Cedar Fair-10Q-2-2011
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 26, 2011
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             .
Commission file number 1-9444
CEDAR FAIR, L.P.
(Exact name of registrant as specified in its charter)
 
DELAWARE
 
34-1560655
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
One Cedar Point Drive, Sandusky, Ohio 44870-5259
(Address of principal executive offices) (Zip Code)
(419) 626-0830
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x    No  o 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x
  
Accelerated filer
 
o
 
 
 
 
Non-accelerated filer
 
o (Do not check if a smaller reporting company)
  
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
 
 
 
Title of Class
 
Units Outstanding As Of August 1, 2011
Units Representing
Limited Partner Interests
 
55,345,858

Table of Contents

CEDAR FAIR, L.P.
INDEX
FORM 10 - Q
 
 
 
 
 
 
Part I - Financial Information
  
 
 
 
 
Item 1.
 
  
3-30

 
 
 
Item 2.
 
  
31-41

 
 
 
Item 3.
 
  
41

 
 
 
Item 4.
 
  
41

 
 
Part II - Other Information
  
 
 
 
 
Item 1
 
  
42

 
 
 
Item 1A.
 
 
43

 
 
 
Item 6.
 
  
43

 
 
  
44

 
 
  
45



Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 
6/26/2011
 
12/31/2010
 
6/27/2010
ASSETS
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
35,679

 
$
9,765

 
$
23,930

Receivables
 
27,436

 
12,340

 
26,782

Inventories
 
52,264

 
32,142

 
48,065

Current deferred tax asset
 
12,867

 
5,874

 
58,241

Prepaid insurance
 
3,780

 
5,009

 
2,466

Other current assets
 
10,108

 
5,204

 
11,640

 
 
142,134

 
70,334

 
171,124

Property and Equipment:
 
 
 
 
 
 
Land
 
310,557

 
309,980

 
306,207

Land improvements
 
335,696

 
324,734

 
337,579

Buildings
 
577,069

 
575,725

 
590,974

Rides and equipment
 
1,443,907

 
1,398,403

 
1,422,881

Construction in progress
 
10,115

 
16,746

 
5,449

 
 
2,677,344

 
2,625,588

 
2,663,090

Less accumulated depreciation
 
(992,971
)
 
(948,947
)
 
(874,164
)
 
 
1,684,373

 
1,676,641

 
1,788,926

Goodwill
 
247,500

 
246,259

 
241,109

Other Intangibles, net
 
40,819

 
40,632

 
40,838

Other Assets
 
58,906

 
48,578

 
18,859

 
 
$
2,173,732

 
$
2,082,444

 
$
2,260,856

LIABILITIES AND PARTNERS’ EQUITY
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
Current maturities of long-term debt
 
$
11,800

 

 
15,546

Accounts payable
 
43,240

 
10,787

 
41,200

Deferred revenue
 
95,734

 
26,328

 
82,428

Accrued interest
 
23,870

 
20,409

 
10,207

Accrued taxes
 
6,703

 
15,144

 
10,601

Accrued salaries, wages and benefits
 
28,379

 
18,220

 
18,307

Self-insurance reserves
 
21,947

 
21,487

 
22,454

Current derivative liability
 
77,573

 
47,986

 

Other accrued liabilities
 
12,061

 
8,491

 
10,162

 
 
321,307

 
168,852

 
210,905

Deferred Tax Liability
 
129,499

 
131,830

 
140,324

Derivative Liability
 
16,750

 
54,517

 
115,244

Other Liabilities
 
3,963

 
10,406

 
6,530

Long-Term Debt:
 
 
 
 
 
 
Revolving credit loans
 
85,000

 
23,200

 
197,000

Term debt
 
1,165,250

 
1,157,062

 
1,480,615

Notes
 
399,756

 
399,441

 

 
 
1,650,006

 
1,579,703

 
1,677,615

Partners’ Equity:
 
 
 
 
 
 
Special L.P. interests
 
5,290

 
5,290

 
5,290

General partner
 
(2
)
 
(1
)
 
(1
)
Limited partners, 55,346, 55,334 and 55,324 units outstanding at June 26, 2011, December 31, 2010 and June 27, 2010, respectively
 
75,525

 
165,555

 
166,516

Accumulated other comprehensive loss
 
(28,606
)
 
(33,708
)
 
(61,567
)
 
 
52,207

 
137,136

 
110,238

 
 
$
2,173,732

 
$
2,082,444

 
$
2,260,856

    
The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.

3

Table of Contents


CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit amounts)

 

Three months ended

Six months ended
 
Twelve months ended
 

6/26/2011

6/27/2010

6/26/2011

6/27/2010
 
6/26/2011

6/27/2010
Net revenues:








 



Admissions

$
160,619


$
156,507


$
171,231


$
167,471

 
$
572,522


$
539,422

Food, merchandise and games

103,989


100,852


115,771


112,762

 
340,365


321,667

Accommodations and other

19,882


18,228


24,357


22,670

 
73,161


67,297



284,490


275,587


311,359


302,903

 
986,048


928,386

Costs and expenses:








 



Cost of food, merchandise and games revenues

27,111


26,350


31,223


30,231

 
87,611


86,413

Operating expenses

124,978


120,939


190,106


183,691

 
417,817


407,297

Selling, general and administrative

37,233


45,141


58,148


62,492

 
129,657


139,877

Depreciation and amortization

42,764


43,989


46,554


47,878

 
125,472


133,432

Loss on impairment of goodwill and other intangibles



1,390




1,390

 
903


5,890

Loss on impairment / retirement of fixed assets, net





196



 
62,948


214

Gain on sale of other assets








 


(23,098
)


232,086


237,809


326,227


325,682

 
824,408


750,025

Operating income (loss)

52,404


37,778


(14,868
)

(22,779
)
 
161,640


178,361

Interest expense

42,185


32,785


83,297


62,399

 
171,183


127,294

Net effect of swaps

(1,432
)

2,034


455


9,609

 
9,040


18,779

Loss on early debt extinguishment








 
35,289



Unrealized/realized foreign currency (gain) loss

3,043


19


(3,845
)

(4
)
 
(24,404
)

623

Other (income) expense

177


(3
)

1,085


(38
)
 
(31
)

800

Income (loss) before taxes

8,431


2,943


(95,860
)

(94,745
)
 
(29,437
)

30,865

Provision (benefit) for taxes

3,765


7,158


(15,834
)

(50,597
)
 
38,008


(6,309
)
Net income (loss)

4,666


(4,215
)

(80,026
)

(44,148
)
 
(67,445
)

37,174

Net income (loss) allocated to general partner





(1
)


 
(1
)


Net income (loss) allocated to limited partners

$
4,666


$
(4,215
)

$
(80,025
)

$
(44,148
)
 
$
(67,444
)

$
37,174

Basic earnings per limited partner unit:








 



Weighted average limited partner units outstanding

55,346


55,324


55,341


55,266

 
55,338


55,254

Net income (loss) per limited partner unit

$
0.08


$
(0.08
)

$
(1.45
)

$
(0.80
)
 
$
(1.22
)

$
0.67

Diluted earnings per limited partner unit:








 



Weighted average limited partner units outstanding

55,825


55,324


55,341


55,266

 
55,338


55,841

Net income (loss) per limited partner unit

$
0.08


$
(0.08
)

$
(1.45
)

$
(0.80
)
 
$
(1.22
)

$
0.67





The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.
 

4

Table of Contents

CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 26, 2011
(In thousands)

 
Six months ended
 
6/26/11
Limited Partnership Units Outstanding
 
Beginning balance
55,334

Limited partnership unit options exercised

Issuance of limited partnership units as compensation
12

 
55,346

Limited Partners’ Equity
 
Beginning balance
$
165,555

Net income (loss)
(80,025
)
Partnership distribution declared ($0.18 per limited partnership unit)
(9,962
)
Expense (income) recognized for limited partnership unit options
(228
)
Tax effect of units involved in option exercises and treasury unit transactions
5

Issuance of limited partnership units as compensation
180

 
75,525

General Partner’s Equity
 
Beginning balance
(1
)
Net income (loss)
(1
)
 
(2
)
Special L.P. Interests
5,290

Accumulated Other Comprehensive Income (Loss)
 
Cumulative foreign currency translation adjustment:
 
Beginning balance
(4,053
)
Current period activity, net of tax ($425)
(488
)
 
(4,541
)
Unrealized loss on cash flow hedging derivatives:
 
Beginning balance
(29,655
)
Current period activity, net of tax $2,756
5,590

 
(24,065
)
 
(28,606
)
Total Partners’ Equity
$
52,207

Summary of Comprehensive Income (Loss)
 
Net income (loss)
$
(80,026
)
Other comprehensive income
5,102

Total Comprehensive Income (Loss)
$
(74,924
)




The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.


5

Table of Contents

CEDAR FAIR, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

 
 
Six months ended
 
Twelve months ended
 
 
6/26/2011
 
6/27/2010
 
6/26/2011
 
6/27/2010
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES
 
 
 
 
 
 
 
 
Net income (loss)
 
(80,026
)
 
(44,148
)
 
$
(67,445
)
 
$
37,174

Adjustments to reconcile net income (loss) to net cash from (for) operating activities:
 
 
 
 
 
 
 
 
Non-cash expense
 
47,180

 
49,848

 
110,354

 
139,366

Loss on early extinguishment of debt
 

 

 
35,289

 

Loss on impairment of goodwill and other intangibles
 

 
1,390

 
903

 
5,890

Loss on impairment / retirement of fixed assets, net
 
196

 

 
62,948

 
214

Gain on sale of other assets
 

 

 

 
(23,098
)
Net effect of swaps
 
455

 
9,609

 
9,040

 
18,779

Net change in working capital
 
71,694

 
(17,228
)
 
82,747

 
(9,970
)
Net change in other assets/liabilities
 
(13,636
)
 
(1,114
)
 
(24,214
)
 
(689
)
Net cash from (for) operating activities
 
25,863

 
(1,643
)
 
209,622

 
167,666

CASH FLOWS FROM (FOR) INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
Sale of Canadian real estate
 

 

 

 
53,831

Capital expenditures
 
(51,685
)
 
(53,261
)
 
(70,130
)
 
(81,929
)
Net cash (for) investing activities
 
(51,685
)
 
(53,261
)
 
(70,130
)
 
(28,098
)
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
Net borrowings (payments) on revolving credit loans
 
61,800

 
110,700

 
(112,000
)
 
61,200

Term debt borrowings
 
22,938

 

 
1,197,938

 

Note borrowings
 

 

 
399,383

 

Term debt payments, including early termination penalties
 
(2,950
)
 
(43,886
)
 
(1,525,954
)
 
(174,886
)
Distributions paid to partners
 
(9,962
)
 

 
(23,796
)
 
(27,604
)
Exercise of limited partnership unit options
 

 

 
7

 

Payment of debt issuance costs
 
(20,488
)
 

 
(63,754
)
 
(7,694
)
Net cash from (for) financing activities
 
51,338

 
66,814

 
(128,176
)
 
(148,984
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 
398

 
92

 
433

 
1,364

CASH AND CASH EQUIVALENTS
 
 
 
 
 
 
 
 
Net increase (decrease) for the period
 
25,914

 
12,002

 
11,749

 
(8,052
)
Balance, beginning of period
 
9,765

 
11,928

 
23,930

 
31,982

Balance, end of period
 
$
35,679

 
$
23,930

 
$
35,679

 
$
23,930

SUPPLEMENTAL INFORMATION
 
 
 
 
 
 
 
 
Cash payments for interest expense
 
$
76,252

 
$
56,318

 
$
149,749

 
$
122,512

Interest capitalized
 
794

 
1,144

 
993

 
1,917

Cash payments for income taxes
 
1,030

 
9,537

 
10,567

 
21,944

The accompanying Notes to Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.

6

Table of Contents

CEDAR FAIR, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED JUNE 26, 2011 AND JUNE 27, 2010
The accompanying unaudited condensed consolidated financial statements have been prepared from the financial records of Cedar Fair, L.P. (the Partnership) without audit and reflect all adjustments which are, in the opinion of management, necessary to fairly present the results of the interim periods covered in this report.
Due to the highly seasonal nature of the Partnership’s amusement and water park operations, the results for any interim period are not indicative of the results to be expected for the full fiscal year. Accordingly, the Partnership has elected to present financial information regarding operations and cash flows for the preceding fiscal twelve-month periods ended June 26, 2011 and June 27, 2010 to accompany the quarterly results. Because amounts for the fiscal twelve months ended June 26, 2011 include actual 2010 season operating results, they may not be indicative of 2011 full calendar year operations.

(1) Significant Accounting and Reporting Policies:
The Partnership’s unaudited condensed consolidated financial statements for the periods ended June 26, 2011 and June 27, 2010 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, 2010, which were included in the Form 10-K filed on March 1, 2011. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the Commission). These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Form 10-K referred to above.

(2) Interim Reporting:
The Partnership owns and operates eleven amusement parks, six separately gated outdoor water parks, one indoor water park and five hotels. In order to better facilitate discussion of trends in attendance and guest per capita spending than would be possible on a consolidated basis, the Partnership's eleven amusement parks and six separately gated water parks have been grouped into regional designations. Parks in the Partnership’s northern region include Cedar Point and the adjacent Soak City water park in Sandusky, Ohio; Kings Island near Cincinnati, Ohio; Canada’s Wonderland in Toronto, Canada; Dorney Park & Wildwater Kingdom near Allentown, Pennsylvania; Valleyfair, near Minneapolis/St. Paul, Minnesota; Geauga Lake’s Wildwater Kingdom near Cleveland, Ohio; and Michigan’s Adventure near Muskegon, Michigan. In the southern region are Kings Dominion near Richmond, Virginia; Carowinds near Charlotte, North Carolina; and Worlds of Fun and Oceans of Fun in Kansas City, Missouri. The western region parks include Knott’s Berry Farm, near Los Angeles in Buena Park, California; California’s Great America located in Santa Clara, California; and three Knott’s Soak City water parks located in California. The Partnership also owns and operates the Castaway Bay Indoor Waterpark Resort in Sandusky, Ohio, and operates Gilroy Gardens Family Theme Park in Gilroy, California under a management contract. Virtually all of the Partnership’s revenues from its seasonal amusement parks, as well as its outdoor water parks and other seasonal resort facilities, are realized during a 130- to 140-day operating period beginning in early May, with the major portion concentrated in the third quarter during the peak vacation months of July and August.
To assure that these highly seasonal operations will not result in misleading comparisons of current and subsequent interim periods, the Partnership has adopted the following accounting and reporting procedures for its seasonal parks: (a) revenues on multi-day admission tickets are recognized over the estimated number of visits expected for each type of ticket and are adjusted periodically during the season, (b) depreciation, advertising and certain seasonal operating costs are expensed during each park’s operating season, including certain costs incurred prior to the season which are amortized over the season, and (c) all other costs are expensed as incurred or ratably over the entire year.

(3) Long-Lived Assets:
Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances that would indicate that the carrying value of the assets may not be recoverable. In order to determine if an asset has been impaired, assets are grouped and tested at the lowest level for which identifiable, independent cash flows are available. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in expected future cash flows; a sustained, significant decline in equity price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on our consolidated financial statements.


7

Table of Contents

The long-lived asset impairment test involves a two-step process. The first step is a comparison of each asset group's carrying value to its estimated undiscounted future cash flows expected to result from the use of the assets, including disposition. Projected future cash flows reflect management's best estimates of economic and market conditions over the projected period, including growth rates in revenues and costs, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates and future estimates of capital expenditures. If the carrying value of the asset group is higher than its undiscounted future cash flows, there is an indication that impairment exists and the second step must be performed to measure the amount of impairment loss. The amount of impairment is determined by comparing the implied fair value of the asset group to its carrying value in a manner consistent with the highest and best use of those assets. The Partnership estimates fair value using an income (discounted cash flows) approach, which uses an asset group's projection of estimated operating results and cash flows that is discounted using a weighted-average cost of capital reflective of current market conditions. If the implied fair value of the assets is less than their carrying value, an impairment charge is recorded for the difference.

At the end of the fourth quarter of 2010, the Partnership concluded based on 2010 operating results, as well as updated forecasts, that a review of the carrying value of long-lived assets at California's Great America was warranted. After performing its review, the Partnership determined that a portion of the park's fixed assets, the majority of which were originally recorded with the PPI acquisition, were impaired. As a result, the Partnership recognized $62.0 million of fixed-asset impairment during the fourth quarter of 2010 which is recorded in "Loss on impairment / retirement of fixed assets" on the condensed consolidated statement of operations.

(4) Goodwill and Other Intangible Assets:
In accordance with the applicable accounting rules, goodwill is not amortized, but, along with indefinite-lived trade-names, is evaluated for impairment on an annual basis or more frequently if indicators of impairment exist. Historically, goodwill related to parks acquired prior to 2006 has been annually tested for impairment as of October 1, while goodwill and other indefinite-lived intangibles, including trade-name intangibles, related to the Paramount Parks (PPI) acquisition in 2006 have been annually tested for impairment as of April 1. Effective in December 2010, the Partnership changed the date of its annual goodwill impairment tests from April 1 and October 1 to December 31 to more closely align the impairment testing procedures with its long-range planning and forecasting process, which occurs in the fourth quarter each year. The Partnership believes the change is preferable since the long-term cash flow projections are a key component in performing its annual impairment tests of goodwill. In addition, the Partnership changed the date of its annual impairment test for other indefinite-lived intangibles from April 1 to December 31.

During 2010, the Partnership tested goodwill for impairment as of April 1, 2010 or October 1, 2010, as applicable, and again as of December 31, 2010. The tests indicated no impairment of goodwill as of any of those dates. During 2010, the Partnership tested other indefinite-lived intangibles for impairment as of April 1, 2010 and December 31, 2010. After performing the April 1, 2010 impairment test, it was determined that a portion of trade-names at certain PPI parks were impaired as the carrying values of those trade-names exceeded their fair values. As a result the Partnership recognized $1.4 million of trade-name impairment during the second quarter of 2010. This impairment was driven mainly by an increase in the Partnership’s cost of capital in 2010 and lower projected growth rates for certain parks as of the test date. After performing the December 31, 2010 test of indefinite-lived intangibles, it was determined that a portion of the trade-names at California's Great America, originally recorded with the PPI acquisition, were impaired. As a result, the Partnership recognized $0.9 million of additional trade-name impairment during the fourth quarter of 2010 which is recorded in "Loss on impairment of goodwill and other intangibles" on the consolidated statement of operations.

The change in accounting principle related to changing the annual goodwill impairment testing date did not delay, accelerate, avoid or cause an impairment charge. As it was impracticable to objectively determine operating and valuation estimates for periods prior to December 31, 2010, the Partnership has prospectively applied the change in the annual goodwill impairment testing date from December 31, 2010.
A summary of changes in the Partnership’s carrying value of goodwill for the six months ended June 26, 2011 is as follows:

(In thousands)
 
Goodwill
(gross)
 
Accumulated
Impairment
Losses
 
Goodwill
(net)
Balance at December 31, 2010
 
$
326,127

 
$
(79,868
)
 
$
246,259

Foreign currency translation
 
1,241

 

 
1,241

Balance at June 26, 2011
 
$
327,368

 
$
(79,868
)
 
$
247,500

 
 
 
 
 
 
 
 

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Table of Contents

At June 26, 2011, December 31, 2010, and June 27, 2010 the Partnership’s other intangible assets consisted of the following:

June 26, 2011
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Value
(In thousands)
 
 
 
 
 
 
Other intangible assets:
 
 
 
 
 
 
Trade names
 
$
40,403

 
$

 
$
40,403

License / franchise agreements
 
716

 
300

 
416

Non-compete agreements
 
200

 
200

 

Total other intangible assets
 
$
41,319

 
$
500

 
$
40,819

 
 
 
 
 
 
 
December 31, 2010
 
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
Other intangible assets:
 
 
 
 
 
 
Trade names
 
$
40,227

 
$

 
$
40,227

License / franchise agreements
 
13,569

 
13,184

 
385

Non-compete agreements
 
200

 
180

 
20

Total other intangible assets
 
$
53,996

 
$
13,364

 
$
40,632

 
 
 
 
 
 
 
June 27, 2010
 
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
Other intangible assets:
 
 
 
 
 
 
Trade names
 
$
40,400

 
$

 
$
40,400

License / franchise agreements
 
13,564

 
13,166

 
398

Non-compete agreements
 
200

 
160

 
40

Total other intangible assets
 
$
54,164

 
$
13,326

 
$
40,838

Amortization expense of other intangible assets for the six months ended June 26, 2011 and June 27, 2010 was $36,000 and $35,000, respectively. The estimated amortization expense for the remainder of 2011 is $17,000. Estimated amortization expense is expected to total less than $100,000 in each year from 2012 through 2015.

(5) Long-Term Debt:

In July 2010, the Partnership issued $405 million of 9.125% senior unsecured notes, maturing in 2018, in a private placement, including $5.6 million of Original Issue Discount to yield 9.375%. Concurrently with this offering, the Partnership entered into a new $1,435 million credit agreement (the "2010 Credit Agreement”), which included a new $1,175 million senior secured term loan facility and a new $260 million senior secured revolving credit facility. The net proceeds from the offering of the notes, along with proceeds from the 2010 Credit Agreement, were used to repay in full all amounts outstanding under our previous credit facilities.

Terms of the 2010 Credit Agreement included a reduction in the Partnership's previous $310 million revolving credit facilities to a combined $260 million facility. Under the 2010 Credit Agreement, the Canadian portion of the revolving credit facility has a limit of $15 million. U.S. denominated loans made under the revolving credit facility bear interest at a rate of LIBOR plus 400 basis points (bps) (with no LIBOR floor). Canadian denominated loans made under the Canadian portion of the facility also bear interest at a rate of LIBOR plus 400 bps (with no LIBOR floor). The revolving credit facility, which matures in July 2015, also provides for the issuance of documentary and standby letters of credit.

In February 2011, the Partnership amended its 2010 Credit Agreement (as so amended, the “Amended 2010 Credit Agreement”) including to extend the maturity date of the U.S. term loan portion of the credit facilities by one year. The extended U.S. term loan, which amortizes at $11.8 million per year beginning in 2011, matures in December 2017 and bears interest at a rate of LIBOR plus 300 bps, with a LIBOR floor of 100 bps.


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Table of Contents

The Partnership's $405 million of senior unsecured notes pay interest semi-annually in February and August, with the principal due in full on August 1, 2018. The notes may be redeemed, in whole or in part, at any time prior to August 1, 2014 at a price equal to 100% of the principal amount of the notes redeemed plus a “make-whole” premium together with accrued and unpaid interest, if any, to the redemption date. Thereafter, the notes may be redeemed, in whole or in part, at various prices depending on the date redeemed. Prior to August 1, 2013, up to 35% of the notes may be redeemed with the net cash proceeds of certain equity offerings at 109.125%.

The Amended 2010 Credit Agreement requires the Partnership to maintain specified financial ratios, which if breached for any reason, including a decline in operating results, could result in an event of default under the agreement. The most critical of these ratios is the Consolidated Leverage Ratio which is measured on a trailing-twelve month quarterly basis. Since the third quarter of 2010, this ratio has been set at 6.25x consolidated total debt (excluding the revolving debt)-to-Consolidated EBITDA. Beginning with the fourth quarter of 2011, this ratio will decrease to 6.0x consolidated total debt (excluding the revolving debt)-to-Consolidated EBITDA, and the ratio will decrease further each fourth quarter beginning with the fourth quarter of 2013. As of June 26, 2011, the Partnership’s Consolidated Leverage Ratio was 4.42x, providing $104.1 million of consolidated EBITDA cushion on the ratio as of the end of the second quarter. The Partnership was in compliance with all other covenants as of June 26, 2011.

The Amended 2010 Credit Agreement also includes provisions that allow the Partnership to make restricted payments of up to $60 million in 2011 and a minimum of $20 million annually thereafter (plus the Available Amount of Excess Cash Flow as defined in the Amended 2010 Credit Agreement), at the discretion of the Board of Directors, so long as no default or event of default has occurred and is continuing. These restricted payments are not subject to any specific covenants. Beginning in 2012, additional restricted payments are allowed to be made based on an Excess-Cash-Flow formula, should the Partnership’s pro-forma Consolidated Leverage Ratio be less than or equal to 4.50x. Per the terms of the indenture governing the Partnership's notes, the ability to make restricted payments in 2011 and beyond is permitted should the Partnership's trailing-twelve-month Total-Indebtedness-to-Consolidated-Cash-Flow Ratio be less than or equal to 4.75x, measured on a quarterly basis.

In addition to the above, among other covenants and provisions, the Amended 2010 Credit Agreement contains an initial three-year requirement (from July 2010) that at least 50% of our aggregate term debt and senior notes be subject to either a fixed interest rate or interest rate protection.
 
(6) Derivative Financial Instruments:
Derivative financial instruments are only used within the Partnership’s overall risk management program to manage certain interest rate and foreign currency risks from time to time. The Partnership does not use derivative financial instruments for trading purposes.
The Partnership has effectively converted a total of $1.0 billion of its variable-rate debt to fixed rates through the use of several interest rate swap agreements. Cash flows related to these interest rate swap agreements are included in interest expense over the term of the agreements. These interest rate swap agreements are set to expire in October 2011. The Partnership has designated all of these interest rate swap agreements and hedging relationships as cash flow hedges. The fair market value of these agreements at June 26, 2011 was recorded as a liability of $20.2 million in “Current derivative liability” on the condensed consolidated balance sheet. As a part of the regular quarterly regression analysis testing of the effectiveness of these cash flow swaps, these swaps were deemed to be ineffective as of October 2009 and continued to be ineffective through June 26, 2011. As a result of this ineffectiveness, losses recorded in “Accumulated other comprehensive income” (AOCI) are being amortized through October 2011 (the original hedge period). The amount recorded in AOCI to be amortized was $91.8 million at the time of ineffectiveness, of which $11.5 million remained still to be amortized in AOCI as of June 26, 2011.
In 2007, the Partnership entered into two cross-currency swap agreements, which effectively converted $268.7 million of term debt at the time, and the associated interest payments, related to its wholly owned Canadian subsidiary from variable U.S. dollar denominated debt to fixed-rate Canadian dollar denominated debt. The Partnership originally designated these cross-currency swaps as foreign currency cash flow hedges. Cash flows related to these swap agreements, which expire in February 2012, are included in interest expense over the term of the agreement. The fair market value of the cross-currency swaps was a liability of $53.1 million at June 26, 2011, which was recorded in “Current derivative liability” on the condensed consolidated balance sheet. As a result of paying down underlying Canadian term debt with net proceeds from the sale of surplus land near Canada’s Wonderland in August 2009, the notional amounts of the underlying debt and the cross currency swaps no longer match. Because of the mismatch of the notional amounts, the Partnership determined the swaps were no longer highly effective, resulting in the de-designation of the swaps as of the end of August 2009. As a result of this de-designation, losses recorded in AOCI are being amortized through February 2012 (the original hedge period). The amount recorded in AOCI to be amortized was $15.1 million at the time of de-designation, of which approximately $204,000 still remained to be amortized in AOCI as of June 26, 2011.


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Table of Contents


In May 2011 the Partnership entered into several foreign currency swap agreements to fix the exchange rate on approximately 50% of the termination payment associated with the cross-currency swap agreements due in February 2012. The fair market value of these foreign currency swap agreements was a liability of $4.3 million at June 26, 2011, which was recorded in "Current derivative liability" on the condensed consolidated balance sheet. The Partnership did not seek hedge accounting treatment on these foreign currency swaps, and as such, changes in fair value of the swaps flow directly through earnings along with changes in fair value on the related, de-designated cross-currency swaps.
In order to maintain fixed interest costs on a portion of its domestic term debt beyond the expiration of the swaps entered into in 2006 and 2007, in September 2010 the Partnership entered into several forward-starting swap agreements ("September 2010 swaps") to effectively convert a total of $600 million of variable-rate debt to fixed rates beginning in October 2011. As a result of the February 2011 amendment to the 2010 Credit Agreement, the LIBOR floor on the term loan portion of its credit facilities decreased to 100 bps from 150 bps, causing a mismatch in critical terms of the September 2010 swaps and the underlying debt. Because of the mismatch of critical terms, the Partnership determined the September 2010 swaps, which were originally designated as cash flow hedges, were no longer highly effective, resulting in the de-designation of the swaps as of the end of February 2011. As a result of this ineffectiveness, gains of $7.2 million recorded in AOCI through the date of de-designation are being amortized through December 2015, $6.7 million of which remained to be amortized in AOCI as of June 26, 2011.
On March 15, 2011, the Partnership entered into several additional forward-starting basis-rate swap agreements ("March 2011 swaps") that, when combined with the September 2010 swaps, will effectively convert $600 million of variable-rate debt to fixed rates beginning in October 2011. The September 2010 swaps and the March 2011 swaps, which have been jointly designated as cash flow hedges, mature in December 2015 and fix LIBOR at a weighted average rate of 2.46%. For the period that the September 2010 swaps were de-designated, their fair value decreased by $3.3 million, the offset of which was recognized as a direct charge to the Partnership's earnings and booked to “Net effect of swaps” on the consolidated statement of operations along with the regular amortization of “Other comprehensive income (loss)” balances related to these swaps. No other ineffectiveness related to these swaps was recorded in any period presented.
On May 2, 2011, the Partnership entered into four additional forward-starting basis-rate swap agreements ("May 2011 forward-starting swaps") that effectively convert another $200 million of variable-rate debt to fixed rates beginning in October 2011. These swaps, which were designated as cash flow hedges, mature in December 2015 and fix LIBOR at a weighted average rate of 2.54%.
The fair market value of the September 2010 swaps, the March 2011 swaps, and the May 2011 forward-starting swaps at June 26, 2011 was a liability of $16.8 million, which was recorded in “Derivative Liability” on the condensed consolidated balance sheet.
Fair Value of Derivative Instruments in Condensed Consolidated Balance Sheet:
(In thousands):
 
Condensed Consolidated
Balance Sheet Location
 
Fair Value as of
 
Fair Value as of
 
Fair Value as of
June 26, 2011
 
December 31, 2010
 
June 27, 2010
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
Interest rate swaps
 
Other Assets
 
$

 
$
6,294

 
$

Interest rate swaps
 
Current derivative liability
 
(20,193
)
 
(47,986
)
 

Interest rate swaps
 
Derivative Liability
 
(16,750
)
 

 
68,361

Total derivatives designated as hedging instruments:
 
 
 
$
(36,943
)
 
$
(41,692
)
 
$
68,361

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
Foreign currency swaps
 
Current derivative liability
 
$
(4,273
)
 
$

 
$

Cross-currency swaps
 
Current derivative liability
 
(53,107
)
 

 

Cross-currency swaps
 
Derivative Liability
 

 
(54,517
)
 
46,883

Total derivatives not designated as hedging instruments:
 
 
 
$
(57,380
)
 
$
(54,517
)
 
$
46,883

Net derivative liability
 
 
 
$
(94,323
)
 
$
(96,209
)
 
$
115,244

 

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The following table presents our existing fixed-rate swaps, which mature October 1, 2011, along with their notional amounts and their fixed interest rates, which compare to 30-day LIBOR of 0.25% as of June 26, 2011. The table also presents our cross-currency swaps and their notional amounts and interest rates as of June 26, 2011.
($'s in thousands)
Interest Rate Swaps
 
Cross-currency Swaps
 
Notional Amounts
 
LIBOR Rate
 
Notional Amounts
 
Implied Interest Rate
 
$
200,000

 
5.64
%
 
$
257,000

 
7.31
%
 
200,000

 
5.64
%
 
175

 
9.50
%
 
200,000

 
5.64
%
 
 
 
 
 
200,000

 
5.57
%
 
 
 
 
 
100,000

 
5.60
%
 
 
 
 
 
100,000

 
5.60
%
 
 
 
 
Total $'s / Average Rate
$
1,000,000

 
5.62
%
 
$
257,175

 
7.31
%
 
 
 
 
 
 
 
 
The following table presents our September 2010 swaps, March 2011 swaps, and May 2011 forward-starting swaps, which become effective October 1, 2011 and mature December 15, 2015, along with their notional amounts and their fixed interest rates.
($'s in thousands)
Forward-Starting Interest Rate Swaps
 
Notional Amounts
 
LIBOR Rate
 
$
200,000

 
2.40
%
 
75,000

 
2.43
%
 
50,000

 
2.42
%
 
150,000

 
2.55
%
 
50,000

 
2.42
%
 
50,000

 
2.55
%
 
25,000

 
2.43
%
 
50,000

 
2.54
%
 
30,000

 
2.54
%
 
70,000

 
2.54
%
 
50,000

 
2.54
%
Total $'s / Average Rate
$
800,000

 
2.48
%
 
Effects of Derivative Instruments on Income (Loss) and Other Comprehensive Income (Loss) for the three-month periods ended June 26, 2011 and June 27, 2010:
 
(In thousands):
 
Amount of Gain (Loss) Recognized in  Accumulated OCI on Derivatives (Effective Portion)
 
Amount and Location of Gain (Loss)
Reclassified from Accumulated OCI into Income
(Effective Portion)
 
Amount and Location of Gain (Loss)
Recognized in Income on Derivative
(Ineffective Portion)
Derivatives designated as
Cash Flow Hedging
Relationships
 
Three months ended
 
Three months ended
 
 
 
Three months ended
 
Three months ended
 
 
 
Three months ended
 
Three months ended
 
6/26/11
 
6/27/10
 
 
 
6/26/11
 
6/27/10
 
 
 
6/26/11
 
6/27/10
Interest rate swaps
 
$
(20,558
)
 
$

 
Interest Expense
 
$

 
$

 
Net effect of swaps
 
$
13,300

 
$
9,313

Total
 
$
(20,558
)
 
$

 
 
 
$

 
$

 
 
 
$
13,300

 
$
9,313

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

12

Table of Contents

(In thousands):
 
Amount and Location of Gain (Loss) Recognized
in Income on Derivative
Derivatives not designated as Cash Flow
Hedging Relationships
 
 
 
Three months ended
 
Three months ended
 
 
 
6/26/11
 
6/27/10
Cross-currency swaps (1)
 
Net effect of swaps
 
3,772

 
3,451

Foreign currency swaps
 
Net effect of swaps
 
(4,306
)
 

 
 
 
 
$
(534
)
 
$
3,451

 
 
 
 
 
 
 
(1)
The cross-currency swaps became ineffective and were de-designated in August 2009.
In addition to the $12.8 million of gain recognized in income on the ineffective portion of derivatives noted in the table above, $11.3 million of expense representing the regular amortization of amounts in AOCI for the swaps and $0.1 million of foreign currency loss in the quarter related to the U.S. dollar denominated Canadian term loan were recorded in the condensed consolidated statements of operations for the period. The net effect of these amounts resulted in a benefit to earnings for the quarter of $1.4 million recorded in “Net effect of swaps.”

For the three-month period ended June 27, 2010, in addition to the $12.8 million gain recognized in income on the ineffective portion of derivatives noted in the table above, $13.2 million of expense representing the amortization of amounts in Accumulated OCI for the swaps and $1.6 million of foreign currency loss in the quarter related to the U.S. dollar denominated Canadian term loan were recorded in “Net effect of swaps” in the condensed consolidated statements of operations. The net effect of these amounts resulted in a charge to earnings of $2.0 million recorded in “Net effect of swaps.”

Effects of Derivative Instruments on Income (Loss) and Other Comprehensive Income (Loss) for the six-month periods ended June 26, 2011 and June 27, 2010:
 
(In thousands):
 
Amount of Gain (Loss) Recognized in  Accumulated OCI on Derivatives (Effective Portion)
 
Amount and Location of Gain (Loss)
Reclassified from Accumulated OCI into Income
(Effective Portion)
 
Amount and Location of Gain (Loss)
Recognized in Income on Derivative
(Ineffective Portion)
Derivatives designated as
Cash Flow Hedging
Relationships
 
Six months ended
 
Six months ended
 
 
 
Six months ended
 
Six months ended
 
 
 
Six months ended
 
Six months ended
 
6/26/11
 
6/27/10
 
 
 
6/26/11
 
6/27/10
 
 
 
6/26/11
 
6/27/10
Interest rate swaps
 
$
(19,703
)
 
$

 
Interest Expense
 
$

 
$

 
Net effect of swaps
 
$
27,794

 
$
14,998

Total
 
$
(19,703
)
 
$

 
 
 
$

 
$

 
 
 
$
27,794

 
$
14,998

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands):
 
Amount and Location of Gain (Loss) Recognized
in Income on Derivative
Derivatives not designated as Cash Flow
Hedging Relationships
 
 
 
Six months ended
 
Six months ended
 
 
 
6/26/11
 
6/27/10
Interest rate swaps (1)
 
Net effect of swaps
 
$
(3,342
)
 
$

Cross-currency swaps (2)
 
Net effect of swaps
 
1,960

 
(199
)
Foreign currency swaps
 
Net effect of swaps
 
(4,306
)
 

 
 
 
 
$
(5,688
)
 
$
(199
)
 
 
 
 
 
 
 
(1)
The September 2010 swaps became ineffective and were de-designated in February 2011.
(2)
The cross-currency swaps became ineffective and were de-designated in August 2009.
In addition to the $22.1 million of gain recognized in income on the ineffective portion of derivatives noted in the table above, $22.8 million of expense representing the regular amortization of amounts in AOCI for the swaps and $0.2 million of foreign currency gain in the six-month period related to the U.S. dollar denominated Canadian term loan were recorded in the condensed consolidated statements of operations for the period. The net effect of these amounts resulted in a charge to earnings for the six-month period of $0.5 million recorded in “Net effect of swaps.”


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Table of Contents

For the six month period ended June 27, 2010, in addition to the $14.8 million gain recognized in income on the ineffective portion of derivatives noted in the table above, $26.5 million of expense representing the amortization of amounts in Accumulated OCI for the swaps and $2.1 million of foreign currency gain in the quarter related to the U.S. dollar denominated Canadian term loan were recorded in “Net effect of swaps” in the condensed consolidated statements of operations. The net effect of these amounts resulted in a charge to earnings of $9.6 million recorded in "Net effect of swaps."


Effects of Derivative Instruments on Income (Loss) and Other Comprehensive Income (Loss) for the twelve-month periods ended June 26, 2011 and June 27, 2010:
(In thousands):
 
Amount of Gain (Loss)
Recognized in Accumulated OCI on Derivatives
(Effective Portion)
 
Amount and Location of Gain (Loss)
Reclassified from Accumulated OCI into Income
(Effective Portion)
 
Amount and Location of Gain (Loss)
Recognized in Income on Derivative
(Ineffective Portion)
Derivatives designated as
Cash Flow Hedging
Relationships
 
Twelve months ended
 
Twelve months ended
 
 
 
Twelve months ended
 
Twelve months ended
 
 
 
Twelve months ended
 
Twelve months ended
 
6/26/11
 
6/27/10
 
 
 
6/26/11
 
6/27/10
 
 
 
6/26/11
 
6/27/10
Interest rate swaps
 
$
(13,409
)
 
$
5,051

 
Interest Expense
 
$

 
$
(13,974
)
 
Net effect of swaps
 
$
48,168

 
$
23,399

Cross-currency swaps (2)
 

 
(13,566
)
 
Interest Expense
 

 
(1,963
)
 
 
 
N/A

 
N/A

Total
 
$
(13,409
)
 
$
(8,515
)
 
 
 
$

 
$
(15,937
)
 
 
 
$
48,168

 
$
23,399

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(In thousands):
 
Amount and Location of Gain (Loss) Recognized
in Income on Derivative
Derivatives not designated as Cash Flow Hedging
Relationships
 
 
 
Twelve months ended
 
Twelve months ended
 
 
 
6/26/11
 
6/27/10
Interest rate swaps (1)
 
Net effect of swaps
 
$
(3,342
)
 
$

Cross-currency swaps (2)
 
Net effect of swaps
 
(3,597
)
 
(7,893
)
Foreign currency swaps
 
Net effect of swaps
 
(4,306
)
 

 
 
 
 
$
(11,245
)
 
$
(7,893
)
 
 
 
 
 
 
 
(1)
The September 2010 swaps became ineffective and were de-designated in February 2011.
(2)
The cross-currency swaps became ineffective and were de-designated in August 2009.
In addition to the $36.9 million of gain recognized in income on the ineffective portion of derivatives noted in the table above, $46.4 million of expense representing the amortization of amounts in AOCI for the swaps and a $0.5 million foreign currency gain in the twelve month period related to the U.S. dollar denominated Canadian term loan was recorded during the trailing twelve months ended June 26, 2011 in the condensed consolidated statements of operations. The net effect of these amounts resulted in a charge to earnings for the trailing twelve month period of $9.0 million recorded in “Net effect of swaps.” For the period, an additional $9.5 million of amortization of amounts in AOCI for the cross-currency swaps was recorded as a charge to earnings in "Loss on early extinguishment of debt" in the condensed consolidated statements of operations as a result of the debt refinancing and the reduction of the majority of the U.S. dollar denominated Canadian term loan.
For the twelve month period ending June 27, 2010, in addition to the $15.5 million of gain recognized in income on the ineffective portion of derivatives noted in the table above, $44.1 million of expense representing the amortization of amounts in AOCI for the swaps and a $9.8 million foreign currency gain in the twelve month period related to the U.S. dollar denominated Canadian term loan was recorded during the trailing twelve months ended June 27, 2010 in the condensed consolidated statements of operations. The net effect of these amounts resulted in a charge to earnings for the trailing twelve month period of $18.8 million recorded in “Net effect of swaps.”
The amounts reclassified from AOCI into income for the periods noted above are in large part the result of the Partnership’s initial three-year requirement to swap at least 50% of its aggregate term debt to fixed rates under the terms of the Amended 2010 Credit Agreement.
 



14

Table of Contents

(7) Fair Value Measurements:
The Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) emphasizes that fair value is a market-based measurement that should be determined based on assumptions (inputs) that market participants would use in pricing an asset or liability. Inputs may be observable or unobservable, and valuation techniques used to measure fair value should maximize the use of relevant observable inputs and minimize the use of unobservable inputs. Accordingly, the FASB’s ASC establishes a hierarchal disclosure framework that ranks the quality and reliability of information used to determine fair values. The hierarchy is associated with the level of pricing observability utilized in measuring fair value and defines three levels of inputs to the fair value measurement process—quoted prices are the most reliable valuation inputs, whereas model values that include inputs based on unobservable data are the least reliable. Each fair value measurement must be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety.
The three broad levels of inputs defined by the fair value hierarchy are as follows:
 
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
 
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
 
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
 
The table below presents the balances of assets and liabilities measured at fair value as of June 26, 2011, December 31, 2010, and June 27, 2010 on a recurring basis:
 
 
Total
 
Level 1
 
Level 2
 
Level 3
June 26, 2011
 
 
 
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
Interest rate swap agreements (1)
 
$
(16,750
)
 
$

 
$
(16,750
)
 
$

Interest rate swap agreements (2)
 
(20,193
)
 

 
(20,193
)
 

Cross-currency swap agreements (2)
 
(53,107
)
 

 
(53,107
)
 

Foreign currency swap agreements (2)
 
(4,273
)
 

 
(4,273
)
 

Net derivative liability
 
$
(94,323
)
 
$

 
$
(94,323
)
 
$

 
 
 
 
 
 
 
 
 
December 31, 2010
 
 
 
 
 
 
 
 
Interest rate swap agreements (3)
 
$
6,294

 
$

 
$
6,294

 
$

Interest rate swap agreements (2)
 
(47,986
)
 

 
(47,986
)
 

Cross-currency swap agreements (1)
 
(54,517
)
 

 
(54,517
)
 

Net derivative liability
 
$
(96,209
)
 
$

 
$
(96,209
)
 
$

 
 
 
 
 
 
 
 
 
June 27, 2010
 
 
 
 
 
 
 
 
Interest rate swap agreements (1)
 
$
68,361

 
$

 
$
68,361

 
$

Cross-currency swap agreements (1)
 
46,883

 

 
46,883

 

Net derivative liability
 
$
115,244

 
$

 
$
115,244

 
$

(1)
Included in “Derivative Liability” on the Unaudited Condensed Consolidated Balance Sheet
(2)
Included in "Current derivative liability" on the Unaudited Condensed Consolidated Balance Sheet
(3)
Included in "Other assets" on the Unaudited Condensed Consolidated Balance Sheet
Fair values of the interest rate, cross-currency and foreign currency swap agreements are determined using significant inputs, including the LIBOR and foreign currency forward curves, that are considered Level 2 observable market inputs. In addition, the Partnership considered the effect of its credit and non-performance risk on the fair values provided, and recognized an adjustment increasing the net derivative liability by approximately $1.4 million as of June 26, 2011. The Partnership monitors the credit and

15

Table of Contents

non-performance risk associated with its derivative counterparties and believes them to be insignificant and not warranting a credit adjustment at June 26, 2011.

There were no assets measured at fair value on a non-recurring basis at June 26, 2011. The table below presents the balances of assets measured at fair value as of December 31, 2010 and June 27, 2010 on a non-recurring basis:
(In thousands)
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
 
 
 
 
 
December 31, 2010
 
 
 
 
 
 
 
 
Long-lived fixed assets (1)
 
$
46,276

 
$

 
$

 
$
46,276

Trade-names (2)
 
697

 

 

 
697

Total
 
$
46,973

 
$

 
$

 
$
46,973

 
 
 
 
 
 
 
 
 
June 27, 2010
 
 
 
 
 
 
 
 
Trade-names (2)
 
$
10,280

 
$

 
$

 
$
10,280

Total
 
$
10,280

 
$

 
$

 
$
10,280

(1) Included in "Net, Property and Equipment" on the Consolidated Balance Sheet
(2) Included in "Other Intangibles, net" on the Consolidated Balance Sheet

A relief-from-royalty model is used to determine whether the fair value of trade-names exceeds their carrying amount. The fair value of the trade-names is determined as the present value of fees avoided by owning the respective trade-name.

In 2010, the Partnership concluded based on operating results, as well as updated forecasts, that a review of the carrying value of long-lived assets at California's Great America was warranted. After performing its review, the Partnership determined that a portion of the park's fixed assets, the majority of which were originally recorded with the PPI acquisition, were impaired. As a result, it recognized $62.0 million of fixed-asset impairment during 2010.

After completing its 2010 annual review of indefinite-lived intangibles for impairment, the Partnership concluded that a portion of trade-names originally recorded with the PPI acquisition were impaired. As a result, the Partnership recognized approximately $2.3 million of trade-name impairment during 2010.
The fair value of term debt at June 26, 2011 was approximately $1,176.0 million based on borrowing rates currently available to the Partnership on long-term debt with similar terms and average maturities. The fair value on its notes at June 26, 2011 was approximately $372.7 million based on borrowing rates available as of that date to the Partnership on notes with similar terms and maturities.

(8) Earnings per Unit:
Net income (loss) per limited partner unit is calculated based on the following unit amounts:
 
 
Three months ended
 
Six months ended
 
Twelve months ended
 
 
6/26/2011
 
6/27/2010
 
6/26/2011
 
6/27/2010
 
6/26/2011
 
6/27/2010
 
 
(In thousands except per unit amounts)
Basic weighted average units outstanding
 
55,346

 
55,324

 
55,341

 
55,266

 
55,338

 
55,254

Effect of dilutive units:
 
 
 
 
 
 
 
 
 
 
 
 
Unit options
 

 

 

 

 

 
38

Phantom units
 
479

 

 

 

 

 
549

Diluted weighted average units outstanding
 
55,825

 
55,324

 
55,341

 
55,266

 
55,338

 
55,841

Net income (loss) per unit - basic
 
$
0.08

 
$
(0.08
)
 
$
(1.45
)
 
$
(0.80
)
 
$
(1.22
)
 
$
0.67

Net income (loss) per unit - diluted
 
$
0.08

 
$
(0.08
)
 
$
(1.45
)
 
$
(0.80
)
 
$
(1.22
)
 
$
0.67

 
 
 
 
 
 
 
 
 
 
 
 
 
The effect of unit options on the three, six, and twelve months ended June 26, 2011, had they not been out of the money or antidilutive, would have been 55,000, 71,000, and 212,000 units, respectively. The effect of out-of-the-money and/or antidilutive unit options on the three, six, and twelve months ended June 27, 2010, had they not been out of the money or antidilutive, would have been 263,000, 325,000, and 437,000 units, respectively.
 

16

Table of Contents


(9) Income and Partnership Taxes:
Under the applicable accounting rules, income taxes are recognized for the amount of taxes payable by the Partnership’s corporate subsidiaries for the current year and for the impact of deferred tax assets and liabilities, which represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. The income tax provision (benefit) for interim periods is determined by applying an estimated annual effective tax rate to the quarterly income (loss) of the Partnership’s corporate subsidiaries. For 2011, the estimated annual effective rate includes the effect of an anticipated adjustment to the valuation allowance that relates to foreign tax credit carry-forwards arising from the corporate subsidiaries. The amount of this adjustment has a disproportionate impact on the annual effective tax rate that results in a significant variation in the customary relationship between the provision for taxes and income before taxes in interim periods. In addition to income taxes on its corporate subsidiaries, the Partnership pays a publicly traded partnership tax (PTP tax) on partnership-level gross income (net revenues less cost of food, merchandise and games). As such, the Partnership’s total provision (benefit) for taxes includes amounts for both the PTP tax and for income taxes on its corporate subsidiaries.
 
(10) Contingencies:
The Partnership is party to a lawsuit with its largest unitholder that alleges, among other things, that the General Partner breached the terms of the Fifth Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”) by indicating that unitholders may lack the right to nominate candidates, or to solicit proxies in support of new candidates, for election to the board of directors of the General Partner. The Partnership has filed an answer denying the allegations as set forth in the complaint.

The Partnership is also a party to a number of lawsuits arising in the normal course of business. In the opinion of management, none of these matters will have a material effect in the aggregate on the Partnership's financial statements.

In 2009, the Partnership agreed to a $9.0 million settlement of a California class-action lawsuit. The settlement, which was paid in 2010, was recognized as a charge in “Operating expenses” in the consolidated statement of operations for the twelve months ended June 27, 2010.


(11) Termination of Agreement with Private Equity Firm:
On April 6, 2010, the Partnership and the affiliates of Apollo Global Management (Apollo) mutually terminated the merger agreement originally entered into on December 16, 2009. Consistent with the terms of the agreement, the Partnership paid Apollo $6.5 million to reimburse them for certain expenses incurred in connection with the transaction. In addition, both parties released each other from all obligations with respect to the proposed merger transaction, as well as from any claims arising out of or relating to the merger agreement. The $6.5 million paid to Apollo in April was recognized as a charge to earnings in “Selling, general and administrative” in the second quarter of 2010. The Partnership incurred approximately $10.4 million in costs associated with the terminated merger during 2010, and a total of $16.0 million of costs since the merger was initially announced.
The Partnership remains an independent public company and its units continue to be listed and traded on the New York Stock Exchange under the symbol “FUN.”
 

(12) Consolidating Financial Information of Guarantors and Issuers:

Cedar Fair, L.P., Canada's Wonderland Company ("Cedar Canada"), and Magnum Management Corporation ("Magnum") are the co-issuers of the Partnership's 9.125% notes (see Note 5). The notes have been fully and unconditionally guaranteed, on a joint and several basis, by each 100% owned subsidiary of Cedar Fair (other than Cedar Canada and Magnum) that guarantees the Partnership's senior secured credit facilities. There are no non-guarantor subsidiaries.

The following consolidating schedules present condensed financial information for Cedar Fair, L.P., Cedar Canada, and Magnum, the co-issuers, and each 100% owned subsidiary of Cedar Fair (other than Cedar Canada and Magnum), the guarantors (on a combined basis), as of June 26, 2011, December 31, 2010, and June 27, 2010 and for the periods ended June 26, 2011 and June 27, 2010. In lieu of providing separate unaudited financial statements for the guarantor subsidiaries, we have included the accompanying consolidating condensed financial statements.

Since Cedar Fair, L.P., Cedar Canada and Magnum are co-issuers of the notes and co-borrowers under the Amended 2010 Credit Agreement, all outstanding debt has been equally reflected within each co-issuer's June 26, 2011 and December 31, 2010 balance sheets in the accompanying consolidating condensed financial statements.

17

Table of Contents

CEDAR FAIR, L.P.
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 26, 2011
(In thousands)
 
 
Cedar Fair L.P. (Parent)
 
Co-Issuer Subsidiary (Magnum)
 
Co-Issuer Subsidiary (Cedar Canada)
 
Guarantor Subsidiaries
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
6,000

 
$
2,962

 
$
9,902

 
$
16,815

 
$

 
$
35,679

Receivables
 
584

 
37,591

 
73,594

 
519,401

 
(603,734
)
 
27,436

Inventories
 

 
4,187

 
4,954

 
43,123

 

 
52,264

Current deferred tax asset
 

 
8,679

 
779

 
3,409

 

 
12,867

Other current assets
 
574

 
3,825

 
4,131

 
8,219

 
(2,861
)
 
13,888

 
 
7,158

 
57,244

 
93,360

 
590,967

 
(606,595
)
 
142,134

Property and Equipment (net)
 
482,409

 
1,067

 
272,179

 
928,718

 

 
1,684,373

Investment in Park
 
442,828

 
607,372

 
118,514

 
34,032

 
(1,202,746
)
 

Intercompany Note Receivable
 

 
269,500

 

 

 
(269,500
)
 

Goodwill
 
9,061

 

 
127,220

 
111,219

 

 
247,500

Other Intangibles, net
 

 

 
18,016

 
22,803

 

 
40,819

Deferred Tax Asset
 

 
47,300

 

 

 
(47,300
)
 

Intercompany Receivable
 
895,647

 
1,180,981

 
1,246,984

 

 
(3,323,612
)
 

Other Assets
 
30,285

 
17,613

 
9,795

 
1,213

 

 
58,906

 
 
$
1,867,388

 
$
2,181,077

 
$
1,886,068

 
$
1,688,952

 
$
(5,449,753
)
 
$
2,173,732

LIABILITIES AND PARTNERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Current maturities of long-term debt
 
$
11,800

 
$
11,800

 
$
11,800

 
$

 
$
(23,600
)
 
$
11,800

Accounts payable
 
107,705

 
325,267

 
9,770

 
204,232

 
(603,734
)
 
43,240

Deferred revenue
 

 

 
18,955

 
76,779

 

 
95,734

Accrued interest
 
6,497

 
1,442

 
15,931

 

 

 
23,870

Accrued taxes
 
5,849

 
243

 

 
3,472

 
(2,861
)
 
6,703

Accrued salaries, wages and benefits
 

 
20,560

 
1,641

 
6,178

 

 
28,379

Self-insurance reserves
 

 
3,489

 
1,689

 
16,769

 

 
21,947

Current derivative liability
 
20,193

 

 
57,380

 

 

 
77,573

Other accrued liabilities
 
2,677

 
5,808

 
658

 
2,918

 

 
12,061

 
 
154,721

 
368,609

 
117,824

 
310,348

 
(630,195
)
 
321,307

Deferred Tax Liability
 

 

 
62,809

 
113,990

 
(47,300
)
 
129,499

Derivative Liability
 
10,454

 
6,296

 

 

 

 
16,750

Other Liabilities
 

 
3,963

 

 

 

 
3,963

Intercompany Note Payable
 

 

 

 
269,500

 
(269,500
)
 

Long-Term Debt:
 
 
 
 
 
 
 
 
 
 
 
 
Revolving credit loans
 
85,000

 
85,000

 
85,000

 

 
(170,000
)
 
85,000

Term debt
 
1,165,250

 
1,165,250

 
1,165,250

 

 
(2,330,500
)
 
1,165,250

Notes
 
399,756

 
399,756

 
399,756

 

 
(799,512
)
 
399,756

 
 
1,650,006

 
1,650,006

 
1,650,006

 

 
(3,300,012
)
 
1,650,006

 
 
 
 
 
 
 
 
 
 
 
 
 
Equity
 
52,207

 
152,203

 
55,429

 
995,114

 
(1,202,746
)
 
52,207

 
 
$
1,867,388

 
$
2,181,077

 
$
1,886,068

 
$
1,688,952

 
$
(5,449,753
)
 
$
2,173,732



18

Table of Contents

CEDAR FAIR, L.P.
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2010
(In thousands)
 
 
Cedar Fair L.P. (Parent)
 
Co-Issuer Subsidiary (Magnum)
 
Co-Issuer Subsidiary (Cedar Canada)
 
Guarantor Subsidiaries
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
1,461

 
$
6,943

 
$
1,361

 
$

 
$
9,765

Receivables
 

 
59,686

 
94,404

 
508,676

 
(650,426
)
 
12,340

Inventories
 

 
1,732

 
2,536

 
27,874

 

 
32,142

Current deferred tax asset
 

 
1,686

 
779

 
3,409

 

 
5,874

Other current assets
 
460

 
1,242

 
370

 
8,141

 

 
10,213

 
 
460

 
65,807

 
105,032

 
549,461

 
(650,426
)
 
70,334

Property and Equipment (net)
 
465,364

 
1,090

 
268,258

 
941,929

 

 
1,676,641

Investment in Park
 
504,414

 
642,278

 
116,053

 
60,602

 
(1,323,347
)
 

Intercompany Note Receivable
 

 
270,188

 
20,000

 

 
(290,188
)
 

Goodwill
 
9,061

 

 
125,979

 
111,219

 

 
246,259

Other Intangibles, net
 

 

 
17,840

 
22,792

 

 
40,632

Deferred Tax Asset
 

 
44,450

 

 

 
(44,450
)
 

Intercompany Receivable
 
886,883

 
1,107,030

 
1,165,493

 

 
(3,159,406
)
 

Other Assets
 
23,855

 
13,469

 
9,998

 
1,256

 

 
48,578

 
 
$
1,890,037

 
$
2,144,312

 
$
1,828,653

 
$
1,687,259

 
$
(5,467,817
)
 
$
2,082,444

LIABILITIES AND PARTNERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
115,116

 
$
303,387

 
$
22,261

 
$
220,449

 
$
(650,426
)
 
$
10,787

Deferred revenue
 

 

 
3,384

 
22,944

 

 
26,328

Accrued interest
 
4,754

 
72

 
15,583

 

 

 
20,409

Accrued taxes
 
3,899

 
2,168

 
6,200

 
2,877

 

 
15,144

Accrued salaries, wages and benefits
 

 
11,433

 
1,242

 
5,545

 

 
18,220

Self-insurance reserves
 

 
3,354

 
1,687

 
16,446

 

 
21,487

Current derivative liability
 
47,986

 

 

 

 

 
47,986

Other accrued liabilities
 
1,443

 
5,831

 
420

 
797

 

 
8,491

 
 
173,198

 
326,245

 
50,777

 
269,058

 
(650,426
)
 
168,852

Deferred Tax Liability
 

 

 
62,290

 
113,990

 
(44,450
)
 
131,830

Derivative Liability
 

 

 
54,517

 

 

 
54,517

Other Liabilities
 

 
10,406

 

 

 

 
10,406

Intercompany Note Payable
 

 
20,000

 

 
270,188

 
(290,188
)
 

Long-Term Debt:
 
 
 
 
 
 
 
 
 
 
 
 
Revolving credit loans
 
23,200

 
23,200

 
23,200

 

 
(46,400
)
 
23,200

Term debt
 
1,157,062

 
1,157,062

 
1,157,062

 

 
(2,314,124
)
 
1,157,062

Notes
 
399,441

 
399,441

 
399,441

 

 
(798,882
)
 
399,441

 
 
1,579,703

 
1,579,703

 
1,579,703

 

 
(3,159,406
)
 
1,579,703

 
 
 
 
 
 
 
 
 
 
 
 
 
Equity
 
137,136

 
207,958

 
81,366

 
1,034,023

 
(1,323,347
)
 
137,136

 
 
$
1,890,037

 
$
2,144,312

 
$
1,828,653

 
$
1,687,259

 
$
(5,467,817
)
 
$
2,082,444


19

Table of Contents

CEDAR FAIR, L.P.
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 27, 2010
(In thousands)
 
 
Cedar Fair L.P. (Parent)
 
Co-Issuer Subsidiary (Magnum)
 
Co-Issuer Subsidiary (Cedar Canada)
 
Guarantor Subsidiaries
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
4,040

 
$
3,313

 
$
16,577

 
$

 
$
23,930

Receivables
 
218

 
15,384

 
72,623

 
405,851

 
(467,294
)
 
26,782

Inventories
 

 
3,685

 
4,609

 
39,771

 

 
48,065

Current deferred tax asset
 

 
54,055

 
801

 
3,385

 

 
58,241

Other current assets
 
953

 
3,992

 
1,769

 
7,392

 

 
14,106

 
 
1,171

 
81,156

 
83,115

 
472,976

 
(467,294
)
 
171,124

Property and Equipment (net)
 
480,838

 
1,121

 
264,580

 
1,042,387

 

 
1,788,926

Investment in Park
 
508,094

 
829,059

 

 
60,703

 
(1,397,856
)
 

Intercompany Note Receivable
 
697,813

 
272,250

 

 

 
(970,063
)
 

Goodwill
 
9,061

 

 
120,830

 
111,218

 

 
241,109

Other Intangibles, net
 

 

 
17,111

 
23,727

 

 
40,838

Deferred Tax Asset
 

 
36,986

 

 
4

 
(36,990
)
 

Other Assets
 
16,974

 

 
567

 
1,318

 

 
18,859

 
 
$
1,713,951

 
$
1,220,572

 
$
486,203

 
$
1,712,333

 
$
(2,872,203
)
 
$
2,260,856

LIABILITIES AND PARTNERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Current maturities of long-term debt
 
$
13,398

 
$

 
$
2,148

 
$

 
$

 
$
15,546

Accounts payable
 
33,721

 
286,096

 
8,028

 
180,649

 
(467,294
)
 
41,200

Deferred revenue
 

 

 
16,346

 
66,082

 

 
82,428

Accrued interest
 
8,565

 

 
1,642

 

 

 
10,207

Accrued taxes
 
5,863

 
497

 
128

 
4,113

 

 
10,601

Accrued salaries, wages and benefits
 

 
10,659

 
1,368

 
6,280

 

 
18,307

Self-insurance reserves
 

 
3,715

 
1,790

 
16,949

 

 
22,454

Other accrued liabilities
 
741

 
7,453

 
484

 
1,484

 

 
10,162

 
 
62,288

 
308,420

 
31,934

 
275,557

 
(467,294
)
 
210,905

Deferred Tax Liability
 

 

 
46,324

 
130,990

 
(36,990
)
 
140,324

Derivative Liability
 
68,361

 

 
46,883

 

 

 
115,244

Other Liabilities
 

 
6,530

 

 

 

 
6,530

Intercompany Note Payable
 

 
697,813

 

 
272,250

 
(970,063
)
 

Long-Term Debt:
 
 
 
 
 
 
 
 
 
 
 
 
Revolving credit loans
 
197,000

 

 

 

 

 
197,000

Term debt
 
1,276,064

 

 
204,551

 

 

 
1,480,615

 
 
1,473,064

 

 
204,551

 

 

 
1,677,615

 
 
 
 
 
 
 
 
 
 
 
 
 
Equity
 
110,238

 
207,809

 
156,511

 
1,033,536

 
(1,397,856
)
 
110,238

 
 
$
1,713,951

 
$
1,220,572

 
$
486,203

 
$
1,712,333

 
$
(2,872,203
)
 
$
2,260,856



20

Table of Contents

CEDAR FAIR, L.P.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 26, 2011
(In thousands)
 
 
Cedar Fair L.P. (Parent)
 
Co-Issuer Subsidiary (Magnum)
 
Co-Issuer Subsidiary (Cedar Canada)
 
Guarantor Subsidiaries
 
Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenues
 
$
33,510

 
$
59,616

 
$
29,621

 
$
254,768

 
$
(93,025
)
 
$
284,490

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Cost of food, merchandise and games revenues
 

 

 
2,730

 
24,381

 

 
27,111

Operating expenses
 
1,448

 
44,059

 
13,945

 
158,551

 
(93,025
)
 
124,978

Selling, general and administrative
 
3,310

 
19,155

 
3,554

 
11,214

 

 
37,233

Depreciation and amortization
 
11,982

 
12

 
5,855

 
24,915

 

 
42,764

 
 
16,740

 
63,226

 
26,084

 
219,061

 
(93,025
)
 
232,086

Operating income (loss)
 
16,770

 
(3,610
)
 
3,537

 
35,707

 

 
52,404

Interest expense (income), net
 
23,634

 
2,755

 
13,376

 
2,413

 

 
42,178

Net effect of swaps
 
(2,017
)
 
(191
)
 
776

 

 

 
(1,432
)
Unrealized / realized foreign currency gain
 

 

 
3,043

 

 

 
3,043

Other (income) expense
 
371

 
(1,710
)
 
618

 
905

 

 
184

(Income) loss from investment in affiliates
 
(11,980
)
 
(7,619
)
 
(6,417
)
 
4,011

 
22,005

 

Income (loss) before taxes
 
6,762

 
3,155

 
(7,859
)
 
28,378

 
(22,005
)
 
8,431

Provision (benefit) for taxes
 
2,096

 
(1,196
)
 
(3,855
)
 
6,720

 

 
3,765

Net income (loss)
 
$
4,666

 
$
4,351

 
$
(4,004
)
 
$
21,658

 
$
(22,005
)
 
$
4,666

 
 
 
 
 
 
 
 
 
 
 
 
 



21

Table of Contents

CEDAR FAIR, L.P.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 27, 2010
(In thousands)
 
 
Cedar Fair L.P. (Parent)
 
Co-Issuer Subsidiary (Magnum)
 
Co-Issuer Subsidiary (Cedar Canada)
 
Guarantor Subsidiaries
 
Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenues
 
$
33,399

 
$
59,946

 
$
26,724

 
$
248,753

 
$
(93,235
)
 
$
275,587

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Cost of food, merchandise and games revenues
 

 

 
2,605

 
23,745

 

 
26,350

Operating expenses
 
1,318

 
44,493

 
12,154

 
156,209

 
(93,235
)
 
120,939

Selling, general and administrative
 
9,865

 
18,520

 
3,533

 
13,223

 

 
45,141

Depreciation and amortization
 
11,666

 
12

 
5,713

 
26,598

 

 
43,989

Loss on goodwill and other intangibles
 

 

 

 
1,390

 

 
1,390

 
 
22,849

 
63,025

 
24,005

 
221,165

 
(93,235
)
 
237,809

Operating income (loss)
 
10,550

 
(3,079
)
 
2,719

 
27,588

 

 
37,778

Interest expense (income), net
 
16,405

 
10,646

 
4,890

 
841

 

 
32,782

Net effect of swaps
 
2,157

 

 
(123
)
 

 

 
2,034

Other (income) expense
 
188

 
(1,835
)
 
535

 
1,131

 

 
19

(Income) loss from investment in affiliates
 
(6,104
)
 
(4,538
)
 

 
(2,102
)
 
12,744

 

Income (loss) before taxes
 
(2,096
)
 
(7,352
)
 
(2,583
)
 
27,718

 
(12,744
)
 
2,943

Provision (benefit) for taxes
 
2,119

 
(6,237
)
 
(2,178
)
 
13,454

 

 
7,158

Net income (loss)
 
$
(4,215
)
 
$
(1,115
)
 
$
(405
)
 
$
14,264

 
$
(12,744
)
 
$
(4,215
)
 
 
 
 
 
 
 
 
 
 
 
 
 


22

Table of Contents


CEDAR FAIR, L.P.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 26, 2011
(In thousands)

 
 
Cedar Fair L.P. (Parent)
 
Co-Issuer Subsidiary (Magnum)
 
Co-Issuer Subsidiary (Cedar Canada)
 
Guarantor Subsidiaries
 
Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenues
 
$
35,567

 
$
63,269

 
$
30,484

 
$
280,774

 
$
(98,735
)
 
$
311,359

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Cost of food, merchandise and games revenues
 

 

 
2,730

 
28,493

 

 
31,223

Operating expenses
 
2,923

 
62,836

 
19,562

 
203,520

 
(98,735
)
 
190,106

Selling, general and administrative
 
6,752

 
33,766

 
4,477

 
13,153

 

 
58,148

Depreciation and amortization
 
12,418

 
23

 
5,855

 
28,258

 

 
46,554

Loss on impairment / retirement of fixed assets, net
 
196

 

 

 

 

 
196

 
 
22,289

 
96,625

 
32,624

 
273,424

 
(98,735
)
 
326,227

Operating income (loss)
 
13,278

 
(33,356
)
 
(2,140
)
 
7,350

 

 
(14,868
)
Interest expense (income), net
 
46,874

 
5,310

 
25,696

 
5,329

 

 
83,209

Net effect of swaps
 
(3,118
)
 
1,102

 
2,471

 

 

 
455

Unrealized / realized foreign currency gain
 

 

 
(3,845
)
 

 

 
(3,845
)
Other (income) expense
 
1,547

 
(3,001
)
 
1,456

 
1,171

 

 
1,173

(Income) loss from investment in affiliates
 
45,532

 
22,942

 
(3,956
)
 
16,424

 
(80,942
)
 

Income (loss) before taxes
 
(77,557
)
 
(59,709
)
 
(23,962
)
 
(15,574
)
 
80,942

 
(95,860
)
Provision (benefit) for taxes
 
2,469

 
(9,918
)
 
(7,538
)
 
(847
)
 

 
(15,834
)
Net income (loss)
 
$
(80,026
)
 
$
(49,791
)
 
$
(16,424
)
 
$
(14,727
)
 
$
80,942

 
$
(80,026
)
 
 
 
 
 
 
 
 
 
 
 
 
 


23

Table of Contents

CEDAR FAIR, L.P.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 27, 2010
(In thousands)
 
 
Cedar Fair L.P. (Parent)
 
Co-Issuer Subsidiary (Magnum)
 
Co-Issuer Subsidiary (Cedar Canada)
 
Guarantor Subsidiaries
 
Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenues
 
$
35,627

 
$
64,263

 
$
27,596

 
$
275,196

 
$
(99,779
)
 
$
302,903

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Cost of food, merchandise and games revenues
 

 

 
2,601

 
27,630

 

 
30,231

Operating expenses
 
2,699

 
62,998

 
17,873

 
199,900

 
(99,779
)
 
183,691

Selling, general and administrative
 
14,875

 
27,322

 
4,289

 
16,006

 

 
62,492

Depreciation and amortization
 
12,106

 
23

 
5,713

 
30,036

 

 
47,878

Loss on impairment of goodwill and other intangibles
 

 

 

 
1,390

 

 
1,390

 
 
29,680

 
90,343

 
30,476

 
274,962

 
(99,779
)
 
325,682

Operating income (loss)
 
5,947

 
(26,080
)
 
(2,880
)
 
234

 

 
(22,779
)
Interest expense (income), net
 
32,715

 
17,189

 
9,357

 
3,100

 

 
62,361

Net effect of swaps
 
7,942

 

 
1,667

 

 

 
9,609

Other (income) expense
 
375

 
(3,253
)
 
512

 
2,362

 

 
(4
)
(Income) loss from investment in affiliates
 
6,544

 
4,078

 

 
(25
)
 
(10,597
)
 

Income (loss) before taxes
 
(41,629
)
 
(44,094
)
 
(14,416
)
 
(5,203
)
 
10,597

 
(94,745
)
Provision (benefit) for taxes
 
2,519

 
(33,569
)
 
(11,923
)
 
(7,624
)
 

 
(50,597
)
Net income (loss)
 
$
(44,148
)
 
$
(10,525
)
 
$
(2,493
)
 
$
2,421

 
$
10,597

 
$
(44,148
)
 
 
 
 
 
 
 
 
 
 
 
 
 

24

Table of Contents

CEDAR FAIR, L.P.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Twelve Months Ended June 26, 2011
(In thousands)
 
 
Cedar Fair L.P. (Parent)
 
Co-Issuer Subsidiary (Magnum)
 
Co-Issuer Subsidiary (Cedar Canada)
 
Guarantor Subsidiaries
 
Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenues
 
$
136,326

 
$
244,989

 
$
116,401

 
$
869,255

 
$
(380,923
)
 
$
986,048

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Cost of food, merchandise and games revenues
 

 

 
9,046

 
78,565

 

 
87,611

Operating expenses
 
5,758

 
164,588

 
44,240

 
584,154

 
(380,923
)
 
417,817

Selling, general and administrative
 
6,970

 
77,897

 
11,027

 
33,763

 

 
129,657

Depreciation and amortization
 
35,881

 
95

 
16,347

 
73,149

 

 
125,472

Loss on impairment of goodwill and other intangibles
 

 

 

 
903

 

 
903

Loss on impairment / retirement of fixed assets, net
 
928

 

 
20

 
62,000

 

 
62,948

 
 
49,537

 
242,580

 
80,680

 
832,534

 
(380,923
)
 
824,408

Operating income
 
86,789

 
2,409

 
35,721

 
36,721

 

 
161,640

Interest expense (income), net
 
99,472

 
19,581

 
48,174

 
2,752

 

 
169,979

Net effect of swaps
 
(552
)
 
1,102

 
8,490

 

 

 
9,040

Loss on early extinguishment of debt
 
24,831

 

 
10,458

 

 

 
35,289

Unrealized / realized foreign currency gain
 

 
(3,079
)
 
(21,325
)
 

 

 
(24,404
)
Other (income) expense
 
1,922

 
(5,871
)
 
2,751

 
2,371

 

 
1,173

(Income) loss from investment in affiliates
 
20,594

 
18,962

 
(1,495
)
 
18,636

 
(56,697
)
 

Income (loss) before taxes
 
(59,478
)
 
(28,286
)
 
(11,332
)
 
12,962

 
56,697

 
(29,437
)
Provision (benefit) for taxes
 
7,967

 
23,331

 
4,856

 
1,854

 

 
38,008

Net income (loss)
 
$
(67,445
)
 
$
(51,617
)
 
$
(16,188
)
 
$
11,108

 
$
56,697

 
$
(67,445
)
 
 
 
 
 
 
 
 
 
 
 
 
 



25

Table of Contents

CEDAR FAIR, L.P.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Twelve Months Ended June 27, 2010
(In thousands)
 
 
Cedar Fair L.P. (Parent)
 
Co-Issuer Subsidiary (Magnum)
 
Co-Issuer Subsidiary (Cedar Canada)
 
Guarantor Subsidiaries
 
Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenues
 
$
102,148

 
$
238,828

 
$
108,093

 
$
819,913

 
$
(340,596
)
 
$
928,386

Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Cost of food, merchandise and games revenues
 

 

 
8,587

 
77,826

 

 
86,413

Operating expenses
 
5,276

 
166,734

 
40,461

 
535,422

 
(340,596
)
 
407,297

Selling, general and administrative
 
21,659

 
72,281

 
10,004

 
35,933

 

 
139,877

Depreciation and amortization
 
36,152

 
46

 
15,302

 
81,932

 

 
133,432

Loss on impairment of goodwill and other intangibles
 

 

 

 
5,890

 

 
5,890

Loss on impairment / retirement of fixed assets, net
 
176

 

 
33

 
5

 

 
214

(Gain) on sale of other assets
 

 

 
(23,098
)
 

 

 
(23,098
)
 
 
63,263

 
239,061

 
51,289

 
737,008

 
(340,596
)
 
750,025

Operating income (loss)
 
38,885

 
(233
)
 
56,804

 
82,905

 

 
178,361

Interest expense (income), net
 
61,517

 
43,421

 
19,626

 
2,671

 

 
127,235

Net effect of swaps
 
11,011

 

 
7,768

 

 

 
18,779

Other (income) expense
 
1,609

 
(7,672
)
 
2,676

 
4,869

 

 
1,482

(Income) loss from investment in affiliates
 
(79,979
)
 
(47,160
)
 

 
(30,957
)
 
158,096

 

Income (loss) before taxes
 
44,727

 
11,178

 
26,734

 
106,322

 
(158,096
)
 
30,865

Provision (benefit) for taxes
 
7,553

 
(18,135
)
 
(1,486
)
 
5,759

 

 
(6,309
)
Net income
 
$
37,174

 
$
29,313

 
$
28,220

 
$
100,563

 
$
(158,096
)
 
$
37,174

 
 
 
 
 
 
 
 
 
 
 
 
 




26

Table of Contents

CEDAR FAIR, L.P.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 26, 2011
(In thousands)
 
 
Cedar Fair L.P. (Parent)
 
Co-Issuer Subsidiary (Magnum)
 
Co-Issuer Subsidiary (Cedar Canada)
 
Guarantor Subsidiaries
 
Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
NET CASH (FOR) FROM OPERATING ACTIVITIES
 
$
(77,878
)
 
$
(33,953
)
 
$
11,033

 
$
4,911

 
$
121,750

 
$
25,863

CASH FLOWS FROM (FOR) INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
 
 
Investment in joint ventures and affiliates
 
61,587

 
34,906

 
(1,312
)
 
26,569

 
(121,750
)
 

Capital expenditures
 
(29,264
)
 

 
(7,083
)
 
(15,338
)
 

 
(51,685
)
Net cash from (for) investing activities
 
32,323

 
34,906

 
(8,395
)
 
11,231

 
(121,750
)
 
(51,685
)
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
 
 
Net borrowings on revolving credit loans
 
61,800

 

 

 

 

 
61,800

Term debt borrowings
 
13,246

 
9,358

 
334

 

 

 
22,938

Term debt payments, including early termination penalties
 
(1,707
)
 
(1,205
)
 
(38
)
 

 

 
(2,950
)
Intercompany (payments) receipts
 

 
688

 

 
(688
)
 

 

Distributions (paid) received
 
(10,001
)
 
39

 

 

 

 
(9,962
)
Payment of debt issuance costs
 
(11,783
)
 
(8,332
)
 
(373
)
 

 

 
(20,488
)
Net cash from (for) financing activities
 
51,555

 
548

 
(77
)
 
(688
)
 

 
51,338

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 

 

 
398

 

 

 
398

CASH AND CASH EQUIVALENTS
 
 
 
 
 
 
 
 
 
 
 
 
Net increase (decrease) for the year
 
6,000

 
1,501

 
2,959

 
15,454

 

 
25,914

Balance, beginning of year
 

 
1,461

 
6,943

 
1,361

 

 
9,765

Balance, end of year
 
$
6,000

 
$
2,962

 
$
9,902

 
$
16,815

 
$

 
$
35,679

 
 
 
 
 
 
 
 
 
 
 
 
 

27

Table of Contents

CEDAR FAIR, L.P.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 27, 2010
(In thousands)
 
 
Cedar Fair L.P. (Parent)
 
Co-Issuer Subsidiary (Magnum)
 
Co-Issuer Subsidiary (Cedar Canada)
 
Guarantor Subsidiaries
 
Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
NET CASH (FOR) FROM OPERATING ACTIVITIES
 
$
(61,354
)
 
$
(30,137
)
 
$
(1,951
)
 
$
48,610

 
$
43,189

 
$
(1,643
)
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
 
 
Investment in joint ventures and affiliates
 
9,506

 
34,059

 

 
(376
)
 
(43,189
)
 

Capital expenditures
 
(17,316
)
 

 
(4,238
)
 
(31,707
)
 

 
(53,261
)
Net cash from (for) investing activities
 
(7,810
)
 
34,059

 
(4,238
)
 
(32,083
)
 
(43,189
)
 
(53,261
)
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
 
 
Net borrowings on revolving credit loans
 
110,700

 

 

 

 

 
110,700

Intercompany term debt (payments) receipts
 
1,813

 
(1,125
)
 

 
(688
)
 

 

Term debt payments, including early termination penalties
 
(43,349
)
 

 
(537
)
 

 

 
(43,886
)
Net cash from (for) financing activities
 
69,164

 
(1,125
)
 
(537
)
 
(688
)
 

 
66,814

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 

 

 
92

 

 

 
92

CASH AND CASH EQUIVALENTS
 
 
 
 
 
 
 
 
 
 
 
 
Net increase (decrease) for the year
 

 
2,797

 
(6,634
)
 
15,839

 

 
12,002

Balance, beginning of year
 

 
1,243

 
9,947

 
738

 

 
11,928

Balance, end of year
 
$

 
$
4,040

 
$
3,313

 
$
16,577

 
$

 
$
23,930

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

28

Table of Contents

CEDAR FAIR, L.P.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Twelve Months Ended June 26, 2011
(In thousands)
 
 
Cedar Fair L.P. (Parent)
 
Co-Issuer Subsidiary (Magnum)
 
Co-Issuer Subsidiary (Cedar Canada)
 
Guarantor Subsidiaries
 
Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
NET CASH (FOR) FROM OPERATING ACTIVITIES
 
$
67,360

 
$
(64,269
)
 
$
9,335

 
$
(1,945
)
 
$
199,141

 
$
209,622

CASH FLOWS FROM (FOR) INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
 
 
Investment in joint ventures and affiliates
 
65,266

 
221,687

 
(114,484
)
 
26,672

 
(199,141
)
 

Capital expenditures
 
(38,113
)
 

 
(10,278
)
 
(21,739
)
 

 
(70,130
)
Net cash from (for) investing activities
 
27,153

 
221,687

 
(124,762
)
 
4,933

 
(199,141
)
 
(70,130
)
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
 
 
Net borrowings (payments) on revolving credit loans
 
(112,000
)
 

 

 

 

 
(112,000
)
Term debt borrowings
 
693,247

 
489,357

 
15,334

 

 

 
1,197,938

Note borrowings
 

 

 
399,383

 

 

 
399,383

Intercompany term debt (payments) receipts
 
697,813

 
(695,063
)
 

 
(2,750
)
 

 

Term debt payments, including early termination penalties
 
(1,309,822
)
 
(8,532
)
 
(207,600
)
 

 

 
(1,525,954
)
Distributions (paid) received
 
(23,892
)
 
96

 

 

 

 
(23,796
)
Return of capital
 

 
75,247

 
(75,247
)
 

 

 

Payment of debt issuance costs
 
(33,859
)
 
(19,608
)
 
(10,287
)
 

 

 
(63,754
)
Exercise of limited partnership unit options
 

 
7

 

 

 

 
7

Net cash from (for) financing activities
 
(88,513
)
 
(158,496
)
 
121,583

 
(2,750
)
 

 
(128,176
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 

 

 
433

 

 

 
433

CASH AND CASH EQUIVALENTS
 
 
 
 
 
 
 
 
 
 
 
 
Net increase (decrease) for the year
 
6,000

 
(1,078
)
 
6,589

 
238

 

 
11,749

Balance, beginning of year
 

 
4,040

 
3,313

 
16,577

 

 
23,930

Balance, end of year
 
$
6,000

 
$
2,962

 
$
9,902

 
$
16,815

 
$

 
$
35,679

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

29

Table of Contents

CEDAR FAIR, L.P.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Twelve Months Ended June 27, 2010
(In thousands)
 
 
Cedar Fair L.P. (Parent)
 
Co-Issuer Subsidiary (Magnum)
 
Co-Issuer Subsidiary (Cedar Canada)
 
Guarantor Subsidiaries
 
Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
NET CASH (FOR) FROM OPERATING ACTIVITIES
 
$
141,927

 
$
20,669

 
$
15,290

 
$
111,017

 
$
(121,237
)
 
$
167,666

CASH FLOWS FROM (FOR) INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
 
 
Investment in joint ventures and affiliates
 
(33,632
)
 
(34,976
)
 

 
(52,629
)
 
121,237

 

Sale of Canadian real estate
 

 

 
53,831

 

 

 
53,831

Capital expenditures
 
(22,260
)
 

 
(4,762
)
 
(54,907
)
 

 
(81,929
)
Net cash from (for) investing activities
 
(55,892
)
 
(34,976
)
 
49,069

 
(107,536
)
 
121,237

 
(28,098
)
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
 
 
Net borrowings on revolving credit loans
 
61,200

 

 

 

 

 
61,200

Intercompany term debt (payments) receipts
 
7,250

 
(4,500
)
 

 
(2,750
)
 

 

Term debt payments, including early termination penalties
 
(119,010
)
 

 
(55,876
)
 

 

 
(174,886
)
Distributions (paid) received
 
(27,781
)
 
177

 

 

 

 
(27,604
)
Return of capital
 

 
18,718

 
(18,718
)
 

 

 

Payment of debt issuance costs
 
(7,694
)
 

 

 

 

 
(7,694
)
Net cash from (for) financing activities
 
(86,035
)
 
14,395

 
(74,594
)
 
(2,750
)
 

 
(148,984
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 

 

 
1,364

 

 

 
1,364

CASH AND CASH EQUIVALENTS
 
 
 
 
 
 
 
 
 
 
 
 
Net increase (decrease) for the year
 

 
88

 
(8,871
)
 
731

 

 
(8,052
)
Balance, beginning of year
 

 
3,952

 
12,184

 
15,846

 

 
31,982

Balance, end of year
 
$

 
$
4,040

 
$
3,313

 
$
16,577

 
$

 
$
23,930

 
 
 
 
 
 
 
 
 
 
 
 
 


30

Table of Contents


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business Overview:

We generate our revenues primarily from sales of (1) admission to our parks, (2) food, merchandise and games inside our parks, and (3) hotel rooms, food and other attractions outside our parks. Our principal costs and expenses, which include salaries and wages, advertising, maintenance, operating supplies, utilities and insurance, are relatively fixed and do not vary significantly with attendance.

Each of our properties is run by a park general manager and operates autonomously. Management reviews operating results, evaluates performance and makes operating decisions, including the allocation of resources, on a property-by-property basis. In order to better facilitate discussion of trends in attendance and guest per capita spending than would be possible on a consolidated basis, our eleven amusement parks and six separately gated water parks have been grouped into regional designations. The northern region, which is the largest, includes Cedar Point and the adjacent Soak City water park, Kings Island, Canada's Wonderland, Dorney Park & Wildwater Kingdom, Valleyfair, Geauga Lake's Wildwater Kingdom, Michigan's Adventure and the Castaway Bay Indoor Waterpark Resort in Sandusky, Ohio. The southern region includes Kings Dominion, Carowinds, Worlds of Fun and Oceans of Fun. Finally, our western region includes Knott's Berry Farm, California's Great America and the Soak City water parks located in Palm Springs, San Diego and adjacent to Knott's Berry Farm. This region also includes the management contract with Gilroy Gardens Family Theme Park in Gilroy, California.

Aside from attendance and guest per capita statistics, discrete financial information and operating results are not prepared at the regional level, but rather at the individual park level for use by the CEO, who is the Chief Operating Decision Maker (CODM), as well as by the interim co-principal financial officers, the park general managers, and two executive vice presidents, who report directly to the CEO and to whom our park general managers report.

Critical Accounting Policies:
This management’s discussion and analysis of financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which were prepared in accordance with accounting principles generally accepted in the United States of America. These principles require us to make judgments, estimates and assumptions during the normal course of business that affect the amounts reported in the unaudited condensed consolidated financial statements. Actual results could differ significantly from those estimates under different assumptions and conditions.
Management believes that judgment and estimates related to the following critical accounting policies could materially affect our consolidated financial statements:
 
Property and Equipment
 
Impairment of Long-Lived Assets
 
Goodwill and Other Intangible Assets
 
Self-Insurance Reserves
 
Derivative Financial Instruments
 
Revenue Recognition
In the second quarter of 2011, there were no changes in the above critical accounting policies previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010.

Adjusted EBITDA:
We believe that adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, other non-cash items, and adjustments as defined in the Amended 2010 Credit Agreement) is a meaningful measure of park-level operating profitability because we use it for measuring returns on capital investments, evaluating potential acquisitions, determining awards under incentive compensation plans, and calculating compliance with certain loan covenants. Adjusted EBITDA is provided in the discussion of results of operations that follows as a supplemental measure of our operating results and is not intended to be a substitute for operating income, net income or cash flows from operating activities as defined under generally accepted accounting principles. In addition, adjusted EBITDA may not be comparable to similarly titled measures of other companies.


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The table below sets forth a reconciliation of adjusted EBITDA to net income for the three, six, and twelve-month periods ended June 26, 2011 and June 27, 2010.
 
 

Three months ended

Six months ended

Twelve months ended
 

6/26/2011

6/27/2010

6/26/2011

6/27/2010

6/26/2011

6/27/2010
 

(In thousands )
Net income (loss)

$
4,666


$
(4,215
)

$
(80,026
)

$
(44,148
)

$
(67,445
)

$
37,174

Interest expense

42,185


32,785


83,297


62,399


171,183


127,294

Interest income

(7
)

(3
)

(88
)

(38
)

(1,204
)

(59
)
Provision (benefit) for taxes

3,765


7,158


(15,834
)

(50,597
)

38,008


(6,309
)
Depreciation and amortization

42,764


43,989


46,554


47,878


125,472


133,432

EBITDA

93,373


79,714


33,903


15,494


266,014


291,532

Loss on early extinguishment of debt









35,289



Net effect of swaps

(1,432
)

2,034


455


9,609


9,040


18,779

Unrealized foreign currency (gain) loss on Notes

2,831




(4,090
)



(21,554
)


Non-cash option expense (income)





(228
)

(10
)

(307
)

(495
)
Loss on impairment of goodwill and other intangibles



1,390




1,390


903


5,890

Loss on impairment/retirement of fixed assets, net





196




62,948


214

Gain on sale of other assets











(23,098
)
Terminated merger costs

80


6,442


80


10,267


188


15,886

Refinancing costs

161


2,517


1,150


2,517


(1,367
)

2,517

Licensing dispute settlement costs











1,980

Class action settlement costs







276




9,754

Other non-recurring items (as defined)

847




5,271




5,271



Adjusted EBITDA (1)

$
95,860


$
92,097


$
36,737


$
39,543


$
356,425


$
322,959



 

 





 

 
(1) As permitted by and defined in the Amended 2010 Credit Agreement











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Results of Operations:


Six Months Ended June 26, 2011 -

The following table presents key financial information for the six months ended June 26, 2011 and June 27, 2010:
 
 
Six months ended
 
Six months ended
 
Increase (Decrease)
 
 
6/26/2011
 
6/27/2010
 
$
 
%
 
 
(Amounts in thousands except per capita spending)
 
 
 
 
 
 
 
 
 
Net revenues
 
$
311,359

 
$
302,903

 
$
8,456

 
2.8
 %
Operating costs and expenses
 
279,477

 
276,414

 
3,063

 
1.1
 %
Depreciation and amortization
 
46,554

 
47,878

 
(1,324
)
 
(2.8
)%
Loss on impairment of goodwill and other intangibles
 

 
1,390

 
(1,390
)
 
N/M

Loss on impairment / retirement of fixed assets, net
 
196

 

 
196

 
N/M

Operating loss
 
$
(14,868
)
 
$
(22,779
)
 
$
7,911

 
(34.7
)%
N/M - Not meaningful
 
 
 
 
 
 
 
 
Other Data:
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
36,737

 
$
39,543

 
$
(2,806
)
 
(7.1
)%
Cash operating costs
 
$
279,705

 
$
276,424

 
$
3,281

 
1.2
 %
Attendance
 
7,181

 
7,116

 
65

 
0.9
 %
Per capita spending
 
$
38.92

 
$
38.50

 
$
0.42

 
1.1
 %
Out-of-park revenues
 
$
38,743

 
$
37,586

 
$
1,157

 
3.1
 %

Net revenues for the six months ended June 26, 2011 increased $8.5 million to $311.4 million from $302.9 million during the six months ended June 27, 2010. The increase in revenues reflects an increase of 65,000 visits in combined attendance through the first six months of 2011 when compared with the same period a year ago, largely due to an increase in season-pass visits (up more than 370,000 visits year-over-year). The increase in season pass visits was the direct result of an increased marketing focus toward season passes at several of our parks, resulting in a significant increase in the number of season passes sold, particularly in the western region.

The increase in revenues also reflects a 1%, or $0.42, increase in average in-park guest per capita spending during the first six months of the year when compared with the first six months of 2010, and a 3%, or $1.2 million, increase in out-of-park revenues from the sale of hotel rooms, food, merchandise and other complementary activities located outside of the park gates. In-park guest per capita spending represents the amount spent per attendee to gain admission to a park plus all amounts spent while inside the park gates. For this year's six-month period, average in-park per capita spending increased in all regions when compared to last year's first six months. In addition, the increase in revenues for the first six months of the year reflects the impact of exchange rates and the weakening U.S. dollar on our Canadian operations ($1.8 million) during the period.

For the six-month period in 2011, costs and expenses increased 1%, or $3.1 million, to $279.5 million from $276.4 million for the same period in 2010, the net result of a $1.0 million increase in cost of goods sold, a $6.4 million increase in operating expenses and a $4.3 million decrease in selling, general and administrative costs. The 3% increase in operating expenses is primarily attributable to timing differences through the first half of the year compared to last year in maintenance costs ($2.6 million unfavorable) and operating supplies ($1.6 million unfavorable), as well as higher wage costs ($1.7 million). The increase in wages is largely the result of increased seasonal staffing levels versus seasonal staffing levels during the first half of 2010. The decrease in selling, general and administrative costs in the period principally reflects the impact of costs from the terminated merger with Apollo during the first half of 2010 ($10.5 million), offset by legal and professional costs incurred in the current period ($5.3 million), including litigation expenses and costs for SEC compliance matters related to Special Meeting requests. In addition, the overall increase in costs and expenses reflects the negative impact of exchange rates on our Canadian operations ($1.4 million) during the first half of the year.

Depreciation and amortization expense for the period decreased $1.3 million, due in large part to the impairment charge taken on the fixed assets of California's Great America at the end of 2010. For the six-month period of 2011, the loss on impairment/

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retirement of fixed assets was $0.2 million, reflecting the retirement of fixed assets in the normal course of business at two of our properties. During the second quarter of 2010, we recognized a $1.4 million non-cash charge for the impairment of trade-names originally recorded at the time of the PPI acquisition. After depreciation, amortization, loss on impairment of the trade-names, loss on impairment / retirement of fixed assets, and all other non-cash costs, the operating loss for the period decreased $7.9 million to $14.9 million in the first half of 2011 from an operating loss of $22.8 million in the first half of 2010.

As a result of the July 2010 refinancing of our debt, as well as the February 2011 amendment to our credit agreement (as further discussed in the "Liquidity and Capital Resources" section), interest-rate spreads, and to a lesser extent long-term borrowings, were higher during the first six months of 2011 compared with the same period in 2010, causing an increase in interest expense. Based on higher interest-rate spreads and somewhat higher long-term borrowings, interest expense for the six-month period in 2011 increased $20.9 million to $83.3 million compared with $62.4 million for the same period a year ago.

The net effect of our swaps decreased $9.1 million between the six month periods, resulting in a non-cash charge to earnings of $0.5 million, for this year's first half, as compared with a $9.6 million non-cash charge to earnings in last year's first half. The difference reflects the regularly scheduled amortization of amounts in Accumulated other comprehensive income ("AOCI") related to the swaps, which were largely offset by gains from marking the ineffective and de-designated swaps to market and foreign currency gains related to the U.S.-dollar denominated Canadian term loan in the current period. During the current year-to-date period, we also recognized a $3.8 million net benefit to earnings for unrealized/realized foreign currency gains, which included a $4.1 million unrealized foreign currency gain on the U.S.-dollar denominated notes issued in July 2010 and held at our Canadian property.

During the first half of 2011, a benefit for taxes of $15.8 million was recorded to account for publicly traded partnership (“PTP”) taxes and the tax attributes of our corporate subsidiaries. This compares with a $50.6 million benefit for taxes for the same six-month period in 2010. The year-over-year variation in the tax benefit recorded through the first six months of the year is primarily due to a lower estimated annual effective tax rate for the 2011 year, which was impacted by lower expected foreign taxes for 2011 and the related favorable adjustment to the foreign tax credit valuation allowance. Actual cash taxes paid or payable are estimated to be between $8-10 million for the 2011 calendar year.

After interest expense and the benefit for taxes, the net loss for the six months ended June 26, 2011 totaled $80.0 million, or $1.45 per diluted limited partner unit, compared with a net loss of $44.1 million, or $0.80 per unit, for the same period a year ago.

For the six-month period, adjusted EBITDA (as defined in the Amended 2010 Credit Agreement), which management believes is a meaningful measure of the company's park-level operating results, decreased $2.8 million to $36.7 million compared with $39.5 million during the same period a year ago. The decrease in adjusted EBITDA was primarily the result of the incremental operating costs, which were largely offset by the increase in net revenues year-over-year for the first six months. For additional information regarding adjusted EBITDA, including how we define adjusted EBITDA, why we believe it provides useful information, and a reconciliation to net income, see pages 31-32.























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Second Quarter -

The following table presents key financial information for the three months ended June 26, 2011 and June 27, 2010:
 
 
Three months ended
 
Three months ended
 
Increase (Decrease)
 
 
6/26/2011
 
6/27/2010
 
$
 
%
 
 
(Amounts in thousands except per capita spending)
 
 
 
 
 
 
 
 
 
Net revenues
 
$
284,490

 
$
275,587

 
$
8,903

 
3.2
 %
Operating costs and expenses
 
189,322

 
192,430

 
(3,108
)
 
(1.6
)%
Depreciation and amortization
 
42,764

 
43,989

 
(1,225
)
 
(2.8
)%
Loss on impairment of goodwill and other intangibles
 

 
1,390

 
(1,390
)
 
N/M

Operating income
 
$
52,404

 
$
37,778

 
$
14,626

 
38.7
 %
N/M - Not meaningful
 
 
 
 
 
 
 
 
Other Data:
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
95,860

 
$
92,097

 
$
3,763

 
4.1
 %
Adjusted EBITDA margin
 
33.7
%
 
33.4
%
 

 
0.3
 %
Cash operating costs
 
$
189,322

 
$
192,430

 
$
(3,108
)
 
(1.6
)%
Attendance
 
6,725

 
6,632

 
93

 
1.4
 %
Per capita spending
 
$
38.95

 
$
38.56

 
$
0.39

 
1.0
 %
Out-of-park revenues
 
$
28,752

 
$
27,761

 
$
991

 
3.6
 %

For the quarter ended June 26, 2011, net revenues increased 3%, or $8.9 million, to $284.5 million from $275.6 million in 2010. This increase reflects a 1% increase in combined attendance, a 4%, or $1.0 million, increase in out-of-park revenues, and a 1% increase in average in-park per capita spending. As mentioned in the six-month discussion above, the increases in attendance and revenue were primarily due to an increase in season-pass sales and visits during the quarter, particularly in our western region.

Costs and expenses for the quarter decreased 2%, or $3.1 million, to $189.3 million from $192.4 million in the first quarter of 2010, the net result of a $0.8 million increase in cost of goods sold, a $4.0 million increase in operating expenses and a $7.9 million decrease in selling, general and administrative costs. The 3% increase in operating expenses is primarily attributable to timing differences during the current quarter compared to last year in maintenance costs ($1.2 million unfavorable) and operating supplies ($0.3 million unfavorable), as well as higher wage costs ($1.2 million). The increase in wages is largely the result of increased seasonal staffing levels versus seasonal staffing levels during the second quarter of 2010. The decrease in selling, general and administrative costs in the quarter reflects the impact of costs from the terminated Apollo merger ($6.4 million) and our debt refinancing ($2.5 million) incurred during the second quarter of 2010 ($6.4 million), offset by legal and professional costs incurred during the second quarter of 2011 ($0.8 million), including litigation expenses and costs for SEC compliance matters related to Special Meeting requests. In addition, the overall increase in costs and expenses reflects the negative impact of exchange rates on our Canadian operations ($1.0 million) during the first half of the year.

Interest expense for the second quarter of 2011 was $42.2 million, representing a $9.4 million increase from the interest expense for the second quarter of 2010. As mentioned in the six month discussion above, as a result of the July 2010 refinancing of our debt, as well as the February 2011 amendment to our credit agreement, interest rates and long-term borrowings were higher during the second quarter of 2011 compared with the same period in 2010, causing an increase in interest expense.

During the second quarter, the net effect of our swaps decreased $3.5 million resulting in a non-cash benefit to earnings of $1.4 million in the second quarter, reflecting the regularly scheduled amortization of amounts in Accumulated other comprehensive income ("AOCI") related to the swaps, as well as gains from marking the ineffective and de-designated swaps to market and foreign currency gains related to the U.S.-dollar denominated Canadian term loan in the current period. During the 2011 second quarter, we also recognized a $3.0 million net charge to earnings for unrealized/realized foreign currency losses, $2.8 million of which represents an unrealized foreign currency loss on the U.S.-dollar denominated notes issued in July 2010 and held at our Canadian property.

During the quarter, a provision for taxes of $3.8 million was recorded to account for PTP taxes and the tax attributes of our corporate subsidiaries, compared to a provision for taxes of $7.2 million in the same period a year ago. The variation in the tax provision (benefit) recorded between periods is due primarily to the lower estimated annual effective tax rate for the 2011 year as discussed

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in the six month section above. After interest expense and the provision for taxes, net income for the quarter totaled $4.7 million, or $0.08 per diluted limited partner unit, compared with a net loss of $4.2 million, or $0.08 per unit, for the second quarter a year ago.

For the current quarter, adjusted EBITDA increased 4% to $95.9 million from $92.1 million in 2010, while our adjusted EBITDA margin (adjusted EBITDA divided by net revenues) increased 30 basis points to 33.7% compared to 33.4%. The $3.8 million increase in adjusted EBITDA was primarily due to the incremental net revenues resulting from the increases in combined attendance, average guest per capita spending and out-of-park revenues. Partially offsetting these gains were higher park-level operating costs during the period. For additional information regarding adjusted EBITDA, including how we define adjusted EBITDA, why we believe it provides useful information, and a reconciliation to net income, see pages 31-32.


Twelve Months Ended June 26, 2011 -

The following table presents key financial information for the twelve months ended June 26, 2011 and June 27, 2010:

 
 
Twelve months ended
 
Twelve months ended
 
Increase (Decrease)
 
 
6/26/2011
 
6/27/2010
 
$
 
%
 
 
(Amounts in thousands except per capita spending)
 
 
 
 
 
 
 
 
 
Net revenues
 
$
986,048

 
$
928,386

 
$
57,662

 
6.2
 %
Operating costs and expenses
 
635,085

 
633,587

 
1,498

 
0.2
 %
Depreciation and amortization
 
125,472

 
133,432

 
(7,960
)
 
(6.0
)%
Loss on impairment of goodwill and other intangibles
 
903

 
5,890

 
(4,987
)
 
(84.7
)%
Loss on impairment/retirement of fixed assets
 
62,948

 
214

 
62,734

 
N/M

Gain on sale of assets
 

 
(23,098
)
 
23,098

 
N/M

Operating income
 
$
161,640

 
$
178,361

 
$
(16,721
)
 
(9.4
)%
N/M - Not meaningful
 
 
 
 
 
 
 
 
Other Data:
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
356,425

 
$
322,959

 
$
33,466

 
10.4
 %
Adjusted EBITDA margin
 
36.1
%
 
34.8
%
 

 
1.4
 %
Cash operating costs
 
$
635,392

 
$
634,577

 
$
815

 
0.1
 %
Attendance
 
22,859

 
21,613

 
1,246

 
5.8
 %
Per capita spending
 
$
39.34

 
$
39.23

 
$
0.11

 
0.3
 %
Out-of-park revenues
 
$
109,972

 
$
103,612

 
$
6,360

 
6.1
 %

Net revenues for the twelve months ended June 26, 2011, were $986.0 million compared with $928.4 million for the twelve months ended June 27, 2010. The increase of $57.6 million in net revenues reflects a 6%, or 1.2 million-visit, increase in combined attendance, a 6%, or $6.4 million, increase in out-of-park revenues, including our resort hotels, and a less than 1%, or $0.11, increase in average in-park guest per capita spending. The improved attendance for the current twelve-month period relative to the prior twelve month period reflects strong attendance figures in the second half of the 2010 season and the first half of 2011, largely due to increases in season passes sold and season-pass visits, particularly at our parks in the southern and western regions. In addition, attendance in the trailing twelve months ended June 26, 2011 benefited from an increase in group sales business as many of our parks saw the return of numerous bookings that were lost in 2009, as well as favorable weather conditions throughout much of the second half of 2010 and the first half of 2011 when compared to the second half of 2009 and the first half of 2010. Revenues for the period also benefited from the impact of currency exchange rates and the weakening U.S. dollar on our Canadian operations (approximately $6.5 million).

When comparing the two twelve-month periods, costs and expenses increased $1.5 million, or less than 1%, to $635.1 million from $633.6 million for the same period a year ago, while depreciation and amortization expense decreased $8.0 million, or 6%, between periods. The decrease in depreciation and amortization expense reflects the accelerated amortization in the fourth quarter of 2009 of the intangible asset related to the Nickelodeon licensing agreement that was not renewed at the end of 2009.

During the second and fourth quarters of 2010, we recognized non-cash charges of $1.4 million and $0.9 million, respectively, for the partial impairment of trade-names originally recorded at the time of the PPI acquisition. This compares with a non-cash

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charge of $4.5 million for the impairment of trade-names in the fourth quarter of 2009. Additionally, in the fourth quarter of 2010 we recognized a non-cash charge of $62.0 million at California's Great America for the partial impairment of the park's fixed assets and a $0.8 million charge for asset retirements across all properties.

The comparison of operating income between periods is also affected by a $23.1 million gain on the sale of other assets in 2009. In late August of 2009, we completed the sale of 87 acres of surplus land at Canada's Wonderland to the Vaughan Health Campus of Care in Ontario, Canada as part of our ongoing efforts to reduce debt. Net proceeds from this sale totaled $53.8 million and resulted in the recognition of a $23.1 million gain during 2009. Due to this gain and the other reasons mentioned above, operating income for the twelve months ended June 26, 2011 decreased $16.7 million to $161.6 million compared with $178.4 million for the same period a year ago.

As a result of the July 2010 debt refinancing, as well as the February 2011 amendment to the credit agreement, interest-rate spreads and long-term borrowings were higher during the current trailing-twelve-month period than the same period a year ago. Based on the higher interest rates and long-term borrowings, interest expense for the period increased $43.9 million to $171.2 million from $127.3 million for the same period a year ago. Also as the result of the July 2010 refinancing, a $35.3 million loss on the early extinguishment of debt was recognized and recorded in the statement of operations.

The net effect of our swaps decreased $9.7 million between periods, resulting in a non-cash charge to earnings of $9.0 million for the last twelve months and reflecting the regularly scheduled amortization of amounts in Accumulated other comprehensive income ("AOCI") related to the swaps, offset somewhat by gains from marking the ineffective and de-designated swaps to market and foreign currency gains related to the U.S.-dollar denominated Canadian term loan in the current period. During the last twelve month period, we also recognized a $24.4 million benefit to earnings for unrealized/realized foreign currency gains, $21.6 million of which represents an unrealized foreign currency gain on the U.S.-dollar denominated notes issued in July and held at our Canadian property.

A net provision for taxes of $38.0 million was recorded to account for the tax attributes of our corporate subsidiaries and publicly traded partnership (PTP) taxes during the twelve-month period ended June 26, 2011, compared with a net benefit for taxes of $6.3 million during the same twelve-month period a year ago. The variation in the tax provision (benefit) recorded between periods is due primarily to the lower estimated annual effective tax rate for the 2011 year, as noted above in our discussion of six-month operating results.

After interest expense and provision for taxes, net loss for the twelve months ended June 26, 2011 was $67.4 million, or $1.22 per diluted limited partner unit, compared with net income of $37.2 million, or $0.67 per diluted limited partner unit, for the twelve months ended June 27, 2010.

For the twelve-month period ended June 26, 2011, adjusted EBITDA increased $33.5 million, or 10%, to $356.4 million, while our adjusted EBITDA margin (adjusted EBITDA divided by net revenues) increased 130 basis points to 36.1% compared to 34.8% in 2010. This increase was largely the result of increased attendance in the second half of 2010 and first half of 2011, as well as continued disciplined cost containment over the last twelve months. For additional information regarding adjusted EBITDA, including how we define adjusted EBITDA, why we believe it provides useful information, and a reconciliation to net income, see pages 31-32.
July 2011 -

Based on preliminary July results, revenues for the first seven months of the year increased approximately $24 million to $611 million from $587 million for the same period a year ago, on a comparable number of operating days. The revenue increase reflects a 3% increase in attendance to 13.8 million visitors from 13.4 million through the first seven months of 2010 and a 1% increase in average in-park guest per capita spending. Over this same period, out-of-park revenues increased approximately $2 million, or 3%, to $66 million, driven primarily by improved occupancy levels at our resort properties.

Over the past five weeks, consolidated revenues were up 6%, or approximately $18 million. This increase was largely the result of a 5%, or 314,000-visit, increase in combined attendance and a $0.8 million increase in out-of-park revenues. Over the same five-week period, average in-park guest per capita spending continued to trend up roughly 2% over last year.

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Liquidity and Capital Resources:
With respect to both liquidity and cash flow, we ended the second quarter of 2011 in sound condition. The negative working capital ratio (current liabilities divided by current assets) of 2.3 at June 26, 2011 reflects the impact of our seasonal business, as well as current derivative liabilities of approximately $78 million which will settle in the next twelve months. Receivables and inventories are at normal seasonal levels and credit facilities are in place to fund current liabilities and capital expenditures.

In July 2010, we issued $405 million of 9.125% senior unsecured notes, maturing in 2018, in a private placement, including $5.6 million of Original Issue Discount (OID) to yield 9.375%. Concurrently with this offering, we entered into a new $1,435 million credit agreement (the "2010 Credit Agreement"), which included a new $1,175 million senior secured term loan facility and a new $260 million senior secured revolving credit facility. The net proceeds from the offering of the notes, along with proceeds from the 2010 Credit Agreement, were used to repay in full all amounts outstanding under our existing credit facilities.

In February 2011, we amended the 2010 Credit Agreement (as so amended, the "Amended 2010 Credit Agreement"), including to extend the maturity date of the U.S. term loan portion of the credit facilities by one year. Under the Amended 2010 Credit Agreement, the extended U.S. term loan amortizes at $11.8 million per year, is scheduled to mature in December of 2017 and bears interest at a rate of LIBOR plus 300 bps, with a LIBOR floor of 100 bps.
The Amended 2010 Credit Agreement also includes a $260 million revolving credit facility. Under the agreement, the Canadian portion of the revolving credit facility has a limit of $15 million. U.S. denominated loans made under the revolving credit facility bear interest at a rate of LIBOR plus 400 bps (with no LIBOR floor). Canadian denominated loans made under the Canadian portion of the facility also bear interest at a rate of LIBOR plus 400 bps (with no LIBOR floor). The revolving credit facility, which matures in July of 2015, also provides for the issuance of documentary and standby letters of credit.
At the end of the quarter, we had a total of $1,177.1 million of variable-rate term debt, $399.8 million of fixed-rate debt (including OID), $85.0 million in outstanding borrowings under our revolving credit facility, and cash on hand of $35.7 million. After letters of credit, which totaled $15.7 million at June 26, 2011, we had $159.3 million of available borrowings under the revolving credit facility under the Amended 2010 Credit Agreement. Of our total term debt outstanding at the end of the second quarter, $11.8 million is scheduled to mature within the next twelve months.
Our $405 million of senior unsecured notes require semi-annual interest payments in February and August, with the principal due in full on August 1, 2018. The notes may be redeemed, in whole or in part, at any time prior to August 1, 2014 at a price equal to 100% of the principal amount of the notes redeemed plus a “make-whole” premium together with accrued and unpaid interest, if any, to the redemption date. Thereafter, the notes may be redeemed, in whole or in part, at various prices depending on the date redeemed. Prior to August 1, 2013, up to 35% of the notes may be redeemed with the net cash proceeds of certain equity offerings at 109.125%.
In 2006, we entered into several fixed-rate interest rate swap agreements totaling $1.0 billion. The weighted average fixed-LIBOR rate on the interest rate swaps, which mature in October 2011, is 5.6%. Based upon our scheduled quarterly regression analysis testing of the effectiveness for the accounting treatment of these swaps, as well as changes in the forward interest rate yield curves used in that testing, the swaps were deemed to be ineffective beginning in October 2009 and continued to be deemed ineffective through June 26, 2011. This resulted in the swaps not qualifying for hedge accounting during the fourth quarter of 2009 and through the first two quarters of 2011. The fair market value of these instruments at June 26, 2011 was a $20.2 million liability, which was recorded in “Current derivative liability” on the condensed consolidated balance sheet.
In 2007, we entered into two cross-currency swap agreements, which mature in February 2012 and effectively converted $268.7 million of term debt at the time, and the associated interest payments, from U.S. dollar denominated debt at a rate of LIBOR plus 200 bps to 6.3% fixed-rate Canadian dollar denominated debt. As a result of paying down the underlying Canadian term debt with net proceeds from the sale of surplus land near Canada’s Wonderland in August 2009, the notional amounts of the underlying debt and the cross-currency swaps no longer match. Because of the mismatch of the notional amounts, we determined the swaps would no longer be highly effective going forward, resulting in the de-designation of the swaps as of the end of August 2009. The fair market value of these instruments at June 26, 2011 was a $53.1 million liability, which was recorded in “Current derivative liability” on the condensed consolidated balance sheet.
Based on the change in currency exchange rates from the time we originally entered into the cross-currency swap agreements in 2007, the termination liability of the swaps has increased steadily over time. In order to protect ourselves from further downside risk to the swaps' termination value, in May 2011 we entered into several foreign currency swap agreements to fix the exchange

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rate on 50% of the liability. In July 2011, we fixed the exchange rate on another 25% of the swap liability, leaving only 25% exposed to further fluctuations in currency exchange rates. The fair market value of the foreign currency swap agreements in place as of June 26, 2011 was a liability of $4.3 million, which was recorded in "Current derivative liability" on the condensed consolidated balance sheet. Based on currency exchange rates in place at the end of the second quarter of 2011 and the exchange rates locked into by the foreign currency swap agreements, we estimate the cash termination costs of the cross-currency swaps will total approximately $55 million in February 2012.
The following table presents our existing fixed-rate swaps, which mature October 1, 2011, along with their notional amounts and their fixed interest rates, which compare to 30-day LIBOR of 0.25% as of June 26, 2011. The table also presents our cross-currency swaps and their notional amounts and interest rates as of June 26, 2011.
($'s in thousands)
Interest Rate Swaps
 
Cross-currency Swaps
 
Notional Amounts
 
LIBOR Rate
 
Notional Amounts
 
Interest Rate
 
$
200,000

 
5.64
%
 
$
257,000

 
7.31
%
 
200,000

 
5.64
%
 
175

 
9.50
%
 
200,000

 
5.64
%
 
 
 
 
 
200,000

 
5.57
%
 
 
 
 
 
100,000

 
5.60
%
 
 
 
 
 
100,000

 
5.60
%
 
 
 
 
Total $'s / Average Rate
$
1,000,000

 
5.62
%
 
$
257,175

 
7.31
%
 
 
 
 
 
 
 
 
In order to maintain fixed interest costs on a portion of its domestic term debt beyond the expiration of the swaps entered into in 2006 and 2007, in September 2010 the Partnership entered into several forward-starting swap agreements ("September 2010 swaps") to effectively convert a total of $600 million of variable-rate debt to fixed rates beginning in October 2011. As a result of the February 2011 amendment to our credit agreement, the LIBOR floor on the term loan portion of our credit facilities decreased to 100 bps from 150 bps, causing a mismatch in critical terms of the September 2010 swaps and the underlying debt. Because of the mismatch of critical terms, we determined the September 2010 swaps, which were originally designated as cash flow hedges, were no longer highly effective, resulting in the de-designation of the September 2010 swaps as of the end of February 2011.
In order to monetize the difference in the LIBOR floors, in March 2011 we entered into several additional forward-starting basis-rate swap agreements ("March 2011 swaps") that, when combined with the September 2010 swaps, will effectively convert $600 million of variable-rate debt to fixed rates beginning in October 2011. The September 2010 swaps and the March 2011 swaps, which have been jointly designated as cash flow hedges, mature in December 2015 and fix LIBOR at a weighted average rate of 2.46%.
On May 2, 2011, we entered into four additional forward-starting basis-rate swap agreements ("May 2011 forward-starting swaps") that effectively convert another $200 million of variable-rate debt to fixed rates beginning in October 2011. These swaps, which have been designated as cash flow hedges, mature in December 2015 and fix LIBOR at a weighted average rate of 2.54%. The fair market value of all $800 million of forward-starting swap agreements at June 26, 2011 was a liability of $16.8 million, which was recorded in "Derivative Liability" on the condensed consolidated balance sheet.

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The following table presents our September 2010 swaps, March 2011 swaps, and May 2011 forward-starting swaps, which become effective October 1, 2011 and mature December 15, 2015, along with their notional amounts and their effective fixed interest rates.
($'s in thousands)
Forward-Starting Interest Rate Swaps
 
Notional Amounts
 
LIBOR Rate
 
$
200,000

 
2.40
%
 
75,000

 
2.43
%
 
50,000

 
2.42
%
 
150,000

 
2.55
%
 
50,000

 
2.42
%
 
50,000

 
2.55
%
 
25,000

 
2.43
%
 
50,000

 
2.54
%
 
30,000

 
2.54
%
 
70,000

 
2.54
%
 
50,000

 
2.54
%
Total $'s / Average Rate
$
800,000

 
2.48
%

The Amended 2010 Credit Agreement requires us to maintain specified financial ratios, which if breached for any reason, including a decline in operating results due to economic or weather conditions, could result in an event of default under the agreement. The most critical of these ratios is the Consolidated Leverage Ratio, which is measured on a trailing-twelve-month quarterly basis. At the end of the second quarter of 2011, this ratio was set at 6.25x consolidated total debt (excluding the revolving debt)-to-consolidated EBITDA. Beginning with the fourth quarter of 2011, this ratio will decrease to 6.0x consolidated total debt (excluding the revolving debt)-to Consolidated EBITDA, and the ratio will decrease further each fourth quarter beginning with the fourth quarter of 2013. Based on our trailing-twelve-month results ending June 26, 2011, our Consolidated Leverage Ratio was 4.42x, providing $104.1 million of EBITDA cushion on the ratio at the end of the second quarter. We were in compliance with all other covenants under the Amended 2010 Credit Agreement as of June 26, 2011.
The Amended 2010 Credit Agreement also includes provisions that allow us to make restricted payments of up to $60 million in 2011 and up to $20 million annually thereafter, at the discretion of the Board of Directors, so long as no default or event of default has occurred and is continuing. The restricted payment limitation in place under the agreement during 2010 and prior to the recent amendment capped the annual amount of permitted restricted payments at $20 million. These restricted payments are not subject to any specific covenants. Beginning in 2012, additional restricted payments are allowed to be made based on an excess-cash-flow formula, should our pro-forma Consolidated Leverage Ratio be less than or equal to 4.50x, measured on a trailing-twelve-month quarterly basis.
The terms of the indenture governing our notes permit us to make restricted payments of $20 million annually. Our ability to make additional restricted payments in 2011 and beyond is permitted should our trailing-twelve-month Total-Indebtedness-to-Consolidated-Cash-Flow Ratio be less than or equal to 4.75x, measured on a quarterly basis.
In accordance with these debt provisions, on May 5, 2011, we announced the declaration of a distribution of $0.10 per limited partner unit, which was paid on June 15, 2011.
In addition to the above, among other covenants and provisions, the Amended 2010 Credit Agreement contains an initial three-year requirement (from July 2010) that at least 50% of our aggregate term debt and senior notes be subject to either a fixed interest rate or interest rate protection. As of June 26, 2011, we were well within compliance of this requirement.
Existing credit facilities and cash flows from operations are expected to be sufficient to meet working capital needs, debt service, partnership distributions and planned capital expenditures for the foreseeable future.

Off Balance Sheet Arrangements:
We had $15.7 million in letters of credit, which are primarily in place to backstop insurance arrangements, outstanding on our revolving credit facility as of June 26, 2011. We have no other significant off-balance sheet financing arrangements.


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Forward Looking Statements
Some of the statements contained in this report (including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section) that are not historical in nature are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements as to our expectations, beliefs and strategies regarding the future. These forward-looking statements may involve risks and uncertainties that are difficult to predict, may be beyond our control and could cause actual results to differ materially from those described in such statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Important factors, including those listed under Item 1A in the Company’s Annual Report on Form 10-K could adversely affect our future financial performance and cause actual results to differ materially from our expectations.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks from fluctuations in interest rates, and to a lesser extent in currency exchange rates on our operations in Canada and, from time to time, on imported rides and equipment. The objective of our financial risk management is to reduce the potential negative impact of interest rate and foreign currency exchange rate fluctuations to acceptable levels. We do not acquire market risk sensitive instruments for trading purposes.
We manage interest rate risk through the use of a combination of fixed-rate long-term debt, interest rate swaps, which fix a portion of our variable-rate long-term debt, and variable-rate borrowings under our revolving credit loans. We mitigate a portion of our foreign currency exposure from the Canadian dollar through the use of foreign-currency denominated debt. Hedging of the U.S. dollar denominated debt, used to fund a substantial portion of our net investment in our Canadian operations, is accomplished through the use of cross-currency swaps. Any gain or loss on the effective hedging instrument primarily offsets the gain or loss on the underlying debt. Translation exposures with regard to our Canadian operations are not hedged.
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the change in fair value of the derivative instrument is reported as a component of “Other comprehensive income (loss)” and reclassified into earnings in the period during which the hedged transaction affects earnings. Changes in fair value of derivative instruments that do not qualify as effective hedging activities are reported as “Net effect of swaps” in the consolidated statement of operations. Additionally, the “Other comprehensive income (loss)” related to interest rate swaps that become ineffective is amortized over the remaining life of the interest rate swap, and reported as a component of “Net effect of swaps” in the consolidated statement of operations.
After considering the impact of interest rate swap agreements, at June 26, 2011, $1,656.9 million of our outstanding long-term debt represented fixed-rate debt and $4.9 million represented variable-rate debt. Assuming an average balance on our revolving credit borrowings of approximately $68 million, a hypothetical 100 bps increase in 30-day LIBOR on our variable-rate debt, after the fixed-rate swap agreements, would lead to a decrease of approximately $9 million in annual cash interest costs.
A uniform 10% strengthening of the U.S. dollar relative to the Canadian dollar would result in a $3.8 million decrease in annual operating income.


ITEM 4. CONTROLS AND PROCEDURES

(a)Evaluation of Disclosure Controls and Procedures - 
The Partnership maintains a system of controls and procedures designed to ensure that information required to be disclosed by the Partnership in its 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 the Partnership’s management, including the Chief Executive Officer and the interim co-principal financial officers, as appropriate to allow timely decisions regarding required disclosure. As of June 26, 2011, the Partnership has evaluated the effectiveness of the design and operation of its disclosure controls and procedures under supervision of management, including the Partnership’s Chief Executive Officer and interim co-principal financial officers. Based upon that evaluation, the Chief Executive Officer and interim co-principal financial officers concluded that the Partnership’s disclosure controls and procedures are effective.
 
(b)Changes in Internal Control Over Financial Reporting -
There were no changes in the Partnership’s internal controls over financial reporting in connection with its 2011 second-quarter evaluation, or subsequent to such evaluation, that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Jacob T. Falfas vs. Cedar Fair, L.P.

On July 23, 2010, Jacob T. (Jack) Falfas, the former Chief Operating Officer, filed a demand for private arbitration as provided by his employment agreement. In that demand, Mr. Falfas disputed the Partnership's position that he had resigned in June 2010, alleging instead that his employment with the Partnership was terminated without cause. That dispute went to private arbitration, and on February 28, 2011, an arbitration panel ruled 2-to-1 in favor of Mr. Falfas finding that he did not resign but was terminated without cause. Rather than fashioning a remedy consistent with the employment agreement, the panel ruled that Mr. Falfas should be reinstated. The Partnership believes that the arbitrators exceeded their authority by creating a remedy not legally available to Mr. Falfas under his contract with Cedar Fair. On March 21, 2011, the Partnership filed an action  in Erie County Court of Common Pleas (Case No. 2011 CV 0217) seeking  to have the award modified or vacated. On March 22, 2011, Mr. Falfas commenced a related action in the Erie County Court of Common Pleas  (Case No. 2011 CV 0218) demanding enforcement of the arbitration ruling.  The two actions have been combined into Case No. 2011 CV 0217, before Judge Roger E. Binette. The legal briefing in the case was completed on June 24, 2011 and the case is now before the Court awaiting a decision. The Partnership does not expect the arbitration ruling or the pending lawsuit to materially affect its financial results in future periods.

Q Funding III, L.P. and Q4 Funding, L.P. vs. Cedar Fair Management, Inc.

On October 14, 2010, Q Funding III, L.P. and Q4 Funding, L.P. (together, "Q Funding"), both Cedar Fair, L.P. unitholders, commenced an action in the Delaware Court of Chancery against Cedar Fair Management, Inc. ("CFMI") and Cedar Fair, L.P. The complaint alleges, among other things, that CFMI breached the terms of the Fifth Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”) by indicating that unitholders may lack the right to nominate candidates, or to solicit proxies in support of new candidates, for election to the board of directors of CFMI. Q Funding seeks, among other things, (i) a declaratory judgment that under the terms of the Partnership Agreement, all unitholders, including Q Funding, have the right to nominate and solicit proxies in support of candidates for election as directors to the Board of CFMI, and (ii) injunctive relief precluding the Company or its representatives from taking any action to interfere with unitholders’ rights to nominate and solicit proxies in support of candidates for election as directors to the Board of CFMI at the 2011 annual meeting of Cedar Fair unitholders and subsequent annual meetings of the Cedar Fair unitholders. The Partnership filed an answer denying the allegations as set forth in the complaint and the Partnership and Q Funding thereafter engaged in discovery. On March 9, 2011, Q Funding requested a suspension of the litigation scheduled in the nomination rights action and requested that the evidentiary hearing, which was originally scheduled for April 21, 2011, be removed from the Court's calendar. The Partnership supported Q Funding's request and the evidentiary hearing has since been postponed. On April 20, 2011, Q Funding filed a motion for leave to amend and supplement its original complaint to include an additional allegation of breach of fiduciary duty regarding to disclosures contained in the Partnership's 2004 Proxy Statement. The Partnership filed its Answer to the Amended Complaint denying the claims on May 23, 2011.

On March 17, 2011, Q Funding commenced an action in the Delaware Court of Chancery against CFMI and Cedar Fair, L.P. seeking declaratory and injunctive relief directing the Partnership to schedule a special meeting of Cedar Fair's unitholders to consider an amendment proposed by plaintiffs to Cedar Fair's Partnership Agreement relating to unitholder nomination rights. On April 13, 2011, the Partnership filed a motion to dismiss the action. A briefing schedule on the motion to dismiss has not yet been set. On May 3, 2011 the Partnership filed a definitive proxy with the Securities and Exchange Commission which set a record date of April 11, 2011 and a special meeting of the Partnership's unitholders was held on June 2, 2011. Q Funding voluntarily dismissed the suit on June 14, 2011.

On June 14, 2011, Q Funding commenced an action in Delaware Chancery Court against CFMI and Cedar Fair L.P. seeking declaratory and injunctive relief relating to plaintiffs' May 17, 2011 request for a special meeting of Cedar Fair's unitholders to consider, among other things, a proposal to remove CFMI as the general partner of Cedar Fair and to amend the Partnership Agreement to allow unitholders to nominate directors for election to the board of directors of the general partner. This new lawsuit was filed in response to defendants' June 10, 2011 denial of plaintiffs' May 17 special meeting request on the grounds that, as required by the Partnership Agreement, the request failed to: (i) identify and provide adequate information regarding the successor general partner; (ii) provide an opinion of counsel that the removal of CFMI as the general partner of Cedar Fair and the selection and admission of a successor general partner will not result in the loss of limited liability for any limited partner or cause Cedar Fair to be treated as an association taxable as a corporation for federal income tax purposes; and (iii) provide specific language for the proposed amendment to the Partnership Agreement. Q Funding has provided the required legal opinions but has not provided the remainder of the required information. The Partnership has not yet filed an answer and the case is still pending in the Delaware Court. A scheduling conference with the Court is set for mid August.

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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, 2010.


ITEM 6. EXHIBITS
 
Exhibit (10.1)
 
Employment Agreement, by and between Cedar Fair, L.P., Cedar Fair Management, Inc., and Magnum Management Corporation and Matthew A. Ouimet, dated June 20, 2011. Incorporated herein by reference to Exhibit 10.1 to the Registrant's Form 8-K filed on June 24, 2011.
 
 
 
Exhibit (10.2)
 
Amended and Restated Employment Agreement, by and between Cedar Fair, L.P., Cedar Fair Management, Inc., and Magnum Management Corporation and H. Philip Bender, dated June 27, 2011. Incorporated herein by reference to Exhibit 10.1 to the Registrant's Form 8-K filed on June 28, 2011.
 
 
 
Exhibit (10.3)
 
Amended and Restated Employment Agreement, by and between Cedar Fair, L.P., Cedar Fair Management, Inc., and Magnum Management Corporation and Robert A. Decker, dated June 27, 2011.
 
 
 
Exhibit (10.4)
 
Amended and Restated Employment Agreement, by and between Cedar Fair, L.P., Cedar Fair Management, Inc., and Magnum Management Corporation and Richard Zimmerman, dated June 27, 2011. Incorporated herein by reference to Exhibit 10.3 to the Registrant's Form 8-K filed on June 28, 2011.
 
 
 
Exhibit (31.1)
  
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
Exhibit (31.2)
  
Certification of Interim Co-Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
Exhibit (31.3)
  
Certification of Interim Co-Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
Exhibit (32)
  
Certifications Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
Exhibit (101)
  
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 26, 2011 formatted in Extensible Business Reporting Language (XBRL): (i) The Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Balance Sheets, (iii) The Condensed Consolidated Statements of Cash Flow, (iv) the Condensed Consolidated Statement of Equity and, (v) related notes
 

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
CEDAR FAIR, L.P.
 
 
 
(Registrant)
 
 
 
 
 
 
 
By Cedar Fair Management, Inc.
 
 
 
General Partner
 
 
 
 
Date:
August 5, 2011
/s/ Richard L. Kinzel
 
 
Richard L. Kinzel
 
 
Chief Executive Officer
 
 
 
 
Date:
August 5, 2011
/s/ Brian C. Witherow
 
 
Brian C. Witherow
 
 
Vice President and Corporate Controller
 
 
(Chief Accounting Officer)

 

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INDEX TO EXHIBITS
 
Exhibit (10.1)
 
Employment Agreement, by and between Cedar Fair, L.P., Cedar Fair Management, Inc., and Magnum Management Corporation and Matthew A. Ouimet, dated June 20, 2011. Incorporated herein by reference to Exhibit 10.1 to the Registrant's Form 8-K filed on June 24, 2011.
 
 
 
Exhibit (10.2)
 
Amended and Restated Employment Agreement, by and between Cedar Fair, L.P., Cedar Fair Management, Inc., and Magnum Management Corporation and H. Philip Bender, dated June 27, 2011. Incorporated herein by reference to Exhibit 10.1 to the Registrant's Form 8-K filed on June 28, 2011.
 
 
 
Exhibit (10.3)
 
Amended and Restated Employment Agreement, by and between Cedar Fair, L.P., Cedar Fair Management, Inc., and Magnum Management Corporation and Robert A. Decker, dated June 27, 2011.
 
 
 
Exhibit (10.4)
 
Amended and Restated Employment Agreement, by and between Cedar Fair, L.P., Cedar Fair Management, Inc., and Magnum Management Corporation and Richard Zimmerman, dated June 27, 2011. Incorporated herein by reference to Exhibit 10.3 to the Registrant's Form 8-K filed on June 28, 2011.
 
 
 
Exhibit (31.1)
  
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
Exhibit (31.2)
  
Certification of Interim Co-Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
Exhibit (31.3)
  
Certification of Interim Co-Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
Exhibit (32)
  
Certifications Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
Exhibit (101)
  
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 26, 2011 formatted in Extensible Business Reporting Language (XBRL): (i) The Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Balance Sheets, (iii) The Condensed Consolidated Statements of Cash Flow, (iv) the Condensed Consolidated Statement of Equity and, (v) related notes
 

45