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CEDAR FAIR L P - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Business Overview:

May 9, 2014

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



Each of our properties is overseen by a park 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 guest per capita 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, the Executive Vice President - Operations, and the park general managers. 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. Actual results could differ significantly from those estimates under different assumptions and conditions. Management believes that judgment and estimates related to the following critical accounting policies could materially affect our consolidated financial statements:



•Impairment of Long-Lived Assets

•Goodwill and Other Intangible Assets

•Self-Insurance Reserves

•Derivative Financial Instruments

•Revenue Recognition • Income Taxes



In the first quarter of 2014, there were no changes in the above critical accounting policies previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.

Adjusted EBITDA: We believe that Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, other non-cash items, and adjustments as defined in the 2013 Credit Agreement) is a meaningful measure of park-level operating profitability because we use it for measuring returns on capital investments, evaluating potential acquisitions, determining awards under incentive compensation plans, and calculating compliance with certain loan covenants. Adjusted EBITDA is provided in the discussion of results of operations that follows as a supplemental measure of our operating results and is not intended to be a substitute for operating income, net income or cash flows from operating activities as defined under generally accepted accounting principles. In addition, Adjusted EBITDA may not be comparable to similarly titled measures of other companies. 31



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The table below sets forth a reconciliation of Adjusted EBITDA to net income for the three- and twelve-month periods ended March 30, 2014 and March 31, 2013. Three months ended Twelve months ended 3/30/2014 3/31/2013 3/30/2014 3/31/2013 (13 weeks) (13 weeks) (52 weeks) (53 weeks) (In thousands) Net income (loss) $ (83,540 )$ (109,126 )$ 133,790$ 58,145 Interest expense 24,732 25,763 102,040 109,579 Interest income (73 ) (40 ) (187 ) (92 ) Provision (benefit) for taxes (30,251 ) (35,659 ) 25,651 17,638 Depreciation and amortization 4,307 4,786 122,008 127,013 EBITDA (84,825 ) (114,276 ) 383,302 312,283 Loss on early extinguishment of debt - 34,573 - 34,573 Net effect of swaps 371 9,211 (1,957 ) 8,689 Unrealized foreign currency loss 17,182 8,881 37,386 7,949 Non-cash equity expense 3,956 2,933 6,558 4,498 Loss on impairment/retirement of fixed assets, net 997 600 2,936 30,844 Gain on sale of other assets - - (8,743 ) (6,625 ) Other non-recurring items (as defined) (1) 354 805 1,256 3,264 Adjusted EBITDA $ (61,965 )$ (57,273 )$ 420,738$ 395,475 (1) The Company's 2013 Credit Agreement references certain costs as non-recurring or unusual. These items are excluded in the calculation of Adjusted EBITDA and have included certain litigation expenses, contract termination costs, and severance expense. 32



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Table of Contents Results of Operations: First Quarter - Operating results for the first quarter historically include less than 5% of our full-year revenues and attendance. The results include normal off-season operating, maintenance and administrative expenses at our ten seasonal amusement parks and three outdoor water parks, as well as daily operations at Knott's Berry Farm, which is open year-round, and Castaway Bay, which is generally open daily from Memorial Day to Labor Day plus a limited daily schedule for the balance of the year. The current quarter included a total of 94 operating days compared to 117 operating days during the first quarter of 2013. The decrease in operating days was due to the sale of a water park during 2013 and the shift in the Easter and Spring Break holidays from the first quarter in 2013 to the second quarter in 2014.



The following table presents key financial information for the three months ended March 30, 2014 and March 31, 2013:

Three months Three months ended ended Increase (Decrease) 3/30/2014 3/31/2013 $ % (13 weeks) (13 weeks) (Amounts in thousands) Net revenues $ 40,466$ 41,799$ (1,333 ) (3.2 )% Operating costs and expenses 106,739 102,733 4,006 3.9 % Depreciation and amortization 4,307 4,786 (479 ) (10.0 )% Loss on impairment / retirement of fixed assets 997 600 397 N/M Operating loss $ (71,577 )$ (66,320 )$ (5,257 ) 7.9 % N/M - Not meaningful Other Data: Adjusted EBITDA $ (61,965 )$ (57,273 )$ (4,692 ) 8.2 % For the quarter ended March 30, 2014, net revenues decreased 3%, or $1.3 million, to $40.5 million from $41.8 million in the first quarter of 2013. The decrease between periods was entirely due to the shift of the Easter and Spring Break holidays to the second quarter of 2014 from the first quarter of 2013. The impact of the calendar shift was partially offset by strong early season performance at Knott's Berry Farm. At the end of the first quarter of 2014, only three of our 14 properties were in operation. The other parks, including three of our larger parks, Cedar Point and Kings Island located in Ohio and Canada's Wonderland in Toronto, were in the final stages of preparing to open for the 2014 operating season. Operating costs and expenses for the quarter increased $4.0 million to $106.7 million from $102.7 million in 2013 and were in line with expectations. Operating results for the first quarter include normal off-season operating, maintenance and administrative expenses at our seasonal amusement and water parks, and daily operations at Knott's Berry Farm and Castaway Bay. The increase in first-quarter costs reflects a $3.7 million increase in operating expenses and a slight increase in selling, general and administrative ("SG&A") expenses. The cost of food, merchandise and games revenues for the period were flat compared to a year ago. The $3.7 million increase in operating expenses was due primarily to budgeted increases in maintenance expense as we continue to invest in the infrastructure of our parks, as well as an increase in maintenance labor and other employee related expenses. Additionally, utility costs increased due to the harsh winter experienced at several of our parks. Depreciation and amortization expense for the quarter decreased $0.5 million primarily due to the shifting of the operating calendar. Loss on impairment/retirement of fixed assets for the current period was $1.0 million compared to $0.6 million during the first quarter of 2013, reflecting losses on the retirement of assets across several of our parks. After depreciation, amortization, loss on impairment / retirement of fixed assets, and all other non-cash costs, operating loss in the first quarter of 2014 increased $5.3 million to $71.6 million from an operating loss of $66.3 million in the first quarter of 2013. Interest expense for the first quarter of 2014 was $24.7 million, representing a $1.0 million decrease from interest expense for the first quarter of 2013. Interest expense decreased primarily due to a reduction in average revolver balance and lower average rates on the revolver, as well as a reduction in non-cash deferred loan fee amortization resulting from the write-off of fees related to our prior credit agreement. 33



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During the 2014 first quarter, the net effect of our swaps resulted in a $0.4 million non-cash charge to earnings, compared to a non-cash charge to earnings of $9.2 million in the first quarter of 2013. The net effect of swaps reflects the regularly scheduled amortization of amounts in AOCI related to the swaps and ineffective fair value movements in our non-designated derivative portfolio, along with the write off of amounts in AOCI related to de-designated interest rate swaps. During the 2014 first quarter, we also recognized a $17.2 million net charge to earnings for unrealized/realized foreign currency losses, which included a $16.3 million unrealized foreign currency loss on the U.S.-dollar denominated debt held at our Canadian property. Due to our March 2013 refinancing, loan fees related to our 2010 and 2011 financings were written off, resulting in a $34.6 million charge to earnings in the first quarter of 2013. During the quarter, a benefit for taxes of $30.3 million was recorded to account for PTP taxes and the tax attributes of our corporate subsidiaries, compared to a benefit for taxes of $35.7 million in the same period a year ago. The decrease in tax benefit recorded relates to the combination of a decrease in the pre-tax net loss for the period and a decrease in the effective tax rate. After interest expense and the benefit for taxes, net loss for the quarter totaled $83.5 million, or $1.51 per diluted limited partner unit, compared with a net loss of $109.1 million, or $1.95 per diluted unit, for the first quarter a year ago.



Twelve Months Ended March 30, 2014 -

The fiscal twelve-month period ended March 30, 2014, consisted of a 52-week period and 2,118 operating days, compared with 53 weeks and 2,403 operating days for the fiscal twelve-month period ended March 31, 2013. The difference in operating days was due primarily to the sale of two non-core water parks, the combination of two parks, Worlds of Fun and Oceans of Fun, into one gate during 2013, and the calendar shift of the Easter and Spring Break holidays in 2014 described above.



The following table presents key financial information for the twelve months ended March 30, 2014 and March 31, 2013:

Twelve months Twelve months ended ended Increase (Decrease) 3/30/2014 3/31/2013 $ % (52 weeks) (53 weeks) (Amounts in thousands) Net revenues $ 1,133,239$ 1,082,055$ 51,184 4.7 % Operating costs and expenses 720,534 694,139 26,395 3.8 % Depreciation and amortization 122,008 127,013 (5,005 ) (3.9 )% Gain on sale of other assets (8,743 ) (6,625 ) (2,118 ) N/M Loss on impairment/retirement of fixed assets 2,936 30,844 (27,908 ) N/M Operating income $ 296,504$ 236,684$ 59,820 25.3 % N/M - Not meaningful Other Data: Adjusted EBITDA $ 420,738$ 395,475$ 25,263 6.4 % Adjusted EBITDA margin 37.1 % 36.5 % - 0.6 % Net revenues totaled $1,133.2 million for the twelve months ended March 30, 2014, increasing $51.1 million, from $1,082.1 million for the trailing twelve months ended March 31, 2013. The 5% increase in revenues for the twelve-month period was driven by an increase in average in-park guest per capita spending, the result of a stronger admissions per cap and improved in-park spending. The increase in in-park spending was in large part the result of improvements in our food and beverage programs and the expansion and continued success of our premium benefit offerings. Attendance for the period decreased primarily due to the sale of two non-core water parks during the current twelve-month period. Excluding the sale of the two water parks, attendance would have increased . Out-of-park revenues increased $6.4 million primarily due to the strong performance of our resort properties, which drove higher average daily room rates and occupancy rates. Operating costs and expenses increased $26.4 million, or 4%, to $720.5 million, from $694.1 million for the twelve-month period ended March 31, 2013. The increase in costs and expenses reflects a $19.3 million increase in operating expenses and a $11.4 million increase in SG&A costs, somewhat offset by a decrease in cost of goods sold of $4.3 million. The decrease of 4% in cost of goods sold was primarily driven by food and beverage efficiency initiatives. The increase in operating costs was due to higher normal operating and maintenance expense, enhancements to park infrastructure, and increased employment related costs including 34



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performance bonuses. SG&A costs increased due to full-time labor and benefit costs, including incentive compensation, and advertising agency and consumer relationship management database development costs. Exchange rates had a favorable impact ($4.6 million) on costs and expenses at our Canadian operations during the period. For the twelve-month period ended March 30, 2014, the gain on sale of other assets was $8.7 million due to the sale of one non-core water park during 2013. Gain on sale of other assets totaled $6.6 million for the twelve-month period ending March 31, 2013, reflecting the sale of two non-core assets during the period. Loss on impairment/retirement of fixed assets for the period was $2.9 million, due to asset retirements across all of our properties. Loss on impairment/retirement of fixed assets during the period ended March 31, 2013 totaled $30.8 million, which reflected a non-cash charge of $25.0 million for the partial impairment of operating and non-operating assets at Wildwater Kingdom and asset retirements across all of our properties. Depreciation and amortization expense for the period decreased $5.0 million compared with the prior period due primarily to several significant assets being fully depreciated at the end of 2012 and the later opening of parks for the 2014 operating season when compared to 2013. After depreciation and amortization, as well as impairment charges and all other non-cash costs, operating income for the current period increased $59.8 million to $296.5 million from $236.7 million. Interest expense for the twelve months ended March 30, 2014 decreased $7.6 million to $102.0 million, from $109.6 million for the same twelve-month period a year ago. The decrease in interest expense reflects a decrease in revolver interest in the period due to lower borrowings, a lower average cost resulting from the March 2013 refinancing and a decrease in non-cash amortization expense resulting from the write-off of loan fees related to our prior credit agreement. During the current twelve-month period, the net effect of our interest rate swaps was recorded as a benefit to earnings of $2.0 million compared to a charge to earnings of $8.7 million in the prior twelve-month period. The difference reflects the regularly scheduled amortization of amounts in AOCI, which were offset by gains from marking the ineffective and de-designated swaps to market in the current period. During the current period, we also recognized a $37.2 million charge to earnings for unrealized/realized foreign currency losses, which included a $35.5 million unrealized foreign currency loss on the U.S.-dollar denominated debt held at our Canadian property. During the twelve months ended March 31, 2013, as a result of our March 2013 refinancing, loan fees that were paid as part of our 2010 and 2011 financings were written off, resulting in a $34.6 million non-cash charge to earnings recorded in "Loss on early debt extinguishment" on the consolidated statement of operations. A provision for taxes of $25.7 million was recorded in the period for the tax attributes of our corporate subsidiaries and PTP taxes. This compares with a provision for taxes of $17.6 million in twelve-month period ended March 31, 2013. The increase in tax provision recorded relates to the combination of an increase in pre-tax net income for the period, offset somewhat by a decrease in the effective tax rate.



After interest expense and provision for taxes, net income for the period totaled $133.8 million, or $2.39 per diluted limited partner unit, compared with net income of $58.1 million, or $1.04 per diluted unit, a year ago.

We believe Adjusted EBITDA is a meaningful measure of our operating results (for additional information regarding Adjusted EBITDA, including how we define and use Adjusted EBITDA, as well as a reconciliation from net income, see pages 31-32). For the twelve-month period ended March 30, 2014, Adjusted EBITDA increased $25.3 million, or 6%, to $420.7 million. Over this same period, our Adjusted EBITDA margin (Adjusted EBITDA divided by net revenues) increased 60 bps to 37.1% from 36.5% for the twelve-month period ended March 31, 2013. The increase in Adjusted EBITDA was primarily due to the success of high-margin revenue initiatives during the period, such as growth in our premium benefit offerings and our admission pricing, combined with another year of growth in our season pass base and a continued focus on controlling operating costs at the park level. Liquidity and Capital Resources: With respect to both liquidity and cash flow, we ended the first quarter of 2014 in sound condition. The negative working capital ratio (current liabilities divided by current assets) of 1.5 at March 30, 2014 is the result of normal seasonal activity. Receivables, inventories, and payables are at normal seasonal levels. Operating Activities During the three-month period ended March 30, 2014, net cash used by operating activities increased $14.6 million from the same period a year ago, due primarily to working capital timing differences. For the twelve-month period ended March 30, 2014 net cash provided by operating activities increased $11.1 million from the same period a year ago, reflective of the year-over-year growth in revenues. 35



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Investing Activities Net cash used in investing activities in the first quarter of 2014 was $40.3 million, an increase of $4.5 million compared with the three-month period ended March 31, 2013, due to greater 2014 capital expenditures. Net cash used in investing activities for the trailing-twelve-month period ended March 30, 2014 totaled $109.5 million compared with $87.2 million for the same period a year ago. The increase is due to greater capital expenditures in the current twelve-month period. Financing Activities Net cash from financing activities in the first three months of 2014 was $15.3 million, a decrease of $21.1 million compared with the three-month period ended March 31, 2013. The decrease was due to lower overall revolver borrowings, net of increases in unitholder distributions. Net cash used in financing activities in the trailing-twelve-month period ended March 30, 2014 totaled $199.2 million, a decrease of $9.3 million compared with the twelve-month period ended March 31, 2013. The decrease was largely due to a reduction in debt payments and debt issuance costs during the current period, net of increases in unitholder distributions. As of March 30, 2014, our debt consisted of the following: • $405 million of 9.125% senior unsecured notes, maturing in 2018, yielding 9.375% due to the notes being issued at a discount in July 2010. The notes may be redeemed, in whole or in part, at any time prior to August 1, 2014



at a price equal to 100% of the principal amount of the notes redeemed

plus a "make-whole" premium together with accrued and unpaid interest, if

any, to the redemption date. Thereafter, the notes may be redeemed, in whole or in part, at various prices depending on the date redeemed. The notes pay interest semi-annually in February and August.



$500 million of 5.25% senior unsecured notes, maturing in 2021, issued at

par. The notes may be redeemed, in whole or in part, at any time prior to

March 15, 2016 at a price equal to 100% of the principal amount of the

notes redeemed plus a "make-whole" premium together with accrued and

unpaid interest, if any, to the redemption date. Thereafter, the notes may

be redeemed, in whole or in part, at various prices depending on the date

redeemed. Prior to March 15, 2016, up to 35% of the notes may be redeemed

with the net cash proceeds of certain equity offerings at 105.25%. These notes pay interest semi-annually in March and September. • Senior secured term debt of $618.9 million, maturing in March 2020 under our 2013 Credit Agreement. The term debt bears interest at a rate of LIBOR



plus 250 bps with a LIBOR floor of 75 bps. The term loan amortizes at $6.3

million annually. Due to a prepayment made during 2013, we only have current maturities totaling $1.5 million as of March 30, 2014.



$55 million in borrowings under the $255 million senior secured revolving

credit facility under our 2013 Credit Agreement. Under the 2013 Credit

Agreement, the Canadian portion of the revolving credit facility has a

sub-limit of $15 million. U.S. denominated and Canadian denominated loans

made under the revolving credit facility bear interest at a rate of LIBOR

plus 225 bps (with no LIBOR floor). The revolving credit facility is scheduled to mature in March 2018 and also provides for the issuance of documentary and standby letters of credit. The 2013 Credit Agreement



requires that we pay a commitment fee of 38 bps per annum on the unused

portion of the credit facilities.

At the end of the quarter, we had a total of $618.9 million of variable-rate term debt (before giving consideration to fixed-rate interest rate swaps), $902.0 million of fixed-rate debt (including OID), $55.0 million in outstanding borrowings under our revolving credit facility, and cash on hand of $8.9 million. After letters of credit, which totaled $16.3 million at March 30, 2014, we had $183.7 million of available borrowings under the revolving credit facility. We have entered into several interest rate swaps that effectively fix all of our variable-rate debt payments. As of March 30, 2014, we have $800 million of interest rate swaps in place that effectively convert variable-rate debt to fixed rates. These swaps, which mature in December 2015 and fix LIBOR at a weighted average rate of 2.38%, have been de-designated as cash flow hedges. During the third quarter and fourth quarter of 2013, we entered into four forward-starting interest rate swap agreements that will effectively convert $500 million of variable-rate debt to fixed rates beginning in December of 2015. These swaps, which were designated as cash flow hedges, mature on December 31, 2018 and fix LIBOR at a weighted average rate of 2.94%. Additional detail regarding our current and historical swap arrangements is provided in Note 6 to our Unaudited Condensed Consolidated Financial Statements and in Note 6 to the Audited Consolidated Financial Statements included in our Form 10-K filed on February 26, 2014. At March 30, 2014, the fair market value of the derivative portfolio was $27.8 million, which was recorded in "Derivative Liability" on the condensed consolidated balance sheet. 36



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The 2013 Credit Agreement requires us to maintain specified financial ratios, which if breached for any reason and not cured, could result in an event of default under the agreement. The most critical of these ratios is the Consolidated Leverage Ratio, which is measured on a trailing-twelve-month quarterly basis. At the end of the first quarter of 2014, this ratio was set at 6.25x consolidated total debt (excluding the revolving debt)-to-consolidated EBITDA. The ratio will decrease by 0.25x each second quarter beginning in the second quarter of 2014 until it reaches 5.25x. Based on our trailing-twelve-month results ending March 30, 2014, our Consolidated Leverage Ratio was 3.63x, providing $175.2 million of EBITDA cushion on the ratio at the end of the first quarter. We were in compliance with all other covenants under the 2013 Credit Agreement as of March 30, 2014. The 2013 Credit Agreement allows restricted payments of up to $60 million annually so long as no default or event of default has occurred and is continuing. Additional restricted payments are allowed to be made based on an excess-cash-flow formula, should our pro-forma Consolidated Leverage Ratio be less than or equal to 5.0x, measured on a trailing-twelve-month quarterly basis. The indentures governing our notes also include annual restricted payment limitations and additional permitted payment formulas. The restricted payment provisions applicable to our 2018 notes are more restrictive than those that apply to our 2021 notes. Under the more restrictive indenture covenants, we can make restricted payments of $20 million annually so long as no default or event of default has occurred and is continuing. Our ability to make additional restricted payments in 2013 and beyond is permitted should our pro-forma trailing-twelve-month Total Indebtedness-to-Consolidated-Cash-Flow Ratio be less than or equal to 4.75x. In accordance with these debt provisions, on February 26, 2014, we announced the declaration of a distribution of $0.70 per limited partner unit, which was paid on March 25, 2014, and on May 8, 2014 we announced the declaration of a distribution of $0.70 per limited partner unit, payable June 16, 2014. Existing credit facilities and cash flows from operations are expected to be sufficient to meet working capital needs, debt service, partnership distributions and planned capital expenditures for the foreseeable future. Off Balance Sheet Arrangements: We had $16.3 million in letters of credit, which are primarily in place to backstop insurance arrangements, outstanding on our revolving credit facility as of March 30, 2014. We have no other significant off-balance sheet financing arrangements. Forward Looking Statements Some of the statements contained in this report (including the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section) that are not historical in nature are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements as to our expectations, beliefs and strategies regarding the future. These forward-looking statements may involve risks and uncertainties that are difficult to predict, may be beyond our control and could cause actual results to differ materially from those described in such statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Important factors, including those listed under Item 1A in the Company's Annual Report on Form 10-K, could adversely affect our future financial performance and cause actual results to differ materially from our expectations.


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