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Leland Wykoff

Cedar Fair 2012 Year End Results and Conference Call

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Cedar Fair today reported record numbers for 2012 including net revenues of $1.068 billion, up 3.9% year over year, net income of $101.2 million up $30.5 million, and EBITDA up 4.4%.

Average guest per capita spending increased 4.8%, gate receipts increased, total debt leverage ratio was reduced to 3.9, and the company reaffirmed it is on pace to achieve $450 million in adjusted EBITDA by 2016.

The company did not achieve record in attendance in 2012. Attendance fell slightly and was attributed in part to poor weather, primarily in the fall. The fourth quarter was down 11%. CEO Matt Ouimet stated, “We do not believe we suppressed attendance with pricing.” Ouimet further noted "you do not change pricing strategy due to rainy [October] weather."

Meaningful opportunities to build upon the rather late advertising agency change and Fast Lane pass sales were seen for 2013. Cedar Fair continues to study the Fast Lane pass and make refinements to maximize revenues and customer adoption.

Traction gained by installment sales of season passes, introduced late in the year last season, was above expectations. New refinements to installment sales, including six payment installments rather than four payments, and an earlier introduction of the installment plan to coincide with ride and park improvement announcements, has improved the productivity in this sales channel.

Installment purchase plans for hotel, parking, and meal programs are also seeing favorable adoption by customers. This provides a buffer for poor weather and commits guests to FUN summer plans far in advance thus reducing marketing costs and capturing revenues early.

Improvements to sales forces, season pass sales, and a new incentive program for sales staff has lead to record migration to season pass sales, now representing about 40% of park admissions. Season pass sales are up 6%, corporate group business sales were also reported up last year, trends expected to continue.

Tighter relationships and management of promotional partnerships was also credited with increasing sales gains.

Capital projects are on time, and on budget, with the major projects expected to open as scheduled including Gatekeeper, and the new wooden coaster in California. Four additional parks will receive Point of Sale (POS) systems including the recent completion of the POS system at Knott's Berry Farm. POS will be operating on all parks with the exception of Michigan's Adventure which is expected to be completed by the 2014 season.

March and April will see the full implementation of a CMR program. This is expected to allow management to identify additional revenue opportunities and seek incremental sales and revenues. Management expects returns on capital from this system to be "North of 15 percent."

High interest bonds are not callable until August 2014 and thus opportunities to reduce those expenses are limited at this time.

The additional capital program of $15 to $20 million per year to address hotel refreshment, employee dorms, POS system upgrades, and CRM, announced as a three year plan, was suggested may expand to a fourth year. Hotel refreshment and employee dorm 2014 expenditures are expected to come in the second half of the year.

Canada's Wonderland was the leader in sales gains for 2013, primarily attributed to the new coaster introduced last year. The $3 million increase in cost of goods sold was attributed primarily to quality improvements particularly in the food sold on parks.

Matt Ouimet was "Very confident headed into 2013." The company reaffirmed the intention to achieve the $2.50 per unit payout announced for 2013. The company attributed the record performance to successful implementation of the FUNForward initiative.

Capital plans for 2014 were pegged in the $100 million range.

Several areas were left unaddressed in the fourth quarter and year end report and analyst conference call. The status of WindSeeker rides was not addressed much less clarified. It was most disappointing management did not update on that situation. The silence on this topic was stunning. One may infer the WindSeeker news must not be good.

An analysis of the food and beverage improvements, particularly at Knott's, was not provided. F&B improvements at other parks was not addressed leaving one to ponder both the success of the Knott's program and future roll-out plans.

Specific pricing strategies for premium parking, Fast Lane, and other products were not addressed. No significant new revenue streams were announced.

To view the Cedar Fair 2012 financial results press release please see:

http://www.cedarfair.com/ir/press_releases/index.cfm?current_root=15&mode=story&story_id=371

Conference Call transcript here:

http://seekingalpha.com/article/1203551-cedar-fair-s-ceo-discusses-q4-2012-results-earnings-call-transcript?source=yahoo

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Fast Lane...changes to maximize revenues. I see. What happened to last year's concerns about not adversely affecting the typical guests' experience?

Could it not be argued that the typical guest either wont notice any of the changes (just the people who come into the park to ride the rides and leave) or that the typical guest experience is now being targeted for the people who only come to the park one or two times per year? Regional destination versus regional baby sitter?

I honestly dont know. These are more legit questions than questions made to make a point...

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Cedar Fair continues to study the Fast Lane pass and make refinements to maximize revenues and customer adoption.

Fast Lane...changes to maximize revenues. I see. What happened to last year's concerns about not adversely affecting the typical guests' experience?

An analyst asked whether there would be additional upside from Fast Lane in 2013, as predicted last year, considering that more growth than expected was realized in 2012. Mr. Ouimet answered, vaguely, that "meaningful opportunity" still exists.

There could be a change in philosophy, but I don't think that this response signals one. Tweaking Fast Lane pricing and implementation is nothing new, and revenue has always been the goal. After a full year at all their parks, they're probably better at finding the "sweet spot".

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Cedar Fair's refinance of $1.13 billion planned. Falling just one day after the fourth quarter conference call in which CFO Brian Witherow reaffirmed FUN's continual monitoring of credit markets in an attempt to extend terms, lower borrowing costs, and seek more advantageous loan covenants, the refinance would cover a term loan currently due in 2017.

Cedar Fair would still be holding the high interest rate bonds referenced in yesterdays conference call. That bond debt has restrictions limiting the right to call to August of 2014.

Bloomberg pegs Cedar Fair debt at $1.5 billion, including $405 million in bonds maturing in 2018.

More details:

http://www.bloomberg.com/news/2013-02-20/cedar-fair-seeks-to-refinance-1-13-billion-loan-to-lower-cost.html?cmpid=yhoo

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Cedar Fair announces pricing of new debt. Interest rate will fall to 5.25% and term extended until 2021. Substantial saving will result from the refinancing of a significant part of Cedar Fair's debt. Read more here:

http://www.newson6.com/story/21429394/cedar-fair-announces-pricing-of-500-million-senior-unsecured-notes

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