CEDAR FAIR L P : MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (kind 10-Q)

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Business Overview:
We generate our revenues from sales of (1) admission to our amusement parks and
water parks, (2) food, merchandise and games both inside and outside our parks,
and (3) accommodations, extra-charge products, and other revenue sources. Our
principal costs and expenses, which include salaries and wages, operating
supplies, maintenance, advertising, utilities and insurance, are relatively
fixed for a typical operating season and do not vary significantly with
attendance.

Each of our properties is overseen by a general manager and operates
autonomously. Management reviews operating results, evaluates performance and
makes operating decisions, including allocating resources, on a
property-by-property basis.

Along with attendance and in-park per capita spending statistics, discrete
financial information and operating results are prepared at the individual park
level for use by the CEO, who is the Chief Operating Decision Maker (CODM), as
well as by the Chief Financial Officer, the Chief Operating Officer, Regional
Vice Presidents and the general managers.

Impact of COVID-19 Pandemic
The novel coronavirus (COVID-19) pandemic had a material impact on our business
in 2020, is expected to have a continuing negative impact in 2021 and may have a
longer-term negative effect. We continue to actively work with state and local
officials and anticipate opening all of our parks in May 2021 except for
Canada’s Wonderland. Upon opening, our parks will continue to operate under
capacity and other operating limitations. Our 2021 operating calendars have been
aligned with anticipated capacity restrictions, guest demand and labor
availability in a challenging labor market. Due to unfavorable COVID-19 trends
in Ontario, Canada’s Wonderland is not expected to open in May 2021, but we
anticipate opening the park as soon as conditions and the local jurisdiction
allow. While full park operations at Knott’s Berry Farm, our only year-round
park, remained suspended during the first four months of 2021, the park hosted a
culinary festival from March 5, 2021 through May 2, 2021. Prior to reopening,
pre-opening expenses are being minimized. With broad vaccination distribution
efforts in process and in anticipation of pent-up consumer demand for outdoor
entertainment, we are focused on maximizing the seasonally weighted second half
of 2021. A substantial portion of our revenues are typically generated during
the peak vacation months of July and August allowing time for broader vaccine
distribution and a potential reduction of COVID-19 restrictions before these key
months. In addition, as of March 28, 2021, we have a sizeable base of
approximately 1.8 million season passes outstanding and valid for the 2021
operating season following the extension of usage privileges for 2020 season
passes through the 2021 operating season. Despite these positive indicators, we
do not anticipate 2021 to be a normal year operationally or financially, and it
is uncertain how long it may take us to achieve full operational potential. Our
future operations are dependent on factors outside of our knowledge or control,
including the duration and severity of the COVID-19 pandemic and actions taken
to contain its spread and mitigate its public health effects.

On March 14, 2020, we closed our properties in response to the spread of
COVID-19 and local government mandates. We ultimately resumed only partial
operations at 10 of our 13 properties in 2020. Due to soft demand trends upon
reopening in 2020, park operating calendars were adjusted, including reduced
operating days per week and operating hours within each operating day. Following
March 14, 2020, Knott’s Berry Farm’s partial operations in 2020 were limited to
culinary festivals.

In order to ensure our season pass holders receive a full season of access to
our parks, in April 2020, we extended the usage privileges of 2020 season passes
through the 2021 season and paused collections of guest payments on installment
purchase products. For those parks which opened during the summer of 2020, we
resumed collections of guest payments on installment purchase products as each
of these parks opened for the 2020 operating season. For those parks which did
not open during the summer of 2020, we resumed collections of guest payments in
April 2021, except for Canada’s Wonderland. We will resume collections at
Canada’s Wonderland when the park is able to open for the 2021 operating season.
At four of our parks, we also provided our season pass holders a loyalty reward
to be used on purchases within the park during the 2021 operating season.
Knott’s Berry Farm is also offering a day-for-day extension into calendar year
2022 for 2020 and 2021 season passes for every day the park is closed in 2021.
No other parks are offering similar plans. Refer to Note 3 for
additional detail.

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Critical Accounting Policies:
Management’s Discussion and Analysis of Financial Condition and Results of
Operations is based upon our unaudited condensed consolidated financial
statements, which were prepared in accordance with accounting principles
generally accepted in the United States of America. These principles require us
to make judgments, estimates and assumptions during the normal course of
business that affect the amounts reported in the unaudited condensed
consolidated financial statements. Beyond estimates in the normal course of
business, management has also made significant estimates and assumptions related
to the COVID-19 pandemic to determine our liquidity requirements and estimate
the impact on our business, including financial results in the near and
long-term. Actual results could differ significantly from those estimates under
different assumptions and conditions.

Management believes that judgment and estimates related to the following
critical accounting policies could materially affect our unaudited condensed
consolidated financial statements:
•Impairment of Long-Lived Assets
•Goodwill and Other Intangible Assets
•Self-Insurance Reserves
•Revenue Recognition
•Income Taxes
In the first quarter of 2021, there were no changes in the above critical
accounting policies from those previously disclosed in our Annual Report on Form
10-K for the year ended December 31, 2020.

Adjusted EBITDA:
Adjusted EBITDA represents earnings before interest, taxes, depreciation,
amortization, other non-cash items, and adjustments as defined in the Third
Amended 2017 Credit Agreement and prior credit agreements. Adjusted EBITDA is
not a measurement of operating performance computed in accordance with generally
accepted accounting principles (“GAAP”) and should not be considered as a
substitute for operating income, net income or cash flows from operating
activities computed in accordance with GAAP. We believe that Adjusted EBITDA is
a meaningful measure as it is widely used by analysts, investors and comparable
companies in our industry to evaluate our operating performance on a consistent
basis, as well as more easily compare our results with those of other companies
in our industry. Further, management believes Adjusted EBITDA is a meaningful
measure of park-level operating profitability and we use it for measuring
returns on capital investments, evaluating potential acquisitions, determining
awards under incentive compensation plans, and calculating compliance with
certain loan covenants. Adjusted EBITDA is provided in the discussion of results
of operations that follows as a supplemental measure of our operating results
and is not intended to be a substitute for operating income, net income or cash
flows from operating activities as defined under GAAP. In addition, Adjusted
EBITDA may not be comparable to similarly titled measures of other companies.

The table below sets forth a reconciliation of Adjusted EBITDA to net loss for
the three month periods ended March 28, 2021 and March 29, 2020.

Three months ended
(In thousands) March 28, 2021 March 29, 2020
Net loss $ (110,416) $ (215,977)
Interest expense 44,096 27,219
Interest income (13) (348)
Benefit for taxes (16,297) (49,007)
Depreciation and amortization 1,453 5,088
EBITDA (81,177) (233,025)

Net effect of swaps (3,562) 19,779
Non-cash foreign currency (gain) loss (5,804) 34,203
Non-cash equity compensation expense 5,369 (4,794)
Loss on impairment / retirement of fixed assets, net 1,539 6,767
Loss on impairment of goodwill and other intangibles – 88,181

Other (1) 13 224
Adjusted EBITDA $ (83,622) $ (88,665)

(1) Consists of certain costs as defined in our Third Amended 2017 Credit
Agreement and prior credit agreements. These items are excluded from the
calculation of Adjusted EBITDA and have included certain legal expenses and
severance expenses. This balance also includes unrealized gains and losses on
short-term investments.

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Results of Operations:
We believe the following are key operational measures in our managerial and
operational reporting, and they are used as major factors in significant
operational decisions as they are primary drivers of our financial and
operational performance:
Attendance is defined as the number of guest visits to our amusement parks and
separately gated outdoor water parks.
In-park per capita spending is calculated as revenues generated within our
amusement parks and separately gated outdoor water parks along with related
tolls and parking revenues (in-park revenues), divided by total attendance.
Out-of-park revenues are defined as revenues from resort, marina, sponsorship,
online transaction fees charged to customers and all other out-of-park
operations.
Net revenues consist of in-park revenues and out-of-park revenues less amounts
remitted to outside parties under concessionaire arrangements (see Note 3

).

Three months ended March 28, 2021
Operating results for the first quarter are historically less than 5% of our
full-year revenues and attendance. First quarter results typically include
normal off-season operating, maintenance and administrative expenses at our ten
seasonal amusement parks and two of our separately gated outdoor water parks,
daily operations at Knott’s Berry Farm which is typically open year-round,
limited operations at the Schlitterbahn parks which are typically open during
portions of March, and some out-of-park attractions, including limited hotel
operations.

Due to the effects of the COVID-19 pandemic, we postponed the opening of our
parks for the 2021 operating season to May 2021, including Knott’s Berry Farm
and the Schlitterbahn parks. Therefore, the fiscal three-month period ended
March 28, 2021 included no operating days. Operations during the first quarter
of 2021 were limited to a culinary festival at Knott’s Berry Farm and limited
out-of-park attractions, including some of our hotel properties. Net revenues
from the culinary festival at Knott’s Berry Farm were classified as out-of-park
revenues. Operating day statistics for 2021 exclude these limited operations at
Knott’s Berry Farm.

The fiscal three-month period ended March 29, 2020 included a total of 90
operating days which included daily operations at Knott’s Berry Farm and 16
operating days at the Schlitterbahn parks prior to the March 14, 2020 closure of
our properties.

The following table presents key financial information for the three months
ended March 28, 2021 and March 29, 2020:

Three months ended Increase (Decrease)
March 28, 2021 March 29, 2020 $ %
(Amounts in thousands)
Net revenues $ 9,742 $ 53,635 $ (43,893) (81.8) %
Operating costs and expenses 98,810 137,562 (38,752) (28.2) %
Depreciation and amortization 1,453 5,088 (3,635) (71.4) %
Loss on impairment / retirement of fixed
assets, net 1,539 6,767 (5,228) N/M
Loss on impairment of goodwill and other
intangibles – 88,181 (88,181) N/M
Gain on sale of investment (2) – (2) N/M
Operating loss $ (92,058) $ (183,963) $ 91,905 N/M
N/M – Not meaningful
Other Data:
Adjusted EBITDA (1) $ (83,622) $ (88,665) $ 5,043 5.7 %

Out-of-park revenues $ 10,147 $ 12,091 $ (1,944) (16.1) %

(1) For additional information regarding Adjusted EBITDA, including how we
define and use Adjusted EBITDA, as well as a reconciliation to net loss, see
page 18.
For the three months ended March 28, 2021, net revenues decreased 82% to $9.7
million from $53.6 million for the three months ended March 29, 2020. The
decrease reflected no in-park revenue in the current period due to the delay of
park openings for the 2021 operating season compared with 90 operating days in
the prior period and a $1.9 million decrease in out-of-park revenues. The
decrease in out-of-park revenues was primarily attributable to a decline in
accommodations revenue somewhat offset by revenues from the Knott’s Berry Farm
culinary festival. Net revenues for the three months were not materially
impacted by foreign currency exchange rates.

Operating costs and expenses for the three months ended March 28, 2021 decreased
28% to $98.8 million from $137.6 million for the three months ended March 29,
2020. This was the result of a $4.1 million decrease in cost of goods sold, a
$40.2 million decrease in operating expenses and a $5.5 million increase in SG&A
expense. The decrease in cost of goods sold was due to the decline in sales
volume related to delayed park openings in 2021. The $40.2 million decrease in
operating expenses was
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attributable to less maintenance expense due to delayed park openings and less
maintenance required in 2021 following minimal 2020 usage of rides and
attractions, as well as reductions in seasonal labor, operating supplies and
utilities due to delayed park openings. The $5.5 million increase in SG&A
expense was attributable to prior period declines in the anticipated payout of
outstanding performance units and the value of outstanding deferred units, both
of which are part of our equity-based compensation plans, and current period
consulting fees incurred as a result of a business optimization program. The
increases in SG&A expense were somewhat offset by less advertising expense,
transaction fees and information technology supplies due to delayed park
openings. Operating costs and expenses were not materially impacted by foreign
currency exchange rates.

Depreciation and amortization expense for the three months ended March 28, 2021
decreased $3.6 million compared with the three months ended March 29, 2020 due
to 90 fewer operating days in the current period. We recognize deprecation over
operating days for the majority of our assets. Depreciation during the current
period was attributable to hotel properties that typically operate year-round.
The loss on impairment / retirement of fixed assets for the three months ended
March 28, 2021 was $1.5 million compared with $6.8 million for the three months
ended March 29, 2020. The prior period included a $2.7 million impairment charge
with respect to the Schlitterbahn parks’ long-lived assets triggered by the
anticipated negative effects of the COVID-19 pandemic during the first quarter
of 2020 (see Note 4 ), as well as the impairment of two specific assets
during the first quarter of 2020. Similarly triggered by the anticipated
negative effects of the COVID-19 pandemic, the loss on impairment of goodwill
and other intangibles for the three months ended March 29, 2020 included
impairment charges of $73.6 million, $6.8 million and $7.9 million attributable
to goodwill at the Schlitterbahn parks, goodwill at Dorney Park, and the
Schlitterbahn trade name, respectively, during the first quarter of 2020 (see

Note 5 ).

After the items above, operating loss for the three months ended March 28, 2021
totaled $92.1 million compared with $184.0 million for the three months ended
March 29, 2020.

Interest expense for the three months ended March 28, 2021 increased $16.9
million due to interest incurred on the 2025 senior notes issued in April 2020
and the 2028 senior notes issued in October 2020. The net effect of our swaps
resulted in a benefit to earnings of $3.6 million for the three months ended
March 28, 2021 compared with a $19.8 million charge to earnings for the three
months ended March 29, 2020. The difference was attributable to the change in
fair market value movements in our swap portfolio. During the current period, we
also recognized a $5.8 million net benefit to earnings for foreign currency
gains and losses compared with a $34.2 million net charge to earnings for the
three months ended March 29, 2020. Both amounts primarily represent
remeasurement of the U.S.-dollar denominated debt recorded at our Canadian
entity from the U.S.-dollar to the legal entity’s functional currency.

During the three months ended March 28, 2021, a benefit for taxes of $16.3
million was recorded to account for PTP taxes and federal, state, local and
foreign income taxes compared with a benefit for taxes of $49.0 million for the
three months ended March 29, 2020. The decrease in benefit for taxes was
attributable to a prior period increase in pretax loss from our taxable
subsidiaries, as well as expected benefits from the Coronavirus Aid, Relief, and
Economic Security Act (the “CARES Act”), which was signed into law on March 27,
2020. The CARES Act resulted in various changes to the U.S. tax law, including,
among other things, allowing net operating losses arising in tax years 2018
through 2020 to be carried back to the preceding five taxable years and removing
the limitation that such losses only offset 80% of taxable income. As a result
of these changes, we expect to recognize two benefits. First, we expect to
carryback the tax year 2020 losses incurred by our corporate subsidiaries, which
will result in the refund of a portion of federal income taxes paid during the
carryback period of approximately $78.6 million. Second, as of March 29, 2020,
the annual effective tax rate included a net benefit of $6.1 million from
carrying back the projected tax year 2020 losses of the corporate subsidiaries.
This tax benefit represents an estimated $6.4 million incremental benefit of tax
loss carrybacks for periods when the federal income tax rate was greater than
the current 21% rate. The estimated $6.4 million benefit was decreased by $0.3
million for a projected valuation allowance on foreign tax credits originally
utilized during the carryback period which would be released as a result of the
loss carryback but which are not expected to be utilized.

After the items above, net loss for the three months ended March 28, 2021
totaled $110.4 million, or $1.95 per diluted limited partner unit, compared with
$216.0 million, or $3.83 per diluted limited partner unit, for the three months
ended March 29, 2020.

For the three months ended March 28, 2021, Adjusted EBITDA loss totaled $83.6
million compared with $88.7 million for the three months ended March 29, 2020.
The decrease in Adjusted EBITDA loss was due to less expense incurred in the
current year due to delayed park openings, particularly maintenance and seasonal
labor costs, which more than offset the related decline in revenue in the
current year.

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Liquidity and Capital Resources:
Our principal sources of liquidity typically include cash from operating
activities, funding from our long-term debt obligations and existing cash on
hand. Due to the seasonality of our business, we typically fund pre-opening
operations with revolving credit borrowings. Revolving credit borrowings are
typically reduced with our positive cash flow during the seasonal operating
period. Our primary uses of liquidity typically include operating expenses,
partnership distributions, capital expenditures, interest payments and income
tax obligations.

Due to the negative effects of the COVID-19 pandemic, we took steps in 2020 to
secure additional liquidity and to obtain relief from certain financial
covenants including issuing $1.3 billion of senior notes, amending our term debt
and revolving credit agreement, reducing operating expenses, including labor
costs, suspending capital expenditures, and suspending quarterly partnership
distributions. Due to limited open operations, our 2020 and first quarter 2021
liquidity needs were funded from cash on hand from the recently issued senior
notes. As of March 28, 2021, we had cash on hand of $271.7 million and $359.1
million of available borrowings under our revolving credit facility. Based on
this level of liquidity, we have concluded that we will have sufficient
liquidity to satisfy our obligations and remain in compliance with our debt
covenants at least through the second quarter of 2022.

As restrictions to mitigate the spread of COVID-19 are lifted and our properties
are able to resume full operations, management is focused on driving profitable
and sustainable growth in the business, as well as reducing the Company’s
leverage. We recently commenced a business optimization program as part of our
long-range strategic plan. Efforts include capturing cost efficiencies and
driving incremental revenues through data-driven decision making, as well as
enhancements to the guest experience to meet changing consumer behaviors and
preferences. The program focuses on reductions in fixed costs that are
independent of attendance levels, as well as incremental revenue opportunities
and variable cost savings. Also, in the long term, management anticipates
returning to historical annual capital expenditure investments of 9-10% of
revenues under normal operating conditions. Management is also committed to
reinstituting quarterly partnership distributions when it is appropriate to do
so and it is permissible under the Third Amended 2017 Credit Agreement and our
other debt covenants.

For the 2021 operating season, capital investments will again be less than
historical levels, as many new rides and attractions originally planned for the
2020 operating season have yet to be introduced to our guests. For 2021, we
expect to invest approximately $100 million in capital expenditures, roughly
equally split between the completion of select unfinished projects from 2020,
including the renovation of some of our resort properties, essential compliance
and infrastructure requirements, and the start of projects planned for the 2022
operating season. We may invest in additional capital expenditures over the 2021
operating season as conditions permit. Due to the issuance of $1.3 billion of
senior notes in 2020, we anticipate $175 million in annual cash interest in 2021
of which 80% of the payments occur in the second and fourth quarter. We are
expecting to receive $78.6 million in tax refunds attributable to the tax year
2020 net operating loss being carried back to prior years in the United States
and an additional $14.9 million in tax refunds attributable to net operating
losses being carried back to prior years in Canada. We anticipate receiving
these tax refunds in the fourth quarter of 2021. Also, in 2021, we anticipate
cash payments for income taxes to range from $5 million to $10 million,
exclusive of these tax refunds. We anticipate funding our remaining 2021
liquidity needs from cash on hand and cash from operating activities.

As of the date of this Form 10-Q, we anticipate that we will spend approximately
$60 million per month during the second quarter of 2021. We spent $35 million
per month during the first quarter of 2021. The higher rate of spend during the
second quarter of 2021 is due to higher projected capital investments and
incremental operating costs related to preparing the parks to open, as well as
the timing of interest payments. The second and fourth quarter include interest
payments for four of our five notes issuances. Excluding interest payments, we
spent approximately $30 million per month during the first quarter of 2021, and
we anticipate spending approximately $35 million per month during the second
quarter of 2021. Our estimate includes projected operating expenses, capital
expenditures, income tax obligations, and interest payments, except where
otherwise noted. We have made significant estimates and assumptions to estimate
the impact of the COVID-19 pandemic on our business, including financial results
in the near and long term. Actual results could materially differ from these
estimates. We have not provided a longer period estimate due to the volatility
of the current operating environment.
Working Capital
In the prior year quarterly period ended March 29, 2020, we estimated that some
or all of our parks would remain closed throughout 2020 due to the effects of
the COVID-19 pandemic. As a result, we estimated the following working capital
amounts would be realized greater than 12 months from the balance sheet date,
and these amounts were classified as non-current within the prior year quarterly
period unaudited condensed consolidated balance sheet:

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