Income and Partnership Taxes:

Federal and state tax legislation in 1997 provided a permanent income tax exemption to existing publicly traded partnerships (PTP), such as Cedar Fair, L.P., with a PTP tax levied on partnership gross income (net revenues less cost of food, merchandise and games) beginning in 1998. In addition, income taxes are recognized for the amount of taxes payable by the Partnership's corporate subsidiaries for the current year and for the impact of deferred tax assets and liabilities, which represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. As such, the Partnership's "Provision for taxes" includes amounts for both the PTP tax and for income taxes on the Partnership's corporate subsidiaries.

The Partnership's 2012 tax provision totals $31.4 million, which consists of an $8.7 million provision for the PTP tax and a $22.6 million provision for income taxes. This compares to the Partnership's 2011 tax provision of $11.2 million, which consisted of a $8.3 million provision for the PTP tax and a $2.9 million provision for income taxes, and the 2010 tax provision of $2.7 million which consisted of a $7.9 million provision for the PTP tax and a $5.2 million benefit for income taxes. The calculation of the provision for taxes involves significant estimates and assumptions and actual results could differ from those estimates.

Significant components of income (loss) before taxes are as follows:



(In thousands)	2012		2011			2010

Domestic	$	112,099	$	102,716		$	(31,015	)
Foreign	20,482		(20,753		)	633
	$	132,581	$	81,963		$	(30,382	)

The provision (benefit) for income taxes is comprised of the following:



(In thousands)	2012			2011			2010

Income taxes:
Current federal	$	(1,081	)	$	399		$	1,174
Current state and local	743			894			1,748
Current foreign	(4,152		)	(2,381		)	6,493
Total current	(4,490		)	(1,088		)	9,415
Deferred federal, state and local	8,844			5,206			(8,883		)
Deferred foreign	18,266			(1,189		)	(5,781		)
Total deferred	27,110			4,017			(14,664		)
	$	22,620		$	2,929		$	(5,249	)

The provision (benefit) for income taxes for the Partnership's corporate subsidiaries differs from the amount computed by applying the U.S. federal statutory income tax rate of 35% to the Partnership's income (loss) before taxes.

The sources and tax effects of the differences are as follows:



(In thousands)	2012			2011			2010

Income tax provision (benefit) based on the U.S. federal statutory tax rate	$	46,403		$	28,687		$	(10,634	)
Partnership loss (income) not deductible (includible) from (in) corporate income	(21,273		)	(16,188		)	4,115
State and local taxes, net of federal income tax benefit	3,455			1,938			(930		)
Valuation allowance	(6,030		)	(10,460		)	4,425
Tax credits	(2,100		)	(1,791		)	(2,706		)
Nondeductible expenses and other	2,165			743			481
	$	22,620		$	2,929		$	(5,249	)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of deferred tax assets and liabilities as of December 31, 2012 and 2011 are as follows:



(In thousands)	2012			2011

Deferred tax assets:
Options and deferred compensation	$	7,741		$	10,236
Accrued expenses	4,519			3,841
Foreign tax credits	31,162			40,439
Tax attribute carryforwards	10,948			20,209
Derivatives	10,661			6,808
Intangibles	—			508
Other	4,126			1,789
Deferred tax assets	69,157			83,830
Valuation allowance	(11,253		)	(17,283		)
Net deferred tax assets	57,904			66,547
Deferred tax liabilities:
Property	(193,923		)	(184,969		)
Intangibles	(3,865		)	—
Foreign currency translation	(8,672		)	(5,000		)
Deferred tax liabilities	(206,460		)	(189,969		)
Net deferred tax liability	$	(148,556	)	$	(123,422	)

As of December 31, 2012, the Partnership had $31.2 million of foreign tax credit carryforwards available for U.S. federal income tax purposes. During 2012, the Partnership claimed a refund for foreign taxes paid in previous years. The recovery of prior year taxes resulted in a redetermination of the foreign tax credit carryforwards and a $6.1 million reduction in the valuation allowance related to these carryforwards. Also during 2012, the Partnership utilized the federal tax net operating loss carryforward and updated its long term estimates of domestic and foreign source income. As of December 31, 2012, a $11.3 million valuation allowance has been recorded to reflect uncertainties regarding the use of the remaining available foreign tax credits before they begin expiring in 2016.

Additionally, as of December 31, 2012, the Partnership had $10.9 million of tax attribute carryforwards consisting of alternative minimum tax credits ($0.8 million), general business credits ($4.8 million) and the tax effect of state net operating loss carryforwards ($5.3 million). Alternative minimum tax credits do not expire. The general business credits will begin to expire in 2027. The state net operating loss carryforwards will expire from 2017 to 2027. The Partnership expects to fully realize these tax attribute carryforwards. As such, no valuation allowance has been recorded relating to these tax attribute carryforwards.

As of December 31, 2012, the Partnership adjusted its deferred tax assets and liabilities to reflect the impact of changes to the enacted statutory tax rates in Canada ($1.6 million tax provision).

The net current and non-current components of deferred taxes recognized as of December 31, 2012 and 2011 in the consolidated balance sheets are as follows:



(In thousands)	2012			2011

Net current deferred tax asset	$	8,184		$	10,345
Net non-current deferred tax liability	(156,740		)	(133,767		)
Net deferred tax liability	$	(148,556	)	$	(123,422	)

The Partnership has recorded deferred tax assets of $2.2 million and $2.6 million as of December 31, 2012 and 2011, respectively, to account for the tax effect of derivatives and foreign currency translation adjustments included in Other Comprehensive Income.

The Partnership has unrecognized income tax benefits as of December 31, 2012. The following is a reconciliation of beginning and ending amounts unrecognized tax benefits:



	(in thousands)
Balance, beginning of year	$	—
Increase from current year tax positions	1,100
Increase from prior year's tax positions	—
Decrease from settlements with taxing authority	—
Decrease from expiration of statute of limitations	—
Balance, end of year	$	1,100

At December 31, 2012 a total of $1.1 million of unrecognized tax benefits was recorded for state and local income tax positions, there were no unrecognized tax positions during 2011 or 2010. If recognized, the tax benefits would decrease the Partnership taxes by $1.1 million.

The Partnership recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. Related to the unrecognized tax benefits noted, the Partnership accrued interest of $0.3 million and penalties of $0.2 million during 2012. The Partnership does not anticipate a significant change to the amount of unrecognized tax benefits over the next 12 months.

The Partnership and its corporate subsidiaries are subject to taxation in the U.S., Canada and various state and local jurisdictions. The tax returns of the Partnership are subject to examination by state and federal tax authorities. With few exceptions, the Partnership and its corporate subsidiaries are no longer subject to examination by the major taxing authorities for tax years before 2009.