ITEM 1. BUSINESS.
Cedar Fair, L.P. is a publicly traded Delaware limited partnership managed by Cedar Fair Management Company (the "General Partner").
Cedar Fair, L.P. and its affiliated companies (the "Partnership") own and operate five amusement parks: Cedar Point, located on Lake Erie between Cleveland and Toledo in Sandusky, Ohio; Knott's Berry Farm, located near Los Angeles in Buena Park, California; Dorney Park & Wildwater Kingdom ("Dorney Park"), located near Allentown in South Whitehall Township, Pennsylvania; Valleyfair, located near Minneapolis-St. Paul in Shakopee, Minnesota; and Worlds of Fun/Oceans of Fun ("Worlds of Fun"), located in Kansas City, Missouri. The parks are family-oriented, with recreational facilities for people of all ages, and provide clean and attractive environments with exciting rides and entertainment. All principal rides and attractions are owned and operated by the Partnership and its affiliated companies.
The Partnership's four seasonal parks are generally open daily from 9:00 a.m. to 10:00-12:00 at night from early May until Labor Day, after which they are open during weekends in September and October. As a result, virtually all of the operating revenues of these parks are derived during an approximately 130-day operating season. Knott's Berry Farm is open daily from 9:00-10:00 a.m. to 10:00-12:00 at night on a year-round basis. Each park charges a basic daily admission price, which allows unlimited use of all rides and attractions with the exception of Challenge Park and Soak City at Cedar Point, Challenge Park at Valleyfair, go-kart and bumper boat attractions at Dorney Park, and Oceans of Fun and RipCord at Worlds of Fun. The demographic groups that are most important to the parks are young people ages 12 through 24 and families. Families are believed to be attracted by a combination of the rides and entertainment and the clean, wholesome atmosphere. Young people are believed to be attracted by the action-packed rides. During their operating seasons, the parks conduct active television, radio, and newspaper advertising campaigns in their major market areas.
The Partnership also operates Knott's Camp Snoopy, a 7-acre indoor amusement park at the Mall of America in Bloomington, Minnesota, under a management contract that expires in 2012.
CEDAR POINT
Cedar Point, which was first developed as a recreational area in 1870, is located on a peninsula in Sandusky, Ohio bordered by Lake Erie and Sandusky Bay, approximately 60 miles west of Cleveland and 100 miles southeast of Detroit. Cedar Point is believed to be the largest seasonal amusement park in the United States, measured by the number of rides and attractions and the ride capacity per hour. It serves a six-state region in the Midwestern United States, which includes nearly all of Ohio and Michigan, western Pennsylvania and New York, northern West Virginia and Indiana and southwestern Ontario, Canada. The park's total market area includes approximately 22 million
people, and the major areas of dominant influence in this market area, which are Cleveland, Akron, Toledo, Detroit, Columbus, Flint, Saginaw and Youngstown, include approximately 12 million people.
The main amusement areas of Cedar Point consist of over two miles of midways, with more than 65 rides and attractions, including "Camp Snoopy," a family play-land themed around the popular "PEANUTS" comic strip characters, which features a 31-foot-tall family roller coaster and six additional rides, and is scheduled to open in May 1999; "Magnum XL-200," "Raptor," "Mantis" and "Mean Streak," which are among the world's tallest steel, inverted, stand-up and wood roller coasters, respectively; eight additional roller coasters; "Snake River Falls," one of the world's tallest water flume rides; "Power Tower," a 300-foot-tall thrill ride; live entertainment shows featuring talented college students in four theaters; the Cedar Point Cinema, which features a film using an IMAX projection system on a 66-foot by 88-foot screen in a 950-seat theater; a museum; bathing beach facilities; "Soak City" water park, an extra-charge attraction which includes "Zoom Flume," a large water slide raft ride, twelve additional water slides, two river rafting rides, two children's activity areas, and a giant wave pool; and "Challenge Park," an extra- charge attraction area which includes "RipCord," a free-fall ride from a height of more than 15 stories, a 36-hole themed miniature golf course and three go-kart tracks. In addition, there are more than 50 restaurants, fast food outlets and refreshment stands, and a number of gift shops, novelty shops and game areas.
Cedar Point also owns and operates three hotel facilities. The historic Hotel Breakers has more than 600 guest rooms, including 230 in the new 10-story Breakers Tower opening for the 1999 season. Hotel Breakers has various dining and lounge facilities, a private beach, lake swimming, a conference/meeting center and two outdoor pools; and the new Breakers Tower has 18 tower suites with spectacular views, an indoor pool, and a TGI Friday's restaurant. In addition to the Hotel Breakers, Cedar Point offers the lakefront Sandcastle Suites Hotel, which features 187 suites, a private beach, lake swimming, a courtyard pool, tennis courts and the Breakwater Cafe, a contemporary waterfront restaurant. The Radisson Harbour Inn, a 237-room full-service hotel, is located at the Causeway entrance to the park, with an adjoining TGI Friday's restaurant, both of which remain open year- round.
Cedar Point also owns and operates the Cedar Point Marina, one of the largest full-service marinas on the Great Lakes, which provides dockage facilities for over 700 boats, and is being fully renovated in 1999 and 2000 with floating docks and full guest amenities; and Camper Village, which provides sites for approximately 225 recreational vehicles.
The Partnership, through Cedar Point Bridge Company, its wholly- owned subsidiary, owns and operates the Cedar Point Causeway across Sandusky Bay. This causeway is a major access route to Cedar Point. The Partnership also owns dormitory facilities located near the park which house up to 2,875 of the park's approximately 3,800 seasonal employees.
KNOTT'S BERRY FARM
Knott's Berry Farm, located near Los Angeles in Buena Park, California, first opened in 1920 and was acquired by the Partnership in late 1997. Knott's Berry Farm is one of several year-round theme parks in Southern California and serves a total market area of approximately 20 million people centered in Orange County, and a large national and international tourism population.
Knott's Berry Farm is comprised of six distinctively themed areas, including "Ghost Town," "Wild Water Wilderness," "The Boardwalk," "Indian Trails," "Fiesta Village" and "Camp Snoopy." The park offers more than 40 rides and attractions, including the new "Supreme Scream," a 300-foot-tall thrill ride and the tallest ride of its kind in the world; "Ghost Rider," one of the tallest, longest and fastest wooden roller coasters in the Western U.S., which opened to the public in December 1998; six additional roller coasters; "Bigfoot Rapids," a white water raft ride; "Timber Mountain Log Ride," one of the first log flume rides in the United States; a nostalgic train ride; an antique Dentzel carousel; an old-fashioned ferris wheel; a 2,100-seat theatre; a children's activity area themed with the popular "PEANUTS" comic strip characters; live entertainment shows in 22 indoor and outdoor theatre venues; and "Independence Hall," an authentic replica of the Philadelphia original, complete with a 2,075 pound Liberty Bell. In addition, there are more than 30 restaurants, fast food outlets and refreshment stands, and a number of gift shops, novelty shops and game areas in the park, as well as Knott's California Marketplace, a dining and shopping area which is located outside the park's gates and is available free of charge.
The park is also renowned for its seasonal promotions, including a special Christmas promotion, "Knott's Merry Farm," and a spectacular Halloween event called "Knott's Scary Farm," which celebrated its 25th year in 1997 and is widely acknowledged as the best in the industry.
The Partnership acquired the Buena Park Hotel, a 320-room full- service hotel located adjacent to Knott's Berry Farm, in early 1999.
DORNEY PARK
Dorney Park, which was first developed as a summer resort area in 1884, was acquired by the Partnership in 1992, and is located near Allentown in South Whitehall Township, Pennsylvania. Dorney Park is one of the largest amusement parks in the Northeast and serves a total market area of approximately 35 million people. The park's major markets include Philadelphia, New Jersey, New York City, Lancaster, Harrisburg, York, Scranton, Wilkes-Barre, Hazleton and the Lehigh Valley.
Dorney Park features more than 50 rides and attractions, including "Dominator," a 200-foot-tall thrill ride, which is scheduled to open in 1999; "Steel Force," one of the tallest and fastest roller coasters in the world; "Hercules," a world-class wooden roller coaster; two additional roller coasters; "White Water Landing," one of the world's tallest water flume
rides featuring a guest splash basin; "Thunder Canyon," a white- water rafting ride; a train ride named the "Cedar Creek Cannonball;" "Wildwater Kingdom," one of the largest water parks in the United States featuring twelve water slides, including the "Pepsi Aquablast," the longest elevated water slide in the world, a giant wave pool and two children's activity areas; "Thunder Creek Mountain," a water flume ride; a giant ferris wheel; live musical shows featuring talented college students; "Berenstain Bear Country," a major children's activity area; and an antique Dentzel carousel carved in 1921. In addition, there are more than 30 restaurants, fast food outlets and refreshment stands, and a number of gift shops, novelty shops and game areas.
VALLEYFAIR
Valleyfair, which opened in 1976 and was acquired by the Partnership's predecessor in 1978, is located near Minneapolis- St. Paul in Shakopee, Minnesota, and is the largest amusement park in Minnesota. Valleyfair's market area is centered in Minneapolis-St. Paul, which has a population of approximately two million, but the park also draws visitors from other areas in Minnesota and surrounding states with a combined population of eight million.
Valleyfair offers more than 35 rides and attractions, including "Mad Mouse," a new family-style roller coaster, which is scheduled to open in 1999; "Wild Thing," one of the tallest and fastest roller coasters in the world; three additional roller coasters; a water park named "Whitewater Country" which includes "Hurricane Falls," a large water slide raft ride, and "Splash Station," a children's water park; "Thunder Canyon," a white- water raft ride; "The Wave," a water flume ride featuring a guest splash basin; a nostalgic train ride; a giant ferris wheel; a log flume ride; a 500-seat amphitheater; a kiddie ride area; "Challenge Park," an extra-charge attraction area which includes "RipCord," a free-fall ride from a height of more than 15 stories, a Can-Am-style go-kart track and a 36-hole themed miniature golf course; "Berenstain Bear Country," an indoor/outdoor children's activity area; "The Hydroblaster," a 40- foot tall wet/dry slide, or "water coaster;" and a 430-seat indoor theatre for live show presentations. In addition, there are more than 20 restaurants, fast food outlets and refreshment stands, and a number of gift shops, novelty shops and game areas.
WORLDS OF FUN
Worlds of Fun, which opened in 1973, and Oceans of Fun, the adjacent water park that opened in 1982, were acquired by the Partnership in 1995. Located in Kansas City, Missouri, Worlds of Fun serves a total market area of approximately seven million people centered in Kansas City, but including most of Missouri, as well as portions of Kansas and Nebraska.
Worlds of Fun is a traditional amusement park themed around Jules Verne's adventure book Around the World in Eighty Days. The park offers more than 50 rides and attractions, including "Mamba," one of the tallest and fastest roller coasters in the world;
"Timber Wolf," a world-class wooden roller coaster; "Orient Express," a steel looping roller coaster; "Detonator," a 185-foot tall thrill ride, which launches riders straight up the twin- tower structure; "RipCord," an extra-charge attraction which lifts riders to a height of more than 15 stories before dropping them back to earth in a free fall; "Monsoon," a water flume ride; "Fury of the Nile," a white-water rafting ride; a 4,000-seat outdoor amphitheater; live musical shows; and "Berenstain Bear Country," a major indoor/outdoor children's activity area. Oceans of Fun, which requires a separate admission fee, features a wide variety of water attractions including "Hurricane Falls," a large water slide raft ride, which is scheduled to open in 1999; "The Typhoon," one of the world's longest dual water slides; a giant wave pool; and several children's activity areas, including "Crocodile Isle." In addition, there are more than 25 restaurants, fast food outlets and refreshment stands, and a number of gift shops, novelty shops and game areas.
WORKING CAPITAL AND CAPITAL EXPENDITURES
The Partnership carries significant receivables and inventories of food and merchandise during the operating season. Seasonal working capital needs are met with a revolving credit facility.
The General Partner believes that annual park attendance is to some extent influenced by the investment in new attractions from year to year. Capital expenditures are planned on a seasonal basis with the majority of such capital expenditures incurred in the period from October through May, just prior to the beginning of the peak operating season. Capital expenditures made in a calendar year differ from amounts identified with a particular operating season because of timing considerations such as weather conditions, site preparation requirements and availability of ride components, which result in accelerated or delayed expenditures around calendar yearend.
COMPETITION
In general, the Partnership competes with all phases of the recreation industry within its primary market areas of Cleveland, Detroit, Minneapolis-St. Paul, Philadelphia, Kansas City and Los Angeles, including several other amusement/theme parks in the Partnership's market areas. The Partnership's business is subject to factors generally affecting the recreation and leisure market, such as economic conditions, changes in discretionary spending patterns and weather conditions.
In Cedar Point's major markets, its primary amusement park competitors are Paramount Kings Island in southern Ohio, and Sea World of Ohio and Geauga Lake near Cleveland.
In Southern California, Knott's Berry Farm's primary amusement/theme park competitors are Disneyland, which is approximately 10 minutes away, Universal Studios, approximately 40 minutes away, and Six Flags Magic Mountain, approximately 75 minutes away. The San Diego Zoo and Sea World-San Diego are located approximately 90 minutes from Knott's. LEGOLAND, a new children's park opening in 1999, is located approximately 70 minutes away in Carlsbad, California.
Dorney Park faces significant competition, with Hershey Park in central Pennsylvania and Six Flags Great Adventure in New Jersey being the major competitors in its market area.
In Worlds of Fun's major markets, its primary amusement park competitors are Six Flags Over Mid-America in eastern Missouri and Silver Dollar City in southern Missouri.
Adventureland, a theme park in Des Moines, Iowa, is located approximately 250 miles from Valleyfair and Worlds of Fun.
The principal competitive factors in the amusement park industry include the uniqueness and perceived quality of the rides and attractions in a particular park, its proximity to metropolitan areas, the atmosphere and cleanliness of the park, and the quality and variety of the food and entertainment available. The Partnership believes that its amusement parks feature a sufficient quality and variety of rides and attractions, restaurants, gift shops and family atmosphere to make them highly competitive with other parks.
GOVERNMENT REGULATION
All rides are run and inspected daily by both the Partnership's maintenance and ride operations personnel before being put into operation. The parks are also periodically inspected by the Partnership's insurance carrier and, at Cedar Point and Dorney Park, by state ride-safety inspectors.
EMPLOYEES
The Partnership has approximately 1,200 full-time employees. During the operating season, Cedar Point, Valleyfair, Dorney Park and Worlds of Fun have approximately 3,800, 1,500, 2,700 and 2,200 seasonal employees, respectively, most of whom are high school and college students. Knott's Berry Farm hires approximately 1,000 seasonal employees for peak periods and 1,200 part-time employees who work year-round. Approximately 2,800 of Cedar Point's seasonal employees and 380 of Valleyfair's seasonal employees live in dormitories owned by the Partnership. The Partnership maintains training programs for all new employees, and believes that its relations with its employees are good.
ITEM 2.
ITEM 2. PROPERTIES.
Cedar Point is located on approximately 365 acres owned by the Partnership on the Cedar Point peninsula in Sandusky, Ohio. The Partnership also owns approximately 80 acres of property on the mainland adjoining the approach to the Cedar Point Causeway. The Radisson Harbour Inn and adjoining TGI Friday's restaurant, two seasonal employee housing complexes and a fast-food restaurant operated by the Partnership, are located on this property.
The Partnership controls, through ownership or an easement, a six- mile public highway and owns approximately 38 acres of vacant land adjacent to this highway, which is a secondary access route to Cedar Point and serves about 250 private residences. The roadway is maintained by the Partnership pursuant to deed provisions. The Cedar Point Causeway, a four-lane roadway across Sandusky Bay, is the principal access road to Cedar Point and is owned by Cedar Point Bridge Company, a subsidiary of the Partnership.
Knott's Berry Farm is situated on approximately 160 acres, of which 150 acres have been developed and 10 acres remain available for future expansion.
Dorney Park is situated on approximately 200 acres, of which 170 acres have been developed and 30 acres remain available for future expansion.
At Valleyfair approximately 125 acres have been developed, and approximately 75 additional acres remain available for future expansion.
Worlds of Fun is located on approximately 350 acres, including approximately 32 acres of vacant land which the Partnership acquired from an affiliate of Hunt Midwest Enterprises, Inc. ("HME") in 1997 at a total price of $4.2 million. HME's president and CEO, Lee Derrough, is a director of the General Partner, and HME owns 1,440,000 limited partnership units from its 1995 sale of Worlds of Fun to the Partnership. At Worlds of Fun, approximately 235 acres have been developed, and approximately 115 acres remain available for future expansion.
The Partnership, through its subsidiary Cedar Point of Michigan, Inc., owns approximately 450 acres of land in southern Michigan.
All of the Partnership's property is owned in fee simple without encumbrance. The Partnership considers its properties to be well maintained, in good condition and adequate for its present uses and business requirements.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
Not applicable.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S DEPOSITARY UNITS AND RELATED UNITHOLDER MATTERS.
Cedar Fair, L.P. Depositary Units representing limited partner interests are listed for trading on The New York Stock Exchange under the symbol "FUN" (CUSIP 150185 10 6). As of February 1, 1999, there were approximately 11,000 registered holders of Cedar Fair, L.P. Depositary Units, representing limited partner interests, including 3,200 participants in the Partnership's distribution reinvestment plan.
The cash distributions declared and the high and low prices of the Partnership's units are shown in the table to the right (all amounts have been restated to reflect the 2-for-1 split in November 1997):
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
NOTE 1 - Knott's Berry Farm is included in 1997 data for the three days subsequent to its acquisition on December 29, 1997.
NOTE 2 - Worlds of Fun/Oceans of Fun is included in 1995 data for the period subsequent to its acquisition on July 28, 1995.
NOTE 3 - The 1994 operating results include nonrecurring gains of $2.1 million relating to insurance claim settlements, partially offset by a $0.7 million charge to interest expense for refinancing of long-term debt.
NOTE 4 - The 1993 operating results include a nonrecurring credit for deferred taxes of $11.0 million, or $0.25 per unit.
NOTE 5 - Dorney Park & Wildwater Kingdom is included in 1992 data for the period subsequent to its acquisition on July 21, 1992.
NOTE 6 - Net income per limited partner unit is computed based on the weighted average number of units and equivalents outstanding - - assuming dilution.
NOTE 7 - Guest per capita spending includes all amusement park, causeway tolls and parking revenues for the amusement park operating season. Revenues from water parks, marina, hotel, campground and other out-of-park operations are excluded from these statistics.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Partnership Financial Condition:
The Partnership ended 1998 in sound financial condition in terms of both liquidity and cash flow. The negative working capital ratio of 3.7 at December 31, 1998 is the result of the Partnership's highly seasonal business and careful management of cash flow. Receivables and inventories are at normally low seasonal levels and credit facilities are in place to fund current liabilities and pre-opening expenses as required.
In 1998, cash generated from operations totaled $128.9 million and new term loan borrowings totaled $50.0 million. The Partnership used $39.4 million to pay down revolving credit borrowings from the Knott's Berry Farm acquisition, $68.1 million for capital expenditures and $65.4 million for distributions to the general and limited partners. Distributions in 1999, at the current annual rate of $1.30 per unit, would total approximately $68 million, 4% higher than the distributions paid in 1998.
The Partnership has available through April 2002 a $200 million revolving credit facility, of which $100.35 million was borrowed and in use as of December 31, 1998. Credit facilities and cash flow are expected to be adequate to meet seasonal working capital needs, planned capital expenditures and regular quarterly cash distributions.
Management's Analysis of Results of Operations:
Net revenues for the year ended December 31,1998 were $419.5 million, a 59% increase over the year ended December 31, 1997. This followed a 5% increase in 1997 when revenues rose to $264.1 million, after a 15% increase to $250.5 in 1996. Net revenues for 1998 reflect a 58% increase in combined attendance (to 10.8 million from 6.8 million in 1997), a 2% increase in combined guest per capita spending and an increase of 53% in out-of-park revenues. The 1998 results include Knott's Berry Farm for a full year; while last year the park's results were included only for the three days following its acquisition on December 29, 1997 Knott's Berry Farm's full-year contribution accounted for most of the increase in combined attendance and revenue in 1998.
Attendance at the Partnership's original four parks was up 7% over 1997 due to the successful debuts of Power Tower at Cedar Point and Mamba at Worlds of Fun, as well as improved weather at Cedar Point throughout the season. In addition, Dorney Park continued to perform strongly in 1998 and achieved its second straight record year: In 1997 Dorney Park and Worlds of Fun both had excellent years, which nearly offset attendance declines at Cedar Point and Valleyfair caused by unusually cool and wet weather during important parts of the season, and combined attendance was down 1 % to 6.8 million. In 1996, Valleyfair achieved a record year and combined attendance increased 10% to 6.9 million, which included Worlds of Fun's first full-year contribution. Combined guest per capita spending increased 3% in 1997 and 5% in 1996.
Costs and expenses before depreciation and amortization in 1998 increased to $274.8 million from $166.3 million in 1997 and $150.3 million in 1996, due to the inclusion of Knott's Berry Farm's operations in 1998. Included in costs and expenses are approximately $5.4 million of incentive fees earned by the General Partner in 1998. This compares to $4.7 million and $4.3 million of incentive fees earned in 1997 and 1996, respectively.
Operating income in 1998 increased 48% to $112.6 million, following a 6% decrease in 1997 and an 11% increase in 1996. The 1998 increase in operating income was the result of increases in attendance and guest per capita spending at each of the Partnership's original four parks, together with Knott's Berry Farm's full-year profit contribution. Interest expense rose in 1998 due to the increased debt from the acquisition of Knott's Berry Farm at the end of 1997. In 1997 operating income decreased as the result of attendance declines at Cedar Point and Valleyfair. In 1996, increases in attendance at Valleyfair and guest per capita spending at each of the parks, together with Worlds of Fun's first full-year profit contribution, generated the increase in operating income.
Net income for 1998, after a $14.5 million charge related to new taxes on publicly traded partnerships, increased 22% to $83.4 million, compared to $68.5 million in 1997 and $74.2 million in 1996. Without the new taxes, net income would have increased 43% to $979 million, and earnings per limited partner unit would have increased 27% to $1.86 in 1998 from $1.47 in 1997 on a diluted basis.
For 1999, the Partnership plans to invest $48 million in capital improvements, including Camp Snoopy and the Breakers Tower hotel expansion at Cedar Point, and Dorney Park's new 200-foot-tall thrill ride, Dominator: An additional $20 million has been invested in GhostRider; Knott's Berry Farm's new wooden roller coaster; which opened in early December to very strong reviews and extensive media coverage, and $22 million has been committed for the acquisition and renovation of the Buena Park Hotel next to Knott's. We are optimistic that these major investments, as well as other improvements at each of the parks, will generate a high level of public interest and acceptance. However, stable population trends in our market areas and uncontrollable factors, such as weather, the economy and competition for leisure time and spending, preclude us from anticipating significant long-term increases in attendance at our parks. Historically, the Partnership has been able to improve its profitability by continuing to make substantial investments in its parks. This has enabled us to maintain a consistently high attendance level as well as steady increases in guest per capita spending and revenues from guest accommodations at Cedar Point while carefully controlling operating and administrative expenses.
Year 2000 Disclosure:
The Year 2000 issue is the result of many computer programs being written using two digits rather than four digits to define a year. Such programs may recognize a year containing "00" as the year 1900 rather than the year 2000. This could result in equipment or system failures or miscalculations causing disruptions of daily operations for some organizations.
The Partnership has completed its assessment of its computer- dependent rides and equipment and its internal information systems that support business activities. We believe that with minor modifications to existing hardware and software, the Year 2000 issue will pose no significant internal operational problems. In addition, the Partnership has also assessed the readiness of its major utility and financial service providers to be Year 2000 compliant, and we have no reason to believe that any third party with whom we have a material relationship will not be Year 2000 compliant.
Based upon the information obtained and accomplishments to date, no contingency plans are expected to be necessary and therefore none have been developed. In addition, as daily operations at the Partnership's four seasonal parks will not begin until April and May of 2000, the Partnership believes adequate time will be available if necessary to insure alternative plans can be developed, assessed and implemented prior to the Year 2000 issue having any unforeseen significant negative impact on most of its principal operations. However, if system modifications are not properly made or are not completed on a timely basis, or if one or more of our principal suppliers of essential utilities or financial services fail to operate normally, particularly at Knott's Berry Farm which operates year round, the Year 2000 issue could have a material impact on our operations.
Both internal and external resources are being used to reprogram and/or replace non-compliant hardware and software, and to appropriately test Year 2000 modifications, all funded through current operating cash flows. The estimated total cost associated with required modifications to become Year 2000 compliant is not expected to exceed $1 million and thus will not be material to the Partnership's financial position.
The cost of the project and the date on which the Partnership believes it will substantially complete the Year 2000 modifications are based on management's best estimates, which were derived from numerous assumptions of future events, including the continued availability of computer programming expertise, the actual readiness of our major utility and financial service providers, and other factors. Because none of these estimates can be guaranteed, actual results could differ materially from those anticipated. Specific factors that might cause material differences include, but are not limited to, the availability and cost of trained personnel, the ability to locate and correct all relevant computer codes, and similar uncertainties.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
To The Partners of Cedar Fair, L.P.:
We have audited the accompanying consolidated balance sheets of Cedar Fair, L.P. (a Delaware limited partnership) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, partners' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cedar Fair, L.P. and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio, January 21, 1999 (except with respect to the matter discussed in Note 8, as to which the date is February 18, 1999).
Notes To Consolidated Financial Statements
(1) Partnership Organization:
Cedar Fair, L.P. (the "Partnership") is a Delaware limited partnership which commenced operations in 1983 when it acquired Cedar Point, Inc, and became a publicly traded partnership in 1987. At December 31, 1998 there were 45,920,416 limited partnership units registered on The New York Stock Exchange. An additional 6,059,767 limited partnership units, which were issued in connection with the 1997 acquisition of Knott's Berry Farm, were outstanding at December 31, 1998. These units have not been registered with the Securities and Exchange Commission, and are subject to certain trading registration.
The Partnership's General Partner is Cedar Fair Management Company an Ohio corporation owned by the Partnership's executive management (the "General Partner"). Effective July 1, 1997 CF Partners, the Special General Partner, voluntarily withdrew from the Partnership and, in accordance with the Partnership Agreement, received $400,000 as final payment of the balance of its 1997 fees. After this transaction, the Partnership's limited partner units represent, in the aggregate, a 99.5% interest in income, losses and cash distributions of the Partnership, compared with a 99.0% interest in prior periods. The General Partner owns a 0.5% interest in the Partnership's income, losses, and distributions except in defined circumstances, and has full control over all activities of the Partnership.
For the services it provides, the General Partner earns a fee equal to .25% of the Partnership's net revenues, as defined, and also earns incentive compensation when quarterly distributions exceed certain levels as defined in the Partnership Agreement. The General Partner earned $6,405,000, $5,335,000 and $4,926,000 of total fees in 1998, 1997 and 1996, respectively.
The General Partner may, with the approval of a specified percentage of the limited partners, make additional capital contributions to the Partnership, but is only obligated to do so if the liabilities of the Partnership cannot otherwise be paid or there exists a negative balance in its capital account at the time of its withdrawal from the Partnership. The General Partner, in accordance with the terms of the Partnership Agreement, is required to make regular cash distributions on a quarterly basis of all the Partnership's available cash, as defined.
(2) Summary Of Significant Accounting Policies:
The following policies are used by the Partnership in its preparation of the accompanying consolidated financial statements.
Principles Of Consolidation - The consolidated financial statements include the accounts of the Partnership and its wholly-owned subsidiaries. All significant intercompany transactions and balances are eliminated in consolidation.
Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during each period. Actual results could differ from those estimates.
Inventories - The Partnership's inventories primarily represent purchased products, such as merchandise and food, for sale to its customers. All inventories, except those at Knott's Berry Farm, are valued at the lower of first-in, first-out (FIFO) cost or market. Inventories at Knott's are valued principally under the last in, first-out method, which approximates FIFO.
Depreciation and Amortization - The Partnership's policy is to provide depreciation on a straight- line basis over the estimated useful lives of its assets. The composite method is used for the group of assets acquired as a whole in 1983, as well as for the groups of like assets of each subsequent business acquisition. The unit method is used for all individual assets purchased.
Under the composite depreciation method, assets with similar estimated lives are grouped together and the several pools of assets are depreciated on an aggregate basis. Gains and losses on the retirement of assets, except those related to abnormal retirements, are credited, or charged to accumulated depreciation. Accumulated gains and losses on asset retirements under the composite depreciation method have not been significant.
Under the unit method of depreciation, individual assets are depreciated over their estimated useful lives with gains and losses on all asset retirements recognized currently in income.
The weighted average useful lives combining both methods are approximately:
Land improvements 23 Years Buildings 29 Years Rides 19 Years Equipment 10 Years
Goodwill is amortized on a straight-line basis over a 40-year period.
Segment Reporting - The Partnership is in the single business of operating amusement parks with accompanying resort facilities.
Income Taxes - Because of its legal structure, the Partnership is not subject to regular corporate income taxes; rather, the Partnership's tax attributes are included in the individual tax returns of its partners. Neither the Partnership's financial reporting income, nor the cash distributions to unitholders, can be used as a substitute for the detailed tax calculations which the Partnership must perform annually for its partners. Net income from the Partnership is not treated as "passive income" for federal income tax purpose. As a result, partners subject to the passive activity loss rules are not permitted to offset income from the Partnership with passive losses from other sources.
The tax returns of the Partnership are subject to examination by state and federal tax authorities if such examination result in changes to taxable income; the tax liability of the partners could be changed accordingly.
Federal and state tax legislation in 1997 provided a permanent income tax exemption to existing "publicly traded partnerships," such as Cedar Fair, L.P. with new taxes to be levied on partnership gross income (net revenues less cost of products sold) beginning in 1998. The Partnership recorded a provision of $14.5 million for these new federal and state taxes in 1998. If the new taxes had been in effect in prior years, the Partnership would have recorded tax provisions of approximately $8.3 million in 1997 and $7.9 million in 1996.
Earnings Per Unit - The Partnership has presented, and where appropriate, restated earnings per unit amounts for all periods to conform with Statement of Financial Accounting Standards No.128 (Earnings per Share). For purposes of calculating the basic and diluted earnings per limited partner unit, no adjustments have been made to the reported amounts of net income. The unit amounts used are as follows:
1998 1997 1996 (In thousands except per unit data)
Basic weighted average units outstanding 51,161 45,965 45,920 Effect of dilutive units: Deferred units (see Note 5) 355 291 196 Contingent units - Knott's Acquisition (see Note 7) 898 9 --
Diluted weighted average units outstanding 52,414 46,265 46,116
Net income per unit-basic $1.62 $1.48 $1.60
Net income per unit-diluted $1.58 $1.47 $1.59
(3) Long-Term Debt:
At December 31, 1998 and 1997, long-term debt consisted of the following;
1998 1997 (In thousands) Revolving credit loans $100,350 $139,750 Term debt 100,000 50,000 $200,350 $189,750
Revolving Credit Loans - In December 1997, the Partnership entered into a new credit agreement with five banks under which it has available a $200 million revolving credit facility through April 2002. Borrowings under this credit facility were $100.35 million as of December 31, 1998, at an average interest rate of 5.5%. The maximum outstanding balance during 1998 was $182.0 million.
Borrowings under this agreement bear interest at the banks' prime lending rate, with more favorable UBOR and other rate option. The agreement requires the Partnership to pay a commitment fee of 1/5% per annum on the daily unused portion of the credit The Partnership, at its option, may make prepayments without penalty and reduce this loan commitment.
Term Debt - In 1994, the Partnership refinanced $50 million in senior notes at an interest rate of 8.43%. The Partnership is required to make annual repayments of $10 million in August 2002 through August 2006 and may make prepayments with defined premiums.
In January 1998, the Partnership entered into another note agreement for the issuance of an additional $50 million in 6.68% senior notes to refinance a portion of the Knot's Berry Farm acquisition. The Partnership is required to make annual repayments of $10 million in August 2007 through August 2011 and may make prepayments with defined premiums.
The fair value of the aggregate future repayments on term debt at December 31, 1998, as required by Statement of Financial Accounting Standards No.107 would be approximately $107.6 million, applying a discount rate of 6.4%.
Covenants - Under the terms of the debt agreements, the Partnership, among other restrictions, is required to maintain a specified level of net tangible assets, as defined, and comply with certain cash flow interest coverage, and debt to net worth levels. The Partnership was in compliance with these covenants as of December 31, 1998.
(4) Special L.P. Interests:
In accordance with the Partnership Agreement, certain partners were allocated $5.3 million of 1987 and 1988 taxable income (without any related cash distributions) for which they received Special L.P. Interests. The Special L.P. Interests do not participate in cash distributions and have no voting rights. However, the holders of Special LP Interests will receive in the aggregate $5.3 million upon liquidation of the Partnership.
(5) Retirement Plans:
The Partnership has trusteed, noncontributory retirement plans for the majority of its employees. Contributions are discretionary and were $3,229,000 in 1998, $1,360,000 in 1997 and $1,361,000 in 1996.
The Partnership also has two benefit plans under which nonunion employees can contribute specified percentages of their salary matched up to a limit by the Partnership. Contributions by the Partnership to these plans approximated $1,215,000 in 1998, $450,000 in 1997 and $430,000 in 1996.
In addition, approximately 125 employees are covered by union- sponsored, multi-employer pension plans for which approximately $400,000, $359,000, and $338,000 were contributed for the years ended December 31, 1998, 1997 and 1996, respectively. The Partnership believes that, as of December 31, 1998, it would have no withdrawal liability as defined by the Multiemployer Pension Plan Amendments Act of 1980.
In 1992, the Partnership amended its policy for payment of fees earned by the General Partner to permit a portion of such fees to be deferred for payment after retirement or over certain vesting periods as established by the Board of Directors. Payment will be made in a combination of limited partnership units and cash. The amounts deferred were $2,866,000 in 1998, $2,409,000 in 1997 and $2,196,000 in 1996, including the value of 115,216, 90,470, and 104,232 limited partnership units issuable in future years, which are included in the calculation of diluted weighted average units outstanding. Amounts not payable within 12 months of the balance sheet date are included in Other Liabilities.
(6) Contingencies:
The Partnership is a party to a number of lawsuits arising in the normal course of business. In the opinion of management, these matters will not have a material effect in the aggregate on the Partnership's financial statements.
(7) Acquisitions:
On December 29, 1997 the Partnership acquired Knott's Berry Farm, a privately held partnership which owned and operated Knott's Berry Farm theme park in Buena Park, California and managed Knott's Camp Snoopy at the Mall of America in Bloomington, Minnesota. Knott's Berry Farm is a traditional, family oriented theme park and Knott's Camp Snoopy is the nation's largest indoor theme park.
The initial transaction price consisted of 6,482,433 unregistered limited partnership units (valued at an average price of $24.2813, or $157.4 million in the aggregate) and the payment of $94.5 million in cash borrowed under the expanded revolving credit agreement. In December 1998, the transaction price was reduced by 144,383 units, or $3.5 million in the aggregate, to reflect final adjustments to the purchase price.
Under the terms of the acquisition, the Partnership also agreed to repurchase during 1998 up to an aggregate of 500,000 of these units per quarter at market prices upon demand. During the year, the Partnership repurchased 278,283 units at an aggregate price of $7.5 million, and the redemption rights on 1,721,717 units expired without exercise. As a result, $44.3 million was reclassified into partners' equity during 1998 from the 1997 balance of redeemable limited partnership units.
Knott's Berry Farm's assets, liabilities and results of operations for the last three days of 1997 and all of 1998 are included in the accompanying consolidated financial statements. The acquisition has been accounted for as a purchase, and accordingly the purchase price has been allocated to assets and liabilities acquired based upon their flair values at the date of acquisition.
The table below summarizes the unaudited consolidated pro forma results of operations assuming the acquisition of Knott's Berry Farm had occurred at the beginning of each of the periods presented, with adjustments primarily attributable to interest expense relating to the refinancing of long-term debt and depreciation expense relating to the fair value of assets acquired.
Years Ended December 1997 1996 (In thousands except amounts per unit)
Net revenues $392,085 $375,583 Net income $73,066 $80,618 Net income per limited partner unit-diluted $1.38 $1.52
These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made at the beginning of the periods presented, or of results which may occur in the future.
At the close of business on December 31, 1996, the Partnership acquired substantially all of the equity of JHW Limited Partnership, which owned a 237-room Radisson hotel and a large T.G.I. Friday's restaurant near Cedar Point in Sandusky, Ohio. The Partnership acquired the remaining small equity interest in JHW at no additional cost in 1997. The purchase price of approximately $16 million, including $4.5 million of long-term debt, was allocated to the assets of JHW based on their relative fair values at the acquisition date. The results of JHW's operations are included in the Partnership's consolidated financial statements beginning in 1997.
(8) Subsequent Event:
On February 18, 1999, the Partnership completed the acquisition of the 320-room Buena Park Hotel, which is located adjacent to Knott's Berry Farm in Buena Park, California, for a cash purchase price of $175 million. The results of the hotel's operations will be included in the Partnership's consolidated financial statements from the date of the acquisition.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
Cedar Fair Management Company, an Ohio corporation owned by the Partnership's executive management (consisting of 21 individuals at December 31, 1998), is the General Partner of the Partnership and has full responsibility for the management of the Partnership. For additional information, including the fees paid to the General Partner for services rendered during 1998, attention is directed to Note 1 to the consolidated financial statements on page 10 in the Registrant's 1998 Annual Report to Unitholders, which note is incorporated herein by this reference.
Directors:
Name Age Position with General Partner
Richard L. Kinzel 58 President, Chief Executive Officer, Director since 1986 Lee A. Derrough * 54 Director since 1995 Richard S. Ferreira * 58 Director since 1997 Terry C. Hackett # 50 Director since 1997 Mary Ann Jorgenson # 58 Director since 1988 Donald H. Messinger # 55 Director since 1993 James L. Miears 63 Executive Vice President and General Manager-Cedar Point, Director since 1993 Thomas A. Tracy * 67 Director since 1993
* Member of Audit Committee. # Member of Compensation Committee.
The Board of Directors of the General Partner has a Compensation Committee and an Audit Committee. The Compensation Committee reviews the Partnership's compensation and employee benefit policies and programs and recommends related actions, as well as executive compensation decisions, to the Board of Directors. The Audit Committee meets periodically with the Partnership's independent auditors, reviews the activities of the Partnership's internal audit staff, considers the recommendations of the independent and internal auditors, and reviews the annual financial statements upon completion of the audit.
Each director of the General Partner is elected for a one-year term.
Executive Officers:
Name Age Position with General Partner
Richard L. Kinzel 58 President and Chief Executive Officer since 1986 John R. Albino 52 Vice President & General Manager-Dorney Park since 1995 Philip H. Bender 42 Director-Retail Operations-Worlds of Fun since 1995 Carolyn Carey 51 Vice President-Marketing and Sales- Knott's Berry Farm since 1994 Richard J. Collingwood 59 Corporate Vice President-General Services since 1992 Jacob T. Faflas 47 Vice President & General Manager-Knott's Berry Farm since 1997 Mark W. Freyberg 45 Vice President-Park Operations- Valleyfair since 1996 Joseph E. Greene 56 Vice President-Maintenance-Dorney Park since 1996 H. John Hildebrandt 49 Vice President-Marketing-Cedar Point since 1993 Bruce A. Jackson 47 Corporate Vice President-Finance and Chief Financial Officer since 1992 Lee C. Jewett 64 Corporate Vice President-Planning & Design since 1990 Daniel R. Keller 49 Vice President & General Manager-Worlds of Fun since 1995
Executive Officers (continued):
Name Age Position with General Partner
Larry L. MacKenzie 43 Vice President-Revenue Operations-Dorney Park since 1997 James L. Miears 63 Executive Vice President & General Manager-Cedar Point since 1993 Charles M. Paul 45 Corporate Controller since 1996 Richard R. Rau 50 Director-Marketing-Worlds of Fun since 1996 Thomas W. Salamone 54 Treasurer since 1982 Alan L. Schwartz 49 Vice President-Finance-Valleyfair since 1978 Linnea Stromberg-Wise 53 Vice President-Marketing-Valleyfair since 1995 Joseph L. von der Weis 66 Corporate Vice President-Accommodations since 1996 Walter R. Wittmer 58 Vice President & General Manager- Valleyfair since 1988
BUSINESS EXPERIENCE.
Directors:
Richard L. Kinzel has served as president and chief executive officer since 1986. Mr. Kinzel has been employed by the Partnership or its predecessor since 1972, and from 1978 to 1986 he served as vice president and general manager of Valleyfair.
Lee A. Derrough is President and CEO of Hunt Midwest Enterprises, Inc., and has been associated with the Hunt companies since 1967. Mr. Derrough was elected as a director in 1995 pursuant to the Contribution Agreement dated July 28, 1995, which entitles Hunt Midwest Enterprises, Inc. to appoint a representative on the Board of Directors so long as it owns more than 1,380,000 units of Cedar Fair, L.P. Mr. Derrough is also a past president of the International Association of Amusement Parks and Attractions.
Richard S. Ferreira is a retired executive vice president of Golf Hosts, Inc. (developer and owner of nationally recognized resorts in Colorado and Florida) and a past member of its Board of Directors. Mr. Ferreira was associated with Golf Hosts for more than 26 years.
Terry C. Hackett is a business attorney and President of Hackett Management Corporation (real estate management) and previously served on the Board of Directors of Knott's Berry Farm from 1981 to 1997. Mr. Hackett was elected a director in 1997 as a representative of the Knott family following the acquisition of Knott's Berry Farm in December 1997.
Mary Ann Jorgenson is a partner in the law firm of Squire, Sanders & Dempsey L.L.P., the Partnership's General Counsel, and has been associated with the firm since 1975. She is also a director of S 2 Golf Inc. (manufacturer and distributor of golf clubs and bags) and is a director and Secretary of Essef Corporation (manufacturer of plastic pressure vessels for the water treatment and systems industry; spa and pool equipment; and containers for hazardous waste transportation).
Donald H. Messinger is a partner in the law firm of Thompson Hine & Flory LLP and has been associated with the firm since 1968.
James L. Miears has served as Executive Vice President and General Manager of Cedar Point since 1993. In 1992, he was Senior Vice President-Merchandise of Cedar Point and prior to 1992 he served as Vice President-Merchandise of Cedar Point.
Thomas A. Tracy is a business consultant and was a partner in the public accounting firm of Arthur Andersen LLP from 1966 until his retirement in 1989.
Executive Officers:
Richard L. Kinzel. See "Directors" above.
John R. Albino has served as Vice President & General Manager of Dorney Park & Wildwater Kingdom since 1995. From 1993 to 1995, he served as Vice President-Food Operations of Cedar Point.
Philip H. Bender has served as Director-Retail Operations of Worlds of Fun since 1995. Prior to 1995 he served as Director- Food Services of Valleyfair for more than five years.
Carolyn Carey has served as Vice President-Marketing and Sales of Knott's Berry Farm since 1994. From 1993 to 1994, she served as Director-Marketing and Sales of Knott's Berry Farm.
Richard J. Collingwood has served as Corporate Vice President- General Services since 1992 and has primary responsibility for human resources, purchasing and security.
Jacob T. Falfas has served as Vice-President & General Manager of Knott's Berry Farm since December 1997. From 1993 to 1997, he served as Vice President-Park Operations of Cedar Point.
Mark W. Freyberg has served as Vice President-Park Operations of Valleyfair since 1996. Prior to 1996 he served as Director-Park Operations of Valleyfair for more than five years.
Joseph E. Greene has served as Vice President-Maintenance of Dorney Park since 1996. From 1993 to 1996, he served as Director- Construction & Maintenance of Dorney Park, and prior to that was Manager-Construction & Maintenance of Cedar Point.
H. John Hildebrandt has served as Vice President-Marketing of Cedar Point since 1993.
Bruce A. Jackson has served as Corporate Vice President-Finance and Chief Financial Officer since 1992. Mr. Jackson is a certified public accountant.
Lee C. Jewett has served as Corporate Vice President-Planning & Design since 1990.
Daniel R. Keller has served as Vice President & General Manager of Worlds of Fun / Oceans of Fun since 1995. From 1993 to 1995, he served as Senior Vice President-Operations of Cedar Point.
Larry L. MacKenzie has served as Vice President-Revenue Operations of Dorney Park since 1997. Prior to 1997, he served as Director-Revenue Operations of Dorney Park for more than five years.
James L. Miears. See "Directors" above.
Charles M. Paul has served as Corporate Controller since 1996, and prior to that was Controller of Cedar Point for more than five years. Mr. Paul is a certified public accountant.
Richard R. Rau has served as Director-Marketing of Worlds of Fun since 1996. From 1994 to 1996, he served as Director-General Services of Worlds of Fun, and prior to that was Sales Manager of Worlds of Fun for more than five years.
Thomas W. Salamone has served as Treasurer since 1982.
Alan L. Schwartz has served as Vice President-Finance of Valleyfair since 1978. Mr. Schwartz is a certified public accountant.
Linnea Stromberg-Wise has served as Vice President-Marketing of Valleyfair since 1995. Prior to 1995, she served as Director- Marketing of Valleyfair for more than five years.
Executive Officers (continued):
Joseph L. von der Weis has served as Corporate Vice President- Accommodations since 1996. From 1978 to 1996, he served as Vice President-Accommodations of Cedar Point.
Walter R. Wittmer has served as Vice President & General Manager of Valleyfair since 1988.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Section 16(a) of the Securities Exchange Act of 1934 requires the Registrant's directors, executive officers and persons who own more than ten percent of its Depositary Units ("Insiders") to file reports of ownership and changes in ownership, within 10 days following the last day of the month in which any change in such ownership has occurred, with the Securities and Exchange Commission and The New York Stock Exchange, and to furnish the Partnership with copies of all such forms they file. The Partnership understands from the information provided to it by these individuals that all filing requirements applicable to the Insiders were met for 1998.
Cash bonuses, restricted unit awards, and supplemental retirement benefits provided to the Partnership's executive management are reimbursed by the General Partner out of funds provided by its management and incentive fees and cash distributions from the Partnership.
COMPENSATION OF DIRECTORS.
The Board of Directors establishes the fees paid to Directors and Board Committee members for services in those capacities. The current schedule of such fees is as follows: 1. For service as a member of the Board, $15,000 per annum, payable quarterly, plus $1,000 for attendance at each meeting of the Board; 2. For service as a Board Committee member, $250 for attendance at each Committee meeting held on the same date on which the Board of Directors meets and $1,000 for attendance at any additional Committee meeting held on a date other than a date on which the Board of Directors meets; and 3. For service as Chairman of a Committee of the Board, a fee of $2,500 per annum.
These fees are payable only to non-management Directors. Management Directors receive no additional compensation for service as a Director. All Directors receive reimbursement from the Partnership for expenses incurred in connection with service in that capacity.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN- CONTROL ARRANGEMENTS.
Severance Compensation.
All regular, full-time, non-union affiliated employees, including the named executive officers, who have been employed by the Partnership for at least one year are eligible for severance compensation under the Cedar Fair, L.P. Severance Pay Plan. Under the Plan, employees are generally eligible for severance pay if their employment is terminated due to the elimination of the job or position, a mutually agreed-upon separation of the employee due to performance, or a change in ownership which results in replacement of the employee by the new owner. Upon termination of employment where severance compensation is payable under the Plan, the employee is entitled to receive a payment based on the following schedule:
Length of Service Severance Pay 1 year through 10 years One week of pay for each full year of service 11 years through 30 years Ten weeks' pay plus two weeks of pay for each full year of service in excess of 10 31 years or more Fifty-two weeks of pay
In addition, seven executive officers of the Partnership, including each of the executive officers named in the Summary Compensation Table, are entitled to severance payments and continuation of existing insurance benefits if their employment is terminated within 24 months after any change in control occurs, as defined in a plan approved by the Board of Directors in 1995. Such severance payments and benefits range from 1.6 times the last five years' average cash compensation and 24 months of continued insurance benefits for park General Managers to three times the last five years' average cash compensation, less $1, and 36 months of continued insurance benefits, for the President and Chief Executive Officer.
Restricted Unit Awards.
Restricted unit awards represent the named executive officer's right to receive Cedar Fair, L.P. units at specified future dates if the individual is still employed by the Partnership at that time. The dollars allocated to each officer are converted to a number of deferred Partnership units based on the NYSE closing price on the first Monday in December of the year granted. These units, together with quarterly distributions thereon, vest in years three through five after the date of grant, at which time unrestricted units are issued.
In the event of death, total disability, retirement at age 62 or over, removal of the General Partner, or a "change-in-control" of the Partnership (as defined), all accrued units for a participant will become fully vested and will be issued at the time of such event. Failure to remain an employee of the Partnership on any vesting date for any other reason will result in the forfeiture of all unissued deferred units of a participant.
Supplemental Retirement Benefits.
Supplemental retirement benefits represent the named executive officer's right to receive cash benefits from the Partnership upon retirement at age 62 or over, with a minimum of 20 years' service to the Partnership, its predecessors and/or successors. Amounts are allocated among the executive officers as approved by the Compensation Committee of the Board. Each officer's account accrues interest at the prime rate as established from time to time by the Partnership's lead bank, beginning on December 1 of the year of grant. Executive officers leaving the employ of the Partnership prior to reaching age 62 or with less than 20 years of service will forfeit their entire balance. In the event of death, total disability, retirement at age 62 or over with at least 20 years' service, or removal of the General Partner (unless resulting from reorganization of the Partnership into corporate form), all amounts accrued will become immediately and fully vested and payable to the executive officers. In the event of a "change-in-control" (as defined), all amounts accrued will become fully vested and will be funded in a trust, for the benefit of the executive officers when they reach age 62, die, or become totally disabled, whichever occurs first. At each executive officer's option, the accrued balance may be distributed in a lump sum or in a number of future payments over a period not to exceed 10 years.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A. Security Ownership of Certain Beneficial Owners.
According to information obtained by the Partnership from Schedule 13G filings with the Securities and Exchange Commission concerning the beneficial ownership of its units (determined in accordance with the rules of the Securities and Exchange Commission), there were no parties known to the Partnership to own more than 5 percent of its Depositary Units representing limited partner interests as of February 1, 1999.
B. Security Ownership of Management.
The following table sets forth the number of Depositary Units representing limited partner interests beneficially owned by each Director and named executive officer and by all officers and Directors as a group as of February 1, 1999.
(1)Includes 383,020 units held by a corporation of which Messrs. Kinzel, Miears and Keller, together with certain current and former executive officers of the General Partner, are shareholders and, under Rule 13d-3 of the Securities and Exchange Commission, are deemed to be the beneficial owners of these units by having shared investment and voting power. Messrs. Kinzel, Miears and Keller disclaim beneficial ownership of 331,400, 341,724 and 346,886, respectively, of these units. The units owned by the corporation have been counted only once in the total of the directors and executive officers as a group.
(2)Excludes 40,000 units held in an escrow account and 5,419,588 units held by other members of the Knott family.
(3)Includes 763,976 units held by certain trusts of which Mrs. Jorgenson and another partner of Squire, Sanders & Dempsey L.L.P. are trust advisors, as to which Mrs. Jorgenson disclaims beneficial ownership.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Attention is directed to Note 1 to the consolidated financial statements. Also, see Item 2 for discussion of a land acquisition from an affiliate of Hunt Midwest Enterprises, Inc.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
A.1. Financial Statements
With respect to the consolidated financial statements of the Registrant set forth below, attention is directed to pages 7-14 in the Registrant's 1998 Annual Report to Unitholders, which are incorporated herein by this reference.
(i) Consolidated Balance Sheets - December 31, 1998 and 1997. (ii) Consolidated Statements of Operations - Years ended December 31, 1998, 1997 and 1996. (iii) Consolidated Statements of Partners' Equity - Years ended December 31, 1998, 1997 and 1996. (iv) Consolidated Statements of Cash Flows - Years ended December 31, 1998, 1997 and 1996. (v) Notes to Consolidated Financial Statements - December 31, 1998, 1997 and 1996. (vi) Report of Independent Public Accountants.
A.2. Financial Statement Schedules
All Schedules are omitted, as the information is not required or is otherwise furnished.
A. 3. Exhibits
The exhibits listed below are incorporated herein by reference to prior SEC filings by Registrant.
Exhibit Number Description
3.1* Form of Third Amended and Restated Certificate and Agreement of Limited Partnership of Cedar Fair, L.P. (included as Exhibit A to the Prospectus). 3.2 Form of Admission and Substitution Agreement. Incorporated herein by reference to Exhibit 3.2 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988. 3.3 Amendment No. 2 to Third Amended and Restated Agreement of Limited Partnership of Cedar Fair, L.P., dated as of December 31, 1992. Incorporated herein by reference to Exhibit 3.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. 4* Form of Deposit Agreement. 10.4 Private Shelf Agreement with The Prudential Insurance Company of America dated August 24, 1994 and $50,000,000, 8.43% Senior Note Due August 24, 2006. Incorporated herein by reference to Exhibit 10.1 to Registrant's Form 10- Q for the quarter ended October 2, 1994. 10.9 Credit Agreement dated as of December 19, 1997 between Cedar Fair, L.P., Cedar Fair, Magnum Management Corporation and Knott's Berry Farm as co-borrowers, and KeyBank National Association, NBD Bank, National City Bank, First Union Bank and Mellon Bank, N.A. as lenders. Incorporated herein by reference to Exhibit 10.1 to Registrant's Form 8-K filed January 13, 1998. 10.10 Amendment No. 1 dated as of January 28, 1998, to Credit Agreement dated as of December 19, 1997. 10.15 Bonus and Incentive Compensation Policy for Officers of Cedar Fair Management Company dated as of November 2, 1992. Incorporated herein by reference to Exhibit 10.15 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. 10.17 Cedar Fair, L.P. Executive Severance Plan dated as of July 26, 1995. Incorporated herein by reference to Exhibit 10.17 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995. 10.18 Contribution Agreement by and among Cedar Fair, L.P., Knott's Berry Farm and the Partners of Knott's Berry Farm, dated December 19, 1997. Incorporated herein by reference to Exhibit 10 to Registrant's Form 8-K filed January 13, 1998. 10.19 Private Shelf Agreement with The Prudential Insurance Company of America dated January 28, 1998 and $50,000,000, 6.68% Series B Notes due August 24, 2011. 13 1998 Annual Report to Unitholders. 21* Subsidiaries of Cedar Fair, L.P.
* Incorporated herein by reference to the Registration Statement on Form S-1 of Cedar Fair, L.P., Registration No. 1-9444, filed April 23, 1987.
B. Reports on Form 8-K.
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
DATED: March 26, 1999
/S/Richard L. Kinzel
Richard L. Kinzel President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been executed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.