, at any time prior to May 1, 2022 at a price equal to 100% of the principal amount of the notes redeemed plus a "make-whole" premium together with accrued and unpaid interest and additional interest, if any, to the redemption date. Thereafter, the 2025 senior notes may be redeemed, in whole or in part, at various prices depending on the date redeemed.
In June 2014, we issued $450 million of 5.375% senior unsecured notes due 2024 ("2024 senior notes"). The 2024 senior notes pay interest semi-annually in June and December, with the principal due in full on June 1, 2024. The 2024 senior notes may be redeemed, in whole or in part, at various prices depending on the date redeemed.
In April 2017, we issued $500 million of 5.375% senior unsecured notes due 2027 ("2027 senior notes"). The 2027 senior notes pay interest semi-annually in April and October, with the principal due in full on April 15, 2027. The 2027 senior notes may be redeemed, in whole or in part, at any time prior to April 15, 2022 at a price equal to 100% of the principal amount of the notes redeemed plus a "make-whole" premium together with accrued and unpaid interest and additional interest, if any, to the redemption date. Thereafter, the 2027 senior notes may be redeemed, in whole or in part, at various prices depending on the date redeemed.
In June 2019, we issued $500 million of 5.250% senior unsecured notes due 2029 ("2029 senior notes"). The 2029 senior notes pay interest semi-annually in January and July, with the principal due in full on July 15, 2029. Prior to July 15, 2022, up to 35% of the 2029 senior notes may be redeemed with the net cash proceeds of certain equity offerings at a price equal to 105.250% of the principal amount thereof, together with accrued and unpaid interest and additional interest, if any. The 2029 senior notes may be redeemed, in whole or in part, at any time prior to July 15, 2024 at a price equal to 100% of the principal amount of the notes redeemed plus a "make-whole" premium together with accrued and unpaid interest and additional interest, if any, to the redemption date. Thereafter, the 2029 senior notes may be redeemed, in whole or in part, at various prices depending on the date redeemed.
In October 2020, in response to the continuing effects of the COVID-19 pandemic, we issued $300 million of 6.500% senior unsecured notes due 2028 ("2028 senior notes"). The net proceeds from the offering of the 2028 senior notes is to be used for general corporate and working capital purposes, including fees and expenses related to the transaction. The 2028 senior notes pay interest semi-annually in April and October with the principal due in full on October 1, 2028. Prior to October 1, 2023, up to 35% of the 2028 senior notes may be redeemed with the net cash proceeds of certain equity offerings at a price equal to 106.500% of the principal amount thereof, together with accrued and unpaid interest, if any. The 2028 senior notes may be redeemed, in whole or in part, at any time prior to October 1, 2023 at a price equal to 100% of the principal amount of the notes redeemed plus a "make-whole" premium together with accrued and unpaid interest and additional interest, if any, to the redemption date. Thereafter, the 2028 senior notes may be redeemed, in whole or in part, at various prices depending on the date redeemed.
As market conditions warrant, we may from time to time repurchase our outstanding debt securities in privately negotiated or open market transactions, by tender offer, exchange offer or otherwise.
Covenants
The Third Amended 2017 Credit Agreement includes: (i) a Senior Secured Leverage Ratio of 4.50x Total First Lien Senior Secured Debt-to-Consolidated EBITDA starting with the first quarter of 2022, which will step down to 4.00x in the second quarter of 2023 and which will step down further to 3.75x in the third quarter of 2023, with the covenant calculations for the first, second, and third quarters in 2022 to include Consolidated EBITDA from the second, third and fourth quarters of the fiscal year ended December 31, 2019 in lieu of the Consolidated EBITDA for the corresponding quarters in 2021 ("Deemed EBITDA Quarters"); (ii) a requirement that we maintain a minimum liquidity level of at least $125 million, tested at all times, until the earlier of December 31, 2022 or the termination of the Additional Restrictions Period (which generally includes the period from the effective date of the Second Amendment until the delivery of the compliance certificate for the fourth quarter of 2022); and (iii) a suspension of certain restricted payments, including partnership distributions, under the Third Amended 2017 Credit Agreement until the termination of the Additional Restrictions Period. We may terminate the Additional Restrictions Period prior to December 31, 2022 by achieving compliance with the Senior Secured Leverage Ratio covenant as of the end of a fiscal quarter without giving effect to Deemed EBITDA Quarters for any fiscal quarter. We were in compliance with the applicable financial covenants under the Third Amended 2017 Credit Agreement during the nine months ended September 26, 2021.
Our fixed rate note agreements include Restricted Payment provisions, which could limit our ability to pay partnership distributions. Pursuant to the terms of the indenture governing the 2024 senior notes, which includes the most restrictive of these Restricted Payments provisions under our fixed rate note agreements, if our pro forma Total-Indebtedness-to-Consolidated-Cash-Flow Ratio is greater than 5.00x, we can still make Restricted Payments of $60 million annually so long as no default or event of default has occurred and is continuing. If our pro forma Total-Indebtedness-to-Consolidated-Cash-Flow Ratio is less than or equal to 5.00x, we can make Restricted Payments up to our Restricted Payment pool. Our pro forma Total-Indebtedness-to-Consolidated-Cash-Flow Ratio was greater than 5.00x as of September 26, 2021.
(7) Derivative Financial Instruments:
Derivative financial instruments are used within our overall risk management program to manage certain interest rate and foreign currency risks. By utilizing a derivative instrument to hedge exposure to LIBOR rate changes, we are exposed to counterparty credit risk, in particular the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, hedging instruments are placed with a counterparty that we believe poses minimal credit risk. We do not use derivative financial instruments for trading purposes.
We have four interest rate swap agreements with a notional value of $500 million that convert one-month variable rate LIBOR to a fixed rate of 2.88% through December 31, 2023. This results in a 4.63% fixed interest rate for borrowings under our senior secured term loan facility after the impact of interest rate swap agreements. As of September 27, 2020, we had four additional interest rate swap agreements that matured on December 31, 2020 and converted the same notional amount of one-month variable rate LIBOR to a fixed rate of 2.64%. None of the interest rate swap agreements are designated as hedging instruments. The fair market value of our swap portfolio, including the location within the unaudited condensed consolidated balance sheets, for the periods presented were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Balance Sheet Location | | September 26, 2021 | | December 31, 2020 | | September 27, 2020 |
| Derivatives not designated as hedging instruments: | | | | | | |
| Interest Rate Swaps | Other accrued liabilities | | $ | — | | | $ | — | | | $ | (4,303) | |
| Derivative Liability | | (28,504) | | | (39,086) | | | (38,713) | |
| | | $ | (28,504) | | | $ | (39,086) | | | $ | (43,016) | |
Instruments that do not qualify for hedge accounting are adjusted to fair value each reporting period through "Net effect of swaps" within the unaudited condensed consolidated statements of operations and comprehensive income (loss).
(8) Fair Value Measurements:
The table below presents the balances of assets and liabilities measured at fair value as of September 26, 2021, December 31, 2020, and September 27, 2020 on a recurring basis as well as the fair values of other financial instruments, including their locations within the unaudited condensed consolidated balance sheets:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Balance Sheet Location | Fair Value Hierarchy Level | | September 26, 2021 | | December 31, 2020 | | September 27, 2020 |
| 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 | | $ | 561 | | $ | 561 | | | $ | 280 | | $ | 280 | | | $ | 163 | | $ | 163 | |
| Interest rate swaps | Derivative Liability (1) | Level 2 | | $ | (28,504) | | $ | (28,504) | | | $ | (39,086) | | $ | (39,086) | | | $ | (43,016) | | $ | (43,016) | |
| Other financial assets (liabilities): |
| Term debt | Long-Term Debt (2) | Level 2 | | $ | (264,250) | | $ | (258,965) | | | $ | (264,250) | | $ | (253,680) | | | $ | (264,250) | | $ | (244,431) | |
| 2024 senior notes | Long-Term Debt (2) | Level 1 | | $ | (450,000) | | $ | (454,500) | | | $ | (450,000) | | $ | (451,125) | | | $ | (450,000) | | $ | (433,125) | |
| 2025 senior notes | Long-Term Debt (2) | Level 2 | | $ | (1,000,000) | | $ | (1,040,000) | | | $ | (1,000,000) | | $ | (1,043,750) | | | $ | (1,000,000) | | $ | (1,010,000) | |
| 2027 senior notes | Long-Term Debt (2) | Level 1 | | $ | (500,000) | | $ | (514,375) | | | $ | (500,000) | | $ | (507,500) | | | $ | (500,000) | | $ | (487,500) | |
| 2028 senior notes | Long-Term Debt (2) | Level 1 (3) | | $ | (300,000) | | $ | (322,500) | | | $ | (300,000) | | $ | (318,000) | | | — | | — | |
| 2029 senior notes | Long-Term Debt (2) | Level 1 | | $ | (500,000) | | $ | (512,500) | | | $ | (500,000) | | $ | (505,625) | | | $ | (500,000) | | $ | (476,250) | |
(1)As of September 27, 2020, $4.3 million of the fair value of our swap portfolio was classified as current and recorded in "Other accrued liabilities".
(2)Carrying values of long-term debt balances are before reductions for debt issuance costs and original issue discount of $50.2 million, $60.0 million, and $52.3 million as of September 26, 2021, December 31, 2020, and September 27, 2020, respectively.
(3)The 2028 senior notes were based on Level 1 inputs as of September 26, 2021 and Level 2 inputs as of December 31, 2020.
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.
Due to the negative effects of the COVID-19 pandemic on our expected future operating results, we tested our long-lived assets, goodwill, and indefinite-lived intangible assets for impairment during the first and third quarters of 2020. We concluded the estimated fair value of goodwill and long-lived assets at the Schlitterbahn parks reporting unit and the Schlitterbahn trade name, and the estimated fair value of goodwill at the Dorney Park reporting unit no longer exceeded their carrying values. Therefore, as of March 29, 2020 and September 27, 2020, these assets were measured at fair value. We recorded a $2.7 million, $73.6 million and $7.9 million impairment charge to long-lived assets, goodwill and the trade name at the Schlitterbahn parks, respectively, and a $6.8 million impairment charge to goodwill at Dorney Park during the first quarter of 2020. We also recorded an $11.3 million and $2.2 million impairment charge to goodwill and the trade name at the Schlitterbahn parks, respectively, and a $2.3 million impairment charge to goodwill at Dorney Park during the third quarter of 2020. The long-lived asset impairment charge was recorded in "Loss on impairment / retirement of fixed assets", and the goodwill and intangible asset impairment charges were recorded in "Loss on impairment of goodwill and other intangibles" within the unaudited condensed consolidated statement of operations and comprehensive loss.
The fair value determination for our long-lived assets, reporting units and indefinite-lived intangible assets included numerous assumptions based on Level 3 inputs. The fair value of our long-lived assets was determined using a real and personal property appraisal of which the principal assumptions included the principal market and market participants upon sale. The primary assumptions used to determine the fair value of our reporting units included growth rates in revenues and costs, estimates of future expected changes in operating margins and cash expenditures, the anticipated time frame to re-open our parks, the related anticipated demand upon re-opening our parks, terminal value growth rates, future estimates of capital expenditures, changes in future capital requirements, and a weighted-average cost of capital that reflected current market conditions. The fair value of our indefinite-lived intangible assets was determined using a relief-from-royalty method of which the principal assumptions included royalty rates, growth rates in revenues, estimates of future expected changes in operating margins, the anticipated time frame to re-open our parks, the related anticipated demand upon re-opening our parks, terminal value growth rates, and a discount rate based on a weighted-average cost of capital that reflected current market conditions.
The carrying value of cash and cash equivalents, 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 other assets measured at fair value on a non-recurring basis as of September 26, 2021, December 31, 2020 or September 27, 2020.
(9) Income (Loss) per Unit:
Net income (loss) per limited partner unit was calculated based on the following unit amounts:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| (In thousands, except per unit amounts) | September 26, 2021 | | September 27, 2020 | | September 26, 2021 | | September 27, 2020 |
| Basic weighted average units outstanding | 56,628 | | | 56,497 | | | 56,601 | | | 56,469 | |
| Effect of dilutive units: | | | | | | | |
| Deferred units | 46 | | | — | | | — | | | — | |
| Performance units | 92 | | | — | | | — | | | — | |
| Restricted units | 217 | | | — | | | — | | | — | |
| Unit options | 26 | | | — | | | — | | | — | |
| | | | | | | |
| Diluted weighted average units outstanding | 57,009 | | | 56,497 | | | 56,601 | | | 56,469 | |
| Net income (loss) per unit - basic | $ | 2.61 | | | $ | (2.41) | | | $ | (0.38) | | | $ | (8.58) | |
| Net income (loss) per unit - diluted | $ | 2.60 | | | $ | (2.41) | | | $ | (0.38) | | | $ | (8.58) | |
There were approximately 0.3 million potentially dilutive units excluded from the computation of diluted loss per limited partner unit for the three months ended September 27, 2020 as their effect would have been anti-dilutive due to the net loss in the period. There were approximately 0.7 million and 0.4 million potentially dilutive units excluded for the nine months ended September 26, 2021 and September 27, 2020, respectively, as their effect would also have been anti-dilutive due to the net loss in each period.
(10) Income and Partnership Taxes:
We are subject to publicly traded partnership tax (PTP tax) on certain partnership level gross income (net revenues less cost of food, merchandise, and games revenues), state and local income taxes on partnership income, U.S. federal, state and local income taxes on income from our corporate subsidiaries and foreign income taxes on our foreign subsidiary. As such, the total provision (benefit) for taxes includes amounts for the PTP gross income tax and federal, state, local and foreign income taxes. Under applicable accounting rules, the total provision (benefit) for income taxes includes the amount of taxes payable for the current year and the impact of deferred tax assets and liabilities, which represents future tax consequences of events that are recognized in different periods in the financial statements than for tax purposes.
The total tax provision (benefit) for interim periods is determined by applying an estimated annual effective tax rate to the applicable quarterly income (loss). Our consolidated estimated annual effective tax rate differs from the statutory federal income tax rate primarily due to state, local and foreign income taxes, certain partnership level income not being subject to federal tax and beneficial rate differences on loss carry backs allowed by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which was signed into law on March 27, 2020.
The CARES Act resulted in various changes to the U.S. tax law, including, among other things, allowing net operating losses arising in tax years 2018 through 2020 to be carried back to the preceding five taxable years and removing the limitation that such losses only offset 80% of taxable income. As a result of these changes, we expect to recognize two benefits. First, we expect to carry back tax year 2020 losses incurred by our corporate subsidiaries, which will result in the refund of a portion of federal income taxes paid during the carryback period of approximately $79.7 million. Second, as of September 26, 2021, the annual effective tax rate included a net benefit of $2.3 million from carrying back the projected tax year 2020 losses of the corporate subsidiaries. This tax benefit represents an estimated incremental benefit of tax loss carrybacks for periods when the federal income tax rate was greater than the current 21% rate. The overall benefit of the carryback of losses was decreased by $7.2 million for a projected valuation allowance on foreign tax credits originally utilized during the carryback period which would be released as a result of the loss carryback but which are not expected to be utilized.
As of September 26, 2021, $79.7 million in tax refunds attributable to the net operating loss in tax year 2020 being carried back to prior years in the United States, and an additional $9.5 million in tax refunds attributable to the net operating loss of our Canadian corporate subsidiary being carried back to prior years in Canada, were recorded within "Current income tax receivable" in the unaudited condensed consolidated balance sheet. We anticipate receiving these tax refunds in the fourth quarter of 2021. These amounts were offset by accrued tax payments within the same jurisdictions for tax year 2021.
Additional benefits from the CARES Act included an $8.2 million deferral of the employer's share of Social Security taxes due in 50% increments in the fourth quarter of 2021 and the fourth quarter of 2022. As of September 26, 2021, the current portion was recorded in "Accrued salaries, wages and benefits" and the non-current portion was recorded in "Other Liabilities" within the unaudited condensed consolidated balance sheet.
Unrecognized tax benefits, including accrued interest and penalties, were not material in any period presented. We recognize interest and penalties related to unrecognized tax benefits as income tax expense.
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 property taxes, are relatively fixed for a typical operating season and do not vary significantly with attendance.
Each of our properties is overseen by a general manager and operates autonomously. Management reviews operating results, evaluates performance and makes operating decisions, including allocating resources, on a property-by-property basis.
Along with attendance and in-park per capita spending statistics, discrete financial information and operating results are prepared at the individual park level for use by the CEO, who is the Chief Operating Decision Maker (CODM), as well as by the Chief Financial Officer, the Chief Operating Officer, Regional Vice Presidents and the general managers.
Impact of COVID-19 Pandemic
The novel coronavirus (COVID-19) pandemic had a material impact on our business in 2020, had a continuing negative impact in 2021 and may have a longer-term negative effect. On March 14, 2020, we closed our properties in response to the spread of COVID-19 and local government mandates. We ultimately resumed only partial operations at 10 of our 13 properties in 2020. Due to soft demand trends upon reopening in 2020, park operating calendars were adjusted, including reduced operating days per week and operating hours within each operating day. Following March 14, 2020, Knott's Berry Farm's partial operations in 2020 were limited to culinary festivals.
In May 2021, we opened all of our U.S. properties for the 2021 operating season on a staggered basis with capacity restrictions, guest reservations, and other operating protocols in place. Our 2021 operating calendars were designed to align with anticipated capacity restrictions, guest demand and labor availability, including fewer operating days in July and August at some of our smaller properties and additional operating days in September. As vaccination distribution efforts continued during the second quarter of 2021 and we were able to secure additional labor, we removed most capacity restrictions, guest reservation requirements and other protocols at our U.S. properties beginning in July 2021. We were able to open our Canadian property, Canada's Wonderland, in July 2021. Canada's Wonderland is operating with capacity restrictions, guest reservations, and other operating protocols in place. We adjusted and may continue to adjust our 2021 operating calendars as we respond to changes in guest demand, labor availability and any state and local restrictions. Our future operations are dependent on factors outside of our knowledge or control, including the duration and severity of the COVID-19 pandemic and actions taken to contain its spread and mitigate its public health effects.
Critical Accounting Policies:
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our unaudited condensed consolidated financial statements, which were prepared in accordance with accounting principles generally accepted in the United States of America. These principles require us to make judgments, estimates and assumptions during the normal course of business that affect the amounts reported in the unaudited condensed consolidated financial statements. Beyond estimates in the normal course of business, management has also made significant estimates and assumptions related to the COVID-19 pandemic to determine our liquidity requirements and estimate the impact on our business, including financial results in the near and long-term. Actual results could differ significantly from those estimates under different assumptions and conditions.
Management believes that judgment and estimates related to the following critical accounting policies could materially affect our unaudited condensed consolidated financial statements:
•Impairment of Long-Lived Assets
•Goodwill and Other Intangible Assets
•Self-Insurance Reserves
•Revenue Recognition
•Income Taxes
In the third quarter of 2021, there were no changes in the above critical accounting policies from those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.
Adjusted EBITDA:
Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortization, other non-cash items, and adjustments as defined in the Third Amended 2017 Credit Agreement and prior credit agreements. Adjusted EBITDA is not a measurement of operating performance computed in accordance with generally accepted accounting principles ("GAAP") and should not be considered as a substitute for operating income, net income or cash flows from operating activities computed in accordance with GAAP. We believe that Adjusted EBITDA is a meaningful measure as it is widely used by analysts, investors and comparable companies in our industry to evaluate our operating performance on a consistent basis, as well as more easily compare our results with those of other companies in our industry. Further, management believes Adjusted EBITDA is a meaningful measure of park-level operating profitability and we use it for measuring returns on capital investments, evaluating potential acquisitions, determining awards under incentive compensation plans, and calculating compliance with certain loan covenants. Adjusted EBITDA is provided in the discussion of results of operations that follows as a supplemental measure of our operating results and is not intended to be a substitute for operating income, net income or cash flows from operating activities as defined under GAAP. In addition, Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
The table below sets forth a reconciliation of Adjusted EBITDA to net income (loss) for the three and nine month periods ended September 26, 2021, September 27, 2020 and September 29, 2019. Due to the effects of the COVID-19 pandemic on our 2020 results, we included comparisons to 2019 in addition to comparisons to 2020 within the Results of Operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| (In thousands) | September 26, 2021 | | September 27, 2020 | | September 29, 2019 | | September 26, 2021 | | September 27, 2020 | | September 29, 2019 |
| Net income (loss) | $ | 147,987 | | | $ | (136,261) | | | $ | 189,955 | | | $ | (21,299) | | | $ | (484,790) | | | $ | 169,580 | |
| Interest expense | 46,270 | | | 40,376 | | | 27,967 | | | 136,371 | | | 104,341 | | | 71,814 | |
| Interest income | (35) | | | (25) | | | (807) | | | (66) | | | (449) | | | (1,121) | |
| Provision (benefit) for taxes | 43,764 | | | (30,393) | | | 48,815 | | | 16,859 | | | (116,156) | | | 43,506 | |
| Depreciation and amortization | 77,461 | | | 67,436 | | | 68,335 | | | 112,906 | | | 127,447 | | | 137,828 | |
| EBITDA | 315,447 | | | (58,867) | | | 334,265 | | | 244,771 | | | (369,607) | | | 421,607 | |
| Loss on early debt extinguishment | — | | | 317 | | | — | | | 4 | | | 2,013 | | | — | |
| Net effect of swaps | (3,186) | | | (1,558) | | | 3,910 | | | (10,582) | | | 19,780 | | | 21,068 | |
| Non-cash foreign currency loss (gain) | 15,157 | | | (9,561) | | | 5,617 | | | (1,665) | | | 12,127 | | | (12,528) | |
| Non-cash equity compensation expense | 2,903 | | | 1,618 | | | 2,930 | | | 11,910 | | | (1,842) | | | 8,760 | |
| Loss on impairment / retirement of fixed assets, net | 2,397 | | | 727 | | | 1,675 | | | 5,873 | | | 8,530 | | | 3,781 | |
| Loss on impairment of goodwill and other intangibles | — | | | 15,818 | | | — | | | — | | | 103,999 | | | — | |
| Gain on sale of investment | — | | | (11) | | | — | | | (2) | | | (11) | | | (617) | |
| Acquisition-related costs | — | | | — | | | 6,292 | | | — | | | 16 | | | 7,238 | |
| | | | | | | | | | | |
Other (1) | 650 | | | 29 | | | 499 | | | 1,157 | | | 183 | | | 782 | |
| Adjusted EBITDA | $ | 333,368 | | | $ | (51,488) | | | $ | 355,188 | | | $ | 251,466 | | | $ | (224,812) | | | $ | 450,091 | |
(1) Consists of certain costs as defined in our Third Amended 2017 Credit Agreement and prior credit agreements. These items are excluded from the calculation of Adjusted EBITDA and have included certain legal expenses and severance expenses. This balance also includes unrealized gains and losses on short-term investments.
Results of Operations:
We believe the following are key operational measures in our managerial and operational reporting, and they are used as major factors in significant operational decisions as they are primary drivers of our financial and operational performance:
Attendance is defined as the number of guest visits to our amusement parks and separately gated outdoor water parks.
In-park per capita spending is calculated as revenues generated within our amusement parks and separately gated outdoor water parks along with related tolls and parking revenues (in-park revenues), divided by total attendance.
Out-of-park revenues are defined as revenues from resort, out-of-park food and retail locations, marina, sponsorship, online transaction fees charged to customers and all other out-of-park operations.
Net revenues consist of in-park revenues and out-of-park revenues less amounts remitted to outside parties under concessionaire arrangements (see Note 3).
Nine months ended September 26, 2021 vs. Nine months ended September 27, 2020
Due to the effects of the COVID-19 pandemic, the results for the nine months ended September 26, 2021 were not directly comparable with the results for the nine months ended September 27, 2020. The current nine-month period included 1,381 operating days compared with a total of 443 operating days for the nine-month period ended September 27, 2020.
In the current period and due to the effects of the COVID-19 pandemic, we postponed the opening of our parks for the 2021 operating season to May 2021, when all of our properties opened on a staggered basis except for our Canadian property, Canada's Wonderland, which opened in July 2021. Upon opening in 2021, park operating calendars were reduced, guest reservations were required, and some operating restrictions were in place. We removed most capacity restrictions, guest reservation requirements and other protocols at our U.S. properties beginning in July 2021. Operating restrictions remained in place at our Canadian property throughout the third quarter of 2021. We adjusted our 2021 operating calendars to reflect anticipated changes in guest demand, labor availability and state and local restrictions by including fewer operating days in July and August at some of our smaller properties and by including additional operating days in September. The current period also included results prior to the May 2021 opening of our parks from limited out-of-park operations, including the operation of some of our hotel properties and a culinary festival at Knott's Berry Farm from March 5, 2021 through May 2, 2021.
For the nine-month period ended September 27, 2020 and due to the effects of the COVID-19 pandemic, our properties closed on March 14, 2020. Eight of our 13 properties resumed partial operations on a staggered basis during the third quarter of 2020 with opening dates beginning in mid-June and continuing through mid-July. During this time, we also reopened operations at some of our out-of-park operations, such as hotel operations. Following March 14, 2020, Knott's Berry Farm's partial operations were limited to culinary festivals which were classified as out-of-park revenues. The 2020 results also included daily operations at Knott's Berry Farm and 16 operating days at the Schlitterbahn parks prior to the March 14, 2020 closure of our properties.
The following table presents key financial information for the nine months ended September 26, 2021 and September 27, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine months ended | | Increase (Decrease) |
| | September 26, 2021 | | September 27, 2020 | | $ | | % |
| | | (Amounts in thousands, except per capita and operating days) |
| Net revenues | | $ | 987,283 | | | $ | 147,678 | | | $ | 839,605 | | | N/M |
| Operating costs and expenses | | 749,242 | | | 370,878 | | | 378,364 | | | 102.0 | % |
| Depreciation and amortization | | 112,906 | | | 127,447 | | | (14,541) | | | (11.4) | % |
| Loss on impairment / retirement of fixed assets, net | | 5,873 | | | 8,530 | | | (2,657) | | | N/M |
| Loss on impairment of goodwill and other intangibles | | — | | | 103,999 | | | (103,999) | | | N/M |
| Gain on sale of investment | | (2) | | | (11) | | | 9 | | | N/M |
| Operating income (loss) | | $ | 119,264 | | | $ | (463,165) | | | $ | 582,429 | | | 125.7 | % |
| | | | | | | | |
| Other Data: | | | | | | | | |
Adjusted EBITDA (1) | | $ | 251,466 | | | $ | (224,812) | | | $ | 476,278 | | | N/M |
| | | | | | | | |
| Attendance | | 14,178 | | | 2,280 | | | 11,898 | | | N/M |
| In-park per capita spending | | $ | 62.26 | | | $ | 46.49 | | | $ | 15.77 | | | 33.9 | % |
| Out-of-park revenues | | $ | 134,054 | | | $ | 46,705 | | | $ | 87,349 | | | 187.0 | % |
| Operating days | | 1,381 | | | 443 | | | 938 | | | N/M |
N/M Not meaningful either due to the nature of the expense line-item or due to minimal operations in the prior period
(1) For additional information regarding Adjusted EBITDA, including how we define and use Adjusted EBITDA, as well as a reconciliation to net income (loss), see page 18.
For the nine months ended September 26, 2021, net revenues totaled $987.3 million compared with $147.7 million for the nine months ended September 27, 2020. The increase in net revenues was attributable to the 938 operating day increase in the current period resulting in an 11.9 million-visit increase in attendance and an $87.3 million increase in out-of-park revenues. In-park per capita spending for the nine months ended September 26, 2021 increased 34% to $62.26, which represented higher levels of guest spending across all key revenue categories, particularly admissions and extra-charge attractions, including front-of-line FastLane products, and was driven by increases in pricing and volume. The increase in net revenues included a $4.7 million favorable impact of foreign currency exchange rates at our Canadian park.
Operating costs and expenses for the nine months ended September 26, 2021 increased to $749.2 million from $370.9 million for the nine months ended September 27, 2020. This was the result of a $65.4 million increase in cost of goods sold, a $221.4 million increase in operating expenses and a $91.6 million increase in SG&A expense, all of which were largely the result of the 938 operating day increase in the current period. While the majority of the $221.4 million increase in operating expenses was attributable to the increase in operating days, there was also a meaningful increase in seasonal labor rate in order to recruit
employees in a challenging labor market, as well as higher full-time wages, including accrued bonus plans. Similarly, the $91.6 million increase in SG&A expense was driven by resumed park operations in 2021. However, the increase in SG&A expense was also driven by an increase in full-time wages, particularly for accrued bonus plans and equity-based compensation plans, as well as current period consulting fees incurred as a result of a business optimization program. The increase in operating costs and expenses included a $2.4 million unfavorable impact of foreign currency exchange rates at our Canadian park.
Depreciation and amortization expense for the nine months ended September 26, 2021 decreased $14.5 million compared with the nine months ended September 27, 2020 due primarily to the full depreciation of 15-year useful lived property and equipment from our 2006 acquisition. The loss on impairment / retirement of fixed assets for the nine months ended September 26, 2021 was $5.9 million compared with $8.5 million for the nine months ended September 27, 2020. The current period included retirements of assets in the normal course of business. The nine months ended September 27, 2020 included a $2.7 million impairment charge with respect to the Schlitterbahn parks' long-lived assets triggered by the anticipated negative effects of the COVID-19 pandemic during the first quarter of 2020 (see Note 4). Similarly triggered by the anticipated negative effects of the COVID-19 pandemic, the loss on impairment of goodwill and other intangibles for the nine months ended September 27, 2020 included impairment charges of $73.6 million, $6.8 million and $7.9 million during the first quarter of 2020, as well as impairment charges of $11.3 million, $2.3 million and $2.2 million during the third quarter of 2020 attributable to impairment of goodwill at the Schlitterbahn parks, goodwill at Dorney Park, and the Schlitterbahn trade name, respectively (see Note 5).
After the items above, operating income for the nine months ended September 26, 2021 totaled $119.3 million compared with an operating loss of $463.2 million for the nine months ended September 27, 2020.
Interest expense for the nine months ended September 26, 2021 increased $32.0 million due to interest incurred on the 2025 senior notes issued in April 2020 and the 2028 senior notes issued in October 2020. The net effect of our swaps resulted in a benefit to earnings of $10.6 million for the nine months ended September 26, 2021 compared with a $19.8 million charge to earnings for the nine months ended September 27, 2020. The difference was attributable to the change in fair market value movements in our swap portfolio. We recognized a $2.0 million loss on early debt extinguishment related to our April 2020 refinancing during the first nine months of 2020. During the current period, we also recognized a $1.7 million net benefit to earnings for foreign currency gains and losses compared with a $12.0 million net charge to earnings for the nine months ended September 27, 2020. Both amounts primarily represented remeasurement of the U.S.-dollar denominated debt recorded at our Canadian entity from the U.S.-dollar to the legal entity's functional currency.
During the nine months ended September 26, 2021, a provision for taxes of $16.9 million was recorded to account for PTP taxes and federal, state, local and foreign income taxes compared with a benefit for taxes of $116.2 million for the nine months ended September 27, 2020. The difference in provision for taxes was attributable to a larger prior period pretax loss from our taxable subsidiaries, as well as expected benefits from the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which was signed into law on March 27, 2020. The CARES Act resulted in various changes to the U.S. tax law, including, among other things, allowing net operating losses arising in tax years 2018 through 2020 to be carried back to the preceding five taxable years and removing the limitation that such losses only offset 80% of taxable income. As a result of these changes, we expect to recognize two benefits. First, we expect to carry back the tax year 2020 losses incurred by our corporate subsidiaries, which will result in the refund of a portion of federal income taxes paid during the carryback period of approximately $79.7 million. Second, as of September 26, 2021, the annual effective tax rate included a net benefit of $2.3 million from carrying back the projected tax year 2020 losses of the corporate subsidiaries. This tax benefit represents an estimated incremental benefit of tax loss carrybacks for periods when the federal income tax rate was greater than the current 21% rate. The overall benefit of the carryback of losses was decreased by $7.2 million for a projected valuation allowance on foreign tax credits originally utilized during the carryback period which would be released as a result of the loss carryback but which are not expected to be utilized.
After the items above, net loss for the nine months ended September 26, 2021 totaled $21.3 million, or $0.38 per diluted limited partner unit, compared with a net loss of $484.8 million, or $8.58 per diluted limited partner unit, for the nine months ended September 27, 2020.
For the nine months ended September 26, 2021, Adjusted EBITDA totaled $251.5 million compared with an Adjusted EBITDA loss of $224.8 million for the nine months ended September 27, 2020. The increase in Adjusted EBITDA was primarily due to the impact of COVID-19 related park closures in 2020 and the related improvement in attendance, in-park per capita spending and out-of-park revenues from reopening parks in 2021.
Nine months ended September 26, 2021 vs. Nine months ended September 29, 2019
As described above, the results for the nine months ended September 26, 2021 were not directly comparable with the results for the nine months ended September 27, 2020 due to the effects of the COVID-19 pandemic. The results for the nine months ended September 26, 2021 were also not directly comparable with the nine months ended September 29, 2019 due to the postponed opening of our parks for the 2021 operating season until May 2021, as well as operating restrictions in place upon opening in 2021, compared with a typical operating season in 2019. The current nine-month period included 1,381 operating days compared with a total of 1,862 operating days for the nine-month period ended September 29, 2019. The following table presents key financial information for the nine months ended September 26, 2021 and September 29, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine months ended | | Increase (Decrease) |
| | September 26, 2021 | | September 29, 2019 | | $ | | % |
| | | (Amounts in thousands, except per capita and operating days) |
| Net revenues | | $ | 987,283 | | | $ | 1,217,679 | | | $ | (230,396) | | | (18.9) | % |
| Operating costs and expenses | | 749,242 | | | 784,060 | | | (34,818) | | | (4.4) | % |
| Depreciation and amortization | | 112,906 | | | 137,828 | | | (24,922) | | | (18.1) | % |
| Loss on impairment / retirement of fixed assets, net | | 5,873 | | | 3,781 | | | 2,092 | | | N/M |
| | | | | | | | |
| Gain on sale of investment | | (2) | | | (617) | | | 615 | | | N/M |
| Operating income | | $ | 119,264 | | | $ | 292,627 | | | $ | (173,363) | | | (59.2) | % |
| | | | | | | | |
| Other Data: | | | | | | | | |
Adjusted EBITDA (1) | | $ | 251,466 | | | $ | 450,091 | | | $ | (198,625) | | | (44.1) | % |
Adjusted EBITDA margin (2) | | 25.5 | % | | 37.0 | % | | | | (11.5) | % |
| Attendance | | 14,178 | | | 22,864 | | | (8,686) | | | (38.0) | % |
In-park per capita spending (3) | | $ | 62.26 | | | $ | 48.73 | | | $ | 13.53 | | | 27.8 | % |
| Out-of-park revenues | | $ | 134,054 | | | $ | 140,452 | | | $ | (6,398) | | | (4.6) | % |
| Operating days | | 1,381 | | | 1,862 | | | (481) | | | (25.8) | % |
N/M Not meaningful due to the nature of the expense line-item
(1) For additional information regarding Adjusted EBITDA, including how we define and use Adjusted EBITDA, as well as a reconciliation to net income (loss), see page 18.
(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.
(3) Net revenues as disclosed within the statements of operations and comprehensive income (loss) consist of in-park revenues and out-of-park revenues less amounts remitted to outside parties under concessionaire arrangements. In-park per capita spending is calculated as in-park revenues divided by total attendance. In-park revenues and concessionaire remittance totaled $1.1 billion and $37.0 million, respectively, for the nine months ended September 29, 2019.
For the nine months ended September 26, 2021, net revenues totaled $987.3 million compared with $1.2 billion for the nine months ended September 29, 2019. The decrease in net revenues reflected the impact of an 8.7 million-visit, or 38.0%, decline in attendance offset by a $13.53, or 28%, increase in in-park per capita spending. The decreases in net revenues and attendance were primarily attributable to 481 fewer operating days in the current period. Out-of-park revenues for the nine months ended September 26, 2021 decreased $6.4 million compared with the nine months ended September 29, 2019. The decrease in out-of-park revenues was attributable to the delayed opening of our parks in 2021 until May 2021, as well as the temporary closure of two hotel properties for renovations, which was somewhat offset by revenues from the Knott's Berry Farm culinary festival in the current period.
Operating costs and expenses for the nine months ended September 26, 2021 decreased $34.8 million compared with the nine months ended September 29, 2019. This was the result of a $20.5 million decrease in cost of goods sold, an $8.1 million decrease in operating expenses and a $6.2 million decrease in SG&A expense, all of which were largely the result of fewer operating days in the current period. The decrease in operating expenses was primarily attributable to less seasonal labor hours, maintenance costs, and entertainment costs due to fewer operating days offset by a meaningful increase in seasonal labor rate in order to recruit employees in a challenging labor market, as well as higher full-time wages attributable to an increase in headcount. The decrease in SG&A expense was primarily due to less advertising expense due to fewer operating days and a more efficient marketing program offset by an increase in full-time wages, particularly for accrued bonus plans and equity-based compensation plans.
Depreciation and amortization expense for the nine months ended September 26, 2021 decreased $24.9 million compared with the nine months ended September 29, 2019 due primarily to the full depreciation of 15-year useful lived property and equipment from our 2006 acquisition and the change in estimated useful life of a long-lived asset at Kings Dominion in 2019. The loss on impairment / retirement of fixed assets for the nine months ended September 26, 2021 and September 29, 2019 included retirements of assets in the normal course of business.
After the items above, operating income for the nine months ended September 26, 2021 totaled $119.3 million compared with $292.6 million for the nine months ended September 29, 2019.
Interest expense for the nine months ended September 26, 2021 increased $64.6 million compared with the nine months ended September 29, 2019 primarily due to interest incurred on the 2025 senior notes and 2028 senior notes, both of which were issued in 2020. The net effect of our swaps resulted in a benefit to earnings of $10.6 million for the nine months ended September 26, 2021 compared with a $21.1 million charge to earnings for the nine months ended September 29, 2019. The difference was attributable to the change in fair market value movements in our swap portfolio. During the current period, we also recognized a $1.7 million net benefit to earnings for foreign currency gains and losses compared with a $12.5 million net benefit to earnings for the nine months ended September 29, 2019. Both amounts primarily represented remeasurement of the U.S.-dollar denominated debt recorded at our Canadian entity from the U.S.-dollar to the legal entity's functional currency.
During the nine months ended September 26, 2021, a provision for taxes of $16.9 million was recorded to account for PTP taxes and federal, state, local and foreign income taxes compared with a provision for taxes of $43.5 million for the nine months ended September 29, 2019. The decrease in provision for taxes was attributable to a decrease in pretax income from our taxable subsidiaries during the current nine-month period.
After the items above, net loss for the nine months ended September 26, 2021 totaled $21.3 million, or $0.38 per diluted limited partner unit, compared with net income of $169.6 million, or $2.98 per diluted limited partner unit, for the nine months ended September 29, 2019.
For the nine months ended September 26, 2021, Adjusted EBITDA totaled $251.5 million compared with $450.1 million for the nine months ended September 29, 2019. Similarly, our Adjusted EBITDA margin for the nine months ended September 26, 2021 decreased compared with the Adjusted EBITDA margin for the nine months ended September 29, 2019. The decreases in Adjusted EBITDA and Adjusted EBITDA margin were both largely due to the postponed opening of our parks for the 2021 operating season until May 2021, as well as increased labor costs in the current period due to labor rate pressures.
In order to provide a more meaningful comparison of our key operational measures, we have provided comparable same-day statistics for attendance and in-park per capita spending. These supplemental comparisons are being used by management for operational decisions. We believe these supplemental key operational measures provide a more meaningful measure of current demand and guest spending trends due to the material variances in operating days between years.
For attendance and in-park per capita spending, the comparable same-day statistics compare the results from 1,255 operating days for the nine months ended September 26, 2021 with the comparable 1,255 operating days for the nine months ended September 29, 2019. The 1,255 operating days for the nine months ended September 26, 2021 included the 1,381 total operating days for the period less 70 operating days from the Schlitterbahn parks which were acquired on July 1, 2019 and less 56 2021 operating days which did not have equivalent 2019 operating days. As a result, on a comparable same-day basis, we excluded $34.4 million of in-park revenues and 0.6 million visits for the nine months ended September 26, 2021 to exclude the results of 2021 operating days without equivalent 2019 operating days. We also excluded $277.5 million of in-park revenues and 6.1 million visits for the nine months ended September 29, 2019 to exclude the results of 2019 operating days without equivalent 2021 operating days. No adjustments otherwise were made to the daily data from either period, including no adjustments to reflect the impact of fewer operating hours within an operating day or operating restrictions in place in 2021.
Attendance for the nine months ended September 26, 2021 represented approximately 80% of attendance for the first nine months of 2019 on a comparable same-day basis driven by general admission and season pass attendance and offset by an expected slower recovery in group sales attendance. In-park per capita spending for the nine months ended September 26, 2021 represented approximately 120% of in-park per capita spending for the first nine months of 2019 on a comparable same-day basis. The increase in in-park per capita spending on a comparable same-day basis was attributable to increases in all key spending categories, particularly admission and extra-charge attractions, including front-of-line FastLane products. Attendance and in-park per capita spending as a percentage of 2019 results on a comparable same-day basis increased each month from the initial opening of our parks in May 2021 through the end of the third quarter of 2021. Due to the nature of out-of-park revenues, we are not able to produce comparable same-day statistics.
Three months ended September 26, 2021 vs. Three months ended September 27, 2020
Due to the effects of the COVID-19 pandemic, the results for the three months ended September 26, 2021 were not directly comparable with the results for the three months ended September 27, 2020. The current three-month period included 988 operating days compared with a total of 314 operating days for the three months ended September 27, 2020.
In the current period, all of our properties were open during the third quarter of 2021, and we removed most capacity restrictions, guest reservation requirements and other protocols at our U.S. properties beginning in July 2021. Operating restrictions remained in place at our Canadian property throughout the third quarter of 2021. We adjusted our third quarter 2021 operating calendars to reflect anticipated changes in guest demand, labor availability and state and local restrictions by including fewer operating days in July and August at some of our smaller properties and by including additional operating days in September.
For the three months ended September 27, 2020 and due to the effects of the COVID-19 pandemic, eight of our 13 properties resumed partial operations on a staggered basis during the third quarter of 2020 with opening dates beginning in mid-June and continuing through mid-July. During this time, we also reopened operations at some of our out-of-park operations at this time, such as hotel operations. Following March 14, 2020, Knott's Berry Farm's partial operations were limited to culinary festivals which were classified as out-of-park revenues.
The following table presents key financial information for the three months ended September 26, 2021 and September 27, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended | | Increase (Decrease) |
| | September 26, 2021 | | September 27, 2020 | | $ | | % |
| | | (Amounts in thousands, except per capita and operating days) |
| Net revenues | | $ | 753,404 | | | $ | 87,457 | | | $ | 665,947 | | | N/M |
| Operating costs and expenses | | 423,791 | | | 140,601 | | | 283,190 | | | N/M |
| Depreciation and amortization | | 77,461 | | | 67,436 | | | 10,025 | | | 14.9 | % |
| Loss on impairment / retirement of fixed assets, net | | 2,397 | | | 727 | | | 1,670 | | | N/M |
| Loss on impairment of goodwill and other intangibles | | — | | | 15,818 | | | (15,818) | | | N/M |
| Gain on sale of investment | | — | | | (11) | | | 11 | | | N/M |
| Operating income (loss) | | $ | 249,755 | | | $ | (137,114) | | | $ | 386,869 | | | N/M |
| | | | | | | | |
| Other Data: | | | | | | | | |
Adjusted EBITDA (1) | | $ | 333,368 | | | $ | (51,488) | | | $ | 384,856 | | | N/M |
| | | | | | | | |
| Attendance | | 10,769 | | | 1,306 | | | 9,463 | | | N/M |
| In-park per capita spending | | $ | 64.26 | | | $ | 47.29 | | | $ | 16.97 | | | 35.9 | % |
| Out-of-park revenues | | $ | 83,074 | | | $ | 29,051 | | | $ | 54,023 | | | 186.0 | % |
| Operating days | | 988 | | | 314 | | | 674 | | | N/M |
N/M Not meaningful either due to minimal operations in the prior period or due to the nature of the expense line-item
(1) For additional information regarding Adjusted EBITDA, including how we define and use Adjusted EBITDA, as well as a reconciliation to net income (loss), see page 18.
For the three months ended September 26, 2021, net revenues totaled $753.4 million compared with $87.5 million for the three months ended September 27, 2020. The increase in net revenues was attributable to the 674 operating day increase in the current period resulting in a 9.5 million-visit increase in attendance and a $54.0 million increase in out-of-park revenues. In-park per capita spending increased 36% to $64.26 for the three months ended September 26, 2021, which represented higher levels of guest spending, particularly admissions and extra-charge attractions, including front-of-line FastLane products, and was driven by increases in pricing and volume. The increase in net revenues included a $2.9 million favorable impact of foreign currency exchange rates at our Canadian park.
Operating costs and expenses for the three months ended September 26, 2021 increased to $423.8 million from $140.6 million for the three months ended September 27, 2020. This was the result of a $47.9 million increase in cost of goods sold, a $172.6 million increase in operating expenses and a $62.7 million increase in SG&A expense, all of which were largely the result of a 674 operating day increase in the current period. While the majority of the $172.6 million increase in operating expenses was attributable to the increase in operating days, there was also a meaningful increase in seasonal labor rate in order to recruit employees in a challenging labor market, as well as higher full-time wages attributable to accrued bonus plans and increased headcount. Similarly, the $62.7 million increase in SG&A expense was driven by resumed park operations in 2021. However, the increase in SG&A expense was also driven by an increase in full-time wages, particularly for accrued bonus plans and equity-based compensation plans. The increase in operating costs and expenses included a $1.5 million unfavorable impact of foreign currency exchange rates at our Canadian park.
Depreciation and amortization expense for the three months ended September 26, 2021 increased $10.0 million compared with the three months ended September 27, 2020 due to a higher percentage of total planned operating days in the third quarter of 2021 compared with the percentage of total planned operating days in the third quarter of 2020. We recognize depreciation and amortization expense over planned operating days. The loss on impairment / retirement of fixed assets for the three months ended September 26, 2021 was comparable with the results from the three months ended September 27, 2020 and was due to retirements of assets in the normal course of business. The loss on impairment of goodwill and other intangibles for the three months ended September 27, 2020 included impairment charges of $11.3 million, $2.3 million and $2.2 million during the third quarter of 2020 attributable to impairment of goodwill at the Schlitterbahn parks, goodwill at Dorney Park, and the Schlitterbahn trade name, respectively (see Note 5).
After the items above, operating income for the three months ended September 26, 2021 totaled $249.8 million compared with an operating loss of $137.1 million for the three months ended September 27, 2020.
Interest expense for the three months ended September 26, 2021 increased $5.9 million due to interest incurred on the 2028 senior notes issued in October 2020. The net effect of our swaps resulted in a benefit to earnings of $3.2 million for the three months ended September 26, 2021 compared with a $1.6 million benefit to earnings for the three months ended September 27, 2020. The difference was attributable to the change in fair market value movements in our swap portfolio. We recognized a $0.3 million loss on early debt extinguishment related to our April 2020 refinancing during the three months ended September 27, 2020. During the third quarter of 2021, we also recognized a $15.2 million net charge to earnings for foreign currency gains and losses compared with a $9.6 million net benefit to earnings for the three months ended September 27, 2020. Both amounts primarily represented remeasurement of the U.S.-dollar denominated debt recorded at our Canadian entity from the U.S.-dollar to the legal entity's functional currency.
During the three months ended September 26, 2021, a provision for taxes of $43.8 million was recorded to account for PTP taxes and federal, state, local and foreign income taxes compared with a benefit for taxes of $30.4 million for the three months ended September 27, 2020. The difference in provision for taxes was attributable to pretax income in the current period compared with a prior period pretax loss from our taxable subsidiaries, as well as expected benefits from the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which was signed into law on March 27, 2020. The CARES Act resulted in various changes to the U.S. tax law, including, among other things, allowing net operating losses arising in tax years 2018 through 2020 to be carried back to the preceding five taxable years and removing the limitation that such losses only offset 80% of taxable income. As a result of these changes, we expect to recognize two benefits. First, we expect to carry back the tax year 2020 losses incurred by our corporate subsidiaries, which will result in the refund of a portion of federal income taxes paid during the carryback period of approximately $79.7 million. Second, as of September 26, 2021, the annual effective tax rate included a net benefit of $2.3 million from carrying back the projected tax year 2020 losses of the corporate subsidiaries. This tax benefit represents an estimated incremental benefit of tax loss carrybacks for periods when the federal income tax rate was greater than the current 21% rate. The overall benefit of the carryback of losses was decreased by $7.2 million for a projected valuation allowance on foreign tax credits originally utilized during the carryback period which would be released as a result of the loss carryback but which are not expected to be utilized.
After the items above, net income for the three months ended September 26, 2021 totaled $148.0 million, or $2.60 per diluted limited partner unit, compared with a net loss of $136.3 million, or $2.41 per diluted limited partner unit, for the three months ended September 27, 2020.
For the three months ended September 26, 2021, Adjusted EBITDA totaled $333.4 million compared with Adjusted EBITDA loss of $51.5 million for the three months ended September 27, 2020. The increase in Adjusted EBITDA was primarily due to the impact of COVID-19 related park closures in 2020 and the related improvement in attendance, in-park per capita spending and out-of-park revenues from reopening parks in 2021.
Three months ended September 26, 2021 vs. Three months ended September 29, 2019
As described above, the results for the three months ended September 26, 2021 were not directly comparable with the results for the three months ended September 27, 2020 due to the effects of the COVID-19 pandemic. Therefore, we also included a comparison to the three months ended September 29, 2019. The current three-month period included 988 operating days compared with a total of 1,035 operating days for the three months ended September 29, 2019. In the current period, all of our properties were open during the third quarter of 2021, and we removed most capacity restrictions, guest reservation requirements and other protocols at our U.S. properties beginning in July 2021. Operating restrictions remained in place at our Canadian property throughout the third quarter of 2021. We adjusted our third quarter 2021 operating calendars to reflect anticipated changes in guest demand, labor availability and state and local restrictions by including fewer operating days in July and August at some of our smaller properties and by including additional operating days in September. The following table presents key financial information for the three months ended September 26, 2021 and September 29, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended | | Increase (Decrease) |
| | September 26, 2021 | | September 29, 2019 | | $ | | % |
| | | (Amounts in thousands, except per capita and operating days) |
| Net revenues | | $ | 753,404 | | | $ | 714,512 | | | $ | 38,892 | | | 5.4 | % |
| Operating costs and expenses | | 423,791 | | | 369,180 | | | 54,611 | | | 14.8 | % |
| Depreciation and amortization | | 77,461 | | | 68,335 | | | 9,126 | | | 13.4 | % |
| Loss on impairment / retirement of fixed assets, net | | 2,397 | | | 1,675 | | | 722 | | | N/M |
| | | | | | | | |
| | | | | | | | |
| Operating income | | $ | 249,755 | | | $ | 275,322 | | | $ | (25,567) | | | (9.3) | % |
| | | | | | | | |
| Other Data: | | | | | | | | |
Adjusted EBITDA (1) | | $ | 333,368 | | | $ | 355,188 | | | $ | (21,820) | | | (6.1) | % |
Adjusted EBITDA margin (2) | | 44.2 | % | | 49.7 | % | | | | (5.5) | % |
| Attendance | | 10,769 | | | 13,189 | | | (2,420) | | | (18.3) | % |
| In-park per capita spending | | $ | 64.26 | | | $ | 49.94 | | | $ | 14.32 | | | 28.7 | % |
| Out-of-park revenues | | $ | 83,074 | | | $ | 76,347 | | | $ | 6,727 | | | 8.8 | % |
| Operating days | | 988 | | | 1,035 | | | (47) | | | (4.5) | % |
N/M Not meaningful due to minimal operations in the prior period
(1) For additional information regarding Adjusted EBITDA, including how we define and use Adjusted EBITDA, as well as a reconciliation to net income (loss), see page 18.
(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 three months ended September 26, 2021, net revenues totaled $753.4 million, increasing $38.9 million compared with the three months ended September 29, 2019. The increase in net revenues reflected the impact of a $14.32, or 29%, increase in in-park per capita spending offset by the impact of a 2.4 million-visit, or 18%, decline in attendance. The increase in in-park per capita spending was driven by higher guest spending across all key revenue categories, particularly admissions spending, and was driven by increases in pricing and fewer visits per season pass. The decrease in attendance was largely due to an expected slower recovery in group sales attendance, as well as operating restrictions during the current quarter. Attendance and in-park per capita spending as a percentage of 2019 results increased each month of the third quarter of 2021. Out-of-park revenues increased $6.7 million compared with the three months ended September 29, 2019. The increase in out-of-park revenues was largely attributable to online transaction fee revenue. Out-of-park revenues were hindered by the temporary closure of two hotel properties for renovations.
Operating costs and expenses for the three months ended September 26, 2021 increased to $423.8 million from $369.2 million for the three months ended September 29, 2019. This was the result of a $1.0 million increase in cost of goods sold, a $45.8 million increase in operating expenses and a $7.8 million increase in SG&A expense. Cost of goods sold as a percentage of food, merchandise and games revenue for the three months ended September 26, 2021 was consistent with the results for the three months ended September 29, 2019. Of the $45.8 million increase in operating expenses, approximately half was attributable to an increase in seasonal labor wages. The increase in seasonal labor wages was entirely due to a meaningful increase in the seasonal labor rate to recruit employees in a challenging labor market. Seasonal labor hours declined compared with the comparable period in 2019 due to abbreviated operating calendars in 2021. The remaining increase in operating expenses was attributable to higher full-time wages attributable to additional head count and higher costs for operating and maintenance supplies. The $7.8 million increase in SG&A expense was largely attributable to an increase in full-time wages, particularly for accrued bonus plans, and operating supplies offset by less advertising expense due to a more efficient marketing program.
Depreciation and amortization expense for the three months ended September 26, 2021 increased $9.1 million compared with the three months ended September 29, 2019 due to a higher percentage of total planned operating days in the third quarter of 2021 compared with the percentage of total planned operating days in the third quarter of 2019. We recognize depreciation and amortization expense over planned operating days. The loss on impairment / retirement of fixed assets for the three months ended September 26, 2021 was comparable with the results from the three months ended September 29, 2019 and was due to retirements of assets in the normal course of business.
After the items above, operating income for the three months ended September 26, 2021 totaled $249.8 million compared with $275.3 million for the three months ended September 29, 2019.
Interest expense for the three months ended September 26, 2021 increased $18.3 million compared with the three months ended September 29, 2019 primarily due to interest incurred on the 2025 senior notes and 2028 senior notes, both of which were issued in 2020. The net effect of our swaps resulted in a benefit to earnings of $3.2 million for the three months ended September 26, 2021 compared with a $3.9 million charge to earnings for the three months ended September 29, 2019. The difference was attributable to the change in fair market value movements in our swap portfolio. During the third quarter of 2021, we also recognized a $15.2 million net charge to earnings for foreign currency gains and losses compared with a $5.6 million net charge to earnings for the three months ended September 29, 2019. Both amounts primarily represented remeasurement of the U.S.-dollar denominated debt recorded at our Canadian entity from the U.S.-dollar to the legal entity's functional currency.
During the three months ended September 26, 2021, a provision for taxes of $43.8 million was recorded to account for PTP taxes and federal, state, local and foreign income taxes compared with a provision for taxes of $48.8 million for the three months ended September 29, 2019. The decrease in provision for taxes was attributable to a decrease in pretax income from our taxable subsidiaries during the current quarter.
After the items above, net income for the three months ended September 26, 2021 totaled $148.0 million, or $2.60 per diluted limited partner unit, compared with net income of $190.0 million, or $3.34 per diluted limited partner unit, for the three months ended September 29, 2019.
For the three months ended September 26, 2021, Adjusted EBITDA totaled $333.4 million compared with $355.2 million for the three months ended September 29, 2019. The decrease in Adjusted EBITDA was largely due to increased labor costs in the current period due to labor rate pressures, as well as the impact of operating restrictions during the third quarter of 2021. Similarly, our Adjusted EBITDA margin for the three months ended September 26, 2021 decreased compared with the Adjusted EBITDA margin for the three months ended September 29, 2019 due to increased costs in the current period, particularly due to increases in seasonal labor rates.
October Update
Preliminary net revenues for the ten months ended October 31, 2021 totaled approximately $1.2 billion. Attendance totaled 17.3 million visits, in-park per capita spending was $62.73, and out-of-park revenues totaled $153 million. Given the effects of the COVID-19 pandemic and suspension of park operations in 2020, we compared the results for the five weeks ended October 31, 2021 with the results for the five weeks ended November 3, 2019. For the five weeks ended October 31, 2021, preliminary net revenues totaled approximately $219 million, representing an increase of 42%, or $65 million, compared to the five weeks ended November 3, 2019. The increase was driven by an 8% increase in attendance to 3.2 million visits; a 32% increase in in-park per capita spending to $64.86; and a 33% increase in out-of-park revenues to $19 million.
Liquidity and Capital Resources:
Our principal sources of liquidity typically include cash from operating activities, funding from our long-term debt obligations and existing cash on hand. Due to the seasonality of our business, we typically fund pre-opening operations with revolving credit borrowings. Revolving credit borrowings are typically reduced with our positive cash flow during the seasonal operating period. Our primary uses of liquidity typically include operating expenses, partnership distributions, capital expenditures, interest payments and income tax obligations.
Due to the negative effects of the COVID-19 pandemic, we took steps in 2020 to secure additional liquidity and to obtain relief from certain financial covenants including issuing $1.3 billion of senior notes, amending our term debt and revolving credit agreement, reducing operating expenses, including labor costs, suspending capital expenditures, and suspending quarterly partnership distributions. Due to limited open operations, our 2020 and first quarter 2021 liquidity needs were funded from cash on hand from the recently issued senior notes. We generated positive cash flows from operations during the second and third quarters of 2021. As of September 26, 2021, we had cash on hand of $562.7 million and $359.2 million of available borrowings under our revolving credit facility. Based on this level of liquidity, we have concluded that we will have sufficient liquidity to satisfy our obligations and remain in compliance with our debt covenants at least through the fourth quarter of 2022.
As restrictions to mitigate the spread of COVID-19 have largely been lifted and our properties have mostly been able to resume full operations, management is focused on driving profitable and sustainable growth in the business, as well as reducing the Company's leverage. In 2021, we commenced a business optimization program as part of our long-range strategic plan. Efforts include capturing cost efficiencies and driving incremental revenues through data-driven decision making, as well as enhancements to the guest experience to meet changing consumer behaviors and preferences. The program focuses on reductions in fixed costs that are independent of attendance levels, as well as incremental revenue opportunities and variable cost savings. Also, in the long term, management anticipates returning to historical annual capital expenditure investments of 9-10% of revenues under normal operating conditions. Management is also committed to reinstituting quarterly partnership distributions when it is appropriate to do so and it is permissible under the Third Amended 2017 Credit Agreement and our other debt covenants.
For the 2021 operating season, capital investments will again be less than pre-COVID historical levels, as many new rides and attractions originally planned for the 2020 operating season were introduced to our guests in 2021. For 2021, we expect to invest between $50 million and $75 million in capital expenditures, roughly equally split between the completion of select unfinished projects from 2020, including the renovation of some of our resort properties, essential compliance and infrastructure requirements, and the start of projects planned for the 2022 operating season. For 2022, we expect to invest between $175 million and $200 million in capital expenditures. Due to the issuance of $1.3 billion of senior notes in 2020, we anticipate $175 million in annual cash interest in 2021 of which 80% of the payments occur in the second and fourth quarter. We are expecting to receive $79.7 million in tax refunds attributable to the tax year 2020 net operating loss being carried back to prior years in the United States and an additional $9.5 million in tax refunds attributable to net operating losses being carried back to prior years in Canada. We anticipate receiving these tax refunds in the fourth quarter of 2021. Also, in 2021, we anticipate cash payments for income taxes to range from $8 million to $13 million, exclusive of these tax refunds. We anticipate funding our remaining 2021 liquidity needs from cash on hand and cash from operating activities.
Operating Activities
Net cash from operating activities for the first nine months of 2021 totaled $230.1 million, an increase of $505.6 million compared with net cash for operating activities for the same period in the prior year. The increase in net cash from operating activities was largely attributable to the opening of all of our properties in 2021.
Investing Activities
Net cash for investing activities for the first nine months of 2021 totaled $38.1 million, a decrease of $80.6 million compared with the same period in the prior year. The decrease in net cash for investing activities was due to a planned reduction in capital spending for 2021.
Financing Activities
Net cash for financing activities for the first nine months of 2021 totaled $6.1 million, a decrease of $445.9 million compared with net cash from financing activities for the same period in the prior year. The decrease was attributable to net cash proceeds from the April 2020 refinancing in the prior period, including the issuance of the 2025 senior notes and prepayment of a portion of our term debt, somewhat offset by the first quarter 2020 partnership distribution.
Contractual Obligations
As of September 26, 2021, our primary contractual obligations consisted of outstanding long-term debt agreements and related derivative agreements. Before reduction for debt issuance costs and original issue discount, our long-term debt agreements consisted of the following:
•$264 million of senior secured term debt, maturing in April 2024 under our Third Amended 2017 Credit Agreement. The term debt bears interest at London InterBank Offering Rate ("LIBOR") plus 175 basis points (bps), under amendments we entered into on March 14, 2018. The pricing terms for the 2018 amendment reflected $0.9 million of Original Issue Discount ("OID"). Following a $463.3 million prepayment during the second quarter of 2020, we do not have any required remaining quarterly payments. Therefore, we had no current maturities as of September 26, 2021.
•$1.0 billion of 5.500% senior secured notes, maturing in May 2025, issued at par. The 2025 senior notes and the related guarantees are secured by first-priority liens on the issuers' and the guarantors' assets that secure all the obligations under our credit facilities. Prior to May 1, 2022, up to 35% of the 2025 senior notes may be redeemed with the net cash proceeds of certain equity offerings at a price equal to 105.500% of the principal amount thereof, together with accrued and unpaid interest and additional interest, if any. The 2025 senior notes may be redeemed, in whole or in part, at any time prior to May 1, 2022 at a price equal to 100% of the principal amount of the notes redeemed plus a "make-whole" premium together with accrued and unpaid interest and additional interest, if any, to the redemption date. Thereafter, the 2025 senior notes may be redeemed, in whole or in part, at various prices depending on the date redeemed. The 2025 senior notes pay interest semi-annually in May and November.
•$450 million of 5.375% senior unsecured notes, maturing in June 2024, issued at par. The 2024 senior notes may be redeemed, in whole or in part, at various prices depending on the date redeemed. The 2024 senior notes pay interest semi-annually in June and December.
•$500 million of 5.375% senior unsecured notes, maturing in April 2027, issued at par. The 2027 senior notes may be redeemed, in whole or in part, at any time prior to April 15, 2022 at a price equal to 100% of the principal amount of the notes redeemed plus a "make-whole" premium, together with accrued and unpaid interest and additional interest, if any, to the redemption date. Thereafter, the 2027 senior notes may be redeemed, in whole or in part, at various prices depending on the date redeemed. The 2027 senior notes pay interest semi-annually in April and October.
•$300 million of 6.500% senior unsecured notes, maturing in October 2028, issued at par. Prior to October 1, 2023, up to 35% of the 2028 senior notes may be redeemed with the net cash proceeds of certain equity offerings at a price equal to 106.500% of the principal amount thereof, together with accrued and unpaid interest and additional interest, if any. The 2028 senior notes may be redeemed, in whole or in part, at any time prior to October 1, 2023 at a price equal to 100% of the principal amount of the notes redeemed plus a "make-whole" premium together with accrued and unpaid interest and additional interest, if any, to the redemption date. Thereafter, the 2028 senior notes may be redeemed, in whole or in part, at various prices depending on the date redeemed. The 2028 senior notes pay interest semi-annually in April and October.
•$500 million of 5.250% senior unsecured notes, maturing in July 2029, issued at par. Prior to July 15, 2022, up to 35% of the 2029 senior notes may be redeemed with the net cash proceeds of certain equity offerings at a price equal to 105.250% of the principal amount thereof, together with accrued and unpaid interest and additional interest, if any. The 2029 senior notes may be redeemed, in whole or in part, at any time prior to July 15, 2024 at a price equal to 100% of the principal amount of the notes redeemed plus a "make-whole" premium together with accrued and unpaid interest and additional interest, if any, to the redemption date. Thereafter, the 2029 senior notes may be redeemed, in whole or in part, at various prices depending on the date redeemed. The 2029 senior notes pay interest semi-annually in January and July.
•No borrowings under the $375 million senior secured revolving credit facility under our Third Amended 2017 Credit Agreement with a Canadian sub-limit of $15 million. $300 million of the revolving credit facility bears interest at LIBOR plus 350 bps or Canadian Dollar Offered Rate ("CDOR") plus 250 bps and requires the payment of a 62.5 bps commitment fee per annum on the unused portion of the credit facilities. The remaining $75 million of the revolving credit facility bears interest at LIBOR plus 300 bps or CDOR plus 200 bps and requires the payment of a 37.5 bps commitment fee per annum on the unused portion of the credit facilities. $300 million of the revolving credit facility is scheduled to mature in December 2023 and $75 million of the revolving credit facility is scheduled to mature in April 2022. The Third Amended 2017 Credit Agreement provides for the issuance of documentary and standby letters of credit. After letters of credit, which totaled $15.8 million as of September 26, 2021, we had $359.2 million of available borrowings under the revolving credit facility. Our letters of credit are primarily in place to backstop insurance arrangements.
As of September 26, 2021, we have four interest rate swap agreements with a notional value of $500 million that convert one-month variable rate LIBOR to a fixed rate of 2.88% through December 31, 2023. This results in a 4.63% fixed interest rate for borrowings under our senior secured term loan facility after the impact of interest rate swap agreements. None of our interest rate swap agreements were designated as cash flow hedges in the periods presented. As of September 26, 2021, the fair value of our swap portfolio was classified as long-term and recorded in "Derivative Liability" within the unaudited condensed consolidated balance sheet.
The Third Amended 2017 Credit Agreement includes: (i) a Senior Secured Leverage Ratio of 4.50x Total First Lien Senior Secured Debt-to-Consolidated EBITDA starting with the first quarter of 2022, which will step down to 4.00x in the second quarter of 2023 and which will step down further to 3.75x in the third quarter of 2023, with the covenant calculations for the first, second, and third quarters in 2022 to include Consolidated EBITDA from the second, third and fourth quarters of the fiscal year ended December 31, 2019 in lieu of the Consolidated EBITDA for the corresponding quarters in 2021 ("Deemed EBITDA Quarters"); (ii) a requirement that we maintain a minimum liquidity level of at least $125 million, tested at all times, until the earlier of December 31, 2022 or the termination of the Additional Restrictions Period (which generally includes the period from the effective date of the Second Amendment until the delivery of the compliance certificate for the fourth quarter of 2022); and (iii) a suspension of certain restricted payments, including partnership distributions, under the Third Amended 2017 Credit Agreement until the termination of the Additional Restrictions Period. We may terminate the Additional Restrictions Period prior to December 31, 2022 by achieving compliance with the Senior Secured Leverage Ratio covenant as of the end of a fiscal quarter without giving effect to Deemed EBITDA Quarters for any fiscal quarter. We were in compliance with the applicable financial covenants under the Third Amended 2017 Credit Agreement during the nine months ended September 26, 2021.
Our fixed rate note agreements include Restricted Payment provisions, which could limit our ability to pay partnership distributions. Pursuant to the terms of the indenture governing the 2024 senior notes, which includes the most restrictive of these Restricted Payments provisions under our fixed rate note agreements, if our pro forma Total-Indebtedness-to-Consolidated-Cash-Flow Ratio is greater than 5.00x, we can still make Restricted Payments of $60 million annually so long as no default or event of default has occurred and is continuing. If our pro forma Total-Indebtedness-to-Consolidated-Cash-Flow Ratio is less than or equal to 5.00x, we can make Restricted Payments up to our Restricted Payment pool. Our pro forma Total-Indebtedness-to-Consolidated-Cash-Flow Ratio was greater than 5.00x as of September 26, 2021.
Financial and Non-Financial Disclosure About Issuers and Guarantors of our Registered Senior Notes
As discussed within the Long-Term Debt footnote at Note 6, we have issued five tranches of fixed rate senior notes: the 2024, 2025, 2027, 2028 and 2029 senior notes (“senior notes”). The 2024, 2027, 2028 and 2029 senior notes (the “registered senior notes”) have been registered under the Securities Act of 1933. The 2025 senior notes were sold in a private placement in reliance on exemptions from registration under the Securities Act of 1933. Cedar Fair, L.P., Canada's Wonderland Company ("Cedar Canada"), and Magnum Management Corporation ("Magnum") are the co-issuers of the 2024 senior notes. Cedar Fair, L.P., Cedar Canada, Magnum, and Millennium Operations LLC (“Millennium”) are the co-issuers of the 2027, 2028 and 2029 senior notes. Our senior notes have been irrevocably and unconditionally guaranteed, on a joint and several basis, by each wholly owned subsidiary of Cedar Fair (other than the co-issuers) that guarantees our credit facilities under the Third Amended 2017 Credit Agreement. A full listing of the issuers and guarantors of our registered senior notes can be found within Exhibit 22, and additional information with respect to our registered senior notes and the related guarantees follows.
The 2024, 2027, 2028 and 2029 senior notes each rank equally in right of payment with all of each issuer’s existing and future senior unsecured debt, including the other registered senior notes. However, the 2024, 2027, 2028 and 2029 senior notes are ranked effectively junior to our secured debt under the Third Amended 2017 Credit Agreement and the 2025 senior notes to the extent of the value of the assets securing such debt.
In the event that the co-issuers (except for Cedar Fair, L.P.) or any subsidiary guarantor is released from its obligations under our senior secured credit facilities (or the Third Amended 2017 Credit Agreement), such entity will also be released from its obligations under the registered senior notes. In addition, the co-issuers (except for Cedar Fair, L.P.) or any subsidiary guarantor can be released from its obligations under the 2024, 2027, 2028 and 2029 senior notes under the following circumstances, assuming the associated transactions are in compliance with the applicable provisions of the indentures governing the 2024, 2027, 2028 and 2029 senior notes: i) any direct or indirect sale, conveyance or other disposition of the capital stock of such entity following which the entity ceases to be a direct or indirect subsidiary of Cedar Fair or a sale or disposition of all or substantially all of the assets of such entity; ii) if such entity is dissolved or liquidated; iii) if we designate such entity as an Unrestricted Subsidiary; iv) upon transfer of such entity in a qualifying transaction if following such transfer the entity ceases to be a direct or indirect Restricted Subsidiary of Cedar Fair or is a Restricted Subsidiary that is not a guarantor under any credit facility; or v) in the case of the subsidiary guarantors, upon a discharge of the indenture or upon any legal defeasance or covenant defeasance of the indenture.
The obligations of each guarantor are limited to the extent necessary to prevent such guarantee from constituting a fraudulent conveyance or fraudulent transfer under applicable law. This provision may not, however, protect a guarantee from being voided under fraudulent transfer law, or may reduce the applicable guarantor’s obligation to an amount that effectively makes its guarantee worthless. If a guarantee were rendered voidable, it could be subordinated by a court to all other indebtedness of the guarantor, and depending on the amount of such indebtedness, could reduce the guarantee to zero. Each guarantor that makes a payment or distribution under a guarantee is entitled to a pro rata contribution from each other guarantor based on the respective net assets of the guarantors.
The following tables provide summarized financial information for each of our co-issuers and guarantors of the 2024, 2027, 2028 and 2029 senior notes (the "Obligor Group"). We have presented each entity that is a co-issuer of any series of the registered senior notes separately. The subsidiaries that guarantee the 2027, 2028 and 2029 senior notes are presented on a combined basis with intercompany balances and transactions between entities in such guarantor subsidiary group eliminated. Intercompany balances and transactions between the co-issuers and guarantor subsidiaries have not been eliminated. The subsidiaries that guarantee the 2024 senior notes include the guarantor subsidiary group, as well as Millennium. Millennium is a co-issuer under the 2027, 2028 and 2029 senior notes and a guarantor under the 2024 senior notes. Certain subsidiaries of Cedar Fair do not guarantee our credit facilities or senior notes as the assets and results of operations of these subsidiaries are immaterial (the "non-guarantor" subsidiaries). The summarized financial information excludes results of the non-guarantor subsidiaries and does not reflect investments of the Obligor Group in the non-guarantor subsidiaries. The Obligor Group's amounts due from, amounts due to, and transactions with the non-guarantor subsidiaries have not been eliminated and included intercompany receivables from non-guarantors of $13.7 million and $11.5 million as of September 26, 2021 and December 31, 2020, respectively.
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Summarized Financial Information
(In thousands) | | Cedar Fair L.P. (Parent) | | Magnum
(Co-Issuer Subsidiary) | | Cedar Canada
(Co-Issuer Subsidiary) | | Millennium
(Co-Issuer 2027, 2028 & 2029
Guarantor 2024) | | Guarantor Subsidiaries (1) | | | | |
| Balance as of September 26, 2021 | | | | | | | | | | | | |
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| Current Assets | | $ | 823 | | | $ | 41,556 | | | $ | 76,197 | | | $ | 615,795 | | | $ | 1,143,187 | | | | | |
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| Non-Current Assets | | (95,475) | | | 1,155,669 | | | 540,321 | | | 2,350,755 | | | 1,744,008 | | | | | |
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| Current Liabilities | | 438,525 | | | 758,625 | | | 41,623 | | | 246,134 | | | 46,766 | | | | | |
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| Non-Current Liabilities | | 146,792 | | | 33,765 | | | 463,777 | | | 2,389,869 | | | 94,183 | | | | | |
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| Balance as of December 31, 2020 | | | | | | | | | | | | |
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| Current Assets | | $ | 421 | | | $ | 33,985 | | | $ | 44,465 | | | $ | 464,779 | | | $ | 1,044,779 | | | | | |
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| Non-Current Assets | | (30,651) | | | 995,507 | | | 528,281 | | | 2,311,502 | | | 1,820,745 | | | | | |
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| Current Liabilities | | 488,799 | | | 573,244 | | | 18,235 | | | 200,107 | | | 40,412 | | | | | |
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| Non-Current Liabilities | | 146,106 | | | 44,778 | | | 461,903 | | | 2,370,939 | | | 91,835 | | | | | |
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Nine Months Ended September 26, 2021 | | | | | | | | | | | | |
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| Net revenues | | $ | 26,951 | | | $ | 275,190 | | | $ | 53,283 | | | $ | 1,079,994 | | | $ | 258,106 | | | | | |
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| Operating income (loss) | | 24,061 | | | (114,564) | | | 11,694 | | | 100,751 | | | 98,186 | | | | | |
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| Net (loss) income | | (19,925) | | | (11,333) | | | 15,391 | | | — | | | 66,607 | | | | | |
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Twelve Months Ended December 31, 2020 | | | | | | | | | | | | |
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| Net revenues | | $ | — | | | $ | 102 | | | $ | 440 | | | $ | 510,077 | | | $ | 150,439 | | | | | |
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| Operating (loss) income | | (198,769) | | | (322,420) | | | (37,655) | | | 109,688 | | | (121,437) | | | | | |
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| Net loss | | (588,690) | | | (359,984) | | | (54,046) | | | — | | | (149,704) | | | | | |
(1) With respect to the 2024 senior notes, if the financial information presented for Millennium was combined with that of the other guarantor subsidiaries that have been presented on a combined basis, the following additional intercompany balances and transactions between Millennium and such other guarantor entities would be eliminated: Current Assets and Current Liabilities - $13.4 million as of September 26, 2021 and $12.7 million as of December 31, 2020; Non-Current Assets - $2,239.4 million as of September 26, 2021 and $2,201.8 million as of December 31, 2020; and Net revenues - $96.7 million as of September 26, 2021 and $130.3 million as of December 31, 2020. Combined amounts for all guarantors of the 2024 senior notes for all other line items within the table would be computed by adding the amounts in the Millennium and Guarantor Subsidiaries columns.
Forward Looking Statements
Some of the statements contained in this report (including the "Management’s Discussion and Analysis of Financial Condition and Results of Operations" section) that are not historical in nature are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements as to our expectations, beliefs, goals and strategies regarding the future. These forward-looking statements may involve risks and uncertainties that are difficult to predict, may be beyond our control and could cause actual results to differ materially from those described in such statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct, or that our business optimization and growth strategies will achieve the targeted results. Important factors, including the impacts of the COVID-19 pandemic, general economic conditions, adverse weather conditions, competition for consumer leisure time and spending, unanticipated construction delays, changes in our capital investment plans and projects and other factors we discuss from time to time in our reports filed with the Securities and Exchange Commission (the "SEC") could affect attendance at our parks, as well as our business optimization program, and could cause actual results to differ materially from our expectations or otherwise to fluctuate or decrease. Additional information on risk factors that may affect our business and financial results can be found in our Annual Report on Form 10-K and in the filings we make from time to time with the SEC, including this Form 10-Q. We do not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the filing date of this document.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks from fluctuations in interest rates and currency exchange rates on our operations in Canada, and from time to time, on imported rides and equipment. The objective of our financial risk management is to reduce the potential negative impact of interest rate and foreign currency exchange rate fluctuations to acceptable levels. We do not acquire market risk sensitive instruments for trading purposes.
We manage interest rate risk using a combination of fixed-rate long-term debt, interest rate swaps that fix our variable-rate long-term debt, and variable-rate borrowings under our revolving credit facility. Translation exposures with regard to our Canadian operations are not hedged.
None of our interest rate swap agreements are designated as hedging instruments. Changes in fair value of derivative instruments that do not qualify for hedge accounting are reported as "Net effect of swaps" in the unaudited condensed consolidated statements of operations and comprehensive income (loss).
As of September 26, 2021, on an adjusted basis after giving effect to the impact of interest rate swap agreements, all of our outstanding long-term debt represented fixed-rate debt except for revolving credit borrowings. Assuming no revolving credit borrowings, a hypothetical 100 bps increase in 30-day LIBOR on our variable-rate debt (including term debt and not considering the impact of our interest rate swaps) would lead to an increase of approximately $2.6 million in cash interest costs over the next twelve months.
Assuming a hypothetical 100 bps increase in 30-day LIBOR, the amount of net cash interest paid on our derivative portfolio would decrease by $2.6 million over the next twelve months.
A uniform 10% strengthening of the U.S. dollar relative to the Canadian dollar would result in a $0.4 million decrease in annual operating income for the trailing twelve months ended September 26, 2021.
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 26, 2021, 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 26, 2021.
(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 26, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.
ITEM 6. EXHIBITS
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| Exhibit (101) | | The following materials from the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 26, 2021 formatted in Inline XBRL: (i) the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (ii) the Unaudited Condensed Consolidated Balance Sheets, (iii) the Unaudited Condensed Consolidated Statements of Cash Flow, (iv) the Unaudited Condensed Consolidated Statements of Partners' Deficit, and (v) related notes, tagged as blocks of text and including detailed tags. |
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| Exhibit (104) | | The cover page from the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 26, 2021 formatted in Inline XBRL (included as Exhibit 101). |
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.
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| | CEDAR FAIR, L.P. | |
| | (Registrant) | |
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| | By Cedar Fair Management, Inc. |
| | General Partner | |
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| Date: | November 3, 2021 | /s/ Richard A. Zimmerman |
| | Richard A. Zimmerman |
| | President and Chief Executive Officer |
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| Date: | November 3, 2021 | /s/ Brian C. Witherow |
| | Brian C. Witherow |
| | Executive Vice President and |
| | Chief Financial Officer |